Critical Path Puts Its Legal Battles To Bed

Plaintiffs that filed suits against Critical Path in February and March have withdrawn their case, the company said Wednesday.

The resolution means the San Francisco-based wireless messaging and e-mail provider has put an end to two-years of legal battles with investors.

“We are pleased by the decision to withdraw each of these lawsuits,” said
Critical Path Senior Vice President and General Counsel Michael Zukerman in a statement.

The February and March lawsuits are separate from the shareholder class action that Critical Path settled in November 2001. At the time, Critical Path said it would pay $17.5 million in cash and the issuance by the company of warrants to purchase 850,000 shares of company common stock at an exercise price of $10.00 per share.

That settlement was preliminarily approved in late February 2002 by the United States District Court for the Northern District of California. The court has ordered that notice be issued to members of the class and has scheduled a hearing for May 23, 2002 to consider final approval of the settlement.

The recent complaints stemmed from charges that Critical Path and certain of its officers and directors with issuing false and misleading statements concerning its business and financial condition. Those managers are no longer associated with the company.

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, 2001 pending preliminary investigation and did not resume until adjusted figures were posted a week later.

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 , which hired everyone involved in the project.

Critical Path provides e-mail hosting services to a variety of organizations, including Internet service providers, Web hosting companies, Web portals, and corporations. Many of these types of companies were new and were suffering from a downturn in Internet-related funding which began in the spring of 2000.

The problem with that, investors complained, is that if these companies were having raising money, Critical Path couldn’t collect their money. The key accusation was that the company knew for months that new accounting regulations would negate Critical Path’s ability to continue to recognize up-front license fees in Q4 2000.

Despite this knowledge, the complaint said that the company continued to make positive but false statements about Critical Path’s business and projections for Q3/Q4 2000 and beyond.

Now Critical Path says it is looking forward with fresh eyes.

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