According to the Company’s Form 10-K for the fiscal year ended December 31, 2006, in late 2006, the parties reached a preliminary agreement to settle the federal class action. On November 22, 2006, the Court entered an order preliminarily approving the settlement. A final approval hearing is scheduled by the Court on March 12, 2007. The terms of the settlement require the defendants to pay $4.4 million in full settlement of the claims asserted on behalf of the class. Of this $4.4 million, the Company paid approximately $1.6 million in December 2006 into a settlement trust, which approximated the remaining unpaid portion of the deductible on the Company’s Directors and Officer’s insurance policy.
As summarized bythe Company’s FORM 10-Q for the quarterly period ended June 30, 2006, on July 20, 2005, without oral argument, the Court entered an Opinion and Order Granting in Part and Denying in Part Defendants’ Motions to Dismiss the Second Amended Consolidated Class Action Complaint. The Court’s Order granted the motions to dismiss with prejudice to the extent the plaintiffs asserted claims on behalf of those who purchased the convertible notes. The Court’s Order granted the motions to dismiss with prejudice as to the plaintiffs’ Section 12(a)(2) of the Securities Act claim against the individual defendants. The Court’s Order denied the motions to dismiss with respect to the plaintiffs’ Section 11 and 15 of the Securities Act claims. The plaintiffs filed a notice on August 4, 2005 that the Second Amended Complaint remains the operative complaint in the case. On September 21, 2005, the multiple defendant groups filed their respective Answers to the operative complaint. A hearing on plaintiffs’ motion for class certification is scheduled to be held on August 28, 2006 but may be continued due to delays in class certification discovery.
As disclosed by the same SEC filing, in October and November 2003, several class action complaints were filed in the United States District Court for the Central District of California on behalf of purchasers of our common stock, alleging violations of the federal securities laws between December 19, 2000 and April 29, 2002 (the “Class Period”). Named as defendants in these complaints are the Company’s former President and Chief Executive Officer, the former Chief Financial Officer, the former Chairman of the Board of Directors, the former Vice President of Operations and the former Vice President of Sales and Marketing. Neither the Company nor any of its subsidiaries were named in these lawsuits. The complaints seek unspecified damages and allege that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) by, among other things, misrepresenting and/or failing to disclose material facts about the Company’s reported and projected financial results during the Class Period. In December 2003, a related class action complaint was filed in the Central District of California alleging similar claims against the same parties and seeking unspecified damages, but also adding causes of action under the Securities Act of 1933, as amended (the “Securities Act”) in connection with the Company’s February 2001 primary offering of convertible notes and secondary offering of common stock. This complaint alleges that the defendants misrepresented and/or failed to disclose material facts about the Company’s reported and projected financial results in connection with the registration statement and prospectus for the secondary offering. This complaint also added former directors as defendants, as well as Bain Capital, Inc. and the underwriters of the February 2001 offering. On December 16, 2003, a federal district court judge consolidated the Central District of California actions in to a single action, In re DDi Corp. Securities Litigation, Case No. CV 03-7063 MMM (SHx). On May 21, 2004, the Court appointed as Lead Plaintiffs Paul Poppe, LeRoy Schneider, and Rand Skolmick. On July 26, 2004, Lead Plaintiffs filed a consolidated amended complaint on behalf of all persons or entities who purchased Company common stock between December 19, 2000 and April 29, 2002, including those who acquired Company common stock pursuant to, or traceable to, the February 14, 2001 secondary offering. The consolidated amended complaint seeks unspecified damages and alleges that defendants violated Sections 11, 12(a)(2), and 15 of the Securities Act and Sections 10(b) and 20(a) of the Exchange Act by, among other things, misrepresenting and/or failing to disclose material facts about the Company’s reported and projected financial results during the Class Period, including reported and projected financial results in connection with the registration statement and prospectus for the secondary offering. Neither the Company nor any of it subsidiaries were named as a defendant in this consolidated amended complaint.
Pursuant to a June 13, 2004 scheduling order, the defendants responded to the consolidated amended complaint on September 9, 2004 with a motion to dismiss. The plaintiffs filed their opposition on October 25, 2004. The defendants filed a reply in support of the motion to dismiss in November 2004. On January 7, 2005, without the necessity of oral argument, the Court entered an Order Denying in Part and Granting in Part Defendants’ Motions to Dismiss the Consolidated Amended Complaint. The Court’s Order denied the motions to dismiss to the extent they relied upon statutes of limitations arguments. The Court’s Order granted the motions to dismiss on the grounds that the Consolidated Amended Complaint failed to adequately allege any materially false or misleading representations or omissions. The Court’s Order also granted Defendants’ motions to the extent the Consolidated Amended Complaint inappropriately relied upon the group pleading or group published information doctrine. As a consequence of this, the totality of plaintiffs’ claims were dismissed with leave to file a Second Amended Consolidated Complaint. The plaintiffs filed a Second Amended Complaint on February 22, 2005 stating only Securities Act claims. Multiple defendant groups filed motions to dismiss the plaintiffs’ Second Amended Complaint on March 25, 2005. Plaintiffs filed an opposition to the motions to dismiss on April 25, 2005. On May 16, 2005, the defendants filed replies in support of the motions to dismiss. On May 6, 2005, the individual defendants also filed a supplemental brief in further support of the motion to dismiss. On May 20, 2005, the plaintiffs filed an opposition to this supplemental brief.
The original complaint charges certain of DDi's officers and directors with violations of the Securities Exchange Act of 1934. DDi provides technologically advanced, time-critical electronics engineering, development and manufacturing services
to original equipment manufacturers and other providers of electronics
manufacturing services. The complaint alleges that the true facts which were
known by each of the defendants, but concealed from the investing public during
the Class Period, were as follows: (a) The Company's financial results were
overstated. Specifically, the Company failed to properly conduct its impairment
test of the Company's assets, including goodwill. Moreover, the Company had
overstated the value of its inventory; (b) The Company's receivables and
projections were grossly overstated as the Company's clients were delaying
payment and/or defaulting on their debts to DDi as the technology market
continued to deteriorate; (c) The Company's results, which defendants claimed
"out performed (their) expectations," were the result of improper accounting,
and not as claimed; (d) The Company's clients were not, as defendants suggested, converting their prototypes into preproduction orders; (e) The
Company's Anaheim plant was in disarray, requiring massive restructuring of the
facilities and causing the Company to incur massive costs; (f) The Company's
Tokyo offices were hemorrhaging cash and were draining the Company's
resources; (g) The Company's United Kingdom design centers were essentially
creating redundant expenses and were inefficient, causing the Company's
valuation of these centers to be overvalued; (h) The Company was in violation
of its financial covenants and had delayed the breakdown of its assets for
multiple quarters in order to avoid lenders' and shareholders' knowledge of the
Company's violation; (i) The Company's Moorpark, California operations and
Texas operations were hemorrhaging millions of dollars quarterly and required
that the defendants write down their value by the end of the first quarter 2001
by approximately $10 million; and (j) The Company's post acquisition valuation
of its Sanmina acquisition was grossly overvalued.
As a result of the defendants' alleged false statements, DDi's stock price
traded at inflated levels during the Class Period, increasing to as high as
$35.50 on January 30, 2001, whereby the Company's top officers and directors
sold more than $20 million worth of their own shares.