Judge Gives OK to Settlement of AST Lawsuit : Courts: Shareholders sued the Irvine computer maker. After the $12.5-million deal, the company says it can move forward.
A federal judge Monday tentatively approved a $12.5-million settlement in a lawsuit that accused Irvine-based AST Research Inc. of misleading investors about its financial condition after buying Tandy Corp.’s personal computer operations two years ago.
The settlement, subject to formal court approval Nov. 17, also covers three other class-action shareholder lawsuits, including one scheduled to go to trial in October, and a claim for damages that hadn’t yet reached the lawsuit stage.
The end of litigation comes as the nation’s fifth-largest personal computer maker struggles to put its operations in order following a loss of $99.3 million for the fiscal year that ended July 1.
The company’s troubles, stemming in part from its Tandy acquisition, forced it to seek a major investor to bolster its finances. AST’s shareholders recently approved a $378-million investment by Samsung Electronics Co. Ltd., giving the Seoul, South Korea, electronics giant a 40% stake in AST.
The settlement amount is much less than lawyers for the shareholders had sought--a total of $150 million in all four cases--but it was at the upper end of what the company was willing to pay to settle the case, lawyers indicated.
“The company is at a very critical point, and this trial was very time-consuming,” one defense lawyer said. “Now management can get back to running the company.”
Top AST executives, including Chairman Safi U. Qureshey, had spent nearly five days at the courthouse as lawyers for shareholders questioned them. The settlement came as the plaintiffs neared the end of their case Aug. 17.
“We made a business decision,” Qureshey said. “We had a very strong case and were ready to go through with it. But as a company, looking at the time commitment and looking at the cost, it was the right business decision to make.”
The key is that the settlement covers the remaining shareholder litigation, cuts off the chance of a drawn-out appeal and, he said, “allows AST to move forward.”
The company, still in negotiations with its insurance carrier, said it expects that most of the settlement will be covered by insurance.
“We got the best we could, considering that the judge had dismissed all but one claim before trial,” said Kevin Prongay, one of the lawyers for the shareholders.
Plaintiff’s lawyers are asking the court to give them 40% of the settlement for their fees, plus about $1 million in costs. Shareholders will get the rest next summer, Prongay said.
The lawsuits were brought by shareholders who bought stock in AST as it leaped to $33 a share after the company acquired the Tandy business for $175 million in July, 1993. The following March, the stock began to tumble amid rumors of possible price cuts and troubles integrating the two operations. It hit a low of $12.875 a share three months later.
The shareholders asserted at trial that AST artificially inflated earnings by hiding reduced prices--in essence, lost profits--on its Premmia line of computers.
They accused the company of improperly charging off $9.5 million in lost profits to a special $125-million restructuring fund set up to absorb the costs of the Tandy computer purchase. The fund wasn’t set up to absorb normal operating losses, they argued.
The defense contended that there was nothing improper about using the fund to absorb the costs of “repositioning” AST and Tandy products. In addition, the company said that accounting standards at the time were ambiguous and that the Big 6 accounting firm of Ernst & Young approved the charge-offs to the restructuring fund.
