/raid1/www/Hosts/bankrupt/CAR

/raid1/www/Hosts/bankrupt/CAR_Public/990304.MBX C L A S S A C T I O N R E P O R T E R Thursday, March 4, 1999, Vol. 1, No. 20 Headlines AFRO-AMERICAN FARMERS: Settlement Agreement Comes Under Fire COMPLETE MANAGEMENT: Stull Stull File Complaint in New York ELI LILLY: Forsyth Prozac Trail Gets Underway FIRST MERCHANTS: Working to Document D&O Insurance Settlement GUN MANUFACTURERS: Insurers Issue Reservation of Rights Notices INTERNET DOMAINS: Oral Arguments Completed Before D.C. Circuit MERRILL LYNCH: More than 900 Women Expected to File Claims OHIO PRISIONERS: Inmates to Receive $1.6 Million in Settlement OLDE DISCOUNT: March 9 Deadline for Filing Arbitration Claims OMEGA RESEARCH: All Claims Dismissed; Plaintiffs May Replead ORBITAL SCIENCES: Lawsuits Don't Alarm Wall Street Analysts PACIFICARE HEALTH: Motion to Dismiss Sub Judice; Discovery Stayed PRECISION SYSTEMS: Speer-Related Shareholder Litigation Dismissed ST. JOHN KNITS: Unable to Predict Outcome of Shareholder Suits STB SYSTEMS: Company Continues to Deny Shareholder Allegations TRANSCRYPT INTERNATIONAL: Takes $10MM Charge to Cover Litigation ********* AFRO-AMERICAN FARMERS: Settlement Agreement Comes Under Fire ------------------------------------------------------------ >From Washington, Janelle Carter, writing for the Associated Press, reports that just hours before U.S. District Judge Paul Friedman was to give final review to a multimillion-dollar settlement between black farmers and the Agriculture Department, leaders of two farmer groups said they have problems with the deal. "The farmers are having some real issues with what has been proposed," said Gary Grant, president of the Black Farmers and Agriculturists Association. Attorneys for both sides announced a settlement in January to the discrimination lawsuit brought by farmers two years ago because they were denied access to government loans and subsidies. The deal would allow farmers with less documented evidence to take a $50,000 tax-free payment and have their government debts forgiven. Farmers with more evidence could opt to go before an independent arbitrator and seek larger damages. The cost of the settlement is unclear, because neither the number of farmers who will join the class nor settlement options they will choose is known. The cost could reach $400 million. At the time of the agreement, many farmers hailed the end of sometimes contentious negotiations. But now, many plaintiffs say that after reading the agreement they're not sure they are getting a fair deal. The $50,000 payment "does not compensate somebody who has lost their home, their farm, their credibility, their credit rating" Grant said. And farmers will have a hard time proving a preponderance of evidence to seek larger damages, Grant said. "We're talking about elderly people who have little formal education, who operated in an atmosphere of racism and bigotry. People who did not necessarily file complaints," he said. "We feel as though the burden of proof shouldn't be on the farmer," said John Boyd, president of the National Black Farmers Association. Ms. Carter relates that some of the things farmers have mentioned including in the settlement are a review board to look over the arbitrator's rulings and the firing of department officials in the counties that participated in the discrimination. "We definitely want a settlement," Boyd said, "but we want a settlement that's going to be fair to the black farmers who have been victims of the Department of Agriculture." COMPLETE MANAGEMENT: Stull Stull File Complaint in New York ----------------------------------------------------------- Stull, Stull & Brody commenced a class action lawsuit in the U.S. District Court for the Southern District of New York on behalf of purchasers of Complete Management, Inc. (NYSE:CMI)(OTC:CPMI) common stock between May 1, 1996 and August 13, 1998. CMI provides physician practice management services to medical practices and hospitals in the New York metropolitan area. The complaint alleges that CMI improperly recognized revenue on uncollectible receivables from its largest customer, Greater Metropolitan Medical Services in violation of Generally Accepted Accounting Principles. As a result of this conduct, CMI announced on August 19, 1998 that it would be writing off $28.9 million in management fees due from GMMS and would be severing its relationship with them. The defendants include CMI, certain of its officers and directors, underwriters and accountants. The Complaint charges that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10-b(5). ELI LILLY: Forsyth Prozac Trail Gets Underway --------------------------------------------- Jury selection began yesterday in the United States District Court for the District of Hawaii in the civil case Forsyth v. Eli Lilly. The case concerns the homicide/suicide of a successful businessman, William Forsyth, and his wife June Forsyth. William Forsyth had been taking the anti-depressant drug Prozac for ten days when he stabbed his wife 15 times and then impaled himself on a kitchen knife. Plaintiffs, the adult children of the decedents, claim that Prozac causes a small but important percentage of people to become violent and suicidal, and that Lilly knew about this risk but failed to warn. Although there have been over 150 similar cases in the last decade, this will be only the second time that Lilly has had to defend Prozac in trial. Baum, Hedlund, Aristei, Guilford & Downe represents the Plaintiffs. FIRST MERCHANTS: Working to Document D&O Insurance Settlement ------------------------------------------------------------- FIRST MERCHANTS ACCEPTANCE CORP. and certain of its former directors and officers have been party to several lawsuits in federal court alleging that the Company published false consolidated financial statements and other misleading information in violation of the securities laws. This litigation has been consolidated into a single class action amended complaint in the United States District Court for the Northern District of Illinois. The complaint in the consolidated class action alleges various purported causes of action under various securities and other laws on behalf of persons who purchased subordinated reset notes and/or common stock of the Company between September 23, 1994 and April 16, 1997, which class encompasses nearly all of the existing noteholders and some of the existing shareholders. The complaint names as defendants three former officers of the Company who were terminated in April 1997 for cause by the former board of directors of the Company, as well as the Company's former outside auditors and former members of the Company's audit committee. The Company has been released from any action. The Company and the class entered into a joint prosecution agreement which allows the Company to participate in any recovery or settlement received (net of the contingency fee paid to class counsel). The joint prosecution agreement provides certain directors and officers the benefits of a covenant not to attach their personal assets. None of the three officers terminated for cause, the former outside auditors nor the providers of directors and officer liability insurance were released. FIRST MERCHANTS ACCEPTANCE CORP. is in the process of documenting a settlement of claims against its director and officer liability insurers and is examining other potential causes of action including causes of action against its former auditor. GUN MANUFACTURERS: Insurers Issue Reservation of Rights Notices --------------------------------------------------------------- Although Inland Empire handgun manufacturers say they haven't heard any bad news from their product liability insurers, carriers of many other firearms companies have moved to take cover from the recent spate of anti-gun litigation by cities, reports Business Press Ontario. Several insurance companies have notified trade groups and manufacturers they may not cover damages awarded in the lawsuits, which have been filed by municipalities in an attempt to recover medical expenses and law enforcement costs related to handgun violence. Hi-Point Firearms, a gun maker in Ohio, reported it was notified by insurer Sporting Arms Insurance Ltd. that any damages awarded against it for negligent marketing in the Chicago lawsuit would not be covered, according to the Wall Street Journal. By issuing so-called "reservation-of-rights" notices, BPO explains, insurers have taken steps to avoid paying jury awards in cases not clearly covered in the language of their policies. Insurance companies sought for comment did not return calls. Even with the possible loss of insurance coverage, BPO says, the handgun industry is resolved to fighting the lawsuits rather than settling. "It's my intention to fight these lawsuits vigorously," said Dave Brazeau, president of Phoenix Arms, who also says he has not received a "reservation-of-rights" notice from his insurance company. The industry has created a defense fund of $15 million, or 1% of gross sales, according to Lorcin's Waldorf. Brazeau, who contends that his company has done nothing wrong, says he is more than willing to pay the legal fees for a continued fight, even if he somehow loses insurance backing. "It's 1% now or all of it later," Brazeau said. INTERNET DOMAINS: Oral Arguments Completed Before D.C. Circuit -------------------------------------------------------------- Nebraska Representative Lee Terry has introduced the Home Page Tax Repeal Act, to require the federal government to refund $30 of each $100 domain name registered from September 1995 through March 1998. Network Solutions Inc., the sole company authorized to issue Internet addresses and collect the fees, would be allowed to keep its 70 percent stake. Terry credits Karnes - his friend, fellow Republican and campaign contributor - for piquing his interest in the issue, according to an article appearing in the Omaha World-Herald. Karnes, an attorney at Kutak Rock in Omaha, is working on Capitol Hill for a group of Internet registrants seeking to win back the $60 million. A Washington-based attorney, William Bode, is arguing the case in federal court. Bode says nine Internet registrants are the main plaintiffs in his case, but about 2 million individuals and businesses would be eligible to receive part of any judgment. Bode said his nine clients -- made up of individuals and Internet providers -- hold about 40 domain names and are motivated more by principle than money. Perhaps more important than the $60 million, Karnes said, is that the lawsuit has forced federal officials to tread more lightly when it comes to levying fees on the freewheeling, fast-growing culture of the Internet. "By raising the issue, we have forced the government to scale back its charge for Internet registration by 30 percent across the board," Karnes said. For each name assigned, Network Solutions received $70, and $30 was transferred to the "Internet Intellectual Infrastructure Fund" - set up by the National Science Foundation to fund future improvements to the Internet. As of Sept. 30, 1997, the federal fund contained $37 million. For Network Solutions, the fees have translated to big money. The company has registered 3.4 million domain names, the vast majority since the registration fee was approved. The influx of fees helped Network Solutions' annual revenues soar from about $6.5 million in 1995 to just under $93.7 million last year. And since going public in 1997, the company's stock price has risen from $19 per share to as high as $240 last month. In October 1997, Bode's group of Internet users filed suit in federal court, arguing the fee was an unconstitutional tax because it had never been approved by Congress. A U.S. District Court in Washington partially agreed, ruling that the federal government's 30 percent cut of each Internet address was unconstitutional. Network Solutions' part of the fee, however, was allowed to stand. In **court** papers filed by Network Solutions, the company said that its portion of the registration fees does not raise revenue for the government and therefore should not be regarded as a tax. Further, the company said, the fees are paid through a "voluntary contract" in which the company provides services and receives payment to cover its "costs and profits." On Thursday, oral arguments were held before the U.S. Court of Appeals in Washington. Bode said he expects a decision within weeks. On Capitol Hill, Terry has taken up the fight to repeal the provision that ratified the fee. Karnes said Terry's predecessor, former Nebraska Rep. Jon Christensen, backed similar legislation last year. Terry's bill would send the money still in the account back to Internet registrants and require the National Science Foundation to come up with $23 million already spent. MERRILL LYNCH: More than 900 Women Expected to File Claims ---------------------------------------------------------- Yesterday's deadline drew more than 900 current and former female employees of Merrill Lynch to file claims of discrimination against the securities firm. The claims are part of the widely-reports settlement of a class-action lawsuit. Most complaints in the case involve economic discrimination by the funneling of tips, clients and business to male brokers, the plaintiffs' lawyers said. The number of claimants is three to four times what plaintiffs' lawyers had expected when Merrill settled the suit last June. OHIO PRISIONERS: Inmates to Receive $1.6 Million in Settlement -------------------------------------------------------------- >From Akron, Ohio, the Associated Press reports that inmates of Ohio's first private prison will share $1.6 million under a proposed settlement of a class-action lawsuit alleging unsafe conditions behind bars. According to the lawsuit, six inmates who were receiving medical care at the Northeast Ohio Correctional Center have died since the $40 million facility opened in May 1997. At least 20 inmates have been stabbed at the prison at Youngstown, about 60 miles southeast of Cleveland. Two inmates were murdered after the lawsuit was filed, and a Justice Department report said staff members used "unnecessarily harsh and humiliating procedures" during inmate searches after the killings. Most inmates of the prison, owned by the Corrections Corporation of America of Nashville, Tenn., were sent by the District of Columbia. Under the proposal, announced Monday in federal court, the money would be divided among about 1,000 inmates according to injuries, lack of medical care and other standards. A hearing on the proposal is set for April 20. The settlement also calls for hiring an independent monitor to check conditions at the prison, said Al Gerhardstein, a Cincinnati attorney who represents the inmates. "The suit was brought primarily to improve conditions at the facility, and that has been accomplished," he said. There was no comment from Corrections Corporation of America to the AP, nor was there any response to messages left at the prison and at company offices in Nashville. OLDE DISCOUNT: March 9 Deadline for Filing Arbitration Claims ------------------------------------------------------------- The St. Petersburg Times reminds its readers that March 9 is the deadline for filing arbitration claims against Olde Discount Corp. if they were victims of abusive sales practices between 1992 and 1995. The Securities and Exchange Commission is giving a second chance to investors who otherwise might lose their cases because they waited so long to file a claim. The March 9 deadline grew out of the SEC case against Olde for fraud, unauthorized trading and other abuses. In September, the SEC fined the company and its senior executives $7-million. OMEGA RESEARCH: All Claims Dismissed; Plaintiffs May Replead ------------------------------------------------------------ Omega Research, Inc. (Nasdaq:OMGA) announced the dismissal of the class action securities lawsuit filed against it January 28, 1998 in federal district court in Miami. Most of the claims in the suit, styled RICHARD M. RHODES, individually and on behalf of all others similarly situated, Plaintiffs, vs. WILLIAM R. CRUZ; RALPH L. CRUZ; OMEGA RESEARCH, INC.; BANCBOSTON ROBERTSON STEPHENS; LEHMAN BROTHERS; and HAMBRECHT & QUIST, Defendants, Case No. 98-0174-CIV-LENARD, were dismissed with prejudice. The plaintiffs have ten days from the date of the order to replead, in accordance with the requirements stated in the court's order and applicable law, the claims in the suit that were dismissed without prejudice. Marc J. Stone, Vice President of Corporate Development and General Counsel, commented, "We are pleased with the court's order dismissing this action, which we have maintained from the beginning was without merit, and we will vigorously oppose any effort by the plaintiffs to replead any of the claims or issues that were dismissed without prejudice." ORBITAL SCIENCES: Lawsuits Don't Alarm Wall Street Analysts ----------------------------------------------------------- One-time accounting charges that hurt the fourth quarter earnings of Orbital Sciences Corp. and led to the filing of class action shareholder suits are not alarming Wall Street analysts, according to Communications Today. The most eye-catching claim in the lawsuit is that two top Orbital executives sold company stock late last year before the charges were announced in February, said Armand Musey, a satellite analyst with New York-based C.E. Unterberg, Towbin. However, Orbital officials counter that their top 22 executives added roughly 13 percent to their holdings in the company during the past year. "I would have been shocked if someone did not file a lawsuit," Musey said. Indeed, analysts we talked with weren't changing their assessments of the company. Vijay Jayant, a satellite analyst with Bear, Stearns, told us this week that he continues to recommend the stock. Baron Beneski, a spokesman for Orbital Sciences, reiterated to Communications Today that the company "think[s] the lawsuit is without merit. We plan to rigorously defend the company and its officers." PACIFICARE HEALTH: Motion to Dismiss Sub Judice; Discovery Stayed ----------------------------------------------------------------- As previously reported, a securities class action lawsuit, Madruga et al. v. PacifiCare Health Systems, Inc., et al. (No. SAVC-97-974 LHM, Central District of California) was brought on behalf of all purchasers of stock in PACIFICARE HEALTH SYSTEMS, INC., between February 14, 1997 and November 24, 1997. The complaint accuses PacifiCare and certain of its officers and directors of making false and misleading statements about the cost savings and synergies resulting from the FHP acquisition. Plaintiffs also claim PACIFICARE made fraudulent earnings forecasts for 1997 and 1998 and misstated financial results for the first, second and third quarters of 1997. The complaint alleges violations of certain sections of the Securities Exchange Act of 1934. On May 11, 1998, PACIFICARE filed a motion to dismiss the entire complaint under the Private Securities Litigation Reform Act of 1995. No discovery has been taken and all discovery has been stayed pending the resolution of the motion to dismiss. PACIFICARE believes it has good defenses to these claims and is contesting the claims vigorously. PRECISION SYSTEMS: Speer-Related Shareholder Litigation Dismissed ----------------------------------------------------------------- Precision Systems, Inc. (Nasdaq:PSYS) announced that the class action suit pending against it and its Directors in the Court of Chancery of the State of Delaware has been dismissed by the plaintiff without prejudice. On March 11, 1998, Rachael Lefkovits sued Hector Acalde, Bert Kolde, Kwang-I Yu, Willem Huisman, Ian Dalziel, Francis R. Santangelo, and Precision Systems, Inc., initiating a class action lawsuit before the Court of Chancery of the State of Delaware in and for New Castle County, alleging breach of fiduciary duty by the Directors of Precision Systems, Inc. in regard to the Exchange Transaction proposed by Speer Communication Limited Partnership and Speer Virtual Media Limited Partnership. The Complaint alleged, in part, that because the majority shareholders of the Company (RMS, Alta, and Vulcan) will benefit from the proposed transaction, and that because the proposal indicates that Directors would be assured of continuation in office, that the Directors cannot, therefore, fairly and independently act upon the proposal in the best interests of all public shareholders. The Complaint sought preliminary and permanent injunctive relief, as well as compensatory damages. ST. JOHN KNITS: Unable to Predict Outcome of Shareholder Suits -------------------------------------------------------------- On October 13, 1998, Binary Traders, Inc. filed a complaint on behalf of purchasers of publicly traded securities of ST. JOHN KNITS, INC., during the period of February 25, 1998 to August 25, 1998 against the Company, Robert E. Gray and Kelly A. Gray in the United States District Court, Central District of California, Southern Division (Binary Traders, Inc. v. St. John Knits, Inc., et al.). In this action, Binary Traders claims that the defendants violated federal securities laws by allegedly making fraudulent statements to cover up management's mistakes and certain material adverse conditions affecting the Company's business. In addition, the complaint alleges that Mr. Gray traded shares of the Company's common stock while in possession of allegedly material non-public information. Binary Traders seeks class action certification and an unspecified amount of compensatory damages. The Company is also party to six lawsuits that allege claims against certain of the Company's directors for breach of fiduciary duty alleged to have arisen from a proposed transaction wherein Robert E. Gray, Chairman and Chief Executive Officer of the Company, along with Vestar Capital Partners III, L.P., offered to acquire substantially all of the outstanding common stock of the Company through a buy-out transaction. All of these lawsuits were filed in the Superior Court of the State of California for the County of Orange. The dates the lawsuits were instituted, as well as the principal parties to the lawsuits, are as follows: (i) Tehrani v. St. John Knits, Inc., et al., filed on December 9, 1998, by Mishel S. Tehrani, as representative for a putative class of unidentified members, against the Company, Robert E. Gray, Marie St. John Gray, Kelly A. Gray, Roger G. Ruppert, Richard A. Gadbois III, David A. Krinsky and Rick Rozar, (ii) Hill v. St. John Knits, Inc., et al., filed on December 9, 1998, by Kenneth O. Hill, as representative for a putative class of unidentified members, against the Company, Robert E. Gray, Marie St. John Gray, Kelly A. Gray, Roger G. Ruppert, Richard A. Gadbois III and David A. Krinsky, (iii) Silverman v. St. John Knits, Inc., et al., filed on December 23, 1998, by Shirley Silverman, as representative for a putative class of unidentified members, against the Company, Robert E. Gray, Marie St. John Gray, Kelly A. Gray, Roger G. Ruppert, Richard A. Gadbois III and David A. Krinsky, (iv) Vinikow v. St. John Knits, Inc., et al., filed on January 8, 1999, by Larry Vinikow as representative for a putative class of unidentified members, against the Company, Robert E. Gray, Marie St. John Gray, Kelly A. Gray, Roger G. Ruppert, Richard A. Gadbois III and David A. Krinsky, (v) Howden v. St. John Knits, Inc., et al., filed on January 15, 1999, by Richard Howden, Jr. as representative for a putative class of unidentified members, against the Company, Robert E. Gray, Marie St. John Gray, Kelly A. Gray, Roger G. Ruppert, Richard A. Gadbois III and David A. Krinsky, and (vi) The Parnassus Fund v. St. John Knits, Inc., et al., filed on February 12, 1999, by The Parnassus Fund, as representative for a punitive class of unidientified members, against the Company, Robert E. Gray, Marie St. John Gray, Kelly A. Gray, Roger G. Ruppert, Richard A. Gadbois III and David A. Krinsky. The principal relief sought in the six actions is certification of the putative class, an injunction of the proposed buy-out transaction from proceeding or, to the extent the transaction is concluded, a rescission of the buy-out transaction and damages and attorneys' fees in an unspecified amount. The Company tells investors in its latest annual report filed with the SEC that it is unable to estimate the outcome of these matters or any potential liabilities it may incur. The Company expects to incur legal and other defense costs as a result of such proceedings in an amount which it can not currently estimate. These proceedings could involve a substantial diversion of the time of some of the members of management, and an adverse determination in, or settlement of, such litigation could involve payment of significant amounts, which could have an adverse impact on the Company's business, financial condition, results of operations and cash flows. STB SYSTEMS: Company Continues to Deny Shareholder Allegations -------------------------------------------------------------- >From the latest annual report filed with the SEC by STB SYSTEMS, INC.: A securities class action lawsuit was filed on October 9, 1998 in Dallas County, Texas against us and certain of our officers and directors, along with the underwriters who participated in our secondary public offering on March 20, 1998. The petition alleges that the registration statement for our secondary public offering contained false and misleading statements of material facts and omitted to state material facts, alleging that the registration statement failed to disclose certain alleged product defects, alleged difficulties with some of our major customers and our allegedly deteriorating financial performance. The petition asserts claims under Sections 11, 12(a)(2), and 15 of the Securities Act of 1933, as amended, and Sections 581-33A and 581-33F of the Texas Securities Act on behalf of a purported class of persons who purchased or otherwise acquired STB Common Stock in the public offering. The petition seeks recission and/or unspecified damages. We deny the allegations in the petition and intend to vigorously defend the lawsuit. In the event the plaintiffs in the lawsuit prevail in connection with any of their claims, then, depending upon the magnitude of damages and expenses incurred by us and the extent to which such damages and expenses are covered by insurance, the lawsuit could materially harm us. TRANSCRYPT INTERNATIONAL: Takes $10MM Charge to Cover Litigation ---------------------------------------------------------------- Transcrypt International Inc. posted a $14.7 million fourth quarter loss on $11.9 million in revenues. The loss for the quarter includes a $10 million provision relating to federal and state class action lawsuits proceeding against the company. Transcrypt delayed the reporting of its 1997 year totals, and amended the filing of its financial reports for 1995 and 1996. ********* S U B S C R I P T I O N I N F O R M A T I O N Class Action Reporter is a daily newsletter, co-published by Bankruptcy Creditors' Service, Inc., Princeton, NJ, and Beard Group, Inc., Washington, DC. Peter A. Chapman, Editor. Copyright 1999. All rights reserved. ISSN XXXX-XXXX. This material is copyrighted and any commercial use, resale or publication in any form (including e-mail forwarding, electronic re-mailing and photocopying) is strictly prohibited without prior written permission of the publishers. Information contained herein is obtained from sources believed to be reliable, but is not guaranteed. The CAR subscription rate is $575 for six months delivered via e- mail. Additional e-mail subscriptions for members of the same firm for the term of the initial subscription or balance thereof are $25 each. For subscription information, contact Christopher Beard at 301/951-6400. * * * End of Transmission * * *