New York investment banker Lehman Brothers Inc. filed a class action lawsuit against ProNet Inc. in Supreme Court for the state of New York, seeking participation in ProNet’s proposed settlements with shareholders.
ProNet, some of its officers and directors, and underwriters-including Lehman Brothers-in a secondary stock offering last May, were named co-defendants in lawsuits filed last June by ProNet shareholders of record between Jan. 31, 1996, and June 21, 1996. However, in its settlement proposal, ProNet excludes its underwriters.
Bill Ahearn, senior vice president and director for Lehman Brothers, said the company and other investment banks in an underwriters syndicate are indemnified by ProNet from legal action that resulted from ProNet’s representations to shareholders. In Lehman’s lawsuit, it restates an underwriter agreement that says ProNet will “indemnify and hold harmless” its underwriters from “loss, claim, damage, liability or action” arising from “any untrue statement or alleged untrue statement of a material fact” contained in the registration statement of prospectus prepared in connection with the stock offering, or “any omission or alleged omission of a material fact required to be stated in those documents.” The agreement also says that included in these conditions are any legal costs incurred by the company if such actions occur, added Lehman.
“Lehman is seeking to have ProNet honor its contractual obligations,” said Ahearn. The lawsuit also seeks legal defense compensation of about $340,000.
Another investment banker told RCR that in all underwriters’ contracts, there is a clause that says the company is required to indemnify the underwriters to the extent of their legal costs. Usually in these kinds of lawsuits, the defendant contends that it provided the underwriters all the information, “necessary, legally required and fairly represented” and that the underwriters misrepresented that information to investors.
ProNet and its insurance carriers entered into an agreement last month to settle for $5 million its securities class action lawsuits. The settlement is pending against the paging company in state and federal courts. The settlement offer also includes assigning the plaintiffs certain rights against one of its insurers and will issue 1 million shares of ProNet stock to the class upon final court approval of the settlement.
