As reported by the Company’s FORM 10-K for the fiscal year ended December 31, 2001, as of March 31, 2001, the parties reached an agreement-in-principle to settle the Class Action. On June 28, 2001, the parties filed a definitive settlement agreement with the Court. On July 6, 2001, the Court preliminarily approved the proposed terms of the definitive settlement agreement. On October 23, 2001, the Court ordered final approval of the settlement, and final judgment has entered and become effective, resulting in full dismissal of the Class Action litigation against all defendants. The terms of the $6 million settlement included a contribution by the Company's directors' and officers' liability insurance carriers of $4.3 million, and a contribution by the Company of $1.7 million.
Earlier, according to the same SEF filing, on October 5, 1999, a purported securities class action complaint was filed in the United States District Court for the District of New Hampshire (the "Court") against the Company and certain officers and directors of the Company. The lawsuit (the "Class Action") alleges, among other things, that the Company, during the purported class period of August 8, 1997 through October 6, 1998, made misrepresentations and omissions to the investing public regarding its financial results and its accounting practices in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Sections 11 and 12(a)(2) of the Securities Act of 1933. The defendants moved to dismiss the complaint in its entirety. The Court denied in part and granted in part defendants' motion, dismissing plaintiffs' claim under Section 12(a)(2) of the Securities Act of 1933, but permitting all other claims to go forward.
The original class action suit charges Omtool and certain of its top officers and directors with violations of the securities laws and regulations of the United States. The complaint alleges that the defendants knowingly or recklessly misled investors. During the Class Period, defendants caused or permitted Omtool to issue and sell, by means of a public offering, 4 million shares (including over-allotments) of Omtool common stock at a price of $9 per share throughout the Class Period, which allowed the Company to report materially inflated revenue and earnings. After the IPO, Omtool's stock traded as high as $14-3/4 per share. The Class Period ends on October 6, 1998, the day the Company stunned the financial community by announcing that its financial results for the quarter ended September 30, 1998 would be poor and the stock declined to $1.6875 per share on the day following the disclosure. Defendants' false and misleading statements artificially inflated the price of Omtool common stock during the Class Period.