BHLL used to ne called Nexar Technologies Inc
December 31, 1997
Investment fund buys techology shares
Clearwater Fund IV LLC, a Bay Area company that invests in technology growth companies, said it has acquired 700,000 shares of Nexar Technologies Inc., a Southborough, Mass.-based maker of customizable and upgradable personal computers. The purchase price was not disclosed. Clearwater Fund bought the shares from Palomar Medical Technologies. Clearwater had bought more than 1 shares of Nexar from Palomar in October.
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Here is Palomar Medical:
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
---------------------------------------------------------------------------x
MARK VARLJEN, et al., on behalf of themselves and all x
others similarly situated, x
x
Plaintiffs, x
x
-against- x Civil Action No.
x 97 Civ. 6742 (DLC)
H.J. MEYERS & CO., INC., et al., x
x
Defendants. x
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NOTICE OF PENDENCY OF PROPOSED SETTLEMENT OF CLASS ACTION,
ISSUANCE OF SETTLEMENT STOCK, AND SETTLEMENT HEARING
TO: ALL PURCHASERS OF THE COMMON STOCK OF PALOMAR MEDICAL TECHNOLOGIES, INC.
(“PALOMAR”) FROM FEBRUARY 1, 1996 THROUGH AND INCLUDING MARCH 26, 1997 (THE “CLASS”)
IMPORTANT
PLEASE READ THIS NOTICE CAREFULLY AND IN ITS ENTIRETY. THIS NOTICE RELATES TO A PROPOSED
SETTLEMENT OF LITIGATION AND CONTAINS IMPORTANT INFORMATION REGARDING YOUR RIGHTS.
Summary Disclosure of Settlement Terms
The amount of the settlement proposed to be distributed to class members submitting valid claims is $5,040,750. Based on estimates
furnished by experts retained by plaintiffs’ counsel, this recovery represents approximately $0.135 per damaged share.
Plaintiffs and defendants disagree on the average amount of damages per share that would be recoverable if the plaintiffs prevailed
on each claim alleged. The parties disagree about the effect on the price of Palomar stock attributable to conduct alleged in the complaint
and to the defendants.
Plaintiffs’ counsel intend to apply to the Court for an award of attorneys’ fees not to exceed 33% of the settlement fund and
reimbursement of expenses (including expert fees and administration expenses), plus a pro rata share of interest earned on the settlement
fund.
Questions regarding any matter contained in this notice may be addressed to Plaintiffs’ Lead Counsel:
Ralph M. Stone
Shalov Stone & Bonner
276 Fifth Avenue, Suite 704
New York, New York 10001
(212) 686-8004
Defendants, while denying any wrongdoing, have agreed to this settlement to avoid the further expense and burden of this litigation. Plaintiffs
have agreed to this settlement due to the substantial benefits conferred on the class and to avoid the substantial expenses and risks of continued
litigation.
Notice of Settlement Hearing
Pursuant to Rule 23 of the Federal Rules of Civil Procedure, and the June 19, 2000 Order of the United States District Court for the
Southern District of New York, a hearing will be held on October 27, 2000, at 2:00 p.m., before the Honorable Denise Cote, United States
District Court Judge, in Courtroom #11B, United States Courthouse, 500 Pearl Street, New York, NY 10007 (the “Settlement Hearing”)
to determine: (1) whether the settlement of the above-captioned action (the “Litigation”) should be approved as fair, reasonable, and
adequate to the Class; (2) whether the releases should be approved as fair, reasonable, and adequate to the Class and its members; (3)
whether the proposed Plan of Allocation is fair, reasonable, and adequate; (4) whether the applications of Plaintiffs’ Counsel for an award
of attorneys’ fees, costs, and expenses should be approved; and (5) whether the claims of the members of the Class against the Palomar
Defendants should be dismissed on the merits and with prejudice as set forth in the Stipulation of Settlement (the “Settlement Stipulation”),
filed with the Court.
2
Summary of the Settlement
Recovery to the Settlement Class: The compensation proposed to be paid by the defendants in connection with the settlement of the Litigation
(the “Settlement Fund”) consists of: (a) $4,040,750 in cash (plus interest accrued thereon); and (b) $1,000,000 worth of Palomar common stock,
unless the average trading price of that stock for the ten days prior to the Settlement Hearing date is less than $1.50, in which event Plaintiffs’
Counsel will elect to substitute either $500,000 cash (plus interest accrued thereon) or $1,000,000 worth of Palomar common stock, calculated using
a value of $1.50 per share. Of the total Settlement Fund: (a) $25,000 in cash has been paid by defendant William F. Masucci; (b) $2,500 in cash
has been paid by defendant Michael Bergin; (c) $8,250 in cash has been paid by defendant Robert J. Setteducati; and (d) $5,000 in cash has been
paid by defendant Tobin J. Senefeld. The remaining cash and stock to be paid in connection with the Settlement will be paid by or on behalf of
defendants Palomar Medical Technologies, Inc. (“Palomar”), Steven Georgiev and Joseph Caruso (collectively, the “Palomar Defendants”). The
amount to be distributed to the Class in connection with the Settlement (the “Net Settlement Fund”) is equal to the amount of the Settlement Fund
less (a) the expenses incurred in providing notice of the Settlement to the Class; (b) the expenses incurred in the administration of the Settlement;
and (c) the amounts awarded to counsel for the plaintiffs (“Plaintiffs’ Counsel”) for attorneys’ fees and to reimburse the expenses of litigation
advanced by Plaintiffs’ Counsel (such expenses and fees are hereinafter referred to as the “Class Fees and Expenses”). Based upon the assumptions
and calculations made concerning the volume of shares traded during the period from February 1, 1996 through March 26, 1997, inclusive (the
“Class Period”), Plaintiffs’ Counsel estimate that the average per share recovery is approximately $0.135, before the deduction of the Class Fees
and Expenses. Individual class members’ actual recoveries under the Settlement will vary, depending upon numerous factors, including the amount
they paid for their shares, the amount of proceeds they received if any of the shares purchased during the Class Period was sold, when the stock was
sold, the number of claimants who actually file Proofs of Claim, the amount of the Class Fees and Expenses, and the amount of interest earned on
the cash portion of the Settlement Fund. In no event will the amount of recovery for each Claimant exceed that Claimant’s actual damages.
Potential Outcome of the Case: Plaintiffs’ Counsel, in conjunction with their damages expert, have conducted an analysis of the potential
damages recoverable by the Class. Based upon that analysis, Plaintiffs’ Counsel believe that the total potential damages that a jury could award
to the Class if all of Plaintiffs’ claims were successful and the damage analysis performed by Plaintiffs’ damages expert were accepted by the jury
would be approximately $28.7 million, or an average of approximately $0.77 per damaged share, before the deduction of any amounts for the
payment of attorneys’ fees and expenses incurred by the Class. Different shares were damaged in different amounts and the actual damage figure
varies based on the date of purchase and whether the shares were retained through the end of the Class Period or sold prior to the end of the Class
Period.
Attorneys’ Fees and Costs Sought: As compensation for their time and risk in prosecuting the Litigation on a contingent fee basis, Plaintiffs’
Counsel intend to apply to the Court for an award of attorneys’ fees in an amount not to exceed 33% percent of the Settlement Fund (including interest
accruing on the Settlement Fund). Plaintiffs’ Counsel intend to seek recovery of attorneys’ fees in equal percentages of the total cash and stock
components of the Settlement Fund. Plaintiffs’ Counsel also intend to seek reimbursement of their costs and expenses to prosecute this case, including
the fees paid by Plaintiffs’ Counsel for their financial experts, and to seek reimbursement of the costs and expenses incurred by Plaintiffs. Should the
Court award such attorneys’ fees and expenses in the amount applied for, and valuing and allocating the Settlement Fund as stated above, the average
maximum amount of such fees and expenses is approximately $1,877,500, or $0.05 per damaged share (assuming expenses presently estimated not to
exceed $200,000).
Identification of Lawyers’ Representatives: The following Plaintiffs’ Counsel are available to answer questions from Settlement Class Members
about any matter contained in this Notice: Ralph M. Stone, Lee S. Shalov, or James P. Bonner, Shalov Stone & Bonner, 276 Fifth Avenue, Suite 704,
New York, NY 10001, (212) 686-8004, Lawyer@lawssb.com.
Reasons for Settlement: In evaluating the merits of the proposed Settlement, Plaintiffs and Plaintiffs’ Counsel have considered numerous
factors which could impact the outcome of the Litigation in the absence of the Settlement. Those factors include: the bankruptcy of H.J. Meyers;
the bankruptcy of James Villa; the actual or potential inability of any of the H.J. Meyers Defendants to fund any significant percentage of any
judgment entered in the Class’s favor should the Litigation proceed to trial; the history of operating and net losses posted by Palomar; the limited
insurance funds available to cover the claims at issue in the Litigation; the potential that the Palomar Defendants’ insurer could disclaim coverage
in the event that Plaintiffs prevailed at trial; the fact that the Palomar Defendants’ insurance policies provided for their attorneys’ fees to be paid
out of the total amount of the policies; the expenses that would be incurred in prosecuting the Litigation through trial and the appeals that would
likely follow any jury verdict in the Litigation; the duration of time that would pass before all appeals arising from any trial in the Litigation were
resolved; the defenses asserted by the defendants in the Litigation; the fact that a class had not yet been certified by the Court; and the significant
uncertainty regarding the eventual outcome of the Litigation. Although the Palomar Defendants deny any liability or wrongdoing, the Palomar
Defendants have chosen to settle and compromise the Litigation to avoid further substantial expense and the inconvenience and distraction of
protracted and burdensome litigation. Defendants also have taken into account the uncertainty and risks inherent in any litigation, especially in
complex cases like the Litigation. The Palomar Defendants have, therefore, without conceding any infirmity in the defenses that they have asserted
or could assert in this Litigation, determined that it is desirable and beneficial to them that the Litigation be settled in the manner and upon the terms
and conditions set forth in the Settlement Stipulation.
Purpose of Notice and Description of Litigation
The purpose of this Notice is to inform you of a proposed settlement of the Litigation as described below. This Notice describes rights
you may have under the proposed Settlement and what steps you may take in relation to this Litigation. This notice is not an expression
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of any opinion by the Court as to the merits of any of the claims or defenses asserted by any party in the Litigation, or the fairness or
adequacy of the proposed Settlement.
The Litigation
This litigation was commenced on September 11, 1997, pursuant to Rule 23 of the Federal Rules of Civil Procedure in the United States
District Court, Southern District of New York (the “Court”) by Plaintiffs, individually and on behalf of a class consisting of all persons who
purchased the stock of Palomar Medical Technologies, Inc. (“Palomar” or the “Company”) at any time during the period from February 1, 1996
through and including March 26, 1997 (the “Class Period”) and who suffered damages as a result of such purchases. The original complaint
in the case, and the First Amended Class Action Complaint, which was filed on November 12, 1997, asserted claims against H.J. Meyers &
Co., Inc., James Villa, Robert Setteducati, Amy Bell, William Masucci, Michael Bergin and Tobin Senefeld (collectively, the “H.J. Meyers
Defendants”). No claims were asserted against the Palomar Defendants in those pleadings. The H.J. Meyers Defendants filed motions to
dismiss the First Amended Complaint, which motions were denied following extensive briefing on July 14, 1998. Shortly thereafter, H.J.
Meyers ceased doing business and discontinued its defense of itself in the case. Plaintiffs obtained a default judgment as to liability against
H.J. Meyers on January 8, 1999. H.J. Meyers also discontinued its funding of its defense of the H.J. Meyers Defendants, several of whom
thereafter represented themselves without counsel.
Following these events, Plaintiffs requested that the Court grant leave to allow an amendment to the First Amended Complaint, which
request the Court granted, allowing the filing of a Second Amended Class Action Complaint. In their Second Amended Class Action
Complaint, dated January 29, 1999 (the “Complaint”), Plaintiffs added the Palomar Defendants and allege that, throughout the Class Period,
the price of Palomar common stock was artificially inflated as a result of activities on the part of H.J. Meyers & Co., Inc., the Palomar
Defendants, and the H.J. Meyers Defendants, in violation of the Securities Exchange Act.
At or around the same time as the filing of the Second Amended Class Action Complaint, Plaintiffs entered discussions with certain
of the individual H.J. Meyers Defendants concerning both their ability to pay a settlement amount and their willingness to resolve the claims
asserted against them. As a result of these discussions, Plaintiffs determined to discontinue prosecuting claims against defendant Amy Bell,
in exchange for various agreements and her cooperation in the litigation.
In April 1999, the Palomar Defendants filed a motion to dismiss the Complaint, as well as a motion to transfer venue to the District
of Massachusetts. Plaintiffs opposed the motion to dismiss which was denied after oral argument on August 6, 1999. At the request of
all of the parties, the motion to transfer venue has been held in abeyance although it was fully briefed and submitted in January 2000.
In September 1999, Plaintiffs and the Palomar Defendants entered into discussions concerning attempting to resolve the case by
settlement. Numerous in-person and telephonic discussions and negotiation sessions ensued, including multiple sessions with a Courtappointed
mediator.
The parties have reached this settlement following those negotiations.
The Palomar Defendants vigorously deny any wrongdoing whatsoever and the Settlement is not and will not be construed or deemed
to be evidence of or an admission or concession on the part of any Palomar Defendant of any liability or wrongdoing or damage whatsoever.
The giving of this Notice is not an admission of liability or wrongdoing by defendants nor is it an admission of any infirmity or weakness
in the claims or defenses asserted in the Litigation.
Prior to the execution of this Settlement Stipulation, the Plaintiffs and the Palomar Defendants had engaged in extensive motion
practice, including, but not limited to, a motion to dismiss, a motion to change venue, and a motion seeking class certification. The motion
to dismiss was denied by the Court. At the request of all of the parties, the Palomar Defendants’ motion to change venue has not been
decided, and the plaintiffs’ motion for class certification has also not been decided.
The parties have also conducted extensive fact and expert discovery, which included discovery pertaining to the Palomar Defendants’
motion to change venue, and Plaintiffs’ motion for class certification. The discovery has included document requests, interrogatories, and
numerous depositions, including depositions of expert witnesses. Plaintiffs’ Counsel has served several sets of document requests and
interrogatories on the Palomar Defendants, and has served subpoenas for the production of documents from non-party witnesses. The
investigation by Plaintiffs’ Counsel, both before and after the commencement of the Litigation, has also included, inter alia, (i) inspection
of documents from securities analysts and other non-parties, (ii) depositions of party and non-party witnesses, (iii) consultation with
prospective witnesses and potential experts, (iv) review of Palomar’s public filings, annual reports, and other public statements, and
documents produced by the Palomar Defendants, and (v) research of the applicable law with respect to the claims asserted in the Litigation
and the potential defenses thereto.
Plaintiffs’ Counsel and counsel for the Palomar Defendants engaged in intensive, arms-length settlement negotiations, which were
facilitated by a Court-appointed mediator. Before and during these settlement negotiations, Plaintiffs’ Counsel and counsel for the Palomar
Defendants engaged in discussions concerning the liability and damages issues underlying Plaintiffs’ claims, as well as the potential
defenses asserted by the Palomar Defendants with respect to those claims.
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Plaintiffs and Plaintiffs’ Counsel have considered the benefits to the Settlement Class that will be received as a result of this Settlement,
and the potential benefits, costs, uncertainties, and risks of further litigating this matter, and have concluded that the Settlement is fair,
reasonable, adequate, and in the best interests of the Settlement Class.
The Proposed Settlement
A written settlement agreement (the “Settlement Stipulation”), has been entered into on behalf of the Plaintiffs (and the Settlement
Class) and the Palomar Defendants. The following summarizes the terms of the Settlement Stipulation; for the full details of the proposed
Settlement, you may desire to refer to the Settlement Stipulation, which is available from Plaintiffs’ Counsel.
Under the terms of the Settlement Stipulation, Palomar shall deposit $1,375,000, in immediately available funds into a Settlement Fund. In
addition, Palomar will instruct its insurer (the “Insurer”) to deposit $2,625,000, in immediately available funds into the Settlement Fund. In addition,
Palomar shall transfer to the Settlement Fund either (i) shares of Palomar common stock with a value of $1 million, provided that the average closing
price for the ten (10) trading days preceding the date of the Court hearing (the “Settlement Hearing”) for final approval of the Settlement (the
“Average Closing Price”) is no less than $1.50 per share, or (ii) if the Average Closing Price is less than $1.50 per share, either $500,000 in cash
or $1 million worth of Palomar common stock, calculated based on a per share value of $1.50, at Plaintiffs’ Counsel’s election. If shares are to be
transferred pursuant to this subsection, the number of shares to be transferred shall be determined by dividing $1 million by the Average Closing
Price (the “Stock Component of the Settlement”), unless the Average Closing Price is less than $1.50 per share, in which case the Stock Component
of the Settlement will be calculated using a per share value of $1.50. The valuation will be adjusted for any splits or other recapitalization. The
parties intend and will request the Court to order that the Palomar common stock, if any, paid as part of the Settlement will be exempt from
registration under Section 3(a)(10) of the Securities Act of 1933. Under the Settlement Stipulation, the claims against the Palomar Defendants
possessed by all Class members who do not file a timely and complete request for exclusion from the Class would be released and dismissed with
prejudice by the Court (the “Released Claims”). In addition, the Palomar Defendants shall release Plaintiffs, all Settlement Class Members and
Plaintiffs’ Counsel from all claims arising out of, relating to or in connection with the institution, prosecution or resolution of the Litigation or the
Released Claims.
Members of the Class should be aware that the amount of damages, if any, which Plaintiffs would be able to establish at a trial in the Litigation
was, and still is, a matter of serious dispute. The formula utilized in the Plan of Allocation for distributing the Net Settlement Fund should not be
interpreted as a finding, concession or admission that the damages suffered by the members of the Class could be determined in the manner proposed
in the Plan of Allocation. No determination has been made by any Court or jury as to the amount of damages suffered by the members of the Class
or the proper method for determining such damages. The determination of the damages suffered by the members of the Class, like the determination
whether the defendants in the Litigation are liable for such damages, is a complicated and uncertain process, typically involving conflicting expert
opinions. In fact, during the course of expert discovery in the Litigation, the Palomar Defendants’ expert opined that the members of the Class had
suffered no compensable damages as a result of any conduct alleged by Plaintiffs in the Complaint.
As used herein, “Released Claims” means all claims, demands, rights, liabilities, and causes of action of every nature and description
whatsoever, including, without limitation, claims for compensatory, punitive or other damages or any other monetary, equitable or injunctive relief
and claims for indemnification, negligence, recklessness, negligent misrepresentation, gross negligence, breach of duty of care and/or breach of duty
of loyalty, fraud, breach of fiduciary duty, or violations of any federal, state, local, statutory, or common law or any other law, rule, or regulation,
including both known and unknown claims that have been or could have been asserted in any forum by Plaintiffs or any Settlement Class Member
or any of them, or the successors and assigns of any of them, whether directly, indirectly, representatively or in any other capacity against any of
the Released Persons based upon, arising out of, in any way relating to or in connection with (a) the offering, purchase or sale of Palomar common
stock prior to or during the Class Period and/or (b) any acts, disclosures, statements, representations, omissions or failures to act which were or could
have been alleged in the Litigation. The Released Persons are the Palomar Defendants and certain persons related to them, as well as William
Masucci, Michael Bergin, Robert J. Setteducati and Tobin Senefeld.
Plaintiffs and the Settlement Class Members will be deemed to have expressly waived any and all rights or benefits they may now have,
or in the future may have, under any law relating to the releases of unknown claims, including, without limitation, Section 1542 of the
California Civil Code, which provides:
A general release does not extend to the claims which the creditor does not know or suspect 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.
Plaintiffs and Settlement Class Members who do not file a timely and complete request for exclusion from the Class will also be
deemed to have waived any and all provisions, rights and benefits conferred by any law of any state or territory of the United States or any
foreign country, or any principle of common law, which is similar, comparable or equivalent to substance or intent to Section 1542 of the
California Civil Code. The proposed Settlement and the creation of the Settlement Fund is subject to several conditions designed to ensure
that the Defendants are not subject to further litigation.
After payment of (i) the costs of notice, (ii) the costs of administering and distributing the Settlement Fund, including any taxes payable
and (iii) the attorneys’ fees and reimbursement of expenses awarded by the Court, the balance of the Settlement Fund, together with any
interest earned thereon (the “Net Settlement Fund”), shall be distributed to Authorized Claimants as set forth herein.
5
In addition to the settlement with the Palomar Defendants described in detail below, Plaintiffs have reached settlement agreements with
defendants Masucci, Bergin, Setteducati and Senefeld. In accordance with settlement agreements with each of these individuals, these
individuals are included as released parties upon final approval of this settlement. Pursuant to these settlements, defendant Masucci has
paid $25,000 in cash, defendant Senefeld has paid $5,000 in cash, defendant Setteducati is paying $8,250 in cash, and defendant Bergin
has paid $2,500 in cash. All funds that have already been paid have been placed into interest bearing accounts, and such funds will be
included in the Settlement Fund.
Each of the settlement agreements with these individual defendants was obtained after extensive arms-length negotiations. Each of
these defendants provided plaintiffs’ counsel financial disclosures confirming the appropriateness of the settlement. None of these
individuals possessed any form of insurance coverage for the claims asserted against them.
Benefits of the Settlement
Plaintiffs and Plaintiffs’ Counsel believe that the claims asserted in the Litigation have merit and that the information obtained and examined
by Plaintiffs’ Counsel supports the claims asserted. However, Plaintiffs and Plaintiffs’ Counsel recognize that there are significant risks, uncertainty
and expense in proceeding with the Litigation through trial and through any appeals. Plaintiffs and Plaintiffs’ Counsel are also mindful of the
inherent problems of proof under, and possible defenses to the federal securities law violations, including the defenses alleged by Defendants in
the pleadings filed in the Litigation. Plaintiffs and Plaintiffs’ Counsel believe that the Settlement set forth in the Settlement Stipulation confers
substantial benefits upon the Settlement Class and each of the Settlement Class Members. Based upon their evaluation, Plaintiffs and Plaintiffs’
Counsel have determined that the Settlement set forth in the Settlement Stipulation is in the best interests of the Plaintiffs and the Settlement Class
and each of the Settlement Class Members.
Participation in the Class
If you are one of the persons falling within the definition of the Settlement Class (a “Settlement Class Member”), you will remain a
Settlement Class Member unless you elect to be excluded from the Settlement Class by the procedure described below. All Settlement Class
Members who do not request to be excluded from the Settlement will be bound by any judgment entered in the Litigation pursuant to the
Settlement Stipulation, whether or not that person files a Proof of Claim. If you wish, you may enter a legal appearance individually or
through your own counsel at your own expense. Class members who do not enter such an appearance, object to the Settlement or the
application of Plaintiffs’ Counsel for the payment of fees and expenses, or request exclusion from the Class, will be represented by
Plaintiffs’ Counsel.
TO BE ELIGIBLE TO PARTICIPATE IN THE DISTRIBUTION OF THE NET SETTLEMENT FUND, YOU MUST TIMELY
COMPLETE AND RETURN THE PROOF OF CLAIM AND RELEASE FORM THAT ACCOMPANIES THIS NOTICE. The Proof
of Claim and Release (“Proof of Claim”) must be postmarked and delivered to the Claims Administrator, c/o Gilardi & Co. LLC at P.O.
Box 8040, San Rafael, California 94912-8040, on or before December 1, 2000. Unless the Court orders otherwise, if you do not timely
submit a valid Proof of Claim or Request for Exclusion, you will be forever barred from receiving any payments from the Net Settlement
Fund, but will in all other respects be bound by the provisions of the Settlement Stipulation and the Judgment. If you do file a valid and
timely Proof of Claim, and you are a Settlement Class Member, you will be eligible to share in the Net Settlement Fund.
Exclusion from the Class
You may, if you so desire, request to be excluded from the Settlement Class. To do so, you must mail a written request to:
Gilardi & Co. LLC
P.O. Box 8040
San Rafael, California 94912-8040
Attention: Palomar Settlement
The request for exclusion must state: (1) the name, address, and telephone number of the person requesting exclusion; (2) the name
and address of the person (or nominee) in whose name the Palomar securities were registered; (3) the person’s purchases and sales of
Palomar securities made during the Class Period, including the dates, amounts of securities and price for each such purchase or sale; and
(4) that the person wishes to be excluded from the Settlement Class. Your exclusion request must be postmarked on or before October 20,
2000. All persons who submit valid and timely requests for exclusion in the manner set forth in this paragraph shall have no rights under
the Settlement Stipulation, shall not share in the distribution of the Net Settlement Fund, and shall not be bound by the Settlement
Stipulation or the Judgment. All persons falling within the definition of a Settlement Class Member who do not request exclusion in the
manner set forth in this paragraph shall be members of the Settlement Class and shall be bound by the Settlement Stipulation and Judgment,
whether or not they submit a valid Proof of Claim and Release.
Plan of Allocation
The Net Settlement Fund shall be distributed to Authorized Claimants. Payments to Authorized Claimants shall be proportional based
upon each Authorized Claimant’s Recognized Loss (as determined in paragraph (a) below) as compared to the total Recognized Losses
of all Authorized Claimants. The Claims Administrator shall determine each Authorized Claimant’s pro rata share of the Net Settlement
Fund based upon each Authorized Claimant’s total Recognized Loss.
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In order to receive a payment from the Net Settlement Fund, an Authorized Claimant must have had a Recognized Loss with respect
to open market transactions in Palomar common stock.
(a) An Authorized Claimant’s Recognized Loss shall be the designated imputed amount which, for purposes of the Settlement,
Plaintiffs’ Counsel (in consultation with their experts) has determined would approximate the difference between the price paid for common
shares of Palomar and the value, as determined by Plaintiffs’ Counsel, of the shares at various times during the Class Period (the “Imputed
Amount”). In the event, however, that an Authorized Claimant sold shares of Palomar during the Class Period, the Authorized Claimant
may have benefited to the extent that the price of the shares exceeded their value at the time of sale, as determined by Plaintiffs’ Counsel
for purposes of the Settlement. Accordingly, the Recognized Loss in such case will be the lesser of (i) the difference in the Imputed
Amount, if any, at the time of purchase, less the Imputed Amount, if any, at the time of sale, or (ii) the Authorized Claimant’s actual loss
on the sale. However, a short seller who sold short during the Class Period shall have no Recognized Loss on purchases to cover any such
short sales. The total of all profits shall be subtracted from the total of all losses to determine if a Class Member has a claim. Only if a
Class Member had a net loss, after profits from all transactions in Palomar common stock during the Class Period are subtracted from the
total of losses, will such Class Member be eligible to receive a distribution from the Net Settlement Fund. In determining the Recognized
Loss for each Authorized Claimant, sales of shares of Palomar during the Class Period shall be matched chronologically (in the first-in-firstout,
or “FIFO” method) without regard to the manner in which Authorized Claimants may have treated sales and purchases for tax purposes.
The following Imputed Amounts will be applied in determining Recognized Loss:
Date of Purchase/Sale Imputed Amount
February 1, 1996 – July 23, 1996 $1.50
July 24, 1996 – March 26, 1997 $0.30
(b) Payments made to Authorized Claimants pursuant to this Plan of Allocation shall be deemed conclusive against all Class
members. All members of the Class whose claims are disallowed by the Claims Administrator and not thereafter allowed by the Court shall
be barred from participating in distributions from the Net Settlement Fund, but otherwise shall be bound by all of the terms of the Settlement
Stipulation, including the terms of the Final Judgment of Dismissal to be entered in the Action.
Each Authorized Claimant shall be allocated a pro rata share of the Net Settlement Fund based on his, her or its total Recognized Loss
compared to the total Recognized Losses of all accepted claimants. No distributions of cash shall be made to Authorized Claimants who
would not be entitled to receive at least five dollars ($5.00) based on the initial proration of the Net Settlement Fund to Authorized
Claimants, and calculated using the value of the Palomar shares on the date of payment of such shares into the Settlement Fund.
To the extent not previously sold or distributed, the shares of Palomar common stock from the Gross Settlement Fund, after deduction
of any shares awarded as attorneys’ fees, will be distributed to the members of the Class in proportion to the Authorized Claimant’s total
Recognized Loss as determined by the Claims Administrator. No fractional shares shall be issued. Fractional shares will be rounded down
to the nearest whole number. Authorized Claimants who are entitled to receive five (5) or fewer shares based on the initial proration of
shares to Authorized Claimants may receive, in Plaintiffs’ Counsel’s discretion, a cash substitute in the amount of the value obtained from
the sale of such shares minus any pro rata transaction costs. No adjustment will be made in the cash distributions for fractional shares.
Class members who do not file acceptable Proofs of Claim will not share in the Class settlement proceeds. Class members who do not either
file a request for exclusion or file acceptable Proofs of Claim will nevertheless be bound by the judgment and the Settlement. The Plan of Allocation
of the Net Settlement Fund, as set forth herein, is not part of the Settlement, and may be considered by the Federal Court separately from the Federal
Court’s consideration of the fairness, reasonableness, and adequacy of the Settlement, and any order or proceedings relating to the Plan of Allocation,
or any appeal from any order relating thereto or reversal or modification thereof, shall not operate to terminate or cancel the Stipulation, or affect
or delay the finality of the Final Judgment of Dismissal approving the Stipulation and the Settlement of the Litigation. The Plan of Allocation was
determined by Class Plaintiffs’ Lead Counsel in consultation with their damages experts. Defendants take no position with respect to the plan of
allocation, how it was calculated, or its effect on or fairness to any Authorized Claimant, other than to deny that the price of shares of Palomar was
artificially inflated by Defendants’ conduct.
Plaintiffs, the Palomar Defendants, their respective counsel, and all other of their respective Related Parties shall have no responsibility
or liability whatsoever for the investment or distribution of the Settlement Fund, the Net Settlement Fund, or the determination,
administration, calculation, or payment of any Proof of Claim or non-performance of the Claims Administrator, the payment or withholding
of taxes owned by the Settlement Fund or any losses incurred in connection therewith.
Dismissal and Releases
If the proposed Settlement is approved, the Court will enter a Judgment (the “Judgment”), dismissing all Released Claims against the
Released Persons, and Class Members who do not submit timely and valid requests for exclusion from the Class may not thereafter assert
any of such claims against the Released Persons. The Judgment will provide that the fact of the Settlement or the terms thereof may not
be used against Released Persons in any action or proceeding, except to enforce the Judgment.
The Judgment will also provide that all Settlement Class Members who do not validly and timely request to be excluded from the
Settlement Class shall be deemed to have released and forever discharged all Released Claims against all Released Persons.
Application for Attorneys’ Fees and Expenses
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At the Settlement Hearing, or at such other time as the Court may direct, Plaintiffs’ Counsel intend to apply to the Court for an award
of attorneys’ fees in an amount not to exceed 33% of the Settlement Fund and for reimbursement of their actual, out-of-pocket expenses,
plus a pro rata share of any interest earned on the Settlement Fund from the date the Fund was created until the date such fees and expenses
are paid. Plaintiffs’ Counsel intend to seek recovery of attorneys’ fees in equal percentages of the total cash and stock components of the
Settlement Fund. Settlement Class Members are not personally liable for any fees and expenses.
Conditions for Settlement
The Settlement is conditioned upon the occurrence of a number of events, which are subject to waiver. Those events include, among
other things: (1) entry of the Judgment by the Court as provided for in the Settlement Stipulation; (2) expiration of the time to appeal from
the Judgment; and (3) that the number of persons opting out of the settlement not exceed the number set forth in the Supplemental
Agreement entered into by the Plaintiffs and the Palomar Defendants. In addition, in the event that the Average Closing Price of Palomar
common stock is less than or equal to $1.50 over the ten days preceding the Settlement Hearing, Palomar may, at Plaintiffs’ Lead Counsel’s
election, substitute $500,000 cash in lieu of the stock or use $1.50 as the imputed price per share for purposes of calculating the number
of shares to be paid by Palomar. If any one of the conditions described in the Settlement Stipulation is not met, the Settlement Stipulation
might be terminated and, if terminated, will become null and void, and the parties to the Settlement Stipulation will be restored to their
respective positions as of the date of the Settlement Stipulation.
The Right To Be Heard At The Hearing
Any Settlement Class Member who has not validly and timely requested to be excluded from the Settlement Class, and who objects
to any aspect of the settlement of the Litigation, the Plan of Allocation, or Plaintiffs’ Counsel’s applications for attorneys’ fees, costs, and
expenses, may appear and be heard at the Settlement Hearing. No later than October 20, 2000, any such person must deliver to Plaintiffs’
Counsel at the following address a written notice of objection, and any papers opposing the settlement, plan, or application for attorneys’
fees, costs, and expenses:
Ralph M. Stone, Esq.
Shalov Stone & Bonner
276 Fifth Avenue
Suite 704
New York, NY 10001
Attention: Palomar Settlement
The notice of objection should demonstrate the objecting person’s membership in the Settlement Class, and contain a statement of the
reasons for objection. Only members of the Settlement Class who have properly submitted written notices of objection in this manner will
be entitled to be heard at the Settlement Hearing, unless the Court orders otherwise.
Attendance at the Settlement Hearing is not necessary. However, persons wishing to be heard orally in opposition to the approval of
the Settlement or to Plaintiffs’ Counsel’s application for the payment of fees and expenses are required to indicate in their written objection
their intention to appear at the hearing. Persons who intend to object to the approval of the Settlement or to Plaintiffs’ Counsel’s application
for the payment of fees and expenses and desire to present evidence at the Settlement Hearing must include in their written objections the
identity of the witnesses they may call to testify and exhibits they intend to introduce into evidence at the Settlement Hearing. Class
Members do not need to appear at the Settlement Hearing or take any other action to indicate their approval of the terms of the Settlement.
SPECIAL NOTICE TO SECURITIES BROKERS AND OTHER NOMINEES:
If you purchased or held any shares of Palomar common stock during the Class Period as nominee for a beneficial owner, then, within
ten (10) days after you receive this Notice, you must either: (1) send a copy of this Notice and Proof of Claim by first class mail to all such
persons; or (2) provide a list of the names and addresses of such persons to the Claims Administrator:
Gilardi & Co. LLC
P.O. Box 8040
San Rafael, California 94912-8040
Attention: Palomar Settlement
If you choose to mail the Notice and Proof of Claim yourself, you may obtain (without cost to you) as many additional copies of these
documents as you will need to complete the mailing from the Claims Administrator.
Regardless of whether you choose to complete the mailing yourself or elect to have the mailing performed for you, you may obtain
reimbursement for or advancement of reasonable administrative costs actually incurred in connection with forwarding the Notice and Proof
of Claim, and which would not have been incurred but for the obligation to forward the Notice and Proof of Claim.
Examination of Papers
This Notice does not describe all of the details of the Settlement Stipulation or the Litigation. For full details of the matters discussed
in this Notice, you may desire to review the Settlement Stipulation and other documents filed with the Court, which may be inspected at
Plaintiffs’ Counsel offices at 276 Fifth Avenue, Suite 704, New York, New York, and at Gilardi & Co. LLC, P.O. Box 8040, San Rafael,
8
California 94912-8040, and at the Law Offices of Kevin Cahill, 19 South LaSalle Street, Suite 802, Chicago, Illinois, during business hours.
If you have any questions about the settlement of the Litigation, you may contact Plaintiffs’ Counsel (see details on page 2 of this Notice)
or your own personal attorney.
INQUIRIES SHOULD NOT BE DIRECTED TO THE COURT OR TO THE CLERK OF THE COURT.
Dated: June 19, 2000 By Order of the United States District Court
Southern District of New York |
