According to McAfee, Inc.’s Form 10-Q for the quarterly period ended March 31, 2006, in June 2004, a stipulation for the settlement and release of claims against the issuer defendants, including us, was submitted to the Court for approval. The terms of the settlement, if approved, would dismiss and release all claims against participating defendants, including us. In exchange for this dismissal, insurance carriers would agree to guarantee a recovery by the plaintiffs from the underwriter defendants of at least $1.0 billion, and the issuer defendants would agree to an assignment or surrender to the plaintiffs of certain claims the issuer defendants may have against the underwriters. On August 31, 2005, the Court confirmed preliminary approval of the settlement. The settlement remains subject to a number of conditions, including final court approval.
As summarized by the same SEC filing, certain investment bank underwriters, the company, and certain of the company’s directors and officers have been named in a putative class action for violation of the federal securities laws in the United States District Court for the Southern District of New York, captioned In re McAfee.com Corp. Initial Public Offering Securities Litigation, 01 Civ. 7034 (SAS). This is one of a number of cases challenging underwriting practices in the initial public offerings, or IPOs, of more than 300 companies. These cases have been coordinated for pretrial proceedings as In re Initial Public Offering Securities Litigation, 21 MC 92 (SAS). Plaintiffs generally allege that certain 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 McAfee.com’s IPO 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 December 1, 1999 to December 6, 2000. On February 19, 2003 the Court issued an Opinion and Order dismissing certain of the claims against the company with leave to amend. The company accepted a settlement proposal on July 15, 2003.
The complaint alleges violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. On or about December 1, 1999, McAfee commenced an initial public offering of 6,250,000 of its shares of common
stock at an offering price of $12 per share (the "McAfee IPO"). In connection
therewith, McAfee 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) defendants had solicited and received
excessive and undisclosed commissions from certain investors in exchange for which defendants allocated to those investors material portions of the
restricted number of McAfee shares issued in connection with the McAfee IPO; and (ii) defendants had entered into agreements with customers whereby defendants agreed to allocate McAfee shares to those customers in the McAfee IPO in exchange for which the customers agreed to purchase additional McAfee shares in the aftermarket at pre-determined prices.