Tentative Kaypro Settlement Gives Shareholders $9.3 Million
Kaypro Corp. has reached an agreement in principle to pay shareholders $9.3 million and settle a class-action suit that accused company officials of fraudulently inflating earnings projections before an initial public stock offering in August, 1983, it was announced Tuesday.
The settlement will be paid for largely by Kaypro’s insurance carrier and “will not have any significant impact” on the company, Kaypro Controller Robert Gorski said Tuesday.
The Solana Beach-based computer manufacturer acknowledged no wrongdoing in the settlement, which still needs approval by a federal judge in San Diego. That process is expected to take several months.
Kaypro’s auditors are expected to reissue “unqualified” reports for the company’s 1984, 1985 and 1986 fiscal reports. Peat, Marwick, Mitchell & Co. has been issuing qualified reports on Kaypro because of uncertainty about the company’s potential liability.
“Kaypro is pleased with the outcome of the settlement negotiations,” Kaypro Chairman Andrew F. Kay said.
“It’s an excellent settlement figure for the plaintiffs, and Kaypro has ended its contingent liability,” said William Lerach, attorney for the plaintiffs.
Prudential Bache, which handled Kaypro’s 1983 public offering, also agreed to the settlement.
However, Peat, Marwick, Mitchell has not agreed to the settlement, according to Gorski, and litigation against Kaypro’s auditors for 1983 will continue.
The class-action suit charged Kaypro officers and directors with fraudulently describing the company as a competently run, well-positioned computer manufacturer with a bright future. It also alleged that various company officers and directors benefited from the public offering by selling their shares to the public at inflated prices.
The 1983 public offering resulted in 4 million shares of Kaypro common stock being sold for $10 a share. The company received $27.9 million, existing shareholders received $9.3 million, and Prudential Bache received $2.8 million.
According to the suit, instead of using the public offering to finance future product development, bad management practices forced Kaypro to use the new funds to pay for increased inventory that built up when Kaypro had problems selling some of its computer lines.
“Kaypro projected the image of a technologically advanced, well-managed and highly successful growth company,” according to the suit, filed on behalf of shareholders by Milberg Weiss Bershad Specthrie & Lerach.
