Adams Golf has agreed to settle and resolve a stockholder class action lawsuit initially filed in June 1999, certain of its current and former officers and directors, and the three underwriters in Adams Golf's July 1998 initial public offering. Adams Golf expects to incur a $5.0 million charge in the quarter ended September 30, 2009, associated with the settlement resulting from the open layer of insurance coverage.
The company said the litigation is pending in the United States District Court for the District of Delaware and relates to allegations that Adams Golf's initial public offering prospectus was false and misleading. The settling parties have entered into a memorandum of understanding and have agreed to submit a binding settlement agreement to the Court in the coming weeks to resolve this matter against all defendants. The class action settlement will be subject to Court approval.
The settlement provides for a payment to the class of $16.5 million, of which Adams Golf has agreed to contribute $5.0 million. Adams Golf is being forced to contribute this $5.0 million because one of its former insurers refused to contribute to the settlement based on the alleged late notice of the claim. Adams Golf has commenced litigation against this former insurer and against its former insurance broker.
The settlement will also require Adams Golf to pay to the class action plaintiffs the first $1.25 million of any recovery, net of fees and expenses, which Adams Golf receives from the ongoing litigation with its former insurance carrier and insurance broker. If approved by the Court, the settlement will lead to a dismissal of all defendants in the litigation, including the release of Adams Golf from its agreement to indemnify the underwriters of its initial public offering.
