According to a press release dated March 1, 2007, Quovadx, Inc. (Nasdaq: QVDX) announced that on February 26, 2007, Senior District Judge Richard P. Matsch, in the federal court in the District of Colorado, issued a final judgment approving in all respects the settlement of the class action lawsuit captioned Heller v. Quovadx, Inc., et al., and dismissed with prejudice all claims alleged in the action against the Company and the individual defendants. This lawsuit, which arose from the Company's restatement in March 2004 of historical financial results, was originally filed on June 10, 2004. Under the terms of the approved settlement, class members and their counsel received $9million in exchange for their release of the Company and the individual defendants, with prejudice, of all claims under Sections 10b and 20(a) of the Securities Exchange Act of 1934. Of the $9.0 million settlement, Quovadx contributed $2.0 million, and its insurance carriers contributed $7.0 million. As a result of the final judgment, the Company has no further liability in this lawsuit.
On August 22, 2006, a Stipulation of Settlement was filed. On October 11, 2006, the Court entered the Order denying Lead Plaintiff's Motion for Preliminary Approval of Settlement.
According to a press release dated April 5, 2006, on April 4, 2006, the Company reached a settlement agreement with lead plaintiffs in the class action captioned Heller v. Quovadx, Inc., et al, filed on June 10, 2004, and pending in federal court in the district of Colorado. Under the terms of the settlement, the plaintiffs will receive $10 million in exchange for their release of the Company and the individual defendants, with prejudice, of all claims under Section 10b and Section 20(a) of the Securities and Exchange Act of 1934. Quovadx has agreed to pay $3.0 million, and its insurance carriers have agreed to pay $7.0 million, into a settlement fund established by the lead plaintiffs' counsel within 10 business days. Failure to make full payment into the settlement fund would result in immediate termination of the settlement agreement. The agreement, which excludes claims made under Sections 11 and 15 of the Securities Act of 1933, is subject to, among other things, approval by the Court. The Company also reached an agreement in principle in the shareholder derivative actions, consolidated under In re Quovadx, Inc. Derivative Litigation, pending in state court in Arapahoe County, Colorado. Under terms of the agreement, the Company will pay a settlement fee of $575,000 and implement certain corporate governance changes, in exchange for full release of the Company and all individual defendants, with prejudice, of all state law claims. The agreement is subject to final agreement on the governance changes and approval by the court.
As summarized by the Company’s Form 10-K for the fiscal year ended December 31, 2005, on December 13 and 14, 2005, a voluntary mediation was held among the following parties: plaintiffs in each of the Heller, SSF and derivative cases; the Company; the individual director defendants; the former officer defendants; and the various director and officer insurance carriers. As a result of the mediation and subsequent discussions, the parties reached a preliminary understanding to settle the Heller case and the derivative cases. Additionally, the Company reached an understanding with the director and officer insurance carriers for a settlement under the applicable policies.
Previously, according to the same SEC filing, on March 18, 2004, a purported class action complaint was filed in the United States District Court for District of Colorado, entitled Smith v. Quovadx, Inc. et al, Case No. 04-M-0509. Thereafter, eight additional, nearly identical class action complaints were filed in the same court based on the same facts and allegations. Subsequently, all but one of the actions, entitled Heller v. Quovadx, Inc., et al., Case No. 04-M-0665 (OES) (D. Colo.), were dismissed. On June 10, 2004, the plaintiff in Heller filed a first amended complaint, which asserts the same claims as those asserted in the original complaint, and includes allegations regarding the Company’s accounting for certain additional transactions. On September 8, 2004, the court approved the appointment of David Heller as lead plaintiff. On September 29, 2004, the court denied defendants’ motions to dismiss the first amended complaint and approved the appointment of Mr. Heller’s counsel as lead plaintiff’s counsel. On October 14, 2004, the Company and the other defendants filed answers to the first amended complaint, denying allegations of wrongdoing and asserting various affirmative defenses. On April 12, 2005, the court issued an order certifying as a class all persons (except insiders) who purchased Quovadx stock on the open market between October 22, 2003 and March 15, 2004. On January 13, 2005, the court entered a scheduling order in the case. In November 2005, the court vacated the January 13, 2005 scheduling order, in anticipation that the court would enter a coordinated scheduling order in conjunction with a scheduling order in Case No. 04-M-1006. A scheduling conference was held February 24, 2006, at which the court further delayed scheduling for thirty days to allow the parties time to complete settlement negotiations. No trial date has been set.
The original complaint charges Quovadx and certain individuals with violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder. More specifically, the Complaint alleges that defendants issued a number of materially false and misleading statements about its financial results. These positive statements failed to disclose and indicate: (1) that the Company had materially overstated its net income and earnings per share; (2) that defendants prematurely recognized revenue from contracts between the Company and Infotech Network Group in violation of generally accepted accounting principals ('GAAP'); (3) that the Company lacked adequate internal controls and was therefore unable to ascertain the true financial condition of the Company; and (4) that as result of recognizing revenue prematurely, the Company's financial results were materially inflated at all relevant times.
The complaint further alleges that on March 15, 2004, Quovadx announced that it would delay the filing of its annual report on Form 10-K for the year ended December 31, 2003 to restate its 2003 third quarter financial results and revise its previously announced preliminary 2003 fourth quarter and full year financial results. The Company had determined that revenue on prior shipments of software product to Infotech Network Group would be recognized only when cash was received. The restatement removed all revenue associated with contracts between the Company and Infotech Network Group from its published financial reports for 2003. News of this shocked the market. Shares of Quovadx fell $1.45 per share, or 28.8%, to close at $3.58 per share on unusually high trading volume.