According to the docket, on December 7, 2004, the Court entered the Final Judgment of Dismissal by U.S. District Judge William H. Pauley III adopting the terms of the stipulation of settlement and dismissing the action with prejudice. The next day, the Court entered the Order awarding attorneys' fees to plaintiffs' counsel in the amount of $1,620, 000 and reimbursement of costs and expenses they incurred in the amount of $189,530.30. The parties agreed to settle the action for $6,750,000.
In a press release dated June 30, 2004, a tentative settlement was reached in the putative class action. The settlement, if approved by the court after notice to the class members and a hearing, is in an amount that is covered by Alloy's applicable directors and officers insurance policies. Also on June 28, 2004, Alloy reached a tentative settlement in the related derivative action entitled Yeung Chan v. Diamond, et al., 03 Civ. 8494 (S.D.N.Y.) (WHP) that was filed in the United States District Court for the Southern District of New York against the then directors of Alloy in October, 2003. That tentative settlement does not require the Company to make any payment except to the extent legal fees are awarded to plaintiff's counsel by the court.
The complaint charges 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 materially false and misleading
statements to the market between August 1, 2002 and January 23, 2003.
Alloy is a teen-focused media company and direct marketer that targets
Generation Y consumers, i.e. the approximately 60 million people in the
United States between the ages of 10 and 24. The complaint alleges that
the Company claimed that its merchandising and advertising segments
complemented one another in a way that gave the Company an edge over
competitor teen retailers and media businesses and which would enable it
to succeed despite difficult market conditions in the second half of
2002. Unbeknownst to investors, the Company faced fierce competition for
the youth market and the weak economy forced the Company to cut its
prices and increase operating expenses, e.g. by offering free shipping
and deep discounts, thereby eroding Alloy's gross profit margin.
On January 23, 2003, the Company shocked the market by announcing that
EBTA for its fiscal fourth quarter ending January 31, 2003 would be $11
million to $12 million instead of the previously projected $15 million
to $16 million and that fiscal 2002 EBTA would be in the range of $30 to
$31 million instead of the previously forecast $34 million to $38
million. On this news, the Company's share priced plummeted by 49%, or
$4.57, from the previous day's closing price of $9.10.