Support.com 2006 Annual Report Download - page 29

In December 2005, a purported derivative stockholder complaint was filed in the Superior Court of the State of California for the
County of San Mateo captioned White v. Vase et al., No. Civ. 451677. This complaint pursues claims—derivatively and on behalf of
the Company as a nominal defendant—against certain of our directors and former directors: Radha R. Basu, Manuel Diaz, Kevin C.
Eichler, Edward S. Russell and James Thanos. The derivative complaint alleges, among other things, that the director−defendants
harmed us by making or permitting us to make false and misleading statements between January 20, 2004 and October 1, 2004
concerning our business and guidance for the third quarter 2004 and by purportedly exposing us to liability for securities fraud in
violation of their fiduciary duties. On October 4, 2006, the court denied the defendants’ demurrer to the plaintiffs’ first amended
complaint. The defendants’ answered this complaint on November 6, 2006. The case is currently in discovery. While we cannot
predict with certainty the outcome of the litigation, we believe we have meritorious defenses to such claims.
In November 2001, a class action lawsuit was filed against us and two of our officers in the United States District Court for the
Southern District of New York. The lawsuit alleged that our registration statement and prospectus dated July 18, 2000 for the issuance
and initial public offering of 4,250,000 shares of our common stock contained material misrepresentations and/or omissions related to
alleged inflated commissions received by the underwriters of the offering. The defendants named in the lawsuit are SupportSoft,
Radha Basu, Brian Beattie, Credit Suisse First Boston Corporation, Bear, Stearns & Co. Inc. and FleetBoston Robertson Stephens Inc.
The lawsuit seeks unspecified damages as well as interest, fees and costs. Similar complaints have been filed against 55 underwriters
and more than 300 other companies and other individual officers and directors of those companies. All of the complaints against the
underwriters, issuers and individuals have been consolidated for pre−trial purposes before U.S. District Court Judge Scheindlin of the
Southern District of New York. On June 26, 2003, the plaintiffs announced that a proposed settlement between the issuer defendants
and their directors and officers had been reached. Under the proposed settlement, which is subject to court approval, our insurance
carrier would be responsible for any payments other than attorneys’ fees prior to June 1, 2003. A final settlement approval hearing on
the proposed issuer settlement was held on April 24, 2006. The district court took the matter under submission and has not yet ruled.
Meanwhile the consolidated case against the underwriters has proceeded. On October 13, 2004, the district court certified a class. On
December 5, 2006, however, the Second Circuit reversed, holding that a class could not be certified. The Second Circuit’s holding,
while directly affecting only the underwriters, raises some doubt as to whether the proposed issuer settlement will be approved in its
present form. On January 5, 2007, plaintiffs petitioned the Second Circuit for rehearing of the Second Circuit’s decision. On
January 24, 2007, the Second Circuit asked the underwriter defendants to respond to the petition by February 7, 2007. On February 7,
2007, the underwriters filed their response. While we cannot predict with certainty the outcome of the litigation or whether the
settlement will be approved, we believe that the claims against us and our officers are without merit.
We are also subject to other routine legal proceedings, as well as demands, claims and threatened litigation that arise in the normal
course of our business. The ultimate outcome of any litigation is uncertain, and either unfavorable or favorable outcomes could have a
material negative impact. Regardless of outcome, litigation can have an adverse impact on SupportSoft because of defense costs,
diversion of management resources and other factors.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the fourth quarter of the year ended December 31, 2006.
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Source: SUPPORTSOFT INC, 10−K, March 16, 2007