As reported by the Company’s Form 10-K for the fiscal years ended September 30, 2003 and 2004, in June 2004, the Company reached an agreement in principle to settle these class action lawsuits. The settlement, which was subject to a definitive agreement and court approval, provided for a cash payment of $3 million to be funded by the Company’s liability insurance carrier and our issuance of two million shares of common stock. In October 2004, the Court approved the settlement and the shares were issued in November 2004. In addition, in August 2004, the Company reached an agreement with the liability insurance carrier to issue warrants to the carrier to purchase 500,000 shares of the Company’s common stock at an exercise price of $0.67 per share in exchange for the carrier’s acceptance of the terms of the class action lawsuit. The Company provided a reserve of $1,564,490 in fiscal 2002 to cover any losses from this litigation.
According to a press release dated July 6, 2004, an agreement in principle to settle the securities class action lawsuits that have been consolidated has been reached in the United States District Court for the Southern District of Texas. The settlement is subject to a definitive agreement and court approval. The shareholder class will receive a cash payment of $3 million, which will be funded by Tidel's directors and officers liability insurance, and a stock payment of two million shares of Tidel common stock. In the agreement, Tidel and the officers and directors named in the lawsuits continue to deny any and all allegations of wrongdoing, and they will receive a full release of all claims asserted in the litigation
The Company and several of its officers and directors were named as defendants (the “Defendants”) in a purported class action filed on October 31, 2001 in the United States District Court for the Southern District of Texas (the “Southern District”), George Lehockey v. Tidel Technologies, et al., H-01-3741. Prior to the suit’s filing, four identical suits were also filed in the Southern District. On or about March 18, 2002, the Court consolidated all of the pending class actions and appointed a lead plaintiff under the Private Securities Litigation Reform Act of 1995 (“Reform Act”). On April 10, 2002, the lead plaintiff filed a Consolidated Amended Complaint (“CAC”) that alleged that the Defendants made material misrepresentations and omissions concerning our financial condition and prospects between January 14, 2000 and February 8, 2001 (the putative class period).
The original complaint alleged that during the Class Period, Tidel falsely touted its sales of automated teller machines, or ATMs, at a "record" pace. These materially false and misleading statements allowed the Company to begin trading
on the NASDAQ national trading system, which would have been impossible without the Company's false and misleading statements and the consequent artificial inflation of the Company's stock price. When Tidel finally disclosed that its largest customer's orders would be at "substantially reduced levels for the quarter ending March 31, 200l," Tidel's stock price declined precipitously. The lawsuit alleges that Tidel knew during the time period but did not disclose
that its largest customer was in the process of switching to a competitor and
reducing orders. The claims asserted arise under Sections 10 and 20 of the Securities Exchange Act of 1934. Named as defendants in the suit are Tidel; James T. Rash, Tidel's Chief Executive Officer, Chief Financial Officer and Chairman of Tidel's Board of Directors; Mark K. Levenick, Tidel's Chief Operating Officer and a Director of Tidel; James L. Britton III, a Director of Tidel; and Jerrell G. Clay, a Director of Tidel.