In Re: AremisSoft Corporation Securities Litigation 01-CV ...securities.stanford.edu/.../1018/AREM01/...0102486.pdf · complaints were consolidated into the class litigation captioned

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

A Case 2:01-cv-02486-JAP-MCA Document 211 Filed 04/05/2005 Page 2 of 14

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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Case 2:01-cv-02486-JAP-MCA Document 211 Filed 04/05/2005 Page 3 of 14

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


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.

Case 2 : 01-cv-02486-JAP-MCA Document 211 Filed 04/05/2005 Page 12 of 14

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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Case 2 : 01-cv-02486-JAP-MCA Document 211 Filed 04/05/2005 Page 13 of 14

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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Documents

In Re: AremisSoft Corporation Securities Litigation 01-CV ...securities.stanford.edu/.../1018/AREM01/...0102486.pdf · complaints were consolidated into the class litigation captioned