SUPERIOR COURT OF THE STATE OF CALIFORNIA
FOR THE COUNTY OF SAN DIEGO
RANDALL SULLIVAN, an individual; BARRY RAYKOSKE, an individual; and JACK REILLY, an individual, derivatively, on behalf of UNICO, INC. an Arizona corporation,
Plaintiffs,
v.
RAY BROWN, an individual, KEN WIEDRICH, an individual; MARK LOPEZ, an individual; SHANE TRAVELLER, an individual; JAVELIN ADVISORY GROUP, INC., a Nevada corporation, and DOES 1 - 100,
Defendants,
and
UNICO, INC., an Arizona corporation,
Nominal Defendant. )
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) Case No.: 37-2008-00089801-CU-PN-CTL
NOTICE OF PENDENCY AND PROPOSED SETTLEMENT OF DERIVATIVE ACTION
Judge: Yuri Hofmann
Dept: 60
TO: ALL CURRENT SHAREHOLDERS OF UNICO, INC. (“UNICO”) COMMON STOCK.
PLEASE READ THIS NOTICE CAREFULLY;
IT MAY AFFECT YOUR RIGHTS
THIS NOTICE RELATES TO A PROPOSED SETTLEMENT OF A SHAREHOLDERS’ DERIVATIVE ACTION AND CLAIMS ASSERTED THEREIN. CURRENT SHAREHOLDERS OF UNICO COMMON STOCK ARE ENTITLED TO OBJECT, IF THEY DESIRE, TO THE SETTLEMENT OF THE DERIVATIVE CLAIMS AS DESCRIBED HEREIN. IF THE COURT APPROVES THE DERIVATIVE SETTLEMENT, YOU WILL BE BARRED FROM CONTESTING THE FAIRNESS, REASONABLENESS OR ADEQUACY OF THE PROPOSED SETTLEMENT, AND FROM PURSUING THE SETTLED DERIVATIVE CLAIMS.
The purpose of this Notice is to advise you that the above-entitled action (“Action”) is now pending in the Superior Court of the State of California, County of San Diego (the “Court”), and that all parties to the Action have reached a settlement agreement (the “Agreement”) that would fully, finally and forever resolve the Derivative Claims as between Plaintiffs, derivatively on behalf of Unico, and Defendants in the Action on the terms and conditions summarized in this Derivative Notice. The complete terms and conditions of the Settlement are set forth in the Agreement on file with the Court.
This Notice should not be construed as an expression of any opinion by the Court as to the truth of the allegations of the Derivative Claims or the merits of any of the claims or defenses asserted by any party in this action or the fairness or adequacy of the proposed Settlement. This Notice is merely to advise you of the pendency and proposed Settlement of the Derivative Claims and of your rights thereunder.
I. THE ACTION AND SETTLEMENT PROCESS
A. On August 14, 2008, Randall Sullivan, Barry Raykoske, and Jack Reilly filed a shareholder derivative suit on behalf of Unico alleging causes of action against Ray Brown, Ken Wiedrich, Mark Lopez, Shane Traveller, Javelin Advisory Group, and nominal defendant Unico, Inc., specifically: 1) breach of fiduciary duty, 2) gross negligence, 3) corporate waste, 4) breach of contract, and 5) aiding and abetting breach of fiduciary duty:
B. Plaintiffs alleged a scheme whereby Defendants caused Unico to issue several million dollars worth of 50% convertible debentures with no plan to ever repay them. Plaintiffs alleged that Defendants, along with the investors who purchased the debentures, developed a scheme to convert the debentures to freely trading common stock by employing an exemption under the Securities Act of 1933, Section 3(a)(10), which allows a company to settle bona fide disputes by issuing common stock following court approval at a fairness hearing. Plaintiffs alleged that the debenture investors and Defendants agreed to pre-planned lawsuits and improperly represented to the court in Sarasota Florida that the lawsuits involved bona fide disputes, thus, improperly using Section 3(a)(10). Plaintiffs allege that Defendants caused Unico to issue billions of shares of common stock at unreasonably low discounts to the market price, damaging Unico. The Complaint filed in this Action is available for review by any interested Unico shareholder at the Court Clerk’s Office at the address below.
C. Each of the Defendants has separately denied and continues to deny each and every claim and contention alleged by the Plaintiffs in this Action. Defendants expressly deny and continue to deny all charges of wrongdoing or liability alleged in the Action. Defendants defended the allegations, claiming that they were acting in good faith and in what they believed to be in Unico’s best interest. They argued that Unico’s officers and directors never received any benefit from the debenture transactions. Defendants maintain that all of the proceeds raised in connection with the challenged debenture transaction were used solely for the benefit of Unico and its mining operations. Defendants claim that Unico was in dire financial condition and that its only other alternative was to liquidate the company leaving the common stockholders with worthless shares. Defendants argued that, had they not given the deep discounts to the debenture investors, the debenture investors warned that they would foreclose on Unico’s assets and liquidate the company wiping out common stock holders. Defendants argue that they reasonably believed it was in Unico’s interest and in the interest of its shareholders to avoid such liquidation. Defendants argued that their conduct is protected by the business judgment rule. Defendants claim that the Action is barred by the statute of limitations. Defendants continue to believe that this Action is without merit.
D. The Parties, through their respective counsel, have engaged in substantial arm’s-length negations in an attempt to settle the Action, including mediation, during which the Agreement’s terms and conditions were extensively debated and negotiated, to achieve the best relief possible consistent with the interests of Unico and its shareholders. These discussions were facilitated by the Honorable John K. Trotter, retired Justice of the California Court of Appeal, who strongly recommends the proposed settlement.
E. Despite their belief that they acted in good faith and that this Action is without merit, Defendants have concluded that further litigation would be protracted, risky and expensive, and that it is desirable that the Action be fully and finally settled in the manner and upon the terms and conditions summarized herein and set forth in further detail in the Agreement in order to limit further expense, inconvenience and distraction, to dispose of risky, burdensome and protracted litigation, and to permit the operation of Unico’s business without further expensive litigation and the distraction and diversion of Unico’s executive personnel with respect to matters in issue in the Action. The Defendants have also taken into consideration the risks and uncertainty inherent in any litigation, especially in complex cases like this Action.
F. Each of the Defendants has, therefore, determined that it is desirable and beneficial that the Action be settled in the manner and upon the terms and conditions set forth in the Agreement.
G. Plaintiffs’ Counsel believes that the claims alleged in the Action have merit. However, Plaintiffs’ Counsel recognizes and acknowledges the expense and length of continued proceedings necessary to prosecute the Action against Defendants through trial and through appeals. Plaintiffs’ Counsel also have taken into account the uncertain outcome and the risk of any litigation, especially complex derivative actions such as this Action, as well as the difficulties and delays inherent in such litigation. Plaintiffs’ Counsel also are mindful of the inherent problems of proof, including proof of damages to Unico and defenses to the claims alleged in the Complaint, including the defense asserted by Defendants both orally and in various papers filed in the Action. Such defenses include but are not limited to defenses based upon the business judgment rule and statutes of limitations. Finally, Plaintiffs’ Counsel is reasonably concerned that the relatively limited amount of insurance available of approximately $925,000 will be consumed nearly entirely by the cost of defending this Action and litigation expenses and attorneys’ fees, leaving little or no insurance funds to benefit Unico.
H. In light of the foregoing, Plaintiffs and their counsel believe that the settlement set forth in this Agreement confers substantial benefits upon Unico and its shareholders and is in the best interests of Plaintiffs, Unico and its shareholders.
II. THE PROPOSED SETTLEMENT
The following description of the proposed Settlement is only a summary, and reference is made to the text of the Agreement, on file with the Court:
Defendants and Unico agree to the following settlement terms:
a) No payments made pursuant to the Agreement may be used to pay any of Defendants’ salaries or bonuses;
b) Unico shall not issue any stock of any class pursuant to Section 3(a)(10) of the Securities Act of 1933 (“Section 3(a)(10)”) in connection with settling debt arising from any Unico financing activities, including settlements of disputes involving convertible debentures.
c) With respect to settlements not barred by paragraph b above, if Unico enters into a settlement and seeks to issue stock pursuant to Section 3(a)(l0), not less than thirty (30) calendar days before a fairness hearing pursuant to Section 3(a)(l0), Unico shall file a Form 8-K notifying shareholders of the settlement, including the material terms of the settlement. Unico shareholders may object at the Section 3(a)(10) hearing either in person or in writing, and Unico shall not challenge any shareholder objection on the grounds that the shareholder lacks standing to object.
d) Following the Court’s final approval of the Agreement, Unico shall obtain written board approval for any cumulative financing with any one Person in excess of $250,000;
e) Unico shall not engage in any financing activities of any kind, either directly or indirectly, with Mark Lefkowitz (or any company he represents), Hugh O'Neil (or any company he represents), or Compass Capital, as defined in the Agreement.
f) Absent exceptional circumstances and following the Court’s final approval of the Agreement, Unico shall hold quarterly board meetings.
g) Absent exceptional circumstances and following the Court’s final approval of the Agreement, Unico shall prepare and maintain written minutes of each board meeting signed by members of Unico’s board of directors.
h) Unico shall adopt and implement policies and procedures to ensure in good faith that at any time Unico or any of its executive officers and/or directors learn of any Unico Securities Holder who is not in compliance with Section l3(d) and/or Section 16a of the Securities Exchange Act of 1934, that Unico shall promptly notify such Unico Securities Holder of the Unico Securities Holder's filing obligations under said sections and demand that such Unico Securities Holder comply with such obligations.
Defendants Ray Brown, Mark Lopez and Ken Wiedrich further agree to pay a maximum settlement amount of $850,000 to Unico in a two-step process. Within thirty (30) days after the Effective Date, as defined in the Agreement, they will pay $500,000 (the “Initial Payment”) to Unico which will be used to reimburse Plaintiffs’ Counsel for attorneys’ fees and expenses and to pay an incentive award to Plaintiffs, described below. Any remaining balance of the Initial Payment will be retained by Unico. They further agree to pay up to a maximum of $350,000 (the “Deferred Payment”) to Unico within three years after the Effective Date of the Agreement. The Deferred Payment is determined by taking the total of Unico’s directors’ and officers’ insurance policy limit of $1 million, and deducting the Initial Payment and the cost of defending this Action and any future costs incurred in defending any other actions during the three year period. If none of the Deferred Payment insurance funds are used to pay such costs, Unico will receive the entire $350,000.
III. DISMISSAL AND RELEASES
If the Agreement is approved, the Court will enter a judgment dismissing the Action with prejudice as to all Defendants, their heirs, insurers and assigns. This means that Unico, or any Unico shareholder derivatively on behalf of Unico, will be barred from ever pursuing any of the alleged claims, or any claims that could have been alleged, in the Action against Defendants, their heirs, successors, insurers or assigns. For a complete list of Released Persons, please see the complete Agreement.
IV. APPLICATION FOR FEES, COSTS AND EXPENSES, AND INCENTIVE AWARD
At the Settlement Hearing, Plaintiffs’ Counsel will request that the Court award attorneys’ fees and reimbursement of expenses incurred in the Action. Plaintiffs’ Counsel will also request, on behalf of Plaintiffs, that the Court award an incentive award payment to each Plaintiff, in recognition of Plaintiffs’ time and effort dedicated to this Action on behalf of Unico.
Plaintiffs’ Counsel will request payment of attorneys’ fees and expenses, and incentive awards of no more than $500,000, the amount of the Initial Payment. Defendants agree not to object to a request for attorneys’ fees, expenses and incentive awards up to that amount. Plaintiffs’ Counsel will file a motion for payment of attorneys’ fees and expenses, and for payment of an incentive award, detailing their requested amounts, which will be on file with the Court for any shareholder to review. The attorneys’ fees, expenses and incentive awards must be approved by the Court at the Settlement Hearing.
V. NOTICE OF HEARING ON PROPOSED SETTLEMENT
A hearing (the “Settlement Hearing”) will be held before the Honorable Yuri Hofmann, Superior Court Judge of the State of California, County of San Diego at 10:30 a.m. on February 5, 2010, at the Hall of Justice, Department 60, 330 West Broadway, San Diego, CA 92101. The purpose of the Settlement Hearing will be to determine: (1) whether the Settlement should be approved as fair, just, reasonable and adequate; (2) whether Plaintiffs’ Counsel’s application for attorneys’ fees, costs and expenses should be approved; and (3) whether the above-entitled action should be dismissed on the merits and with prejudice. The Settlement Hearing may be continued or adjourned from time to time without further notice to the shareholders.
VI. THE RIGHT TO BE HEARD AT THE HEARING
Any Unico shareholder who objects to any aspect of the Agreement or the attorneys’ fees and expenses application, or the incentive award application, may appear and be heard at the Settlement Hearing. Any such shareholder must submit a written notice of objection. Such objection must be filed with the Court at the address above and served on all Parties so that it is received at least ten days before the Settlement Hearing by each and all of the following:
CLERK OF THE COURT, DEPT. 60
SUPERIOR COURT OF THE STATE OF CALIFORNIA,
COUNTY OF SAN DIEGO
330 West Broadway
San Diego, California 92101
To Plaintiffs’ Counsel:
Vincent D. Slavens, Esq.
Krause, Kalfayan, Benink
& Slavens, LLP
625 Broadway, Suite 635
San Diego, CA 92101 To Counsel for Brown,
Lopez & Wiedrich:
Daniel J. Navigato, Esq.
Navigato & Battin, LLP
501 West Broadway, Suite 2060
San Diego, CA 92101
To Counsel for Unico, Inc:
David Baumgarten, Esq.
Yale & Baumgarten, LLP.
5030 Camino de la Siesta,
Suite 308
San Diego, CA 92101
To Counsel for Javelin
Advisory Group, Inc.
John E. Dolkart, Jr., Esq.
1750 Kettner Blvd, Suite 416
San Diego, CA 92101
To Counsel for
Shane Traveller:
Ashley B. Hennessee, Esq.
3205 via Alicante, Suite 9
La Jolla, CA 92037
This Notice of objection must a) demonstrate the objecting person’s or entity’s shareholder status, including the number of Unico securities owned and date of purchase, and b) contain a statement of the reasons for objection. Only shareholders who have submitted written notices of objection in this manner will be entitled to be heard at the Settlement Hearing, unless the Court orders otherwise.
VIII. EXAMINATION OF PAPERS
This Notice is a summary and does not describe all of the details of the Agreement. For full details of the matters discussed in this Notice, you may review the Agreement, with exhibits, in the Office of the Clerk of Court, Superior Court of the State of California, County of San Diego, Hall of Justice, 330 West Broadway, San Diego, California 92101.
If you have any questions about the Agreement or this Derivative Notice, you may contact Plaintiffs’ Counsel by writing to:
VINCENT D. SLAVENS
Krause Kalfayan Benink & Slavens LLP
625 Broadway, Suite 635
San Diego, California 92101
PLEASE DO NOT CONTACT THE COURT OR
THE CLERK OF THE COURT REGARDING THIS NOTICE.
BY ORDER OF THE SUPERIOR COURT
OF THE STATE OF CALIFORNIA,
COUNTY OF SAN DIEGO
Dated this 17th day of November, 2009
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