According to the Company’s FORM 10-Q for the quarterly period ended June 4, 2006, a proposal to settle the claims against all of the issuers and individual defendants in the coordinated litigation was accepted by the Company and given preliminary approval by the U.S. District Court for the Southern District of New York. The completion of the settlement is subject to a number of conditions, including final approval by the U.S. District Court for the Southern District of New York. Under the settlement, the plaintiffs will dismiss and release all claims against participating defendants in exchange for a contingent payment guaranty by the insurance companies collectively responsible for insuring the issuers in the action, and the assignment or surrender to the plaintiffs of certain claims the issuer defendants may have against the underwriters. Under the guaranty, the insurers will be required to pay an amount equal to $1.0 billion less any amounts ultimately collected by the plaintiffs from the underwriter defendants in all the cases.
As summarized by the same SEC filing, the Company, certain of its directors and officers and certain investment bank underwriters have been named in a putative class action for violation of the federal securities laws in the U.S. District Court for the Southern District of New York, captioned “In re TIBCO Software Inc. Initial Public Offering Securities Litigation.” This is one of a number of cases challenging underwriting practices in the initial public offerings (each, an “IPO”) of more than 300 companies, which have been coordinated for pretrial proceedings as “In re Initial Public Offering Securities Litigation.” Plaintiffs generally allege that the underwriters engaged in undisclosed and improper underwriting activities, namely the receipt of excessive brokerage commissions and customer agreements regarding post-offering purchases of stock in exchange for allocations of IPO shares. Plaintiffs also allege that various investment bank securities analysts issued false and misleading analyst reports. The complaint against the Company claims that the purported improper underwriting activities were not disclosed in the registration statements for our IPO and secondary public offering and seeks unspecified damages on behalf of a purported class of persons who purchased the company’s securities or sold put options during the time period from July 13, 1999, to December 6, 2000.
The complaint alleges that, in exchange for the excessive commissions, members of the underwriting group Goldman, Sachs & Co., Bear, Stearns & Co. Inc. and Deutsche Banc Alex. Brown allocated Tibco Software 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 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 Tibco Software stock rocketed upward (a practice known on Wall Street as ``laddering'') was intended to (and did) drive Tibco Software'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 stock at the $15.00 IPO price and then selling it later for a profit at inflated aftermarket prices, which rose as high as $147 on March 9, 2000. The complaint further alleges that defendants violated the securities laws because the Prospectus distributed to investors and the Registration Statement filed with the SEC in order to gain regulatory approval for the Tibco Software offering contained material misstatements regarding the commissions that the underwriters would derive from the IPO transaction and failed to disclose the additional commissions and ``laddering'' scheme discussed above.