March 27, 2003--Lucent Technologies has reached an agreement to settle all pending shareowner and related litigation against the company, its current and former officers and directors, and certain other defendants. The company did not admit any wrongdoing as part of the settlement, which is subject to final court approval.
The agreement is a global settlement of what were 54 separate lawsuits, including the consolidated shareowner securities class action lawsuit in the U.S. District Court in Newark, NJ, and all related ERISA, bondholder, derivative, and state securities cases. The lawsuits alleged that the company violated federal securities laws and related state laws.
"This settlement puts all pending shareowner and related litigation behind us," says Patricia Russon, chairman and chief executive officer of Lucent. "By resolving these legacy issues, we can put all of our energy into running the business and continuing to re-build shareowner confidence in the performance of this company."
Under the agreement, Lucent will pay $315 million in common stock, cash, or a combination of both, at the company's option. Lucent will also seek partial recovery of this amount from its fiduciary insurance carriers under certain policies that are worth up to $70 million.
When the settlement proceeds are distributed, the company will also issue 200 million warrants to purchase an equal number of shares of common stock at a strike price of $2.75 with a three-year expiration from issuance. The company estimates the current fair value of these warrants at approximately $100 million, using a Black-Scholes model.
The company expects the settlement approval and claims administration process to last up to 18 months and doesn't expect to distribute any proceeds until sometime in fiscal 2004. Lucent will pay up to $5 million for the cost of settlement administration.
In addition to the cash, stock, and warrants that Lucent will contribute, certain of Lucent's other insurance carriers have agreed to pay $148 million in cash into the total settlement fund. Lucent spin-off Avaya is contractually responsible for a portion of the settlement. Its contribution to the settlement is still being determined and will be added to the total settlement fund.
Lucent expects to record a charge in the second quarter of fiscal 2003 for approximately $420 million, or 11 cents per share, related to the settlement. This charge may be adjusted in future quarters if Lucent is able to recover a portion of the settlement from its fiduciary insurance carriers, as well as to reflect changes in the fair value of the warrants.