According to the docket, on December 10, 2002, the Court entered the Orders granting the motion for final approval of allocation of the settlement proceeds and the motion for attorney fees and reimbursement of expenses. The Court further entered the Final Judgment approving the settlement stipulation and order of dismissal with prejudice. The case is closed.
By the Notice of Pendency and Proposed Settlement, the parties reached an agreement-in-principle to settle the action. The proposed Settlement creates a fund in the amount of $5,900,000 in cash (the "Settlement Fund") and will include interest that accrues on the fund prior to distribution. Based on Representative Plaintiffs' estimate of the number of shares entitled to participate in the Settlement and the anticipated number of claims to be submitted by class members, the average distribution per share would be approximately $1.20 before deduction of Court-approved fees and expenses.
If the Settlement is approved by the Court, counsel for the plaintiffs in this case will apply to the Court for attorneys' fees of up to 25% of the settlement proceeds and reimbursement of out-of-pocket expenses not to exceed $325,000.00 to be paid from the Settlement Fund. If the amount requested by counsel is approved by the Court, the average cost per share would be $0.37. The average cost per share could vary depending on the number of shares for which claims are filed.
As reported by the Company’s FORM 10-K for the year ended December 31, 2002, on or after August 12, 2000, six complaints were filed in the United States District Court of Utah alleging that TenFold and certain of TenFold’s officers violated certain federal securities laws. All six complaints were virtually identical and alleged that 1) TenFold improperly recognized revenues on some of TenFold’s projects; 2) TenFold failed to maintain sufficient accounting reserves to cover the risk of contract disputes or cancellations; 3) TenFold issued falsely optimistic statements that did not disclose these accounting issues; and 4) TenFold insiders sold stock in early calendar year 2000 while knowing about these issues. On TenFold’s motion, the court consolidated the six complaints into one class action complaint. On May 1, 2001, the plaintiffs filed an amended consolidated complaint. TenFold filed a motion to dismiss the amended complaint on June 19, 2001. On March 19, 2002, the court granted TenFold’s motion to dismiss the amended complaint, but allowed the plaintiffs leave to make a motion to amend their complaint. The plaintiffs subsequently filed a motion to amend their complaint and TenFold filed a written response. The parties then reached an agreement for settlement of the action.
The original complaint charges TenFold and certain of its officers and directors with violations of the Securities Exchange Act of 1934. TenFold describes itself as a leading provider of large-scale e-business applications for customers in banking, communications, energy, healthcare, insurance, investment management and other industries. The complaint alleges that defendants made false and misleading statements with respect to TenFold's ability to deliver applications on target, that worked and were on time. Defendants also made false and misleading statements concerning the revenues to be derived from its software sales and the quality of its receivables. Further, TenFold concealed the fact that: (a) the quality of its receivables was rapidly deteriorating; (b) the length of its sales cycle was exploding; (c) it failed and/or was unable to produce a stable environment to conduct acceptance tests; (d) it falsely represented "completion dates" in order to induce customers to sign contracts; and (e) its customers were canceling contracts and/or refusing to pay for delivered product which defendants were booking as revenue and receivables. These statements and omissions artificially inflated the price of TenFold stock to a Class Period high of $70. This upsurge in TenFold's stock price caused by defendants' alleged false and misleading statements allowed defendants to sell 508,000 shares of TenFold stock for proceeds of $26.5 million. Defendants' scheme began to unravel when on July 10, 2000 when TenFold disclosed preliminary results for the second quarter ending June 30, 2000, which were well below expectations. After this announcement, the price of TenFold's stock fell nearly 40% to $10-1/4 per share on volume of about 6.6 million shares, more than 25 times the three-month daily average. The full extent of defendants' scheme was not revealed until August 14, 2000, when the Company announced its actual results for the second quarter ending June 30, 2000. In that press release, the Company announced that its net loss for the quarter would be $(6.5) million, or $(0.19) per share, well below the projections in the July 10, 2000 press release.