On August 30, 2006, the Order entered the Order by U.S. District Judge Patti B. Saris preliminarily approving the settlement and providing for notice.
On March 8, 2005, the plaintiffs filed a Second Consolidated Class Action for Violations of the Federal Securities Law, and the defendant responded by filing a motion to dismiss on April 7, 2005. On March 16, 2006, the Court entered the Order denying the defendant’s motion to dismiss without prejudice on the grounds that the case is likely to settle. On May 23, 2006, a motion for Preliminary Approval of Proposed Settlement was filed.
In October 2004, the action was transferred from the U.S. District Court for the Northern District of Illinois to the District of Massachusetts.
The original Complaint alleges that defendants Chief Executive Officer and Chairman of the Board of Directors, and Chief Financial Officer and Executive Vice President 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 November 12, 2001, and February 18, 2003, thereby artificially inflating the price of Divine securities. Throughout the Class Period, as alleged in the Complaint, defendants failed to disclose and misrepresented the following material adverse facts: (i) Divine was engaged in a scheme of inflating its revenues by approximately $65 million by instructing employees of its wholly-owned subsidiary, RoweCom, to offer discounts to library customers that paid cash in advance - months before payments were due to publishers - even though Divine had no plan to pay its obligations to publishers, (ii) Divine was fraudulently diverting nearly $74 million from RoweCom's operations, (iii) Divine lacked adequate financial and internal controls with respect to its RoweCom operations, and (iv) as a result of the foregoing, Divine lacked a reasonable basis to project profitability by year-end or an ability to maintain its operations without bankruptcy protections. The Class Period ends on February 18, 2003. On that date, Divine announced that "despite efforts over the past several months to minimize
operating expenses and various liabilities, its board of directors has determined that it must seek alternatives to protect the value and viability of its operations. As a result, Divine has engaged Broadview International LLC as advisors to assist in exploring strategic options, which may include asset divestitures, comparable transactions, and/or the filing of a voluntary petition under Chapter 11 of the United States Bankruptcy Code." In response to this announcement, the price of Divine
stock declined precipitously. During the Class Period, Divine completed two acquisitions, among numerous others - acquiring Viant Corporation and Delano Technology Corporation - using its common stock as currency.