According to the Company’s FORM 10-Q For The Quarterly Period Ended July 1, 2001, on October 27, 2000, the court dismissed the lawsuit and entered judgment in the Company’s favor. Plaintiffs thereafter filed an appeal with the Ninth Circuit Court of appeals. Before briefing was commenced, plaintiffs' counsel agreed to dismiss the appeal in exchange for the Company's agreement to waive any right to recoup any of its fees and costs.
As summarized by the same SEC filing, in June 1999, the Company and certain of its directors and officers were named as defendants in three putative class actions filed in the United States District Court for the Northern District of California, alleging violations of Section 10(b) of the Securities and Exchange Act of 1934. Pursuant to court order, those cases have been consolidated, and a consolidated amended complaint was filed on January 24, 2000. The Company successfully moved to dismiss all claims in the action, and the court entered an order on April 25, 2000 dismissing the case with leave to amend. A first amended complaint was filed on June 16, 2000.
The original complaint alleges that in January 1996, venture capital funds affiliated with the Sprout Group invested $10 million in Hall Kinion, receiving some 25% of Hall Kinion's stock and taking control of the Company. The venture capitalists hoped to achieve a fast, large profit by selling Hall Kinion to another company or by taking it public. By mid-97, Hall Kinion's controlling shareholders realized that Hall Kinion's rapid expansion strategy was not succeeding. The only exit strategy for the venture capitalists (and Hall Kinion's top insiders) was an IPO of Hall Kinion whereby utilizing cooperative underwriters Hall Kinion stock could be sold to public investors based on false and misleading representations, obtaining for Hall Kinion the capital it desperately needed to save its business, enabling Hall Kinion's venture capital and controlling shareholders to bail out of Hall Kinion and achieve a multi-million dollar profit on what was, in fact, a troubled investment, and allowing the top insiders at Hall Kinion to cash out of some of their Hall Kinion stock as well, enabling them to pocket millions of dollars in illegal insider-trading proceeds before the troubled nature of Hall Kinion's business could no longer be concealed.
The complaint further alleges that Defendants' false and misleading statements about the successful expansion and strong performance of Hall Kinion allowed Hall Kinion to go public on 8/4/97 at $15 and thereafter artificially inflate its stock to a Class Period high of $23. Hall Kinion, its insiders and controlling shareholders sold 1,666,667 and 848,333 shares, respectively, of their Hall Kinion stock in the 8/97 initial public offering ("IPO"), pocketing $23.2 million and $11.8 million, respectively. The underwriters (Banc of America Securities LLC/Montgomery Securities, Inc. ("Montgomery"), Robert W. Baird & Co. ("Baird") and The Robinson-Humphrey Co., Inc. ("Robinson-Humphrey") (collectively the "Underwriters")) pocketed $2.6 million of the IPO proceeds.
According to the complaint, on or around 6/18/98, Hall Kinion shocked the markets by revealing that Hall Kinion's EPS growth going forward would be much lower than had been forecast. Hall Kinion's stock immediately fell by 43% in one day from $13-1/4 to $7-1/2, on volume of 1.7 million shares, the largest one-day price decline on the largest one-day trading volume in Hall Kinion's history as a public company, and then continued to fall to $6-1/8, less than one-half its IPO price less than a year earlier and the price at which Hall Kinion's controlling shareholders had unloaded 1,824,148 of their shares for $24.6 million, just three to four months earlier.
