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BERNSTEIN LITOWITZ BERGER & GROSSMANN LL P ALAN SCHULMAN (Bar No 128661) BLAIR A NICHOLAS (Bar No 178428) 12544 High Bluff Drive, Suite 15 0 San Diego, CA 92130 Tel (858) 793-0070 Fax (858) 793-032 3 BERNSTEIN LIEBHARD & LIFSHITZ, LLP JEFFREY M HABE R TIMOTHY J MACFALL DANIELLE MAZZINI-DALY 10 East 40`h Stree t New York, NY 10016 Tel (212) 779-1414 Fax (212) 779-321 8 Co-Lead Counsel for Lead Plaintiff RADIANT ADVISERS, LLC UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA OAKLAND DIVISION In re TURNSTONE SYSTEMS, INC Master File No CV-01-1256 SBA SECURITIES LITIGATION CLASS ACTIO N This Document Relates To ALL ACTIONS Date October 7, 2003 Time 1 00 p m Place 3, third floo r Judge Honorable Saundra Brown Armstron g JOINT DECLARATION OF JEFFREY M HABER AN D BLAIR A NICHOLAS IN SUPPORT OF APPROVAL OF THE PROPOSED SETTLEMENT, AWARD OF ATTORNEYS' FEES AND REIMBURSEMENT OF EXPENSES, AND PLAN OF ALLOCATION OF SETTLEMENT PROCEED S JOINT DECLARATION OF JEFFREY M HABER AND BLAIR A NICHOLAS Master File No CV-0I-1256 SBA

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  • BERNSTEIN LITOWITZ BERGER& GROSSMANN LL P

    ALAN SCHULMAN (Bar No 128661)BLAIR A NICHOLAS (Bar No 178428)12544 High Bluff Drive, Suite 15 0San Diego, CA 92130Tel (858) 793-0070Fax (858) 793-032 3

    BERNSTEIN LIEBHARD & LIFSHITZ, LLPJEFFREY M HABERTIMOTHY J MACFALLDANIELLE MAZZINI-DALY10 East 40`h Stree tNew York, NY 10016Tel (212) 779-1414Fax (212) 779-321 8

    Co-Lead Counsel for Lead PlaintiffRADIANT ADVISERS, LLC

    UNITED STATES DISTRICT COURT

    NORTHERN DISTRICT OF CALIFORNIA

    OAKLAND DIVISION

    In re TURNSTONE SYSTEMS, INC Master File No CV-01-1256 SBASECURITIES LITIGATION

    CLASS ACTION

    This Document Relates To

    ALL ACTIONSDate October 7, 2003Time 1 00 p mPlace 3, third floorJudge Honorable Saundra Brown

    Armstrong

    JOINT DECLARATION OF JEFFREY M HABER ANDBLAIR A NICHOLAS IN SUPPORT OF APPROVAL OF THE PROPOSED

    SETTLEMENT, AWARD OF ATTORNEYS' FEES AND REIMBURSEMENTOF EXPENSES, AND PLAN OF ALLOCATION OF SETTLEMENT PROCEED S

    JOINT DECLARATION OF JEFFREY M HABER AND BLAIR A NICHOLASMaster File No CV-0I-1256 SBA

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    JEFFREY M HABER and BLAIR A NICHOLAS, declare as follows

    I Jeffery M Haber is a member of the law firm of Bernstein Liebhard & Lifshitz ,

    LLP, and Blair A Nicholas is associated with Bernstein Litowitz Berger & Grossmann, LLP, the

    court-appointed Co-Lead Counsel for the Lead Plaintiff, Radiant Advisers, LLC ("Radiant"), in

    the above-captioned consolidated action (the "Action") We make this declaration in support of

    Plaintiffs' application for (1) approval of the settlement (the "Settlement"), (2) approval of the

    Plan of Allocation of Settlement Proceeds, and (3) an award of attorneys' fees an d

    reimbursement of expenses incurred We have personal knowledge of the matters set forth in

    this declaration, and if called as witnesses, we could and would testify competently theret o

    I PRELIMINARY STATEMENT

    2 The purpose of this declaration is to set forth the basis for and background of the

    Action, its procedural history, and the negotiations that led to the Settlement This declaration

    demonstrates why the Settlement is fair reasonable and adequate and should be approved by the

    Court, why the Plan of Allocation is fair and reasonable, and why the application for attorneys'

    fees and reimbursement of expenses is reasonable and should also be approved by the Cour t

    3 The Settlement is for a total of $7,000,000 in cash , and any interest accrued

    thereon (the "Settlement Fund") The Settlement Fund is to be transferred to, and will be

    maintained by, Co-Lead Counsel in an escrow account Z Co-Lead Counsel seek approval of an

    award of attorneys' fees of 25% of the Settlement Fund, plus reimbursement of expenses of

    $104,263 60

    4 The Settlement was reached only after Co-Lead Counsel had conducted a n

    ' The terms and conditions of the Settlement are contained in the Stipulation ofSettlement, dated July 22, 2003 (the "Stipulation"), the original of which was filed with the Court

    on July 22, 2003

    2 The Class is comprised of all Persons and entities who purchased shares ofTurnstoneSystems, Inc ("Turnstone" or the "Company") common stock issued pursuant to the Company'sSecondary Offering on September 26, 2000, which was completed pursuant to a RegistrationStatement/Prospectus filed with the SEC and declared effective September 21, 2000 (the"Registration Statement/Prospectus"), and who suffered damages thereb y

    JOINT DECLARATION OF JEFFREY M HABER AND BLAIR A NICHOLAS

    Master File No CV-01-1256 SBA

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    extensive investigation of the underlying facts, interviewed numerous witnesses, prepared and

    filed a detailed amended complaint specifying Defendants' violation of the federal securities

    laws, opposed Defendants' motions to dismiss the amended complaint, engaged in supplemental

    briefing concerning Lead Plaintiff's claims under the Securities Act of 1933 (the "Securities

    Act"), drafted a second amended complaint asserting only Securities Act claims on behalf of

    Lead Plaintiff and the Plaintiff Louisiana School Employees' Retirement System ("LSERS")

    (collectively "Plaintiffs"), consulted extensively with an expert in financial damage analysis, and

    reviewed and analyzed thousands of pages of documents

    5 Settlement negotiations were hard-fought and included a mediation conducted

    under the supervision of the Honorable Eugene Lynch, United States District Judge (Ret) The

    Settlement was reached at a time when Plaintiffs and Co-Lead Counsel were fully cognizant of

    the strengths and weaknesses of the case, and the risks of continued litigation, and had the benefit

    of independent expert analysis of Turnstone's financial condition and its ability to fund a

    settlement at various levels

    6 The Settlement is an excellent result, particularly when considered in light of th e

    substantial risks to Plaintiffs in continuing the Action Indeed, as set forth below, there was a

    substantial risk that Defendants could have prevailed on a motion for summary judgment or trial

    and, even if Plaintiffs were successful, there was a significant risk that the Class would not be

    able to recover more than the Settlement provides The Action and settlement discussions were

    complicated by the financial condition of the Company Turnstone's business is suffering and its

    stock is trading at less than $3 00 per share As a consequence of the collapse of the competitive

    local exchange carrier ("CLEC") market - Turnstone's primary market - the Company has

    virtually ceased the sale of its products Turnstone noted in its recent quarterly report, "we have

    generally ceased all direct sales efforts related to [Turnstone's products], and do not expect to

    generate material revenues from them for the foreseeable future " In January 2003, Turnstone

    engaged Goldman, Sachs & Co as its financial advisor to explore various strategic alternatives to

    maximize stockholder value, including possible merger and asset sale transactions, licensin g

    JOINT DECLARATION OF JEFFREY M HABER AND BLAIR A NICHOLASMaster File No CV-O1-1256 SBA -2-

  • arrangements, and dissolution of the Company and distribution of assets to its stockholders O n

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    April 24, 2003, Turnstone announced that it had initiated actions to terminate most of Its

    remaining employees except for a limited team of employees that will continue to handle matters

    related to the Company's previously announced exploration of strategic alternatives Turnstone's

    Board of Directors approved the headcount reductions due to the continued lack of visibility with

    respect to both the demand for the Company's existing products and the potential demand for its

    products under development Despite these obstacles, Co-Lead Counsel were able to achieve a

    substantial cash se tt lement on behalf of the Clas s

    7 The Settlement negotiations were conducted by experienced counsel on both side s

    with a firm understanding of the strengths and weaknesses of their clients' respective claims and

    defenses During these negotiations, both sides presented a complete picture of their respective

    cases on liability and damages The Settlement confers an immediate and substantial benefit on

    the Class and eliminates the risk of continued litigation under circumstances where a favorable

    outcome could not be assured and there was a significant risk that Plaintiffs would be unable to

    recover any judgment due to the financial condition of Turnstone Co-Lead Counsel's fe e

    request is 25% of the Settlement Fund, which the Ninth Circuit has repeatedly held is the

    "benchmark" fee in the Circuit in common fund case s

    8 The Plan of Allocation was devised by Co-Lead Counsel in consultation with

    Plaintiffs' damages expert The plan, which is based on a damages formulation devised by

    Plaintiffs' damages expert, provides that Class members who submit timely, valid claims will

    share in a pro rata distribution of the Net Settlement Fund Accordingly, it is respectfully

    submitted that the Settlement and Plan of Allocation should be approved as fair, reasonable and

    adequate, and Co-Lead Counsel should be awarded attorneys' fees of 25% of the Settlement

    Fund and reimbursement of expenses for creating a substantial benefit on behalf of the Clas s

    11 HISTORY OF THE ACTION

    9 The following is a summary of the principal events during the course of this

    Action

    JOINT DECLARATION OF JEFFREY M HABER AND BLAIR A NICHOLASMaster File No CV-O1-1256 SBA -3-

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    A Background

    10 Turnstone provides software and equipment for the digital subscriber lin e

    ("DSL") market DSL is a technology that enables individuals and businesses to access th e

    Internet using existing copper telephone lines, rather than alternative access technologies, such a s

    fiber optic or cable connections ¶¶ 2, 42' DSL networks use existing copper lines because they

    are less expensive to deploy than fiber optic or cable connections T 4 2

    1 I Two types of companies offer DSL services to customers CLECs and incumben t

    local exchange carriers ("ILECs") CLECs are companies that are authorized to compete in local

    communications services markets pursuant to the Telecommunications Act, or comparable

    legislation in countries outside of the United States CLECs are typically smaller telephone

    companies created to compete with exist ing major telephone companies that provide telephone

    service in a given area ILECs are companies hold ing an exclusive license to offer local

    telephone services prior to the Telecommunications Act (e g , the Bell operating companies), or

    the equivalent legislation in foreign countries ¶ 4 3

    12 . At all relevant times to this litigation, Turnstone's customer base consisted almos t

    entirely of CLECs The Company's CLEC customers included , among others , Northpoint

    Communications Inc ("Northpoint "), Mpower Communications , McLeod USA, Covad

    Communications ("Covad"), Rhythms NetConnections ("Rhythms"), KPN Quest NV, D O

    Communications , and Sunrise Telecom ¶ 3

    13 In the mid-to-late 1990's, various competitive dynamics prompted local exchang e

    carriers to target either the consumer or business market segments using DSL technology Cable

    operators , such as AT&[email protected] and RoadRunner , began delivering high-speed consumer

    services, prompting incumbent local exchange carriers to respond by accelerating thei r

    investments in DSL technologies ILECs generally focused their DSL deployments on the

    consumer segment by using versions of DSL that worked in conjunction with existing analog

    voice services, as well as the associated line maintenance procedures However, these consumer-

    3 References to 'I _," are to paragraphs of the Second Amended Complaint

    JOINT DECLARATION OF JEFFREY M HABER AND BLAIR A NICHOLA SMasterFile No CV-O1-1256 SBA -4-

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    oriented versions of DSL typically had limitations that made them una ttractive for businesses

    ¶7

    14 According to market analysts, 1999 was a breakout year for DSL deployment ,

    with the number of DSL lines in North America rising nine fold Such growth was driven mainly

    by the demand for high-speed access to the Internet This was especially true as low-speed dial-

    up connections proved to be inadequate to support the more sophisticated and bandwidth

    intensive applications (i e , video) Cf ¶ 5

    15 The number of users accessing the Internet, and the amount of informatio n

    available via the Internet, was (and is) continually expanding ¶ 5 . Internet content is becoming

    more data-intensive because websites have expanded their offerings to include streaming vide o

    and audio, software downloads, and animation As the number of users and the available Internet

    content increase, the demand for high-speed connections increases The explosive demand for

    high-speed DSL solutions was straining service providers' ability to provision DSL services ¶

    46

    16 To meet this demand, local exchange carriers began to offer high-speed Internet

    access and other services over existing telephone lines The existing lines that comprise the loca l

    loop extend from a telephone company's central offices out to businesses and residences ¶ 6

    17 In June 2000, the FCC required ILECs to give CLECs access to the upper

    frequency of existing pla in old telephone service ("POTS ") lines as a means of providing DSL

    service to potential customers The arrangement requires CLECs and ILECs to share the same

    physical copper loop in order to deliver services to their customers, thereby allowing CLECs t o

    provide DSL services through the use of the same copper pair that ILECs use for voice services .

    Copper phone lines extend from the telephone companies' central offices to residences and

    businesses To gain access to the local loop (i e , the existing telephone lines ), CLECs lease

    space in the central office of an ILEC CLECs then install network equipment in this space and

    lease specific copper phone lines to connect subscribers ¶ 4 4

    18 Loop sharing by CLECs and ILECs necessitates a loop management system t o

    JOINT DECLARATION OF JEFFREY M HABER AND BLAIR A NICHOLASMaster File No CV-Q1-1256 SBA -5-

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    ensure that neither type of provider adversely impacts the other's use of the loop . Loop

    management entails the automation and remote control of installation, qualification, an d

    maintenance of standard copper phone lines 14 5

    19 Despite the new revenue opportunities DSL provided, CLECs encountered severa l

    major challenges in deploying and maintaining a new DSL infrastructure For example, DSL

    service providers often experienced difficulty with the identification, installation , and quality

    assessment of particular lines . DSL operates at higher frequencies than traditional voice servic e

    and, therefore, the length and quality of the copper line is critical Thus, for service providers to

    provide efficient DSL service, they had to be able to qualify and monitor the copper lines, ¶J 11 ,

    47

    20 Another difficulty facing DSL service providers was the significant time an d

    expense incurred in deploying, installing, and maintaining DSL service by means of traditional

    labor-intensive procedures, such as additional truck rolls or field technician visits ¶IJ 12, 48

    Therefore, manual loop testing was not feasible from either a cost perspective or an efficiency

    perspective ¶ 48 This was especially important as Turnstone's CLEC customers began to

    experience financial difficulties in the latter part of 200 0

    21 The demand for DSL services also strained service providers' ability to deliver

    services in a timely and cost-effective manner According to Telechoice, problems arose i n

    approximately 85% of all DSL deployments, requiring service calls (i e, truck rolls and/o r

    technician visits) to solve the problem

    22 The CX100, was created to address the challenges faced by DSL service providers

    by, inter aba, enabling telephone access providers to remotely evaluate, manage, and contro l

    DSL connections within the telephone central office, and identify copper lines that are suitable

    for DSL, thus making installation and maintenance of DSL on those lines more efficient ¶ 4 9

    Thus, the CX 100 was designed to reduce the need to dispatch technicians ¶¶ 13, 4 9

    23 The CX 100 also was designed to provide the loop testing , qualification, and

    protection switching functions considered important to delivering high quality, DSL-base d

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    services The CX 100 is deployed in a central office co-location between the DSL access

    multiplexer ("DSLAM") and the DSL customer, and is generally sold with about 100 lines, or

    about one-fifth capacity As service providers provisioned new lines and/or added DSLAMs,

    more modules, each of which supported 25 lines, could be added to keep supply in line with

    demand ¶ 5 0

    24 A typical CX100 unit was sold with either a 19 inch chassis (capable of holdin g

    about 425 DSL lines) or 23 inch chassis (capable of holding up to 550 DSL lines), one P 100

    module, which performs the management and control operations, and one or more L140

    modules, which connect to the DSL lines As service providers provision additional lines and/or

    add DSLAMs, more L 140 modules, each of which support 25 lines, could be added to keep

    supply in-line with demand .

    25 CrossWorks is a value-added software enhancement to the functionality of th e

    CX100 CrossWorks software was designed to enable service providers to integrate the CX100

    loop management functions into back-office OSS, thereby enhancing their ability to efficiently

    scale DSL service offerings to meet customer demand ¶ 51 Specifically, the Cross Works wa s

    supposed to enable service providers the ability to automate the management of copper lines,

    CX100's and its modules, and DSLAMs, while at the same time integrating the functionality o f

    the product with operational support systems

    26 Cross Works' client-server arch itecture was designed to interface with a se rv ice

    provider's back-office OSS ¶ 51 CrossWorks could be used on a stand-alone basis via a client-

    server application Alternatively, CrossWorks could be used with the se rv ice provider's own

    user interface, in which case the CrossWorks server, which had the majority of the automatio n

    functionality , could accessed via COBRA, JAVA, remote method indication (RMI), simple

    network management protocol (SNMP), or distributed component object model (DCOM )

    27 Together, a se rv ice provider could remotely perform loop quali fication and testing

    necessary to test the copper loops provided by the ILEC to determine their suitability for planne d

    service If impediments were detected, the CX100 was supposed to identify and locate the

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    problem The CXI00 was also supposed save technician hours and reduce human error in

    identifying the proper line for DSL connection Aside from automating installation and pre-

    qualification , the CX100 also alleviated customer downtime with a process called protection

    switching With protection switching , a subscriber could instantly be rerouted from faile d

    equipment to properly working spare equipment, thereby removing the need for a field technician

    to physically make the switc h

    28 As long as the CX100 and CrossWorks operated reliably and properly, CLEC s

    were able to conserve resources by not having to put in man-hours in every central office 24

    hours per day, seven days a week Internal reports show that the CXI00 and CrossWorks were

    unreliable and did not operate as represented This became a tremendous issue as the

    telecommunications sector, in particular the CLEC community, fell on hard times by the fall of

    2000 Consequently, the demand for the CX100 and CrossWorks declined as the CLECs had

    less money to spend to open new central offices with new equipment that was not reliable and/or

    profitably operate existing ones

    B Summa of Defendants' Wrongdoing

    29 Turnstone conducted an initial public offering of its common stock in February

    2000 Shares of Tumstone common stock have been traded on the NASDAQ National Market

    System since February 1, 2000 126, 54 Since Turnstone's inception, the Company has

    financed its operations through private and public sales of securities and, to a lesser extent,

    equipment lease financin g

    30 To capitalize on the revenue opportunities generated by the FCC 's November

    1999 order, Turnstone's Board of Directors (the "Board") authorized the Company to conduct the

    Secondary Offering in August 2000, to raise money "for general corporate purposes, including

    working capital and capital expenditures and potential acquisitions of, or investments in,

    complementary businesses, technologies and products " In doing so, the Board authorized the

    filing of the Registration Statement/Prospectus with the SEC that permitted the Company and

    certain existing stockholders, including Defendants Tinsley and Duffie, to sell shares of th e

    JOINT DECLARATION or JEFFREY M HABER AND BLAIR A NICHOLASMaster File No CV-01-1256 SBA -8-

  • 1 11 Company's common stock in the Secondary Offering ¶ 14 I

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    31 On September 26, 2000, Tumsione announced the completion of the Secondary

    Offering in which 4,000,000 shares of common stock were sold to the investing public pursuant

    to the Registration Statement/Prospectus The Company received approximately $166 3 million

    from the shares issued in the Secondary Offering, net of underwriters' commissions Further, the

    Individual Defendants sold 264,500 shares of Turnstone common stock, for proceeds in excess of

    $11 2 million, in the Secondary Offering ¶ 5 6

    32 Plaintiffs allege that the Registration Statement/Prospectus, which was signed b y

    Defendants Tinsley and Duffie, contained untrue statements of material fact and omitted to state

    material facts required to be stated in order to make the statements made not misleading

    Specifically, Defendants represented that the CX 100 "rapidly and efficiently deploy[ed] high

    speed digital services on existing copper telephone lines ," "enable[d] carriers to remotely identify

    and qualify any copper telephone line in their network, without the need for on-site labor," and

    "improve[d] network reliability and availability " Defendants also represented that th e

    CX1 00 enabled carriers to accurately perform remote "line qualification, testing and maintenance

    on any line connected through the system " ¶¶ 15, 57, 6 4

    33 The representations in the Registration Statement/Prospectus were materially fals e

    and misleading because the CX 100 was fraught with problems that rendered it incapable of

    performing "reliable," "rapid," "efficient," and "accurate" installation, management, deployment,

    or testing of DSL services Specifically, the CX 100 defects included, among others things,

    blown capacitors, malfunctioning chips, and inaccurate calibration that caused the CX100 to

    provide inaccurate and unreliable test data on the DSLs ¶¶ 16, 5 8

    34 For example , blown capacitors caused the CX100 to give erroneous line test

    readings When a capacitor is blown, the voltage flow is not consistent with the parameters fo r

    the test and, therefore, the CX100 would show incorrect test results for the line being tested ¶

    59 According to a former employee, Rhythms had complained about Turnstone's capacitanc e

    measurements

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    35 In addition, the CX 100 utilized a number of circuit cards that comprised the

    circuitry to perform line testing When malfunctioning or defective chips at the circuit card leve l

    were used in the CX100, the product operated outside its design specifications ¶ 60 Asa result ,

    the CX100 showed lower than normal readings in telecom circuitry tests, falsely indicating that

    the circuitry was working within proper specifications Conversely, malfunctioning chips also

    caused the CX 100 to falsely indicate that the circuitry was not working within prope r

    specifications In addition, the malfunctioning chips shortened the effective range of testing b y

    the CX 100 Id

    36 The software used to operate the CX100 - the Cross Works an d

    CrossConfiguration - were also rife with errors, particularly data communication errors in the

    software code 4 These errors required new releases of the CX 100 software called maintenanc e

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    releases , but jokingly referred to as " bug" releases by Company employees ¶ 6 1

    37 Northpoint and Covad complained about the number of "fix" releases issued b y

    Turnstone As Rhythms learned, with each new release, Rhythms needed to reconfigure its

    system The problem was that the settings for the older version of the firmware were not

    compatible with the new verison 5 To get the CX 100 to work with the newer version, the

    customer had to take the product offline causing service interruptions for the end user To avoid

    losing customers, Turnstone's customers delayed deployment of the CX100 until the product

    would operated bug free

    38 Turnstone's customers also found that problems were not limited to the CX100

    Covad found serious connectivity problems with Turnstone's loop testing software The software

    4 NorthPoint also complained of connectivity problems with the CXI 00 For example,NorthPoint found that problems with FTP syntax, though ultimately resolved, resulted in continualloss of connection to the co-location Connectivity issues adversely impacted NorthPoint's U Sinstallations In fact, as a consequence of this and other problems, by September 2000, NorthPointhad installed only 3 CX100 units in the United States out 242 purchased ,

    5 Firmware is the basic operating instructions for the hardware - the CX100

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    could not handle the DSL traffic that the CXI 00 was designed to control 6 Covad found that its

    loop management tests kept timing out because the CrossWorks server could not handle enough

    simultaneous requests from Covad's customers As a consequence, DSL service was constantly

    interrupted

    39 In addition, the failure to properly ground the unit during installation caused

    inaccurate calibration The CX100 regulated the wave length of the voice transmissions

    traveling along the copper wire The wavelengths had to be contained within certain bandwidth

    specifications, and wavelengths that were longer or shorter than specified for the bandwidth

    would affect the quality of the voice transmissions on that wire The wavelengths were defined

    against a graph, displayed on a screen The CX 100 would measure whether the wavelengths

    remained consistent over the length of the wire and stayed within the appropriate bandwidth

    When inaccurately calibrated, the measurements made by the CX100 were incorrect This, in

    turn, would hamper the ability to provide optimal DSL service over the copper wire 6 2

    40 As a consequence of these problems , Tumstone 's customers were unable to

    "remotely identify and qualify" copper lines in the network without on-site labor, rapidly restore

    network services following an equipment failure, improve the installation and management of

    DSL services, or deliver high levels of reliability and scalabihty in large, complex networks ¶

    63

    41 Tumstone's product problems, however, were not confined to the foregoing The

    CX100's functionality was also more limited than the products of rival companies, putting

    Turnstone at a competitive disadvantage Defendants represented that Turnstone's products were

    compatible with those of its competitors, and that the carrier could continue to use the CX100 for

    all DSL additions in order to avoid incurring the additional equipment, inventory, training, an d

    b Tumstone represented that the CX 100 could handle about 100 simultaneous sessionsIn reality, the CrossWorks server could handle only 40-50 simultaneous sessions-

    7 NorthPoint had complained that it was unable to obtain accurate test measurementsdue to air conditioning interference - the magnetic field generated when the air conditioning in thecentral office operated

    JOINT DECLARATION OF JEFFREY M HABER AND BLAIR A NICHOLASMaster File No CV-0I-1256 SBA -II-

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    operational costs associated with switching to another vendor In the Registration

    Statement/Prospectus Defendants represented "The CX 100 is designed to be compatible with all

    types of local loop serv ices and all types of DSL access multiplexers A single CX100 may be

    deployed with multiple DSL access multiplexers from a varie ty of vendors , including Alcatel,

    Cisco , Copper Mountain , Lucent, Nokia and Paradyne " ¶ 6 4

    42 These representations were materially false and misleading Far from offerin g

    compatibility and interoperability with the equipment of a variety of vendors, the above-

    described problems with the CX 100 caused it to malfunction with all types of DSLAMs and

    when used with all types of local loop services 8 For example, Covad and NorthPoint

    complained about the CX100's lack of interoperability with products from Harris Corporation In

    short, the CX 100 was not compatible with other products because of the above-described defect s

    ¶ 65

    43 Given the number of problems with the CX 100 and CrossWorks an d

    CrossConfiguration software, Turnstone's relationship with its customers turned "tense " This

    was true well before the start of the Class Period Indeed, these problems exacerbated the

    Company's ability to sell its CX 100 and CrossWorks products to the CLECs who, by late

    summer 2000, were experiencing financial difficulties For the most part, CLECs were highly

    leveraged, undercapitalized start-up companies that relied heavily upon vendor-financing to build

    service networks As vendor-financing became increasingly difficult to obtain, and product

    defects could not be resolved, the CLECs became concerned that the Turnstone product could not

    be deployed, thereby impacting their ability to generate revenue Discovery showed that the

    CLEC equated cost savings with product reliability As these concerns grew, the CLECs sharply

    curtailed orders for new CX 100 s

    44 The decreasing demand for Turnstone's products, which was exacerbated by the

    defects discussed above, caused Turnstone's Class Period inventory levels to rise dramaticall y

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    Windows NT,NorthPoint even encountered problems installing the CrossWorks on servers running

    JOINT DECLARATION OF JEFFREY M HABER AND BLAIR A NICHOLAS

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    In the Company's first quarter 2000 Form 10-Q, filed with the SEC on May 8, 2000, Turnstone

    reported that its pre-Class Period inventory was $3,206,000 In its Form 10-Q for the second

    quarter of 2002, filed with the SEC on August 7, 2000, Turnstone reported its second quarter

    inventory had tripled from its first quarter 2000 level, to $9,665,000 The Company's third

    quarter 2000 Form 10-Q, filed with the SEC on November 7, 2000, reported that Turnstone's

    inventory level had more than doubled from the second quarter, to $20,203,000 Finally, by the

    end of 2000, the period ending December 31, 2000 -- only two days prior to the close of the Class

    Period - the Company reported that its inventory levels had reached a staggering $29,502,000

    Thus, during the Class Period - a period of nine months - Turnstone's inventory increased more

    than ninefold Several months after the end of the Class Period, in the Company's Form 10-Q for

    the second quarter of 2001, Turnstone reported that it had written-off $35 million in inventory ¶

    68

    45 Based, in part, on the problems described above, on November 6, 2000 (only 4 1

    days after the Secondary Offering), Turnstone was forced to announce a major downward

    revision of its fourth quarter revenue estimates from $56 2 million to $38 million, a decrease of

    more than 30% The Company attributed its downward guidance "to increased weakness among

    its competitive local exchange carrier [CLEC] customers and recent changes to their capital

    spending plans " Following the Company's surprising announcement, the price of Turnstone

    common stock lost 65% of its value, plummeting from the previous business day's close of

    $29 50 per share to $10 375 per share on exceptionally heavy trading of over 16 million share s

    46 Less than two months after the November 6`h announcement, on January 2, 2001 ,

    Turnstone was forced to reveal that the lack of demand for its products by the Company's CLEC

    customers had a greater impact on the Company than previously disclosed, announcing that

    fourth quarter 2000 revenue would be "substantially below" market estimates because its CLEC

    customers had canceled and/or reduced their orders ¶ 69 The Company announced revenue of

    $26-$28 million for the quarter -- 37% lower than consensus analyst estimates, and only half of

    the revenue guidance figure provided by the Company on October 17, 2000 Id The Company

    JOINT DECLARATION OF JEFFREY M 1-IABER AND BLAIR A NICHOLASMaster File No CV-01-]256 SBA -13-

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    also disclosed that it expected to take a $13 million to $15 5 million charge to increase its

    inventory reserves and bad debt reserves, thus causing Turnstone to forecast an operating loss of

    $12 million to $14 million for the quarter Id Following this announcement, Turnstone's shares

    fell to $6 31 per share Id

    47 In its Annual Report on Form 10-K for the fiscal year ended December 31, 2000 ,

    filed after the Class Period, the Company further disclosed that several of its customers had

    become delinquent in making their payments for prior sales, and that two of those customers,

    Digital Broadband Communications, Inc and Vectris Communications, Inc , had filed for

    bankruptcy protection Consequently, the Company was forced to record a charge to its bad debt

    reserve for the receivables of those customers in the fourth quarter of 2000 ' 70 The Company

    also reported that it had taken a $4 1 million charge to write down the value of inventory on-hand

    at December 31, 2000, as well as a $7 3 charge to write down the value of components ordered

    for future delivery in the fourth quarter Id

    48 In the Company's 10-Q for the second quarter of 2002, filed with the SEC o n

    August 7, 2000, Tumstone's pre-Secondary Offering inventory was reported as $9,665,000

    However, in its 10-Q for the third quarter of 2000 - the quarter in which the Secondary Offering

    was conducted - Turnstone reported that by September 31, 2000, its inventory was $20,203,000,

    more than double that of the previous quarter By the end of the fourth quarter 2000 - the quarter

    following the Secondary Offering - Turnstone reported that its inventory was a staggering

    $29,502,000, more than a threefold increase from the Company's pre-Secondary Offering level s

    C Commencement Of The Federal Action AndAppointment Of Lead Plaintiff And Lead Counse l

    49 On March 28, 2001, the LSERS filed an action against Defendants under Section s

    11, 12(a)(2), and 15 of the Securities Act on behalf of all purchasers of Turnstone's common

    stock in the Secondary Offering, alleging that Defendants issued false and misleading statement s

    in the Registration Statement/Prospectus

    50 Subsequently, four actions were filed asserting claims against Defendants for th e

    issuance of materially false and misleading statements during the period June 5, 2000 an d

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    JOINT DECLARATION OF JEFFREY M HABER AND BLAIR A NICHOLASMaster File No CV-O1-1256 SBA -14-

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    January 2 , 2001, in violation of Sections 10(b) and 20 (a) of the Securities Exchange Act of 1934, , I

    15 U S C §§ 78j(b) and 78t( a), and Rule I Ob-5 promulgated under Section 10(b) by the SEC, 1 7

    C F R § 240 1 Ob-5 One of these actions was filed by Radian t

    51 On January 7, 2002, the Court entered the Stipulation and Proposed Orde r

    designating Radiant as Lead Plaintiff and appointing Bernstein Liebhard & Lifshitz, LLP and

    Bernstein Litowitz Berger & Grossman LLP Co-Lead Counsel for Lead Plaintiff and the Class

    52 On March 19, 2002, Lead Plaintiff filed two separate amended consolidate d

    complaints, each of which was based on essentially the same course of conduct One complaint

    asserted claims under the Securities Act, while the other asserted claims under the Exchange Act

    Following proceedings in which Lead Plaintiff explained its reasons for filing two separat e

    complaints, and pursuant to Court order, Radiant filed an Amended Consolidated Complaint on

    September 13, 2002 (the "Amended Complaint")

    53 On October 8, 2002, the Turnstone Defendants and the Underwriter Defendants

    filed motions to dismiss the Amended Complaint Defendants argued in their motions to dismiss

    that the Amended Complaint (i) failed to state a claim for securities fraud because Lead Plaintiff

    did not plead fraud with particularity as required by the Private Securities Litigation Reform Act

    of 1995, (ii) failed to plead facts constituting strong circumstantial evidence of deliberat e

    recklessness or conscious misconduct, ()ii) failed to identify any false or misleading statement

    made by any of the defendants as required under the Exchange Act, (v) that the statements

    identified by Lead Plaintiff were protected by the bespeaks caution doctrine, and (vi) failed to

    state claims under the Exchange Act or the Securities Act because Lead Plaintiff failed to plead

    fraud with the requisite particularity under Fed R Civ P 9(b)

    54, Lead Plaintiff opposed the motions on November 4, 2002 With the filing o f

    Defendants' reply memoranda on November 19, 2002, the motions were deemed fully submitte d

    55 On December 10, 2002, the Court requested supplemental briefing on the issue o f

    whether the Amended Complaint sounded in fraud sufficient to apply Fed R. Civ P 9(b) to

    Lead Plaintiff's Securities Act claims On February 4, 2003, the Court issued a comprehensiv e

    JOINT DECLARATION OF JEFFREY M HABER AND BLAIR A NICHOLASMaster File No CV-41-1256 SEA -15-

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    order granting in part and denying in part Defendants' motions to dismiss, and dismissing the

    Amended Complaint with leave to amend In particular, the Court sustained Lead Plaintiff's

    Securities Act claims, asserted in Counts I, 11, and III against all Defendants, except Defendant

    Savoie with regard to Count II The Court found that as to Counts IV and V - the Exchange Act

    claims - Lead Plaintiff failed to adequately plead facts giving rise to a violation of the Exchange

    Act Pursuant to the February 4" Order, the Second Amended Complaint was filed on behalf o f

    ~ Lead Plaintiff and LSERS

    1 Informal Inte rv iews

    56. Throughout the pendency of this Action, Co-Lead Counsel identified numerous

    material witnesses who provided relevant information pertaining to Plaintiffs ' claims The

    information derived from these interviews was important and served as the factual basis for the

    detailed allegations contained in the amended complaints

    2 Expert s

    57 During the litigation, Co-Lead Counsel conferred on many occasions with a

    consultant with expertise about loss causation and damage analysis issue s

    58 Plaintiffs' damages expert analyzed the potential recoverable damages and the

    materiality of the alleged false and misleading statements The damage consultant also assiste d

    in formulating the Plan of Allocation in connection with the Settlement

    III SETTLEMENT

    A Settlement Negotiations

    59 Settlement negotiations began soon a fter Plaintiffs filed the Second Amended

    Complaint The settlement negotiations took place at arm ' s-length between experienced counse l

    for both sides

    60 Throughout the course of the negotiations, Co-Lead Counsel consulted

    extensively with their damages expert Defendants strongly disputed the analysis and

    conclusions of Plaintiffs' damages expert, particularly the amount of recoverable damages

    Defendants argued that any damages to the Class were caused by market factors, notably, th e

    JOINT DECLARATION OF JEFFREY M HABER AND BLAIR A NICHOLASMaster File No CV-01-1256 SBA -16-

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    sudden collapse of the CLEC market Co-Lead Counsel, together with Plaintiffs' damages

    expert, analyzed and attempted to refute Defendants' conclusions Settlement discussions were

    further complicated by the financial condition of Turnstone, which had ceased all material direct

    selling activitie s

    61 On July 9, 2003, the parties participated in mediation before Judge Lynch In

    advance of the July 9, 2003 mediation, Co-Lead Counsel prepared a detailed, confidential ,

    mediation statement setting forth the history of the Action and the key evidence Co-Lea d

    Counsel had obtained in support of the allegations in the Second Amended Complaint During

    the mediation session, Co-Lead Counsel and Defendants' counsel made presentations to Judg e

    Lynch concerning their respective views regarding the merits of the Action and the various issues

    with respect to establishing liability and damages In addition, the parties discussed the

    Company's financial condition, including the fact that Turnstone has ceased all manufacturing

    and selling operations

    62 Upon reaching an agreement , the parties and Judge Lynch participated in a

    I telephonic conference in which the Court was apprised of the successful resolution of the Actio n

    B The Significant Litigation Risks of Establishing Defendants' Liabilit y

    63 As both parties acknowledged, there were substantial risks of establishing both

    liability and damages and recovering any judgment The core of Plaintiffs' case (and damages )

    was that the Registration Statement/Prospectus signed by Defendants Tinsley and Duffl e

    contained materially false statements concerning the functioning and performance of Tumstone's

    principal product, the CX100

    64 Defendants raised two principal affirmative defenses (a) the underlying factual

    premise for the Second Amended Complaint is wrong, namely, that product returns were de

    minimus and customer satisfaction with Tumstone and its products was very favorable, and (b)

    even if the allegations are proven, factors other than any alleged untrue statement of material fact ,

    omission of material fact,-or misleading statement of fact caused Plaintiffs' alleged damage s

    65 During the litigation, Defendants produced numerous documents to Plaintiffs ,

    JOINT DECLARATION OF JEFFREY M HABER AND GLAIR A NICHOLASMaster F ile No CV-O1-1256 SBA -17-

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    including documents relating to Turnstone's customer complaints, product returns, and

    installation problems After reviewing the Company's documents, Co-Lead Counsel concluded

    that while the Company had experienced product-related and installation-related customer

    complaints, customer satisfaction was not unusually lo w

    66 Instead, discovery showed that Turnstone's CLEC customers - which were highl y

    leveraged, undercapitalized, start-up companies - had increasing difficulty obtaining the vendor-

    financing upon which they relied to build service networks As a consequence, the demand for

    Turnstone's products rapidly dropped as the CLECs were unable to continue building service

    networks

    67 In sum, Co-Lead Counsel believes that this was a very difficult case, and that

    there were substantial risks of establishing liability

    68 While the risks of establishing liability were considerable, the risks of provin g

    damages - and of recovering a judgment - were at least as substantial, if not more so Even if

    Plaintiffs were able to establish Defendants' liability, there was a considerable risk that a jury (or

    this Court on summary judgment) could determine that damages were, primarily , the result of the

    sudden collapse of the CLEC market and that Plaintiffs and the Class were ent itled to far less

    than the Settlement amount - and a significant risk that Pla intiffs could recover nothing

    69 Plaintiffs' damages expert opined that, assuming Plaintiffs prevailed on all thei r

    I claims , likely recoverable damages would be approximately $50 million However, Defendant s

    vigorously disputed this amount

    70 Had this case proceeded to trial and Plaintiffs obtained a judgment, Defendant s

    would have obviously appealed, and the Company's resources would undoubtedly be seriously

    depleted by the time any judgment became final Based upon Co-Lead Counsel's experience in

    litigating complex securities actions, Co-Lead Counsel believe that a trial of this action would

    not have occurred for at least one year, and by that time the Company's assets would likely be

    significantly diminished Thus, while damages may have been approximately $50 million,

    Plaintiffs and Co-Lead Counsel understood that, even if they were successful at tnal, there was a

    JOINT DECLARATION OF JEFFREY M HABER AND BLAIR A NICHOLAS

    Master File No CV-O1-1256 SBA -18-

  • substantial risk that they would recover less than the Settlement amount after many years of

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    litigation

    71 In light of the risks of establishing liability and collecting a judgment , Co-Lead

    Counsel and Plaintiffs respectfully submit that the Settlement represents an outstanding result fo r

    the Class The Settlement will provide Class Members with a substantial benefit now, rathe r

    I than after years of continued litigation Based on these considerations, Plaintiffs respectfull y

    submit that the Settlement is fair , reasonable and adequate and should be approved by the Court

    C Mailing And Publication Of Notice Of Se tt lement

    72 The Court' s order preliminarily approving the Se ttlement and providing for notic e

    was entered on July 25, 2003 (the "Notice Order") It directed Co-Lead Counsel to cause the

    mailing of the Notice of Proposed Settlement of Class Action (the "Notice") and the Proof o f

    Claim and Release (the "Proof of Claim") to all potential Class Members identifiable with

    reasonable effort by August 1, 200 3

    73 The Notice Order also directed Co-Lead Counsel to cause the Summary Notice for

    Publication ("Publication Notice") to be published in Investor's Business Daily on or befor e

    August 1, 200 3

    74 Submitted concurrently herewith is the Affidavit of Shandarese Gan, Assistan t

    Vice President of Securities Operation of the Garden City Group, the Claims Administrator,

    stating that over 5,634 Notices have been mailed to potential Class Members, and that the

    Publication Notice was published in Investor's Business Daily on August 1, 2003, as directed by

    the Court Affidavit of Shandarese Garr, sworn to September 25, 2003 ("Garr Affidavit" or

    "Garr Aff "), ~¶ 7, 9, Ex C

    75 Neither Co-Lead Counsel nor the Claims Administrator have received an y

    I objections to the Settlement or Plaintiffs' request for the award of 25% of the Settlement Fund a s

    attorneys' fees, plus reimbursement of expenses up to $150,000 9 Garr Aff , ~ 10 Co-Lead

    9 Plaintiffs' Counsel are seeking reimbursement of $104,263 60 in expenses,substantially less than provided in the Notic e

    JOINT DECLARATION OF JEFFREY M HABER AND BLAIR A NICHOLASMaster File No CV-01-1256 SBA -19-

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    Counsel respectfully submit that the reaction of the Class militates strongly in favor of approvin g

    both the Settlement and the request for the award of attorneys' fees and expenses ' 0

    IV THE PLAN OF ALLOCATIO N

    76 The objective of the proposed Plan of Allocation is to equitably distribute th e

    Settlement proceeds to those members of the Class who suffered economic losses as a result of

    the misrepresentations in the Registration StatementiProspectus, as opposed to losses caused by

    market, industry, or other factors The misrepresentations alleged in this case relate primarily to

    the performance and functionality of the Company ' s primary product, the CX100 Thes e

    misrepresentations increased investors' expectations of the Company's future prospects These

    misrepresentations artificially inflated the price of Turnstone common stock in the Secondary

    Offering Based on Plaintiffs ' damages expert's review of the available information , curative

    disclosures occurred on November 6, 2000 - when Turnstone announced revenue and EPS

    declines for the qua rter ending December 31, 2000 due "to increased weakness among its

    competitive local exchange carrier (CLEC) customers and recent changes to their capital

    spending plans " - and January 2, 2001 - when Turnstone announced that its 4th Qua rter 2000

    revenue would be 37% lower than consensus market analyst estimates , and that the Company

    forecasted an operating loss of $12 million to $14 million for the quarter On each occasion,

    Turnstone's stock price suffered a statistically significant price decline The economic losses

    resulting from these corrective disclosures provides a reasonable basis for allocating the

    settlement proceeds among Se tt lement Class Members Declaration of Bjorn I Steinholt, dated

    September 25, 2003 ("Steinholt Decl "), at 117-1 0

    77 The ent irety of the Net Se ttlement Fund will be distributed to Authorize d

    Claimants based on a pro rata basis

    10 Two individuals - Katherine K Bingham and Patricia Leonard - have requestedexclusion from the Class However, according to their exclusion requests, neither Ms Bingham norMs Leonard purchased Turnstone stock pursuant to the Secondary Offering Joint Decl , ¶ 77, GarrAff, ¶ 10, Ex D Therefore, neither individual is a member of the Class

    JOINT DECLARATION OF JEFFREY M F-HABER AND BLAIR A NICHOLASMaster File No CV-01-1256 SBA -20-

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    PLAN OF ALLOCATION

    The Net Settlement Fund will be distr ibuted to Se tt lement Class Memberswho submit valid and timely Proof of Claim forms ("Authorized Claimants")under the Plan of Allocation described belo w

    razed C di N

    Notice of Pendency and Proposed Settlement of Class Action (Stipulation, Ex A-1 at p 8) In

    other words, the amount of an Authorized Claimant's claim does not necessarily equal the

    recovery the Authorized Claimant will receive It simply determines the relative portion of Ne t

    Settlement Fund an Authorized Claimant is entitled to receive, which could be more or less tha n

    the claim amount

    78 . Under the Plan of Allocation, claim valuation is based, inter alma, on the number

    of Turnstone shares purchased in the Secondary Offering and whether such shares were retained

    or sold, and, if sold, the date of the sale The Plan provides that for Authorized Claimants who

    purchased Turnstone stock in the Secondary Offering and sold such shares prior to November 6,

    2000 - the date of the first curative disclosure - the claim for each such share shall be $0. For

    Authorized Claimants who purchased Turnstone stock in the Secondary Offering and sold such

    stock during the period November 6, 2000 through January 2, 2001- after the first curative

    disclosure, but prior to the second disclosure - the claim for each such share shall be $19 13 For

    Authorized Claimants who purchased Turnstone stock in the Secondary Offering and retaine d

    such stock at the end of January 2, 2001 - the date of the final curative disclosure - the claim for

    each such share shall be $19 7 5

    79 A Class member will be eligible to receive a distribution from the Net Settlement

    Fund only if such Class member had a net loss, after all profits from transactions in Turnstone

    common stock purchased in the Secondary Offering However, the proceeds from sales of shares

    that are matched against shares held on September 26, 2000 will not be used in the calculation o f

    such net loss

    80 For Class members who purchased Turnstone common stock pursuant to the

    JOINT DECLARATION OF JEFFREY M HABER AND BLAIR A NICHOLASMaster File No CV-O1-1256 SBA -21-

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    Secondary Offering and held Turnstone stock on September 26, 2000, the first-in, first-out

    ("FIFO") method will be applied to such holdings, purchases, and sales for purposes of

    calculating a claim Under the FIFO method, sales of securities between September 26, 2000 and

    January 2, 2001, will be matched in chronological order, first against shares held on September

    26, 2000 The remaining sales of shares during the Class Period will then be matched, in

    chronological order, against shares purchased pursuant to the September 26, 2000 Secondary

    Offering The determination of the price paid per share and the price received per share shall be

    exclusive of all commissions, taxes, fees, and charges Pursuant to the plan of allocation, the

    Court reserves jurisdiction to allow, disallow, or adjust the claim of any Settlement Class

    Member on equitable grounds

    81 This Plan of Allocation was adequately explained in the Notice sent to Class

    Members It was prepared in consultation with Plaintiffs' damages expert and tracks Plaintiffs'

    theory of damages See Steinholt Decl at ~J 7-10 As detailed in the Steinholt Declaration, the

    Plan of Allocation allocates the settlement proceeds to those Class members who suffered

    economic losses as a result of the alleged misrepresentations in the Registration

    Statement/Prospectus Id Accordingly, it is fair and equitable to the Class and should b e

    approved .

    V ATTORNEYS' FEES AND EXPENSES

    82 Plaintiffs seek an award of attorneys' fees of 25% of the Settlement Fund, a

    percentage that is well within the range for attorneys' fees awarded in this Circuit in cases of thi s

    nature, and is reasonable based on the quality of counsels' work and the substantial benefit

    obtained for Class Members in light of the risks discussed above

    83 As set forth in the memorandum of points and authorities in support of Plaintiffs '

    motion for an award of attorneys' fees and reimbursement of expenses submitted concurrently

    herewith, the Ninth Circuit has consistently held that a fee of 25% of the common fund is the

    "benchmark" award for attorneys' fees in class action litigation In securities class actions,

    numerous district courts in this Circuit have awarded attorneys' fees of 25-30% Accordingly, an

    JOINT DECLARATION OF JEFFREY M HABER AND BLAIR A NICHOLAS

    Master File No CV-01-1256 SBA -22-

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    attorneys' fee award of 25% of the Settlement Fund fully comports with the Ninth Circuit' s

    "benchmark" award for attorneys' fees in class action litigation

    84 The reasonableness of Plaintiffs' Counsels' request is further demonstrated under

    a lodestar/multiplier analysis Plaintiffs' Counsel spent in excess of 2,250 hours prosecuting th e

    Action for a total lodestar in excess of $931,100 00 Accordingly, Plaintiffs ' Counsel seek a

    11 multiplier of approximately 1 8 8

    85 Plaintiffs' Counsel have efficiently and vigorously prosecuted the Actio n

    Plaintiffs' Counsels' experience as counsel in class action and securities cases allowed us to

    identify the complex issues involved in the Action and to formulate strategies to effectively

    prosecute a litigation of this complexity Moreover, Plaintiffs' Counsel submit that their

    reputations as attorneys able and willing to see a meritorious case through trial and appeals

    assisted in the settlement negotiations

    86 As discussed above, Plaintiffs' Counsel faced significant risks in pursuing this

    Action This was not a case where any recovery was assured Compounding the risk, Plaintiffs '

    Counsel have received no compensation during the more than two years that this Action has been

    pending, their fees being totally contingent and dependent upon a successful result and an awar d

    by this Court Plaintiffs' Counsel believe that the outstanding Settlement was the result of thei r

    hard work, persistence, and skil l

    87 Plaintiffs' Counsel also request reimbursement of the expenses incurred in

    connection with the prosecution of the Action Plaintiffs' Counsel have submitted summaries

    providing the basis for their expenses See Declaration of Jeffrey M Haber in Support of Joint

    Petition for Reimbursement of Expenses, dated September 26, 2003, ¶ 5, Exhibits 1-9 Those

    expenses are reflected in the books and records maintained by Plaintiffs' Counsel and are

    accurate recordings of the expenses incurred Id In total, Plaintiffs' Counsel have incurred

    reimbursable expenses in the amount of $104,263 60 Id Included in this amount are the fees

    payable to Plaintiffs' expert who provided them with extensive assistance during this Action

    Co-Lead Counsel respectfully submit that all of these expenses are reasonable and necessaril y

    JOINT DECLARATION OF JEFFREY M HABBR AND BLAIR A NICHOLASMaster File No CV-O1-1256 SBA -23-

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    incurred in connection with the prosecution of this Action

    A Other Factors To Be Considered In SupportOf The Requested Attorneys' Fee Award

    1 . Extent Of Litigation

    88 As described above, this case was settled only after Co-Lead Counsel conducted

    an extensive investigation into Defendants' violation of the federal securities laws, interviewe d

    numerous material witnesses, thoroughly researched the law pertinent to the Class members '

    claims and Defendants ' defenses , prepared and filed two detailed amended complaints specifying

    Defendants ' violations of the federal securities laws, vigorously opposed Defendants ' motions to

    dismiss the allegations detailed in the amended complaint , filed a supplemental memorandum

    with regard to the applicability of Fed R Civ P 9(b) to Securities Act claims ; consulted

    extensively with an expert in financial damage analysis , and engaged in hard fought, arm's-

    length settlement negotiations with Defendants ' counsel , including mediation before Judge

    Lynch

    2 Risks Of Contingent Litigation

    89 The Action was undertaken by Plaintiffs' Counsel on a wholly contingent basi s

    From the outset, Plaintiffs' Counsel understood that they were embarking on complex,

    expensive, and lengthy litigation (with no guarantee of compensation for the enormous

    investment of time, money, and effort the case would require) In undertaking that responsibility ,

    Plaintiffs' Counsel were obligated to assure that sufficient resources of attorneys were dedicated

    to the prosecution of the Action and that funds were available to compensate staff and the

    considerable out-of-pocket costs a case such as this entails Furthermore, lawyers that represent

    hourly, fee-paying clients require their clients to pay fees as the work is done, creating funds for

    investment and the creation of additional revenues Such additional revenues were not availabl e

    to Co-Lead Counsel in this Actio n

    3 Standing And Expertise Of Co-Lead Counse l

    90 The expertise and experience of Co-Lead Counsel is described in the Firm

    Resumes annexed hereto as Exs 1, 2 Co-Lead Counsel are among the most experienced and

    JOINT DECLARATION OF JEFFREY M HABER AND BLAIR A NICHOLASMaster File No CV-01-1256 SBA -24-

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    skilled practitioners in the securities litigation fiel d

    4 Standing And Caliber Of Opposition Counse l

    91 Defendants are represented by outstanding law firms and attorneys at Wilson

    Sonsini Goodrich & Rosati and Sullivan & Cromwell, who spared no effort or expense in the

    defense of their clients In the face of opposition of this caliber, Co-Lead Counsel developed this

    case so as to persuade Defendants to settle the Action on a basis favorable to the Clas s

    92 When Co-Lead Counsel undertook to represent Plaintiffs and the Class in this

    matter, it was with the knowledge that the firms would spend many hours of hard work against

    some of the best defense lawyers in the United States with no assurance of ever obtaining any

    compensation for their efforts, or even for the overhead of their offices, which is an increasingly

    substantial consideration Co-Lead Counsel were aware that the only way they would be

    compensated was to achieve a successful result The benefits conferred on the Plaintiffs and th e

    Class by this Settlement are particularly noteworthy in that a Settlement Fund was obtained for

    the Class despite the existence of substantial risks and the vigorous defense mounted by

    Defendants

    VI CONCLUSIO N

    93 For the reasons set forth above and in the accompanying ( 1) Memorandum of

    Points and Authorities in Support of Final Approval of Settlement and Approval of Plan of

    Allocation of Settlement Proceeds , (2) Memorandum of Points and Authorities in Support of

    Plaintiffs ' Application For Award of Attorneys' Fees and Reimbursement of Expenses , (3) the

    Steinholt Declaration , (4) the Garr Affidavit, an d (5) the Declaration of Jeffrey M Haber in

    Support of Joint Petition for Reimbursement of Expenses, submitted concurrently herewith, we

    respectfully submit that (1) the Settlement is fair, reasonable and adequate and should be

    approved, (ii) the Plan of Allocation represents a fair method for the distribution of the Net

    Settlement Fund among Class Members and should also be approved, and (iii) the application for

    JOINT DECLARATION OF JEFFREY M FIABER AND BLAIR A NICHOLASMaster File No CV-0 1-1256 SBA -25-

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    attorneys' fees and reimbursement of expenses should be granted .

    Dated September 30, 2003 Respectfully submi tted,

    BERNSTEIN LIEBHARD & LIFSHITZ, LL P

    TIMOTHY MACFALLDANIELLE MAZZINI-DALY10 East 40th Stree tNew York, NY 10016Tel (212) 779-1414Fax (212) 779 .321 8

    BERNSTEIN LITOWITZ BERGER& GROSSMANN LL P

    LAIR A NICHOLAS

    ALAN SCHULMAN12544 High Bluff Drive, Suite 150San Diego, CA 9213 0Tel (858) 793-0070Fax (858) 793-0323

    - and -DOUGLAS M McKEIGE1285 Avenue of the AmericasNew York, NY 1001 9Tel (212) 554-1400Fax (212) 554-1444

    Co-Lead Counsel for Lead PlaintiffRADIANT ADVISERS, LLC

    JOINT DECLARATION OF JEFFREY M HABER ANDBLAIR A NICHOLASCV NO C01-1256(SBA) -26-

  • BERNSTEIN LIEBHARD & LIFSHITZ, LL P

    10 East 40'h Street 2050 Center Avenue 231 State Stree tNew York, New York 10016 Fort Lee, New Jersey 07024 Harrisburg, PA 17101(212) 779-1414 (201) 592-3201 (717) 234-664 6

    www bernlieb co m

    BERNSTEIN LiEBHARD & LIFSHITZ, LLP was established in 1993 as a boutique specializin g

    in the representation of plaintiffs in class, group and individual securities , derivative , antitrust

    and consumer protection cases through the United States The firm has grown to over twent y

    lawyers, with offices in New York, New Jersey and Pennsylvani a

    Our attorneys - including former prosecutors and SEC trial lawyers - have tried hundred s

    of cases before both state and federal courts We have been appointed lead counsel in numerou s

    class actions around the country and have actively tried and/or settled scores of actions to

    successful conclusions Currently, the firm serves in a lead counsel position in several of the

    largest pending securities fraud class actions , including In re Initial Public Offering Securities

    Litigation , and In i e Xerox Securities Litigation, and is pursuing claims seeking billions o f

    dollars on behalf of investors

    We have significant experience in prosecuting complex securities class actions Fo r

    example, the firm, as a lead counsel, has successfully obtained many multi-million dollar

    settlements of securities class actions and complex cases These cases include Bankers Trust

    Securities Litigation ($58 million), Bausch & Lomb, Inc Securities Litigation ($42 million) ,

    Riscorp Inc Securities Litigation ($21 million), AXA Financial Shareholders Litigation ($500

    mil lion increased merger consideration), Lin Broadcasting Corporation Shareholders Litigation

  • ($64 million increased merger consideration), and Arco Chemical Company Shareholders

    Litigation ($17 6 million)

    The firm has had particular success in using litigation to accomplish corporate

    governance improvements for shareholders We have served as lead counsel in numerous

    corporate governance and corporate takeover litigation (both hostile and fnendly) on behalf of

    stockholders of public corporations, and have prosecuted actions challenging numerous highly

    publicized corporate transactions which violated fair process and fair price, and the applicability

    of the business judgment rule These efforts brought about multi-million dollar improvements in

    transaction terms and in strengthening the democratic rights of public shareholder s

    In In re Sears and Roebuck Derivative Litigation, founding partner Stanley D Bernstei n

    pioneered the use of litigation to achieve corporate governance reform in the early 1990's ,

    gaining the addition of outside directors to Sears's board, and expanding the role of outside

    directors in the company's nominating committe e

    In In re Archer Daniels Midland Corp Derivative Litigation the firm, as lead counsel ,

    effected important corporate governance improvements such as the requirement that the majority

    of the board be comprised of outside directors, creation of a nominating committee, requiring th e

    audit committee to oversee corporate compliance, and requiring that the audit committee b e

    composed of outside directors

    In Arco Chemical Company Shareholders Litigation, the firm's advocacy led the

    Delaware Supreme Court to require the company to broaden the rights of public shareholders i n

    change of control transactions

    Recently, the firm successfully represented the public stockholders of Quickturn Desig n

    Systems, Inc in a trial in the Delaware Chancery Court, which invalidated a modified "dead-

    -2-

  • hand" poison p ill anti-takeover provision The Delaware Supreme Court affirmed the tria l

    verdict, paying the way for a takeover of Quickturn at a substantial premiu m

    The firm's efforts in In re Foamex International Inc Shareholders Litigation

    accomplished corporate governance improvements such as the requirement that the compan y

    appoint two independent directors, constitute a nominating committee to search for and

    recommend new independent directors , and that any related party transaction be reviewed an d

    approved by a majority of disinterested directors

    OUTSTANDING REPUTATION WITH THE JUDICIARY

    Courts have repeatedly praised the efforts of the firm and its partners For exampl e

    Judge Denise Cote, in approving a recent settlement where the Firm served as sole leadcounsel, found that "Plaintiffs are represented by counsel who are skilled in federalsecurities and class action litigation Counsel have been diligent and well prepared.Jeffrey Haber, in particular, was especially helpful Plaintiffs' counsel has performedan important public service in this action and have done so efficiently and with integrity. . . You have the thanks of this court ." In re Take Two Interactive Software, IncSecurities Litigation, 01 Civ 9919 (S D N Y ), Transcript of Hearing, October 4, 2002, at40, 44

    Vice Chancellor (now Delaware Supreme Court Justice) Myron T Steele, in approving ashareholder class action settlement, stated "I'm impressed with the innovative natureof the benefit that's been provided It's my turn to make a compliment in open courtthat the plaintiff is represented by highly competent counsel, a counsel that demonstratesconsistently to me an incredible work ethic in achieving the benefits that were achievedhere " In re Illinois Central Corporation Shareholders Litigation, C A 16184 (Del Ch ),Transcript of Hearing, Feb 25, 1999 at 29-3 0

    Judge Wayne Andersen of the Northern District of Illinois, in approving a proxy fraudsettlement, commented to partner Stanley Bernstein "Mr Bernstein, it has actually beena pleasure getting to know and work with you on this [Y]ou make a really goodpresentation " Hager v Schawk, Inc , No 95 C6974 (N D III ), Transcript of Hearing,May 21, 1997 at 22

    In approving a settlement on beh alf of the purchasers of Tower Air , Inc securities anddescribing the Firm 's services for the class as sole lead counsel , Judge Reena Raggi of theEastern District of New York commented that "[t]he quality of the legal work

    -3-

  • throughout has been high and conscientious . "In re Tower Air, Inc SecuritiesLitigation, 94 Civ 1347 (E D N Y ), Transcript of Hearing, February 9, 1996 at 5 2

    Judge Robert Cindrich of the Western District of Pennsylvania, in approving a securitiesfraud settlement, endorsed the findings that "Counsel have been professional andrealistic in this matter The court has been impressed with the competence andcandor of counsel " DeCicco v American Eagle Outfitters, Inc C A 95-1937 (W D.Pa ), Report and Recommendation of Magistrate Judge Kenneth Benson, November 25,1996 at 6 (adopted as opinion of Court by Judge Cindrich, December 12, 1996 )

    FIRM BIOGRAPHY

    Partners

    Stanley D Bernstein is a 1980 graduate of the New York University School of Law ,

    where he was an editor of the Journal of International Law and Politics He is a frequent lecture r

    on directors and officers liability, class action and securities law issues at seminars organize d

    nationwide by Practising Law Institute, The American Conference Institute, Tillinghast-Towers

    Perrin and other organizations Prior to forming Bernstein Liebhard & Lifshitz, LLP, Mr

    Bernstein practiced securities and commercial litigation at Weil, Gotshal & Manges, Gelberg &

    Abrams and Kreindler & Kreindler Mr Bernstein is vice chair of the Plaintiffs' Executiv e

    Committee in In re Initial Public Offering Securities Litigation, and was lead counsel in many of

    the leading securities cases enforcing and expanding the rights of shareholders, including In re

    Sears, Roebuck Derivative Litigation and In re Archer Daniels Midlands Corp Derivative

    Litigation, (pioneering cases which improved corporate governance at both companies), In re

    Bankers Trust Securities Litigation (largest recovery ever on behalf of defrauded securities

    sellers - $58 million), and, Shapiro v Quickturn Design Systems (successfully tried in Delaware

    Chancery Court and affirmed by Delaware Supreme Court, invalidating anti-takeover device )

    -4-

  • He has been lead counsel in scores of securities class actions and is one of the most activ e

    litigators in the nation on behalf of shareholder nghts in the Delaware Chancery Court wher e

    most important corporate governance litigation is conducted He has tned many cases in stat e

    and federal court, and has successfully argued appeals on behalf of shareholders to the Delawar e

    Supreme Court and the United States Second Circuit Court of Appeals He is admitted to th e

    Bars of the States of New York and Florida

    Sandy A Liebhard is a 1988 graduate from Brooklyn Law School and has practiced al l

    aspects of securities law for the past 15 years He has been lead or co-lead counsel in such majo r

    securities cases as AXA Financial Shareholders Litigation ($500 million in increased merge r

    consideration), Lin Broadcasting Corporation Shareholders Litigation (recovering $64 millio n

    in increased merger consideration), Bausch & Lomb, Inc Securities Litigation (achieving a $42

    million recovery for defrauded shareholders), and In re Tenneco Securities Litigation ($50

    million recovery) Mr Liebhard presently serves as lead or co-lead counsel in such major case s

    as In re Terayon Communication Systems, Inc Securities Litigation, In re Revlon, Inc Securitie s

    Litigation, In re BellSouth Corp Securities Litigation, and is currently serving on Plaintiffs '

    Executive Commi ttee in In re Initial Public Offering Securities Litigation He is admitted to th e

    Bars of the State of New York and the United States District Cou rt for the Southern and Eastern

    Districts of New York

    Mel E Lifshitz is a 1989 graduate of Brooklyn Law School Mr Lifshitz's practice

    focuses on securities and consumer class action litigation lie most recently achieved a $5 8

    million settlement on behalf of shareholders in the Bankers Trust Securities Litigation, was co-

    lead counsel in Riscorp Inc Securities Litigation, which resulted in a $21 million settlement on

    behalf of shareholders, and is currently co-lead counsel in the In re Federated Department Stores

    -5-

  • Securities Litigation , Chairman of the Executive Commi ttee in In re Abercrombie & Fitch Co

    Securities Litigation, co-lead counsel in In re Xerox, Inc Securities Litigation, co-lead counsel in

    In re Deutsche Telekom AG Securities Litigation, co-lead counsel in In re Cigna Corp Securities

    Litigation, as well as lead and co-lead counsel in many other large securities class actions H e

    was also the lead counsel in Tuchman v Volvo Cars of North America, Inc , a consumer clas s

    action which resulted in a settlement value of more than $30 million He is admitted to the Bar s

    of the State of New York and the District of Columbia, the United States Court for the Souther n

    District of New York and the Eastern District of New York

    Keith M Fleischman received his B A degree from the University of Vermont in 198 0

    and a J D degree-from California Western School of Law in 1984 Upon graduation from la w

    school, he was an Assistant District Attorney in the Rackets and Major Offense Bureau of th e

    Bronx County District Attorney's Office and a Member of the Joint Bronx District Attorney' s

    Office/United States Attorney's Office, Southern District of New York investigation int o

    corruption by New York City Public Officials In 1988, he joined the United States Departmen t

    of Justice as a Trial Attorney in the Fraud Section, and in 1990 he served in the United State s

    Attorney's Office, District of Connecticut, as an Assistant United States Attorney Until joinin g

    the Firm in early 2003, Keith was a Partner and on the Management Committee of Milber g

    Weiss Bershad Hynes & Lerach, LLP

    During his eight years as a prosecutor, Mr Fleischman tried numerous cases to verdic t

    and served as Chief Trial Counsel in one of the largest savings and loan prosecution s

    successfully brought by the federal gove rnment , including United States v Heath, 970 F 2d 1397

    (5th Cir 1992) Additionally, he served as a Trial Practice Instructor for the Attorney General' s

    Advocacy Institute, U S Department of Justice, as a member of the New England Bank Frau d

    -6-

  • Task Force, Coordinating Committee, and the Connecticut Bank Fraud Working Group Keit h

    has also received awards from the Director of the FBI and the Attorney General for his wor k

    while serving in the Justice Department

    In 1995, Mr Fleischman was plaintiffs' Chief Trial Counsel in Robbins v Koger

    Properties, Inc, 116 F 3d 1441 (11th Cir 1997), in which a Federal jury found Deloitte &

    Touche liable for securities violations and awarded the class $81 3 million after a month-lon g

    trial Additionally, Mr Fleischman also successfully argued before the Second Circuit the cas e

    of Novak v Kasaks, 216 F 3d 300 (2d Cir 2000), the precedent- setting decision regarding th e

    pleading standard and disclosure of confidential informants under the PSLRA Mr Fleischma n

    has also served as lead or co-lead counsel and on the executive committee for many notable an d

    successful litigations including America Online, Ann Taylor, Motorola, Aetna and John Hancoc k

    which collectively resulted in hundreds of millions of dollars in settlements to the respective

    classes

    Mr Fleischman is a member of the Bar of the State of New York, the United States

    District Court for the Southern District of New York, the Second and Eleventh Circuit Courts o f

    Appeals, and the United States Supreme Court He lectures in the U S and abroad on the

    investigation, litigation and prevention of Securities Frau d

    Jere M Haber received his B S from the State University of New York at Buffalo in

    1985, graduating magna cum laude as a member of Phi Beta Kappa He received his J D in

    1988 from Hofstra University School of Law, where he was a notes and comments editor for th e

    International Property Law Journal Upon graduation , Mr Haber concentrated his practice i n

    securities and commodity law, with a New York law firm, where he represented both plaintiffs

    and defendants in litigations in various state and federal courts and in arbitrations in self-

    -7-

  • regulatory agencies In 1991, Mr Haber became associated with, and later a member of, a Ne w

    York plaintiffs' firm, Weschler Harwood LLP, where he concentrated his practice on securities-

    and consumer-fraud class actions, antitrust class actions, and shareholder-rights litigation I n

    April 2000, Mr Haberjoined Bernstein Liebhard & Lifshitz, LLP as a partner, concentrating hi s

    practice in complex class action litigation involving shareholders' rights, securities fraud, an d

    consumer protection In his career, Mr Haber has been a member of multiple trial teams in civil

    cases, and has conducted numerous securities arbitrations before the NASD and NYSE

    Mr Haber has been lead counsel, co-lead counsel, or a member of an executive

    committee in a number of notable and successful class action litigations, including In re Taxable

    Municipal Bonds Litigation (E D La) ($ 110 mil lion se tt lement ) and In re JDNRealty Corp

    Securities Litigation (N D. Ga) ($16 8 million settlement) Mr Haber also has been lea d

    counsel, co-lead counsel, or a member of an executive committee in a number of successfu l

    shareholder rights litigations , including In re The Times Mirror Co Shareholders Litigation ,

    (Del Ch) ( settlement benefit in excess of $20 million ) and Edge Partners L. P v Dockser, ( D

    Md) (settlement benefit in excess of $ 11 million) Mr Haber played a key role in the factua l

    investigation of In re Home Shopping Network Inc Derivative Litigation (S D Fla ), which led

    to a settlement benefit in excess of $20 million He also played a significant role in the

    investigation and prosecution ofIn re Banc One Securities Litigation (N D Ill ), which resulted

    in a $45 million settlement Mr Haber further served as lead counsel in a precedent -setting

    decision under the Investment Company Act of 1940 regarding the independence of directors

    serving on multiple boards of mutual funds operated by the same investment company Mr

    -Haber is currently co-lead counsel in In re Xerox Securities Litigation (D Conn ), among other

    notable securities class actions

    -8-

  • Mr Haber is admi tted to the Bar of the State of New York, the United States Court of

    Appeals for the Fifth Circuit, and the United States District Courts for the Southern and Easter n

    Districts of New York, the Western District of Pennsylvania, and the District of Anzona

    Robert J Berg graduated from Amherst College cum laude with a B A degree in 1979,

    majoring in Economics and Psychology Mr Berg received a J D degree in 1983 from the

    University of Chicago Law School, and he also received an M B A degree from the Universit y

    of Chicago Graduate School of Business in 1983 Mr Berg began his career as an attorney in

    1983 at Skadden , Arps, Slate , Meagher & Flom, in New York , where he specialized in antitrus t

    litigation, and continued his career at LeBoeuf, Lamb, Greene & MacRae Mr Berg then joine d

    Wolf Popper LLP, and Lite DePalma Greenberg & Rivas, where he concentrated his practice o n

    representing plaintiffs in securities and consumer fraud class actions In 1998, Mr Berg Joined

    Bernstein Liebhard & Lifshitz, LLP where he concentrates his practice in complex class action

    litigation involving shareholders' rights, securities fraud, consumer fraud, false advertising, an d

    antitrust issues Mr Berg presently is one of the liaison counsel in the In re Initial Publi c

    Offerings Securities Litigation He was one of lead atto rneys representing plaintiffs in Bankers

    Trust Securities Litigation, which was settled for $58 million in May 2002, a few weeks before

    teal Mr Berg is co-lead counsel for plaintiffs in In re Deutsche Telekom AG Securitie s

    Litigation He is also a member of Plaintiffs' Executive Committees in major antitrust clas s

    actions against Venzon, SBC, and BellSouth Prior to joining the firm, Mr Berg was the chie f

    plaintiffs ' attorn