According to the Company’s FORM 10-K for the fiscal year ended December 31, 2004, on June 30, 2003, a Special Litigation Committee of the Board of Directors of the Company approved a Memorandum of Understanding (the “MOU”) reflecting a tentative settlement in which the plaintiffs agreed to dismiss the case against the Company with prejudice in return for the assignment by the Company of certain claims that it might have against its underwriters. The same offer of settlement was made to all issuer defendants involved in the litigation. No payment to the plaintiffs by the Company was required under the MOU. After further negotiations, the essential terms of the MOU were formalized in a Stipulation and Agreement of Settlement (“Settlement”), which has been executed on the Company’s behalf and on behalf of the Individual Defendants. The settling parties presented the proposed Settlement to the Court on June 15, 2004 and filed formal motions seeking preliminary approval on June 25, 2004. The underwriter defendants, who are not parties to the proposed Settlement, filed a brief objecting to the Settlement’s terms on July 14, 2004. On February 15, 2005, the Court granted preliminary approval of the settlement conditioned on the agreement by the parties to narrow one of a number of the provisions intended to protect the issuers against possible future claims by the underwriters. A final hearing on the approval of the settlement is scheduled for mid March 2005.
As disclosed by the same SEC filing, on August 9, 2001, these actions were consolidated for pre-trial purposes before a single judge along with similar actions involving IPOs of numerous other issuers. On February 14, 2002, the parties signed and filed a stipulation dismissing the consolidated action without prejudice against the Company and the Individual Defendants, which the Court approved and entered as an order on March 1, 2002. On April 20, 2002, the plaintiffs filed an amended complaint in which they elected to proceed with their claims against the Company and the Individual Defendants only under Sections 10(b) and 20(a) of the Exchange Act. The amended complaint alleges that the prospectus filed in connection with the IPO was false or misleading in that it failed to disclose: (i) that the underwriters allegedly were paid excessive commissions by certain of the underwriters’ customers in return for receiving shares in the IPO and (ii) that certain of the underwriters’ customers allegedly agreed to purchase additional shares of our common stock in the aftermarket in return for an allocation of shares in the IPO. The complaint further alleges that the underwriters offered to provide positive market analyst coverage for the Company after the IPO, which had the effect of manipulating the market for our stock. Plaintiffs contend that, as a result of the omissions from the prospectus and alleged market manipulation through the use of analysts, the price of the Company’s common stock was artificially inflated between November 18, 1999 and December 6, 2000, and that the defendants are liable for unspecified damages to those persons who purchased the Company’s common stock during that period. On July 15, 2002, the Company and the Individual Defendants, along with the rest of the issuers and related officer and director defendants, filed a joint motion to dismiss based on common issues. Opposition and reply papers were filed. The Court rendered its decision on February 19, 2003, which granted dismissal in part of a claim against one of the Individual Defendants and denied dismissal in all other respects.
The lawsuit asserts claims under Section 12 of the Securities Act of 1933 and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated by the SEC thereunder and seeks to recover damages. Any member of the class may move the Court to be named lead plaintiff. If you wish to serve as lead plaintiff, you must move the Court no later than August 10, 2001. The complaint alleges that Retek, Inc, John Buchanan, its Chairman and Chief Executive Officer, and Gregory A. Effertz, its Chief Financial Officer, violated the federal securities laws by issuing and selling Retek common stock pursuant to the initial public offering without disclosing to investors that at least two of the lead underwriters of the IPO had solicited and received excessive and undisclosed commissions from certain investors. In exchange for the excessive commissions, the complaint alleges, lead underwriters Credit Suisse First Boston Corp. and FleetBoston Robertson Stephens, Inc. allocated Retek shares to customers at the IPO price of $15.00 per share. To receive the allocations (i.e., the ability to purchase shares) at $15.00, the defendant lead underwriters' brokerage customers had to agree to purchase additional shares in the aftermarket at progressively higher prices. The requirement that customers make additional purchases at progressively higher prices as the price of Retek stock rocketed upward (a practice known on Wall Street as ``laddering'') was intended to (and did) drive Retek's share price up to artificially high levels. This artificial price inflation, the complaint alleges, enabled both the underwriters and their customers to reap enormous profits by buying Retek stock at the $15.00 IPO price and then selling it later for a profit at inflated aftermarket prices, which rose as high as $40.00 during its first day of trading. Rather than allowing their customers to keep their profits from the IPO, the complaint alleges, the defendant lead underwriters required their customers to ``kick back'' some of their profits in the form of secret commissions. These secret commission payments were sometimes calculated after the fact based on how much profit each investor had made from his or her IPO stock allocation.