in re: aremissoft corporation securities litigation 01-cv...
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0.1 Case 2:01-cv-02486-JAP-MCA Document 211 Filed 04/05/2005 Page 1 of 14
GREIINBERG TRAURIG, I1..LP E. (. ! 'd :.t^
Hai .M. Ilirsch (HH 0417) T. WA^SIi .CLERK
David Jay (DJ 7221)-5 P
1; 09200 Campus Drive 2 ^1a APB
P.U. Box 677 SIATESFlorham Park, NJ 07921-0677
^1^^1 i Cl Ca^,'.^ f EtI^T CC^tlt^
(973) 360-7900
Attorneys ,for the AremisSof1 Liquidating Trust
UNITED STATES DISTRICT COURT FOR THEDISTRICT OF NEW JERSEY
In re:
AREMISSOFT CORPORATION,a Delaware corporation,
Debtor.
- ANT) -
In re:
AREMISSOFT CORP.SECURITIES LITIGATION
Civil Action No,02-CV-01336 (JAP)Honorable Joel A. Pisano
Chapter 11
Bankruptcy Case No.
02-32621 (RG)
Civil Action No.01-CV-2486 (JAP)
FINDINGS OF FACT, CONCLUSIONS OF LAWAND ORDER APPROVING STIPULATION OFSETTLEMENT BETWEEN THE AREMISSOFTLIQUIDATING TRUST AND INFO-QUEST, S.A.
Upon the Motion of the ArernisSoft Liquidating Trust to Approve Stipulation
ofSettlement with !n, b-Quest, S.A. (the "Motion"); and upon the Order of this
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Court dated ..4 2005, directing notice and service with respect to the
Motion; and upon the proof of service filed on behalf of the A..emisSot
Liquidating "Trust ("the "'Trust"); and upon the Stipulation nf'Settlement Between
the AremisSoJi Liquidating Trust and info-Quest, S.A. (the " Stipulation "); and this
Court having considered a] I other filings and documents in respect thereof; and this
Court having considered the record of these cases; and this Court having
undertaken an independent examination of the relief sought, and having considered
the terms of the Stipulation; and it appearing that under the Stipulation, Info-Quest,
S.A. ("Info-Quest") will (i) reduce its claim (the "Tn lib-Quest Claim ") from fifty-
seven million, four hundred ninety-four thousand, eight hundred seventy-one
($57,494,871.75 ) dollars and 75 cents to ten million ($ 10,000 , 000.00) dollars,
which claim reduction shall not affect any distributions made to Info-Quest
pursuant to the Plan or by the Trust prior to the date of entry of the Order
approving this Stipulation, (ii) modify the terms of a certain agreement with
SofBrands such that the modification results in the expiration of its right to name a
director to the Softl3rands board of directors; and (iii) exchange mutual releases
with the Trust, the Trustees, the advisors to the Trust, and Class Counsel; and this
Court having deliberated with respect to all the relief sought, it is:'
FOUND, as follows:
Any finding that is more properly a conclusion shall be deemed so, and anyconclusion that is more properly a finding shall be deemed so.
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A. Notice
1. The notice and service provided by the Trust in respect of the Motion
and the Stipulation be. and hereby is, good and sufficient Linder the circumstances.
B. AremisSof
2_ ArcmisSoft. Corporation ("AremisSoft") was incorporated under the
laws of the State of Delaware, AremisSoft' s shares were publicly traded.
3. In May, 2001, articles in the press began questioning the accuracy of
Aremviis oft's reported revenue arising from a contract with the government of
Bulgaria. Trading in the stock was temporarily halted. Financier Irwin Jacobs
assured the Aremis oft investing community that he had investigated the books of
AremisSott and was satisfied that A.remisSoft's public reporting concerning the
Bulgarian contract was truthful. Trading in AremisSoft continued.
4. In July, 2001 , ArernisSoft failed to file its Form ii.O-Q for the second
quarter , and trading iii its stock on NASDAQ was halted permanently . Thereafter,
the United States Securities and Exchange Commission (the "SEC") commenced a
civil action against AremisSof's principals, Lycourgos K.yprianou and Rays
Poyiadj is, alleging financial fraud and insider trading . The SEC commenced an
action in the Isle of Man and successfully froze approximately $175 million in
alleged stock sale proceeds secreted in financial institutions in. the Isle of Man
account. Kyprianou and Poyiadjis were criminally indicted for insider trading,
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illegal selling of stock, making false reports to th.e SEC and other securities laws
violations.
5. Beginning on May 24, 200 1, several securities class action lawsuits
were filed against Arem is oft, its principals and others , seeking damages for
violations of securities laws, on behalf of public stockholders. The class action
complaints were consolidated into the class litigation captioned In re Arem/s& fl
Corp. Securities Litigation , No. 01-CV-2486 (JAP) ("Class Litigation"), and the
law firm of Schiffrin & Barroway LLP was named as lead counsel ("Class
Counsel") to the members of the class (the "Class" or "Class Members"),
6. On March 15, 2002, Aremis o.lt filed a Chapter 11 case in this Court.
On that same date, Class Counsel entered into a Memorandum of Understanding
with AresnisSoit. This Memorandum of Understanding formed the basis of the
settlement of the Class litigation ("Class Settlement"). A fairness hearing was held
on July 1, 2002 and the Class Settlement was approved by the Court on July 3 1,
2002.
7. By Order dated July 1, 2002 (the "Confirmation Order"), this Court
confirmed a Chapter 11. plan for AremisSoft (the "Plan"). Pursuant to the Plan, the
core business of AremisSoft was spun off into its subsidiary SoftBrands, inc., a
Delaware public company ("Soft. rands") and a Liquidating Trust, whose corpus
was comprised of certain assets and claims of AremisSoft and the claims of all
Class Men-ihers, was established. Under the Plan, a certain number of shares of
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Softl3rands common stock were exchanged for shares of Arerni Soft common
stock for eligible AremisSoft shareholders. Under the Plan and in connection with
the Class Settlement, SoftBrands common stock was distributed to Class Members
who had filed proofs of claim.
8. Through provisions in both the Plan and Class Settlement , the Court
retained. jurisdiction over the Plan and Class Settlement. With respect to the Class
Settlement, the Court retained exclusive jurisdiction.
_ Pursuant to the Plan, the Court retained .jurisdiction to hear and
determine disputes with respect to the Plan and the Trust and to assure
implementation of the terms of the Plan.
(.;. Info-Quest
10. Info-Quest is a Greek corporation with a principal place of business
located in Athens, Greece . Info-Quest provides information technology and
communication services primarily in Greece.
11. Info-Quest was a substantial shareholder of AremisSoft. As of
October 8, 1999, Into-Quest owned 20.09% of ArernisSoft' s issued and
outstanding voting common shares.
12. Pursuant to the Stock Purchase Agreement between AremisSoft and
Info-Quest dated September 10, 1999, Info-Quest was entitled to appoint a certain
number of directors to AremisSoft's board of directors based upon a formnula tied
to the size of Info-Quest's position in AremisSoft. In May, 2002, Info-Quest and
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SaflBrands entered into an agreement ("SoftBrands Agreement") that replaced the
September 10, 1999 agreement between AremisSoft and Info-Quest.
13. Info-Quest appointed three directors to the A.remis oft board:
Theodore Fessas who was then and continues today as Chief Executive Officer of
Info-Quest), George Papadopoulos (who was then the Managing Director of
Info-Quest and continues today as a non-executive director), and John Malamas
(who was the Chief Financial Officer of Info-Quest and continues today as an
employee of Info-Quest).
14. In connection with the Class Settlement and Plan, Info-Quest's
managers were provided with a release for all claims against them arising out of
the purchase of Areniis oft common stock during the Class Period, whether known
or unknown, which were or could have been asserted against them for any acts,
facts, transactions, occurrences, representations, or omissions during the Class
Period in connection with, arising out of, or iii any way related to the Class Action
Lawsuits, any violation of law in connection therewith, or any public statements
concerning or relating to AremisSoft. In addition, Class Counsel conducted an
inquiry for the purpose of qualifying Info-Quest as a Class Member (the
"Inquiry„). Included in the Inquiry, were the review of documents and interviews
of present and former members of Info-Quest' s management . Upon completion of
the Inquiry, Info-Quest was not disqualified from becoming a member of the
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proposed Class, and Info-Quest became a member of the Class upon the Court
order dated August 1, 2002 approving the Class Membership and Class Settlement.
D. Minnesota. Litication
15. On or about February 13, 2003, Rodney Burwell; Howard Grodnick;
Alexandra Jacobs; Irwin L. Jaco bs; Mark. Jacobs; Randi Jacobs-Lebowitz; Trisha
Jacobs Blake; Jacobs Trading Company; Marshall Financial Group, Inc.; and
Operation Bass, Inc. (the "Minnesota Plaintiffs") commenced an action against
Info-Quest in the United States District Court, District of Minnesota (the
"Minnesota Action"). The Minnesota Plaintiffs, all of whom, like Info-Quest, are
members of the Class, alleged that Info-Quest engaged in securities violations
while its appointees were sitting on the board of directors of AremisSoft.
16. On July 1, 2003, Info-Quest filed in the Minnesota Action a motion to
dismiss or to change venue ("Motion to Dismiss") arguing that the complaint failed
to state a claim upon which relief can be granted, or, alternatively, that the
Minnesota Action should be transferred to the New Jersey District Court.
X 7_ On August 8, 2003 , the Minnesota Plaintiffs filed their opposition,
arguing that tht allegations set forth in their complaint supported. claims for
securities law violations against Info-Quest, that they indeed had standing to sue,
and that their choice of forum should be honored.
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1 8 , Pursuant to 28 U.S.C.. § 636,2 Info-Quest 's Motion to Dismiss was
referred to United States Magistrate Judge Franklin Noel for Report and
Recommendation. In a report dated February 5, 2004, Judge Noel recommended
that Info-Quest's motion be granted in part and denied in part. Judge Noel found
that (])certain claims had been properly filed under the heightened pleading
requirements of the Private Securities Litigation Reform Act ("P LRA");
(2) certain claims should be dismissed; and (3) the Minnesota. Action should not
be transferred to the New Jersey District Court.
19. On April 13, 2004, United States District Judge Joan N. Ericksen
issued an Order adopting Judge Noel's Report and Recommendation. Info-Quest
thereafter moved this Court for an, injunction against the prosecution of the
Minnesota Action. The Minnesota Plaintiffs opposed the motion on several
grounds.
20. Oral argument was held before this Court on July 26, 2004. On.
August 4, 2004, this Court issued an Opinion and Order ("Injunction Order")
granting the request for an injunction. This Court held that the Minnesota Plaintiffs
were Class Members asserting claims 'in the Minnesota District Court that were the
subject matter of the Class Settlement and that had been assigned to the Trustees of
2 28 [7. .C. § 636 provides a United States District Court Judge with theauthority to appoint a magistrate judge to hear and determine certai n pre-trialmatters.
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the Trust. This Court determined that the Minnesota Plaintiffs were barred from.
seeking relief before the Minnesota District Court.
21. This Court also concluded that under its Order and Final Judgment it
retained exclusiv:e jurisdiction "over the parties and the Class Members for all
matters relating to [the class action], including the administration, interpretation,
effectuation or enforcement of the Stipulation [and Agreement of Settlement]," and
that the District Court of New Jersey is the only "place where the [Minnesota]
claims, which were effectively transferred to the Trust by virtue of the Plaintiffs'
status as Class Members , may be heard ... and it will be up to the Trustees to
decide whether to proceed with the claims asserted against Info-Quest by the
Minnesota. Plairitiifs "
.22_ Following this Court's Opinion and Order, and consistent with what
the Trustees believe are their fiduciary duties, the Trustees sought to determine
whether the Trust had any potential claims against Info-Quest that might ultimately
benefit the Trust beneficiaries.
23. As part of its investigation, in December 2004, the Trust took the
depositions of four present or former members of Info-Quest' s management. In
furtherance of its investigation, the Trust also took the depositions of Irwin Jacobs
in January 2005 as well as several other individuals. In the wake of such
investigation, the Trustees believe that a claim for a reduction of Info-Quest's
Claim could be asserted-
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24. Counsel for both. Info-Quest (for purposes of the T'rustees'
investigation) and the Trust agreed to continue, and did continue, to negotiate
toward a possible resoILution of this matter.
25. Info-Quest denies that any such claim reduction would be successful
and assert,, that the investigation developed no new evidence to support such claim.
Into-Quest stated and believes that it may assert its own possible counterclaims
and objections against the Trust and its advisors.
E. Info-Quest Proof of Claim
26. In accordance with the claim filing procedures of the Class
Settlement, Info-Quest filed a claim with the independent claims administrator on
July 18, 2002 (the "Info-Quest Claim"), a true copy of which is annexed as Exhibit
"B" to the C ertification of Hal M. Hirsch filed contemporaneously herewith. The
Info-Quest Claim asserts damages of at least $57,494,871.75 for losses alleged
with respect to its AremisSo :ft stock.
27. This Court previously. acknowledged the independent claims
administrator's statement of the total amount of claims asserted by Class Members
as $564,981,989.99. Thus, the Info-Quest Claim constitutes approximately
10, 17%> of the total face amount of the claims filed.
28. As a shareholder of AremisSoft at the time of its bankruptcy and
through its reorganization , Info-Quest was issued 1,708,298 public, common
shares of SoftBrands stock in accordance with the Plan. In addition to these shares
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and pursuant to the Plan and Class Settlement, info-Quest was issued 2,342,361
public, common shares of SofBrands because of its status as a Class Member, As
of the date hereof, Info-Quest holds 4,050,659 public, common shares of
SoftBrands.
29. In connection with the SoftBrands Agreement, Info-Quest is entitled,
among other things, to name one director to the board of SofiRrands. In
accordance with the SofBrands Agreement, Info-Quest has designated a director
for the SoftBr.nds board of directors.
F. Stipulation
30. The Trust and Info-Quest have negotiated with respec t to the issues in
controversy and have agreed to the terms of the Stipulation.
31. The Stipulation contains reasonable provisions to settle the issues in
controversy between the Trust and Info-Quest and should be approved.
32. The content, breadth and extent of the releases to be exchanged under
the Stipulation are reasonable and commensurate with the consideration exchanged
therefore, and thus, the releases set forth in. the Stipulation should be approved.
33. All of the provisions of the Stipulation are fair and reasonable and
should be approved.
34, The terms of the Stipulation were negotiated at arm's length, each
party being represented by counsel for the purposes of negotiating the Stipulation
and without fraud or duress.
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35. The terms and conditions of the Stipulation fall well within the range
of reasonableness in light of the amounts involved and all other circumstances
attendant thereto, and will inure to the benefit of the Trust and its beneficiaries and
should be approved..
30. The reduction of the Info-Quest Claim, as it relates to prospective
distributions , will directly and proportionately benefit the other Trust beneficiaries
inasmuch as the pool of all claims asserted against the Trust is to be decreased by
forty-seven million, fOur hundred ninety-four thousand., eight hundred seventy-one
dollars and seventy- five cents ($47,494,871.75), or approximately eight (8%)
percent of the gross amount of claims asserted against the Trust.
F. The Trustees' Right to Prosecute an Objection to Claims and the Court's
Authority to Determine the Objection
37. The TrListees retain the authority and right under the Plan,
Confirmation Order, and the Liquidating Trust Agreement to prosecute objections
to claims.
38. If an objection to a claim is so made , the Court, after notice and
hearing, shall determine the allowed amount, if any, of the claim.
It is therefore:
CONCLUDED, as follows:
1. The terms of the Stipulation are in the best interests of the Trust
benefciar.ies.
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2. Joseph F. LaSala and Fred S. Zeidman, as co-trustees (the "Trustees")
of the Trust and Richard Schiffrin, as Class Counsel, are authorized to execute and
effectuate the terms of the Stipulation.
It is therefore:
ORDERED, ADJUDGED and DECREED, as follows:
1. The Motion be, and hereby is, granted.
2. The Stipulation be, and hereby is, approved, and the Trustees and
Class Counsel be, and hereby are, authorized to execute and effectuate the terms
thereof.
3. The releases set forth in the Stipulation, and all the other terms,
conditions and provisions of the Stipulation, be, and hereby are approved.
4. The independent claim administrator shall record and effectuate the
reduction of the Info-Quest Claim in the records on behalf of the Trust as set forth
in the Stipulation and Info-Quest shall hereafter continue as a member of the Class
to the extent of a claim valued at $10 million.
5. Pursuant to the "PSLRA," 15 U.S.C. § 78u-4(a)(g)(7) A), Info-Quest,
and the other Info-Quest Releasees (as defined by the Stipulation), be, and hereby
are, discharged from all claims for contribution by any person. or entity, whether
arising tinder state, federal or common law, based upon, arising out of, relating to,
or in connection with the Released. Claims (as defined by the Stipulation).
Accordingly, to the full extent provided by the PSLRA., this Court hereby bars all
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claims for contribution based upon, arising out of, relating to, or in connection with
the Released Claims: (a) against Info-Quest and the other Infix-Quest Releasees;
and (b) by Info-Quest against any person or entity. If, despite this bar order, an
indemnification , contribution or similar claim is brought against the Info-Quest
Releasees, the Trust, at its cost shall promptly, upon being advised thereof, file
pleadings seeking enforcement of such bar order and seeking to prevent the
prosecution of such claim in any court having or claiming to have jurisdiction.
The Stipulation shall become effective as of the date of entry of this Order.
Dated: Newark, New Jerse-- , 2005
JOEL A. SANG x YUNITED STATES DISTRICT JUDGE
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