Informix, its former auditors and executives have signed a memorandum of understanding to pay out $142 million to settle claims that the database supplier misled the market about its revenue and was involved in insider trading.
A handshake agreement on the deal was believed to have been signed last week to compensate shareholders who held stock from early 1995 to late 1997. The settlement amounts to nearly three times Informix's $57.5 million profit last year and is huge in an industry in which payouts for security fraud cases average $10 million.
If the deal is approved by the courts, Informix will pay shareholders about $3.2 million in cash and approximately $13.8 million in insurance proceeds on behalf of certain current and former executives, including former chief executive Phil White.
It will also contribute a minimum of nine million shares of common stock valued at $91 million, while auditors Ernst & Young will fork out $34 million in cash.
Informix claimed the decision to settle the class action lawsuits against it was 'driven solely by the firm's desire to remove the uncertainty, expense and distraction of continuing litigation', and that it was a favourable conclusion as the settlement was largely funded through insurance and stock.
The supplier's problems began when it issued a first-quarter profit warning and was hit by a string of class action lawsuits in 1997. Plaintiffs alleged that Informix had stuffed the channel with excess inventory, had been over-zealous in booking such stock as revenue, and had provided OEMs with software licences, which had also been booked as revenue.
This allegedly boosted its share price, which, it is claimed, led executives to sell more than $15 million worth of stock before Informix revealed it was losing money. In November 1997, the firm restated its results for the past 14 quarters, wiping out $240 million in profit.
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