The original complaint charges TomoTherapy and certain of its officers and directors with violations of the Securities Exchange Act of 1934. TomoTherapy develops, markets, and sells the Hi-Art system, a radiation therapy system for the treatment of various types of cancers. Specifically, the complaint alleges that during the Class Period defendants issued a series of materially false and misleading statements regarding TomoTherapy’s revenues and net income. Specifically, the complaint alleges that on February 13, 2008, the Company reported that for fiscal 2008 it “anticipates revenue of $290 million to $310 million and net income per share in the range of $0.34 to $0.39 per diluted share.” Moreover, the Company touted a strong second half 2008 due to “strong order flow in the second half of 2007 and the projected timing of customers’ construction projects.”
Unbeknownst to shareholders, defendants knew, or should have known, that a greater percentage of TomoTherapy’s backlogged orders were for multi-unit Hi-Art Systems ordered by for-profit entities who had scheduled delivery of the units sequentially. As a result of this delivery schedule, these units would remain in backlog longer than single-unit orders and delivery would be pushed further back in 2008 and even into 2009. Therefore, TomoTherapy had no reasonable basis for its revenue and net income projections for fiscal 2008 because the Company would not be able to recognize revenue for these multi-unit Hi-Art Systems until late 2008 or 2009.
Then, on April 17, 2008, the Company announced its estimated 2008 first-quarter results and revised its fiscal 2008 outlook. Specifically, the Company estimated that 2008 revenues would be in the range of $255 million to $290 million and 2008 net income would be in the range of $0.14 to $0.33 per diluted share. Moreover, the Company reported that it received fewer new sales orders in Europe and that it had to hire a new Managing Director for European and Middle East operations in April 2008.
Upon this news, on April 17, 2008, the price of TomoTherapy common stock dropped 32%, to close at $9.10 per share, on extraordinary trading volume in excess of eight million shares.
On September 2, 2008, the Court granted the plaintiffs’ unopposed motion to consolidate the cases, appoint lead counsel and appoint lead plaintiffs. On October 23, 2008, the lead plaintiffs filed a Consolidated Amended Complaint and then filed a Corrected Consolidated Amended Complaint on November 21, 2008. On December 8, 2008, the defendants filed a motion to dismiss the Consolidated Amended Complaint.
On July 9, 2009, the defendants’ motion was granted in part and denied in part. According to the Order, the motion to dismiss is granted without prejudice with respect to: a. plaintiffs’ claims that defendants violated §§ 11 and 15 of the Securities Act of 1933 making statements in the Initial Public Offering and Secondary Public Offering prospectuses suggesting that a “majority” or a “significant majority” of the backlog would be converted to revenue within 9-12 months; and, b. plaintiffs’ claims that defendants violated § 10(b) of the Securities Act of 1934. Defendants’ motion to dismiss is denied with respect to plaintiffs’ claims that defendants violated §§ 11 and 15 of the Securities Act of 1933 by making statements in the Initial Public Offering and Secondary Public Offering prospectuses suggesting that the backlog contained only “firm” or non-contingent orders.
On August 3, 2009, the plaintiffs filed a Second Amended Consolidated Complaint. The next day, the plaintiffs filed a Corrected Second Amended Consolidated Complaint. On September 3, 2009, the defendants responded by filing a motion to dismiss the Corrected Second Amended Consolidated Complaint. On December 15, 2009, the motion was granted in part and denied in part. On December 30, 2009, a motion to certify the class was filed.
On August 2, 2010, the plaintiffs filed a Notice of Settlement containing the Stipulation of Settlement with Exhibits. According to the Stipulation, the settlement is in the amount of $5 million in cash. On August 4, 2010, the plaintiffs filed an Unopposed Motion for Settlement Preliminary Approval of Settlement, which was approved on September 23, 2010. The final settlement hearing was set for March 18, 2011. On March 22, 2011, the Court entered the orders approving the settlement, the plan of allocation, and request for attorneys' fees and reimbursement of expenses. Judgment was entered in favor of the plaintiffs, and the action was dismissed with prejudice.