Warren Rubin et al v. Shlomo Margalit et al --- (In re MRV Communications, Inc. Derivative Litigation)MEMORANDUM in Support of MOTION for Settlement Approval Motion for Preliminary Approval of Derivative Settlement 280C.D. Cal.March 28, 20131 WILMER CUTLER PICKERING 2 HALE & DORR LLP David C. Marcus (SBN 158704) 3 david.marcus@wilmerhale.com 4 Christopher T. Casamassima (SBN 211280) chris.casamassima@wilmerhale.com 5 350 South Grand Avenue Los Angeles, CA 90071 6 Telephone: (213) 443-5312 7 Attorneys for the Special Litigation 8 Committee of the Board of Directors 9 of MRV Communications, Inc. 10 11 12 13 UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA WESTERN DIVISION In re MRV COMMUNICATIONS, 14 INC. DERIVATIVE LITIGATION 15 16 This Document Relates To: 17 ALL ACTIONS. 18 19 20 21 22 23 24 25 26 27 28 Master File No. 1 :08-cv-03800-GAF(MANx) SPECIAL LITIGATION COMMITTEE OF THE BOARD OF DIRECTORS OF MRV COMMUNICATIONS, INC.'S MEMORANDUM IN SUPPORT OF PLAINTIFFS' MOTION FOR PRELIMINARY APPROVAL OF DERIVATIVE SETTLEMENT Hearing Date: April 8, 2013 Time: 9:30AM Courtroom: 7 40 Judge: Hon. Gary A. Feess MRV SLC'S MEMO ISO OF MOTION FOR PRELIMINARY APPROVAL OF SETTLEMENT Case 2:08-cv-03800-GAF-MAN Document 287 Filed 03/28/13 Page 1 of 16 Page ID #:6048 1 TABLE OF CONTENTS 2 INTRODUCTION ..................................................................................................... 1 3 FACTUAL BACKGROUND .................................................................................... 2 4 I. First Special Committee Investigation ............................................................ 2 5 II. Financial Restatement ..................................................................................... 3 6 III. Formation ofthe SLC ...................................................................................... 3 7 IV. The SLC Investigation ..................................................................................... 6 8 V. Conclusions of the SLC ................................................................................... 7 9 ARGUMENT ............................................................................................................. 8 10 I. 11 II. 12 III. 13 The SLC Is Empowered to Manage this Litigation ........................................ 8 The SLC Is Independent and Acted in Good Faith ......................................... 9 The SLC's Conclusion that the Sti2ulation of Settlement, and Each of its Terms, is in the Best Interests ofMRV and its Stockholders is Reasonable ..................................................................................................... 12 14 CONCLUSION ........................................................................................................ 13 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -I- MRV SLC'S MEMO ISO OF MOTION FOR PRELIMINARY APPROVAL OF SETTLEMENT Case 2:08-cv-03800-GAF-MAN Document 287 Filed 03/28/13 Page 2 of 16 Page ID #:6049 1 TABLE OF AUTHORITIES 2 CASES Page(s) 3 In re Oracle Sec. Litig., 4 852 F. Supp. 1437 (N.D. Cal. 1994) ............................................................... 9, 10 5 Johnson v. Hui, 6 811 F. Supp. 479 (N.D. Cal. 1991) ................................................................. 9, 10 Kaplan v. Wyatt, 7 484 A.2d 501 (Del. Ch. 1984) ....................................................................... 9, 10 8 Officers for Justice v. Civil Serv. Comm'n 9 688 F.2d 615, 625 (9th Cir. 1982) ......................................................................... 1, 11 10 Zapata Corp. v. Maldonado, 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 430 A.2d 779 (Del. 1981) ................................................................................. 8, 9 -11- MRV SLC'S MEMO ISO OF MOTION FOR PRELIMINARY APPROVAL OF SETTLEMENT Case 2:08-cv-03800-GAF-MAN Document 287 Filed 03/28/13 Page 3 of 16 Page ID #:6050 1 INTRODUCTION 2 The Special Litigation Committee ("SLC") of the Board of Directors MRV 3 Communications, Inc. ("MRV" or the "Company") submits this brief in support of 4 the motion of plaintiffs Warren Rubin IRA and Donald Gautreaux, ("Federal 5 Plaintiffs"), dated March 1, 2013 for preliminary approval of the Stipulation of 6 Settlement between Federal Plaintiffs on behalf of themselves and derivatively on 7 behalf of MRV; defendants Noam Lotan, Shlomo Margalit, Shay Gonen, Guy 8 Avidan, Guenter Jaensch, Igal Shidlovsky, Daniel Tsui, Harold W. Furchtgott- 9 Roth and Baruch Fischer (the "Individual Defendants"); nominal defendant MRV; 10 and plaintiff Jing Ke ("State Plaintiff') on behalf of himself and derivatively on 11 behalf ofMRV. 12 The SLC's members-Kenneth Traub and Robert Pons-are non-executive, 13 independent directors who came to MRV years after- the allegedly improper 14 conduct that is the subject of this litigation and years after this action was filed. 15 That the SLC is independent and disinterested has not and cannot be disputed. 16 The SLC, along with its independent counsel, WilmerHale, conducted an 17 independent, good faith investigation of the factual and legal circumstances 18 surrounding the lawsuit. As a result of this investigation, the SLC concluded that 19 resolving the derivative litigation based on the terms of the present settlement, 20 including corporate governance reforms that have been and will be implemented 21 by MRV, would be in the best interests of MRV and its stockholders. (Decl. of 22 Kenneth Traub in Support of Special Litigation Committee of The Board of 23 Directors of MRV Communications Inc.'s Response in Support of Plaintiffs 24 Motion for Preliminary Approval of Derivative Settlement (hereinafter "Traub 25 Decl.") at ~26-7; Dec I. of Robert Pons in Support of Special Litigation Committee 26 of The Board ofDirectors ofMRV Communications Inc.'s Response in Support of 27 28 - 1- MRV SLC'S MEMO ISO OF MOTION FOR PRELIMINARY APPROVAL OF SETTLEMENT Case 2:08-cv-03800-GAF-MAN Document 287 Filed 03/28/13 Page 4 of 16 Page ID #:6051 1 Plaintiffs Motion for Preliminary Approval of Derivative Settlement (hereinafter 2 "Pons Decl.") at ~25-6). 3 The SLC also believes that the proposed settlement, and each of its terms, 4 comports with the applicable standard for approval of a derivative settlement under 5 controlling Ninth Circuit law, namely, that "the settlement, taken as a whole, is 6 fair, reasonable and adequate to all concerned." Officers for Justice v. Civil Serv. 7 Comm'n, 688 F.2d 615, 625 (9th Cir. 1982). 8 Accordingly, in addition to the reasons stated by the Federal Plaintiffs, the 9 motion for preliminary approval should be granted because the SLC has concluded 10 that the derivative settlement, and each of its terms, is in the best interests of MR V 11 and its stockholders. 12 13 14 I. 15 FACTUAL BACKGROUND First Special Committee Investigation On June 1, 2008, the MRV Board of Directors appointed a Special 16 Committee (the "First Special Committee") to conduct an investigation into the 17 Company's historical stock option practices and certain accounting issues. (Pons 18 Decl. at ~10; Traub Decl. at ~11 ). On June 5, 2008, MRV issued a press release 19 announcing the formation of the First Special Committee and stating that the 20 Company had recently discovered information concerning the Company's stock 21 option accounting practices from 2002 through the first quarter of 2004. In the 22 press release, the Company stated that it expected to restate financial statements for 23 the years 2002 through 2008. (Pons Decl. at ~10; Traub Decl. at ~11). The present 24 stockholder derivative lawsuit was filed days after the press release, on June 10, 25 2008. A separate stockholder derivative lawsuit was filed in California state court 26 on July 3, 2008. 27 28 After issuing the June 5, 2008 press release, the First Special Committee -2- MRV SLC'S MEMO ISO OF MOTION FOR PRELIMINARY APPROVAL OF SETTLEMENT Case 2:08-cv-03800-GAF-MAN Document 287 Filed 03/28/13 Page 5 of 16 Page ID #:6052 1 retained the law firm Proskauer Rose LLP and the forensic accounting firm 2 PricewaterhouseCoopers LLC to assist in its investigation into the Company's 3 historical stock option practices. (Pons Decl. at ~11; Traub Decl. at ~12). For the 4 remainder of 2008, the First Special Committee conducted an intensive 5 investigation that included witness interviews, review of documents, and forensic 6 analysis. The investigation focused on the period January 1, 1998 through May 31, 7 2008. (Pons Decl. at ~12; Traub Decl. at ~13). 8 On February 2, 2009, the Company issued a press release announcing the 9 principal findings of the First Special Committee investigation. (Pons Decl. at ~13; 10 Traub Decl. at ~14). The Company announced that the First Special Committee 11 found, inter alia, that many pre-2004 option grant dates and grant prices were 12 retrospectively selected in a manner that was inconsistent with the Company's 13 option plans. (!d.) The First Special Committee also determined that the Company 14 implemented improved stock option controls beginning in March 2004. (Pons 15 Decl. at ~14; Traub Decl. at ~15). The First Special Committee made a number of 16 corporate governance recommendations, which were adopted. (!d.) These 17 included hiring new independent directors, recruiting a new president, hiring an 18 internal auditor, and engaging an outside stock plan administrator. (!d.) 19 II. Financial Restatement 20 On October 8, 2009, the Company announced the financial restatement 21 anticipated in the June 5, 2008 press release. (Pons Decl. at ~15; Traub Decl. at 22 ~16). The Company announced that, with the assistance of outside advisors, it had 23 reviewed its option granting history for the period February 23, 1994 to May 1, 24 2008. (!d.) This review resulted in an additional non-cash, pre-tax share-based 25 charge, net of forfeitures, of $7 4.4 million for the years 1994 through 2007. (!d.) 26 III. Formation of the SLC 27 28 On November 8, 2011, the Board of Directors formed the present SLC to -3- MRV SLC'S MEMO ISO OF MOTION FOR PRELIMINARY APPROVAL OF SETTLEMENT Case 2:08-cv-03800-GAF-MAN Document 287 Filed 03/28/13 Page 6 of 16 Page ID #:6053 1 review the pending derivative litigation and make appropriate recommendations 2 with regard to how the company should respond to that litigation. (Pons Decl. at 3 ~16; Traub Decl. at ~17). The MRV Board of Directors delegated to the SLC the 4 full and exclusive authority to investigate, review, analyze and evaluate the facts 5 and circumstances that are the subject of the stockholder derivative litigations, as 6 well as any facts and circumstances relating to the Company's historical stock 7 option granting practices. (Pons Decl. at ~18; Traub Decl. at ~19). The SLC was 8 also delegated the full and exclusive authority to recommend and take any action 9 on behalf of the Company, consistent with Delaware law and the Company's 1 0 governing documents, that is or would be in the best interests of the Company and 11 its stockholders. (!d.) This authority included, among other things, the power to 12 negotiate and engage in discussions, negotiations, suits, settlements and other 13 actions with all parties to the federal and state stockholder derivative litigations, 14 party-appointed mediators, and the Company's insurance carriers that the SLC in 15 its business judgment determined to be in best interests of the Company and its 16 stockholders. (!d.) 17 At all times, the members of the SLC have been independent MRV directors 18 who were not defendants in any of the derivative litigation. (See Pons Decl. at ~~ 19 8, 19; Traub Decl. at~~ 9, 20). The original members of the SLC were Charles 20 Gillman, Joan Herman, and Robert Pons. (Pons DecL at ~19; Traub Decl. at ~20) 21 Subsequently, Ms. Herman left the Board and in May 2012, the MRV Board 22 selected Glenn Tongue and Kenneth Traub to serve on the SLC alongside Messrs. 23 Gillman and Pons. (!d.) Mr. Gillman left the MRV Board in or about June 2012. 24 (!d.) In or around September 2012, the MRV Board determined that the SLC 25 would consist solely of Messrs. Pons and Traub. (!d.) 26 Mr. Traub joined the Board of Directors in October 2011. (Traub Decl. at 27 ~8). He is Chairman and serves on the Audit, Compensation, and Nomination & 28 -4- MRV SLC'S MEMO ISO OF MOTION FOR PRELIMINARY APPROVAL OF SETTLEMENT Case 2:08-cv-03800-GAF-MAN Document 287 Filed 03/28/13 Page 7 of 16 Page ID #:6054 1 Governance Committees. (!d. at ~1). Since 2009, Mr. Traub has been President 2 and CEO of Ethos Management LLC, which specializes in investing in and 3 advising undervalued companies to execute strategies and build and unlock 4 shareholder value. (!d. at ~6). From 1999 until 2008, he served as President and 5 CEO of American Bank Note Holographies, Inc. ("ABNH"), a leading global 6 supplier of optical security devices. (!d. at ~4). In 2008, Mr. Traub was Vice 7 President of JDS Uniphase Corp., a global leader in optical technologies and 8 telecommunications that had acquired ABNH. (!d. at ~5). From 1994 to 1998, Mr. 9 Traub served as Executive VP and CFO of Voxware, Inc., a pioneer in Internet 10 communications technologies which he cofounded. (!d. at ~3). In addition to 11 MRV, Mr. Traub serves on the board of directors for five companies: iPass, Inc., 12 Athersys, Inc., DSP Group, Inc., TIX Incorporated, and Vitesse, Inc. Mr. Traub 13 has also served as Chairman of the board of directors of privately held Omnego, 14 Inc. (!d. at ~7). Mr. Traub received his bachelor's degree from Emory College and 15 an MBA from Harvard Business School. (!d. at ~2.) 16 Mr. Pons joined the Board of Directors in October 2011. (Pons Decl. at ~7). 17 He is Vice Chairman and serves on the Audit, Compensation, and Nomination & 18 Governance Committees. (!d. at ~1). Mr. Pons has over 30 years of senior level 19 management experience with early stage ventures and Fortune 500 and turnaround 20 companies, much of it in the communications sector. (See id. at ~~2, 4-6). Mr. 21 Pons is the chairman of Livewire Mobile, Inc., a comprehensive digital content 22 solutions company for carriers, handset manufacturers and media companies in the 23 mobile content market. (!d. at ~6.) Prior to his position at Livewire, from 2008 to 24 January 2011, Mr. Pons was senior vice president of capital markets for The 25 Management Network Group, a provider of professional services to the converging 26 communication media and entertainment industries and the capital formation firms 27 that support them. (!d. at ~5). From 2003 to 2007, he was chief executive officer 28 -5- MRV SLC'S MEMO ISO OF MOTION FOR PRELIMINARY APPROVAL OF SETTLEMENT Case 2:08-cv-03800-GAF-MAN Document 287 Filed 03/28/13 Page 8 of 16 Page ID #:6055 1 of Uphonia/SmartServ, Inc., a publicly-traded firm in the wireless industry which 2 was recapitalized and repositioned under his leadership. (!d. at ~4). In addition to 3 MRV, Mr. Pons serves on the board of directors for two companies: Concurrent 4 Computer Corporation and Primus Telecommunications Group. (!d. at ~6). Mr. 5 Pons received his bachelor of arts degree, magna cum laude, from Rowan 6 University, and holds a patent on enhancement of9-1-1 systems. (!d. at~~ 2-3). 7 At the time the SLC was formed, only one MR V director was a named 8 defendant in the stockholder derivative litigation. Currently, none of the 9 Company's directors is a defendant in this litigation. (Pons Decl. at ~17; Traub 10 Dec I. at ~18). 11 On November 17, 2011, the Company filed a motion to stay the federal 12 derivative lawsuit pending resolution of the SLC's investigation. The Court denied 13 the Company's motion in an opinion dated December 22, 2011. Thereafter, the 14 SLC retained Wilmer Cutler Pickering Hale and Dorr LLP ("WilmerHale") as 15 counsel and began an investigation to determine how the Company should respond 16 to the derivative litigation. (Pons Dec I. at ~20; Traub Decl. at ~21 ). 17 IV. The SLC Investigation 18 Working with Wilmer Hale, and at the direction of Messrs. Pons and Traub, 19 the SLC began its investigation into the facts and circumstances of the Company's 20 stock option program in or about May 2012. (Pons Decl. at ~20-21; Traub Decl. at 21 ~21-22). The SLC investigated the strength of the legal claims asserted against the 22 individual defendants and potential legal obstacles to recovery. (Pons Decl. at ~21; 23 Traub Decl. at ~22). It conducted a detailed legal and factual analysis of each 24 claim asserted against each named defendant. (!d.) The SLC and Wilmer Hale met 2-5 frequently via teleconference to discuss the investigation's findings, its status and 26 to address legal and factual issues. (!d.) 27 The factual investigation conducted by the SLC drew on the work that had 28 -6- MRV SLC'S MEMO ISO OF MOTION FOR PRELIMINARY APPROVAL OF SETTLEMENT Case 2:08-cv-03800-GAF-MAN Document 287 Filed 03/28/13 Page 9 of 16 Page ID #:6056 1 been undertaken and generated by the First Special Committee investigation and 2 the subsequent forensic analysis relied on for the Company's restatement of its 3 financials. (Pons Decl. at ~22; Traub Decl. at ~23). The SLC focused its fact 4 investigation on aggregating and analyzing the results of the prior inquiries and 5 conducting new inquiries into issues that required further exploration. (!d.) 6 To this end, WilmerHale conferred with firms retained by the Company and 7 the First Special Committee; and collected and analyzed information, documents 8 and work product from the First Special Committee investigative team, the 9 Company, and the Company's outside counsel. (Pons Decl. at ~23; Traub Decl. at 10 ~24 ). These materials included the following: all Company Board minutes from 11 2008 to the present; relevant Company press releases and SEC filings; key 12 historical documents, including email correspondence, memoranda, option grant 13 material, and stock option plans identified in the First Special Committee 14 investigation; work product memoranda of witness interviews conducted by the 15 Special Committee; work product memoranda prepared by the Company and its 16 advisors to guide the Company's restatement; option grant and exercise data 1 7 prepared by PricewaterhouseCoopers LLC based on work performed in connection 18 with the Special Committee investigation and the restatement; and option grant and 19 exercise data maintained in the Company's stock option database. (Jd.) 20 The SLC also reviewed corporate governance reforms that had occurred at 21 the Company and explored additional corporate governance reforms that could 22 further improve the strong governance framework the Company developed in 23 recent years. (Pons Decl. at ~24; Traub Decl. at ~25). 24 v. 25 Conclusions of the SLC As a result of its investigation, the SLC determined that the interests of the 26 Company and its stockholders would be best served by resolving this stockholder 27 derivative litigation on the terms reflected in the Stipulation of Settlement rather 28 -7- MRV SLC'S .MEMO ISO OF MOTION FOR PRELIMINARY APPROVAL OF SETTLEMENT Case 2:08-cv-03800-GAF-MAN Document 287 Filed 03/28/13 Page 10 of 16 Page ID #:6057 1 than allowing the litigation to continue indefinitely with an uncertain outcome. 2 (Pons Decl. at ~25; Traub Decl. at ~26). The SLC based this conclusion on its 3 analysis of the factual evidence and law that would support the claims and defenses 4 asserted in the derivative lawsuits. (I d.) 5 To that end, the SLC engaged in extensive negotiations with all parties to the 6 federal and state stockholder derivative litigations, party-appointed mediators and 7 the Company's insurance carriers. (Pons Dec I. at ~26; Traub Dec I. at ~27). The 8 Stipulation of Settlement before this Court is a direct result of these negotiations. 9 (I d.) The terms of the Stipulation of Settlement include important corporate 1 0 governance reforms. (I d.) 11 During the course of this litigation, the Company has implemented and 12 agreed to implement corporate governance changes in response to the proposals of 13 plaintiffs' counsel. (Pons Decl. at ~27; Traub Decl. at ~28). By way of illustration, 14 the Company's current Board of Directors and executive management team consist 15 entirely of directors and executives that had no connection to the Company during 16 the time period covered by the pending litigation. (I d.) The SLC concluded that 17 additional corporate governance measures would provide additional benefits to the 18 Company and its stockholders. (I d.) The reforms implemented by the Company 19 along with those additional reforms recommended by the SLC are reflected in 20 Exhibit 1 to the Stipulation of Settlement. 21 ARGUMENT 22 I. 23 The SLC Is Empowered to Manage this Litigation MRV is a Delaware corporation. And Delaware courts have long recognized 24 that a Delaware corporation may rely upon a special litigation committee to reach a 25 considered conclusion as to what course of action is best calculated to protect and 26 to advance the interests of the corporation with respect to a purported derivative 27 claim. See, e.g., Zapata Corp. v. Maldonado, 430 A.2d 779, 785 (Del. 1981). The 28 -8- MRV SLC'S MEMO ISO OF MOTION FOR PRELIMINARY APPROVAL OF SETTLEMENT Case 2:08-cv-03800-GAF-MAN Document 287 Filed 03/28/13 Page 11 of 16 Page ID #:6058 1 procedures for the establishment and conduct of a special litigation committee are 2 well settled under Delaware law. See, e.g., Zapata, 430 A.2d at 785-89; Kaplan v. 3 Wyatt, 484 A.2d 501, 510 (Del. Ch. 1984 ). The board of directors begins the 4 process by appointing a committee of disinterested, independent directors to 5 review the allegations of the complaint and to make a recommendation as to the 6 complaint and its allegations of injury to the corporation. 7 MRV's creation of and delegation of authority to the SLC is in complete 8 harmony with Delaware law. The derivative actions were brought by stockholders 9 on behalf ofMRV. At a time when one MRV director was a named defendant, the 10 Board created the SLC as an independent, objective body to review the claims and 11 determine how to proceed. The Board created the SLC with only independent 12 directors as members. It empowered the SLC to review the matters raised in the 13 derivative litigations and determine how the Company should respond. The SLC 14 was further empowered to take any action with respect to the derivative litigations 15 that it deemed in the best interests of the Company and its stockholders. 16 The SLC executed its charge through an extensive review of the derivative 17 claims and the facts and circumstances underlying those claims. After its review, it 18 determined that it would be in the Company's best interests to encourage 19 settlement of the derivative lawsuits on terms favorable to the Company. As a 20 result, the SLC accepted, on behalf of the Company, the Stipulation of Settlement 21 before this Court. 22 II. The SLC Is Independent and Acted in Good Faith 23 An SLC is independent if its members are "in a position to base [their] 24 decision on the merits of the issue rather than . . . .extraneous considerations or 25 influences." Kaplan, 499 A.2d at 1189. 26 Courts generally examine six factors to determine whether a special 27 litigation committee's members are independent: first, whether the directors are 28 -9- MRV SLC'S MEMO ISO OF MOTION FOR PRELIMINARY APPROVAL OF SETTLEMENT Case 2:08-cv-03800-GAF-MAN Document 287 Filed 03/28/13 Page 12 of 16 Page ID #:6059 1 defendants and/or have potential liability in the derivative action; second, whether 2 the directors participated in or approved of the alleged wrongdoing; third, the 3 directors' past or present business dealings with the corporation; fourth, the 4 directors' past or present business or social dealings with the individual 5 defendants; fifth, the number of directors on the special litigation committee; and 6 sixth, the "structural bias" of the special litigation committee. In re Oracle Sec. 7 Litig., 852 F. Supp. 1437, 1441 (N.D. Cal. 1994); Johnson v. Hui, 811 F. Supp. 8 479, 486 (N.D. Cal. 1991). In assessing these factors, the Court need only satisfy 9 itself that the members of the special litigation committee are capable of reaching 10 an objective conclusion. See id. 11 Under these factors, there is no doubt that Messrs. Traub and Pons, the two 12 members of the SLC, are independent. Neither is a defendant or has potential 13 liability in this litigation. (Pons Decl. at ~8; Traub Decl. at ~9). Neither is alleged 14 to have participated in any of the alleged wrongdoing and, indeed, neither joined 15 MRV's Board of Directors until years after the alleged wrongdoing ceased and 16 after this action was filed. (Pons Decl. at ~7; Traub Decl. at ~8). Apart from their 17 service as directors ofMRV, neither Mr. Traub nor Mr. Traub has had business or 18 social dealings with the corporation or with the individual defendants that would 19 give rise to a conflict of interest. (Pons Decl. at ~9; Traub Decl. at ~1 0). As to the 20 fifth factor, courts routinely hold that a two-person committee is sufficient and, 21 indeed, have even endorsed one-person committees. See, e.g., Kaplan, 484 A.2d at 22 512. 23 Moreover, the MRV SLC has no "structural bias" that would taint its 24 investigation or conclusions. Courts consider whether the "manner in which the 25 SLC was appointed and proceeded was one which was inevitably bound to be 26 empathetic to defendants, and, therefore, biased in favor of terminating the 27 litigation." Johnson, 811 F. Supp. at 486. Here, Messrs. Traub and Pons joined 28 - 10- MRV SLC'S MEMO ISO OF MOTION FOR PRELIMINARY APPROVAL OF SETTLEMENT Case 2:08-cv-03800-GAF-MAN Document 287 Filed 03/28/13 Page 13 of 16 Page ID #:6060 1 MR V years after the alleged wrongdoing. Only one named defendant remained 2 associated with the company, and his tenure on the Board of Directors ended in 3 October 2012. The Board of Directors granted the SLC full and exclusive 4 authority to conduct an independent, thorough investigation and to take any actions 5 it deemed in the best interests ofMRV and its stockholders to pursue or resolve the 6 claims asserted in the derivative actions. The SLC has conducted its investigation 7 and reached its conclusions without any interference by the individual defendants. 8 It has been assisted by independent counsel, WilmerHale, which had no affiliation 9 with any of the individual defendants and at all times acted on behalf of the SLC. 1 0 In addition, the SLC acted in good faith and conducted a thorough 11 investigation. As set forth above, the SLC, with the assistance of independent 12 counsel, engaged in extensive review of documents and work product generated 13 from prior investigations relating to the alleged backdating of stock options. The 14 SLC held numerous meetings with counsel to address the legal and factual findings 15 of the investigation and assess a multitude of courses of action with respect to the 16 derivative litigations. The SLC was deeply involved in all aspects of the 1 7 investigation and at all times sought to pursue a course of action in the best 18 interests of MR V and its stockholders. 19 20 21 22 23 24 25 26 27 28 -11- MRV SLC'S MEMO ISO OF MOTION FOR PRELIMINARY APPROVAL OF SETTLEMENT Case 2:08-cv-03800-GAF-MAN Document 287 Filed 03/28/13 Page 14 of 16 Page ID #:6061 III. 1 2 3 The SLC's Conclusion that the Stipulation of Settlement, and Each of its Terms, is in the Best Interests of MRV and its Stockholders is Reasonable Under applicable Ninth Circuit standard, as set forth in the Federal 4 Plaintiffs' memorandum, the Court must exercise discretion in reviewing "a private 5 consensual agreement negotiated between the parties to a lawsuit," and should 6 limit its review "to the extent necessary to reach a reasoned judgment that the 7 agreement is not the product of fraud or overreaching by, or collusion between, the 8 negotiating parties, and that the settlement, taken as a whole, is fair, reasonable and 9 adequate to all concerned." Officers for Justice, 688 F. 2d at 625. The SLC has 10 concluded that the proposed settlement, and each of its terms, meets this standard. 11 The SLC's recommendations to settle the derivative suit, implement_ further 12 corporate governance reforms and endorse Federal Plaintiffs' motion for 13 preliminary approval of the settlement are eminently reasonable and are the direct 14 result of the independent factual and legal investigation conducted by SLC with the 15 assistance of Wilmer Hale. 16 The SLC determined that continued litigation would be costly and the results 1 7 uncertain. In contrast, the SLC was able to recommend terms of a settlement that 18 provide the Company and its stockholders with certainty. As set forth in the 19 Stipulation of Settlement, the Company will receive $2.5 million in cash from its 20 director and officer liability insurers. In addition, the Company will achieve cost 21 savings from the avoidance of future legal expenses, including advancement of 22 fees to indemnified defendants and the Company's own legal fees in its capacity as 23 a nominal party to the derivative litigation. The SLC believes the financial benefit 24 to the Company will be meaningful and will enable the Company to focus its 25 resources exclusively on its operations, without the uncertainty of protracted 26 litigation. 27 28 The SLC also determined that many of the corporate governance reforms it - 12- MRV SLC'S MEMO ISO OF MOTION FOR PRELIMINARY APPROVAL OF SETTLEMENT Case 2:08-cv-03800-GAF-MAN Document 287 Filed 03/28/13 Page 15 of 16 Page ID #:6062 1 would have recommended, including changes to the Company's stock option 2 granting program and to personnel, had already been implemented by the 3 Company. This was a factor weighing in favor of the SLC' s conclusion to resolve 4 the derivative actions. The SLC made additional recommendations for corporate 5 governance reforms that the Company is already in the process of implementing. 6 The SLC believes that the derivative litigation has, in this particular case, proven 7 an effective mechanism for achieving these results. 8 CONCLUSION 9 For the reasons stated above, the SLC respectfully requests that the Court 10 grant Plaintiffs' Motion for Preliminary Approval of Derivative Settlement. 11 12 13 Dated: March~\, 2013 14 15 16 17 18 19 20 21 22 23 24 ... 25. 26 27 28 Respectfully submitted, By: ot)-:__ vf/1.--- David C. Marcus Christopher T. Casamassima WILMER CUTLER PICKERING HALE & DORR LLP Attorneys for the Special Litigation Committee of the Board of Directors of MRV Communications, Inc. - 13- MRV SLC'S MEMO ISO OF MOTION FOR PRELIMINARY APPROVAL OF SETTLEMENT Case 2:08-cv-03800-GAF-MAN Document 287 Filed 03/28/13 Page 16 of 16 Page ID #:6063
