SECURITIES AND EXCHANGE COMMISSION
UNITED STATES
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1997
or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to _________
Commission File Number: 0-14210
COMPUMED, INC.
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(Exact name of registrant as specified in its charter)
Delaware 95-2860434
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State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1230 Rosecrans Avenue, Suite 110, Manhattan Beach, CA 90266
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(Address of Principal Executive Officers)
(310) 643-5106
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(Registrant's telephone number, including area code)
Not applicable
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Exchange Act during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports, and
(2) has been subject to such filing requirements in for the past
90 days.
Yes X No
----- -----
The registrant had 9,066,463 shares of common stock, ($.01
par value) issued and outstanding as of February 12, 1998.
<PAGE>
INDEX
COMPUMED, INC. AND SUBSIDIARIES
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated balance sheets - December 31, 1997
(unaudited) and September 30, 1997. 3
Consolidated statements of operations - three months
ended December 31, 1997 and 1996 (unaudited). 5
Consolidated statements of cash flows - three months
ended December 31, 1997 and 1996 (unaudited). 6
Notes to interim unaudited consolidated financial
statements. 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities and Use of Proceeds 12
Item 6 Exhibits and Reports on Form 8K 13
SIGNATURES 14
2
<PAGE>
PART I
FINANCIAL INFORMATION
CONSOLIDATED CONDENSED BALANCE SHEETS
COMPUMED, INC. AND SUBSIDIARIES
December 31, September 30,
1997 1997
------------ ------------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash $ 40,000 $ 81,000
Marketable securities 2,119,000 850,000
Accounts receivable, less
allowance of $81,000
(December 1997) and $66,000
(September 1997) 275,000 247,000
Inventories 34,000 55,000
Prepaid expenses and other 24,000 27,000
current assets ---------- -----------
TOTAL CURRENT ASSETS 2,492,000 1,260,000
PROPERTY AND EQUIPMENT
Machinery and equipment 2,996,000 2,994,000
Furniture, fixtures and leasehold
improvements 208,000 208,000
Equipment under capital leases 787,000 787,000
---------- -----------
3,991,000 3,989,000
Less allowance for depreciation 3,640,000 3,591,000
and amortization ---------- -----------
351,000 398,000
OTHER ASSETS
Required franchises, net of
accumulated amortization of
$279,000 (December 1997) and
$263,000 (September 1997) 47,000 63,000
Other assets 52,000 55,000
---------- -----------
$2,942,000 $1,776,000
---------- ----------
See notes to interim unaudited consolidated condensed financial statements.
3
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CONSOLIDATED CONDENSED BALANCE SHEETS
COMPUMED, INC. AND SUBSIDIARIES
December 31, September 30,
------------ ------------
1997 1997
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 182,000 $ 174,000
Other accrued liabilities 469,000 501,000
Current portion of capital 84,000 81,000
lease obligations ---------- ----------
TOTAL CURRENT
LIABILITIES 735,000 756,000
CAPITAL LEASE OBLIGATIONS, less
current portion 129,000 152,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, $.10 par
value--authorized 1,000,000
shares
Class A $3.50 cumulative
convertible voting preferred
stock, issued and outstanding --
8,400 shares 1,000 1,000
Class B $3.50 convertible
voting preferred stock, issued
and outstanding--400 shares 1,000 1,000
Class C 7% Series 1 convertible
preferred stock issued and
outstanding--17,500 shares 1,750,000 0
Common Stock, $.01 par value-
authorized 50,000,000 shares,
issued and outstanding--
9,066,463 shares (December
1997) and 9,041,857 shares
(September 1997) 91,000 90,000
Additional paid in capital 27,107,000 27,169,000
Retained deficit (26,872,000) (26,393,000)
---------- ----------
STOCKHOLDERS' EQUITY 2,078,000 868,000
---------- ----------
$2,942,000 $1,776,000
---------- ----------
See notes to interim unaudited consolidated condensed financial statements.
4
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CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
COMPUMED, INC. AND SUBSIDIARIES
Three Months Ended
December 31
1997 1996
---- ----
REVENUES FROM OPERATIONS
ECG service $ 349,000 $ 487,000
Osteo royalties 25,000 29,000
Supplies sales 41,000 37,000
---------- ----------
415,000 553,000
COSTS AND EXPENSES
Cost of services 237,000 290,000
Cost of goods sold 28,000 9,000
Selling expenses 44,000 112,000
Research and development 163,000 173,000
General and administrative
expenses 364,000 439,000
Depreciation and amortization 67,000 81,000
---------- ----------
LOSS FROM OPERATIONS (488,000) (551,000)
Interest income 14,000 30,000
Interest expense (5,000) (3,000)
----------
NET LOSS $ 479,000 $ (524,000)
========== ==========
NET LOSS PER SHARE
Basic $ (.05) $ (.06)
========== ==========
Diluted $(.05) $ (.06)
========== ==========
Weighted average number of
common shares outstanding 9,054,160 8,952,286
========== ==========
See notes to interim unaudited consolidated condensed financial statements
5
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CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
COMPUMED, INC. AND SUBSIDIARIES
December 31, September 30,
------------ ------------
1997 1997
(Unaudited)
OPERATING ACTIVITIES
Net loss $ (479,000) $ (524,000)
Adjustment to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization 68,000 81,000
Changes in operating assets and
liabilities:
Accounts receivable (28,000) 19,000
Inventories, prepaid expenses
and other assets 24,000 55,000
Accounts payable and other (24,000) (14,000)
liabilities ---------- ----------
NET CASH USED IN OPERATING
ACTIVITIES (439,000) (383,000)
INVESTING ACTIVITIES:
Investment in marketable
securities (1,675,000)
Sale of marketable securities (406,000) 316,000
Purchases of property, plan and
equipment 2,000 (18,000)
NET CASH (USED IN) PROVIDED BY
INVESTING ACTIVITIES (1,271,000) 298,000
FINANCING ACTIVITIES:
Sale of Class C &% Series 1
convertible preferred stock, net
of offering costs 1,654,000
Dividends on Class A preferred
stock (1,000) (1,000)
Principal payments on capital
lease obligations (29,000) (9,000)
Exercise of stock options and 25,000
warrants ---------- ----------
NET CASH PROVIDED BY (USED IN) 1,669,000 10,000
FINANCING ACTIVITIES ---------- ----------
DECREASE IN CASH (41,000) 95,000
Cash at beginning period 81,000 155,000
---------- ----------
CASH AT END OF PERIOD $ 40,000 $ 60,000
---------- ----------
Cash paid for interest: $ 5,000 $ 3,000
---------- ----------
See notes to interim unaudited consolidated condensed financial statements.
6
<PAGE>
NOTES TO INTERIM UNAUDITED CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
COMPUMED, INC. AND SUBSIDIARIES
NOTE A--BASIS OF PREPARATION
The balance sheet at September 30, 1997 has been derived from the
Company's year-end audited financial statements.
The accompanying interim unaudited consolidated financial
statements have been prepared in accordance with generally
accepted accounting principles for interim financial information
and pursuant to the rules and regulations of the Securities and
Exchange Commission. Accordingly, they do not include all of the
information and footnotes required by generally accepted
accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the period ended
December 31, 1997 are not necessarily indicative of the results
that may be expected for the year ending September 30, 1998. For
further information, refer to the consolidated financial
statements for the year ended September 30, 1997 and the notes
thereto included in the Company's Annual Report on Form 10-KSB.
NOTE B--PER SHARE DATA
Basic loss per share is calculated using the net loss less
preferred stock dividends, divided by the weighted average common
shares outstanding. Shares from the assumed conversion of
outstanding warrants, options and effect of the conversion of the
Class A Preferred Stock and Class B Preferred Stock are omitted
from the computations of diluted loss per share because the
effect would be antidilutive.
NOTE C--COMMITMENTS AND CONTINGENCIES
On August 5, 1996 the Company entered into a Memorandum of
Understanding to confirm the material terms of an agreement in
principle to settle the securities class action and derivative
litigation filed in the United States District Court for the
Central District of California (the "Court") on behalf of persons
who purchased Common Stock during various time periods spanning
from August 11, 1995 to October 17, 1995, inclusive and
derivatively on behalf of the Company. On January 26, 1998, the
United States District Court for the Central District of
California approved the settlement of the class action and
derivative lawsuits on the terms agreed to by the parties in the
Memorandum of Understanding. See Item 1 of Part II of this
report.
7
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NOTE D--IMPACT OF RECENTLY ADOPTED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings per Share, which is required to be
adopted for periods ending after December 15, 1997. Under the
new requirements basic earnings per share includes no dilution
and is computed by dividing income available to common
stockholders by the weighted average number of common shares
outstanding. Diluted earnings per share reflect the potential
dilution of securities that could share in the earnings of an
entity. The Company adopted Statement 128 in the current
quarter, although such adoption did not change amounts previously
provided.
NOTE E--PRIVATE PLACEMENT OF CLASS C CONVERTIBLE PREFERRED STOCK
On December 24, 1997, the Company closed the placement of 17,500
shares of Series 1 Class C 7% Convertible Preferred Stock (the
"Series C-1 Preferred Stock") at a price of $100 per share, or an
aggregate purchase price of $1,750,000 pursuant to Securities
Purchase Agreements. The Series C-1 Preferred Stock is
immediately convertible into shares of the Company's Common Stock
at a conversion ratio equal to $100 divided by the lesser of (i)
$1.51 or (ii) 75% of the average closing bid price for the ten
consecutive trading days prior to the notice of conversion. In
the event the closing bid price of the Common Stock is less than
$1.00 per share on the trading day immediately preceding the
receipt of a conversion notice, the holder requesting conversion
would be limited to converting not more than 5% of the shares he
initially purchased, which limitation would continue for a period
of 30 days. The Company has the right to force conversion of any
or all outstanding Series C-1 Preferred Stock on November 30,
1999 at the then conversion ratio. There is no minimum
conversion price. Should the value of the Common Stock fall
substantially prior to conversion, the holders of the Preferred
Stock could obtain a significant share of the Common Stock upon
their conversions. Upon conversion of the Series C-1 Preferred
Stock, the holder would receive warrants (the "Warrants") to
purchase the same number of shares of Common Stock as being
issued on the conversion, at an exercise price equal to the
conversion price and exercisable for three years from issuance,
subject to possible reduction as mentioned below.
The Securities Purchase Agreements also provide for the issuance
of 17,500 shares of Series 2 Class C 7% Convertible Preferred
Stock (the "Series C-2 Preferred Stock" and together with the
Series C-1 Preferred Stock, the "Class C Preferred Stock"), with
the outside date for closing being February 17, 1998, which date
may be extended to 30 days after the effectiveness of a
registration statement (mentioned below) if the Company's Common
Stock has not maintained certain price and volume minimums. The
Series C-2 Preferred Stock is identical to the Series C-1
Preferred Stock except that the conversion ratio is equal to $100
divided by the lessor of (i) $1.34 or (ii) 80% (or 77.5% for
shares purchased prior to January 1, 1998) of the average closing
bid price for the ten consecutive trading days prior to the
notice of conversion. In addition, the Company would have the
right to force conversion on December 31, 1999. Should a
8
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Purchaser of Series C-1 Preferred Stock not acquire his portion
of the Series C-2 Preferred Stock, such purchaser would forfeit
one-half of the Warrants otherwise issuable to him upon the
conversion of his Series C-1 Preferred Stock. Upon conversion of
Series C-2 Preferred Stock, the holder would be granted warrants
similar to the Warrants. On January 22, 1998, the Company sold
8,750 shares of such Series C-2 Preferred Stock for $875,000.
As a condition to the initial closing of the placement, the
Company entered into a Registration Rights Agreement with each
purchaser whereby the Company agreed to file a registration
statement under the Securities Act of 1933, as amended, with the
Securities and Exchange Commission registering for offer and sale
the Common Stock underlying his Class C Preferred Stock and
Warrants. The registration statement became effective on
February 6, 1998.
The net proceeds from the placement of the Series C-1 Preferred
Stock was approximately $1,664,000 (after payment of a 4% fee to
the distributor and other placement expenses). The net proceeds
from the initial placement of the Series C-2 Preferred Stock was
approximately $830,000.
On December 24, 1997, the Company also issued warrants (the "1995
Warrants") exercisable for the purchase of 200,000 shares of its
Common Stock at an exercise price of $ 1.10 per share to the
distributor of certain placements effected by the Company in 1995
and 1996. The shares of Common Stock underlying the 1995 Warrants
were also included in the registration statement filed pursuant
to the Registration Rights Agreement.
NOTE F--TERMINATION OF ROYALTY REVENUES
On January 7, 1998, the Company was notified of a termination of
a license agreement under which the Company had earned royalty
revenues for the processing of its OsteoGram(R) bone density
test. Revenues earned under this license agreement are
anticipated to terminate after February 1998. During the First
Quarter 1998 royalty revenues were $25,000. The rights to the
OsteoGram technology will revert back to the Company on March 31,
1998 and the Company may enter into new licensing agreements with
this technology.
9
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This Form 10QSB contains forward-looking statements as defined by
the Private Securities Litigation Reform Act of 1995. Forward -
looking statements include statements concerning plans,
objectives, goals, strategies, future events or performance and
underlying assumptions and other statements which are other than
statements of historical facts. These statements are subject to
uncertainties and risks including, but not limited to, product
and service demand and acceptance, changes in technology, the
availability of appropriate acquisition candidates and/or
business partnerships, economic conditions, the impact of
competition and pricing, capacity and supply constraints or
difficulties, government regulation and other risks defined in
this document. All such forward-looking statements, whether
written or oral, and whether made by or on behalf of the Company
are expressly qualified by these cautionary statements and any
other cautionary statements which may accompany the forward-
looking statements. In addition, the Company disclaims any
obligation to update any forward-looking statements to reflect
events or circumstances after the date hereof.
RESULTS OF OPERATIONS
---------------------
Revenues from operations for the three months ended December 31,
1997 (the First Quarter 1998 ) were $415,000, a reduction of
$138,000 from the same period in 1997. The revenue decrease is
primarily due to the elimination of cardiac event monitoring
services previously offered by the Company. No revenue from
cardiac event monitoring services was recorded during the First
Quarter 1998 compared to $134,000 recorded during the prior year.
Revenues from the Company s ongoing transtelephonic ECG services
were approximately at the same level as the same period in fiscal
1997. Royalty income was $25,000 for the First Quarter 1998 from
OsteoGram(R) operations being managed by a subsidiary of Merck &
Co., Inc. as compared to $29,000 during the same period in fiscal
1997; however the license agreement was terminated in January
1998, so royalties will cease as of the Third Quarter 1998. See
Note F to Notes to Interim Unaudited Consolidated Condensed
Financial Statements. Interest income decreased to $14,000
during the First Quarter 1998 from $30,000 during the same fiscal
1997 period due to liquidations of marketable securities,
although investment income may increase to prior levels as a
result of the net proceeds from the December 1997 and January
1998 Series C Preferred Stock placements, subject to the use of
such funds for research and development and other company
expenses and to changes in the current yields of such
investments.
The combined costs of services ($237,000) and selling expenses
($44,000) during the First quarter 1998 decreased by $121,000, as
compared to the same prior year period. These decreases in
10
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operating costs were primarily due to the elimination of costs
associated with the cardiac event monitoring services, which were
eliminated as mentioned above, and to several staff reductions
relating to the Company s ongoing transtelephonic ECG services.
General and administrative expenses decreased during the First
Quarter 1998 by $75,000 to $364,000, as compared to 1997,
primarily due to a reduction in executive management and to a
reduction in insurance costs. Research and development costs
decreased slightly to $163,000 during the First Quarter 1998, as
compared to the prior year, and such costs are primarily salaries
and direct costs relating to the Company s development of the
OsteoView(R) bone densitometer.
Net loss for the First Quarter 1998 was $479,000 compared to a
loss of $524,000 for the same period in fiscal 1997. The
decreased loss is due to the elimination of certain unprofitable
cardiac event monitoring services, and the costs thereof, and to
general cost reductions enacted by the Company.
FINANCIAL CONDITION AND LIQUIDITY
---------------------------------
As of December 31, 1997 the Company had $1,757,000 of working
capital, an increase of $1,253,000 from September 30, 1997. This
increase in working capital is a result of the sale of the
Company s Preferred Stock, generating net proceeds of
approximately $1,654,000, which was offset by losses from
operations, including product development costs, adjusted for
depreciation expense. On January 22, 1998, the Company sold
additional Preferred Stock generating net proceeds of
approximately $830,000.
The Company's capital resource commitments at December 31, 1997
consist primarily of sponsored research agreements and costs
associated with the development of its second generation
OsteoSystem. During the First Quarter 1998, total research and
development expenses were $163,000. Expenditures during future
periods will meet or exceed this level if all of such costs are
borne by the Company. Sponsored research payments with the
University of Massachusetts Medical Center are made at the rate
of $12,500 per quarter for the second year commencing May 1,
1996. The Varian agreement requires a payment in the amount of
$65,000 during the next fiscal quarter. The Company has
commenced the engineering and design phase of the OsteoView
development. In connection with Phase 1 of this development, the
Company has entered into agreements with a design and an
engineering firm for services over approximately the next quarter
with a total cost of $164,000.
The University of Georgia sponsored Detoxahol research agreement
has been suspended and the Company is only supporting patent-
related costs at this time. Due to the long-term nature of this
project, the Company is seeking a strategic partner to
participate in future development.
11
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The Company intends to pursue additional research and/or sub-
contractor agreements relating to its development projects.
Additionally, the Company is actively seeking partners and
acquisition candidates of businesses that are complementary to
its own. Such investments would be financed by the Company s
working capital, through issuance of Company securities or a
combination thereof. No assurance can be given that any
acquisition would not be dilutive to stockholders.
Due to the development nature of the Company s business
activities, the Company is anticipating losses from operations
during the following 12 months, unless a development partner is
secured who will assume a portion of such costs. Current
working capital levels are considered adequate for the Company s
business activities during the 12 months.
PART II
OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
On January 26, 1998, the United States District Court for the
Central District of California entered a Final Judgment and Order
of Dismissal of all actions comprising the CompuMed, Inc.
Securities Litigation (CV 95-7051MRP (VAPx)). The Settlement was
based upon the Stipulation of Settlement, dated as of August 12,
1997, and filed on October 19, 1997. The terms of the settlement
are set forth in Item 3 to the Company s Form 10-KSB for the
fiscal year ended September 30, 1997.
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(c) On December 24, 1997, the Company closed the placement of
17,500 shares of Series 1 Class C 7% Convertible Preferred and on
January 27, 1998, the Company closed the placement of 8,750
shares of Series 2 Class C 7% Convertible Preferred Stock. These
placements were claimed to be exempt from the registration
requirements of the Securities Act of 1933, as amended, by reason
of Section 4(2) thereof and Regulation D thereunder. For further
information about these placements, see Note E - Private
Placement of Class C Convertible Preferred Stock to the Notes to
Interim Unaudited Consolidated Condensed Financial Statement
included in the financial statements in this Report and the
Company's Form 8-K for an event of December 24, 1997.
12
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Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Stipulation of Settlement of Class Action and
Derivative Claims dated as of August 12, 1997 in Re
CompuMed, Inc. Securities Litigation (without
exhibits).
10.2 Final Judgment and Order of Dismissal, dated January
26, 1998, in Re CompuMed, Inc. Securities Litigation.
(b) Form 8-K filed with the SEC on January 9, 1998 for an
event of December 24, 1997 to report on Item 5 the
December 24, 1997 closing of the placement of Series I
Class C 7% Convertible Preferred Stock.
13
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
COMPUMED, INC.
--------------
(Registrant)
By: /s/ James Linesch
----------------------------
James Linesch
President
Date: February 12, 1998
14
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EXHIBIT INDEX
Exhibit Description
------- -----------
10.1 Stipulation of Settlement of Class Action and
Derivative Claims dated as of August 12, 1997
in Re CompuMed, Inc. Securities Litigation
(without exhibits).
10.2 Final Judgment and Order of Dismissal, dated
January 26, 1998, in Re CompuMed, Inc. Securities
Litigation.
27 Financial Data Schedule
MARC M. SELTZER (54534)
GEORGE A. SHOHET (112697)
CORINBLIT & SELTZER
A Professional Corporation
3700 Wilshire Boulevard, Suite 820
Los Angeles, CA 90010-3085
Telephone: (213) 380-4200
Chairman of the Executive Committee CALENDAR
of Counsel for Plaintiffs OCT 15 1997
KAYE, SCHOLER
ROBERT C. SCHUBERT (62684)
JUDEN JUSTICE REED (153748)
SCHUBERT & REED LLP
Two Embarcadero Center, Suite 1050
San Francisco, CA 94111
Telephone: (415) 768-4220
Member of Executive Committee and
Attorneys for Derivative Plaintiff
(Additional Counsel Appear on
Signature Page)
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
WESTERN DIVISION
In re COMPUMED, INC. SECURITIES ) Master File No.
LITIGATION ) CV-95-7051-MRP(VAPx)
)
___________________________________) CLASS ACTION
) ------------
This Document Relates To: )
)
ALL ACTIONS. )
___________________________________)
STIPULATION OF SETTLEMENT OF CLASS
----------------------------------
ACTION AND DERIVATIVE CLAIMS
-----------------------------
This Stipulation of Settlement (the "Stipulation"), dated as
of August 12, 1997, is made and entered into by and among the
following parties (as defined further in Section V hereof) to the
above-entitled consolidated Class and Shareholder Derivative
actions (collectively, the "Litigation"): (i) The Class
Plaintiffs and the Derivative Plaintiff (on behalf of themselves,
each of the Settlement Class Members, and derivatively on behalf
of CompuMed, Inc. ("CompuMed" or the "Company"), respectively),
by and through their counsel of record in the Litigation; and
(ii) the Defendants, by and through their counsel of record in
the Litigation. The Stipulation is intended by the Settling
Parties to fully, finally and forever resolve, discharge and
settle the Released Claims (as defined herein), upon and subject
to the terms and conditions hereof.
I. THE LITIGATION.
--------------
On October 18, 1995, the Class Plaintiffs filed the
first of several class action lawsuits in the United States
District Court, Central District of California, Western Division
(the "Court") against CompuMed and certain of its current and
former officers and directors, including the Individual Defen-
dants, as defined below. On November 3, 1995, the Derivative
Plaintiff filed a stockholders, derivative suit in the Court
against the Individual Defendants with the Company named as a
nominal defendant. On January 4, 1996, the Court consolidated
the various Class Action cases with each other and with the
Derivative Action, defined below, in an action entitled In re
-----
CompuMed.Inc. Securities Litigation, CV-95-7051-MRP(VAPx)
-----------------------------------
(collectively, together with the Class Actions and the Derivative
Action, the "Litigation"). On February 6, 1996, the Class
Plaintiffs filed a Corrected Consolidated Amended Class Action
Complaint (the "Class Action Complaint") in the consolidated
action, which superseded the prior class action complaints on or
about February 14, 1996, Derivative Plaintiff filed a First
Amended Derivative Complaint in the Court (the "Derivative
Complaint"), which superseded the prior derivative complaint.
II. PRETRIAL PROCEEDINGS AND SETTLEMENT.
-----------------------------------
A. DISCOVERY, INVESTIGATION AND RESEARCH CONDUCTED BY
--------------------------------------------------
PLAINTIFFS.
-----------
Counsel for the Class Plaintiffs and the Derivative
Plaintiff have conducted extensive discovery and investigation
during the prosecution of the Litigation. This discovery and
investigation has included, inter alia, (i) inspection and
----- ----
analysis of voluminous documents produced by Defendants and
others, (ii) Defendants, responses to Class Plaintiffs,
interrogatories; (iii) consultation with experts; (iv) review of
CompuMed's public filings, annual reports and other public
statements; and (v) research of the applicable law with respect
to the claims asserted in the Class Action Complaint and the
Derivative Complaint and the potential defenses thereto.
B. BENEFITS OF THE SETTLEMENT.
--------------------------
The settlement set forth in this Stipulation provides
for a combined settlement of the Class Action and Derivative
claims which is intended by the Settling Parties to fully,
finally and forever resolve any disputes or controversies
relating to or arising out of the Litigation. The Settling
Parties agree and acknowledge that the combined settlement of the
Class Action and Derivative claims as provided for in this
Stipulation confers substantial benefits upon the Settlement
Class and CompuMed and its current shareholders. The benefits to
CompuMed include the following: (i) CompuMed has agreed to adopt
certain corporate governance measures, set forth more fully in
Paragraph V. 2.2 (b) , below, respecting the trading by insiders
or other key employees of CompuMed's securities and the approval
of material contracts entered into by CompuMed (ii) the
Derivative Action Settlement Fund (less Court approved fees and
costs) will be made available to pay a substantial portion of the
amount agreed to settle the Class Action claims; (iii) CompuMed
will be relieved of any potential liability on the Class Action
claims; (iv) CompuMed will be relieved of any potential liability
to the Individual Defendants to indemnify them for any liability
or expenses incurred in connection with the defense of the Class
Action claims; (v) CompuMed will be relieved of the further
expenses and costs of defending the Class Action claims asserted
against it; and (vi) CompuMed and its management will avoid the
distraction arising out of continued litigation.
C. JUDICIAL SUPERVISION OF SETTLEMENT
----------------------------------
NEGOTIATION PROCESS.
-------------------
The settlement set forth in this Stipulation was
negotiated in good faith over a period of many months under the
supervision and guidance of a Court-appointed mediator, Charles
A. Bakaly, Esq. The Court was periodically advised of the pro-
gress of those negotiations and encouraged the parties to conduct
such negotiations under the mediator's supervision. The
essential terms of the settlement set forth in this Stipulation
were recommended and approved by the mediator as fair, reasonable
and adequate to the Class, CompuMed and its current shareholders
and the Individual Defendants, and as having been entered into in
good faith.
III. DEFENDANTS' STATEMENT AND DENIALS OF WRONGDOING
-----------------------------------------------
AND LIABILITY.
-------------
The Defendants have denied and continue to deny each
and all of the claims and contentions alleged by the Class
Plaintiffs and the Derivative Plaintiff in the Litigation. The
Defendants have denied and continue to deny all charges of wrong-
doing 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
----- ----
Class Plaintiffs or the Settlement Class have suffered damage, or
that the Class Plaintiffs or the Settlement Class were harmed by
the conduct alleged in the Class Action Complaint, or that the
Derivative Plaintiff, CompuMed or the current holders of CompuMed
common stock were harmed by the conduct alleged in the Derivative
Complaint. Additionally, Defendants assert that they have strong
factual and legal defenses to all claims against them and that
all claims and contentions against them are not well-taken.
Neither this Stipulation, nor any document referred to herein,
nor any action taken to carry out this Stipulation is, may be
construed as, or may be used, directly or indirectly as an
admission by or against any Defendant of any fault, wrongdoing or
liability whatsoever. There has been no determination by any
Court, administrative agency or tribunal as to the factual
allegations made against the Defendants. Entering into or carry-
ing out this Stipulation, the exhibits hereto, and any negotia-
tions or proceedings related thereto, shall not, directly or
indirectly, be construed as, or deem to be evidence of, an
admission or concession by any of the Defendants.
Nonetheless, and without admitting any wrongdoing or
liability, the Defendants have concluded that the further conduct
of the Litigation would be protracted and expensive, and that it
is desirable that the Litigation be fully and finally settled to
limit further expense, inconvenience and distraction and to dis-
pose of burdensome and protracted litigation. The Defendants
also have taken into account the uncertainty and risks inherent
in any litigation, especially in complex cases like this Litiga-
tion.
IV. CLAIMS OF THE CLASS PLAINTIFFS AND THE DERIVATIVE
-------------------------------------------------
PLAINTIFF AND BENEFITS OF SETTLEMENT.
------------------------------------
The Class Plaintiffs, the Derivative Plaintiff and
their counsel believe that the evidence developed to date
supports the claims asserted in the Litigation. However, counsel
for the Class Plaintiffs and the Derivative Plaintiff 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 Class
Plaintiffs and the Derivative Plaintiff 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 and the
likelihood of protracted appellate review. Counsel for the Class
Plaintiffs and the Derivative Plaintiff also are mindful of the
inherent problems of proof under and the defenses Defendants have
asserted and can assert to the federal securities law violations
and other claims asserted in the Class Action Complaint and the
Derivative Complaint, including the defenses alleged by the
Defendants in the pleadings filed in the Litigation. As a
consequence of the foregoing investigation and analyses, counsel
for the Class Plaintiffs and the Derivative Plaintiff have
engaged in intensive arm's length negotiations with counsel for
the Defendants with a view to achieving the substantial benefits
provided by the Settlement on the terms as set forth in this
Stipulation. The Class Plaintiffs, the Derivative Plaintiff, and
their counsel believe that the settlement set forth in the
Stipulation confers substantial benefits upon the Settlement
Class, each of the Settlement Class Members and CompuMed. Based
on their evaluation, the Class Plaintiffs, the Derivative
Plaintiff and their counsel have determined that the settlement
set forth in the Stipulation is fair, reasonable and adequate and
in the best interests of the Class Plaintiffs, the Settlement
Class and each of the Settlement Class Members, the Derivative
Plaintiff, the current holders of CompuMed common stock and
CompuMed.
V. TERMS OF STIPULATION AND AGREEMENT OF SETTLEMENT.
------------------------------------------------
NOW, THEREFORE, IT IS HEREBY STIPULATED AND AGREED by
and among the Class Plaintiffs and the Derivative Plaintiff, for
themselves, the Settlement Class Members, and derivatively on
behalf of CompuMed, respectively, and the Defendants, by and
through their respective counsel of record, that, subject to the
approval of the Court, the Litigation and the Released Claims
shall be finally and fully compromised, settled and released, and
the Litigation shall be dismissed on the merits and with
prejudice, as to all Settling Parties, upon and subject to the
terms and conditions of the Stipulation, as follows:
1. DEFINITIONS.
-----------
As used in the Stipulation the following terms have the
meanings specified below:
1.1 "CompuMed" means CompuMed, Inc. and all of its
predecessors, successors, parents, subsidiaries, divisions and
related or affiliated entities.
1.2 "Authorized Claimant" means any Settlement Class
Member whose claim for recovery has been allowed pursuant to the
terms of the Stipulation.
1.3 "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.
1.4 "Class Action Settlement Fund" means the principal
amount of Nine Hundred Thousand Dollars ($900,000) plus interest
which has been paid pursuant to Paragraph V.2.1 of this Stipulation,
the Shares and Warrants to be issued pursuant to Paragraph V.2.1,
and that portion of the Derivative Action Settlement Fund, as
defined in Paragraph V.1.29, below, which is transferred to the
Class Escrow Agent pursuant to Paragraph V.2.2, below.
1.5 "Class Counsel" means Corinblit & Seltzer, a
Professional Corporation, Marc M. Seltzer, Gretchen M. Nelson,
3700 Wilshire Boulevard, Suite 820, Los Angeles, California
90010-3085, telephone 213/380-4200.
1.6 "Class Escrow Agent" means the law firm of
Corinblit & Seltzer, a Professional corporation.
1.7 "Class Plaintiffs" means Class Representatives
Jeffrey Lynn, Dana Bruno, Arthur Shinensky, CPA-Data Systems,
Inc., JDA Systems Corp., Ronald M. Sherin, Kensington Trading
Abe-II, Rivie P. Gelman, Richard P. Pogozelski, Arthur Birnbaum,
Leon Berger, Pano Stephens, Stuart Schachter, Myron S. Kavalgian
and Reba A. Pressman on behalf of themselves and all others
similarly situated.
1.8 "Court" means the United States District Court for
the Central District of California, Western Division.
1.9 The term "Current Shareholder" of CompuMed means
those Persons who beneficially owned any shares of CompuMed
common stock on July 31, 1996, the date the settlement set forth
in this Stipulation was agreed to in principle, and who continue
to own such shares through the Effective Date, as defined herein.
1.10 "Defendants" means CompuMed and the Individual
Defendants as defined in Paragraph V.1.18, below.
1.11 "Derivative Action Settlement Fund" means the
principal amount of Four Hundred Thousand Dollars ($400,000) plus
interest which has been paid pursuant to Paragraph V.2.2 of this
Stipulation.
1.12 "Derivative Counsel" means Schubert & Reed LLP,
Robert C. Schubert, Juden Justice Reed, Two Embarcadero Center,
Suite 1050, San Francisco, California 94111, telephone
415/788-4220.
1.13 "Derivative Escrow Agent" means the law firm of
Schubert & Reed LLP or their successors.
1.14 "Derivative Plaintiff" means Charles Robert Farr,
derivatively on behalf of CompuMed.
1.15 "Effective Date,, means the first date by which
all of the events and conditions specified in Paragraph V.8.1 of
the Stipulation have been met and have occurred.
1.16 "Final" as used in connection with the Judgment,
as defined in Paragraph V.1.19, hereof, means that the Court has
entered the Judgment and means: (i) The date of final affirmance
on an appeal, the expiration of the time for a petition for a writ
of certiorari and, if certiorari be granted, the date of final
affirmance following review pursuant to that grant; or (ii) the
date of final dismissal of any appeal or the final dismissal of
any proceeding on certiorari; or (iii) if no appeal is filed, the
expiration date of the time for the filing or noticing of any
appeal from the Court's Judgment approving the Stipulation
substantially in the form of Exhibit B hereto in
Paragraph V.B.I(d); i.e., thirty days after entry of the
- -
Judgment. 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.
1.17 "Good Faith Order" means a finding by the Court,
pursuant to Federal common law and/or California Code of Civil
Procedure Sections 877 and 877.6, barring any and all claims
against Defendants for equitable comparative contribution, or
partial or comparative indemnity, based upon comparative
negligence or comparative fault, and any and all other claims for
contribution or indemnity, however denominated, against any
Defendant, that have been or could have been asserted by any
Person, based upon, relating to or arising out of the conduct
alleged in the Litigation, including, but not limited to,
Montgomery Securities.
1.18 "Individual Defendants" means Rod N. Raynovich,
DeVere B. Pollom, Robert G. Funari, Robert Stuckelman, Howard
Mark, M.D. and Russell Walker.
1.19 "Judgment" means the judgment to be rendered by
the Court, substantially in the form attached hereto as Exhibit
B.
1.20 "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, successors, representatives, or assignees.
1.21 "Plaintiffs' Settlement Counsel" means Class
Counsel and Derivative Counsel, collectively.
1.22 "Plan of Allocation" means a plan or formula of
allocation of the Class Action Settlement Fund which shall
separately be submitted by Class Counsel to the Court, whereby
the Class Action Settlement Fund shall be distributed to
Authorized Claimants after payment of expenses of the Class
Action notice and administration of the Settlement 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.
1.23 "Related Parties" means each of a Person's past or
present directors, officers, employees, partners, agents,
independent contractors, accountants, public relations firms,
parents, subsidiaries, affiliates, divisions, executors,
insurers, co-insurers, reinsurers, attorneys, personal or legal
representatives, joint venturers, assigns, spouses, heirs,
associates, estates, any entity in which a Person has a
controlling interest, any members of their immediate families, or
any trust of which any Individual Defendant is the settlor or
which is for the benefit of any Individual Defendant and/or
member(s) of his family. The foregoing definition of "Related
Parties" does not include (i) Montgomery Securities, (ii) any
other securities brokers or dealers, (iii) Merck or, (iv) any of
their Related Parties.
1.24 "Released Claims" with respect to the claims
asserted on behalf of the Settlement Class means any and all
claims, actions, causes of action, allegations, rights or
liabilities, including, but not limited to, claims for
negligence, gross negligence, professional negligence, breach of
duty of care, breach of duty of loyalty, fraud,
misrepresentation, breach of fiduciary duty, mismanagement,
corporate waste, malpractice, breach of contract, negligent
misrepresentation, violations of any state or federal statutes,
rules or regulations, including Unknown Claims as defined in
Paragraph V.1.30 hereof, that have been or could have been
asserted by the Class Plaintiffs and the Settlement Class Members,
or any of them, regardless of the claims, nature (whether the
claims are individual, class, representative or direct, or
otherwise) against the Released Persons, as defined in Paragraph
V.1.25, below, or any of them, in the Litigation by reason of or
related to (i) the purchase or other acquisition of CompuMed-common
stock by a Class Plaintiff or a Settlement Class Member during the
Settlement Class Period, or any loss by reason thereof, or (2)
with any of the facts, transactions, events, occurrences, acts,
disclosures, statements, omissions or failures to act, of
whatever kind or character whatsoever, irrespective of the state
of mind of the actor performing or omitting to perform the same,
which were or could have been alleged in the Litigation, the
Class Action Complaint, any other complaint, pleading, argument,
motion, brief, report or filing in the Litigation. "Released
Claims" with respect to the claims asserted derivatively means
any and all claims, actions, causes of action, allegations,
rights or liabilities, including, but not limited to, claims for
negligence, gross negligence, professional negligence, breach of
duty of care, breach of duty of loyalty, fraud, misrepresenta-
tion, breach of fiduciary duty, mismanagement, corporate waste,
malpractice, breach of contract, negligent misrepresentation,
violations of any state or federal statutes, rules or regula-
tions, including Unknown Claims, that have been or could have
been asserted by the Derivative Plaintiff, regardless of the
claims' nature (whether the claims are individual, class,
representative or direct, or otherwise) against the Released
Persons in the Litigation by reason of or related to (1) the
purchase or other acquisition of CompuMed common stock by a Class
Plaintiff or a Settlement Class Member during the Settlement
Class Period, or any loss by reason thereof, or (2) any of the
facts, transactions, events, occurrences, acts, disclosures,
statements, omissions or failures to act, of whatever kind or
character whatsoever, irrespective of the state of mind of the
actor performing or omitting to perform the same, which were or
could have been alleged in the Litigation or which could be
asserted against the Released Persons relating to the resolution
of the Litigation, the Derivative Complaint, any other complaint,
pleading, argument, motion, brief, report or filing in the
Litigation.
1.25 "Released Persons" means each and all of the
Defendants and their Related Parties.
1.26 "Settlement Class" or "Class" means all persons
who purchased CompuMed common stock between August 11, 1995 and
October 17, 1995, inclusive, and who suffered damages as a result
thereof. Excluded from the Class are the named Defendants,
members of the immediate families of each defendant, any entity
in which any defendant has a controlling interest, and the legal
representatives, heirs, successors, predecessors in interest, or
assigns of any of the Defendants. Also excluded from the Settle-
ment Class are those persons who timely and validly request
exclusion from the Settlement Class pursuant to the "Notice of
Pendency and Settlement of Class Action" to be sent to the
Settlement Class.
1.27 "Settlement Class Period" means the period
commencing on August 11, 1995 through and including October 17,
1995, inclusive.
1.28 "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 Paragraph V.1.26 of the
Stipulation.
1.29 "Settling Parties" means, collectively, each of
the Defendants and each of the Class Plaintiffs on behalf of
themselves and the members of the Settlement Class, and the
Derivative Plaintiff on behalf of himself and derivatively on
behalf of CompuMed.
1.30 "Unknown Claims" means any Released Claims which
any Class Plaintiff, Settlement Class Member, Derivative
Plaintiff, CompuMed, or current holder of CompuMed common stock
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 its decision to remain a member of the Settlement
Class or not to object to this settlement. With respect to any
and all Released Claims, the Settling Parties stipulate and agree
that, upon the Effective Date, each of the Class Plaintiffs, the
Settlement Class Members, the Derivative Plaintiff, CompuMed, and
the current holders of CompuMed common stock shall be deemed to
have, and by operation of the Judgment shall have, expressly
waived and relinquished, to the fullest extent permitted by law,
the provisions, rights, and benefits of 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 Class Plaintiffs, the Settlement Class Members, the
Derivative Plaintiff, CompuMed, and the current holders of
CompuMed common stock, upon the Effective Date, shall be deemed
to have, and by operation of the Judgment shall have, waived any
and all provisions, rights and benefits conferred by any law of
any jurisdiction, including, without limitation, any state or
territory of the United States, or principle of common law, which
is similar, comparable or equivalent to Section 1542 of the
California Civil Code. Each of the Class Plaintiffs, Settlement
Class Members, the Derivative Plaintiff, CompuMed, and current
holders of CompuMed common stock 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 each Class Plaintiff, Settlement Class
Member, Derivative Plaintiff, CompuMed, and current holder of
CompuMed common stock, upon the Effective Date, shall be deemed
to have, and by operation of the Judgment shall have, fully,
finally, and forever settled and released any and all Released
Claims, known or unknown, suspected or unsuspected, contingent or
non-contingent, whether or not concealed or hidden, which now
exist, or heretofore have existed upon any theory of law or
equity now existing or coming into existence in the future,
including, but not limited to, conduct which is negligent,
intentional, with or without malice, or a breach of any duty, law
or rule, without regard to the subsequent discovery or existence
of such different or additional facts.
2. THE CLASS ACTION AND DERIVATIVE ACTION SETTLEMENT
-------------------------------------------------
FUNDS.
-----
2.1 The Class Action Settlement Fund shall consist of
the following monetary and non-monetary consideration provided
for the benefit of Settlement Class Members:
(a) The sum of Nine Hundred Thousand Dollars
($900,000) which the Defendants have caused to be paid to the
Class Escrow Agent.
(b) The Derivative Action Settlement Fund, less
all fees, costs and expenses which the Court may award out of the
Derivative Action Settlement Fund, and any interest earned
thereon.
(c) Promptly after the Judgment becomes Final,
the Company shall cause its transfer agent to issue a total of
1,875,000 warrants (the "Warrants") to purchase shares of common
stock of the Company for the benefit of Authorized Claimants and
for the purpose of paying the fees, costs and expenses that the
Court may award counsel for the Class Plaintiffs. The Warrants
shall be distributed to Authorized Claimants and counsel for
Class Plaintiffs in such manner and amount as the Court may
direct, provided however, that the Warrants will become available
-------- -------
for distribution over time as follows: (i) 625,000 Warrants no
later than one hundred and eighty (180) days after the Judgment
has become Final; (ii) 625,000 Warrants no later than two hundred
and ten (210) days after the Judgment has become Final; and
(iii) 625,000 Warrants no later than two hundred and forty (240)
days after the Judgment has become Final. The Warrants shall
have a five (5) year term which shall terminate on the fifth
anniversary of the date that the Judgment becomes Final. Each
Warrant shall have an exercise price of three dollars ($3.00).
(d) The Warrants shall be issued pursuant to the
exemption from registration set forth in section 3 (a) (10) of
the Securities Act of 1933, 15 U.S.C. Section 77c(a)(10). The
Warrants shall be validly issued and shall be freely tradable by
all recipients. CompuMed shall use its best efforts to list the
warrants for trading on the Nasdaq market system or other
securities exchanges) as CompuMed's common stock and warrants are
then listed and traded. CompuMed shall use its best efforts to
(i) issue the Warrants in compliance with the United States
securities laws, comply with any applicable state "blue sky"
securities laws; and (ii) assure that the Warrants will be freely
tradable and listed, as provided above, without any restriction
after issuance, other than restrictions applicable to persons who
may be deemed affiliates of CompuMed, and will be otherwise fully
paid, and non-assessable and free from all liens and encum-
brances. CompuMed shall use its best efforts to (i) issue the
shares of common stock underlying the Warrants in compliance with
the United States securities laws, including the Securities Act
of 1933, 15 U.S.C. Section 77a, et seq. ("1933 Act"), the
-- ---
Securities Exchange Act of 1934, 15 U.S.C. Section 78a, et seq.
-- ---
("1934 Act"), and the rules and regulations of the Securities and
Exchange Commission ("SEC rules") ; (ii) comply with any
applicable state "blue sky" securities laws; and (iii) assure
that the shares of common stock underlying the Warrants will be
freely tradable and listed, as provided above, without any
restriction after issuance, other than restrictions applicable to
persons who may be deemed affiliates of CompuMed, and will be
otherwise fully paid, except that the exercise price must be paid
to exercise the Warrants, and non-assessable and free from all
liens-and encumbrances. All costs associated with the issuance
and qualification of the Warrants and the underlying shares of
common stock shall be borne by CompuMed.
(e) Promptly after the Judgment becomes Final,
the Company shall cause its stock transfer agent to issue 770,000
shares of CompuMed stock (the "Shares") for the benefit of
Authorized Claimants and for the purpose of paying the fees,
costs and expenses of counsel for the Class Plaintiffs as may be
awarded by the Court. The Shares shall be distributed to
Authorized Claimants and counsel for Class Plaintiffs in such
manner and amount as the Court may direct, provided however, that
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the Shares will become available for distribution over time as
follows: (i) 257,000 Shares no later than one hundred and eighty
(180) days after the Judgment has become Final; (ii) 257,000
Shares no later than two hundred and ten (210) days after the
Judgment has become Final; and (iii) 256,000 Shares no later than
two hundred and forty (240) days after the Judgment has become
Final.
(f) The Shares shall be issued pursuant to the
exemption from registration set forth in section 3(a)(10) of the
1933 Act, 15 U.S.C. Section 77c(a)(10). The Shares shall be
validly issued and shall be freely tradable by all recipients.
CompuMed shall use its best efforts to list the shares for
trading on the Nasdaq market system or other securities exchanges
as CompuMed's common stock and warrants are then listed and
traded. CompuMed shall use its best efforts to (i) comply with
any applicable state "blue sky" securities laws; and (ii) assure
that the shares will be freely tradable and listed, as provided
above, without any restriction after issuance, other than
restrictions applicable to persons who may be deemed affiliates
of CompuMed, and will be otherwise fully paid, and non-assessable
and free from all liens and encumbrances. All costs associated
with the issuance and qualification of the shares shall be borne
by CompuMed.
(g) Subject to the provisions of paragraph V.7.4
of this Stipulation and the approval of the Court, Class Counsel
shall provide CompuMed or its stock transfer agent with the names
of counsel for the Class Plaintiffs who are to receive Warrants
and Shares for payment of fees, costs and expenses and the number
of Warrants and Shares to be issued to such counsel. Upon
completion of the claims administration process, Class Counsel
shall provide CompuMed or its stock transfer agent with a list
identifying each Authorized Claimant and the number of Warrants
and Shares to be issued to such person. CompuMed shall then
direct its stock transfer agent to distribute the Warrants and
Shares within ten (10) business days of receipt of the list to
the persons and in the amounts shown on said list.
(h) The Defendants hereby assign to the Class
Plaintiffs for the benefit of themselves and the Settlement
Class, any rights or claims the Defendants may have against
Montgomery Securities. The insurer for the Company's directors
and officers shall agree to waive its rights to subrogation as
against Montgomery Securities. A copy of the insurer's letter
stating its intentions regarding the waiver of subrogation rights
is attached hereto as Exhibit D. All amounts, if any, realized
pursuant to the assignment shall be deposited in the Class Action
Settlement Fund or into another escrow account as may be
established by Class Counsel for the benefit of the Settlement
Class. Nothing in this paragraph or in the Stipulation shall be
deemed to be a claim or allegation that Montgomery Securities or
any other person acted improperly or has any liability for the
alleged acts or omissions that underlie the Litigation.
2.2 The Derivative Action Settlement Fund shall
consist of the following monetary consideration:
(a) The Individual Defendants have caused
the sum of Four Hundred Thousand Dollars ($400,000) paid to the
Derivative Escrow Agent, and such funds have been deposited into
an interest-bearing escrow account for the benefit of CompuMed.
After distribution of Derivative Plaintiff's counsels fees and
costs, described below (upon the terms and conditions of this
Stipulation), the balance of the Derivative Settlement Fund shall
be transferred by the Derivative Escrow Agent to the Class
Settlement Fund, described in paragraph V.2.1 above, and be
available for further distribution in accordance with the terms
and conditions of this Stipulation.
(b) As further consideration for the proposed
settlement of the Derivative Action, CompuMed has adopted new
policies pertaining to (a) trading by insiders or other key
employees in the Company's securities; and (b) the approval of
material contracts. Copies of these policies are attached hereto
as Exhibits E and F. CompuMed has agreed to keep the essential
provisions of these policies in force for at least five (5) years
from the date of the Court's approval of the settlement, except
as changes may be required by changes in the law or regulation or
may be approved by the Court, which shall retain jurisdiction for
this purpose.
2.3 The Settling Parties will submit to the Court in
support of their application for final approval of the settlement
set forth in this Stipulation such evidence as may be necessary
and appropriate upon which the Court may find that the settlement
of the Released Claims on the terms and conditions set forth
herein is fair, reasonable and adequate and constitutes
reasonably equivalent value for the release of the Released
Claims and is a good faith transfer for value within the meaning
of the United States Bankruptcy Code and the California version
of the Uniform Fraudulent Transfer Act and any other similar law
of any other jurisdiction.
2.4 Plaintiffs' Settlement Counsel, as Escrow Agents,
shall invest the cash portion of the Class and Derivative Action
Settlement Funds in short term treasury bills or money market
funds backed by the full faith and credit of the United States
Government or fully insured by the United States Government or an
agency thereof and shall reinvest the proceeds of these short
term treasury bills or money market funds as they mature in
similar instruments at their then current market rates.
2.5 Except as otherwise provided in the Stipulation,
Plaintiffs' Settlement Counsel shall not disburse either the
Class Action Settlement Fund or the Derivative Action Settlement
Fund unless the Judgment has become Final.
2.6 Subject to further orders and/or directions as may
be made by the Court, Plaintiffs' Settlement Counsel are
authorized to execute such transactions on behalf of the
Settlement Class Members and CompuMed as are consistent with the
terms of the Stipulation.
2.7 All funds held by the Escrow Agents shall be
deemed and considered to be in custodia legis of the Court, and
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shall remain subject to the jurisdiction of the Court, until such
time as such funds shall be distributed pursuant to the
Stipulation and/or further order(s) of the Court.
2.8 (a) The Defendants and Plaintiffs, Settlement
Counsel agree to treat the Class Action and Derivative Action
Settlement Funds (hereinafter the "Settlement Funds") as being at
all times "qualified settlement funds" within the meaning of
Treas. Reg. Section 1.468B-1. In addition, Plaintiffs,
Settlement Counsel and, as required, the Defendants shall jointly
and timely make such elections as necessary or advisable to carry
out the provisions of this Paragraph V.2.8, including the
"relation-back election" (as defined in Treas. Reg. Section
1.468B-1) back to the earliest permitted date. Such elections
shall be made in compliance with the procedures and requirements
contained in such regulations. It shall be the responsibility of
Plaintiffs, Settlement Counsel or their designated agent to
timely and properly prepare, and deliver the necessary
documentation for signature by all necessary parties, and
thereafter to cause the appropriate filing to occur.
(b) For the purpose of Section 468B of the
Internal Revenue Code of 1986, as amended, and the regulations
promulgated thereunder, the "administrator" shall be Plaintiffs,
Settlement Counsel. Plaintiffs, Settlement Counsel shall timely
and properly file all informational and other tax returns
necessary or advisable with respect to the Settlement Funds
(including without limitation the returns described in Treas.
Reg. Section 1.468B-2(k)). Such returns (as well as the election
described in Paragraph V.2.8(a)) shall be consistent with this
Paragraph V.2.8 and in all events shall reflect that all taxes
(including any interest or penalties) on the income earned by the
Settlement Funds shall be paid out of the Settlement Fund as
provided in Paragraph V.2.8(c) hereof.
(c) All (a) taxes (including any interest or
penalties) arising with respect to the income earned by the
Settlement Funds, including any taxes or tax detriments that may
be imposed upon the Defendants with respect to any income earned
by the Settlement Funds for any period during which the Settle-
ment Funds do not qualify as a "qualified settlement fund" for
Federal or state income tax purposes ("Taxes") and (b) expenses
and costs incurred in connection with the operation and imple-
mentation of this Paragraph V.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 Paragraph V.2.8) ("Tax
Expenses"), shall be paid out of the Settlement Funds; in all
events the Released Persons shall have no liability or
responsibility for the Taxes or the Tax Expenses. Counsel for
the Class Plaintiffs and Derivative Counsel shall indemnify and
hold the Released Persons harmless for Taxes and Tax Expenses
(including, without limitation, taxes payable by reason of any
such indemnification). Further, Taxes and Tax Expenses shall be
treated as, and considered to be, a cost of administration of the
Settlement and shall be timely paid by Plaintiffs, Settlement
Counsel out of the Settlement Funds without prior order from the
Court and the Escrow Agents shall be obligated (notwithstanding
anything herein to the contrary) to withhold from distribution to
class members any funds necessary to pay such amounts including
the establishment of adequate reserves for any Taxes and Tax
Expenses (as well as any amounts that may be required to be
withheld under Treas. Reg. Section 1.468B-2(1)(2)); the Released
Persons are not responsible and shall have no liability therefor.
The parties hereto agree to cooperate with Plaintiffs, Settlement
Counsel, each other, and their tax attorneys and accountants to
the extent reasonably necessary to carry out the provisions of
this Paragraph V.2.8.
(d) For the purpose of this Paragraph
V.2.8, references to the Settlement Funds shall include both the
Class Action Settlement Fund and the Derivative Settlement Fund
and the Class Notice and Administration Fund and shall also
include any earnings thereon.
2.9 In the event that the Stipulation is not approved,
or is terminated, canceled, or fails to become effective for any
reason, the Class Action and Derivative Action Settlement Funds
(including accrued interest) less expenses reasonably and
necessarily incurred in connection with the settlement provided
for herein, shall be refunded as described in Paragraph V.8.6 below.
3. NOTICE AND ADMINISTRATION FUND.
------------------------------
3.1 Plaintiffs' Settlement Counsel shall establish a
"Notice and Administration Fund," and may withdraw up to $50,000,
in the aggregate, from the Class Action and Derivative Action
Settlement Funds to pay costs and expenses reasonably and
necessarily incurred in connection with providing notice to the
Class, mailing and publishing the derivative notice, locating
Class members, soliciting Class claims, assisting with the filing
of claims, administering the Class Action and Derivative Action
Settlement Funds, distributing the Class Action Settlement Fund
to the members of the Settlement Class, processing Proofs of
Claim and Release and paying escrow fees and costs, if any. The
Notice and Administration Fund may also be invested and earn
interest as provided for in Paragraph V.2.4 of this Stipulation.
3.2 Subject to Paragraph V.3.1 above, all reasonable
and necessary costs of providing notice and administering the
settlement of the Derivative Action, including mailing and
publishing Derivative Notice, shall be charged against the
Derivative Action Settlement Fund. Subject to the limitations
and conditions of Paragraph V.3.1 above, all reasonable and
necessary costs of providing notice and administering the
settlement of the Class Action, including mailing and publishing
Class Notice, shall be charged against the Class Action
Settlement Fund. Defendants shall have no responsibility or
liability for any such costs, except contributions to the two
Funds which have been made on their behalf.
4. NOTICE ORDER AND SETTLEMENT HEARING.
-----------------------------------
4.1 Promptly after execution of the Stipulation, the
Settling Parties 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) Conditionally certify the Settlement Class,
as defined in Paragraph V.1.25 above, for the purpose of the
settlement contained herein and for the purpose of providing
notice to members of the Settlement Class;
(b) Preliminarily approve the Stipulation and the
settlement set forth herein as being fair, just, reasonable and
adequate to the Settlement Class and as to CompuMed and its
current holders of common stock;
(c) Approve the form of Notice of Pendency and
Settlement of Class Action ("Class Notice") (substantially in the
form of Exhibit A-1 hereto) and the Notice of Hearing on
Settlement of Derivative Action ("Derivative Notice")
(substantially in the form of Exhibit A-4 hereto) (Collectively,
the "Notices") for mailing to members of the Settlement Class and
current holders of CompuMed common stock, respectively;
(d) 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;
(e) Approve a summary notice of the proposed
settlement of the Class and Derivative Actions for publication
(the "Summary Notice") (substantially in the form of Exhibit A-3
hereto);
(f) Direct Plaintiffs, Settlement Counsel to mail
or cause to be mailed by first class mail the Class Notice and
the Proof of Claim and Release to those Persons in the Settlement
Class who can be identified through reasonable effort, and the
Derivative Notice to all current holders of CompuMed common
stock, on or before the date specified in the Notice Order;
(g) Request that nominees who purchased CompuMed
common stock during the Settlement Class Period send the Class
Notice and Proof of Claim and Release form to all beneficial
owners of such CompuMed stock within ten days after receipt of
the Class Notice or send a list of the names and addresses of
such beneficial owners to Class Counsel within ten days of
receipt of the Class Notice and direct that nominees who are
current holders of CompuMed common stock send the Derivative
Notice to all beneficial owners for whom they currently hold
CompuMed common stock within ten days after receipt of the
Derivative Notice or send a list of the names and addresses of
such beneficial owners to Derivative Counsel within ten days of
receipt of the Derivative Notice;
(h) Direct Plaintiffs, Settlement Counsel to
cause the Summary Notice to be published once in the national
edition of The Wall Street Journal on or before the date
-----------------------
specified in the Notice Order;
(i) 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 and that no
portion of the Settlement Fund may be allocated to any claimant
unless such claimant has executed and delivered to Class Counsel
or their authorized representative a release substantially in the
form of paragraph 5, below;
(j) Find that the notice given pursuant to
subparagraphs (c) - (h) above, constitutes the best notice
practicable under the circumstances, including individual notice
to all Persons in the Settlement Class and current holders of
Compumed common stock who can be identified upon reasonable
effort, and constitutes valid, due and sufficient notice to all
Persons in the Settlement Class and all current holders of
CompuMed common stock, complying fully with the requirements of
Rules 23 and 23.1 of the Federal Rules of Civil Procedure, the
Constitution of the United States, and any other applicable law;
(k) Schedule a hearing or hearings (the
"Settlement Hearing") to be held by the Court to consider and
determine whether the proposed settlement of the Litigation as
contained in the Stipulation should be approved as fair,
reasonable and adequate to the Settlement Class, the current
holders of CompuMed common stock and CompuMed derivatively and
whether the Judgment approving the settlement should be entered;
(l) Provide that Class Members who so desire 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 of Pendency and Settlement of Class
Action;
(m) Provide that at or after the Settlement
Hearing, the Court shall determine whether the proposed Plan of
Allocation should be approved;
(n) 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 counsel for Class Plaintiffs and
the Derivative Plaintiff;
(o) Provide that pending final determination of
whether the settlement contained in the Stipulation should be
approved, neither the Class Plaintiffs, nor any Settlement Class
Member, nor the Derivative Plaintiff, nor CompuMed, nor any
current holder of CompuMed common stock either directly,
representatively, derivatively, 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
Defendants;
(p) Provide that any objections to (i) the
proposed settlement contained in the Stipulation; (ii) entry of
the Judgment approving the settlement; (iii) the proposed Plan of
Allocation; or (iv) the Fee and Expense Applications of counsel
for Class Plaintiffs and the Derivative Plaintiff, shall be heard
and any papers submitted in support of said objections shall be
received and considered by the Court at the Settlement Hearing
only if, on or before the date specified in the Notice Order, the
Class Notice and Derivative Notice, Persons making objections
shall file and serve written notice of their intention to appear
(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, the Class Notice and Derivative Notice;
(q) Provide that the Settlement Hearing may, from
time to time and without further notice to the Settlement Class
or current holders of CompuMed common stock, be continued or
adjourned by Order of the Court; and
(r) Provide that, whether or not the Effective
Date occurs, any Settlement 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, whether or not the Settlement Class Member submits a Proof
of Claim, and whether or not the Settlement Class Member's claim
is approved for payment from the Settlement Fund.
5. RELEASES.
--------
5.1 Upon the Effective Date, as defined in Paragraph
V.1.15, each of the Settlement Class Members and the Class
Plaintiffs shall be deemed to have, and by operation of the
Judgment shall have, fully, finally and forever released,
relinquished and discharged all Released Claims against the
Released Persons, whether or not a Settlement Class Member
executes and delivers the Proof of Claim and Release.
5.2 Upon the Effective Date, each of the Current
Shareholders of CompuMed common stock, the Derivative Plaintiff
and CompuMed shall each be deemed to have, and by operation of
the Judgment shall have, fully, finally and forever released,
relinquished and discharged all Released Claims of a derivative
nature against the Released Persons.
5.3 Upon the Effective Date, each of Defendants,
except Howard Mark, M.D., shall 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 Class
Plaintiffs, Settlement Class Members, the Derivative Plaintiff,
the current holders of CompuMed common stock, their counsel and
each of their Related Parties, from all claims (including
"Unknown Claims"), based on, arising out of, relating to, or in
connection with the institution, prosecution, assertion,
settlement or resolution of the Litigation, including the
settlement set forth in this Stipulation, except for the right to
enforce the terms of this Stipulation.
5.4 Upon the Effective Date, the Class Plaintiffs and
the Settlement Class acknowledge full and complete satisfaction
of, and do hereby fully, finally and forever settle, release and
discharge the Released Persons with respect to the Released
Claims, whether or not any such member or the Settlement Class
executes and delivers a Proof of Claim and Release or
participates in the Plan of Allocation.
6. ADMINISTRATION AND CALCULATION OF CLAIMS, FINAL
-----------------------------------------------
AWARDS AND SUPERVISION AND DISTRIBUTION OF
------------------------------------------
SETTLEMENT FUND.
----------------
6.1 Class Counsel, or their authorized agents, acting
on behalf of the Settlement Class, and subject to such
supervision and direction of the Court as may be necessary or as
circumstances may require, shall administer and calculate the
claims submitted by Settlement Class Members and shall oversee
distribution of the Net Settlement Fund (defined below) to
Authorized Claimants.
6.2 The Class Action Settlement Fund shall be applied
as follows:
(a) Subject to Paragraph V.7, to pay the
attorneys, fees, costs and expenses of counsel to the Class
Plaintiffs (the "Fee and Expense Award"), if and to the extent
allowed by the Court;
(b) Subject to Paragraph V.3, to pay all the
costs and expenses reasonably and actually incurred in connection
with providing notice to the Class, locating Class members,
soliciting Class claims, assisting with the filing of claims,
administering and distributing the Net Settlement Fund to the
Settlement Class, processing Proofs of Claim and Release and
paying escrow fees and costs, if any;
(c) To pay the Taxes and Tax Expenses owed by the
Class Action Settlement Fund; and
(d) To distribute the balance of the Class Action
Settlement Fund (the "Net Settlement Fund") to Authorized
Claimants as allowed by the Stipulation, the Plan of Allocation
and the Court.
6.3 Upon the Effective Date and thereafter, and in
accordance with the terms of the 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,
subject to and in accordance with the following:
(a) within ninety days after the mailing of the
Notice 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 retained by Class Counsel a completed
Proof of Claim and Release 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, or otherwise allowed, shall be forever
barred from receiving any payments pursuant to the Stipulation
and the settlement set forth herein, but will in all other
respects be subject to and bound by the provisions of the
Stipulation, the Settlement and releases contained herein, and
the Judgment.
(c) The Net Settlement Fund shall be distributed
to the Authorized Claimants substantially in accordance with a
Plan of Allocation to be described in the Notice and approved by
the Court. Class Counsel and the claims administrator intend to
seek an order from the Court authorizing the distribution of the
Net Settlement Fund to Authorized Claimants (the "Distribution
Order"). Promptly following the filing of the Court's
Distribution order, Class Counsel or the claims administrator
shall (i) instruct CompuMed or its transfer agent as to the total
number of Shares and Warrants to be issued to each Authorized
Claimant, and (ii) provide CompuMed or its transfer agent with
the names and addresses of the Authorized Claimants to whom such
Shares and Warrants are to be issued. If the Court's
Distribution Order is filed prior to the date for the initial
distribution of the Shares and Warrants (as set forth in
paragraph V.2.1(c) and (e) above), then Class Counsel and
CompuMed shall cooperate in causing the Shares and Warrants to be
promptly distributed to Authorized Claimants as such Shares and
Warrants become available for distribution. If some or all of
the Shares and Warrants become available for distribution prior
to the filing of the Court's Distribution Order, then Class
Counsel and Compumed shall cooperate in issuing to Authorized
Claimants such Shares and Warrants as are then available for
distribution promptly following the filing of the Distribution
Order.
6.4 The Released Persons shall have no responsibility
for, interest in, or liability whatsoever with respect to the
investment or distribution of the Net Settlement Fund, the Plan
of Allocation, the determination, administration, calculation or
payment of claims, the payment or withholding of taxes, or any
losses incurred in connection therewith. However, nothing herein
is intended to release the Defendants from their obligation to
cooperate with Class Counsel or their designated agent in causing
the Shares and Warrants to be issued by the Company's transfer
agent as provided in Paragraphs V.2.1(c) and (e), above.
6.5 No Person shall have any claim against any
Released Persons, Class Counsel, Derivative Counsel, any claims
administrator or other agent designated by Class 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 including, but not limited to, any adjustments to
an Authorized Claimant's Claim set forth therein, is not a part
of the Stipulation and is to be considered by the Court
separately from the Court's consideration of the fairness,
reasonableness and adequacy of the settlement set forth in the
Stipulation, and any order or proceedings relating to the Plan of
Allocation shall not operate to terminate or cancel the
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 the Stipulation.
7. ATTORNEY'S FEES AND REIMBURSEMENT OF EXPENSES.
---------------------------------------------
7.1 The Class Plaintiffs or their counsel may submit
an application or applications (the "Class Fee and Expense
Application") for distributions to them from the Class Action
Settlement Fund for: (i) an award of attorneys' fees of up to 33-
1/3 percent of the aggregate total of the Class Action Settlement
Fund, including the cash value of the Fund, the Shares, the
Warrants and any interest earned on the Fund; plus (ii)
reimbursement of actual expenses and costs, including the fees of
any experts or consultants incurred in connection with
prosecuting the Litigation. Class Counsel reserve the right to
make additional applications for fees and expenses incurred in
connection with the giving of Notice to the Settlement Class,
administering the Class Action Settlement Fund or addressing
other claims administration matters.
7.2 The Derivative Plaintiff or his counsel may submit
an application (the "Derivative Fee and Expense Application") for
distributions to Derivative Counsel from the Derivative Action
Settlement Fund for: (i) an award of attorneys' fees of up to 33-
1/3 percent of the Derivative Action Settlement Fund (including
interest from such fund); plus (ii) reimbursement of actual
expenses and costs, including the fees of any experts or
consultants incurred in connection with prosecuting and settling
the Litigation.
7.3 Nothing in the Stipulation shall be construed to
provide the Defendants with standing to challenge or question any
Fee and Expense Application by counsel for Class Plaintiffs and
the Derivative Plaintiff, or any Fee and Expense Award to counsel
for Class Plaintiffs and the Derivative Plaintiff or to their
experts or consultants, and the Defendants agree not to object or
take any position with regard to the Class Fee and Expense
Application or Derivative Fee and Expense Application.
7.4 Derivative Counsel shall be entitled to receive
the payment of attorneys, fees and costs in the full amount
approved by the Court solely from the Derivative Settlement Fund
within five (5) business days after entry of the Court order
approving such fees and costs and approving the Settlement set
forth herein, whether or not objections to the amount of fees or
costs are lodged with the Court, subject to written assurances
and security satisfactory to Defendants as to repayment thereof
by Derivative Counsel in the event of a reduction or reversal of
the fees or costs awarded after appeal. Counsel for the Class
Plaintiffs shall be entitled to receive the payment of a certain
portion (to be determined by the Court) of their attorneys, fees
and costs approved by the Court solely from Class Settlement Fund
within five (5) business days after entry of the Court order
approving such fees and costs and approving the settlement set
forth herein, whether or not objections to the amount of fees or
costs are lodged with the Court, subject to written assurances
and security satisfactory to Defendants as to repayment thereof
by counsel for the Class in the event of a reduction or reversal
of the fees or costs awarded after appeal. The remainder of the
Plaintiffs' fees and costs of counsel for the Class Plaintiffs,
including fees and costs for which such counsel shall be
compensated from the Shares and Warrants, shall be paid out to
counsel for the Class Plaintiffs promptly upon their issuance as
provided in paragraph V.2.1 above. Prior to the date of the
initial distribution of Shares and Warrants (as set forth in
paragraphs V.2.1(c) and (e) above), Class Counsel shall instruct
CompuMed or its transfer agent as to the total amount of Shares
and Warrants to be issued to counsel for the Class Plaintiffs and
provide the names and addresses of the Persons to whom such
Shares and Warrants are to be issued. Thereafter, CompuMed or
its transfer agent shall use such instructions or any modified
instructions that Class Counsel may furnish to promptly issue the
Shares and Warrants to counsel for the Class Plaintiffs as such
Shares and Warrants become available for distribution.
7.5 The procedure for and the allowance or
disallowance by the Court of any applications by any of the
counsel to the Class Plaintiffs and the Derivative Plaintiff for
attorneys' fees, costs and expenses, including the fees of
experts and consultants, to be paid out of the Settlement Fund,
are not part of the Settlement set forth in the 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 the Stipulation, and any order or
proceedings relating to the Fee and Expense Applications, or any
appeal from any order relating thereto or reversal or
modification thereof, shall not operate to terminate, modify or
cancel the Stipulation, or affect or delay the finality of the
Judgment approving the Stipulation and the settlement of the
Litigation set forth herein.
8. CONDITIONS OF SETTLEMENT, EFFECT OF DISAPPROVAL,
------------------------------------------------
CANCELLATION OR TERMINATION.
---------------------------
8.1 The Effective Date of the Stipulation shall be
conditioned on the occurrence of all of the following events:
(a) CompuMed and the Individual Defendants have
fully complied with Paragraphs V.2.1 and V.2.2 above;
(b) The Court has entered the Notice Order, as
required by Paragraph V.4, above;
(c) The Potential Claim Amount of Class Members
who file valid and timely Requests for Exclusion from the
Settlement Class is less than the amount set forth in Exhibit C
hereto, or, in the alternative, the Defendants have not exercised
their option to withdraw from the settlement in accordance with
the procedures set forth in Exhibit C or as provided for in
paragraph V.8.4., below;
(d) The Court has entered the Judgment in the
form of Exhibit B, or such other form of judgment as is agreed
upon by counsel for Settling Parties, which includes, among other
provisions, the Good Faith Order and a finding by the Court that
the Shares and Warrants issued pursuant to paragraphs V.2.1(c)
and (e), above, are exempt from the registration requirements of
the 1933 Act, pursuant to Sections 3(a)(10) and 4(l) thereof;
(e) The Judgment has become Final, as defined in
V.1.16, above.
8.2 Upon the occurrence of all of the events
referenced in Paragraph V.8.1 above, any and all remaining
interest or right of the Defendants and the Insurer in or to the
Settlement Fund, if any, shall be absolutely and forever
extinguished and the Defendants and the Insurer shall have no
further liability or obligation whatsoever with respect to the
payments made by them to the Settlement Fund.
8.3 If prior to the Settlement Hearing, Persons who
otherwise would be members of the Settlement Class have filed
with the Court timely requests for exclusion ("Requests for
Exclusion") from the Settlement Class in accordance with the
provisions of the Notice Order and the Class Notice given
pursuant thereto, and such Persons in the aggregate have a
Potential Claim Amount (as that term is defined in Exhibit C) in
an amount greater than the sum specified in Exhibit C, the
Defendants shall have, in their sole and absolute discretion, the
option to terminate this Stipulation in accordance with the
procedures set forth in Exhibit C. 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 promptly after they are received by
Plaintiffs' counsel and, in any event, no later than five court
days before the Settlement Hearing(s).
8.4 Defendants shall also have the right to withdraw
from the proposed settlement set forth in this Stipulation, if,
on the date five days prior to the Settlement Hearing, the
average trading price of CompuMed common stock during the
immediately preceding ten trading days is less than $1 per share.
8.5 If all of the conditions specified in Paragraph
V.8.1 are not met, then the Stipulation shall be canceled and
terminated at the election of any party hereto, thirty days after
written notice is served on counsel for the remaining parties
unless after receipt of such notice, Class Counsel, Derivative
Counsel and counsel for the Defendants mutually agree in writing
to proceed with the Stipulation.
8.6 Unless otherwise ordered by the Court, in the
event the Stipulation shall terminate, or be canceled, or shall
not become effective for any reason, within five business days
after written notification of such event is sent by counsel for
Defendants to the Class Counsel and Derivative Counsel, the Class
Action Settlement Fund and Derivative Action Settlement Fund
(including accrued interest), less expenses reasonably and
necessarily incurred in connection with the settlement provided
for herein, shall be refunded to the Defendants and/or their
insurer by the Escrow Agent. In such event, the Defendants
and/or their insurer in proportion to their respective
contributions to the Class Action and Derivative Action
Settlement Funds shall also be entitled to any tax refund owing
to such Settlement Funds. At the request of the Defendants,
and/or their insurer, the Escrow Agent, claims administrator or
their designee shall apply for any such refund and pay the
proceeds, after deduction of any fees or expenses incurred in
connection with such applications for refund, to the Defendants
and/or the insurer in proportion to their respective
contributions.
8.7 In the event that the Stipulation is not approved
by the Court or the settlement set forth in the Stipulation is
terminated or fails to become effective in accordance with its
terms, all Persons and the Settling Parties shall be restored to
their respective positions in the Litigation as of July 31, 1996.
In such event, the terms and provisions of the Stipulation, with
the exception of Paragraphs V.2.4-2.9, 6.4, 6.5, 7.5, 8.5-8.7,
9.3, 9.8-9.12 herein, shall have no further force and effect with
respect to the Settling Parties and shall not be used in this
Litigation or in any other proceeding for any purpose and any
Judgment or order entered by the Court in accordance with the
terms of the Stipulation shall be treated as vacated, nunc pro
---- ---
tunc.
----
8.8 In the event that the Stipulation is not approved
by the Court or the settlement set forth in the Stipulation is
terminated or fails to become effective in accordance with its
terms, the Settling Parties shall, within two weeks of such
occurrence, jointly move for a status conference with the Court
to be held on the Court's first available date. At such status
conference, the Settling Parties shall ask for the Court's
assistance in scheduling continued proceedings in the Litigation
as between the Settling Parties. None of the Settling Parties
shall file or serve any further motions (except as may be
necessary to exercise their rights under the settlement set forth
in this Stipulation) or discovery requests on any of the other
Settling Parties or their Related Parties in connection with this
Litigation pending such status conference, nor shall any response
be due by any Settling Party or its Related Parties to any
outstanding discovery by any other Settling Party pending such
status conference.
9. MISCELLANEOUS PROVISIONS.
------------------------
9.1 The Settling Parties (a) acknowledge that it is
their intent to consummate this agreement; and (b) agree to
cooperate to the extent necessary to effectuate and implement all
terms and conditions of the Stipulation and to exercise their
best efforts to accomplish the foregoing terms and conditions of
the 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 and the Released Claims and intend to
be bound by the Stipulation regardless of any intervening change
in the law that might affect the rights of the Plaintiffs or the
Defendants in the Litigation. The Settling Parties agree that
the terms of the Stipulation reflect a good faith settlement of
the claims asserted by the Class Plaintiffs and the Derivative
Plaintiff, reached voluntarily after consultation with legal
counsel.
9.3 Neither the Stipulation nor the settlement, nor
any act performed or document executed pursuant to or in
furtherance of the Stipulation or the settlement: (i) is or may
be deemed to be or may be used as an admission of, or evidence
of, the validity of any Released Claim, or of any wrongdoing or
liability of the Released Persons, including, but not limited to,
any assertions in connection with or arising from the resolution
of the Litigation; 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 Released Persons in any civil, criminal or
administrative proceeding in any court, administrative agency or
other tribunal. Notwithstanding the foregoing, the Stipulation
may be used to consummate or enforce the Stipulation, the
settlement or the Judgment, and the Released Persons may file the
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 the Stipulation are
material and integral parts hereof and are fully incorporated
herein by this reference.
9.5 The Stipulation may be amended or modified only by
a written instrument signed by or on behalf of all Settling
Parties or their respective successors-in-interest.
9.6 The Stipulation and the Exhibits attached hereto
constitute the entire agreement among the parties hereto and no
representations, warranties or inducements have been made to any
party concerning the Stipulation or its Exhibits other than the
representations, warranties and covenants contained and
memorialized in such documents.
9.7 Class Counsel, on behalf of the Settlement Class,
and Derivative Counsel, on behalf of the current holders of
CompuMed common stock, are expressly authorized by the Class
Plaintiffs and the Derivative Plaintiff to take all appropriate
action required or permitted to be taken by the Settlement Class
and the current holders of CompuMed common stock pursuant to the
Stipulation to effectuate its terms and also are expressly
authorized to enter into any modifications or amendments to the
Stipulation on behalf of the Settlement Class and the current
holders of CompuMed common stock which they deem appropriate.
9.8 Each counsel or other Person executing the
Stipulation or any of its Exhibits on behalf of any party hereto
hereby warrants that such Person has the full authority to do so.
Each of the Settling Defendants, the Class Plaintiffs and the
Derivative Plaintiff, represent and warrant that he, she or it is
entering into this settlement free of any duress or coercion of
any kind, is properly authorized to enter into this settlement,
has not voluntarily assigned any right with respect to any matter
encompassed by any Release and will hold all other parties
harmless as a result of any voluntary assignment of such matter.
9.9 The Stipulation may be executed in one or more
counterparts. All executed counterparts and each of them shall
be deemed to be one and the same instrument. Counsel for the
parties to the Stipulation shall exchange among themselves
original signed counterparts and a complete set of original
executed counterparts shall be filed with the Court.
9.10 The Stipulation shall be binding upon, and inure
to the benefit of, the successors, heirs, executors,
administrators, legal representatives and assigns of the parties
hereto or their Related Parties.
9.11 The Court shall retain jurisdiction with respect
to implementation and enforcement of the terms of the
Stipulation, and all parties hereto submit to the jurisdiction of
the Court for purposes of implementing and enforcing the
settlement embodied in the 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 obligations of the parties to the Stipulation 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 the
Stipulation to be executed, by their duly authorized attorneys,
as of August 7, 1997.
MARC M. SELTZER (54534)
GEORGE A. SHOHET (112697)
CORINBLIT & SELTZER
A Professional Corporation
3700 Wilshire Boulevard, Suite 820
Los Angeles, CA 90010-3085
Telephone: (213) 380-4200
Chairman of Executive Committee
of Counsel for Plaintiffs
KEVIN P. RODDY (128283)
MILBERG WEISS BERSHAD
HYNES & LERACH LLP
355 South Grand Avenue,
Suite 4170
Los Angeles, CA 90071
Telephone: (213) 617-9007
-and-
WILLIAM S. LERACH (68581) HENRY
ROSEN (156963)
MILBERG WEISS BERSHAD
HYNES & LERACH LLP
600 West Broadway, Suite 1800 San
Diego, CA 92101
ARTHUR N. ABBEY
JOSHUA N. RUBIN
ABBEY, GARDY & SQUITIERI, LLP
212 East 39th Street
New York, NY 10016
Telephone: (212) 889-3700
Members ofthe Executive Committee
of Counselfor Plaintiffs
By /s/ Marc M. Seltzer
---------------------------------
Marc M. Seltzer
Attorneys for Class Plaintiffs
ROBERT C. SCHUBERT (62684)
JUDEN JUSTICE REED (153748)
SCHUBERT & REED LLP
Two Embarcadero Center,
Suite 1050
San Francisco, CA 94111
Telephone: (415) 788-4220
By /s/ Robert C. Schubert
---------------------------------
Robert C. Schubert
Member of the Executive
Committee and Attorneys for the
Derivative Plaintiff
DAVID SIEGEL (101355)
PATRICK O. HUNNIUS (174633)
IRELL & MANELLA LLP
1800 Avenue of the Stars,
Suite 900
Los Angeles, CA 90067-4276
Telephone: (310) 277-1010
By /s/ Patrick O. Hunnius
---------------------------------
David Siegel (Patrick O. Hunnius)
Attorneys for Outside Director
Defendants Robert Funari,
Robert Stuckelman, and
Russell Walker
JEFFREY S. GORDON (76574)
KAYE, SCHOLER, FIERMAN, HAYS
& HANDLER, LLP
1999 Avenue of the Stars,
Suite 1600
Los Angeles, CA 90067
Telephone: (310) 788-1000
By /s/ Jeffrey S. Gordon
--------------------------------
Jeffrey S. Gordon
Attorneys for Defendants
CompuMed, Inc., Rod N. Raynovich
and DeVere B. Pollom
ORIGINAL
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
WESTERN DIVISION
In re COMPUMED, INC. SECURITIES ) Master File No.
LITIGATION ) CV 95-7051 MRP(VAPx)
_________________________________)
) CLASS ACTION
This Document Relates To: ) ----- ------
)
ALL ACTIONS. )
_________________________________)
FINAL JUDGMENT AND
------------------
ORDER OF DISMISSAL
------------------
<PAGE>
This matter having duly come before the Court for hearing,
pursuant to the Order of the Court, dated October 20, 1997, on
the application of the parties herein for approval of the
settlement set forth in the Stipulation of Settlement of Class
Action and Derivative Claims (the "Stipulation"), dated as of
August 12, 1997, and filed herein on October 19, 1997, due and
adequate notice having been given to the Settlement Class,
defined below, the current shareholders of CompuMed, Inc.
("CompuMed" or "the Company") and other interested parties, the
Court having considered all papers filed and proceedings herein
and otherwise being fully informed in the matter, and good cause
appearing therefor,
IT IS HEREBY ORDERED,ADJUDGED AND DECREED as follows:
1. This Final Judgment and Order of Dismissal ("Final
Judgment") incorporates by reference the definitions set forth in
the Stipulation, and all capitalized terms used herein shall have
the same meanings as set forth in the Stipulation.
2. This Court has jurisdiction over the subject matter of
this Litigation and over all parties to this Litigation,
including all members of the Settlement Class, as defined below,
and the current shareholders of CompuMed.
3. The Court having considered, inter alia, the
----- ----
comparative culpability of the Defendants; the strengths and
weaknesses of the claims of Class Plaintiffs and of Derivative
Plaintiff and the Defendants' defenses; the risk of finding no
liability against the Defendants; the time and expense necessary
to prosecute the action against the Defendants through trial and
appeals; the financial condition of Defendants in relation to
Defendants' potential liability to the Class Plaintiffs and, in
connection with the claims asserted derivatively by the Deriva-
tive Plaintiff, to the Company and the amount of insurance
potentially available to cover the acts of Defendants; the
difficulties associated with satisfaction of any judgment that
might be entered against Defendants and the risk of dissipation
or loss of assets of Defendants, including any applicable
insurance coverage; the fact that the settlement was the product
of arms' length mediation before a Court-appointed mediator; and
the recommendation of the Court-appointed mediator; the Court
finds and concludes that the amount contributed on behalf of
Defendants to the Class Action Settlement Fund and the Derivative
Action Settlement Fund is fair, adequate and reasonable,
including taking into account the "wasting asset" nature of the
Defendants' insurance coverage (i.e., that costs of defense and
- -
attorneys' fees are first subtracted from policy limits).
4. The Court finds and concludes that the settlement is
not the result of collusion, fraud or tortious conduct by any of
the parties to the Stipulation aimed at causing injury to the
interests of any Person. Moreover, the Court finds that the
settlement set forth in the Stipulation is made and entered into
in good faith.
5. For purposes of the Stipulation and this Final
Judgment, a Settlement Class is hereby certified as follows:
All Persons who purchased or otherwise acquired the common
stock of CompuMed, Inc. during the period commencing on
August 11, 1995, through and including October 17, 1995,
inclusive.
Excluded from the Settlement Class are (i) the named Defendants,
members of the immediate families of each of the Individual
Defendants, any entity in which any Defendant has a controlling
interest, and the legal representatives, heirs, successors,
predecessors in interest, or assigns of any of the Defendants,
and (ii) those Persons who have timely and validly requested
exclusion from the Settlement Class pursuant to the "Notice of
Pendency and Settlement of Class Action" sent to the members of
the Settlement Class (and identified on Exhibit "1" hereto).
6. With respect to the Settlement Class, the Court finds
and concludes that: (a) the members of the class are so numerous
that joinder of all class members in the litigation is imprac-
ticable; (b) there are questions of law and fact com-mon-to the
class which, as to the settlement and all related matters,
predominate over any individual questions; (c) the claims of the
Class Plaintiffs are typical of the claims of the class; (d) in
representing the Class and negotiating and entering into the
settlement set forth in the Stipulation, the Class Plaintiffs and
their counsel have fairly and adequately represented and
protected the interests of all of the members of the Class; and
(e) a class action is superior to other available methods for the
fair and efficient adjudication of the controversy, considering,
(1) the interests of the members of the class in individually
controlling the prosecution of separate actions, (2) the extent
and nature of any litigation concerning the controversy already
commenced by members of the class, (3) the desirability or
undesirability of concentrating the litigation of these claims in
this particular forum, and (4) the difficulties likely to be
encountered in the management of this litigation.
7. Pursuant to Rules 23 and 23.1 of the Federal Rules of
Civil Procedure, this Court hereby approves the settlement set
forth in the Stipulation and finds that the settlement is, in all
respects, fair, reasonable and adequate to the Settlement Class
and each of the Settlement Class Members, and to the Company and
its current shareholders.
8. Except as to any individual claim of those Persons or
entities who have validly and timely requested exclusion from the
Settlement Class (identified on Exhibit "1" hereto), this Court
hereby dismisses with prejudice and without costs (except as
otherwise provided in the Stipulation) the Litigation, in its
entirety, against each and all of the Defendants.
9. All claims against the Released Persons for contribu-
tion, indemnification, equitable apportionment or any other claim
based on or arising from any of the subject matters underlying
the Released Claims, however denominated, in favor of any Person,
are extinguished, discharged, satisfied, barred and/or otherwise
unenforceable.
10. In accordance with the requirements of Section 3(a)(10)
of the Securities Act of 1933, 15 U.S.C. Section 77c(a)(10), the
Court hereby approves the terms and conditions governing the
issuance and exchange of the Shares, Warrants and the shares of
CompuMed common stock underlying the Warrants, as set forth in
the Stipulation. The Court finds that the Shares, Warrants and
the shares of CompuMed common stock underlying the warrants are
being issued to the Settlement Class in exchange for the release
of one or more bona fide claims, and concludes after a hearing at
which all persons to whom it is proposed to issue such securities
(i.e., the Settlement Class) had the right to appear, that the
- -
terms and conditions of such securities are fair to the members
of the Settlement Class. Therefore, the Shares, Warrants and
shares of CompuMed common stock underlying the Warrants are
exempt from the registration requirements of the Securities Act
of 1933.
11. Upon the Effective Date of the Settlement, each and all
Released Claims of each and all Settlement Class Members, whether
or not such Settlement Class Member has filed a Proof of Claim
and Release, and of each and all Class Plaintiffs are and shall
be deemed to be conclusively and forever released as against each
and all of the Released Persons.
12. Upon the Effective Date of the settlement, each and all
Released Claims of a derivative nature of each of the current
holders of CompuMed common stock, on behalf of CompuMed
derivatively, the Derivative Plaintiff and CompuMed shall be
deemed to be conclusively and forever released as against each
and all of the Released Persons.
13. Class Plaintiffs and all Settlement Class Members, the
Company, Derivative Plaintiff, the current holders of CompuMed
common stock, and all of their officers, agents, employees,
attorneys, assigns, all persons in privity with them, and all
persons acting in concert or participation with them, either
directly, indirectly, representatively or in any other capacity,
are hereby forever restrained and enjoined from prosecuting,
pursuing, or litigating any of the Released Claims against any of
the Released Persons in this or any other forum.
14. Upon the Effective Date of the settlement, each of the
Released Persons shall be deemed to have, and by operation of
this Judgment shall have, fully, finally, and forever released,
relinquished and discharged each and all of the Settlement Class
Members, the Class Plaintiffs, the Derivative Plaintiff, the
current holders of CompuMed common stock, their counsel, each
only in their capacity as such, from all claims (including
Unknown Claims), arising out of, relating to, or in connection
with the institution, prosecution, assertion or resolution of the
Litigation or the Released Claims.
15. No Person shall have any claim against any R@leased
Persons, Class Counsel, Derivative Counsel, any claims
administrator or other agent designated by Class Counsel or
Derivative Counsel based on the distributions made substantially
in accordance with the Stipulation and the settlement set forth
therein, the Plan of Allocation, or further orders of the Court.
16. Upon the Effective Date of the Settlement, the Class
Plaintiffs and the Settlement Class acknowledge full and complete
satisfaction of, and do hereby fully, finally and forever settle,
release and discharge the Released Persons with respect to the
Released Claims, whether or not such Settlement Class Member
executes and delivers a Proof of Claim and Release or partici-
pates in the Plan of Allocation.
17. The notice given to the Settlement Class, the current
holders of CompuMed common stock, and alleged joint tortfeasors
and other interested parties of the Settlement set forth in the
Stipulation, as well as the other matters set forth therein,
constituted the best notice practicable under the circumstances,
including the individual notice to the alleged joint tortfeasors
and other interested parties and the members of the Settlement
Class and current holders of CompuMed common stock who could be
identified through reasonable effort. Said notice provided due
and adequate notice of those proceedings and of the matters set
forth therein, including the proposed Settlement set forth in the
Stipulation, the proposed issuance of the Shares and the Warrants
and the shares underlying the Warrants subject to the exemption
from registration set forth in section 3(a)(10) of the Securities
Act of 1933, 15 U.S.C. Section 77c(a)(10), the proposed
determination that the settlement was entered into in good faith
and the proposed bar of contribution, indemnity, equitable
apportionment or other claims based on or arising from the
Released Claims, to all persons and entities entitled to such
notice, and said notice fully satisfied the requirements of Rules
23 and 23.1 of the Federal Rules of Civil Procedure and the
requirements of due process.
18. The Court hereby finds and concludes that the settle-
ment of the Released Claims on the terms and conditions set forth
in the Stipulation is fair, reasonable and adequate and consti-
tutes reasonably equivalent value within the meaning of the
United States Bankruptcy Code and the California Uniform Fraudu-
lent Transfer Act and any other similar law of any other
jurisdiction.
19. Without affecting the finality of this Judgment in any
way, this Court hereby retains continuing jurisdiction over
(a) implementation of the settlement and any award or distribu-
tion of the Class and Derivative Action Settlement Funds,
including interest earned thereon; (b) disposition of the Class
and Derivative Settlement Funds (including all sums, if any,
remaining after the payment of all Authorized Claimants' Claims);
(c) hearing and determining applications for attorneys' fees,
costs, interest and expenses (including fees and costs of experts
and/or consultants) in the Litigation; (d) all parties hereto for
the purpose of enforcing and administering the Settlement; and
(e) any other matter related or ancillary thereto, including the
approval of amendments to certain Company policies pursuant to
paragraph V.2.2(b) of the Stipulation.
20. In the event that the Settlement does not become
effective in accordance with the terms of the Stipulation, then
this Judgment shall be rendered null and void and shall be
vacated and, in such event, subject to the terms of the
Stipulation, all orders entered and releases delivered in
connection herewith shall be null and void.
21. There is no just reason for delay, and therefore
pursuant to Rule 54(b) of the Federal Rules of Civil Procedure,
the Clerk of the Court is hereby ordered to enter this Final
Judgment and Order of Dismissal.
Dated: January 26, 1998.
/s/ Mariana R. Pfaelzer
-----------------------------
MARIANA R. PFAELZER
UNITED STATES DISTRICT JUDGE
<PAGE>
Submitted By:
MARC M. SELTZER (54534)
GEORGE A. SHOHET (112697)
CORINBLIT & SELTZER
A Professional Corporation
3700 Wilshire Boulevard, Suite 820
Los Angeles, California 90010-3085
Telephone: (213) 380-4200
Chairman of the Executive Committee
of Counsel for Plaintiffs
KEVIN P. RODDY (128283)
MILBERG WEISS BERSHAD
HYNES & LERACH LLP
355 South Grand Avenue,
Suite 4170
Los Angeles, California 90071
Telephone: (213) 617-9007
WILLIAM S. LERACH (68581)
HENRY ROSEN (156963)
MILBERG WEISS BERSHAD
HYNES & LERACH LLP
600 West Broadway, Suite 1800
San Diego, California 92101
ARTHUR N. ABBEY
JOSHUA N. RUBIN
ABBEY, GARDY & SQUITIERI, LLP
212 East 39th Street
New York, New York 10016
Telephone: (212) 889-3700
Members of the Executive Committee
of Counsel for Plaintiffs
By /s/ Marc M. Seltzer
--------------------------------------
Marc M. Seltzer
Attorneys for Class Plaintiffs
<PAGE>
ROBERT C. SCHUBERT (62684)
JUDEN JUSTICE REED (153748)
SCHUBERT & REED LLP
Two Embarcadero Center,
Suite 1050
San Francisco, California 94111
Telephone: (415) 788-4220
By /s/ Robert C. Schubert by MMS
-------------------------------------------
Robert C. Schubert
Member of the Executive Committee
and Attorneys for the Derivative Plaintiff
<PAGE>
EXHIBIT 1
---------
IN RE COMPUMED INC.
-------------------
SECS. LITIG.
------------
MASTER FILE NO. CV-95-7051 MRP(VAPx)
1. Robert V. Linton
Park City, Utah 84068
2. Euromobiliare Fondi S.P.A.
Milan, Italy
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
COMPUMED, INC. FORM 10-QSB FOR THE PERIOD ENDED DECEMBER 31, 1997,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 40,000
<SECURITIES> 2,119,000
<RECEIVABLES> 275,000
<ALLOWANCES> 81,000
<INVENTORY> 34,000
<CURRENT-ASSETS> 2,492,000
<PP&E> 3,991,000
<DEPRECIATION> 3,640,000
<TOTAL-ASSETS> 2,942,000
<CURRENT-LIABILITIES> 735,000
<BONDS> 0
0
1,752,000
<COMMON> 91,000
<OTHER-SE> 235,000
<TOTAL-LIABILITY-AND-EQUITY> 2,942,000
<SALES> 415,000
<TOTAL-REVENUES> 415,000
<CGS> 28,000
<TOTAL-COSTS> 903,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,000
<INCOME-PRETAX> (479,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (479,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (479,000)
<EPS-PRIMARY> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
