Portfolio Company
Directors & Officers Liability

Breach of Investment Agreement
A company entered into an investment agreement with a third party and agreed not to negotiate with other entity regarding financing or a potential acquisition for a two-week period. During the exclusivity period the company engaged in negotiations with another investment group. The third party alleged breach of investment agreement and intentional and negligent misrepresentation. Total defense costs and settlement exceeded $350,000.

Shareholder Derivative Action
A shareholder derivative action was taken against a company for breach of fiduciary duties on behalf of the directors. The plaintiffs contended that the defendants failed to provide them with information, such as shareholder listings, financial data and other corporate records. They also alleged that certain directors borrowed money from the company without the Board’s approval and subsequently those loans were forgiven. Total defense costs and settlement exceeded $500,000.

Inflation of Financial Results
A securities class action complaint against the company and certain of its current and former directors and officers. Plaintiffs alleged that the defendants made material misstatements and omissions in the company’s financial statements by failing to disclose the details of its relationship with another market participant. According to plaintiffs, the relationship was illegal and artificially inflated the company’s financial results. Therefore, plaintiffs sought significant damages on behalf of the class. Defendants’ motion to dismiss was denied and fact discovery was largely complete when the parties agreed to participate in a settlement mediation. After two mediation sessions, a settlement was reached. AIG Executive Liability funded the settlement and covered defense costs.

Securities Class Action
After the company announced that it would restate 4 ½ years of financial reports, and the company’s stock price dropped by $1.15, plaintiffs filed a securities class action in USDC in Texas, alleging violations of sections 10(b) and 20(a) of the Securities Exchange Act. The complaint alleged that in order to inflate the company’s stock price so that insiders could cash out during a secondary offering the defendants improperly and prematurely recognized revenue from software contracts. Plaintiffs alleged that defendants back dated contracts; shipped blank CDs, inferior products, and the wrong software; and recognized revenue on contracts that required the company to provide implementation services essential to the software's functionality when such services had not yet been performed, and on software contracts that had not been fully executed by both the customer and the company. The securities action was settled after mediation for $5,250,000. A related derivative action settled for $300,000.



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