Intel highlights California measure

Electronic News, Oct 14, 1996 by Carol Haber

Santa Clara, Calif.--Intel has moved dramatically against Proposition 211 in California.

Nearly a month before a vote on the California ballot initiative, which alters current reforms on securities litigation and corporate liabilities, Intel said it is eliminating "forward-looking statements" (predictions of company performance) from financial reports and canceled an Oct. 31 analyst meeting which would inevitably include such information, due to concern that the initiative will increase risk of shareholder lawsuits.

High-tech companies, many with very volatile earnings and stock prices--and frequent forays into new technologies--contend they are sitting ducks for such suits. These companies say that hundreds of millions of dollars and much management attention are squandered in defense of "frivolous" suits that are ultimately thrown out of court or settled because it costs more to fight them than to settle. Many of these suits are not initiated by the average small investor, but by attorneys cynically seeking settlements, companies say.

"If passed, this measure could significantly increase the exposure to frivolous stockholder lawsuits for all companies with a California presence," said Intel in a prepared statement. 'The measure would render useless the federal securities law 'safe harbor' for forward-looking statements, and the federal securities class action reforms, adopted into law in 1995...Moreover, Proposition 211 would increase securities litigation liability of corporations substantially beyond the pre-reform liability."

The world's largest semiconductor manufacturer said it does not intend to assume the risk of making forward-looking statements given possible passage of the measure. "Accordingly, Intel will not include such statements in its communications with stockholders and the financial community except as required by law," it said.

Proposition 211 drops present limits on certain actions designed to prevent abuse, according to critics. Among its measures are: no statute of limitations; no "safe harbor" for business outlook predictions; a broader version of fraud, according to some, with the elimination of some protections now available to defendants; no guidelines or limits on determining the amount of economic losses suffered by plaintiffs; easier access to punitive damages, with no personal safety net for directors and officers. Liability insurance can be bought, but doesn't cover punitive damages.

Present federal law--the result of recent reforms--prohibits bonus payments to "professional plaintiffs"; institutes procedures to eliminate such plaintiffs, who serve as proxies for litigious trial attorneys; increases disclosure of information to class members; bars attorney conflicts of interests and retains a statute of limitations at one year from discovery of the violation but no later than three in certain cases. It also permits "safe harbor" statements, which free companies to speak more openly about their financial prospects, and sets a limit on plaintiff damages. Companies can indemnify their officers and directors and buy liability insurance on their behalf. The vote will be held Nov. 5.