form8kderivativesettlement.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
DC 20549
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934
February
5, 2010
Date of
Report (Date of earliest event reported):
KRATOS
DEFENSE & SECURITY SOLUTIONS, INC.
(Exact
name of registrant as specified in its charter)
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Delaware
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0-27231
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13-3818604
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(State
or Other Jurisdiction of
Incorporation)
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(Commission
File
Number)
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(I.R.S.
Employer
Identification
Number)
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4810
Eastgate Mall
San
Diego, CA 92121
(Address
of Principal Executive Offices) (Zip Code)
(858)
812-7300
(Registrant’s
telephone number, including area code)
(Former
name or former address, if changed since last report.)
Check the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions (see General
Instruction A.2. below):
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Written
communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
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o
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Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
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o
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Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
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Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
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Item
8.01. Other Information.
On January 21, 2010, the U.S. District
Court for the Southern District of California entered an order (the “Order”)
preliminarily approving a proposed settlement of the previously disclosed
shareholder derivative claims described in the Kratos Defense & Security
Solutions, Inc. (the “Company”) Form 10-Q filed on November 3, 2009, Case No.
04-CV-1663 JAH (NLS). The proposed settlement is subject to final
approval of the Court. As required by the Order, the Notice of
Pendency and Settlement of Derivative Actions (the “Notice”) is attached to this
Current Report on Form 8-K as Exhibit 99.1. Also pursuant to the
Order, the Company has issued a press release including the Notice, which is
furnished herewith as Exhibit 99.2. The Notice is available on the
Company’s website at www.kratosdefense.com.
Item
9.01 Financial Statements and Exhibits.
(d) Exhibits.
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99.1
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Notice
of Pendency and Settlement of Derivative Actions
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99.2
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Press
Release dated February 5, 2010
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SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, registrant has duly
caused this report to be signed on its behalf by the undersigned hereunto duly
authorized.
Date:
February 5, 2010
Kratos
Defense & Security Solutions, Inc.
By:___/s/ Laura Siegal
____________________
Laura
Siegal
Vice
President, Corporate Controller and Principal Accounting Officer
EXHIBIT
INDEX
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99.1
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Notice
of Pendency and Settlement of Derivative Actions
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99.2
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Press
Release dated February 5, 2010
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Exhibit
99.1
UNITED
STATES DISTRICT COURT
SOUTHERN
DISTRICT OF CALIFORNIA
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IN
RE WIRELESS FACILITIES, INC., DERIVATIVE LITIGATION
________________________________________
This
Document Relates to:
ALL
ACTIONS.
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Case
No. 04-CV-1663 JAH (NLS)
NOTICE
OF PENDENCY AND SETTLEMENT OF DERIVATIVE
ACTIONS
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TO: ALL
HOLDERS OF KRATOS DEFENSE & SECURITY SOLUTIONS, INC. (FORMERLY KNOWN AS
WIRELESS FACILITIES, INC.) (“KRATOS” OR THE “COMPANY”) CAPITAL STOCK AS OF
JANUARY 5, 2010 (“CURRENT KRATOS STOCKHOLDERS”). PLEASE READ THIS
NOTICE CAREFULLY. IT MAY AFFECT YOUR RIGHTS.
THIS
NOTICE RELATES TO A PROPOSED SETTLEMENT OF STOCKHOLDER DERIVATIVE ACTIONS AND
RELATED CLAIMS. CURRENT KRATOS STOCKHOLDERS ARE ENTITLED TO OBJECT,
IF THEY DESIRE, TO THE SETTLEMENT AS DESCRIBED HEREIN.
IF
THE COURT APPROVES THE SETTLEMENT, YOU WILL BE BARRED FROM CONTESTING THE
FAIRNESS, REASONABLENESS, OR ADEQUACY OF THE PROPOSED SETTLEMENT, AND FROM
PURSUING THE SETTLED CLAIMS.
YOU ARE HEREBY NOTIFIED,
pursuant to Federal Rule of Civil Procedure 23.1 and an Order of the
United States District Court for the Southern District of California (the
“Court”), that a proposed settlement (the “Settlement”) has been reached among
Plaintiffs,1 on behalf of nominal defendant Kratos,
Individual Defendants, and Kratos in connection with In re Wireless Facilities, Inc.
Derivative Litigation, Master File No.
04-CV-1663 JAH (NLS) (he “Federal Action”), currently pending in this Court, and
In re Wireless Facilities,
Inc. Derivative Litigation, GIC 834253 (the “State
Action”), currently pending in the Superior Court of the State of California,
County of San Diego (collectively, the “Derivative Actions”).2
The
Derivative Actions have been brought derivatively on behalf of Kratos to remedy
the harm allegedly caused to the Company by the defendants’ alleged violations
of Federal and State law and breaches of fiduciary duties. The
proposed Settlement, if approved by the Court, would fully, finally, and forever
resolve the Derivative Actions on the terms and conditions summarized in this
Notice.
A hearing
(the “Settlement Hearing”) shall be held before this Court on March 29, 2010 at
2:30 p.m. or as soon thereafter as counsel may be heard in the courtroom of the
Honorable John A. Houston of the United States District Court for the Southern
District of California, 940 Front Street, San Diego, CA 92101 to
determine: (i) whether the proposed Settlement of the litigation as
set forth in the Stipulation, should be approved in all respects as fair, just,
reasonable, and adequate to, and in the best interests of, Kratos, Kratos
Stockholders, and Plaintiffs; (ii) whether the Final Judgment and Order of
Dismissal approving the Settlement should be entered; and (iii) whether the
agreed-to Fees and Expenses Payment should be awarded to Plaintiffs’
Counsel.
This
Notice is not intended to be and should not be construed as an expression of any
opinion by the Court with respect to the truth of the allegations of the claims
in the Derivative Actions or the merits of the claims or defenses
asserted. This Notice is merely to advise you of the pendency and
proposed Settlement and of your rights thereunder.
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I.
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SUMMARY
OF THE DERIVATIVE ACTIONS
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In August
2004, Kratos announced, following an extensive analysis of its contingent tax
liabilities, its intention to restate its financial statements for fiscal years
ended 2000 through 2003 to accrue for certain foreign tax
contingencies. The day after the Company’s August 2004 announcement,
and roughly a month before it released the full details of the restatement, the
first of fourteen lawsuits — ten federal securities class actions, two federal
derivative actions, and two state derivative actions — was filed. The
ten securities class actions were subsequently consolidated into a single action
before this Court — In re
Wireless Facilities, Inc. Securities Litigation, Master File
No. 04-CV-1589 JAH (NLS) (S.D. Cal) (the “2004 Federal Class
Action”). Similarly, in 2005 the two federal derivative lawsuits,
brought separately by Michael Roth and Rosario Pedicini (“Federal Plaintiffs”),
were consolidated into the Federal Action. The two state derivative
lawsuits, brought separately by Mary Beth Joseph and Robert Casden (“State
Plaintiffs”), were consolidated into the State Action (State Plaintiffs and
Federal Plaintiffs are collectively referred to herein as “Plaintiffs”).3
In March
2005, Federal Plaintiffs filed their Consolidated Verified Shareholder
Derivative Complaint for violations of California Corporations Code, Breach of
Fiduciary Duty, Abuse of Control, Gross Mismanagement, Waste of Corporate
Assets, Unjust Enrichment and Violation of the Sarbanes-Oxley Act of 2002
(“Consolidated Complaint”) against sixteen current or former officers,
directors, and employees of Kratos. Federal Plaintiffs alleged that
these individuals failed to properly account for foreign tax contingencies,
failed to exercise appropriate oversight, engaged in unlawful insider trading,
and breached their fiduciary duties to the Company. Six of the
individual defendants named in the Consolidated Complaint asserted they do not
live in California and moved to dismiss the Consolidated Complaint on the ground
that the Court lacked personal jurisdiction over them. The Court did
not require any response from the remaining individual defendants who were not
contesting the Court’s jurisdiction until after the Court had decided the
jurisdictional issue. In March 2007, following jurisdictional
discovery, the Court granted the motion to dismiss for lack of personal
jurisdiction as to five of the six contesting defendants and dismissed them from
the case.
In March
2007, Kratos announced that it was conducting an internal investigation into its
historical stock option grant practices going back to 1998. Kratos
also announced that it had identified some option “grants issued between 1998
and 2003 that require[d] further review because their historical measurement
dates appear[ed] incorrect and [were] expected to result in adjustments
affecting previously issued financial statements.” The announcement stated that
it was likely that Kratos would restate its financial statements for fiscal
years 2000 to 2005.
Two weeks
after the Company’s public announcement that it was conducting the internal
stock option review, Federal Plaintiffs filed their Verified Consolidated
Amended Shareholder Derivative Complaint for violations of California
Corporations Code, Breach of Fiduciary Duty, Abuse of Control, Gross
Mismanagement, Waste of Corporate Assets, Unjust Enrichment, Violation of the
Sarbanes-Oxley Act of 2002, Accounting, Rescission and Constructive Trust
(“Amended Complaint”) against all of the individuals originally named in the
prior Consolidated Complaint, including those previously dismissed for lack of
jurisdiction. Federal Plaintiffs also added nine new defendants,
including an additional defendant who asserted that he did not live in
California.
The
Amended Complaint contains the same financial reporting and accounting
allegations arising from the 2004 restatement as the prior Consolidated
Complaint. As for the amended allegations, Federal Plaintiffs added
allegations that certain defendants “backdated” or “springloaded” employee stock
option grants so that the options were granted at less than fair market
value.4
In July
2007, the five defendants previously dismissed for lack of personal
jurisdiction, joined now by an additional defendant who asserted lack of
personal jurisdiction, moved to dismiss the Amended Complaint on the ground that
the Court still lacked jurisdiction over them despite the new stock option
allegations. Again, the remaining defendants were not required to
respond to the Amended Complaint until the Court determined the jurisdictional
issues.
In
February 2008, the Court granted the jurisdictional motion to dismiss as to the
previously-dismissed defendants and again dismissed them from the Federal
Action, but denied the motion as to newly-added defendant (“February 2008
Order”). Federal Plaintiffs subsequently moved the Court for
certification and entry of final judgment of the Court’s February 2008 Order so
that Federal Plaintiffs might appeal the February 2008 Order to the Ninth
Circuit Court of Appeals. In July 2008, the Court granted Federal
Plaintiffs’ motion for certification. Federal Plaintiffs filed a
notice of appeal of the February 2008 Order in August 2008. Due to
the concurrent settlement efforts described below, Federal Plaintiffs have not
filed their opening appellate briefs and none of the defendants named in the
Federal Action have responded to the Consolidated Complaint or Amended
Complaint.
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II.
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THE
SETTLEMENT EFFORTS
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In August
2008, in an effort to resolve the Derivative Actions, Kratos, Plaintiffs (on
behalf of themselves and Kratos), and each of the Individual Defendants (the
“Settling Parties”), along with Kratos’ directors and officers liability
insurance carriers, mediated the matters before Judge Daniel Weinstein (Ret.) of
JAMS, a highly skilled and experienced mediator. While a settlement
agreement was not reached during the mediation, the Settling Parties and the
insurers, along with the assistance of the mediator, continued to pursue
extensive good-faith settlement negotiations. In addition, certain of
the Settling Parties participated in further in-person meetings with the
mediator in February 2009. While a settlement agreement was not
reached following the February 2009 meetings, the Settling Parties, along with
the assistance of the mediator, continued to pursue additional extensive
good-faith settlement negotiations. In October 2009, the Settling
Parties agreed in principle to settle the Derivative Actions on terms set forth
in the Stipulation, as summarized below, and subject to Court
approval.
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III.
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PLAINTIFFS’
CLAIMS AND BENEFITS OF SETTLEMENT
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Plaintiffs
believe that the claims asserted in the Derivative Actions have
merit. However, Plaintiffs’ Counsel recognize and acknowledge the
expense and length of continued proceedings necessary to prosecute the
Derivative Actions on behalf of Kratos through at least one appeal and
potentially through trial. Plaintiffs’ Counsel have conducted an
investigation of the claims asserted in the Derivative Actions, including
research of publicly available information and review of certain documents
requested by and provided to Plaintiffs’ Counsel by Kratos and certain
defendants. Plaintiffs’ Counsel also have taken into account the
uncertain outcome and the risk of any litigation, especially in complex actions
such as the Derivative Actions, as well as the difficulties and delays inherent
in such litigation. Plaintiffs’ Counsel also are mindful of the
inherent problems of proof of, and possible defenses to, the causes of action
asserted in the Derivative Actions. Plaintiffs’ Counsel believe that
the Settlement set forth in the Stipulation confers substantial benefits upon,
and is in the best interest of, Kratos, its stockholders, and
Plaintiffs.
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IV.
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SETTLING
DEFENDANTS’ DENIAL OF WRONGDOING AND
LIABILITY
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Kratos
and each of Individual Defendants (collectively, “Settling Defendants”) have
denied and continue to deny each and all of the claims and contentions alleged
in the Derivative Actions. The Individual Defendants expressly have
denied and continue to deny all charges of wrongdoing or liability against them
or any of them arising out of any of the conduct, statements, acts, or omissions
alleged, or that could have been alleged, in the Derivative
Actions. The Settling Defendants also have denied and continue to
deny, inter alia: (i)
that they violated the federal securities laws, violated state law, or breached
their fiduciary duties; (ii) the allegations that Kratos has suffered damage;
(iii) that the price of Kratos securities was artificially inflated by reason of
alleged misrepresentations, non-disclosures, or otherwise; (iv) that Kratos was
harmed by any of the conduct alleged in the Derivative Actions; and (v) that a
majority of the Board of Kratos was not independent and disinterested during the
relevant periods.
Nonetheless,
the Settling Defendants have concluded that further conduct of the Derivative
Actions would be protracted, expensive, and distracting to themselves, Kratos,
and its management, and that it is desirable and beneficial to them that the
Derivative Actions be fully and finally settled in the manner and upon the terms
and conditions set forth in the Stipulation, in order to limit further expense,
inconvenience, and distraction, and to dispose of the burden of protracted
litigation. The Settling Defendants have also taken into account the
uncertainty and risks inherent in any litigation, especially in complex cases
like these Derivative Actions. Kratos has determined that it is in
its best interest to enter into the Stipulation because Kratos will receive
substantial benefits from the agreed-upon Settlement.
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V.
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THE
PROPOSED SETTLEMENT
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Plaintiffs
(on behalf of themselves and derivatively on behalf of Kratos), nominal
defendant Kratos, and the Individual Defendants, by and through their respective
counsel or attorneys of record, have stipulated and agreed that, subject to the
approval of the Court, the Derivative Actions and the Released Claims, as
defined below, shall be finally and fully compromised, settled, and released,
and the Derivative Actions shall be dismissed with prejudice as to the Settling
Parties, upon and subject to the terms and conditions of the Stipulation, as
summarized below.
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A.
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Return
of Stock Options
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In
connection with the Settlement of the Derivative Actions, the individuals
indentified immediately below agree to provide the following consideration to
Kratos within thirty days from the date the Judgment become Final.
1. Masood
Tayebi and Massih Tayebi agree to forfeit, collectively, a total of 50,000
shares of Kratos stock to Kratos.
2. Scott I.
Anderson agrees to forfeit a total of 2,000 shares of Kratos stock to
Kratos.
3. Scot
Jarvis agrees to forfeit a total of 2,000 shares of Kratos stock to
Kratos.
4. Farhad
Farjood agrees to forfeit to Kratos any and all claims relating to 10,000
options to purchase shares of Kratos stock.
5. To the
extent that Brad Weller still owns or controls any options to purchase shares of
Kratos stock, he agrees to forfeit to Kratos any and all claims relating to
10,000 options to purchase shares of Kratos stock, or all options to purchase
shares of Kratos stock if Mr. Weller holds less than 10,000
options.
6. To the
extent that Thomas Munro still owns or controls any options to purchase shares
of Kratos stock, he agrees to forfeit to Kratos any and all claims relating to
10,000 options to purchase shares of Kratos stock, or all options to purchase
shares of Kratos stock if Mr. Munro holds less than 10,000
options.
7. To the
extent that Terry Ashwill still owns or controls any options to purchase shares
of Kratos stock, he agrees to forfeit to Kratos any and all claims relating to
10,000 options to purchase shares of Kratos stock, or all options to purchase
shares of Kratos stock if Mr. Ashwill holds less than 10,000
options.
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B.
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Corporate
Governance Measures
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In full
and final settlement of the Derivative Actions, the Board of Directors (the
“Board”) of Kratos has agreed to adopt, or to maintain where already
implemented, the corporate governance measures outlined below within thirty days
from the date the Judgment becomes Final and will keep such measures in force
and effect for a period of no less than four years from the date the Judgment
becomes Final, except as stated otherwise in section 10(b)
below. Kratos acknowledges that Plaintiffs’ actions were a direct and
material factor in the corporate governance policies that have been enacted
since the filing of the Derivative Actions and were a material factor in the
enactment of the measures that will be adopted within thirty days from the date
the Judgment becomes Final.
1. The Board of
Directors
(a) The Board
shall adopt a resolution that requires all directors, including the current
Board, to attend annually at least one corporate governance class that is
designed to keep corporate directors abreast of trends in governance and aware
of their fiduciary, legal, and ethical responsibilities.
(b) The Board
shall adopt the appropriate resolutions to implement the following corporate
governance reforms:
(i) the
Company’s Board shall be increased by two Independent Directors within eighteen
months from the date the Judgment becomes Final;
(ii) each
director of the Company shall be elected to the Board by majority
vote;
(iii) no
individual member of the Board shall be the Chairman of more than one Board
committee;
(iv) each
director of the Company shall be required to certify in writing annually that he
or she has received, read, and understands the guidelines for directors set
forth in the Company’s Code of Legal and Ethical Conduct;
(v) the
performance of the Chairman of the Board shall be evaluated by the Board
annually. Should the remaining directors determine that the Board
Chairman is not sufficiently active or successful in providing meaningful
leadership for the Board, he or she shall be replaced as the
Chairman;
(vi) the
Company’s independent registered public auditing firm may not perform any
consulting work for the Company, other than tax consulting work;
(vii) the
Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”)
shall be responsible for ensuring that the Company’s revenue recognition policy,
which conforms to the requirements of GAAP as currently in effect or as amended,
is implemented and utilized throughout the Company. The CEO and CFO
shall report to the Board on an annual basis regarding the implementation and
operation of this policy. The CEO and CFO shall distribute the
Company’s revenue recognition policy to each such Company employee who records
or reviews the recording of revenue and ensure that each such Company employee
completes an employee training program concerning the Company’s policy on
revenue recognition. Any questions regarding that policy or training
program, or the application of the policy, shall be directed to the Company’s
CFO, who shall inform the CEO; and
(viii) at each
regularly scheduled Board meeting, the Company’s CFO (or his or her designee)
shall provide a report as to the Company’s financial condition and prospects,
including, but not limited to, a discussion of any material decreases in
revenues and earnings, if any, management plans for ameliorating or reversing
such negative trends and the success or failure of any such plans presented in
the past.
2. Responsibilities of the
Independent Directors
(a) The Board
shall adopt a resolution requiring that a majority of the members of the Board
shall be Independent Directors, as defined fully in the
Stipulation.
(b) The
Independent Directors shall meet separately from the rest of the Board on a
quarterly basis.
3. Board
Committees
(a) The Board
will re-institute its Nominating and Corporate Governance Committees consisting
of no less than two Independent Directors to oversee the nomination of the
additional director(s), and to implement and oversee appropriate corporate
governance reforms.
(b) The
Board’s committees shall have standing authorization, in their own discretion,
to retain legal or other advisors of their choice, who shall report directly to
the Board or committee.
(c) The
Bylaws of the Company shall be revised to include specific limits on outside
board memberships. The CEO of the Company shall not participate on
the board of directors of any more than one additional for-profit corporation
(either publicly traded or privately held) for a period of two years,5 and a majority of Independent Directors shall
not serve on more than three boards of directors of publicly held companies,
including the Company. Any CEO or other full-time senior corporate
officer of another company serving on the Company’s Board shall be limited to
not more than two public company boards of directors in total, including the
boards of directors of such person’s own employer and the Company.
4. Compensation
Committee
(a) The
Company shall have a Compensation Committee Charter that expressly vests in the
Compensation Committee the responsibility and obligation to:
(i) approve
the Company’s stock option grants, including the approval of employees and
parties who are to receive stock option grants and the details of those option
grants; and
(ii) prevent
the granting, issuance, or approval of any stock options that have been or can
be market-timed, backdated, or otherwise manipulated.
(b) The
Compensation Discussion and Analysis written for the Company’s annual Proxy
Statement shall address efforts undertaken by the Compensation Committee to
design and implement systems and controls to prevent the granting, issuance,
and/or approval of market-timed, backdated, or manipulated stock option
grants.
(c) The
Compensation Committee shall not delegate its authority to grant stock options
to a Stock Option Administrator unless the delegated Stock Option Administrator
is a member of the Compensation Committee of the Board. If a Stock
Option Administrator is delegated the authority to grant stock options, any
stock option grant by the Stock Option Administrator must be approved by the
entire Compensation Committee.
(d) The
Compensation Committee shall select and retain an independent compensation
consultant to provide advice and guidance to the Committee as
needed. In addition, the consultant shall, at such times as requested
by the Committee, conduct a comparative market study of the Company’s executive
compensation policies, practices, and procedures. This study shall be
delivered to the Compensation Committee for its use in evaluating and revising,
if necessary, the compensation structure for the Company’s
executives.
5. Enhanced Internal Audit
Function
(a) The
Company shall implement and maintain an enhanced internal audit
function. The Company’s outside auditor shall not provide this
service. The Internal Auditor, who shall be approved by the Board and
report directly to the Audit Committee at least annually, shall review the
Company’s internal control environment. The Internal Auditor shall be
responsible for devising an Internal Audit Plan for each fiscal year that will
be presented to the Audit Committee.
(b) A written
report shall be prepared for each internal audit performed describing the
internal audit’s findings, opinions, and recommendations, if
any. These written reports shall be directed to the CEO, CFO, and the
Audit Committee for review and, if necessary, remedial action.
6. Audit
Committee
(a) The Audit
Committee shall use its best efforts to have at least two members with an
accounting or financial management background. If an Audit Committee
member possessing such accounting or financial background resigns, is
terminated, or otherwise is removed from his or her directorship on the Audit
Committee, the Board shall use its best efforts to replace such director within
ninety days of his or her departure with another director that has an accounting
or financial management background. These best efforts shall include
the commencement of a search to locate an additional Board member with an
accounting or financial management background.
(b) The Audit
Committee shall have a charter which includes the following
provisions:
(i) meetings
to be held, among other times, prior to the commencement and prior to the
completion of the annual audit;
(ii) each
meeting shall include a meeting with appropriate Company management, followed by
an executive session with no management present; and
(iii) each
meeting shall have a written agenda.
(c) The Audit
Committee’s responsibilities shall include:
(i) meeting
with the Company’s independent registered public accounting firm
concerning:
(1) the
reliability of the Company’s forward-looking statements contained in interviews
with media agencies, investor conference calls, committee reports, quarterly and
annual reports, proxy statements, and press releases disseminated by the
Company; and
(2) the
reliability of the Company’s statements relating to internal financial control
mechanisms contained in interviews with media agencies, investor conference
calls, committee reports, quarterly and annual reports, proxy statements, and
press releases disseminated by the Company.
(ii) meeting
with management to ascertain the Company’s primary business exposure risks;
and
(iii) meeting
with the Company’s Internal Auditors at year-end regarding:
(1) the
nature of the internal audit plan, including the effectiveness and continued use
of the policies and procedures of the internal audit plan;
(2) the
appropriate staffing levels for the internal audit function;
(3) whether
the Company’s financial reporting policies and practices are sufficiently
transparent; and
(4) whether
the Company’s financial reporting policies and practices are unusually
aggressive.
7. Stock Option Granting
Policies and Procedures
(a) The
following stock-option related controls, that already have been implemented by
the Company, will be maintained for a period of no less than four years from the
date of entry of the Judgment:
(i) segregating
certain responsibilities related to option granting and the execution of stock
option exercise transactions, including, but not limited to, the Director of
Financial Reporting being required to approve exercises and the Assistant
Controller/Director of Financial Reporting being required to separately review
all entries to the Company’s Equity Edge database by the Stock Option
Administrator;
(ii) documenting
and assessing the design and operating effectiveness of key internal controls
over the stock administration function;
(iii) establishing
processes and procedures to increase communications between the stock
administration, human resources, and accounting functions, including, but not
limited to, requiring communications between human resources and
accounting/finance related to any separation agreement that might result in a
modification of terms;
(iv) adding
independent reviews and reconciliations of stock option activity separate from
the stock administration function;
(v) establishing
a consistent, formalized procedure for stock option award procedures including
limiting the authority to approve stock option grants;
(vi) upgrading
the equity tracking software program and system controls that support the
processes and continuing to maintain the most current version of the option
tracking software;
(vii) requiring
and arranging for training for those employees who utilize the Company’s equity
tracking software program, as well as all those involved in the stock option
granting process, to enhance awareness and understanding of legal, tax, and
accounting implications;
(viii) requiring
that only an employee independent of the stock administration function be
allowed to communicate stock option exercise instructions to the Company’s
transfer agent;
(ix) requiring
quarterly reconciliation of exercises according to transfer agent records versus
exercises according to the Equity Edge database to identify any
discrepancies;
(x) requiring
approval by the Company’s Compensation Committee during meetings rather than by
use of Unanimous Written Consents;
(xi) requiring
the development of an annual option granting plan and option granting
matrix;
(xii) dissolving
the Company’s non-officer stock option committee; and
(xiii) the grant
date of all stock options shall be the fifteenth trading day of the month after
which they are approved.
(b) All stock
option plans adopted by the Company shall clearly define the exercise price,
grant date, and the fair market value of stock. The exercise price or
value of any equity award shall be determined by fair market value of the
Company’s stock on the date of the grant. The fair market value of
the Company’s stock shall be the closing price (or closing bid, if no sales were
reported) for a share of the Company’s stock on such days as quoted by the
exchange or over-the-counter market on which the stock is listed.
(c) Any and
all stock option plans that permit market timing or backdating of stock options
are void and shall be without force or effect.
(d) Any
substitute stock option plan(s) adopted by the Company in the future must
expressly prohibit market timing and backdating of stock options.
(e) Any stock
option plans shall give the Compensation Committee the sole and exclusive power
and duty to administer the Company’s stock option plans.
(f) Any and
all disclosure requirements concerning executive compensation and stock option
grants, including the Sarbanes-Oxley Act of 2002 disclosure requirements, shall
be followed by the Company.
(g) All
requirements of the Internal Revenue Code as they relate to the granting,
issuance, timing, pricing, and treatment of stock options shall be observed and
followed by the Company.
(h) The
substance of the following clauses shall be included in any current and/or
subsequent equity incentive plan, whether subject to stockholder approval or
not:
(i) The
exercise price for each stock option grant shall be at least 100% of the fair
market value on the date of the grant;
(ii) the
Company shall give notice of the determination to each employee or consultant to
whom a stock option is so granted as soon as reasonably practicable, but in no
event shall such notice be given more than thirty days after the date of such
grant; and
(iii) authority
to grant stock option awards shall be limited to the full Board or the
Compensation Committee, consisting of three or more independent directors, and
shall not be delegated to any other person or body.
8. Insider Trading
Policy
The
Company shall adopt an Insider Trading Policy that provides as
follows:
(a) The
Insider Trading Policy shall specifically prohibit all Company directors,
officers and employees from trading in Company securities while in possession of
material, non-public information regarding the Company, including, but not
limited to: (i) material, non-public information regarding actual or estimated
results of operations and earnings; (ii) material, non-public proposals or
agreements relating to mergers, acquisitions or divestitures; and (iii)
material, non-public information regarding significant contracts, patents, or
new product development.
(b) The
Insider Trading Policy shall encourage all directors and Section 16 officers who
wish to trade in Company securities to adopt a valid trading plan pursuant to
SEC Rule 10b5-1, 17 C.F.R. § 240.10b5-1.
(c) The
Insider Trading Policy shall require all other Company employees who wish to
trade in Company securities to do so only within prescribed trading windows, to
be established by the Board. All Company employees who have not
adopted a valid Rule 10b5-1 trading plan shall be prohibited from trading in
Company securities except during open trading windows.
9. Related-Party
Transactions
(a) The
Company shall maintain its policy entitled “Conflict of Interest and Related
Party Transactions,” which became effective on October 9, 2007.
(b) Any
material changes to the Conflict of Interest and Related Party Transactions
Policy may be made only with the approval of the Board.
10. Additional
Controls
(a) The
following additional controls that already have been implemented by the Company
will be maintained for a period of no less than four years from the date of the
entry of Judgment:
(i) The
Company shall continue to maintain its internal Contracts Administration
Department, which has been established to ensure that complete contract files
are maintained to support the project estimate-at-completion
computation. This is accomplished using a database in which all
relevant contract administration documents are maintained. As a part
of the revised revenue recognition procedures, the database is accessed to
update information needed in the period-end estimate-at-completion.
(ii) In
conjunction with the Company’s month-end and year-end closing procedures, the
Company has implemented additional monitoring and review controls over its
estimate-at-completion calculations, as well as its invoicing/customer billings
procedures and its valuation of accounts receivable balances.
(iii) Shareholder
Nominated Director Process. The Independent Directors shall consider
and evaluate recommendations for director nominees proposed by a qualified
stockholder. The stockholder must submit its director nominee
recommendation to the Corporate Secretary in writing and provide the following
information:
(1) a
statement by the stockholder that: (i) the stockholder is the holder
of at least 1% of the Company’s capital stock; (ii) the stock has been held for
at least one year prior to the date of the submission; and (iii) the stockholder
will continue to hold the shares through the date of the annual stockholder
meeting;
(2) the
candidate’s name, age, contact information, and current principal occupation or
employment;
(3) a
description of the candidate’s qualifications and business experience during, at
a minimum, the last five years, including the candidate’s principal occupation
or employment, and the name and principal business of any corporation or other
organization in which the candidate was employed;
(4) the
candidate’s resume; and
(5) three
references.
(iv) to be
evaluated in connection with the Company’s established procedures for evaluating
potential director nominees, the qualifying stockholder must provide the
stockholder’s director nominee recommendation to the Company at least 120 days
prior to the anniversary of the date proxy statements were mailed to
stockholders in connection with the prior year’s annual stockholder
meeting.
(b) The
Chairman of the Board must not simultaneously hold the position of
CEO. Given the importance of finding an appropriate Chairman of the
Board, the Company will have four years from the date the Judgment becomes Final
to begin complying with this provision. This provision shall remain
in effect for a period of no less than four years from the date on which the
provision is first implemented.
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C.
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Restriction
of Voting Rights
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In
connection with the Settlement of the Derivative Actions, Masood Tayebi and
Massih Tayebi hereby agree that for a period of no less than three years from
the date the Judgment becomes Final, they will not exercise any of the voting
rights associated with any of the shares of Kratos stock that they personally
own or that they control through any trust or other entity. Masood
Tayebi and Massih Tayebi shall provide the Company with a signed certification
each year stating that they did not exercise any of the voting rights associated
with any of the shares they own or control and did not make any material
recommendations to anyone exercising voting rights in Kratos stock with respect
to the exercise of those rights.
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VI.
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DISMISSAL
AND RELEASES
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The full
terms of the dismissal and release of claims are set forth in the
Stipulation. The following is only a summary.
Upon the
Effective Date, the Individual Defendants, Kratos, and Plaintiffs, on behalf of
themselves and, to the fullest extent permitted by law, on behalf of all Kratos
Stockholders shall be deemed to have released the Released Claims against the
other Individual Defendant Releasees, except for the obligations imposed by the
Stipulation in connection with the Settlement. Moreover, the Final
Judgment and Order of Dismissal with Prejudice (“Judgment”), to be entered upon
approval of the Settlement, will preclude the filing of any action purporting to
litigate the Released Claims against the Individual Defendant Releasees and
Kratos Releasees. Upon the Effective Date, Kratos and the Individual
Defendants shall be deemed to have released Plaintiff Releasees from all claims
arising out of, based upon or related to the institution, prosecution,
assertion, settlement, or resolution of the Derivative Actions and/or the
Released Claims, except for the obligations imposed by the Stipulation in
connection with the Settlement. Also upon the Effective Date, each of
the Individual Defendants and Plaintiffs, on behalf of themselves and, to the
fullest extent permitted by law, on behalf of all Kratos Stockholders, shall be
deemed to have released Kratos Releasees from all claims arising out of, based
upon or related to the institution, prosecution, assertion, settlement, or
resolution of the Derivative Actions and/or the Released Claims, except the
Individual Defendants shall not be deemed to have released Kratos from any
claims or causes of action for indemnification, including but not limited to
insurance indemnification, and/or advancement of attorneys’ fees and
expenses.
As part
of the Settlement, within five business days from the date on which the Judgment
approving the Settlement becomes Final, Plaintiffs’ Counsel, on behalf of State
Plaintiffs, shall file a Stipulation of Dismissal with prejudice in the State
Action, signed by all parties to the State Action, and request an order
dismissing the State Action. State Plaintiffs shall file and serve
notice of any dismissal order within five business dates of entry by the State
Court.
As used
above, “Effective Date” means the first date by which all the following events
and conditions shall have occurred or been met: (1) execution of the
Stipulation; (2) entry of the Preliminary Approval Order; (3) entry of the
Judgment; (4) payments by Kratos and/or its D&O Insurer(s) in accordance
with ¶5.1 of the Stipulation; (5) the Judgment has become Final; and (6)
dismissal of the State Action with prejudice in accordance with ¶8.4
of the Stipulation.
As used
above, “Individual Defendant Releasees” means Individual Defendants and each of
their past, present, or future directors, officers, employees, partners,
insurers, co-insurers, reinsurers, principals, agents, controlling shareholders,
attorneys, accountants or auditors, advisors, investment advisors, personal or
legal representatives, predecessors, successors, parents, subsidiaries,
divisions, joint ventures, assigns, spouses, heirs, related or affiliated
entities, immediate family, and any trusts in which Individual Defendant
Releasees, or any of them, are the settlors or which are for the benefit of any
Individual Defendant Releasees and/or members of their/his/her immediate family,
and any entities in which Individual Defendants, or any of them, have a
controlling interest (directly or indirectly).
As used
above, “Kratos Releasees,” which does not include Individual Defendant
Releasees, means Kratos and each of its past, present, or future directors,
officers, employees, partners, insurers, co-insurers, reinsurers, principals,
agents, controlling shareholders, attorneys, accountants or auditors, advisors,
investment advisors, personal or legal representatives, predecessors,
successors, parents, subsidiaries, divisions, joint ventures, assigns, spouses,
heirs, related or affiliated entities, immediate family, and any trusts in which
the Kratos Releasees, or any of them, are the settlors or which are for the
benefit of any Kratos Releasees and/or members of their/his/her immediate
family, and any entities in which Kratos has a controlling interest (directly or
indirectly).
As used
above, “Plaintiff Releasees” means each of Plaintiffs and each of their past,
present, or future directors, officers, employees, partners, insurers,
co-insurers, reinsurers, principals, agents, controlling shareholders,
attorneys, accountants or auditors, advisors, investment advisors, personal or
legal representatives, predecessors, successors, parents, subsidiaries,
divisions, joint ventures, assigns, spouses, heirs, related or affiliated
entities, immediate family, and any trust of which any Plaintiff Releasees, or
any of them, are the settlors or which is for the benefit of any Plaintiff
Releasees and/or members of their/his/her immediate family, and any entity in
which Plaintiffs, or any of them, have a controlling interest (directly or
indirectly).
As used
above, “Released Claims” means any and all claims or causes of action, demands,
rights, liabilities, suits, debts, obligations, and causes of action of every
nature and description whatsoever, known or unknown (including Unknown Claims as
defined herein), contingent or absolute, mature or unmature, discoverable or
undiscoverable, whether concealed or hidden asserted derivatively on behalf of
Kratos, or that could have been asserted directly by the Settling Parties,
derivatively on behalf of Kratos, or by Kratos itself based upon, arising out
of, or related to the allegations, facts, transactions, or claims in the
Derivative Actions, and any claims in connection with, based upon, or arising
out of, or relating to the Settlement.
As used
above, “Unknown Claims” means any Released Claims that a Person, including
Plaintiffs, may not know or suspect to exist in his, her, or its favor at the
time of the release of Kratos and Individual Defendants which, if known by him,
her or it, might have affected his, her or its settlement and release, or might
have affected his, her, or its decision not to object to the
Settlement. With respect to any and all Released Claims, the Settling
Parties stipulate and agree that, upon the Effective Date, Plaintiffs, Kratos
Stockholders, and Kratos shall waive and by operation of the Judgment shall have
waived, the provisions, rights, and benefits of California Civil Code §1542,
which provides:
A
GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR
SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH
IF KNOWN BY HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE
DEBTOR.
Plaintiffs,
Kratos Stockholders, and Kratos shall expressly waive, and by operation of the
Judgment shall have expressly waived, any and all provisions, rights and
benefits conferred by any law of any state or territory of the United States, or
principle of common law, which is similar, comparable, or equivalent to
California Civil Code §1542. Plaintiffs, Kratos Stockholders, and
Kratos may hereafter discover facts in addition to or different from those which
they now know or believe to be true with respect to the Released Claims, but
Plaintiffs, Kratos Stockholders, and Kratos shall expressly fully, finally, and
forever settle and release and, upon the Effective Date, shall be deemed to
have, and by operation of the Judgment shall have, fully, finally, and forever
settled and released, any and all Released Claims, known or unknown, suspected
or unsuspected, contingent or non-contingent, whether or not concealed or
hidden, which now exist, or have existed, upon any theory of law, or equity now
existing or coming into existence in the future, including, but not limited to,
conduct which is negligent, intentional, with or without malice, or a breach of
any duty, law, or rule, without regard to the subsequent discovery or existence
of such different or additional facts. Plaintiffs acknowledge that
the foregoing waiver was separately bargained for and a key element of the
Settlement of which this release is a part.
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VII.
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ATTORNEYS’
FEES AND EXPENSE AWARD
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Subject
to Court approval and in recognition of the benefits conferred on Kratos as a
direct and material factor resulting from the Derivative Actions, Kratos agrees
to pay and/or cause its D&O Insurer(s) to pay to Plaintiffs’ Counsel
$2,000,000 (collectively, the “Fees and Expenses Payment”). The
agreed-to Fees and Expenses Payment will compensate Plaintiffs’ Counsel for
their efforts in achieving the substantial benefits for Kratos as identified
above and in the Stipulation and for their risk in undertaking this
representation on a contingency basis.
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VIII.
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CONDITIONS
FOR SETTLEMENT
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The Settlement is conditioned upon the
occurrence of certain events. Those events include, among other
things: (1) entry of the Judgment by the Court, as provided for in
the Stipulation; and (2) expiration of the time to appeal from or alter or amend
the Judgment. If, for any reason, any one of the conditions described
in the Stipulation is not met, the Stipulation might be terminated and, if
terminated, will become null and void, and the parties to the Stipulation will
be restored to their respective positions in the litigation as of January 5,
2010.
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IX.
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THE
SETTLEMENT HEARING AND YOUR RIGHTS AS
SHAREHOLDERS
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The
Settlement Hearing shall be held before this Court on March 29, 2010 at 2:30
p.m. or as soon thereafter as counsel may be heard in the courtroom of the
Honorable John A. Houston of the United States District Court for the Southern
District of California, 940 Front Street, San Diego, CA 92101 to
determine: (i) whether the proposed Settlement of the litigation as
set forth in the Stipulation, should be approved in all respects as fair, just,
reasonable, and adequate to, and in the best interests of, Kratos, Kratos
Stockholders, and Plaintiffs; (ii) whether the Final Judgment and Order of
Dismissal approving the Settlement should be entered; and (iii) whether the
agreed-to Fees and Expenses Payment should be awarded to Plaintiffs’
Counsel. The Settlement Hearing may be continued or adjourned from
time to time by the Court at the Settlement Hearing or any continued or
adjourned session thereof without further notice.
Should
the Settlement be approved by the Court following the Settlement Hearing, the
Court will enter a Final Order and Judgment that: (1) approves the Settlement as
fair, reasonable and adequate to Kratos and its shareholders; (2) releases and
discharges the Individual Defendant Releasees and Kratos Releasees from any and
all liability with respect to the Released Claims; and (3) permanently bars and
enjoins the institution or prosecution against the Individual Defendant
Releasees and Kratos Releasees of any action derivatively asserting or relating
in any way to the Released Claims.
Any
Current Kratos Stockholder may appear at the Settlement Hearing and be heard as
to whether the proposed Settlement should be approved, provided, however, that no such person
shall be heard unless, at least fourteen (14) calendar days prior to the
Settlement Hearing, such stockholder has: (1) filed with the Clerk of
the Court a written objection to the Settlement setting
forth: (a) the nature of the objection; (b) proof of
ownership of Kratos capital stock through the date of the Settlement Hearing,
including the number of shares of Kratos capital stock and the date of purchase;
and (c) any documentation in support of such objection; and (2) if a Current
Kratos Shareholder intends to appear and requests to be heard at the Settlement
Hearing, such shareholder must have, in addition to the requirements of (1)
above, filed with the Clerk of the Court: (a) a written notice of
such shareholder’s intention to appear; (b) a statement that indicates the basis
for such appearance; and (c) the identities of any witnesses the shareholder
intends to call at the Settlement Hearing and the subjects of their
testimony. If a Current Kratos Shareholder files a written objection
and/or written notice of intent to appear, such shareholder must also
simultaneously serve copies of such notice, proof, statement and documentation,
together with copies of any other papers or briefs such shareholder files with
the Court (either by hand delivery or by first class mail) upon each of the
following thereof:
CLERK
UNITED
STATES DISTRICT COURT
SOUTHERN
DISTRICT OF CALIFORNIA
940 FRONT
STREET,
SAN
DIEGO, CA 92101
ROBBINS
UMEDA LLP
BRIAN J.
ROBBINS
KEVIN A.
SEELY
REBECCA
A. PETERSON
DAVID L.
MARTIN
600 B
Street, Suite 1900
San
Diego, CA 92101
FARUQI
& FARUQI, LLP
NADEEM
FARUQI
DAVID H.
LEVENTHAL
369
Lexington Avenue, 10th Floor
New York,
NY 10017
Co-Lead
Counsel for Plaintiffs
MORRISON
& FOERSTER LLP
SEAN T.
PROSSER
TYSON E.
MARSHALL
12531
High Bluff Drive, Suite 100
San
Diego, California 92130
Attorneys
for Nominal Defendant WIRELESS FACILITIES, INC.; Individual Defendants THOMAS A.
MUNRO, DANIEL STOKELY, ERIC DEMARCO, DAVID A. GARRISON, FRANKIE FARJOOD, DAVID
LEE, WILLIAM A. OWENS, BANDEL CARANO, JAMES R. EDWARDS, SCOTT FOX, DEANNA H.
LUND, ANDREW M. LEITCH, LAURA SIEGAL, NAOMI D. WHITACRE, GEORGE WOZENCRAFT, and
WILLIAM MAZILLY; and Specially Appearing Defendants FARZAD GHASSEMI, GREGORY
JACOBSEN, SCOTT I. ANDERSON, SCOT JARVIS, and WILLIAM HOGLUND
Unless
otherwise ordered by the Court, any Current Kratos Stockholder who does not make
his, her, or its objection or opposition in the manner provided shall be deemed
to have waived any and all objections and opposition, and shall be forever
foreclosed from making any objection to the fairness, reasonableness, and
adequacy of the proposed Settlement, and shall otherwise be bound by the
Judgment to be entered and the releases to be given.
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X.
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EXAMINATION
OF PAPERS AND INQUIRES
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This Notice contains only a summary of
the terms of the proposed Settlement. For a more detailed statement
of the matters involved in this action, reference is made to the pleadings, to
the Stipulation and to other papers filed in this action which may be inspected
at the Office of the Clerk for the United States District Court for the Southern
District of California, 940 Front Street San Diego, CA 92101, during business
hours of each business day. In addition, a copy of the Stipulation
may be found at www.kratosdefense.com.
Inquiries
regarding this action should be addressed as follows:
ROBBINS
UMEDA LLP
BRIAN J.
ROBBINS
KEVIN A.
SEELY
REBECCA
A. PETERSON
DAVID L.
MARTIN
600 B
Street, Suite 1900
San
Diego, CA 92101
FARUQI
& FARUQI, LLP
NADEEM
FARUQI
DAVID H.
LEVENTHAL
369
Lexington Avenue, 10th Floor
New York,
NY 10017
DO
NOT CONTACT THE COURT REGARDING THIS NOTICE.
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Dated:
January 21, 2010
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BY
ORDER OF THE COURT
UNITED
STATES DISTRICT COURT
SOUTHERN
DISTRICT OF CALIFORNIA
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1 For
purposes of this Notice, the Court incorporates by reference the definitions in
the Parties’ Stipulation and Agreement of Settlement of Derivative Claims
(“Stipulation”), and all capitalized terms used herein shall have the same
meanings as set forth in the Stipulation. A copy of the Stipulation
may be found at the websites of Robbins Umeda LLP at www.robbinsumeda.com
and the Company's website at www.kratosdefense.com.
2 In
September 2008, this Court preliminarily approved settlement of the 2004 Federal
Class Action. In January 2009, the Court granted final approval of
the proposed settlement terms, issued its final judgment on the matter, and
entered an order dismissing the case with prejudice.
3 Prior
to any response by the defendants to the State Action, the matter was stayed
(and remains so) by the San Diego Superior Court pending resolution of the
Federal Action.
4 In
April 2007, purported Kratos stockholder Eamen Hameed filed a federal derivative
complaint purportedly on behalf of Kratos and against a subset of the same
current and/or former officers and directors named in the Federal and State
Actions — Hameed v.
Tayebi, No. 07-CV-0680 BTM (RBB) (S.D. Cal.) (the “Hameed
Action”). The Hameed Action arose from Kratos’ March 2007
announcement that it was conducting the internal stock option review and alleged
that certain defendants allowed company insiders to backdate stock option
grants, so that stock options were priced below fair market value on the day
they were actually granted, and that as a result, Kratos’ relevant U.S.
Securities and Exchange Commission ("SEC") filings were false and
misleading. On August 18, 2008, Hameed voluntarily dismissed the
Hameed Action pursuant to Federal Rule of Civil Procedure
41(a). Additionally, in November 2007, a consolidated federal class
action securities lawsuit — In
re Wireless Facilities, Inc. Securities Litigation II, Master File No.
07-CV-00482-BTM (NLS) (S.D. Cal.) (the “2007 Federal Class Action”) — was filed
in this Court, alleging that Kratos backdated or springloaded employee stock
option grants. On September 3, 2008, this Court preliminarily
approved settlement of the 2007 Federal Class Action. On December 19,
2008, this Court granted final approval of the proposed settlement terms, issued
its final judgment on the matter, and entered an order dismissing the case with
prejudice.
5 The
CEO will be permitted to serve on the board of directors of not more than one
additional company with advance consent of the Nominating and Corporate
Governance Committee. In general, however, the CEO shall devote his
or her full energies to running the Company.
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CASE
NO. 04-CV-1663 JAH (NLS)
NOTICE
OF PENDENCY AND SETTLEMENT OF DERIVATIVE
ACTIONS
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sd-499835
TO:
ALL HOLDERS OF KRATOS DEFENSE & SECURITY SOLUTIONS, INC. (F/K/A WIRELESS
FACILITIES, INC.) ("KRATOS") CAPITAL STOCK AS OF JANUARY 5, 2010 ("CURRENT
KRATOS STOCKHOLDERS").
United
States District Court Southern District of California
Case No.
04-CV-1663 JAH (NLS)
IN RE
WIRELESS FACILITIES, INC., DERIVATIVE LITIGATION
This
Document Relates to: ALL ACTIONS.
SUMMARY
NOTICE OF PENDENCY AND SETTLEMENT OF DERIVATIVE ACTIONS
SAN
DIEGO, Feb. 5 /PRNewswire/ --
YOU ARE HEREBY NOTIFIED, that
the parties to the above derivative action and the stockholder derivative action
styled In re Wireless
Facilities, Inc. Derivative Litigation, GIC 834253, currently pending in
the Superior Court of the State of California, County of San Diego (the
"Derivative Actions") have entered into a Stipulation and Agreement of
Settlement of Derivative Claims (the "Stipulation") to resolve the issues raised
by the Derivative Actions (the "Settlement").
PLEASE BE
FURTHER ADVISED that pursuant to an Order of the United States District Court
for the Southern District of California (the "Court"), a hearing (the
"Settlement Hearing") shall be held before this Court on March 29, 2010 at 2:30
p.m. or as soon thereafter as counsel may be heard in the courtroom of the
Honorable John A. Houston of the United States District Court for the Southern
District of California, 940 Front Street, San Diego, CA 92101 to determine: (i)
whether the proposed Settlement of the litigation as set forth in the
Stipulation, should be approved in all respects as fair, just, reasonable, and
adequate to, and in the best interests of, Kratos, Kratos Stockholders, and
Plaintiffs; (ii) whether the Final Judgment and Order of Dismissal approving the
Settlement should be entered; and (iii) whether the agreed-to Fees and Expenses
Payment should be awarded to Plaintiffs' Counsel. The Court may adjourn or
continue the Settlement Hearing without further notice to Current Kratos
Stockholders.
If you
are a Kratos Stockholder, your rights to pursue certain derivative claims on
behalf of Kratos may be affected by this Settlement.
A
detailed Notice of Pendency and Settlement of Derivative Actions describing the
Derivative Actions, the proposed Settlement, and the rights of Kratos
Stockholders with regard to the Settlement was published as a Company Current
Report on Form 8-K on February 5, 2010, and was filed with the United States
Securities and Exchange Commission (the "SEC") on that date. If you are a Kratos
Stockholder and wish to receive a copy of the detailed Notice, you may obtain a
copy by referring to the SEC's website at www.sec.gov. You may
also find information concerning the Settlement, including a copy of the
Stipulation and the Notice, at the website of Robbins Umeda LLP at www.robbinsumeda.com
and at the Company's website at www.kratosdefense.com.
A Current
Kratos Stockholder wishing to assert an objection to the Settlement should, no
later than March 15, 2010:
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(i)
file with the Clerk of the Court a written objection to the Settlement
setting forth: (a) the nature of the objection; (b) proof of ownership of
Kratos capital stock through the date of the Settlement Hearing, including
the number of shares of Kratos capital stock and the date of purchase; and
(c) any documentation in support of such objection; and
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(ii)
if a Current Kratos Stockholder intends to appear and requests to be heard
at the Settlement Hearing, such stockholder must, in addition to the
requirements of subsection (i) above, file with the Clerk of the Court:
(a) written notice of such stockholder's intention to appear; (b) a
statement that indicates the basis for such appearance; and (c) the
identities of any witnesses the stockholder intends to call at the
Settlement Hearing and the subjects of their testimony;
and
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(iii)
if a Current Kratos Stockholder files a written objection and/or written
notice of intent to appear, such stockholder must also simultaneously
serve copies of such notice, proof, statement and documentation, together
with copies of any other papers or briefs such stockholder files with the
Court (either by hand delivery or by first class mail) upon each of the
following:
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CLERK
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UNITED
STATES DISTRICT COURT
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SOUTHERN
DISTRICT OF CALIFORNIA
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940
Front Street,
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San
Diego, CA 92101
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ROBBINS
UMEDA LLP
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BRIAN
J. ROBBINS
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KEVIN
A. SEELY
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REBECCA
A. PETERSON
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DAVID
L. MARTIN
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600
B Street, Suite 1900
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San
Diego, CA 92101
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FARUQI
& FARUQI, LLP
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NADEEM
FARUQI
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DAVID
H. LEVENTHAL
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369
Lexington Avenue, 10th Floor
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New
York, NY 10017
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Co-Lead
Counsel for Plaintiffs
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Morrison
& Foerster LLP
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SEAN
T. PROSSER
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TYSON
E. MARSHALL
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12531
High Bluff Drive, Suite 100
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San
Diego, CA 92130
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Attorneys
for Nominal Defendant WIRELESS FACILITIES, INC.; Individual Defendants
THOMAS A. MUNRO, DANIEL STOKELY, ERIC DEMARCO, DAVID A. GARRISON, FRANKIE
FARJOOD, DAVID LEE, WILLIAM A. OWENS, BANDEL CARANO, JAMES R. EDWARDS,
SCOTT FOX, DEANNA H. LUND, ANDREW M. LEITCH, LAURA SIEGAL, NAOMI D.
WHITACRE, GEORGE WOZENCRAFT, and WILLIAM MAZILLY; and Specially Appearing
Defendants FARZAD GHASSEMI, GREGORY JACOBSEN, SCOTT I. ANDERSON, SCOT
JARVIS, and WILLIAM HOGLUND
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Any
Current Kratos Stockholder who does not timely make his, her, or its objection
to the Settlement shall be deemed to have waived such objection and shall
forever be foreclosed from making any objection to the fairness, reasonableness,
or adequacy of the proposed Settlement, and shall otherwise be bound by the
judgments to be entered on the releases given.
PLEASE
DO NOT TELEPHONE THE COURT OR KRATOS REGARDING THIS NOTICE
SOURCE:
Kratos Defense & Security Solutions, Inc.