According to the closing Order, dated May 2, 1997, from U.S. District Judge Judge Charles A. Legge of the N.D. California the parties entered a settlement agreement. As part of the settlement arrangement, the Company agreed to contribute $1.1 million toward the $12 million in costs to settle all pending securities litigation.
In April 1996, two purported class action complaints, WOODWARD, ET AL V.
BRADLEY, ET AL and CURLEY, ET AL V. MARINARO, ET AL, were filed in the United States District Court for the Northern District of California, and a third
purported class action complaint, MAIZEL, ET AL V. MARINARO, ET AL, was filed
in the Superior Court of the State of California for the County of Santa Clara. In May 1996, a fourth purported class action complaint, CLEVELAND, ET AL V. MARINARO, ET AL, was filed in the United States District Court for the Northern District of California. The plaintiffs in the MAIZEL, CURLEY and CLEVELAND actions claimed to be suing on behalf of a class of persons who purchased the Company's Common Stock during the period February 2, 1995 to March 21, 1996; the plaintiffs in the WOODWARD action claimed to be suing on behalf of a class of persons who purchased the Company's Common Stock during the period February 1, 1996 to March 21, 1996. Certain named current and former officers and a director of the Company were named as defendants in the actions. The MAIZEL complaint also named as defendants Morgan Stanley & Co. and Stephen Milunovich, an employee of Morgan Stanley & Co. The complaints alleged, among other things, that the Company issued false and misleading
statements to the public about the Company's financial performance and prospects, in violation of California and federal securities laws. The complaint in the MAIZEL action alleged that the officer and director defendants sold or otherwise disposed of the Company's Common Stock in violation of California securities laws.
The original complaint alleges that the company and certain of its officers and directors made, and failed to correct, materially false statements regarding the company's net income, revenue and assets. In particular, the complaint alleges that the company recognized revenue related to sales of certain software products in violation of generally accepted accounting principles. The complaint alleges that the company improperly recognized revenue from these sales in spite of certain documentation within its possession or control pertaining to large fourth quarter 1995 product returns. This course of conduct allegedly allowed the company's vice-chairman of the board of directors to sell stock at artificially inflated prices. After this information was disclosed to the market, the company's stock price allegedly fell 26%.