Document:

Exhibit
10.2

PROMISSORY
NOTE

 

	
  Amount $ 100,000

  	
   

  	
  Phoenix, Arizona

  
	
   

  	
  Date

  	
  October 12, 2004

  

 

FOR VALUED RECEIVED, and
legally bound hereby, INNSUITES HOSPITALITY TRUST (“Maker”), an Ohio real
estate investment trust, having an office at 1615 East Northern Avenue, Suite
102, Phoenix, Arizona 85020 hereby promises to pay to the order of Rare Earth
Financial, LLC (“Payee”), 5700 East Glen Drive, Paradise Valley, Arizona 85253
or such other place as the holder hereof may from time to time designate in
writing, the principal sum of ONE HUNDRED THOUSAND AND 00/100 DOLLARS
($100,000), with interest on the unpaid principal balance thereon from time to
time outstanding, at the rate of seven percent (7.00%) per annum, computed on a
three hundred sixty (360)-day year, to be due and payable in installments of
principal and interests as follows:

 

(A)                             On March 15,
2005, one payment of accrued but unpaid interest on the outstanding principal
balance hereunder; and on March 15, 2005, one payment in the amount of the
then unpaid principal balance hereunder, and all other sums and charges due and
unpaid by Maker (collectively, the “Note”).

 

Payments shall be applied first to any charges or sums (other than
principal and interest) due and payable by Maker, second to accrued and unpaid
interest on the principal balance hereof, and then to further reduce the
principal balance of this Note.

 

Maker shall give the right any time during the term of this Note to
repay all or part of the unpaid principal amount of the Note, together with any
accrued and unpaid interest thereon any other sums or charges due hereunder
without any prepayment premium or penalty.

 

Maker hereby waives for itself and, to the fullest extent not
prohibited by applicable law, for any subsequent lienor, any right Maker may
now or hereafter have under the doctrine of marshaling of assets or otherwise
which would require Payee to proceed against certain property before proceeding
against any other property.

 

Maker hereby agrees that in the event part of principal or interest is
not paid when due or the entire Note is not paid when due, then the rate of
interest on this Note shall, at the election on Payee upon ten (10) days prior
written notice, each of which is hereby expressly waived, be increased to nine
percent (9.00%) per annum or the highest rate for which the parties may agree
under applicable law, whichever is less (the “Default Rate”).  Maker shall be obligated thereafter to pay
interest on the then unpaid principal balance of the Note at the Default Rate,
both before and after judgment, to be computed from the due date through and
including the date of actual receipt of the overdue payment, whether a payment
of interest or the entire Note.  Nothing
herein shall be construed as an

 

1

 

agreement or privilege to extend the date of the payment or any
installment of or the entire Note, or as a waiver of any other right or remedy
accruing to Payee.

 

In the event that any regular payment of interest herein provided shall
not be received by Payee on the date such payment is due, Payee shall have the
right to assess maker a late payment charge in the amount of two percent
(2.00%) of such overdue installment, which shall become immediately due to
Payee for the additional cost agreed compensation to Payee for the additional
costs and expenses reasonable expected to be incurred by Payee by reason of
such nonpayment.  Maker acknowledges that
the exact amount of such cost and expenses may be difficult, if not impossible,
to determine with certainty, and further acknowledges and confesses the amount
of such charge to be a consciously considered, good faith estimate of the
actual damage to Payee by reason of such default.  The Default Rate will only accrue for periods
of delinquent installments except for such when Payee accepts late payments of
installments accompanied by a late payment charge as specified above.

 

Upon any of the following
Events of Default, at the election of Payee, the entire unpaid principal
balance of the Note, together with all accrued but unpaid interest thereon at
the Default Rate and all other sums or changes due hereunder, shall become due
and payable:

 

(a)                                 Maker’s
failure to pay when due any installment required to be paid hereunder, on or
before the tenth (10th) day following the applicable due date;

 

(b)                                Maker’s
failure to pay when due any other payment required to be under this Note,
subject to any notice and applicable grace period, if any;

 

(c)                                 Maker’s
breach of any other covenant or agreement herein and such breach remains
uncorrected at the expiration of any applicable grace period expressly provided
for herein;

 

(d)                                Any
creditor’s proceeding in which Maker consents to the appointment or a receiver
or trustee for any of its property;

 

(e)                                 If
any order, judgment or decree shall be entered, without the consent of Maker,
upon an application of a creditor approving the appointment of a receiver or
trustee for any of its property, and such order, judgment, decree, or
appointment is not dismissed or stayed with an appropriate appeal bond within
sixty (60) days following the entry or rendition thereof; or

 

(f)                                   If
Maker (i) makes a general assignment for the benefit of creditors, (ii) fails
to pay its debts generally as such debts become due, (iii) is found to be insolvent
by a court of competent jurisdiction, (iv) voluntarily files a petition in
bankruptcy or a

 

2

 

petition or
answer seeking readjustment of debts under any state or federal bankruptcy or
like law, or (v) any such petition is filed against Maker and is not vacated or
dismissed within sixty (60) days after filing thereof.

 

Notice of such election by Payee is hereby expressly waived as part of
the consideration for this loan.  Nothing
contained herein shall be construed to restrict the exercise of any other
rights or remedies granted to Payee hereunder upon the failure of Maker to
perform any provision hereof.

 

If this Note is not paid when due, whether at maturity or by
acceleration, Maker promises to pay all costs incurred by Payee, including
without limitation reasonable attorney’s fees to the fullest extent not
prohibited by law, and all expenses incurred in connection with the protection
or realization of any collateral, whether or not suit is filed hereon or on any
instrument granted a security interest.

 

Maker hereby expressly acknowledges and represents that the
indebtedness is for a business purpose and not consumer or household purposes.

 

Maker hereby waives demand, presentment for payment, protest, notice of
protest, notice of non-payments and any and all lack of diligence or delays in
collection or enforcement of this Note, and expressly consents to any extension
of time of payment hereof, release of any party primarily or secondarily liable
hereunder or any of the security for this Note, acceptance of other parties to
be liable for any of the Indebtedness or of other security therefore, or any
other indulgence or forbearance which may be made, without notice to any party
and without in any way affecting the liability of any party.

 

No failure by Payee to exercise any right hereunder shall be construed
as a waiver of the right to exercise the same or any other right any time or
from time to time thereafter.

 

This Note shall be construed and enforced according to, and governed by
the laws of the Sate of Arizona.

 

Any notice required hereunder shall be in writing, and shall be given
to the receiving party the notice by personal delivery or be certified mail,
postage prepaid, return receipt requested, as follows:

 

If to Payee, then addressed to Payee at 5700
East Glen Drive, Paradise Valley, Arizona 85253, (Tel. (480) 596-0224, Fax
(480) 596-0225), with a copy to James W. Reynolds, Esq., Dillingham &
Reynolds, 5080 N. 40th Street, Suite 335, Phoenix, Arizona 85018,
(Tel. (602) 468-1811, Fax (602) 468-0442);

 

If to Maker, then addressed to Maker at 1615
East Northern Avenue, Suite 102, Phoenix, Arizona 85020, Attn: Chief Financial
Officer (Tel. (602) 944-1500, Fax (602) 678-0281) with a copy to James B. Aronoff,
Esq., Thompson Hine, LLP, 3900 Key Center, 127 Public Square, Cleveland, Ohio
44114 (Tel. (216) 566-5500, Fax (216) 566-5800).

 

3

 

Any party may, be given notice in writing or designate another address
as a place for service of notice.  Such
notices shall be deemed to be received when delivered, if delivered in person,
or seven (7) business days after deposited in the United States mails, if
mailed as herein above provided.

 

By acceptance of this Note, Payee agrees that, upon payment in full of
the then unpaid principal balance of this Note, together with all unpaid
interest and other sums payable to Payee under this Note, (a) Note shall be
fully satisfied, (b) Payee shall promptly mark this Note as being paid in full,
satisfied and discharged and shall return the same to Maker.

 

 

	
   

  	
  INNSUITES HOSPITALITY TRUST,

  an Ohio real estate investment trust

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Marc E. Berg

  	
   

  
	
   

  	
   

  	
  Name: 
  Marc E. Berg

  
	
   

  	
   

  	
  Title: 
  Executive Vice-President

  
					

 

4EXHIBIT 10.78

 

ROBERT S. GREEN (State Bar No.136183)

JOHN L. PILLETTE (State Bar No. 219497)

GREEN & JIGARJIAN LLP

235 Pine Street, 15th Floor

San Francisco, California 94104

Telephone: (415) 477-6700

Facsimile: (415) 477-6710

 

Liaison Counsel for Plaintiffs

 

GREGORY M. CASTALDO

KAY E. SICKLES

SCHIFFRIN & BARROWAY, LLP

Three Bala Plaza East, Suite 400

Bala Cynwyd, Pennsylvania 19004

Telephone: (610) 667-7706

Facsimile: (610) 667-7056

 

Lead Plaintiff’s Counsel

 

UNITED STATES DISTRICT
COURT

 

NORTHERN DISTRICT OF
CALIFORNIA

 

	
  In Re LIBERATE TECHNOLOGIES

  	
  )

  	
  Master File No. C-02-5017 MJJ

  
	
  SECURITIES LITIGATION

  	
  )

  	
   

  
	
   

  	
  )

  	
  CLASS ACTION

  
	
   

  	
  )

  	
   

  
	
   

  	
  )

  	
  STIPULATION AND AGREEMENT
  OF SETTLEMENT

  
	
   

  	
  )

  	
   

  
	
  This Document Relates To:

  	
  )

  	
   

  
	
   

  	
  )

  	
   

  
	
  ALL ACTIONS

  	
  )

  	
   

  
	
   

  	
  )

  	
   

  
	
   

  	
  )

  	
   

  

 

 

STIPULATION
AND AGREEMENT OF SETTLEMENT

 

This Stipulation and Agreement of Settlement (the “Stipulation”
or “Settlement”), dated as of October 19, 2004, is made and entered into by and
among the following settling parties to the above-captioned Litigation:  (i) the Lead Plaintiff, on behalf of himself
and each of the Class Members, by and through his counsel of record in the
Litigation; and (ii) defendants Liberate Technologies (“Liberate”), Mitchell E.
Kertzman, Nancy J. Hilker and Coleman Sisson (the “Settling Defendants” and,
collectively with Lead Plaintiff, the “Settling Parties”), by and through their
undersigned counsel of record.  Through
this Stipulation, the Settling Parties intend fully, finally and forever to
resolve, discharge and settle the Released Claims (as defined below) upon and
subject to the terms and conditions herein.

 

The Settling Parties enter into this Stipulation with
reference to the following:

 

A.                                   On
October 15, 2002, Liberate announced that it would restate its financial
results for its fourth quarter and fiscal year ended May 31, 2002, and delay
the filing of its quarterly report on Form 10-Q for the quarter ended August
31, 2002, after discovering facts calling into question the appropriateness and
timing of revenue recognition for a single-transaction license fee of
approximately $1.8 million.  On November
21, 2002, Liberate announced that it had discovered facts that called into
question the appropriateness and timing of revenue recognition for various transactions
(including the originally identified transaction) that accounted for a total of
approximately $10 million in revenue during its 2002 fiscal year and the first
quarter of its 2003 fiscal year.

 

B.                                     Beginning
on October 17, 2002, five securities class-action lawsuits were filed in the United
States District Court for the Northern District of California against Liberate,
Mitchell Kertzman and Nancy Hilker:

 

Horn v. Kertzman et al., No. C-02-5017-MJJ (filed on
October 17, 2002)

 

Grove v. Kertzman, et al., No. C-02-5131-MJJ (filed on
October 23, 2002)

 

Pebler v. Kertzman et al., No. C-02-5275-JF (filed on
November 1, 2002)

 

Kosseff v. Kertzman et al., C-02-5319-PJH (filed on
November 5, 2002)

 

Mirsky v. Kertzman et al., No. C-02-5375-PJH (filed on
November 12, 2002)

 

1

 

C.                                     These
class actions were brought on behalf of public investors who purchased or
otherwise acquired shares of Liberate’s common stock during the period from
September 20, 2001 to October 15, 2002 (the “Class”).

 

D.                                    By
Order dated December 6, 2002, the Honorable Martin J. Jenkins consolidated the
above cases as In re Liberate Technologies
Securities Litigation, Master File No. C-02-5017 MJJ (the “Class
Action” or the “Litigation”).  Pursuant
to the Court’s March 19, 2003 Order, Neil Esterkin was appointed Lead
Plaintiff.  By the same Order, the Court
approved the law firm of Schiffrin & Barroway, LLP as Lead Counsel for the
Class and the law firm of Green & Jigarjian, LLP as Liaison Counsel.

 

E.                                      On
September 16, 2003, Liberate announced that it had restated its financial
statements for the fiscal year ended May 31, 2002 and for the quarters ended
November 30, 2001, February 28, 2002 and May 31, 2002, and that it had also
revised its financial results for the first quarter of its 2003 fiscal year,
which had been previously announced in a press release.

 

F.                                      Lead
Plaintiff filed a Consolidated Amended Class Action Complaint (the “Complaint”)
on November 24, 2003, which is applicable to all actions described in paragraph
B above.  In the Complaint, Lead
Plaintiff asserted claims under Section 10(b) of the Securities Exchange Act of
1934 and SEC Rule 10b-5 promulgated thereunder against Liberate, Mitchell
Kertzman and Donald Fitzpatrick, and claims under Section 20(a) of the
Securities Exchange Act of 1934 against Mitchell Kertzman, Donald Fitzpatrick,
Nancy Hilker and Coleman Sisson (collectively with Liberate, the “Defendants”),
on behalf of investors who purchased or otherwise acquired shares of common
stock of Liberate between December 20, 2001 and October 15, 2002.

 

G.                                     In
the Complaint, Lead Plaintiff generally alleges, among other things, that
members of the purported class were damaged when they acquired shares of
Liberate common stock because, as a result of accounting irregularities,
Liberate’s previously issued financial statements were materially false and
misleading, which caused the price of Liberate’s common stock to be inflated
artificially.

 

H.                                    Commencing
in November 2003, Lead Plaintiff and the Settling Defendants engaged in
settlement discussions, including a formal mediation session, which were
presided over

 

2

 

by the Honorable J. Lawrence Irving,
retired United States District Judge. 
Following additional telephonic settlement discussions between Liberate
and Lead Plaintiff’s Counsel, many involving Judge Irving, Lead Plaintiff and
the Settling Defendants agreed upon proposed terms and conditions of an
agreement to settle and dismiss the Litigation. 
On August 10, 2004, the parties executed a Memorandum of Understanding
setting forth material terms of this Settlement.

 

I.                                         Lead
Plaintiff has reviewed and analyzed thousands of pages of documents produced by
Liberate, interviewed Liberate’s current chief financial officer and reviewed
the prior testimony of Liberate’s former Controller and Director of Revenue
Accounting before the Securities and Exchange Commission.  As a result of this discovery, as well as the
investigation that Lead Plaintiff’s Counsel undertook prior to filing the
Complaint, the research Lead Plaintiff’s Counsel conducted of the applicable
law with respect to Lead Plaintiff’s claims against the Defendants and the
potential defenses thereto, and the process of negotiating the Settlement, Lead
Plaintiff has sufficient information concerning the strengths and weaknesses of
the case to fully consider and evaluate the fairness of this Settlement to the
Class.

 

J.                                        In
addition, Lead Plaintiff and Lead Plaintiff’s Counsel recognize the burden,
expense, risks and uncertain outcome of litigating this Class Action further,
and Lead Plaintiff, on behalf of himself and all other members of the Class,
desires to settle his claims against the Released Parties on terms and
conditions hereafter set forth and deems said Settlement to be fair,
reasonable, adequate and in the best interests of the Class.

 

K.                                    The
Settling Defendants, while affirmatively denying wrongdoing of any kind
whatsoever or any liability to Lead Plaintiff or members of the Class, and
without conceding any infirmity in the defenses asserted or which could be
asserted, consider it desirable that the Class Action be dismissed on the terms
set forth herein in order to avoid the further expense and burden associated
with this Litigation.

 

L.                                      This
Stipulation shall in no event be construed or deemed to be evidence of or an
admission or concession on the part of the Settling Defendants with respect to
any claim or of any fault or liability or wrongdoing or damage whatsoever, or
any infirmity in the defenses that the Settling Defendants have asserted.

 

3

 

M.                                 Lead
Plaintiff’s Counsel is experienced in claims of this type and capable of fairly
and adequately protecting the interests of the Class.  Lead Plaintiff’s Counsel believes that the
Class is so numerous that joinder of all members is impracticable.  Lead Plaintiff’s Counsel believes that there
are questions of law and fact common to the Class, and, as set forth in the
Complaint, the claims of Lead Plaintiff are typical of the claims of the Class
for settlement purposes.  Lead Plaintiff’s
Counsel represents that, with the assistance of counsel, Lead Plaintiff has and
will fairly and adequately protect the interests of the Class.  The Settling Parties agree that certification
of a class, for settlement purposes only, is appropriate in the Class
Action.  In light of the Settlement, the
parties agree that, for settlement purposes only, questions of law or fact
common to the Class predominate over questions affecting individual members and
that a class action settlement is superior to other methods for fair and
efficient disposition of the Class Action.

 

NOW THEREFORE, without any admission or concession on
the part of Lead Plaintiff of any lack of merit of the Class Action whatsoever,
and without any admission or concession of any liability or wrongdoing or lack
of merit in the defenses whatsoever by the Settling Defendants, it is hereby
STIPULATED AND AGREED, by and among the parties to this Stipulation, through
their respective attorneys, that subject to approval of the Court pursuant to
Rule 23(e) of the Federal Rules of Civil Procedure and in consideration of the
benefits flowing to the parties hereto from the Settlement, all Released Claims
(as defined below) as against the Released Parties (as defined below) shall be
compromised, settled, released and dismissed with prejudice upon and subject to
the following terms and conditions:

 

CERTAIN DEFINITIONS

 

1.                                       As
used in this Stipulation, the following terms shall have the following
meanings:

 

(a)                                  “Authorized
Claimant” means any member of the Class who files a Proof of Claim and Release
in such form and manner, and within the time limitation as set forth in the
Proof of Claim and Release form attached to the Notice of Pendency and Proposed
Settlement of Class Action and of Motion for Attorneys’ Fees and Expenses (the “Notice”).

 

(b)                                 “Claims Administrator” means the
firm of The Garden City Group.

 

4

 

(c)                                  “Class”
means all Persons who purchased or otherwise acquired shares of Liberate common
stock between September 20, 2001 and October 15, 2002, inclusive.  Excluded from the Class are the Defendants,
their heirs, affiliates, successors and assigns, and the current or former
officers and directors of Liberate.  Also
excluded from the Class are any Persons who exclude themselves by filing a
request for exclusion in accordance with the requirements set forth in the
Notice.

 

(d)                                 “Class
Member” means a Person who falls within the definition of the Class.

 

(e)                                  “Class
Period” means the period from September 20, 2001 to October 15, 2002,
inclusive.

 

(f)                                    “Counsel
of Record” means the law firms of Green & Jigarjian and Glancy &
Binkow.

 

(g)                                 “Effective
Date” means the first date by which all of the events and conditions specified
in paragraph 31 of the Stipulation have been met and have occurred.

 

(h)                                 “Escrow
Agent” means The Garden City Group.

 

(i)                                     “Final”
means the date upon which the Judgment, substantially in the form of Exhibit B
hereto, has been entered by the Court and the applicable period to file all
appeals from the Judgment has expired without the filing of any appeals, or, in
the event of any appeal, an order has been entered dismissing the appeal or
affirming the appealed Judgment, and any time period for further appeal,
including a petition for a writ of certiorari, has expired.  An appeal or petition for a writ of
certiorari pertaining solely to any plan of allocation and/or application for
attorneys’ fees, costs or expenses shall not in any way delay or preclude the
Judgment from becoming Final.

 

(j)                                     “Gross
Settlement Fund” means the principal amount of $13.8 million dollars
($13,800,000.00), plus any interest that may accrue thereon as provided for
herein.

 

(k)                                  “Individual
Defendants” means Mitchell Kertzman, Coleman Sisson and Nancy Hilker.

 

(l)                                     “Judgment”
means the judgment to be rendered by the Court,

 

5

 

substantially in the form
attached hereto as Exhibit B.

 

(m)                               “Laddering
Claims” means the claims asserted in In re
Initial Public Offering Sec. Litig., 01 MC 92 (SAS) (S.D.N.Y.) and In re Liberate Tech. Initial Public Offering Sec.
Litig., 01 CIV 4147 (BMB) (S.D.N.Y.).

 

(n)                                 “Lead
Plaintiff” means Neil Esterkin.

 

(o)                                 “Lead
Plaintiff’s Counsel” means the law firm of Schiffrin & Barroway, LLP, Three
Bala Plaza East, Suite 400, Bala Cynwyd, PA 19004.

 

(p)                                 “Person”
means an individual, corporation, limited liability corporation, professional
corporation, limited liability partnership, partnership, limited partnership,
association, joint stock company, estate, legal representative, trust,
unincorporated association, government or any political subdivision or agency
thereof, and any business or legal entity and their spouses, heirs,
predecessors, successors, representatives, or assignees.

 

(q)                                 “Plan
of Allocation” means the plan or formula of allocation of the Settlement Fund
pursuant to which the Settlement Fund shall be distributed to Authorized
Claimants after payment of expenses of notice and administration of the
settlement, Taxes and such attorneys’ fees, costs, expenses and interest as may
be awarded by the Court.  Any Plan of
Allocation is not part of the Stipulation and Defendants shall have no
responsibility or liability with respect thereto.

 

(r)                                    “Proof
of Claim and Release” means proofs of claim filed by Lead Plaintiff or Class
Members in the Class Action.

 

(s)                                  “Released
Claims” shall mean and include any and all claims, causes of action, demands,
rights or liabilities (including but not limited to claims for violation of the
federal securities laws, fraud, negligent misrepresentation, violations of any
state statutes including, without limitation, the California Corporations Code
and California Business & Professions Code and their Delaware equivalent,
or federal statutes, rules or regulations, and any “Unknown Claims” as defined
below) that have been or that could have been asserted in this or any other
forum by or on behalf of the Lead Plaintiff, the Class or any Class Member
based on, arising out of, in connection with, or related in any way to their
purchase or other acquisition of Liberate’s

 

6

 

common stock during the
Class Period, except that Released Claims shall not include any Laddering
Claims as defined above in paragraph 1(m). 
By way of illustration, not limitation, Released Claims shall include
claims, causes of action, demands, rights or liabilities based on, arising out
of, in connection with, or relating in any way to:

 

(i)                                     any
of the facts, circumstances, allegations, representations, statements, reports,
disclosures, transactions, events, occurrences, acts, omissions or failures to
act, of whatever kind or character, irrespective of the state of mind of the
actor performing or omitting to perform the same, that have been or could have
been alleged in any pleading, amended pleading, argument, complaint, amended
complaint, brief, motion, report, discovery response or filing in the Class
Action;

 

(ii)                                  any
matter, cause or thing whatsoever, including, but not limited to, any action,
omission or failure to act of whatever kind or character, irrespective of the
state of mind of the actor performing or omitting to perform the same, arising
out of or relating to the adequacy, accuracy or completeness of any disclosure
or statement made in any filings, proxy statements, prospectus, reports, press
releases, statements, representations, analyst reports or announcements
concerning Liberate’s operations, subsidiaries, services, sales, income, costs,
financial condition or prospects or in any filing with the Securities and
Exchange Commission or any other federal or state governmental agency or
regulatory board (collectively referred to as “public statements”), or in the
preparation or dissemination of, or failure to disseminate, any such public
statements, at any time during or concerning September 20, 2001, through and
including October 15, 2002; or

 

(iii)                               any
of the facts, circumstances, representations, statements, reports, disclosures,
transactions, events, occurrences, acts or omissions of whatever kind or
character, regardless of the state of mind of the actor performing or omitting
to perform the same, encompassed by subparagraph (i) and (ii), above, that have
been or that could have been alleged, or made the subject of any claim or
action in state court or otherwise under the law of any state, common law or in
equity, in any pleading, amended pleading, demand, complaint, amended
complaint, motion, discovery response or filing.

 

7

 

(t)                                    “Released
Parties” means the Defendants, their present and former parents, subsidiaries,
successors, assigns and affiliates and their respective present and former
officers, directors, attorneys, auditors, accountants, advisors, consultants,
insurers, employees, or other agents, including their spouses, heirs,
executors, administrators and assignees.

 

(u)                                 “Unknown
Claims” shall mean and include any Released Claims which Lead Plaintiff or any
Class Member does not know or suspect to exist in his, her or its favor at the
time of the release of the Released Parties which, if known by him, her or it,
might have affected his, her or its decisionmaking with respect to this
Settlement, including, without limitation, the decision not to object to this
Settlement.  With respect to any and all
Released Claims, the Settling Parties stipulate and agree that, upon the
Effective Date, Lead Plaintiff shall expressly and each of the Class Members
shall be deemed to have, and by operation of the Judgment shall have, expressly
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 favor at the time of
executing the release, which if known by him must have materially affected his
settlement with the debtor.

 

Lead Plaintiff shall expressly and
each of the Class Members shall be deemed to have, 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 and equivalent to
California Civil Code §1542.  Lead
Plaintiff and Class Members may hereafter discover facts in addition to or
different from those which he, she or it now knows or believes to be true with
respect to the subject matter of the Released Claims, but Lead Plaintiff shall
expressly and each Class Member, 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 heretofore 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

 

8

 

facts.  Lead Plaintiff acknowledges and accepts, and
the Class Members shall be deemed by operation of the Judgment to have
acknowledged and accepted, that the foregoing waiver was separately bargained
for and a key element of the settlement of which this release is a part.

 

SCOPE AND EFFECT OF SETTLEMENT

 

2.                                       The obligations incurred pursuant to
this Stipulation shall be in full and final disposition of the Class Action and
any and all Released Claims as against all Released Parties.

 

3.                                       (a)                                  Upon the Effective Date of this
Settlement, Lead Plaintiff and each Class Member shall be deemed to have, and
by operation of the Judgment shall have, fully, finally and forever released,
relinquished and discharged and shall forever be enjoined from prosecuting, all
Released Claims against the Released Parties, whether or not such Class Member
executes and delivers the Proof of Claim and Release.  Nothing herein, however, shall preclude any
party hereto from enforcing the terms of this Stipulation.

 

(b)                                 Nothing contained in this Settlement
shall be construed as or be a waiver of any of the Individual Defendants’ rights,
including, without limitation, the Individual Defendants’ rights or claims to:
(i) indemnification from Liberate under existing agreements and/or law; and
(ii) insurance coverage and proceeds available under applicable insurance
policies.

 

THE SETTLEMENT CONSIDERATION

 

4.                                       Liberate will pay or cause to be
paid for the benefit of the Class $13,800,000.00 (the “Settlement Fund”),
$100,000 of which shall be transferred to the Escrow Agent on or before the
third business day after execution of the Stipulation to be used to establish
the Notice and Administration Fund, as set forth in paragraph 7.  Interest shall accrue on the remaining
$13,700,000 at the 30-day Treasury Bill Rate effective on the third business
day after execution of the Stipulation, published in the Wall Street Journal,
from such date until transferred to the Escrow Agent.  Liberate shall, on or before the fifth
business day after final approval by the Court transmit by wire transfer to the
Escrow Agent the Settlement Fund and all accrued interest.  All interest accruing thereon from the time
of deposit shall become part of the Gross Settlement Fund for the benefit of
the Class.  The Claims Administrator, The
Garden City Group, shall be the Escrow Agent for the Settlement Fund and Lead
Plaintiff’s Counsel shall be the signatory on the 

 

9

 

escrow
account.

 

5.                                       (a)                                  The Gross Settlement Fund, net of
any Taxes (as defined below) on the income thereof, shall be used to pay (i)
the Notice and Administration Expenses referred to in paragraph 7 hereof, (ii)
the attorneys’ fee and expense award referred to in paragraph 8 hereof, and
(iii) the remaining administration expenses referred to in paragraph 9
hereof.  The balance of the Gross
Settlement Fund after the above payments shall be the Net Settlement Fund,
which shall be distributed to the Authorized Claimants as provided in
paragraphs 10-20 hereof.  Any sums
required to be held in escrow hereunder prior to the Effective Date shall be
held by the Escrow Agent for the Settlement Fund.  All funds held by the Escrow Agent shall be
deemed to be in the custody of the Court and shall remain subject to the
jurisdiction of the Court until such time as the funds shall be distributed or
returned to the Person(s) paying the same pursuant to this Stipulation and/or
further order of the Court.  The Escrow
Agent shall invest any funds in excess of $100,000 in short term United States
Agency or Treasury Securities, and shall collect and reinvest all interest
accrued thereon.  Any funds held in
escrow in an amount of less than $100,000 may be held in an interest bearing
bank account insured by the FDIC.  The
parties hereto agree that the Settlement Fund is intended to be a Qualified
Settlement Fund within the meaning of Treasury Regulation § 1.468B-1 and
that the Escrow Agent, as administrator of the Settlement Fund within the
meaning of Treasury Regulation § 1.468B-2(k)(3), shall be responsible for
filing tax returns for the Settlement Fund and paying from the Settlement Fund
any Taxes owed with respect to the Settlement Fund.  The Settling Defendants agree to reasonably
cooperate with the Escrow Agent to provide information that is needed for
filing tax returns for the Settlement Fund and will give their consent to the
Settlement Fund’s filing of any relation back election.

 

(b)                                 All (i) taxes on the income of the
Gross Settlement Fund and (ii) expenses and costs incurred in connection with
the taxation of the Gross Settlement Fund (including, without limitation,
expenses of tax attorneys and accountants) (collectively “Taxes”) shall be paid
out of the Gross Settlement Fund, shall be considered to be a cost of
administration of the Settlement and shall be timely paid by the Escrow Agent
without prior Order of the Court.  The Defendants
and Released Parties shall have no liability or responsibility for the payment
of any

 

10

 

Taxes.  The Gross Settlement Fund shall indemnify and
hold the Defendants and Released Parties harmless for any Taxes (including,
without limitation, Taxes payable by reason of any such indemnification).

 

ADMINISTRATION

 

6.                                       The Claims Administrator shall
administer the Settlement under Lead Plaintiff’s Counsel’s supervision and
subject to the jurisdiction of the Court. 
The Defendants and Released Parties shall have no liability, obligation
or responsibility for the administration of the Settlement, excepting Liberate’s
obligations to pay the Settlement Amount, as provided herein, and to cooperate
with Lead Plaintiff’s Counsel in obtaining approval of the Settlement by
providing to the Claims Administrator Liberate’s transfer records showing names
and addresses of record transferees of Liberate common stock during the Class
Period for the purpose of giving direct mail notices to Class Members.

 

7.                                       All reasonable costs and expenses of
notice to the Class Members and administration of the Gross and Net Settlement
Funds, escrow fees, taxes, custodial fees and expenses incurred in connection
with processing Proofs of Claims or distributing the Net Settlement Fund, shall
be paid from the Gross Settlement Fund. 
One hundred thousand dollars ($100,000) of the Gross Settlement Fund
shall be allocated for the express purpose of providing notice of the
Settlement, to administer the Settlement and to pay all applicable taxes on the
Gross Settlement Fund (the “Notice and Administration Fund”) pursuant to the
terms of the Order for Notice and Hearing, and funds may be disbursed from the
Notice and Administration Fund for these purposes without further approval of
the Court.  The Notice and Administration
Fund shall be administered by The Garden City Group.  After the Effective Date, Lead Plaintiff’s
Counsel may withdraw such sums as are necessary from the Gross Settlement Fund
to pay any additional unpaid Notice and Administration Expenses that remain
after the exhaustion of the Notice and Administration Fund.  Any such expenditures may be made without
further order of the Court, but shall be summarized in any motion seeking a Class
Distribution Order (defined in paragraph 9 below).  Any additional administration costs incurred
by the Claims Administrator, including the costs of processing submitted
claims, may also be paid from the Gross Settlement Fund, upon

 

11

 

Court
approval.

 

ATTORNEYS’ FEES AND EXPENSES

 

8.                                       (a)                                  Lead Plaintiff’s Counsel will apply
to the Court for an award from the Gross Settlement Fund of attorneys’ fees not
to exceed 30 percent (30%) of the Gross Settlement Fund and reimbursement of
costs and expenses (the “Fee and Expense Application”).  Such attorneys’ fees and expenses as are
awarded by the Court shall be paid from the Gross Settlement Fund to Lead
Plaintiff’s Counsel within five (5) business days of the Court’s execution of
the Judgment, notwithstanding any collateral attack, appeal or objection to the
Settlement or any part thereof, subject to Lead Plaintiff’s Counsel’s joint and
several obligation to make prompt appropriate refunds or repayments to the Gross
Settlement Fund plus accrued interest at the same net rate as is earned by the
Gross Settlement Fund if, as a result of any successful collateral attack,
appeal or objection, the fee or cost award is reduced or reversed.  Unless required by the Court, Defendants
shall take no position on Lead Plaintiff’s Counsel’s Fee and Expense
Application.  The procedure for and the
allowance or disallowance of the Fee and Expense Application are not part of
the Settlement and are to be considered by the Court separately from the Court’s
consideration of the fairness, reasonableness and adequacy of the Settlement
set forth in the Stipulation, and any order or proceedings relating to the Fee
and Expense Application, or any appeal from any order relating thereto or reversal
or modification thereof, shall not operate to terminate or cancel the
Stipulation, or affect or delay the finality of the Judgment approving the
Stipulation and the Settlement set forth therein.  Lead Plaintiff’s Counsel, as a condition of
receiving an award of attorneys’ fees and expenses, on behalf of itself and
each partner and/or shareholder of it, agrees that the law firm and its
partners and/or shareholders are subject to the jurisdiction of the Court for
the purpose of enforcing the provisions of this paragraph.

 

(b)                                 Defendants, the Released Parties and
their respective counsel shall have no responsibility for, and no liability
whatsoever with respect to, any payment to Lead Plaintiff’s Counsel or any
other counsel or Person who receives payment from the Settlement Fund.  Defendants, the Released Parties and their
respective counsel shall have no responsibility for, and no liability
whatsoever with respect to the allocation among Lead Plaintiff’s Counsel,
and/or any

 

12

 

other
Person who may assert some claim thereto, of any fee and expense award that the
Court may make in the Litigation.  The
allocation of any fee and expense award that the Court may make is at the sole
discretion of Lead Plaintiff’s Counsel.

 

ADMINISTRATION EXPENSES AND DISTRIBUTION ORDER

 

9.                                       Lead Plaintiff’s Counsel will apply
to the Court, on notice to the Settling Defendants’ counsel, for an order (the “Class
Distribution Order”) approving the Claims Administrator’s administrative determinations
concerning the acceptance and rejection of the claims submitted herein and
approving any fees and expenses not previously applied for, including the fees
and expenses of the Claims Administrator, and, if the Effective Date has
occurred, directing payment of the Net Settlement Fund to Authorized Claimants.

 

DISTRIBUTION TO AUTHORIZED CLAIMANTS

 

10.                                 The Claims Administrator shall
determine each Authorized Claimant’s pro rata share of the “Net Settlement Fund”
based upon each Authorized Claimant’s Recognized Claim (as defined in the Plan
of Allocation described in the Notice annexed hereto as Exhibit 1 to Exhibit A,
or in such other Plan of Allocation as the Court approves).

 

11.                                 It is understood and agreed by the
Settling Parties that any proposed Plan of Allocation of the Net Settlement
Fund including, but not limited to, any adjustments to an Authorized Claimant’s
claim set forth therein, is not a part of the Stipulation and is to be
considered by the Court separately from the Court’s consideration of the
fairness, reasonableness and adequacy of the settlement set forth in the
Stipulation, and any order or proceedings relating to the Plan of Allocation
shall not operate to terminate or cancel the Stipulation or affect the finality
of the Court’s Judgment approving the Stipulation and the settlement set forth
therein, or any other orders entered pursuant to the Stipulation.

 

12.                                 Each Authorized Claimant shall be
allocated a pro rata share of the Net Settlement Fund based on his or her
Recognized Claim compared to the total Recognized Claims of all Authorized
Claimants.  The Defendants shall have no
involvement in reviewing or challenging claims. 
If any funds remain in the Net Settlement Fund by reason of uncashed
checks or otherwise, then, after the Claims Administrator has made reasonable
and diligent efforts to

 

13

 

have
Class Members who are entitled to participate in the distribution of the Net
Settlement Fund cash their distribution checks, any balance remaining in the
Net Settlement Fund one (1) year after the initial distribution of such funds
shall be re-distributed, after payment of any unpaid costs or fees incurred in
administering the Net Settlement Fund for such re-distribution, to Class Members
who have cashed their checks and who would receive at least $10.00 from such
re-distribution.  If after six months
after such re-distribution any funds shall remain in the Net Settlement Fund,
Lead Plaintiff’s Counsel shall make an application to the Court to distribute
the sum of the unpaid residue to nonprofit organizations or foundations
consistent with the guidelines set forth in California Code of Civil Procedure
§ 384(b).

 

13.                                         Any Class Member who does not submit
a valid Proof of Claim will not be entitled to receive any of the proceeds from
the Net Settlement Fund but will otherwise be bound by all of the terms of this
Settlement, including the terms of the Judgment to be entered in the Class
Action and the releases provided for herein, and will be barred from bringing
any action against the Released Parties concerning the Released Claims.

 

14.                                         Lead Plaintiff’s Counsel shall be
responsible for supervising the administration of the Settlement and
disbursement of the Net Settlement Fund by the Claims Administrator.  Lead Plaintiff’s Counsel shall have the
right, but not the obligation, to waive what it deems to be formal or technical
defects in any Proofs of Claim submitted in the interests of achieving
substantial justice.

 

15.                                         Neither the Defendants nor the
Released Parties shall have any responsibility for, or liability whatsoever
with respect to the investment or distribution of the Net Settlement Fund, the
Plan of Allocation, the determination, administration or calculation of claims,
the payment or withholding of Taxes or any losses incurred in connection
therewith.

 

16.                                         For purposes of determining the
extent, if any, to which a Class Member shall be entitled to be treated as an “Authorized
Claimant,” the following conditions shall apply:

 

(a)                                  Each Class Member shall be required
to submit a Proof of Claim (see attached Exhibit 2 to Exhibit A), supported by
such documents as are designated therein, including proof of the Claimant’s
loss, or such other documents or proof as Lead Plaintiff’s Counsel, in its

 

14

 

discretion,
may deem acceptable;

 

(b)                                 All Proofs of Claim must be
submitted by the date specified in the Notice unless such period is extended by
Order of the Court.  Any Class Member who
fails to submit a Proof of Claim by such date shall be forever barred from
receiving any payment pursuant to this Stipulation (unless, by Order of the
Court, a later submitted Proof of Claim by such Class Member is approved), but
shall in all other respects be bound by all of the terms of this Settlement
including the terms of the Judgment to be entered in the Class Action and the
releases provided for herein, and will be barred from bringing any action
against the Released Parties concerning the Released Claims.  Provided that it is received before the
motion for the Class Distribution Order is filed, a Proof of Claim shall be
deemed to have been submitted when postmarked, if received with a postmark
indicated on the envelope and if mailed by first-class mail and addressed in
accordance with the instructions thereon. 
In all other cases, the Proof of Claim shall be deemed to have been
submitted when actually received by the Claims Administrator;

 

(c)                                  Each Proof of Claim shall be
submitted to and reviewed by the Claims Administrator, under the supervision of
Lead Plaintiff’s Counsel, who shall determine in accordance with this
Stipulation the extent, if any, to which each claim shall be allowed, subject
to review by the Court pursuant to subparagraph (e) below;

 

(d)                                 Proofs of Claim that do not meet the
submission requirements may be rejected. 
Prior to rejection of a Proof of Claim, the Claims Administrator shall
make reasonable efforts to communicate with the Claimant in order to remedy the
curable deficiencies in the Proofs of Claim submitted.  The Claims Administrator, under supervision
of Lead Plaintiff’s Counsel, shall notify, in a timely fashion and in writing,
all Claimants whose Proofs of Claim they propose to reject in whole or in part,
setting forth the reasons therefor, and shall indicate in such notice that the
Claimant whose claim is to be rejected has the right to a review by the Court
if the Claimant so desires and complies with the requirements of subparagraph
(e) below;

 

(e)                                  If any Claimant whose claim has been
rejected in whole or in part desires to contest such rejection, the Claimant
must, within twenty (20) days after the date of mailing of the notice required
in subparagraph (d) above, serve upon the Claims Administrator a

 

15

 

notice
and statement of reasons indicating the Claimant’s grounds for contesting the
rejection along with any supporting documentation, and requesting a review
thereof by the Court.  If a dispute
concerning a claim cannot be otherwise resolved, Lead Plaintiff’s Counsel shall
thereafter present the request for review to the Court; and

 

(f)                                    The administrative determinations of
the Claims Administrator accepting and rejecting claims shall be presented to
the Court, on written notice to Settling Defendants’ counsel, for approval by
the Court in the Class Distribution Order.

 

17.                                 Each Claimant shall be deemed to
have submitted to the jurisdiction of the Court with respect to the Claimant’s
claim, and the claim will be subject to investigation and discovery under the
Federal Rules of Civil Procedure, provided that such investigation and
discovery shall be limited to that Claimant’s status as a Class Member and the
validity and amount of the Claimant’s claim. 
No discovery shall be allowed on the merits of the Class Action or
Settlement in connection with processing of the Proofs of Claim.

 

18.                                 Payment pursuant to this Stipulation
shall be deemed final and conclusive against all Class Members.  All Class Members whose claims are not approved
by the Court shall be barred from participating in distributions from the Net
Settlement Fund, but otherwise shall be bound by all of the terms of this
Settlement, including the terms of the Judgment to be entered in the Class
Action and the releases provided for herein, and will be barred from bringing
any action against the Released Parties concerning the Released Claims.

 

19.                                 All proceedings with respect to the
administration, processing and determination of claims described by paragraph
16 of this Stipulation and the determination of all controversies relating
thereto, including disputed questions of law and fact with respect to the
validity of claims, shall be subject to the jurisdiction of the Court.

 

20.                                 The Net Settlement Fund shall be
distributed to Authorized Claimants by the Claims Administrator only after the
Effective Date and after:  (i) all claims
have been processed, and all Claimants whose claims have been rejected or
disallowed, in whole or in part, have been notified and provided the opportunity
to be heard concerning such rejection or disallowance; (ii) all timely
objections with respect to all rejected or disallowed claims have been resolved
by the Court,

 

16

 

and
all appeals therefrom have been resolved or the time therefor has expired;
(iii) all matters with respect to attorneys’ fees, costs, and disbursements
have been resolved by the Court, all appeals therefrom have been resolved or
the time therefor has expired; and (iv) all costs of administration have been
paid.

 

NOTICE ORDER AND SETTLEMENT HEARING

 

21.                                 Promptly after execution of the
Stipulation, Lead Plaintiff’s Counsel shall submit the Stipulation together
with its exhibits to the Court and shall apply for entry of an order (the “Order
for Notice and Hearing”), substantially in the form of Exhibit A hereto,
requesting, inter  alia, preliminary approval of the settlement
set forth in the Stipulation, and approval for the mailing and publication of
the Notice, substantially in the form of Exhibits A-1 and A-3 hereto, which
shall include the general terms of the settlement set forth in the Stipulation,
the proposed Plan of Allocation and the date of the Settlement Hearing as
defined below.

 

22.                                 Lead Plaintiff’s Counsel shall
request that after notice is given, the Court hold a hearing (the “Settlement
Hearing”) and approve the settlement of the Litigation as set forth
herein.  At or after the Settlement
Hearing, Lead Plaintiff’s Counsel also will request that the Court approve the
proposed Plan of Allocation and the Fee and Expense Application.

 

RIGHT OF EXCLUSION AND OBJECTION

 

23.                                 Any Person may seek to be excluded
from the Class and the Settlement provided for by this Stipulation by
submitting a written request for exclusion. 
Any request for exclusion must be filed with the Clerk of the Court
fifteen (15) days before the Settlement Hearing established by the Court.  Any Class Member so excluded shall not be
bound by the terms of the Settlement, nor entitled to any of its benefits, and shall
not be bound by the Judgment and/or other order of the Court entered herein,
whether pursuant to this Settlement or otherwise.

 

24.                                 Any Class Member who does not
exclude himself or herself from the Class and the Settlement shall have the
right to submit written objections concerning the Settlement and/or the Fee and
Expense Application, which objections shall state all of the reasons for the
objections (e.g., a mere statement that “I object” shall not be deemed
sufficient).  Any written objections and
any briefs, affidavits or other evidence submitted in support thereof must be
filed

 

17

 

with
the Clerk of the Court fifteen (15) days before the Settlement Hearing date
established by the Court.  All Persons
desiring to attend the Settlement Hearing and be heard as objectors must have
filed written objections as provided herein, as a condition of appearing and
being heard at such hearing.  Any Class
Member who does not timely file written objections to the Settlement pursuant
to this paragraph and the Notice shall not be permitted to object to the
Settlement at the Settlement Hearing, and shall be foreclosed from objecting
to, challenging or otherwise seeking review of the Settlement by appeal or
otherwise in this Class Action or in any other action.

 

25.                                 To retract or withdraw a request for
exclusion, a Class Member must file a written notice with the Court stating the
Person’s desire to retract or withdraw his, her or its request for exclusion
and that person’s or entity’s desire to be bound by any judgment or settlement
in this Class Action; provided, however, that the filing of such written notice
may be effected by Lead Plaintiff’s Counsel. 
Lead Plaintiff’s Counsel shall promptly notify the Settling Defendants’
counsel of any retraction or withdrawal of a request for exclusion.

 

TERMS OF ORDER AND FINAL JUDGMENT

 

26.                                 If the Settlement contemplated by
this Stipulation is approved by the Court, counsel for the parties shall
request that the Court enter Judgment substantially in the form attached hereto
as Exhibit B.

 

TERMINATION OF SETTLEMENT

 

27.                                 Subject to paragraph 28 hereof,
Liberate has the option to terminate the Settlement in the event that the
aggregate number of shares of Liberate common stock purchased during the Class
Period by Class Members who would otherwise be entitled to participate as
members of the Class, but who timely and validly request exclusion, equals or
exceeds that certain percentage of the total number of shares of Liberate
common stock traded during the Class Period, which is set forth in the
Supplemental Agreement between Liberate and Lead Plaintiff.

 

28.                                 If Liberate elects to exercise the
option set forth in paragraph 27 hereof, written notice of such election must
be provided to Lead Plaintiff’s Counsel and the other Settling Defendants’
counsel on or before seven (7) calendar days prior to the Settlement
Hearing.  Such notice may be served by
hand delivery or fax.  Liberate may
withdraw its election by providing

 

18

 

written
notice of such withdrawal, by hand delivery or fax, to Lead Plaintiff’s Counsel
no later than 5:00 p.m. Eastern Time on the day prior to the Settlement
Hearing, or by such later date as the parties agree in writing.

 

29.                                 If Liberate elects to withdraw from
the Stipulation pursuant to paragraph 27 hereof, after receipt of termination
notice Lead Plaintiff’s Counsel may review the validity of any request for
exclusion and may attempt to cause retraction or withdrawal of any request for
exclusion.  No Defendant or Released
Party shall in any way interfere with, obstruct or seek to enjoin efforts by
Lead Plaintiff to seek to have those members of the Class who requested
exclusion withdraw their requests for exclusion.  If, by three (3) business days before the
hearing (or a later date agreed upon in writing), Lead Plaintiff is successful
in reducing the number of excluded Class Members so that those Class Members
excluded, in the aggregate, purchased shares in an amount less than that
percentage of the total number of Liberate shares traded during the Class
Period set forth in the Supplemental Agreement, then any withdrawal from the
Stipulation by Liberate shall automatically be deemed null and void.  In that event Lead Plaintiff’s Counsel shall
serve on counsel for the Settling Defendants by hand delivery or fax a
statement of the persons who have withdrawn their requests for exclusion.

 

30.                                 If Liberate elects to withdraw from
the Stipulation in accordance with paragraph 27 and such withdrawal is not
nullified in accordance with paragraph 29, the Stipulation shall be withdrawn
and terminated and deemed null and void, and the provisions of paragraph 33
shall apply.

 

EFFECTIVE DATE OF SETTLEMENT, WAIVER OR TERMINATION

 

31.                                 The Effective Date of Settlement
shall be conditioned on the occurrence of all of the following events:

 

(a)                                  Liberate has timely made its
contribution to the Settlement Fund as required by paragraph 4 above;

 

(b)                                 the Court has entered the Order for
Notice and Hearing as required by paragraph 21, above;

 

(c)                                  the Court has entered the Judgment,
or a judgment substantially in

 

19

 

the
form of Exhibit B hereto; and

 

(d)                                 the Judgment has become Final, as
defined in paragraph 1(i), above.

 

32.                                 Settling Defendants’ counsel or Lead
Plaintiff’s Counsel shall have the right to terminate the Settlement and this
Stipulation by providing written notice of their election to do so (“Termination
Notice”) to all other parties hereto within thirty (30) days of: (a) the Court’s
declining to enter the Order for Notice and Hearing in any material respect;
(b) the Court’s refusal to approve this Stipulation or any material part of it;
(c) the Court’s declining to enter the Judgment in any material respect; or (d)
the date upon which the Judgment is modified or reversed in any material
respect by the Court of Appeals or the Supreme Court.  Lead Plaintiff’s Counsel shall not have the
right to terminate the Settlement or this Stipulation based upon any court
decision concerning Lead Plaintiff’s Counsel’s application for fees and
reimbursement of costs and expenses, or any orders related thereto.

 

33.                                 In the event the Settlement is
terminated or fails to become effective for any reason, then the parties to
this Stipulation shall be deemed to be restored to their respective status in
the Class Action as of August 10, 2004 and the parties shall proceed in all
respects as if this Stipulation and any related orders had not been entered,
and any portion of the Settlement Fund previously paid by Liberate, together
with any interest earned thereon, less any Taxes due with respect to such
income, and less costs of administration and notice actually incurred, whether
paid or not paid, and payable from the Gross Settlement Fund, shall be refunded
promptly by the Escrow Agent pursuant to written instructions from counsel to
Liberate.  In addition, the parties
hereto agree:  (i) to otherwise abide by
any summary orders of the Court with respect to the return of funds by the
Escrow Agent; and (ii) that Lead Plaintiff’s Counsel shall be jointly and
severally liable for any return of funds. 
At the request of counsel to Liberate, the Escrow Agent or its designee
shall apply for any tax refund owed to the Settlement Fund and pay the
proceeds, after deduction of any fees or expenses incurred in connection with
any such application(s) for refund, to Liberate.

 

NO ADMISSION OF WRONGDOING

 

34.                                 The Settling Defendants have denied
and continue to deny that they have

 

20

 

committed
any act or omission giving rise to any liability and/or violation of law, and
state that they are entering into this Settlement to eliminate the burden and
expense of further litigation.  This Stipulation,
whether or not consummated, and any proceedings taken pursuant to it, shall not
be:

 

(a)                                  offered or received against the
Defendants or against the Lead Plaintiff or the Class as evidence of or
construed as or deemed to be evidence of any presumption, concession, or
admission by any of the Defendants or by the Lead Plaintiff or the Class with
respect to the truth of any fact alleged by Lead Plaintiff or the validity of
any claim that had been or could have been asserted in the Class Action or in
any litigation, or the deficiency of any defense that has been or could have
been asserted in the Class Action or in any litigation, or of any liability,
negligence, fault, or wrongdoing of the Defendants;

 

(b)                                 offered or received against the
Defendants as evidence of a presumption, concession or admission of any fault,
misrepresentation or omission with respect to any statement or written document
approved or made by any Defendant, or against the Lead Plaintiff and the Class
as evidence of any infirmity in the claims of Lead Plaintiff and the Class;

 

(c)                                  offered or received against the
Defendants or against the Lead Plaintiff or the Class as evidence of a
presumption, concession or admission with respect to any liability, negligence,
fault or wrongdoing, or in any way referred to for any other reason as against
any of the parties to this Stipulation, in any other civil, criminal or
administrative action or proceeding, other than such proceedings as may be
necessary to effectuate the provisions of this Stipulation; provided, however,
that if this Stipulation is approved by the Court, the Defendants may refer to
it to effectuate the releases and/or the liability protection granted to them
hereunder;

 

(d)                                 construed against the Defendants or
the Lead Plaintiff and the Class as an admission or concession that the
consideration to be given hereunder represents the amount which could be or
would have been recovered after trial; and

 

(e)                                  construed as or received in evidence
as an admission, concession or presumption against Lead Plaintiff or the Class
or any of them that any of their claims are without merit or that damages
recoverable under the Complaint would not have exceeded the Settlement Fund.

 

21

 

CONFIDENTIALITY/RETURN OF DOCUMENTS

 

35.                                 Lead Plaintiff will return to the
offices of Liberate’s undersigned counsel, or certify that he has destroyed,
all documents produced by Liberate during the course of this litigation,
including any copies thereof, within thirty (30) business days following the
Effective Date.

 

36.                                 With respect to any work product
generated by Lead Plaintiff’s Counsel that reflects the Defendants’
confidential information, Lead Plaintiff’s Counsel will continue to keep such
work product confidential.  Lead
Plaintiff’s Counsel will not make use of such work product for any purpose
unrelated to this litigation and will not disclose this work product to anyone
other than employees of Lead Plaintiff’s Counsel who are obligated to maintain
such work product in confidence.

 

MISCELLANEOUS PROVISIONS

 

37.                                 All of the exhibits attached hereto
are hereby incorporated by reference as though fully set forth herein.

 

38.                                 In the event of the entry of a final
order of a court of competent jurisdiction determining the transfer of the
Settlement Fund, or any portion thereof, by or on behalf of any Defendant to be
a preference, voidable transfer, fraudulent transfer or similar transaction,
then, as to such Defendant, the releases given and Judgment entered in favor of
such Defendant pursuant to this Stipulation shall be null and void.

 

39.                                 The Settling Parties intend the
Settlement to be a final and complete resolution of all disputes asserted or
which could be asserted by the Lead Plaintiff and the Class Members against the
Released Parties with respect to the Released Claims.  Upon the Effective Date, each of the Settling
Defendants shall be deemed to have fully, finally, and forever released,
relinquished and discharged Lead Plaintiff, Lead Plaintiff’s Counsel and Counsel
of Record from all claims arising out of the institution, prosecution, or
settlement of the Litigation, including claims for malicious prosecution, abuse
of process, violation of Rule 11 of the Federal Rules of Civil Procedure, or
like claims alleging that the Class Action was instituted or prosecuted against
Defendants in bad faith or without a reasonable basis.  Lead Plaintiff, the Class Members, and Lead

 

22

 

Plaintiff’s
Counsel agree that they cannot assert any cause of action against any Defendant
in any forum which is based on Defendants’ defense or settlement of the Action,
including without limitation, claims alleging that the Action was defended or
settled by Defendants in bad faith or without a reasonable basis.  The Settling Parties each represent that
their negotiation of the terms of the Settlement was done at arm’s length and
in good faith and that the Settlement was reached voluntarily after
consultation with experienced legal counsel.

 

40.                                 This Stipulation may not be modified
or amended, nor may any of its provisions be waived except by a writing signed
by all parties hereto or their successors-in-interest.

 

41.                                 The headings herein are used for the
purpose of convenience only and are not meant to have legal effect.

 

42.                                 The administration and consummation
of the Settlement as set forth in this Stipulation shall be under the authority
of the Court and the Court shall retain jurisdiction for the purpose of
entering orders providing for awards of attorneys’ fees and expenses to Lead
Plaintiff’s Counsel and enforcing the terms of this Stipulation.  All parties hereto submit to the jurisdiction
of the Court for the purposes of implementing and enforcing the settlement set
forth in the Stipulation.

 

43.                                 The waiver by one party of any
breach of this Stipulation shall neither be deemed a waiver by any other party,
nor be deemed a waiver with respect to any other prior or subsequent breach of
this Stipulation.

 

44.                                 This Stipulation and its exhibits
and the Supplemental Agreement constitute the entire agreement among the
parties hereto concerning the Settlement of the Class Action, and no
representations, warranties or inducements have been made by any party hereto
concerning this Stipulation and its exhibits and the Supplemental Agreement
other than those contained and memorialized in such documents.  Except as otherwise provided therein, each
party shall bear its own costs.

 

45.                                 This Stipulation may be executed in
one or more counterparts.  All executed
counterparts and each of them shall be deemed to be one and the same
instrument.  A complete set of original
executed counterparts shall be filed with the Court.

 

46.                                 This Stipulation shall be binding
upon, and inure to the benefit of, the

 

23

 

successors
and assigns of the parties hereto.

 

47.                             The construction, interpretation,
operation, effect and validity of this Stipulation, and all documents necessary
to effectuate it, shall be governed by the laws of the State of California
without regard to any choice of law provision, except to the extent that
federal law requires that federal law governs.

 

48.                             This Stipulation shall not be
construed more strictly against one party than another merely by virtue of the
fact that it, or any part of it, may have been prepared by counsel for one of
the parties, it being recognized that it is the result of arm’s-length
negotiations between the parties.

 

49.                             All counsel and any other person
executing this Stipulation and any of the exhibits hereto, or any related
settlement documents, warrant and represent that they have the full authority
to do so and that they have the authority to take appropriate action required
or permitted to be taken pursuant to the Stipulation to effectuate its terms.

 

50.                             Lead Plaintiff’s Counsel and counsel
for the Settling Defendants agree to cooperate fully with one another in
seeking Court approval of the Order for Notice and Hearing and the Stipulation
and to promptly agree upon and execute all such other documentation as may be
consistent with the terms of the Settlement and reasonably required to obtain
final approval by the Court of the Settlement.

 

24

 

DATED: October 19, 2004

 

 

	
  SCHIFFRIN & BARROWAY, LLP

  	
  GREEN & JIGARJIAN LLP

  
	
   

  	
   

  
	
   

  	
   

  
	
  /s/ Kay E. Sickles

  	
   

  	
  /s/ Robert S. Green

  
	
  Gregory M. Castaldo

  Kay E. Sickles

  Three Bala Plaza East

  Bala Cynwyd, PA 19004

  (T) 610-667-7706

  (F) 610-667-7056

   

  Lead Plaintiff’s Counsel

  	
  Robert S. Green

  John W. Pillette

  235 Pine Street, 15th Floor

  San Francisco, CA 94104

  (T) 415-477-6700

  (F) 415-477-6710

   

  Liaison Plaintiff’s Counsel

  
	
   

  	
   

  
	
   

  	
   

  
	
  SKADDEN, ARPS, SLATE, MEAGHER &
  FLOM LLP

  	
  WILSON, SONSINI, GOODRICH &
  ROSATI

  A Professional Corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
  /s/ Garrett J. Waltzer (SFB)

  	
   

  	
  /s/ Nicole M. Healy

  
	
  Garrett J. Waltzer

  Stacie F. Beckerman

  525 University Avenue, Suite 1100

  Palo Alto, CA 94301

  (T) 650-470-4500

  (F) 650-470-4570

   

  Counsel For Liberate Technologies

  	
  Bruce Vanyo

  Jerome F. Birn, Jr.

  Nicole M. Healy

  650 Page Mill Road

  Palo Alto, CA 94304-1050

  (T) 650-493-9300

  (F) 650-565-5100

   

  Counsel for Mitchell E. Kertzman

  
	
   

  	
   

  
	
   

  	
   

  
	
  IRELL & MANELLA LLP

  	
  O’MELVENY & MYERS LLP

  
	
   

  	
   

  
	
   

  	
   

  
	
  /s/ David Siegel

  	
   

  	
  /s/ Michael Tubach

  
	
  David Siegel

  Martin N. Gelfand

  Brian R. Weilbacher

  1800 Avenue of the Stars, Suite 900

  Los Angeles, CA 90067-4276

  (T) 310-277-1010

  (F) 310-203-7199

   

  Counsel for Nancy J. Hilker

  	
  Michael Tubach

  400 South Hope Street

  Los Angeles, CA 90071-2899

  (T) 213-430-6000

  (F) 213-430-6407

   

  Counsel for Coleman Sisson

  

 

25

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