According to a press release dated April 6, 2005, Microtune, Inc. announced that the United States District Court for the Eastern District of Texas, has entered orders and final judgments approving the previously announced settlements of the consolidated securities class action litigation and the consolidated shareholder derivative litigation involving Microtune. The insurance carriers have agreed to pay $5,625,000 to settle the securities class action litigation and to reimburse the majority of the $1,125,000 in plaintiffs' attorneys' fees and expenses associated with the derivative litigation, subject, in both instances, to the Company's 15% co-pay obligation.
As summarized by the Company’s FORM 10-K for the fiscal year ended December 31, 2004, the actions have all been consolidated into one case, lead plaintiffs have been appointed, and a consolidated amended complaint has been filed. The defendants filed motions to dismiss Plaintiffs’ claims. On April 12, 2004, the District Court entered an order dismissing all claims against Defendants Rogers and Housley with prejudice and dismissing all claims against the remaining Defendants with prejudice except the Transilica-related claims. On November 23, 2004, Microtune and the other defendants entered into a settlement agreement with the plaintiffs under which the defendants agreed to settle the consolidated lawsuit for $5,625,000, inclusive of attorneys’ fees and costs, in return for a full release of all claims and dismissal of the consolidated lawsuit. The district court has preliminarily approved the settlement and notice of the settlement has been sent to the Settlement Class, as defined in the settlement agreement. The settlement is subject to certain conditions, including final court approval, and the hearing on final approval is scheduled for March 14, 2005. Microtune and the other defendants made no admission of wrongdoing as part of the settlement.
The original Complaint alleges that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder, by issuing a series of material misrepresentations to the market between April 22, 2002 and February 20, 2003, thereby artificially inflating the price of Microtune common stock. Throughout the Class Period, as alleged in the Complaint, defendants issued numerous statements and filed quarterly reports with the SEC which described the Company's increasing revenues and financial performance. These statements were materially false and misleading because they failed to disclose and/or misrepresented the following adverse facts, among others: (i) that the Company had materially overstated its revenue by immediately recognizing as revenue certain sales which should have been categorized as deferred revenue, as payment was not assured and in fact was not made for substantial periods of time; (ii) that the Company failed to disclose that a material portion of its revenues had not in fact been paid for; (iii) that the Company lacked adequate internal controls and was therefore unable to ascertain the true financial
condition of the Company; and (iv) as a result of the foregoing, the Company's financial statements issued during the Class Period were materially false and misleading. On February 20, 2003, the last day of the Class Period, after the close
of regular trading, Microtune shocked the market by announcing that its loss for the fourth quarter of 2002, the period ending December 31, 2002, was $80.2 million, or almost double the loss of $47 million which it had reported in the same period of the prior year. Despite having shipped $16.1 million of product during the fourth quarter of 2002, the Company announced that it would only be reporting revenues of $2.2
million "as a result of charges relating to five customers, including (a) credits granted and/or (b) lack of timely payments." As a result of this development, the Company announced that its Board of Directors has directed its audit committee to conduct an inquiry of the events that led to these "material negative charges." The next morning, when the market opened for trading, shares of Microtune fell more than 35%, to approximately $1.20 per share, a far cry below their Class Period high of $13.81 per share, on extremely heavy trading volume.