According to a press release dated July 2, 2007, the law firm of Schatz Nobel Izard, P.C. announces that the United States District Court for The District of Minnesota has granted preliminary approval to a settlement of the class action litigation entitled Pemstar, Inc. Securities Litigation, Case No. 05--CV-01182-JMR-FLN on behalf of all persons who purchased shares of Pemstar, Inc. common stock from January 30, 2003, through and including January 12, 2005. You are hereby notified, pursuant to Court Order, that a hearing will be held on August 1, 2007, at 9:00 a.m., before the Honorable James M. Rosenbaum, Chief Judge, United States District Court for the District of Minnesota, Courtroom #15E, 300 S. 4th Street, Minneapolis, MN, to determine (1) whether the Settlement should be approved as fair, reasonable, and adequate to the Settlement Class; (2) whether the proposed Plan of Allocation is fair, reasonable, and adequate; (3) whether the application of counsel for the Settlement Class ("Lead Counsel") for an award of attorneys' fees, costs and expenses (the "Fee and Expense Application") and the Lead Plaintiff's application for reasonable costs and expenses (the "Lead Plaintiff Expense Application") should be approved; and (4) whether claims of the Members of the Settlement Class against the Defendants should be dismissed on the merits and with prejudice, as set forth in the Stipulation of Settlement (the "Settlement Stipulation"), filed with the Court.
On October 26, 2005, the Court entered the Order appointing Dr. Brian Cromwell as lead plaintiff and approving selection of counsel. On November 28, 2005, the plaintiff filed a Consolidated Complaint. On January 17, 2006, the defendants filed a motion to dismiss the Consolidated Complaint. On March 29, 2006, the Court entered the Order signed by U.S. District Judge James M Rosenbaum denying the defendants’ motion to dismiss.
The original complaint charges PEMSTAR and certain of the Company's executive officers with issuing materially false and misleading financial statements to the investing public regarding the Company's financial condition and outlook in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b 5 promulgated thereunder.
PEMSTAR is a provider of electronics manufacturing services to OEMs in the communications, computing, data storage, industrial and medical equipment markets. Specifically, the complaint alleges that during the Class Period defendants issued numerous positive statements that misrepresented the true financial status of the Company and its business prospects. In fact, throughout the Class Period, PEMSTAR suffered from extensive liquidity constraints that inhibited the Company's ability to achieve the necessary gross margin expansion that was required for the Company to create and sustain accounting profits. The Complaint alleges that the defendants failed to disclose that the Company needed gross margins of at least 9% in order to achieve profitability, a level which defendants knew it was years away from attaining, if ever. Moreover, defendants further misrepresented the Company's financial condition by understating its liabilities associated with its Mexican facilities and overstating the Company's accounts receivables which had become materially impaired. The complaint alleges that, in part, defendants carried out the fraudulent scheme in order to revive and strengthen the Company's image, as perceived by its customer base, and enable the Company to raise much needed capital through the issuance of its common stock to the public at levels advantageous to the Company.
The complaint further alleges that on or around January 24, 2005, the Company issued a press release announcing that it was revising its outlook for the fiscal 2005 third quarter, implementing additional cost-reduction initiatives and restating its financial results for its fiscal year ended March 31, 2004, due to accounting discrepancies at its Mexico facility. By the time the Company made this disclosure, the Company's common stock had declined nearly 70% from its Class Period high.