According to a press release dated July 9, 2007, Navarre Corporation (Nasdaq: NAVR) a publisher and distributor of physical and digital home entertainment and multimedia products, today announced that it has reached an agreement to settle the purported securities class action litigation pending against the Company and certain of its current and former officers and directors. This settlement remains subject to the satisfaction of various conditions, including the negotiation and execution of a final stipulation of settlement and approval by the U.S. District Court for the District of Minnesota. Under the terms of the pending settlement, a fund will be created to pay claims of class members and the fees of plaintiffs' attorneys. This fund will be created with amounts paid primarily by the Company's insurance carrier and without any contribution by the Company or the individual defendants. Accordingly, the settlement will not have an impact on the Company's earnings or cash balances.
As summarized by the Company’s FORM 10-K for the fiscal year ended March 31, 2007, on July 28, 2006 Plaintiffs filed their Second Consolidated Amended Complaint against Defendants. Defendants filed a motion to dismiss the renewed complaint on September 22, 2006, asserting, among other things, that Plaintiffs had not sufficiently cured the defects present in the original Consolidated Amended Complaint. By a Memorandum and Order dated December 21, 2006, the Court granted Defendants’ motion in part, denied it in part, and specifically removed Cary L. Deacon, Brian M.T. Burke and Charles Cheney as individual defendants. Defendants answered the Complaint on January 26, 2007 and anticipate that typical disclosure requirements and discovery will proceed.
According to a press release dated June 28, 2006, Navarre Corporation a publisher and distributor of physical and digital home entertainment and multimedia products, announced that on June 27, the United States District Court for the District of Minnesota dismissed the amended class action brought against the Company (under the caption In re Navarre Corporation Securities Litigation), which alleges securities fraud by the Company and certain of its officers and directors. The dismissal by the Court was without prejudice, meaning that the plaintiffs were granted 30 days if so desired to amend their complaint to cure its deficiencies. If not, the complaint will be dismissed with prejudice.
The original complaint alleges that throughout the Class Period Navarre and certain of its officers reported quarter after quarter of record results that were purportedly achieved by successful execution of the Company's strategy. As particularized in the complaint, defendants' class period representations concerning the Company's financial results and its business were materially false and misleading for the following reasons: (a) Defendants had materially inflated Navarre's reported income by failing to properly recognize expenses relating to executive deferred compensation; (b) Defendants' seeming success was attributable, in material part, to improper accounting; (c) The Company's financial results, reported in press releases and SEC filings were not, contrary to defendants' express representations, prepared in accordance with generally accepted accounting principles; (d) The certifications signed by defendants, the Company’s CEO and CFO, in Navarre's SEC filings, attesting to the accuracy of the financial results included therein, were false because the financial results were artificially inflated through improper accounting; (e) during the third fiscal quarter of 2005, Navarre improperly recognized millions in deferred tax benefits as income; and (f) Navarre was experiencing a significant slowdown in demand for its anti-virus software products that was materially and negatively impacting its overall business.
On May 31, 2005, Navarre issued a press release announcing that it would postpone release of its fourth quarter and fiscal year 2005 results pending an accounting review focused on the recognition of deferred compensation expense for payments made to one of the defendants, the Company’s CEO, and the classification of fiscal 2005 tax items. In response to this announcement, the price of Navarre common stock dropped from $9.00 per share on May 31, 2005 to $8.02 per share on June 1, 2005, a one-day drop of 10.8% on unusually heavy trading volume.
The complaint further alleges that defendants were motivated to commit the wrongdoing alleged therein so that Navarre insiders, including the Company’s CEO and CFO, could sell their personally held Navarre shares at artificially inflated prices. During the Class Period, insiders sold a total of 1,269,000 shares, for total proceeds of $16,183,254.58.