According to the latest docket posted, on September 17, 1998, a Stipulation for dismissal without prejudice was filed, and on September 24, 1998, the Court entered the Order of dismissal with prejudice signed by U.S. District Judge Gary L. Taylor. The case was terminated.
As previously reported by the Company’s FORM 10-Q for the quarterly period ended June 30, 1998, on April 1, 1997, the Plaintiff filed another class action complaint against the Company and certain of its officers and directors in the United States District Court for the Central District of California (the Federal Action). The action purportedly was filed on behalf of the same class of purchasers of the Company's common stock as the State Action. The allegations contained in the Federal Action are very similar to the allegations contained in the State Action, except that the Federal Action asserts claims under Sections 10(b) and 20(a) of the Securities Exchange Act and Rule 10b-5. The complaint seeks unspecified compensatory damages, interest, attorneys' fees, expert witness fees, costs and equitable or injunctive relief. On July 2, 1997, the court granted plaintiff's motion to be appointed "lead plaintiff" under the Private Securities Litigation Reform Act. In the Federal Action, defendants have filed a motion to dismiss the complaint in its entirety. Plaintiff has filed a motion to stay the Federal Action, in light of the parallel State Action. The court is scheduled to hear both of these motions during August 1998.
The complaint alleges that during the Class Period, the defendants, FileNet and certain of its officer and directors, artificially inflated FileNet stock to as high as $67 per share based on representations that FileNet's core business and Watermark and Saros business units were rapidly expanding, and that FileNet was successfully integrating its product lines and sales and support functions to create a single source solution for all of a company's document imaging and management needs. However, just a few months later, FileNet revealed that demand for its Saros products was, in fact, soft and sales of that product line were well below expectations, adversely impacting FileNet's results for the first quarter of 1996.
Specifically, the complaint alleges upon the revelation on April 1, 1996 of the poor results for the first quarter, FileNet's stock immediately collapsed from $57-7/8 to $45-3/4 per share. Defendants nevertheless reassured the market as to the strength of FileNet's core business and Watermark unit until July 2, 1996, when defendants revealed that sales in the second quarter in all of its units were weak, again adversely impacting earnings. FileNet's stock price again plunged, from a closing price of $33 on July 2, 1996 to a closing price of $23-3/4 on July 3, 1996. Before the truth came out, however, defendants sold over 200,000 shares of their FileNet stock at artificially inflated prices as high as $54.50 per share, pocketing over $10.5 million in illegal insider-trading proceeds. FileNet's insiders sold 143,805 shares of their FileNet stock between October 23, 1995 and December 8, 1995, at prices as high as $46.25 per share, and 77,761 shares of their FileNet stock between April 22-26, 1996. Several of FileNet's insiders, including FileNet's CFO and the senior vice presidents of International and Customer Services and support, sold over 50% of their FileNet stock.
The complaint further alleges that just after FileNet's insiders had completed their bailout, on July 2, 1996, FileNet shocked the market with the revelations of poor sales across all their product lines, and greatly reduced fiscal year 1996 revenues and earnings expectations. FileNet's stock immediately plunged to as low as $20 per share.
A similar class action was filed on December 20, 1996, in the Superior Court of California, County of Orange.