A hearing is scheduled next month in Delaware on the settlement of a 1997 shareholder lawsuit against executives of Draper-based fonix Corp.
The lawsuit, spearheaded by fonix shareholder Richard J. Palomba, alleges management personally benefited from business opportunities that rightfully belonged to the company.In 1986 fonix, which is working on computer voice recognition technology, loaned $1.9 million to KLS Enviro Resources, then an insolvent Texas gold mining company. At the time, the amount represented about 20 percent of the net assets of fonix.
The lawsuit contended that after KLS was propped up to the point it had earnings potential, fonix executives Stephen M. Studdert, Thomas Murdock and Roger Dudley began making personal investments in the Texas company.
By late 1986 the three had acquired KLS stock and warrants worth as much as $40 million on paper.
Studdert, Murdock and Dudley said it was wrong to think that shareholders of fonix, which received its loan paid back with interest, took all the risk while the executives received all the profits. Fonix could have had the loan converted into KLS stock.
"The proper procedures were followed, legally, ethically and morally," Dudley said at the time.
To settle the lawsuit, the three executives have agreed to give fonix warrants that will allow the company to purchase 750,000 shares of KLS stock at 40 cents a share. That means all fonix shareholders will benefit from the warrants.