On April 1, 2002, the Court entered the Memorandum and Order signed by U.S. District Judge Melinda Harmon granting the defendants’ motion to dismiss the Second Amended Class Action Complaint. The Court further entered the Final Judgment and the consolidated putative class action was dismissed with prejudice.
As summarized by a previous FORM 10-K For The Fiscal Year Ended December 31, 2001, on December 12, 2000, USDC-Houston judge dismissed the consolidated amended complaint in the 1999 litigation after finding that it failed to comply with pleading requirements under the law. The plaintiffs filed a second amended complaint on January 31, 2001. Compaq moved to dismiss the second amended complaint on March 6, 2001 and is awaiting a ruling.
The original lawsuit charged defendants with violating the federal securities laws by misrepresenting and/or failing to disclose material information regarding weakening demand in certain market sectors which led to slower sales of Compaq's products in those markets and declining profitability from what Compaq and the market had forecast. It alleges that at the same time that Compaq was experiencing a slow down in sales to small and medium size businesses, particularly in
North America and Europe, defendants repeatedly made statements to the
market directly and through securities analysts that demand for Compaq's products and services remained strong. Defendants Mason, Strecker and Winkler and other executives of the Company took advantage of the inflated stock price by selling over $50 million in Compaq stock while those shares were trading at inflated prices. When Compaq belatedly revealed the slow down in demand and the fact that first quarter 1999 earnings would be less than half what Compaq and analysts had forecast, the price of Compaq shares plummeted, and investors who purchased Compaq securities were damaged thereby.