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.
This is one of a number of actions coordinated for pretrial purposes as In re Initial Public Offering Securities Litigation, 21 MC 92 with the first action filed on January 12, 2001. Plaintiffs in the coordinated proceeding are bringing claims under the federal securities laws against numerous underwriters, companies, and individuals, alleging generally that defendant underwriters engaged in improper and undisclosed activities concerning the allocation of shares in the IPOs of more than 300 companies during late 1998 through 2000. In June 2004, a stipulation of settlement and release of claims against the issuer defendants, including the Company, was submitted to the court for approval. The terms of the settlement if approved, would dismiss and release all claims against the participating defendants (including the Company). In exchange for this dismissal, D&O insurance carriers would agree to guarantee a recovery by the plaintiffs from the underwriter defendants of at least $1 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 original 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 July 19, 1999, Gadzoox commenced an initial public offering of 3,500,000 of its shares of common stock at an offering price of $21.00 per share (the "Gadzoox IPO"). In connection therewith, Gadzoox 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 Gadzoox shares issued in connection with the Gadzoox IPO; and (ii) Credit Suisse and Robertson Stephens had entered into agreements with customers whereby Credit Suisse and Robertson Stephens agreed to allocate Gadzoox shares to those customers in the Gadzoox IPO in exchange for which the customers agreed to purchase additional Gadzoox shares in the aftermarket at pre-determined prices.