1 SUPERIOR COURT OF THE STATE OF CALIFORNIA FOR THE COUNTY OF LOS ANGELES IN RE: STRUCTURED SETTLEMENT LITIGATION Richard M. Stuber, et al. v. Merrill Lynch Pierce, Fenner & Smith, et al. Action No. BC And Related Case Nos. BC244271, BC245412, BC245579, BC246051, GC026372, BC243787, BC248592, BC248593, BC248594, BC248597, BC248598, BC248599, BC248600, BC NOTICE OF SETTLEMENT IN PENDING CLASS ACTION THIS NOTICE IS INTENDED FOR ANYONE WHO ENTERED INTO A STRUCTURED SETTLEMENT WITH IBAR, INC., MERRILL LYNCH IBAR, INC., MERRILL LYNCH SETTLEMENT SERVICES, INC. ML SETTLEMENT SERVICES, INC., OR SETTLEMENT SERVICES TREASURY ASSIGNMENTS, INC. The Court has given preliminary approval to a settlement (the Settlement ) with defendants Morgan Stanley & Co. Incorporated, Morgan Stanley Asset Management, Inc., and Morgan Stanley Dean Witter & Co. (collectively referred to in this Notice as Morgan Stanley or the Settling Defendants ). This notice describes the status of this case, the terms of the Settlement, who is entitled to participate in it, and how to participate. BACKGROUND AND SUMMARY OF THE SETTLEMENT Description of Case: Settlement with Morgan Stanley: Settlement Terms: Who is Entitled to Participate in Stuber, et al. v. Merrill Lynch Pierce Fenner & Smith, et al., Case No. BC (the Class Action ), was filed on January 29, 2001, in the above-entitled Court, alleging that certain defendants sold, or caused to be sold the U.S. Treasury bonds that were supposed to be used to make periodic and lump-sum payments to structured settlement payees. There has been a default on the payment obligations. The action alleges that defendants Bank of America, Wells Fargo Bank, U.S. Trust Co., Bankers Trust Company, Morgan Stanley Dean Witter & Co., Merrill Lynch, Stanwich Financial Services Corporation and others, participated in varying degrees in transactions leading to the sale of the bonds. All defendants have denied liability. Stanwich, however, admits that it owes periodic and lump- sum payments to the payees, i.e., the plaintiffs and the members of the Settlement Class. Morgan Stanley has denied, and continues to deny, the allegations made against it. However, Morgan Stanley decided to negotiate and enter into a settlement in order to avoid costly litigation in the future. Considering both the strengths and weaknesses of the claims against Morgan Stanley, plaintiffs counsel in the Stuber case believe they have negotiated a fair, reasonable and adequate settlement on behalf of the Settlement Class. The Morgan Stanley Settlement provides for (1) payment by Morgan Stanley of the sum of $23,000,000 to members of the Settlement Class upon final Court approval of the Settlement; (2) payments will be made by Morgan Stanley on an as-they-come-due basis, which means that Morgan Stanley will make the normal and regular payments of periodic and final lump-sum amounts due to be paid to plaintiff members of the Settlement Class up to the amount of $23,000,000. Payments by Morgan Stanley will begin once the Merrill Lynch Settlement proceeds and the Bankers Trust Advance have been distributed to the Settlement Class. You may participate in the Settlement if you are a member of the Settlement Class,
2 the Settlement? How to Receive Settlement Money: How to Request Exclusion: Effect of Requesting Exclusion: Effect of Not Requesting Exclusion: Additional Information: defined as follows: All Persons who entered into structured settlements with IBAR, Inc., Merrill Lynch IBAR, Inc., Merrill Lynch Settlement Services, Inc., ML Settlement Services, Inc., Settlement Services Treasury Assignments, Inc., or the predecessors or successors or affiliates of the foregoing companies, in conjunction with which a trust was, or trusts were, established and funded by United States Treasury obligations, which Persons are entitled to receive periodic structured settlement payments or final lump-sum payments under such structured settlements, and the assigns, heirs, and successors-in-interest of such Persons, exclusive of the defendants in the Class Action, members of the families of the individual defendants, all officers and directors of the corporate defendants and any Person that is affiliated with any of the defendants, and the heirs, successors, and assigns of any party so excluded. You will be eligible to receive money from the Settlement if you are a member of the Settlement Class and do not request to be excluded. You need do nothing at this time if you wish to participate in a distribution of the settlement fund. To request exclusion from the Settlement, Class members must make a written request to be excluded in accordance with the directions on Page 5. Otherwise, you will be included in the Settlement. If you request exclusion from the Settlement, you will not be entitled to share in the Settlement money paid under the Settlement. You will, however, retain any claims you may have against the Settling Defendants and may pursue those claims at your own expense. If you do not request exclusion, you will be automatically included in the Settlement Class, regardless of whether you have filed your own lawsuit against Morgan Stanley. While the litigation will continue against all of the other defendants, you will, however, be precluded from pursing any claims against Morgan Stanley. You will be entitled to share in Settlement proceeds. Please do not contact the Court. Additional information, including copies of the Settlement documents, are available by making a request to the following counsel for plaintiffs: Roman M. Silberfeld, Esq. Marc M. Seltzer Robins, Kaplan, Miller & Ciresi L.L.P. Susman Godfrey L.L.P 2049 Century Park East, Suite Century Park East, Suite 950 Los Angeles, California Los Angeles, California Telephone: (310) Telephone: (310) Facsimile: (310) Facsimile: (310) Dean A. Ziehl, Esq. Thomas G. Foley, Jr. Esq. Pachulski, Stang, Ziehl, Young & Jones P.C. Foley & Bezek, LLP Santa Monica Boulevard, Suite West Carrillo Street Los Angeles, California Santa Barbara, California Telephone: (310) Telephone: (805) Facsimile: (310) Facsimile: (805)
3 Final Approval of Settlement: On August 28, 2001 at 9:30 a.m., the Court will hold a hearing to determine whether the Settlement should be finally approved. The hearing will be held at: Los Angeles Superior Court Department 322 Seventeenth Floor 600 South Commonwealth Avenue Los Angeles, California Persons who wish to object to the Settlement must mail written objections to Gilardi & Co. L.L.C. by August 20, 2001, in accordance with the instructions on Page 6 below. I. DESCRIPTION OF THE CLASS ACTION The case entitled Stuber v. Merrill Lynch is a class action lawsuit brought by the plaintiffs in that action on behalf of persons who entered into structured settlements with the predecessors of SSTAI. Additional lawsuits have been filed by other plaintiffs, including two cases that have been filed as class actions. 1 Plaintiffs and the members of the Settlement Class are individuals (or their heirs or legal representatives) who suffered catastrophic or, in some cases, fatal, personal injuries caused by negligence or malfeasance, settled their claims in their underlying lawsuits, and entered into structured settlements. Plaintiffs allege that the structured settlement company, now known as SSTAI, began as IBAR, Inc., and over the years changed hands and names, becoming Merrill Lynch IBAR, Inc., Merrill Lynch Settlement Services, Inc., ML Settlement Services, Inc., Settlement Services Treasury Assignments, Inc., and then Stanwich Financial Services Corp., doing business as Settlement Services Treasury Assignments, Inc. The structured settlement trustee also changed over time. Originally, Bank of America, N.A. served as trustee, then Wells Fargo Bank, and U.S. Trust Company of California. Eventually Bankers Trust became the trustee, followed by U.S. Trust Co. of New York. The trusts were funded with U.S. Treasury bonds, in order to create a stream of income over years, a final lump-sum payment, and a tax advantage for the plaintiffs, who became the payees of the trusts. The trusts were structured to provide that the plaintiffs would receive periodic payments and final lump-sum distributions directly from the income and principal of the trusts, with irrevocable orders of payment issued by the trustor, i.e., the structured settlement company, to the trustee. Plaintiffs allege that SSTAI undertook, through renegotiated Trust Agreements, to fundamentally alter the terms of the trust agreements. Plaintiffs allege that these changes were made to allow the U.S. Treasury bonds held in the trust to be used as collateral for borrowings made by the trustor, namely SSTAI. Beginning in 1994, SSTAI engaged in certain reverse repurchase transactions involving the bonds with defendant Morgan Stanley. In March 1998, when SSTAI was unable to make the required payments to repurchase the bonds, defendant Morgan Stanley foreclosed on the repurchase agreements and sold the bonds. Plaintiffs have alleged claims for breach of contract, interference with contract, negligent interference with economic relations, unfair competition, fraudulent conveyance and negligence against the defendants. 1. Cash Payment To The Settlement Class. II. DESCRIPTION OF THE SETTLEMENT TERMS Morgan Stanley will pay $23,000,000 to the Settlement Class, which will be distributed to the members of the Settlement Class on an as-they-come-due basis in accordance with the normal and regular periodic and lump-sum payments due to be paid to the Settlement Class. Payments by Morgan Stanley will begin once all proceeds of the Merrill Lynch 1 The plaintiffs in those other actions are also members of the Settlement Class to be certified for settlement purposes in the Stuber class action, unless they choose to exclude themselves from the Settlement Class. 3
4 Settlement and Bankers Trust Advance have been distributed to the Settlement Class. 2. Assignment Of Claims. Pursuant to the Settlement, Morgan Stanley has agreed to assign to the Settlement Class all of its claims for equitable indemnity and contribution against the non-settling defendants, but has retained contractual claims it may have. 3. Releases. Following final Court approval, Plaintiffs and the members of the Settlement Class who do not elect to be excluded will be deemed to have released and forever discharged the Settling Defendants and Released Persons (as defined below) from the Released Claims (as defined below). This release shall not release the Settling Defendants from their obligations under the Settlement. Settlement Class members who do not request exclusion will not be able to pursue any lawsuit against Morgan Stanley regarding their structured settlements after this release becomes effective. Released Persons means Morgan Stanley & Co. Incorporated, Morgan Stanley Asset Management, Inc., and Morgan Stanley Dean Witter & Co., their predecessors and successors, their past and present affiliates, subsidiaries, and other related entities, and their past and present directors, officers, employees, and agents. Released Claims means all claims, demands, rights, liabilities, and causes of action of every nature and description whatsoever, known or unknown, whether in contract, tort, equity or otherwise, whether or not concealed or hidden, asserted or that might have been asserted in the Class Action, by or on behalf of the Plaintiffs or any Class Member, or any of their successors in interest, solely against Morgan Stanley in any way related to the subject matter of the Class Action, including, without limitation, claims for fraud, breach of fiduciary duty, negligence, gross negligence, tortious interference, indemnification, breach of contract, breach of the covenant of good faith and fair dealing, specific performance, open book account, unfair competition, claims asserted under or of the California Business and Professions Code, violations of any state or federal status, rules or regulations, or any other claims asserted in the Class Action or which could be or could have been asserted therein on any theory whatsoever; provided, however, that the foregoing Released Claims shall not include any claims or rights against any of the non-settling defendants now or hereafter named in the Class Action. Plaintiffs Statement III. REASONS FOR SETTLEMENT Plaintiffs counsel have conducted an investigation of the facts, circumstances and transactions relating to and surrounding the allegations set forth in plaintiffs complaint, including document discovery and inspection of publiclyavailable documents. Plaintiffs counsel also conducted depositions and document discovery from certain parties and thirdparty witnesses. The Plaintiffs have entered into the Settlement Agreement settling this action as to Morgan Stanley alone after taking into account the role - both factually and legally - of Morgan Stanley in the transactions involved in this Class Action; the likelihood that this litigation against Morgan Stanley, if not settled voluntarily, would involve complex issues of fact and law (as to which the experts for the parties may hold varying opinions) and present difficult issues relating to liability, as well as the other uncertainties and risks inherent in complex litigation such as this case. In light of, among other things, governing law and the facts of this case, the Plaintiffs believe that the proposed settlement provided for herein is fair, reasonable and adequate and in the best interests of plaintiffs and the Class. The Plaintiffs believe that substantial benefits will be received by the Class as a result of the proposed settlement. They believe that the settlement will make available funds so that long term security of payment - for approximately 2-3 years - can be provided to Class members. Further, at the insistence of counsel for the Plaintiffs, no part of the settlement amounts to be paid by Morgan Stanley will be used for plaintiffs attorneys fees or litigation costs. Morgan Stanley is providing additional potential value to the Class by agreeing to assign to the Settlement Class any claims for equitable indemnity or contribution which Morgan Stanley might have against any third parties in connection with the Class Action. 4
5 Morgan Stanley s Statement Morgan Stanley, while continuing to deny that it has any liability whatsoever to the Settlement Class, has entered into the settlement solely in order to put to rest all controversy between the Class and Morgan Stanley and to avoid the further expense, inconvenience and distraction of this litigation. Morgan Stanley has concluded that further conduct of the Class Action could be protracted and expensive, and that it is desirable that all such litigation be fully and finally settled in the manner and upon the terms and conditions set forth in the Settlement Agreement. Morgan Stanley also has taken into account the uncertainty and risks inherent in any litigation, especially in complex cases like the Class Action. Accordingly, Morgan Stanley has determined that it is desirable and beneficial to it that all such litigation be settled in the manner and upon the terms and conditions set forth in the Stipulation. THE MAILING OF THIS NOTICE IS NOT BE CONSTRUED IN ANY WAY AS AN EXPRESSION OF ANY OPINION BY THE COURT AS TO THE MERITS OF THE RESPECTIVE CLAIMS OR DEFENSES OF THE PARTIES TO THIS LITIGATION. THIS NOTICE IS SENT ONLY TO ADVISE YOU OF THE PROPOSED SETTLEMENT DESCRIBED HEREIN, AND OF CERTAIN RIGHTS YOU MAY HAVE WITH RESPECT THERETO, SO THAT YOU MAY DECIDE WHAT STEPS YOU WILL TAKE IN RELATION TO THIS ACTION. IV. ALLOCATION OF SETTLEMENT FUNDS It is not possible to tell you now how much money you will receive if you qualify as a member of the Settlement Class. Morgan Stanley has agreed to pay a specific sum of money over time, which will be divided among the Class members and will be subject to the approval of the Court. V. ATTORNEYS FEES AND COSTS The Morgan Stanley Settlement will not be reduced by allowances for attorneys fees or litigation costs. In the event their efforts result in recoveries from other sources, plaintiffs counsel intend to apply for attorneys fees, costs and expenses to be paid out of those recoveries, which will take into account the benefits conferred by the Settlement with Morgan Stanley, among other things, all subject to the approval of the Court. VI. FINAL SETTLEMENT APPROVAL HEARING The Court will hold a Final Settlement Approval Hearing at 9:30 a.m. on August 28, 2001, at which time the Court will consider any objections and make a final determination on approval of the Settlement. If the Court approves the settlement, it will enter an order and judgment dismissing the Settling Defendants with prejudice. VII. HOW TO REQUEST EXCLUSION FROM THIS SETTLEMENT Any eligible member of a Settlement Class may request exclusion from a Settlement Class by making a written request to be excluded. The request must include the name, address and phone number of the person requesting exclusion. Your request for exclusion must be postmarked by August 20, 2001, and addressed to the following: In re Structured Settlement Litigation Gilardi & Co. L.L.C. Post Office Box 8060 San Rafael, California
6 VIII. HOW TO OBJECT TO THIS SETTLEMENT Any eligible member of a Settlement Class who has not requested exclusion from the Settlement Class may object to the Settlement by making a written objection. The objection must include the name, address and phone number of the person objecting. The objection must specify the reasons for the objection. The objection must be postmarked by August 20, 2001, and addressed to each of the following: Plaintiffs Counsel: In re Structured Settlement Litigation c/o Gilardi & Co. L.L.C. Post Office Box 8060 San Rafael, California Roman M. Silberfeld, Esq. Marc M. Seltzer Robins, Kaplan, Miller & Ciresi L.L.P. Susman Godfrey L.L.P Century Park East, Suite Century Park East, Suite 950 Los Angeles, California Los Angeles, California Dean A. Ziehl, Esq. Thomas G. Foley, Jr. Esq. Pachulski, Stang, Ziehl, Young & Jones P.C. Foley & Bezek, LLP Santa Monica Boulevard, Suite West Carrillo Street Los Angeles, California Santa Barbara, California Counsel for Morgan Stanley: Jeff Davidson, Esq. Kirkland & Ellis 777 South Figueroa Street, Suite 3700 Los Angeles, California IX. EXAMINATION OF PAPERS This Notice is not all-inclusive. For the full details of the matters discussed in this Notice, including the settlement described above, and for further information concerning the Class Action, you may desire to refer to the pleadings and other papers filed with the Court in the Class Action, including the Settlement Agreement, all of which may be inspected at Department 322, Los Angeles Superior Court, 600 South Commonwealth, Los Angeles, California 90005, during the regular business hours of each business day. DO NOT TELEPHONE THE COURT. Dated: July 20, 2001 PETER D. LICHTMAN JUDGE OF THE SUPERIOR COURT 6
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