The Readers Digest Association has gained undisputed title to The Source -- a home computer network expected to be one of the leading contenders in a growing market.
The clear title came out of a massive settlement, concluded over the weekend, that resolved tangled litigation over issues that included who ownership of the potentially lucrative asset. The settlement also appears to guarantee repayment of approximately $2.9 million that was part of a government-guaranteed loan that aided in the early development of The Source. g
Besides The Readers Digest Association reportedly paid $3 million last September for majority interest in a company it believed owned the rights to The Source. Besides Readers Digest Association, the U.S. Economic Development Administration, the inventor of The Source, monority shareholders in a company that once owned the computer network and creditors had all asserted a claim of one sort or another to the computer network.
The claims and counterclaims arose from a falling-out between partners and later were complicated by a dispute over responsibility for the government-guaranteed loan and by the sale of control of The Source to Readers Digest Association. At points during the dispute the problems appeared so intractable that principals expressed fears that The Source would be strangled before it ever reached its potential, and one attorney said that settling it was "like settling World War II."
Under the agreement -- which to reach at one point required about 40 people negotiating until 5 a.m. -- Readers Digest Association receives an 80 percent interest in Source Tele-computing Corp. of McLean, the company in which it acquired a 51 percent interest in September.
STC acquires a clean title to The Source. The Readers Digest Association also guaranteed ultimate repayment to the federal government of approximately $2.6 million owed on a defaulted government-guaranteed loan.
Former chairman of STC, Jack Taub, who sold 51 percent of his stock to Readers Digest Association, will retain a 20 percent interest in STC with his stock pledged as security on debts he owes to Readers Digest Association.
William von Meister, who developed the concept of The Source, and other monority stockholders in Digital Broadcasting Corp., a predecessor to STC, received $950,000 from Taub. According to an attorney for Readers Digest, Taub borrowed funds from the Readers Digest Association, which he then used to buy out the minority shareholders. In addition, von Meister was released from his guarantees covering approximately $2 million worth of debt incurred by DBC and related corporations.
Taub and his brother received control of DBC, which owns a process called Infocast that uses FM frequencies to transmit digital data. As part of the agreement, DBC definitely transferred any interest it may have had in The Source to STC. Taub said he still needs to work out agreements with DBC creditors.
"I'm just glad it's behind me, and we can all go forward," said Taub. Taub said he expected the Readers Digest Association to now "put its full and active resources into The Source and to be able to make it, hopefully, the next telephone company." As part of the agreement, the Readers Digest bought out an employment contract Taub had with STC.
"To clean up everything cost me about $5 million, but it was worth that to bring some sanity back to my life," Taub said. "I've never done anything wrong, and I'm settling now to bring peace into everybody's heart." Taub and Readers Digest Association attorney Timothy May both characterized the agreement as beneficial to the federal government because of its guarantees of repayment of the debt.
"We're absolutely delighted. We're very pleased," said Michael Nussbaum, von Meister's attorney.
Although parties to the settlement characterized it as nailed down, federal Judge Richard B. Kellam still must still dismiss the various legal claims and lift an injunction that had barred some activities by STC.