$17.5M Settles Critical Path’s Legal Woes

Critical Path , which has seen its share of drama in the last year, seems to have put some of its legal problems behind it.

San Francisco-based company Thursday says it has settled a class-action lawsuit filed by investors angered by an alleged company conspiracy to artificially boost its own stock price.

Critical Path’s core products include an Internet messaging infrastructure platform and access services for wireless and wire-line users.

The settlement means Critical Path will pay $17.5 million in cash and the issuance by the company of warrants to purchase 850,000 shares of Critical Path common stock at an exercise price of $10.00 per share.

The settlement, to be covered by the company’s liability insurance, will also go to certain corporate governance changes and the payment of plaintiffs’ attorneys’ fees.

The deal is far from over as the settlements are still open to some negotiation and review by class members and shareholders and approved by the U.S. District Court for the Northern District of California.

The company’s problems stem way back from the announcement of sales of licensing agreements that it says should not have been booked, or allocated to other periods. Trading was halted on Feb. 2, pending preliminary investigation and did not resume until adjusted figures were posted on Feb. 14.

The charges resulted in the now resolved class action lawsuit, a SEC fraud investigation, layoffs and mounting losses.

Things got so bad that founder David Hayden returned to the company and made sweeping changes including selling its mainframe rehosting business to Sun Microsystems . Fortunately, Sun was able to hire everyone involved in the project.

“This closes an important chapter in Critical Path’s history and represents a completed step in our turnaround,” says Hayden. “With these settlements behind us, the company can focus aggressively on our future”

That future includes an infusion of $95 million in new funding, which the company says it will use to get back on its feet.