In December 2006, the appellate court overturned the certification of classes in six test cases that were selected by the underwriter defendants and plaintiffs in the coordinated proceedings. Because class certification was a condition of the settlement, it was unlikely that the settlement would receive final Court approval. On June 25, 2007, the Court entered an order terminating the proposed settlement based upon a stipulation among the parties to the settlement.
According to the Company’s FORM 10-Q for the quarterly period ended June 30, 2006, on August 31, 2005, the Court entered a preliminary order approving the modifications to the Settlement and certifying the settlement classes. The Court also ordered that the mailing of the notices of pendency and proposed settlement of the class actions be completed by January 15, 2006. The deadline for class members to request exclusion from the settlement classes was March 24, 2006. On April 24, 2006, the Court held a hearing in connection with a motion for final approval of a proposed Settlement. The Court did not rule on the fairness of the Settlement at the hearing. It is uncertain when the Court will issue a ruling. Despite the preliminary approval of the Settlement, there can be no assurance that the Court will provide final approval of the Settlement. In the meantime, the plaintiffs and underwriters have continued to litigate the consolidated action. The litigation is proceeding through the class certification phase by focusing on six cases chosen by the plaintiffs and underwriters (“focus cases”). The Company is not a focus case. On October 13, 2004, the Court certified classes in each of the six focus cases. The underwriter defendants have appealed that decision. On June 6, 2006, the Court heard oral argument from the underwriters and the plaintiffs on the appeal. After the argument, the Court indicated that it would reserve its decision. It is uncertain when the Court of Appeals will rule on the appeal.
As summarized by the same SEC filing, during 2001, a number of securities class action complaints were filed against the Company, certain of its officers and directors, and certain of the underwriters of the Company’s March 13, 2000 initial public offering (“IPO”). On August 9, 2001, these actions were consolidated before a single judge along with cases brought against numerous other issuers, their officers and directors and their underwriters that make similar allegations involving the allocation of shares in the IPOs of those issuers. The consolidation was for purposes of pretrial motions and discovery only. On April 19, 2002, plaintiffs filed a consolidated amended complaint asserting essentially the same claims as the original complaints. During the course of pre-trial proceedings, the plaintiffs dismissed their claims against the individual defendants without prejudice in return for the individual defendants’ execution of a tolling agreement. A motion to dismiss filed by the Company was denied by the Court on November 19, 2003. On June 25, 2003, the Company’s Special Committee of the Board of Directors approved a Memorandum of Understanding (the “MOU”) reflecting a settlement in which the plaintiffs agreed to dismiss the case against the Company with prejudice in return for the Company’s assignment of certain claims that the Company might have against its underwriters. The same offer of settlement was made to all the issuer defendants involved in the litigation. No payment to the plaintiffs by the Company is 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 behalf of the Company. The settling parties presented the proposed Settlement papers to the Court and filed formal motions seeking preliminary approval. The underwriter defendants, who are not parties to the proposed Settlement, filed objections to the Settlement. On February 15, 2005, the Court granted preliminary approval of the Settlement conditioned on the agreement of the parties to narrow one of a number of the provisions intended to protect the issuers against possible future claims by the underwriters. The Company re-approved the Settlement with the proposed modifications that were outlined by the Court in its February 15, 2005 Order granting preliminary approval. Approval of any settlement involves a three-step process in the district court: (i) a preliminary approval, (ii) determination of the appropriate notice of the settlement to be provided to the settlement class, and (iii) a final fairness hearing.
The complaint alleges violations of Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. On or about March 10, 2000, Selectica commenced an initial public offering of 4,000,000 of its shares of common stock at an offering price of $30.00 per share (the ``Selectica IPO''). In connection therewith, Selectica filed a registration statement, which incorporated a prospectus (the ``Prospectus''), with the SEC. The complaint further alleges that the Prospectus was materially false and misleading because it failed to disclose, among other things, that: (i) Credit Suisse and Robertson Stephens had solicited and received excessive and undisclosed commissions from certain investors in exchange for which Credit Suisse and Robertson Stephens allocated to those investors material portions of the restricted number of Selectica shares issued in connection with the Selectica IPO; and (ii) Credit Suisse and Robertson Stephens had entered into agreements with customers whereby Credit Suisse and Robertson Stephens agreed to allocate Selectica shares to those customers in the Selectica IPO in exchange for which the customers agreed to purchase additional Selectica shares in the aftermarket at pre-determined prices.