SEVU's legal stuff..from the latest SEC Filing..
ART II. OTHER INFORMATION
Item 1. Legal Proceedings
Litigation, claims and assessment:
We are a defendant in a consolidated class action lawsuit pending in
the United States District Court for the Middle District of Florida against us
and Richard McBride, our former chief executive officer. Commencing in May 2001,
five nearly identical class action lawsuits were filed against us and McBride,
and, on July 24, 2001, those lawsuits were consolidated. In the five initial
complaints, the plaintiffs thereto claimed violations of Sections 10(b) and
20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated
thereunder. In the five initial complaints, the plaintiffs to those actions
alleged, among other things, that from March 30, 2000 to March 19, 2001, we and
McBride misstated our sales and revenue figures; improperly recognized revenues;
misrepresented the nature and extent of our dealer network; falsely touted
purported sales contracts and agreements with large retailers; misrepresented
our ability to manufacture, or to have manufactured, its products; and
misrepresented our likelihood of achieving certain publicly announced sales
targets. The consolidated amended class action complaint was filed in December
2001. As amended, the consolidated complaint seeks compensatory and other
damages, and costs and expenses associated with the litigation and now also
seeks relief against James Cox on the same grounds as the claims against us and
McBride.
In February 2002, we filed our motion to dismiss. The plaintiffs
responded to the motion to dismiss in early April 2002. On May 17, 2002, we
reached an agreement in principle, in the form of a Memorandum of Understanding,
to settle the class action lawsuit discussed in Note 10 to the Annual Financial
Statements. In the settlement, we will issue 6,000,000 shares our common stock
to the class participants. Upon satisfaction of the requirements of the
Securities Act of 1933, the shares may be resold without regard to Rules 144 or
145(c) of the Securities Act if the holders are not affiliates of any party to
the settlement or the registrant and will not be affiliates of the registrant
after the settlement shares are distributed. If the holders are affiliates of
any party to the settlement prior to the settlement or are affiliates of the
registrant prior to or subsequent to the settlement, then the resale of the
securities distributed in the settlement may only be accomplished in the manner
provided by Rule 145 of the Securities Act. In addition, we will pay, up to a
maximum of $125,000, for costs incurred by the plaintiffs in the litigation,
plus the costs of settlement notice and administration.
During the 2nd and 3rd quarter of 2002, the Company and the plaintiffs'
counsel agreed to prepare and execute a definitive Stipulation of
Settlement and jointly seek preliminary and final Court approval. The Settlement
would be conditional upon receiving final judicial approval of the Stipulation,
among other things.
At the end of the Company's 2nd fiscal quarter of 2002, management had
determined that the impending settlement was highly probable. Accordingly, the
Company accrued for the cost of the settlement by recording a liability of
$1,200,000, which was equal to the current fair market value of the settlement
shares at June 30, 2002, plus an estimated amount for expenses.
On December 17, 2002, the Joint Motion for Preliminary Approval of
Settlement and the Amended Stipulation of Settlement was filed with the United
States District Court of Florida, and approved by the residing justice. There
were no significant amendments to the nature or terms of the Stipulaton as
outlined above. The actual liability, based on the value of the Company's stock
as December 17, 2002, was $300,000 plus an estimated $125,000 in legal fees. The
Company recorded its revised estimate of the liability in the fourth quarter and
has disclosed this fourth quarter adjustment in the financial statements.
11
On May 2, 2003, the United States District Court of Florida, through issuance of
its Order and Final Judgement, approved the settlement. |
