According to a press release dated May 7, 2007, Orange 21 Inc. (ORNG) announced that the United States District Court for the Southern District of California issued an order approving the Company's agreement to settle the consolidated securities class action that was pending in the Court against certain of the Company's current and former officers and directors and dismissing the action with prejudice. This action has been pending since March 2005. Under the settlement, $1.4 million will be paid to the class of plaintiffs and for plaintiffs' attorneys' fees from proceeds of the Company's directors' and officers' insurance. No amounts will be paid by the Company.
In a press release dated January 16, 2007, Orange 21 Inc. (NASDAQ:ORNG) announced that it has reached an agreement to settle the consolidated securities class action currently pending in the United States District Court for the Southern District of California against the Company and certain of its current and former officers and directors. The settlement will resolve litigation that has been pending since March 2005. If the settlement is approved by the Court, following notice to the class, $1.4 million will be paid to the class of plaintiffs and for plaintiffs' attorneys' fees from proceeds of Orange 21's directors' and officers' insurance. No amounts will be paid by the Company.
As summarized by the Company’s FORM 10-Q For the Quarterly Period Ended June 30, 2006, a consolidated complaint, filed October 11, 2005, purported to seek unspecified damages on behalf of an alleged class of persons who purchased the Company’s common stock pursuant to the Company’s registration statement the Company filed in connection with its public offering of stock on December 14, 2004. The complaint alleged that the Company and its officers and directors violated federal securities laws by failing to disclose in the registration statement material information about plans to make a distribution change in the Company’s European operations, the Company’s dealings with one of its customers and whether certain of the Company’s products infringe on the intellectual property rights of Oakley, Inc. The Company filed a motion to dismiss the complaint which the court granted on March 29, 2006. The court allowed plaintiffs to file an amended complaint only with respect to their claim about a European distribution change. Plaintiffs filed an amended complaint dated April 7, 2006. On May 7, 2006, the Company filed a motion to dismiss that amended complaint. No discovery has been conducted.
The original complaint charges Orange 21 and certain of its officers and directors with violations of the Securities Act of 1933. Orange 21 designs, develops and markets premium products for the action sports and youth lifestyle markets. Its principal products, sunglasses and goggles, are marketed under the brand Spy Optic. The complaint alleges that on December 14, 2004, Orange 21 accomplished its IPO of 3.48 million shares at $8.75 per share (including 2.48 million shares sold by Orange 21 and 1 million shares sold by No Fear, Inc.) for net proceeds of $20.2 million to Orange 21 and $8.1 million to No Fear, pursuant to the Registration Statement. The Registration Statement failed to disclose that Orange 21 was engaging in copyright infringement and that its European operations were underperforming and would have to be restructured, which costs would adversely affect 2005 results.
The complaint further alleges on or around February 17, 2005, Orange 21 announced reduced earnings expectations for 2005 due in part to changes in its European infrastructure. As a result of this news, Orange 21’s stock price collapsed to around $6.00 per share. Subsequently, on or around March 7, 2005, Orange 21 disclosed it had received a cease-and-desist letter from Oakley, Inc. In response, the Company would be required to make changes based on the alleged infringements.
Specifically, the complaint alleges the Registration Statement omitted the following: (a) the Company’s European operations were underperforming and lacked the requisite infrastructure necessary to perform consistent with defendants’ representations and expectations and that as a result the Company would need to restructure these operations and incur material costs, thereby materially adversely affecting the Company’s operating performance for 2005; (b) the Company was violating patents and trademarks associated with its key product, fashion frames, and that the Company would halt the production of certain products, including the New Meteor New Espador and 42 fashion frames; and (c) the Company was modifying its distribution policies which necessarily would increase the Company’s cost structure and erode the Company’s margins and net income by $700,000 for FY 2005.