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EXHIBIT 10.1
Kevin J. Yourman, Esq.
Matthew J. Zevin, Esq.
WEISS & YOURMAN
10940 Wilshire Blvd., 24th Floor
Los Angeles, CA 90024
Telephone: (310) 285-2800
Facsimile: (310) 209-2348
Lead Counsel for Plaintiffs
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
AMR ELGINDY, JAMES DOLAN, DAN ) CASE NO. 98-9236 WJR (ANx)
WILSON, EDWARD WARD, JULIE YAMIN )
and DEBORAH WILLIAMSON, on Behalf of ) CLASS ACTION
Themselves and All Others Similarly Situated,)
)
Plaintiffs, )
)
vs. )
)
AVTEL COMMUNICATIONS, INC., )
ANTHONY E. PAPA, DAVID CLARK )
and TODD GREENE, )
)
Defendants. )
_____________________________________________)
STIPULATION OF SETTLEMENT
This Stipulation of Settlement (the "Stipulation"), dated as of
October 4, 2000, is made and entered into by and among the following Settling
Parties (as defined further in Section V hereof) in the above-entitled action
(the "Litigation"): (i) The Representative Plaintiffs (on behalf of
themselves and each of the Settlement Class Members), by and through their
counsel of record in the Litigation; and (ii) the Defendants, by and through
their counsel of record in the Litigation. This Stipulation is intended by
the Settling Parties to fully, finally and forever compromise, resolve,
discharge and settle the Released Claims (as defined herein), subject to
Court approval as described hereinafter and upon and subject to the terms and
conditions of the Stipulation as follows.
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I. THE LITIGATION
Between November 17 and November 24, 1998, five class action
complaints were filed in the United States District Court for the Central
District of California (the "Court") on behalf of all persons who purchased
or otherwise acquired the common stock of AvTel Communications, Inc.
(hereinafter "AvTel" or the "Company") on November 12, 1998, against AvTel
and two of its officers for violations of Sections 10(b) and 20(a) of the
SecuritieS and Exchange Act of 1934 and Rule 10b-5 promulgated thereunder.
These complaints were captioned, respectively: AMR ELGINDY V. AVTEL
COMMUNICATIONS, INC., ANTHONY E. PAPA AND JAMES P. PISANI, Case No. 98-9236
(filed November 17, 1998); BILL SCHELLONG V. AVTEL COMMUNICATIONS, INC.,
ANTHONY E. PAPA AND JAMES P. PISANI, Case No. 98-9275 (filed November 18,
1998); DEBORAH DAVIDSON V. AVTEL COMMUNICATIONS, INC. AND ANTHONY E. PAPA,
Case No. 98-9315 (filed November 19, 1998); MORTON KAHN V. AVTEL
COMMUNICATIONS, INC. AND ANTHONY E. PAPA, Case No. 98-9452 (filed November
24, 1998); and KATHLEEN NILAN V. AVTEL COMMUNICATIONS, INC., ANTHONY E. PAPA
AND JAMES P. PISANI, Case No. 98-9463 (filed November 24, 1998) (collectively
"Initial Complaints"). Since these complaints were filed, the Company changed
its name from AvTel to "NetLojix Communications, Inc." (hereinafter
"NetLojix").
On February 16, 1999, the Court entered an order appointing Amr
Elgindy, James Dolan, Dan Wilson, Edward Ward, Julie Yamin and Deborah
Williamson as Lead Plaintiffs and Weiss & Yourman ("Weiss & Yourman") as Lead
Counsel for plaintiffs.
On March 15, 1999, pursuant to Court order, Lead Plaintiffs, on
behalf of themselves and all individuals who purchased or otherwise acquired
the common stock of AvTel on November 12, 1998, filed a Consolidated and
Amended Complaint that consolidated and superceded the Initial Complaints and
amended them by dropping James P. Pisani and adding David Clark and Todd
Greene as defendants ("Consolidated Complaint").
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II. PRETRIAL PROCEEDINGS AND DISCOVERY IN THE LITIGATION
A. DISCOVERY, INVESTIGATION AND RESEARCH
Lead Counsel and other Representative Plaintiffs' Counsel have
conducted extensive formal and informal discovery and have investigated the
plaintiffs' claims during the prosecution of the Litigation. This discovery
and investigation has included, INTER ALIA, (i) review and analysis of press
releases by AvTel and media reports of statements by AvTel and its
representatives; (ii) participation in meeting of counsel and preparation of
Joint Report pursuant to Local Rule 6.5; (iii) preparation and service of
plaintiffs' First Request for Production of Documents to AvTel; (iv)
preparation and service of plaintiffs' First Request for Interrogatories to
Defendants; (v) preparation and service of plaintiffs' first Requests for
Admissions to Defendants; (vi) review of documents produced by AvTel and the
Defendants' responses to interrogatories and requests to admit; (vii)
preparation of responses to Defendants' Requests For Production of Documents;
(viii) consultation with experts; (ix) review of AvTel's public filings and
other documents compiled as part of Lead Plaintiffs' investigation; (x)
research of the applicable law with respect to the claims asserted in the
Initial and Consolidated Complaints and the potential defenses available; and
(xi) several mediations with the Honorable J. Lawrence Irving.
B. PRETRIAL PROCEEDINGS On
April 14, 1999, Defendants filed a motion to dismiss all of the
claims alleged in the Consolidated Complaint under Federal Rules of Civil
Procedure 12(b)(6), for failure to state a claim upon which relief can be
granted and 9(b), for failure to plead with requisite particularity, and
failure to comply with the Private Securities Litigation Reform Act of 1995
(the "PSLRA"). Lead Plaintiffs opposed Defendants' motion, and on July 12,
1999 the Court issued an order denying Defendants' Motion. Defendants sought
reconsideration of this denial, and on August 30, 1999 the Court denied
reconsideration.
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C. CLASS ACTION CERTIFICATION
On October 7, 1999, Lead Plaintiffs filed their Motion for Class
Certification. The Defendants did not oppose this Motion. On November 15,
1999 the Court entered an order tentatively certifying a class and appointing
the Lead Plaintiffs as Representative Plaintiffs for the class.
III. DEFENDANTS' STATEMENT AND DENIALS OF WRONGDOING AND LIABILITY
The Defendants have denied and continue to deny each and all of the
claims, causes of action, and contentions alleged by the Representative
Plaintiffs (as well as by named plaintiffs in the Initial Complaints) on
behalf of the Settlement Class in the Litigation. The Defendants expressly
have denied and continue to deny all charges of wrongdoing or liability
against them arising out of any of the conduct, statements, acts or omissions
alleged, or that could have been alleged, in the Litigation. The Defendants
also have denied and continue to deny, INTER ALIA, the allegations that the
Representative Plaintiffs or the Settlement Class have suffered any damages,
that the price of AvTel securities was artificially inflated by reasons of
alleged misrepresentations, non-disclosures or otherwise, or that the
Representative Plaintiffs or any Members of the Settlement Class were harmed
by the conduct alleged in the Litigation.
Nonetheless, the Defendants have concluded that the further conduct
of the Litigation would be protracted and expensive, and that it is desirable
that the Released Claims be fully and finally compromised, settled and
resolved in the manner and upon the terms and conditions set forth in this
Stipulation in order to avoid further expense, inconvenience and distraction,
to dispose of the Litigation, and to permit the operation of NetLojix's
business without further litigation and the distraction and diversion of
NetLojix's personnel with respect to matters at issue in the Litigation. The
Defendants also have taken into account the uncertainty and risks inherent in
any litigation, especially in complex cases like this Litigation. The
Defendants have, therefore, determined that it is desirable and beneficial to
them that the Released Claims be settled in the manner and upon the terms and
conditions set forth in this Stipulation.
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IV. BENEFITS OF SETTLEMENT
Counsel for the Representative Plaintiffs have asserted the claims
in the Litigation in good faith and believe that the evidence developed to
date in the Litigation supports such claims. However, Counsel for the
Representative Plaintiffs recognize and acknowledge the expense and length of
continued proceedings necessary to prosecute the Litigation against the
Defendants through trial and through appeals. Counsel for the Representative
Plaintiffs also have taken into account the uncertain outcome and the risk of
any litigation, especially in complex actions such as this Litigation, as
well as the difficulties and delays inherent in such litigation. Counsel for
the Representative Plaintiffs also are mindful of the inherent problems of
proof under and possible defenses to the federal securities law violations
asserted and therefore believe that it is desirable that the Released Claims
be fully and finally compromised, settled and resolved as set forth herein.
Counsel for the Representative Plaintiffs believe that the settlement set
forth in this Stipulation confers substantial benefits upon the Settlement
Class. Based on their evaluation, Counsel for the Representative Plaintiffs
have determined that the settlement set forth in this Stipulation is in the
best interests of the Representative Plaintiffs and the Settlement Class.
V. TERMS OF STIPULATION AND AGREEMENT OF SETTLEMENT
NOW, THEREFORE, IT IS HEREBY STIPULATED AND AGREED by and among the
Representative Plaintiffs (for themselves and on behalf of the Settlement
Class Members) and the Defendants by and through their respective attorneys
of record, that, subject to the approval of the Court, the Released Claims
shall be finally and fully compromised, settled, and resolved and the
Litigation shall be dismissed with prejudice, as to all Released Claims, upon
and subject to the terms and conditions of the Stipulation, as follows:
1.0 DEFINITIONS
As used in the Stipulation the following terms have the meanings
specified below:
1.1 "Authorized Claimant" means any Settlement Class Member whose
claim for recovery has been allowed pursuant to the terms of this Stipulation.
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1.2 "Claimant" means any Settlement Class Member who files a Proof
of Claim in such form and manner, and within such time, as the Court shall
prescribe.
1.3 "Claims Administrator" means David Berdon & Company LLP.
1.4 "AvTel" means AvTel Communications, Inc. (or NetLojix) and its
past or present, direct and indirect, subsidiaries or affiliates, including,
without limitation, Silicon Beach Communications and WestNet Communications.
1.5 "Defendants" mean AvTel (or NetLojix), Anthony E. Papa, David
Clark, and Todd Greene.
1.6 "Effective Date" means the first date by which all of the events
and conditions specified in PARA 8.1 of the Stipulation have been met and
have occurred.
1.7 "Final" means that a judgment or dismissal has become final and
is no longer subject to appeal or review (or further appeal or review),
whether by exhaustion of any possible appeal, lapse of time, or otherwise. An
appeal or petition for a writ of certiorari pertaining solely to any plan of
allocation and/or application for attorneys' fees, costs or expenses, shall
not in any way delay or preclude the Judgment from becoming Final.
1.8 "Individual Defendants" means, as the context requires, Anthony E.
Papa, David Clark, Todd Greene and James P. Pisani.
1.9 "Judgment" means the Final Judgment and Order of Dismissal to be
rendered by the Court, substantially in the form attached hereto as Exhibit
"B".
1.10 "Person" means an individual, corporation, partnership, limited
partnership, association, joint stock company, estate, legal representative,
trust, unincorporated association, government or any political subdivision or
agency thereof, and any business or legal entity and their spouses, heirs,
predecessors, executors, administrators, successors, personal
representatives, or assignees.
1.11 "Plaintiffs' Settlement Counsel" and "Lead Counsel" means:
Weiss & Yourman, 10940 Wilshire Boulevard, 24th floor, Los Angeles,
California 90024, Telephone: (310) 208-2800.
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1.12 "Plan of Allocation" means a plan or formula of allocation of
the Settlement Fund which shall be described in the Notice of Pendency and
Proposed Settlement of Class Action and Settlement Hearing ("Notice")
(Exhibit "A-1" hereto), to be sent to Settlement Class Members in connection
with the Settlement whereby the Settlement Fund shall be distributed to
Authorized Claimants after payment of expenses of notice and administration
of the Settlement, any taxes, penalties or interest or tax preparation fees
owed by the Settlement Fund, and such attorneys' fees, costs, expenses and
interest as may be awarded by the Court. Any Plan of Allocation is not part
of the Stipulation or the Settlement.
1.13 "Related Parties" means each of a Person's past or present
directors, officers, employees, partners, principals, agents (except
securities brokers and dealers), insurers, co-insurers, reinsurers,
controlling shareholders, attorneys, accountants, auditors, parents,
subsidiaries, divisions, joint ventures, related or affiliated entities, any
entity in which a Defendant has a controlling interest, any members of the
immediate families of Individual Defendants, or any trust for which any
Defendant or Individual Defendant is the settlor, and any personal or legal
representatives, predecessors, successors, assigns, spouses, heirs, executors
or administrators of any of the foregoing persons or entities.
1.14 "Released Claims" means and includes any and all claims,
actions, allegations, causes of action, demands, debts, rights or
liabilities, known or unknown, asserted or unasserted, foreseen or
unforeseen, liquidated or unliquidated, fixed or contingent, accrued or
unaccrued, of any nature whatsoever, under the laws of the United States, any
state or any foreign jurisdiction, whether class, individual or derivative in
nature (collectively, "Claims"), that the Representative Plaintiffs or any
Settlement Class Member has asserted, could assert, or might hereafter be
able to assert, against any Released Person in any court, tribunal or other
forum of competent jurisdiction based upon, arising out of, or related to, in
whole or in part, both the purchase or other acquisition of AvTel securities
by any Settlement Class Member during the Settlement Class Period (as defined
herein) and the facts, transactions, events, occurrences, acts, disclosures,
statements, omissions or failures to act which were or could have been
alleged in the Litigation
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or any other forum, based upon, relating to or arising from the facts which
were or could have been alleged.
1.15 "Released Persons" means each and all of the Defendants, the
Individual Defendants, and their respective Related Parties.
1.16 "Representative Plaintiffs" means Amr Elgindy, James Dolan, Dan
Wilson, Edward Ward, Julie Yamin and Deborah Williamson.
1.17 "Representative Plaintiffs' Counsel" or "Counsel for the
Representative Plaintiffs" means: Weiss & Yourman; Stull, Stull & Brody;
Wolf, Haldenstein, Adler, Freeman & Herz; and Weschler, Harwood, Halebian and
Feffer LLP.
1.18 "Settlement" means the terms and conditions set forth in the
"Stipulation".
1.19 "Settlement Class" means all Persons (except Defendants,
officers and directors of AvTel or NetLojix and/or any of its subsidiaries,
members of their immediate families and their legal representatives, heirs,
successors or assigns, and any entity in which Defendants have or had
controlling interest) who purchased or otherwise acquired AvTel common stock
during the Settlement Class Period.
1.20 "Settlement Class Member" or "Member of the Settlement Class"
means a Person who falls within the definition of the Settlement Class as set
forth in PARA 1.19 of the Stipulation.
1.21 "Settlement Class Period" means November 12, 1998.
1.22 "Settlement Fund" means all stock and Warrants to be issued for
the benefit of the Settlement Class pursuant to PARA 2.1 of the Stipulation,
and any unused funds remaining in the Class Notice and Administration Fund,
as described in PARA 2.2 of the Stipulation.
1.23 "Settling Parties" means, collectively, each of the Defendants
and the Representative Plaintiffs on behalf of themselves and the Members of
the Settlement Class.
1.24 "Unknown Claims" means any Released Claim which any
Representative Plaintiff or Settlement Class Member does not know or suspect
to exist in his, her or its favor at the time of the release of the Released
Persons which, if known by him, her, or it, might have affected his, her, or
its settlement with and release of the Released Persons, or might have
affected his, her, or
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its decision not to object to, or opt out of, this settlement. Solely with
respect to any and all Released Claims, the Settling Parties stipulate and
agree that, upon the Effective Date, each of the Representative Plaintiffs
shall expressly and the Settlement Class Members shall be deemed to, and by
operation of the Judgment shall, waive and relinquish, to the fullest extent
permitted by law, any and all provisions, rights, and benefits conferred by
any federal, state or foreign law, rule, regulation or common law doctrine
which is similar, comparable, equivalent or identical to Section 1542 of the
California Civil Code, which provides:
A general release does not extend to claims which the creditor does
not know or suspect to exist in his favor at the time of executing
the release, which if known by him must have materially affected his
settlement with the debtor.
Each of the Representative Plaintiffs and the Settlement Class Members may
hereafter discover facts in addition to or different from those which he, she
or it now knows or believes to be true with respect to the subject matter of
the Released Claims, but hereby stipulate and agree that each Representative
Plaintiff does and each Settlement Class Member shall be deemed to, upon the
Effective Date, fully, finally, and forever settle and release any and all
Released Claims, whether or not concealed or hidden, and without regard to
the subsequent discovery or existence of such different or additional facts.
Releasers acknowledge that the foregoing waiver was separately bargained for
and a key element of the settlement of which this release is a part.
1.25 "Warrants" means warrants for the purchase of NetLojix common
stock, as described in PARA 3.
2. TRANSFERS AND PAYMENTS
2.1 NetLojix shall, after occurrence of the Effective Date, and
within ten (10) business days of receipt of instructions from Plaintiffs'
Settlement Counsel, pursuant to instructions received from Settlement Counsel
for the benefit of the Settlement Class, transfer Two Hundred and Thirty Two
Thousand (232,000) shares of NetLojix common stock and Two Hundred Thousand
(200,000) Warrants, which stock and Warrants (and the stock issued therefrom)
shall be unrestricted and freely tradeable, in accordance with Section
3(a)(10) of the
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Securities Act of 1933 to the extent permitted by law. The number of shares
of stock and Warrants, as described in PARA 2.1 shall be adjusted to reflect
any stock splits, dividends of additional stock or reverse stock splits that
occur prior to the issuance and distribution of the Settlement stock and
Warrants.
2.2 Within two (2) business days of the entry by the Court of an
order preliminarily approving the settlement, as set forth in PARA 4.1 below,
NetLojix shall pay to Plaintiffs' Settlement Counsel One Hundred and Fifty
Thousand Dollars ($150,000) to establish a "Class Notice and Administration
Fund". The Class Notice and Administration Fund may be used by Plaintiffs'
Settlement Counsel to pay costs and expenses reasonably and actually incurred
in connection with providing notice to the Settlement Class, locating class
members, soliciting class claims, assisting with the filing of claims,
administering and distributing the Settlement Fund to the Members of the
Settlement Class, and processing Proof of Claim and Release forms. Any
portion of the Class Notice and Administration Fund not used for these
purposes shall be used to pay Representative Counsel's out-of-pocket
litigation expenses as may be awarded by the Court. If any funds still remain
in this Fund after such payments, those moneys shall be added to the
Settlement Fund. The Class Notice and Administration Fund may also be
invested in instruments backed by the full faith and credit of the United
States Government and earn interest to be added to that Fund.
2.3 Each Defendant warrants as to himself or itself, that, as to the
transfers and payments made by or on his or its behalf, at the time of such
transfer or payment that each Defendant made or caused to be made pursuant to
PARAS 2.1 or 2.2 above, he or it was not insolvent nor did or will the
transfer required to be made bY this Stipulation render such Defendant
insolvent within the meaning of and/or for the purposes of United States
Bankruptcy Code Section 101 and/or Section 547. This warranty is made by each
Defendant and not by such Defendant's counsel.
2.4 If a case is commenced in respect to any Defendant under Title
11 of the United States Code (Bankruptcy), or a trustee, receiver or
conservator is appointed under any similar law, and in the event of the entry
of a final order of a court of competent jurisdiction determining
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that transfers made pursuant to PARAS 2.1 And 2.2, or any portion thereof,
constitute, as to any Defendant, a preference, voidable transfer, fraudulent
conveyance or similar transaction, then the releases given and Judgment
entered in favor of such Defendant pursuant to this Stipulation shall be null
and void.
2.5 The Settlement Fund shall not be distributed except as provided
in this Stipulation or, following court approval, with the written agreement
of counsel for Defendants and Plaintiffs' Settlement Counsel.
2.6 Subject to further order and direction as may be made by the
Court, Settlement Counsel is authorized to execute such transactions on
behalf of Settlement Class Members as are consistent with the terms of the
Stipulation.
2.7 All funds held by Plaintiffs' Settlement Counsel shall be deemed
and considered to be in CUSTODIA LEGIS of the Court, and shall remain subject
to the jurisdiction of the Court, until such time as such funds shall be
distributed pursuant to this Stipulation and/or further order(s) of the Court.
2.8 (a) The Settling Parties agree to treat the Class Notice and
Administration Fund and Settlement Fund as being at all times a "qualified
settlement fund" within the meaning of Treas. Reg. Section 1.468B-1. In
addition, the Plaintiffs' Settlement Counsel and, as required, the Defendants
shall jointly and timely make the "relation-back election" (as defined in
Treas. Reg. Section 1.468B-1) back to the earliest permitted date. Such
election shall be made in compliance with the procedures and requirements
contained in such regulations. It shall be the responsibility of the Claims
Administrator to timely and properly prepare, and deliver the necessary
documentation for signature by all necessary parties, and to cause the
appropriate filing to occur.
(b) For the purposes of Treas. Reg. Section 1.468B-2, the
"Claims Administrator" shall be David Berdon & Co. LLP. The Claims
Administrator shall timely and properly file all informational and other tax
returns necessary or advisable with respect to the Settlement Fund (including
without limitation the returns described in Treas. Reg. Section
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1.468B-2(1)). Such returns (as well as the election described in PARA 2.8(a))
shall be consistent with this PARA 2.8 and in all events shall reflect that
all taxes (including any estimated taxes, interest or penalties) on the
income earned by the Class Notice and Administration Fund shall be paid out
of that Fund as provided in PARA 2.8(c) hereof.
(c) All (i) taxes (including any estimated taxes, interest or
penalties) arising with respect to the income earned by the Class Notice and
Administration Fund ("Taxes"), and (ii) expenses and costs incurred in
connection with the operation and implementation of this PARA 2.8 (including,
without limitation, expenses of tax attorneys and/or accountants and mailing
and distribution costs and expenses relating to filing (or failing to file)
the returns described in this PARA 2.8) ("Tax Expenses"), shall be paid out
of the Class Notice and Administration Fund. The Plaintiffs' Settlement
Counsel shall indemnify and hold Defendants harmless for Taxes and Tax
Expenses. Further, Taxes and the Tax Expenses shall be treated as, and
considered to be, a cost of administration of the settlement and shall be
timely paid by the Claims Administrator out of the Class Notice and
Administration Fund without prior order from the Court.
2.9 In the event that the Stipulation is not approved, or is
terminated, canceled, or fails to become effective for any reason, neither
the Representative Plaintiffs nor the Settlement Class Members shall be
entitled to any of the Settlement Fund and the Settlement Fund and the funds
in the Class Notice and Administration Fund (including accrued interest),
less all reasonable expenses actually incurred or due and owing in connection
with the settlement provided for herein, shall be refunded by the Plaintiffs'
Settlement Counsel pursuant to written instructions from counsel for
Defendants as described in PARA 8.5 below.
2.10 The Settling Parties agree to the certification of the
Settlement Class pursuant to the Federal Rules of Civil Procedure solely for
purposes of effectuating the settlement herein. It is expressly understood
and agreed that Defendants do not waive any of their rights to contest class
certification in the event the settlement is not consummated, all of such
rights being expressly reserved.
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3. WARRANTS
3.1 The Warrants to be issued by NetLojix as part of this Settlement
shall be warrants for the purchase of the common stock of NetLojix.
3.2 The Warrants shall be exercisable at Eight Dollars ($8) per
share of common stock, payable to NetLojix.
3.3 The Warrants shall be exercisable for a period of two years
following the date that the SEC declares effective the registration statement
registering the shares of stock supporting the Warrants.
3.4 After the occurrence of the Effective Date, the Warrants will be
issued pursuant to and within ten (10) business days of notice (via overnight
delivery) of instructions by plaintiffs' Settlement Counsel upon defendants'
counsel, which shall occur, upon completion of the claims processed by the
Claims Administrator. The Warrants will be issued and delivered at NetLojix's
expense.
3.5 As soon as practicable after the Effective Date, but in no event
greater than 60 days after issuance of the Warrants, NetLojix will file with
the SEC a registration statement registering the shares of common stock
supporting the Warrants. NetLojix will promptly notify the Warrant holders of
record when the registration statement becomes effective.
4. NOTICE ORDER AND SETTLEMENT HEARING
4.1 Promptly after execution of the Stipulation, Plaintiffs'
Settlement Counsel shall submit the Stipulation together with its Exhibits to
the Court and shall jointly apply for entry of an order (the "Notice Order"),
substantially in the form of Exhibit "A" hereto. The Notice Order shall
specifically include provisions that, among other things, will:
(a) Preliminarily approve this Stipulation and the settlement
set forth herein as being fair, just, reasonable and adequate to all Settling
Parties and the contributions by the Defendants to the Settlement Fund as
being fair and equitable, reflecting a fair allocation among the Defendants;
(b) Approve the form of Notice of Pendency and Settlement of
Class Action
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(the "Notice") (substantially in the form of Exhibit A-1 hereto) for mailing
to Members of the Settlement Class;
(c) Approve the form of Proof of Claim and Release ("Proof of
Claim and Release") (substantially in the form of Exhibit A-2 hereto) for
mailing to Members of the Settlement Class;
(d) Approve a summary notice of the proposed settlement for
publication (the "Summary Notice") (substantially in the form of Exhibit A-3
hereto);
(e) Direct Lead Counsel to mail or cause to be mailed by first
class mail the Notice and Proof of Claim and Release to those Persons in the
Settlement Class who can be identified through reasonable effort, on or
before the date specified in the Notice Order;
(f) Direct that nominees who purchased or otherwise acquired
AvTel securities on November 12, 1998 send the Notice and Proof of Claim and
Release form to all beneficial owners of such AvTel securities within ten
(10) days after receipt of the Notice or send a list of the names and
addresses of such beneficial owners to Lead Counsel within ten (10) days of
receipt of the Notice;
(g) Direct Lead Counsel to cause the Summary Notice to be
published once in the national edition of INVESTORS BUSINESS DAILY on or
before the date specified in the Notice Order;
(h) Provide that Settlement Class Members who wish to
participate in the settlement provided for in this Stipulation shall complete
and file Proof of Claim and Release forms pursuant to the instructions
contained therein;
(i) Find that the notice given pursuant to subparagraphs (b)-(g)
above, constitutes the best notice practicable under the circumstances,
including individual notice to all Persons in the Settlement Class who can be
identified upon reasonable effort, and constitutes valid, due and sufficient
notice to all Persons in the Settlement Class, complying fully with the
requirements of Rule 23 of the Federal Rules of Civil Procedure, the
Constitution of the United States, and any other applicable law;
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(j) Schedule a hearing (the "Settlement Hearing") to be held by
the Court to consider and determine whether the settlement proposed by this
Stipulation should be approved as fair, reasonable and adequate and whether
the Judgment approving the settlement should be entered;
(k) Provide that any Settlement Class Member who so desires may
exercise the right to exclude themselves from the Settlement Class but only
if they comply with the requirements for so doing as set forth in the Notice;
(l) Provide that at or after the Settlement Hearing, the Court
shall determine whether the proposed Plan of Allocation should be approved;
(m) Provide that at or after the Settlement Hearing, the Court
shall determine and enter an order regarding whether and in what amount
attorneys' fees and reimbursement of expenses should be awarded to Lead
Counsel;
(n) Provide that pending final determination of whether the
settlement contained in this Stipulation should be approved, neither the
Representative Plaintiffs, nor any Settlement Class Member, either directly,
representatively, or in any other capacity shall commence or prosecute any
action or proceeding in any court or tribunal asserting any of the Released
Claims against the Released Persons;
(o) Provide that any objections to: (i) the settlement proposed
by this Stipulation; (ii) entry of the Judgment approving the settlement;
(iii) the proposed Plan of Allocation; or (iv) Lead Counsel's fee and expense
application(s), and any papers submitted in support of said objections shall
be considered by the Court at the Settlement Hearing only if, on or before
the date specified in the Notice Order, Persons making objections shall file
and serve written objections (which shall set forth each objection and the
basis therefor) and copies of any papers in support of their position as set
forth in the Notice Order;
(p) Provide that the Settlement Hearing may, from time to time
and without further notice to the Settlement Class, be continued or adjourned
by Order of the Court; and
(q) Provide that, whether or not the Effective Date occurs, any
Settlement
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Class Member who does not properly and timely request exclusion from the
Settlement Class shall be bound by any and all judgments or settlements
entered or approved by the Court, whether favorable or unfavorable to the
Settlement Class.
5. RELEASES
5.1 Upon the Effective Date, as defined in PARA 1.6, the
Representative Plaintiffs and each of the Settlement Class Members (except
Members of the Settlement Class who validly and timely request exclusion from
the Settlement Class) shall hereby be deemed to have, and by operation of the
Judgment shall have, fully, finally, and forever released, relinquished and
discharged all Released Claims (including "Unknown Claims") against the
Released Persons, whether or not such Settlement Class Member executes and
delivers the Proof of Claim and Release. Provided, however, that nothing
herein shall bar any claims to construe or enforce the terms of this
Stipulation or, if entered, the Judgment.
5.2 Upon the Effective Date, as defined in PARA 1.6, each of the
Defendants shall hereby be deemed to have, and by operation of the Judgment
shall have, fully, finally, and forever released, relinquished and discharged
each and all of the Representative Plaintiffs, the Settlement Class (except
Members of the Settlement Class who validly and timely request exclusion from
the Settlement Class) and Counsel to the Representative Plaintiffs from all
claims arising out of, relating to, or in connection with the institution,
prosecution, assertion, settlement or resolution of the Litigation. Provided,
however, that nothing herein shall bar any claims to construe or enforce the
terms of this Stipulation or, if entered, the Judgment.
6. ADMINISTRATION AND CALCULATION OF CLAIMS, FINAL AWARDS AND
SUPERVISION AND DISTRIBUTION OF SETTLEMENT FUND
6.1 Plaintiffs' Settlement Counsel, or their authorized agents,
acting on behalf of the Settlement Class, and subject to the supervision,
direction and approval of the Court, shall administer and calculate the
claims submitted by Settlement Class Members and shall oversee distribution
of that portion of the Settlement Fund that is finally awarded by the Court
to the Settlement Class Members.
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6.2 The Settlement Fund shall be applied as follows:
(a) To pay Taxes or Tax Expenses, if any;
(b) To pay the Representative Plaintiffs Counsel's attorneys'
fees, expenses and costs (the "Fee and Expense Award"), if and to the extent
allowed by the Court; and
(c) To distribute the balance of the Settlement Fund (the "Net
Settlement Fund") to Authorized Claimants as allowed by this Stipulation, the
Plan of Allocation or the Court.
6.3 Upon the Effective Date and thereafter, and in accordance with
the terms of this Stipulation, the Plan of Allocation, or such further
approval and further order(s) of the Court as may be necessary or as
circumstances may require, the Net Settlement Fund shall be distributed to
Authorized Claimants who submit valid Proofs of Claim and Release forms,
subject to and in accordance with the following:
(a) Within ninety (90) days after the mailing of the Notice of
Pendency and Proposed Settlement of Class Action and Settlement Hearing (the
"Notice") substantially in the form of Exhibit "A-1" hereto, or such other
time as may be set by the Court, each Person claiming to be an Authorized
Claimant shall be required to submit to the Claims Administrator a separate
completed Proof of Claim and Release substantially in the form of Exhibit
"A-2" hereto, signed under penalty of perjury and supported by such documents
as specified in the Proof of Claim and Release and as are reasonably
available to the Authorized Claimant.
(b) Except as otherwise ordered by the Court, all Settlement
Class Members who fail to timely submit a Proof of Claim and Release within
such period, or such other period as may be ordered by the Court, shall be
forever barred from receiving any payments pursuant to this Stipulation and
the settlement set forth herein, but will in all other respects be subject to
and bound by the provisions of this Stipulation, the settlement and releases
contained herein, and the Judgment.
(c) The Settlement Fund shall be distributed to Authorized
Claimants in accordance with and subject to the Plan of Allocation to be
described in the Notice mailed to class members or as otherwise ordered by
the Court.
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6.4 The Defendants and their counsel shall have no responsibility
for, interest in, or liability whatsoever with respect to (i) the management,
investment or distribution of the Settlement Fund, (ii) the determination,
administration, calculation or payment of claims, or (iii) the Plan of
Allocation, other than for NetLojix to issue the common stock and Warrants in
the Settlement Fund pursuant to PARA 2.1 above.
6.5 No Person shall have any claim against Representative Plaintiffs'
Counsel or any claims administrator, or other agent designated by Plaintiffs'
Settlement Counsel, based on the distributions made substantially in accordance
with the Stipulation and the Settlement contained herein, the Plan of Allocation
or further orders of the Court. 6.6 It is understood and agreed by the Settling
Parties that any proposed Plan of Allocation of the Net Settlement Fund is not a
part of this Stipulation and any order or proceedings relating to the Plan of
Allocation shall not operate to terminate or cancel this Stipulation or affect
the finality of the Court's Judgment approving the Stipulation and the
Settlement set forth herein, or any other orders entered pursuant to this
Stipulation.
7. REPRESENTATIVE PLAINTIFFS' COUNSEL'S ATTORNEY'S FEES AND
REIMBURSEMENT OF EXPENSES FROM THE SETTLEMENT
7.1 The Representative Plaintiffs or Lead Counsel may submit an
application or applications (the "Fee and Expense Application") for
distributions to them from the Settlement Fund for: (i) an award of
attorneys' fees of up to 33 1/3 % of the Settlement Fund; and (ii)
reimbursement of out-of-pocket litigation expenses and costs, including the
fees of any experts or consultants incurred in connection with prosecuting
the Litigation, plus interest on such attorneys' fees, costs and expenses at
the same rate and for the same periods as earned by the Class Notice and
Administration Fund, as may be awarded by the Court. Representative
Plaintiffs' Counsel reserve the right to make additional applications for
fees and expenses incurred. Denial by the Court, in whole or in part, of any
such application, or reversal or modification of any award of fees and
expenses (on appeal or otherwise) shall not be grounds to set aside or
terminate this Stipulation.
7.2 The attorneys' fees, expenses and costs, including the fees of
experts and
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consultants, as awarded by the Court (the "Fee and Expense Award"), shall be
paid to Lead Counsel from among those NetLojix shares and Warrants that
constitute the Settlement Fund as well as remaining funds available in the
Class Notice & Administration Fund. Lead Counsel shall thereafter allocate
the Fee and Expense Award amongst Representative Plaintiffs' Counsel in a
manner in which they in good faith believe reflects the contributions of such
counsel to the prosecution and settlement of the Litigation. In the event
that this Stipulation and the Settlement set forth herein does not become
effective for any reason, or the Judgment or the Order making the Fee and
Expense Award is reversed or modified on appeal or otherwise, and in the
event that the Fee and Expense Award has been paid to any extent, then
Representative Plaintiffs' Counsel shall within five (5) business days from
receiving notice from Defendants' counsel, or from a court of appropriate
jurisdiction, refund to NetLojix the stock and Warrants or other funds (if
any of the stock or Warrants are sold, Representative Plaintiffs' Counsel
shall return the proceeds of such sale(s)) previously paid to them from the
Settlement Fund in connection with the Fee and Expense Award, plus interest
thereon at the same rate as earned on the Class Notice and Administration
Fund, in an amount consistent with such reversal or modification. Each such
Representative Plaintiffs' Counsel's law firm, as a condition of receiving
such fees and expenses, on behalf of itself and each partner and/or
shareholder of it, agrees that the law firm and its partners and/or
shareholders are subject to the jurisdiction of the Court for the purpose of
enforcing the provisions of this paragraph.
7.3 The procedure for and the allowance or disallowance by the Court
of any applications by the Representative Plaintiffs or their counsel for
attorneys' fees, costs and expenses, including the fees of experts and
consultants, to be paid out of this Settlement Fund, are not part of the
Settlement set forth in this Stipulation, and are to be considered by the
Court separately from the Court's consideration of the fairness,
reasonableness and adequacy of the Settlement set forth in this Stipulation,
and any order or proceedings relating to the Fee and Expense Application, or
any appeal from any order relating thereto, shall not operate to terminate or
cancel this Stipulation, or affect or delay the finality of the Judgment
approving this Stipulation and the settlement of the Litigation set forth
herein.
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8. CONDITIONS OF SETTLEMENT, EFFECT OF DISAPPROVAL, CANCELLATION OR
TERMINATION
8.1 The Effective Date of this Stipulation shall be conditioned on the
occurrence of all of the following events:
(a) The Defendants shall have caused to be paid to the
Plaintiffs' Settlement Counsel, on or before the due date, all amounts due
under PARA 2.2 above;
(b) The Settlement shall have been approved by the Board of
Directors of NetLojix and by the Defendants;
(c) The Court shall have entered the Notice Order, as required
by Section 4, above;
(d) The Court shall have entered the Judgment, or a judgment
substantially in the form of Exhibit B, which shall include a provision for
dismissal of Defendants with prejudice from the Litigation;
(e) The Judgment shall have become Final, as defined in PARA 1.7
above; and
(f) The number of securities purchased or otherwise acquired during
the Settlement Class Period by Members of the Settlement Class who submit valid
and timely Requests for Exclusion from the Settlement Class shall be less than
the number set forth in the Supplemental Agreement described in PARA 8.3, or in
the alternative, Defendants shall elect not to exercise their option to
terminate the Settlement in accordance with the terms of the Supplemental
Agreement described in PARA 8.3 and instead shall elect to proceed with the
Settlement, notwithstanding the number of securities purchased or otherwise
acquired by Members of the Settlement Class who submit valid and timely Requests
for Exclusion from the Settlement Class.
8.2 Upon the occurrence of all of the events referenced in PARA 8.1
above, any and all interest or right of the Defendants to the Settlement Fund
shall be absolutely and forever extinguished.
8.3 If prior to the Settlement Hearing, Members of the Settlement Class
submit timely requests for exclusion ("Requests for Exclusion") from the
Settlement Class in accordance with the provisions of the Notice Order and the
Notice given pursuant thereto, and such members in the aggregate purchased or
otherwise acquired securities during the Settlement Class Period in an amount
equal to or greater than the sum specified in a separate Supplemental Agreement
between
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the Settling Parties, Defendants shall have, in their sole and absolute
discretion, the option to terminate this Stipulation in accordance with the
procedures set forth in the Supplemental Agreement. The Supplemental Agreement
will not be filed with the Court unless a dispute among the parties concerning
its interpretation or application arises and in that event it shall be filed and
maintained with the Court under seal. Copies of all Requests for Exclusion
received, together with copies of all written revocations of Requests for
Exclusion, shall be delivered to counsel for Defendants no later than five (5)
court days before the Settlement Hearing.
8.4 If all of the conditions specified in PARA 8.1 are not met, then
the Stipulation shall be canceled and terminated unless Plaintiffs'
Settlement Counsel and counsel for Defendants mutually agree in writing to
proceed with the Stipulation.
8.5 Unless otherwise ordered by the court, in the event this
Stipulation shall terminate, or be canceled, or shall not become effective for
any reason, within five (5) business days after written notification of such
event is sent by counsel for Defendants to Plaintiffs' Settlement Counsel, the
Settlement Fund (including accrued interest), plus any amount then remaining in
the Class Notice and Administration Fund (including accrued interest), less any
expenses and costs which have either been disbursed pursuant to PARA 2.2 hereto,
or are determined to be chargeable to the Class Notice and Administration Fund,
shall be refunded by Plaintiffs' Settlement Counsel pursuant to written
instructions from counsel for Defendants.
8.6 In the event that this Stipulation is not approved by the Court or
the Settlement set forth in this Stipulation is terminated, canceled or fails to
become effective in accordance with its terms, within five (5) business days
after written notification of such event is sent by counsel for Defendants or
Plaintiffs' Settlement Counsel to the other, the Settling parties shall be
restored to their respective positions in the Litigation as of April 19, 2000.
In such event, (a) this Stipulation shall be null and void and without further
force or effect (except as specified below), (b) neither the existence of this
Stipulation nor its terms nor the negotiations preceding this Stipulation nor
any acts performed (or documents executed) pursuant to, or in furtherance of,
this Stipulation shall be admissible for any purpose in the Litigation or any
other action or proceeding (except to enforce the provisions specified below),
and (c) any judgment or order entered by the Court in
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accordance with the terms of this Stipulation shall be treated as vacated,
NUNC PRO TUNC. The following provisions shall survive termination or
cancellation of this Stipulation: PARAS 2.5-2.10, 7.2, 8.3-8.7, 9.3, 9.8-9.12.
8.7 If the Effective Date does not occur, or if this Stipulation is
terminated pursuant to its terms, neither the Representative Plaintiffs nor any
of their counsel shall have any obligation to repay any amounts properly
disbursed from the Class Notice and Administration Fund. In addition, any
reasonable expenses already incurred and properly chargeable to the Class Notice
and Administration Fund pursuant to PARA 2.2 at the time of such termination or
cancellation but which have not been paid, shall be paid by Plaintiffs'
Settlement Counsel in accordance with the terms of this Stipulation prior to the
balance being refunded in accordance with PARA 8.5 above.
9. MISCELLANEOUS PROVISIONS
9.1 The Settling Parties (a) acknowledge that it is their intent to
consummate this Stipulation; and (b) agree to cooperate to the extent necessary
to effectuate and implement all terms and conditions of this Stipulation and to
exercise their best efforts to accomplish the foregoing terms and conditions of
this Stipulation.
9.2 The Settling Parties intend this settlement to be a final and
complete resolution of all disputes between them with respect to the Litigation.
Defendants agree that the amounts paid to the Settlement Fund and the other
terms of the settlement reflect a good faith settlement of the claims asserted
by the Representative Plaintiffs, reached voluntarily after consultation with
experienced legal counsel.
9.3 Neither this Stipulation nor the Settlement, nor any negotiations
preceding this Stipulation or Settlement, nor any act performed or document
executed pursuant to or in furtherance of this Stipulation or the Settlement:
(i) is or may be deemed to be or may be used as an admission of, or evidence of,
any wrongdoing or liability of the Defendants or Representative Plaintiffs; or
(ii) is or may be deemed to be or may be used as an admission of, or evidence
of, any fault or omission of any of the Defendants or Representative Plaintiffs
in any civil, criminal or administrative proceeding in any court, administrative
agency or other tribunal. However, this Stipulation and Settlement may be used
in such proceedings as may be necessary to consummate
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or enforce this Stipulation, the Settlement or the Judgment, and the parties
(and all other Released Persons) may file this Stipulation and/or the Judgment
in any action that may be brought against them in order to support a defense or
counterclaim based on principles of RES JUDICATA, collateral estoppel, release,
good faith settlement, judgment bar or reduction or any other theory of claim
preclusion or issue preclusion or similar defense or counterclaim.
9.4 All of the Exhibits to this Stipulation and the Supplemental
Agreement are material and integral parts hereof and are fully incorporated
herein by this reference.
9.5 This Stipulation may be amended or modified only by a written
instrument signed by or on behalf of all parties or their
successors-in-interest.
9.6 This Stipulation and the Exhibits attached hereto and the
Supplemental Agreement regarding Requests For Exclusion constitute the entire
agreement among the parties hereto and no representations, warranties or
inducements have been made to any party concerning this Stipulation, its
Exhibits or the Supplemental Agreement other than the representations,
warranties and covenants contained and memorialized in such documents.
9.7 Plaintiffs' Settlement Counsel, on behalf of the Settlement Class,
are expressly authorized by the Representative Plaintiffs to take all
appropriate action required or permitted to be taken by the Settlement Class
pursuant to this Stipulation, to effectuate its terms and also are expressly
authorized to enter into any modifications or amendments to this Stipulation on
behalf of the Settlement Class which they deem appropriate.
9.8 Each Counsel or other Person executing this Stipulation or any of
its Exhibits on behalf of any party hereto hereby warrants that such Person has
the full authority to do so.
9.9 This Stipulation may be executed in one or more counterparts,
including by facsimile. All executed counterparts and each of them shall be
deemed to be one and the same instrument. A complete set of original executed
counterparts shall be filed with the Court.
9.10 This Stipulation shall be binding upon, and inure to the benefit
of, the successors and assigns of the parties hereto.
9.11 The Court shall retain jurisdiction with respect to implementation
and enforcement of the terms of this Stipulation, and all parties hereto submit
to the jurisdiction of
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the Court for purposes of implementing and enforcing the settlement embodied in
this Stipulation.
9.12 The Stipulation and the Exhibits hereto shall be considered to
have been negotiated, executed and delivered, and to be wholly performed, in the
State of California, and the rights and allegations of the Settling Parties
shall be construed and enforced in accordance with, and governed by, the
internal, substantive laws of the State of California, without giving effect to
that State's choice of law principles.
IN WITNESS WHEREOF, the parties hereto have caused this Stipulation to
be executed, by their duly authorized attorneys, effective as of October 4,
2000.
WEISS & YOURMAN
Kevin J. Yourman, Esq.
Matthew J. Zevin, Esq.
By: /s/ KEVIN J. YOURMAN
-----------------------------------------
Kevin J. Yourman
10940 Wilshire Blvd., 24th Floor
Los Angeles, CA 90024
Telephone: (310) 285-2800
Facsimile: (310) 209-2348
Lead Counsel for Plaintiffs
STULL, STULL & BRODY
Michael D. Braun, Esq.
Timothy Burke, Esq.
10940 Wilshire Blvd., Suite 2300
Los Angeles, CA 90024
Telephone: (310) 209-2468
Facsimile: (310) 209-2087
WOLF, HALDENSTEIN, ADLER,
FREEMAN & HERZ
Francis M. Gregorek, Esq.
Betsy C. Manifold, Esq.
Francis Bottini, Jr., Esq.
600 West Broadway, Suite 1800
San Diego, CA 92101
Telephone: (619) 338-4599
Facsimile: (619) 231-7423
WESCHLER, HARWOOD, HALEBIAN
& FEFFER LLP
Scott A. Kamber, Esq.
488 Madison Avenue
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New York, NY 10022
Telephone: (212) 935-7400
Facsimile: (212) 753-3630
Attorneys for Representative Plaintiffs
MAYER, BROWN & PLATT
Alan N. Salpeter, Esq.
Harley Hutchins, Esq.
By: /s/ HARLEY HUTCHINS
-----------------------------------------
Harley Hutchins
190 South LaSalle Street
Chicago, IL 60603
Telephone: (312) 782-0600
Facsimile: (312) 701-7711
SEED, MACKALL & COLE LLP
K. Andrew Kent, Esq.
1332 Anacapa Street, Suite 200
Santa Barbara, CA 93101
Telephone: (805) 963-0669
Facsimile: (805) 962-1404
Attorneys for Defendants
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