case 1:09-md-02017-lak document 888 filed 04/26/12 page 1 ... · retention letter for guidepost...

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK

In re LEHMAN BROTHERS SECURITIES AND ERISA LITIGATION

This Document Applies To:

In re Lehman Brothers Equity/Debt Securities Litigation, 08-CV-5523 (LAK)

This document relates to ECF No. 339 in 08-CV-5523 ECF No. 803 in 09-MD-2017

Case No. 09-MD-2017 (LAK)

ECFCASE

LEAD PLAINTIFFS' SUPPLEMENTAL SUBMISSION IN FURTHER SUPPORT OF MOTION FOR APPROVAL OF THE D&O SETTLEMENT

Redacted Version ORIGINAL TO BE FILED UNDER SEAL

Case 1:09-md-02017-LAK Document 888 Filed 04/26/12 of 18

TABLE OF CONTENTS-

Page

TABLE OF AUTHORITIES .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ii

TABLE OF ABBREVIATIONS ................................................................................................... iii

I. PRELIMINARY STATEMENT ......................................................................................... 1

II. THE OFFICER' S AND DIRECTOR'S LIABILITY INSURANCE POLICY .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . 2

A. Description And Documentation OfThe Applicable Insurance Policy ....................................................................................................................... 2

B. Defense Costs And Competing Claims Rapidly Eroded The Available Insurance .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . 3

C. Through Settlement, Lead Plaintiffs Obtained The Major Share Of The Then-Remaining Insurance ............................................................................... 6

D. The Carriers' Position On Collective Settlement.. ................................................... 7

III. EVALUATION OF THE OFFICER DEFENDANTS' PERSONAL ASSETS .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . 7

A. Lead Plaintiffs ' Pre-Mediation Investigation Into The Officer Defendants' Assets ................................................................................................... 7

B. Judge Martin ' s Independent Assessment Of The Officer Defendants' Liquid Net Worth ... .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . 9

C. Lead Plaintiffs ' Assessment Of The Mediator' s Recommendation ...................... 11

IV. STIPULATION WITHDRAWING ANDREWS' OBJECTION ...................................... 12

V. CONCLUSION ... .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . 13

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TABLE OF AUTHORITIES

Page(s) CASES

Balenciaga Am., Inc. v. Dollinger, No. 10 Civ. 2912 (LTS), 2010 WL 3952850 (S.D.N.Y. Oct. 8, 2010) ...................................... 9

City ofDetroit v. Grinnell Corp. , 495 F.2d 448 (2d Cir. 1974) .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . 13

Grupo Mexicano De Desarollo, S.A. v. Alliance Bond Fund, Inc. , 527 U.S. 308, 119 S. Ct. 1961 (1999) .................................................................................... 8, 9

Tyco Int 'l Ltd. v. Walsh, No. 02 Civ. 4633 (DLC), 2010 WL 3000179 (S.D.N.Y. July 30, 2010) ... .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . 8

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TABLE OF ABBREVIATIONS

ABBREVIATION DEFINED TERM "Action" In re Lehman Brothers Equity/Debt Securities Litigation, 08

Civ. 5523 (LAK) "Bankruptcy Court" The United States Bankruptcy Court for the Southern District of

New York "Bernstein Litowitz" Bernstein Litowitz Berger & Grossmann LLP "Complaint" Third Amended Class Action Complaint "Defendants" The Settling Defendants and the non-settling defendants, E& Y

and UBSFS, collectively "Director Defendants" Michael L. Ainslie, John F. Akers, RogerS. Berlind, Thomas

H. Cruikshank, Marsha Johnson Evans, Sir Christopher Gent, Roland A. Hernandez, Henry Kaufman, and John D. Macomber

"D&O Defendants" or Former Lehman officers RichardS. Fuld, Jr., Christopher M. "Individual Defendants" O'Meara, Joseph M. Gregory, Erin Callan, and Ian Lowitt; and

former Lehman directors Michael L. Ainslie, John F. Akers, RogerS. Berlind, Thomas H. Cruikshank, Marsha Johnson Evans, Sir Christopher Gent, Roland A. Hernandez, Henry Kaufman, and John D. Macomber

"D&O Settlement" The proposed settlement with the Lehman directors and officers for $90 million on behalf of the D&O Settlement Class

"D&O Settlement Amount" $90 million "D&O Settlement Class" All persons and entities who (1) purchased or acquired Lehman

securities identified in Appendix A to the D&O Stipulation pursuant or traceable to the Shelf Registration Statement and who were damaged thereby, (2) purchased or acquired any Lehman Structured Notes identified in Appendix B to the D&O Stipulation pursuant or traceable to the Shelf Registration Statement and who were damaged thereby, or (3) purchased or acquired Lehman common stock, call options, and/or sold put options between June 12, 2007 and September 15, 2008, through and inclusive, and who were damaged thereby. Excluded from the D&O Settlement Class are (i) Defendants, (ii) Lehman, (iii) the executive officers and directors of each Defendant or Lehman, (iv) any entity in which Defendants or Lehman have or had a controlling interest, (v) members of Defendants' immediate families, and (vi) the legal representatives, heirs, successors or assigns of any such excluded party. Also excluded from the D&O Settlement Class are any persons or entities who exclude themselves by fi ling a timely request for exclusion in accordance with the requirements set forth in the D&O Notice.

"D&O Stipulation" Stipulation of Settlement and Release dated October 14, 201 1, between Lead Plaintiffs and the D&O Defendants

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ABBREVIATION DEFINED TERM "E&Y" Ernst & Young LLP, a non-settling defendant "Equity/Debt Action" or In re Lehman Brothers Equity/Debt Securities Litigation, 08 "Equity/Debt" Civ. 5523 (LAK) "Examiner" Anton R. Valukas, Esq., the court-appointed examiner in

Lehman's Chapter 11 bankruptcy proceedings, In re Lehman Brothers Holdings Inc., 08-13555 (JMP) (Bankr. S.D.N.Y.)

"Examiner's Report" Report of Anton R. Valukas, Examiner, dated March 11,2010 "Joint Declaration" Joint Declaration of David Stickney and David Kessler in

Support of (A) Lead Plaintiffs' Motion for Final Approval of Class Action Settlements with D&O Defendants and Settling Underwriter Defendants and Approval of Plans of Allocation and (B) Lead Counsel's Motion for an Award of Attorneys' Fees and Reimbursement of Litigation Expenses

"Kessler Topaz" Kessler Topaz Meltzer & Check, LLP "Lead Counsel" Bernstein Litowitz and Kessler Topaz "Lead Plaintiffs" Alameda County Employees' Retirement Association,

Government of Guam Retirement Fund, Northern Ireland Local Governmental Officers' Superannuation Committee, the City of Edinburgh Council as Administering Authority of the Lothian Pension Fund, and Operating Engineers Local 3 Trust Fund

"Lehman" or "Company" Lehman Brothers Holdings Inc. "Officer Defendants" Richard S. Fuld, Jr., Christopher M. O'Meara, Joseph M.

Gregory, Erin Callan, and Ian Lowitt "Plain tiffs' Executive Bernstein Litowitz; Kessler Topaz; Gainey & McKenna LLP; Committee" or "Executive WolfHaldenstein Adler Freeman & Herz LLP; and Girard Committee" Gibbs LLP "Settlements" The D&O Settlement ($90,000,000), the First Underwriter

Settlement ($4 17,000,000), and the Second Underwriter Settlement ($9,218,000), collectively

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I. PRELIMINARY STATEMENT

The Court-appointed Lead Plaintiffs and Lead Counsel respectfully reiterate their belief

that the $90 million D&O Settlement is an excellent result for the D&O Settlement Class under

all of the circumstances of this case. 1 In particular, the D&O Settlement represents an

outstanding achievement in light of the risks of continued litigation, including the risks of

establishing liability and damages, the dwindling available insurance, and limitations on the

ability of Lehman's former officers to pay a substantial judgment.

At the April 12, 2012 settlement hearing, the Court requested more information and

documentation regarding the available liability insurance coverage for Lehman' s directors and

officers (Hearing Transcript ("Trans.") at 20-22); the insurance carrier's position on collectively

settling claims against both the Officer Defendants and the Director Defendants (Trans. at 17-

19), and the evaluation of the Officer Defendants' assets. Trans. at 40-41.

As explained below and in the accompanying exhibits, Lead Plaintiffs and Lead Counsel

considered and addressed each of the matters covered by the Court's inquiry during the parties'

negotiations and before ultimately agreeing to the D&O Settlement, including balancing the

amount of the certain recovery from insurance proceeds now, against the uncertain and risky

potential recovery after trial and appeals, the rate at whkh the insurance coverage was wasting,

and the various defenses the Officer and Director Defendants had to liability and damages. See

Joint Dec!. ~~67-72.

In response to the Court' s specific inquiries, Lead Plaintiffs now respectfully submit the

following supplemental statement. Further documentation and supporting material is attached to

1 See, e.g., Joint Dec!. ~~67-72 (ECF No. 807 in 09-MD-2017). For defined terms herein, Lead Plaintiffs respectfully refer the Court to the accompanying Table of Abbreviations on pages iii to IV.

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the accompanying Declaration of Max W. Berger in Further Support of Approval of the D&O

Settlement ("Berger Decl."), including the following:

Exhibit A:

Exhibit B:

Exhibit C:

Exhibit D:

Exhibit E:

Exhibit F:

Exhibit G:

ExhibitH:

The Declaration of the Mediator, Hon. Honorable Daniel H. Weinstein (Ret.) (dated April 26, 2012) ("Weinstein Decl.");

2007-2008 Management Liability and Company Reimbursement Insurance Policy by XL Specialty Insurance Company;

Confidential Supplemental Term Sheet to Settle Class Action (dated August 24, 2011);

Retention Letter for the Hon. John S. Martin (Ret.) (dated September 12, 2011 );

Retention Letter for Guidepost Solutions LLC (dated August 30, 2011 );

Guidepost Solutions LLC Net Worth Questionnaire;

Opinion Letter ofthe Hon. JohnS. Martin (Ret.) (dated October 14, 2011); and

Sherman, Gabriel, The Rage ofthe Previously Rich, New York Magazine, Sept. 21, 2008.

II. THE OFFICER'S AND DIRECTOR'S LIABILITY INSURANCE POLICY

A. Description And Documentation Of The Applicable Insurance Policy

As stated at the April 12, 2012 hearing, the Court requested additional information

regarding the insurance available to resolve the claims against the Officer and Director

Defendants. Specifically, the Court requested documentation and a description of the applicable

insurance policy, including the policy type and policy period (Trans. 22:16-21 ).

The potentially available insurance coverage for this case was under a 2007-2008 Policy.

The 2007-2008 Policy consists of a primary D&O policy purchased from XL Specialty Insurance

Company (attached as Exhibit ("Ex.") B to the Berger Decl.) and excess D&O insurance from a

variety of other carriers. (Herein, the primary policy and excess policies are referred to

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collectively as the "2007-2008 Policy"). It is a claims-made policy covering the period from

May 16, 2007 to May 16, 2008. This means that claims made during that period - including the

claims for coverage related to claims made in this case- are covered by this policy. The policy

provides that " [a]ll Claims arising from the same Interrelated Wrongful Acts shall be deemed to

constitute a single Claim and shall be deemed to have been made at the earliest of the time at

which the earliest such Claim is made or deemed to have been made .... " In other words, any

later made claims that relate to the first claim are deemed to relate back to the initial claim and

thus, are also covered by this policy, and are not covered by a later policy (such as the 2008-2009

policy covering the period from May 16, 2008 to May 16, 2009, also purchased from XL

Specialty Insurance Company with excess coverage from a variety of other carriers).

Consequently, while there was a second tower of insurance coverage, there was no viable claim

to it by the D&O Settlement Class because all claims in any way involving the same Interrelated

Wrongful Acts (defined as "in any way involving any ofthe same or related facts") relate back to

the initial claim made in February 2008 during the claims-made period covered by the 2007-

2008 policy. See Ex. A to Berger Decl. , Weinstein Decl. ~9. Accordingly, the available

coverage for the Equity/Debt case was the 2007-2008 Policy. 2

B. Defense Costs And Competing Claims Rapidly Eroded The Available Insurance

At the hearing, the Court also requested additional information as to "how much

insurance coverage there was and is." Trans. at 20:15-16.

2 By contrast, the claims asserted in the consolidated mortgage-backed securities action, In re Lehman Bros. Mortgage-Backed Securities Litigation, No. 08-CV-6762 (LAK) (S.D.N.Y.), arguably fit within the 2008-2009 Policy. See, e.g., In re Lehman Bros. Holdings Inc. , Case No. 08-13555 (JMP), ECF No. 21852 (Bankr. S.D.N.Y. Dec. 9, 2011).

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While the Individual Defendants began the litigation with $250 million in coverage

pursuant to the 2007-2008 Policy, the policy wasted quickly during the litigation, and the rate of

waste increased as this litigation and additional claims progressed.

During negotiations, there were more than eighteen opt-out/individual actions and class

and direct action SASCO (MBS) litigation filed; myriad governmental investigations and

additional investigations related to the U.S. insolvency proceedings, and significant ongoing

arbitrations and other ongoing matters all covered under the 2007-2008 Policy. The amount

sought in the various cases and arbitrations greatly exceeds the amount of the available

msurance. See Ex. A to Berger Decl., Weinstein Decl. ~12.

Throughout the litigation, Lead Counsel closely monitored proceedings before the

Bankruptcy Court. Joint Decl. ~42. Before and during negotiations, there were multiple motions

in the Bankruptcy Court for payment of insurance proceeds for defense costs and competing

claims against the D&O insurance. In fact, there remains today, among other pending claims, a

FINRA arbitration claim (not involving any of the D&O defendants) in the midst of a lengthy

trial where the potential claims exceed the $180 million remaining in the policy as of

December 2010. In addition to the number of potential claims, the negotiations were further

complicated by the fact that a variety of different insureds with different interests were covered

by the 2007/2008 policy (i.e., insureds that faced litigation that the insureds in the Equity/Debt

litigation did not face). Indeed, the defendants in the SASCO (MBS) litigation initially objected

to the $90 million D&O Settlement in the Bankruptcy Court - objections that were only

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withdrawn after substantial additional negotiations. See Ex. A to the Berger Decl., Weinstein

Decl. ~12.

By February 2011, when the parties reconvened for another two-day session before Judge

Weinstein,

Moreover, there had been arbitration awards against

insureds for which they sought payment from the 2007-2008 Policy, and additional substantial

awards were likely and imminent given the ongoing arbitrations that were in advanced stages. 3

Nevertheless, Lead Plaintiffs and Lead Counsel pushed for the vast majority of remaining

coverage, and declined offers at lower levels .

• In July 2011, the Court entered its Opinion on the various motions to dismiss the

Complaint, granting in part and denying in part the D&O Defendants' motions. The decision

lifted the statutory stay of discovery, and Lead Plaintiffs initiated the parties' Rule 26(t)

conference and pushed for discovery and a pretrial schedule to prepare the case against the

Individual Defendants for trial. Joint Decl. ~45 . Given that there were nearly forty defense law

firms, the rate at which defense costs would deplete the fast-eroding policy was expected to

substantially increase.

3 See, e.g., In re Lehman Bros. Holdings Inc., Case No. 08-13555 (JMP), ECF No. 13929 (Bankr. S.D.N.Y. Jan. 13, 2011) (order authorizing payment under the D&O policies of settlements resolving a FINRA arbitration proceeding relating to the purchase of auction-rate securities, unrelated to the D&O Defendants); and ECF No. 18157 (Bankr. S.D.N.Y. June 29, 2011) (motion for approval to use insurance proceeds to pay FINRA arbitration award).

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C. Through Settlement, Lead Plaintiffs Obtained The Major Share Of The Then-Remaining Insurance

Judge Weinstein, like defense counsel, was well aware that Lead Plaintiffs and Lead

Counsel were willing and able to prosecute the case to trial and would (again) reject any

insufficient settlement proposals. Throughout the year-long negotiations, Lead Plaintiffs had

rejected settlement offers which they deemed insufficient and, instead, continued litigating the

case in order to obtain the largest possible settlement under all of the circumstances. See Ex. A

to the Berger Decl., Weinstein Decl. ~8.

With this context, in August 2011 , Judge Weinstein made a mediator' s recommendation

to settle the claims against the Director and Officer Defendants for $90 million. !d. ~ 18. •

At that time and even now, numerous claims in other legal proceedings remam

unresolved, exposing certain Individual Defendants to extensive damages. As defense counsel

for Defendant Fuld represented at the settlement hearing and as Judge Weinstein confirmed,

there is no remaining insurance from the 2007-2008 Policy, as the total policy has been

consumed or is committed through binding agreements. !d. ~26. If, therefore, the D&O

Settlement is not approved, the $90 million will no longer be paid to the D&O Settlement Class

and will instead be consumed by the competing claims and defense costs.

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D. The Carriers' Position On Collective Settlement

The Court asked during the April 12, 2012 hearing for documentation regarding the

carriers' position as to the potential for a settlement with either the Director or the Officer

Defendants, rather than collectively. Trans. at 17-19.

From the outset, counsel for the carriers were adamant that they would only negotiate a

settlement for all of the Individual Defendants. See Ex. A to the Berger Decl., Weinstein Decl.

~25. Given the complexities of a settlement in which the policy is consumed for the benefit of

only certain of the insureds while leaving others exposed to continued litigation in the same case

and the absence of a release for the carriers, they would, understandably, not negotiate to settle

the Equity/Debt claims against only certain of the Officer and Director Defendants. When

considering whether to accept such a structure, Lead Plaintiffs and Lead Counsel considered

several factors, including the narrower claims against the Director Defendants and their

particular defenses, such as reliance on the Examiner's Report, as exonerating them. See Joint

Decl. ~72.

III. EVALUATION OF THE OFFICER DEFENDANTS' PERSONAL ASSETS

At the April 12 hearing, the Court requested additional information about the facts and

circumstances surrounding Lead Plaintiffs' investigation into the Officer Defendants' assets. See

Trans. at 40-41 .

A. Lead Plaintiffs' Pre-Mediation Investigation Into The Officer Defendants' Assets

Prior to and throughout the mediation process, the Officer Defendants refused to disclose

to Lead Plaintiffs their confidential , personal financial information based upon their steadfast

denial of any personal liability. See Berger Decl. ~7. In addition, Lead Plaintiffs recognized the

possibi lity that discovery related to the Officer Defendants' net worth may not become available

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until after a judgment had been entered against them. See Tyco Int 'l Ltd. v. Walsh, No. 02 Civ.

4633 (DLC), 2010 WL 3000179, at *1 (S.D.N.Y. July 30, 2010) (Cote, J.) (finding that it would

be premature to grant plaintiffs discovery regarding defendant's net worth prior to trial).

Lead Counsel 's investigators, therefore, researched records and other publicly-available

sources to assist Lead Counsel in determining the Officer Defendants' financial ability to pay a

judgment.4 This analysis included the Officer Defendants' real estate holdings (and intra-family

real estate transfers) and mortgages thereon, and other assets. See Berger Decl. ~8.

As explained in the Berger Declaration, Lead Plaintiffs' investigation indicated that the

Officer Defendants held approximately $53 million in real estate assets (net of any outstanding

mortgages). See id. ~~8-1 0. Lead Plaintiffs also identified an additional $1.15 million in

watercraft owned by Defendants Fuld and Gregory, and considered the possibility that there were

additional assets owned by the Officer Defendants, including the art collection possessed by

Defendant Fuld and/or his wife, for which no public information related to value or title was

available. See id. ~11.

Thus, heading into the mediation, Lead Plaintiffs estimated that the combined non-liquid

net worth of the Officer Defendants was slightly above $55 million, subject to adjustment based

upon difficult to value, non-public assets of unknown title. Lead Plaintiffs further recognized,

however, the remote likelihood of recovering against these assets, either by seeking a

constructive trust or other judicially sanctioned protection. See Grupo Mexicano De Desarollo

SA. v. Alliance Bond Fund, Inc. , 527 U.S. 308, 333, 119 S. Ct. 1961 , 1975 (1999) (holding that

federal courts lack pre-judgment authority to freeze defendants' assets where plaintiff claims no

4 As previously explained at the settlement hearing, the Director Defendants were in a different posture than the Officer Defendants. Among other things, there were no fraud claims brought against the independent directors, and they would have continued to rely on the Examiner's Report as exonerating them. See Trans. at 17, 43; see also Joint Decl. ~72.

-8-


lien or equitable interest in property); Balenciaga Am. , Inc. v. Dollinger, No. 10 Civ. 2912

(LTS), 2010 WL 3952850, at *7 (S.D.N.Y. Oct. 8, 2010) (noting that "a court may not freeze

assets solely to secure a future money judgment"). As a result, Lead Plaintiffs focused on the

Officer Defendants' liquid net worth as a potential, alternative source of recovery compared to

whatever insurance proceeds, if any, would ultimately remain. See Berger Decl. ~12.

B. Judge Martin's Independent Assessment Of The Officer Defendants' Liquid Net Worth

Lead Plaintiffs insisted that the D&O Settlement be expressly contingent upon their

receipt of an independent assessment of the Officer Defendants' liquid net worth. As previously

explained, Lead Plaintiffs engaged a highly-respected neutral, Hon. John S. Martin, Jr. (Ret.) of

Martin & Obermaier, LLC, to evaluate the Officer Defendants' liquid net worth. See Berger

Decl. Ex. C (Supplemental Term Sheet) and Ex. D (September 12, 201 1 retainer agreement

between Lead Counsel and Judge Martin).

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Judge Martin asked each Officer Defendant to complete a Net Worth Questionnaire,

which Judge Martin created in conjunction with Guidepost. The Questionnaire required the

Officer Defendants to submit comprehensive and detailed information about their assets. See

Berger Decl. ~13 , Ex. F.

In addition to the information received from the Officer Defendants, Lead Plaintiffs

provided Judge Martin with additional public information regarding the Officer Defendants'

assets. The information provided by Lead Plaintiffs to Judge Martin included media reports,

transcripts, articles, and additional information. See Berger Decl. ~14.

Having access to both public and non-public information, and with the assistance of

Guidepost, Judge Martin determined that the combined liquid net worth of the Officer

Defendants was "substantially less than $100 million."

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C. Lead Plaintiffs' Assessment Of The Mediator's Recommendation

Lead Plaintiffs weighed many factors before determining whether to accept or reject the

mediator's recommendation. First and foremost, Lead Plaintiffs recognized that rejecting a

$90 million settlement and continuing to pursue claims against the Officer Defendants meant that

the policy would likely dissipate by claimants competing for finite insurance proceeds (as well as

payment of defense costs for myriad defense counsel), risking that the D&O Settlement Class

would be left competing with other claims for the personal assets of the Officer Defendants as

the sole remaining source of recovery against these defendants for the D&O Settlement Class.

Rejecting the $90 million settlement would also have left the D&O Settlement Class

facing myriad litigation risks, including the uncertainty of obtaining a final judgment against the

Officer Defendants in excess of $90 million and overcoming any subsequent appeals. •

Lead Plaintiffs further recognized that, even if at some future time they were to obtain a

judgment against the Officer Defendants that exceeded $90 million, they would still face

significant hurdles in executing that judgment against their personal assets. As set forth in the

Berger Declaration, the personal assets of these individuals would be insufficient to satisfy a

judgment in this case given the enormous alleged damages. See Berger Decl. ~20. The Officer

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Defendants were and still are defendants in multiple proceedings beyond the instant action. See,

e.g., Joint Dec!. ~~15 -21. Lead Plaintiffs appreciated the threat of personal bankruptcies, in

which case, Lead Plaintiffs' claims would compete against other creditors for such recoveries.

In light of the risks and uncertainties Lead Plaintiffs faced in obtain ing and executing a

judgment against the Officer Defendants, and given the considerable fees and expenses the D&O

Settlement Class would be forced to incur in the process, and given the " time-value of money"

paid today (as opposed to in several years, if at all), Lead Plaintiffs concluded that accepting the

immediate and certain $90 million was in the best interests of the D&O Settlement Class.

IV. STIPULATION WITHDRAWING ANDREWS' OBJECTION

Subsequent to the April 12 settlement hearing and subject to Court approval, Chris

Andrews has agreed to voluntarily withdraw his objection to the D&O Settlement with prejudice.

See Berger Decl. ~22, Ex. I (Stipulation Withdrawing Objection that Lead Counsel has entered

into with Objector Andrews). It is Lead Counsel ' s belief that the Court' s approval of the

aforementioned Stipulation Withdrawing Objection is also in the best interests of the D&O

Settlement Class. 5

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5 !d. ~23 . Lead Plaintiff have submitted an accompanying proposed Fee Order for the Court' s consideration approving the Stipulation Withdrawing Objection.

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V. CONCLUSION

Based on the foregoing and the entire record, Lead Plaintiffs respectfully submit that the

D&O Settlement is "fair, reasonable and adequate,' ' applying the factors set forth i11 City of

Detroit v. Grinnell C01p. , 495 F.2d 448 (2d Cir. 1974).

Dated: April 26,2012 BERNSTEIN LTTOWITZ BERGER & GROSSMANN LLP

MAX W~ BEitGER

MAX W. BERGER STEVEN B. SINGER 1285 Avenue of the Americas, 38th Floor New York, NY 10019 Tel: (2 12) 554-1400 Fax: (2 1 2) 554-1444 -and-DAVID R. STICKNEY NIKI L. MENDOZA BRETT M. MIDDLETON 12481 High BluffDrive, Suite 300 San Diego, CA 92130 Tel: (858) 793-0070 Fax: (858) 793-0323

KESSLER TOPAZ MELTZER & CHECK.. LLP

DAVID KESSLER

DA YID KESSLER JOl-IN A. KEHOE JENNIFER L. ENCK 280 King of Prussia Road Radnor, P A 19087 Tel: (6 10) 667-7706 Fax: (6 10) 667-7056 Co-Lead Counsel for Lead Plaintiffr; and the D&O Sett.lement Class

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