Software AG Systems, Software AG's biggest distributor worldwide and formerly wholly-owned by the German giant, has been accused in the US of insider trading and artificially boosting revenue streams.
Software AG Systems said the complaint is without merit and it plans to contest it vigorously.
When the Reston, Virginia company, in which Software AG retains 10 per cent holding, warned on 5 April that revenue and profit would fall short of analysts' expectations, it's stock plummeted by 29 per cent.
Two class actions filed subsequently allege that the officers of Software AG Systems used insider information that the stock price was artificially maintained, to sell their stock for profits of $195 million.
An SEC filing on 4 March showed that Derek Brigden, vice president and chief information officer, disposed of 15,000 shares in February at between $13.63 and $15.13 each. After the profit warning share price tumbled 29 per cent into single figures.
Software AG in Germany plans to float on the Frankfurt Stock Exchange in a few weeks time, expected to be one of the largest ever European software floats, and Ken Jacobson, UK chief executive, said the distributor's troubles won't affect the flotation. The American company has exclusive distributorship status in North and Latin America, Japan and Israel.
Jacobson said: "We don't believe this problem will destabilise the company because it's very solid and strong with a loyal customer base."
Software AG sold its remaining 80 per cent stockholding for $150 million during the 1997 management buyout, but it retained the 10 per cent shareholding in the company, and senior management in Germany and the US kept another 10 per cent. Dr Erwin Konigs, chief executive of Software AG, remains a director of the company.
Software AG Systems saw 1998's revenue increase by 37 per cent to $249 million from $181.2 million in 1997, and net income rose by 117 percent to $27.7 million or $0.87 per share compared to $12.8 million or $0.48 per share in 1997. It was the fourth consecutive year that net income was doubled.
The company is due to report quarterly results on 20 April, but it warned last week that expected revenue for the first quarter would dip to $53 million from $55.8 million last year, with expected net income between $5.1 million and $5.7 million, $0.16 to $0.18 per share. Last year's net was $5.4 million, and analysts' estimates for the first quarter of 1999 were $0.21 per share.
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