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Stanford University Law School
- Securities Class Action Clearinghouse
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UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
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KRIS LINDBLOM JACK FEFER On Behalf of Themselves and All Plaintiffs, vs. MOBILE TELECOMMUNICATIONS Defendants. |
JUDGE: Thomas Penfield Jackson DECK TYPE: Civil General DATE STAMP: 02/20/97
Plaintiffs Demand A Trial |
1. This is a class action on behalf of purchasers of the common stock of Mobile Telecommunications Technologies Corp. ("Mtel" or the "Company") between Jan. 19, 1995 and Feb. 22, 1996 (the "Class Period"), complaining of a scheme and course of business that operated as a fraud and deceit on purchasers of Mtel stock during the Class Period. The defendants' scheme included a series of false statements about Mtel's "much hyped" SkyTel 2-way paging product and Mtel's financial condition and inflated Mtel's stock price, resulting in substantial injury to purchasers of Mtel stock during the Class Period.
2. Mtel provides remote mobile paging services through a service dubbed SkyTel. Prior to the Class Period, Mtel and other paging companies utilized 1-way alphanumeric paging whereby the person wearing the pager would receive a very short text message or phone number to call but was unable to communicate via the pager and the sender was not able to determine if the message had been received. Despite price competition, Mtel was successful in the 1- way paging business and by 1995 had over 800,000 subscribers. Due to the increased competition from other companies offering 1-way paging services, in 1992-1993 Mtel began a large investment to create a 2-way paging service ("SkyTel 2-way" or "Destineer"), which by 1995 was nearing completion. Thus, as 1995 unfolded, investors were watching Mtel's progress and whether or not Mtel would be able to fulfill its promise to become the first company to introduce a nationwide 2-way paging service during the second half of 1995 which would provide guaranteed message receipt and would allow the wearer of a 2-way pager to, inter alia, be able to receive longer, full text messages and use the pager to instantly communicate back to the sender.
3. During 1994, Mtel reported losses of $18.5 million -- $.76 per share -- and suffered negative cash flow, due to the large expenditures it was incurring as part of the development and launch of its new Destineer 2-way paging service and to pricing problems with its 1-way paging service. However, by the first quarter of 1995, Mtel was returning to profitability and its cash flow had turned positive due to the success and growth of its 1-way pager service. Mtel was also nearing completion of its SkyTel 2-way service, which defendants promised would have a positive effect on Mtel's results by decreasing the Company's expenditures on the 2-way system and providing substantial additional revenue. Mtel's stock was a strong performer during the first half of 1995 advancing from $18-3/4 in early Jan. 1995 to $28-3/8 per share by late June 1995 due to defendants' representations concerning the strength, growth, profitability and positive cash flow of Mtel's core 1-way paging business which defendants represented would be, together with Mtel's other sources of funds, sufficient to fund the complete development and launch of Mtel's new 2-way paging service. Mtel's stock was also driven higher by the anticipated successful introduction by Fall 1995 of Mtel's 2-way paging service and the enormous competitive advantage that the 2-way service would provide Mtel, leading to strong revenue and cash flow growth.
4. In early 1995, Mtel represented it then had in place "comprehensive project management technique for the development of the Destineer network" which would be serving 300 major cities by late 1995. By the spring of 1995, Mtel was telling the business community and the securities markets that: (i) it would introduce its 2-way, paging service in the second half of 1995 as it had completed the development of the network; (ii) beta testing showed the network worked, providing guaranteed delivery of messages; (iii) Mtel was well along in making the extensive infrastructure improvements and completing a new Network Operations Center ("NOC") necessary to provide the new service; and (iv) Mtel had the financial resources required to complete and introduce the new 2-way service. In short, Mtel stated it had "uncontrovertible evidence [its decision to develop Destineer] was the right one," and the system gave it a "head start" on its competitors, who were 9-12 months behind in developing a 2-way system. During the summer of 1995, the defendants represented that the "Tango" pagers for the new 2-way service were now available and worked, that the 2-way system had been successfully tested in final pre-launch beta testing and now was being "fine-tuned" or "optimized" prior to launch. They represented that the successful completion of the SkyTel 2-way system proved that Mtel had "the expertise to develop the leading technology and the ability to bring that technology to market." Mtel represented that its 2-way system operated with "synchronized transmitters [which] optimize building penetration and reduce power requirements," was a "totally unique service, providing far greater capabilities than any existing communications network," that it placed Mtel "9-12 months" ahead of competitors and that Mtel was "on track" for a second half rollout of the system. Thus, Mtel was introducing "a completely unique communications medium to the wireless world" and, according to defendants, "we're laying the groundwork here for a $1 billion company."
5. In mid-Sept. 1995, Mtel formally introduced its new SkyTel 2-way nationwide paging service with tremendous fanfare, coupling its introduction with announcements of alliances with prestigious corporations such as Microsoft and Hewlett-Packard to market the product, a nationwide advertising campaign, a major meeting in New York and a nationwide conference call for securities analysts and brokers, money managers and stock traders, during which Mtel's officers told them this service was a "major breakthrough," was available nationwide, offering "guaranteed delivery" and it would enable the receiver to immediately respond from the pager back to the sender, all with "batteries [that] last for weeks, not hours." According to defendants, the "two-way messaging is made possible through a sophisticated Network Operations Center . . . [which] integrates all incoming messages, distributes them, collects delivery confirmations and responses, and transmits them back to the message originator."
6. After introduction of the 2-way system in mid-Sept. 1995, Mtel assured the business community and the securities markets that the network worked, provided true national coverage and contained important new features such as guaranteed message receipt and message confirmation. Mtel represented that its new 2-way paging service gave it a significant competitive advantage, as no other company could introduce 2-way service for at least 9-12 months. According to defendants, the system "functioned very well," with "98% efficiency," they were "very encouraged" by the "positive" and "good" customer reception, and demand was greater than expected. Thus, Mtel was "expect[ing] strong sales" of this "most advanced paging and messaging technology" product which had "created a foundation for growth through 1996 and beyond." Thus, as a result of the success of its new 2-way service, Mtel represented that it would enjoy significant revenue growth in 1996-1997, with the 2-way paging business reaching 30,000 subscribers by year-end 1995. Mtel also represented that 2-way service would be breakeven at 150,000 subscribers by year-end 1996, would generate $60-$75 million in revenue in 1996, would be cash flow positive in 1997 and that SkyTel 2-way would have "hundreds of thousands of subscribers within three years."
7. In addition to these positive statements about its new 2-way paging service, Mtel also consistently assured investors that its core 1-way paging business was doing much better financially, enjoying strong subscriber growth of approximately 100,000 new subscribers per quarter and would continue to do so during 1996. Mtel also assured investors that it was upgrading the capacity and service of its core 1-way paging business by moving to higher-speed FLEX pagers, which would help assure the continued strong growth of that part of Mtel's business. In addition, Mtel assured investors that it had the accounting systems and competent and experienced management necessary to accomplish the major expansion it was undertaking, as well as the necessary financial resources to fund the expansion.
8. As Mtel launched its new 2-way paging service in mid-Sept. 1995, Mtel's stock soared to its Class Period high of $36-3/8 per share. During June-Nov. 1995, four top Mtel insiders sold off 120,000 shares of their Mtel stock at as high as $30-7/8 per share, pocketing $3.4 million -- selling off 83%, 98%, 100% and 100% of their Mtel stock, even though they knew that Mtel's core 1-way pager business was suffering from over-stated subscriber numbers, slowing growth and diminished profitability, and its new 2-way service was suffering from serious and persistent technical and operational problems prior to the launch of the system which indicated that the system could not be successfully introduced as a nationwide system in the foreseeable future and, after the launch, indicated the system did not work and had software bugs which Mtel could not remedy.
9. When, in late 1995, rumors surfaced of technical difficulties with and cost overruns on its 2-way service, Mtel told the business community and investors that while there had been some "minor glitches" after the introduction of the 2-way service, they were neither unexpected nor serious, and that those problems had been or were being fixed -- reassuring them that Mtel's 2-way service was working, providing 2-way paging services on a nation-wide basis and attracting strong customer response. Mtel and its senior management also reassured investors that Mtel remained "on track" as the cost overruns were minor and not creating any problems for the Company. When Mtel's President and Chief Executive Officer "resigned" in Jan. 1996, Mtel assured investors that his resignation was for purely personal reasons and had nothing to do with any problem in Mtel's business, representing that Mtel's 2-way service was attracting more customers faster than Mtel had previously anticipated and Mtel was confident of the near- and long-term success of its 2-way paging service. As late as Jan. 1996, Mtel stock was still selling as high as $21-3/4 per share.
10. Then, on Feb. 22, 1996, Mtel shocked investors by revealing that its Chief Financial Officer "resigned," that Mtel had suffered a much larger loss for the fourth quarter of 1995 than had ever been previously forecast or indicated ($40 million/$0.79 per share), had incurred a fourth quarter cash flow deficit of $5.6 million and that its business was plagued by serious problems, which had so harmed its financial condition that it was in violation of its bank lending covenants and needed to raise additional capital by selling off assets! Mtel revealed that the Destineer 2-way paging service, as well as its NOC, were plagued by serious and persistent operating and technical problems which Mtel was unable to solve, including: (i) holes in network coverage; (ii) software malfunctions; (iii) shorter-than-anticipated battery life; and (iv) technological problems that resulted in duplication of message transmission and response acknowledgment, increasing system load and frequent delay in message transmission. In addition, Mtel admitted that there were not enough transmitters deployed initially to provide true nationwide service, resulting in a much reduced coverage area for SkyTel 2-way than SkyTel 1-way service and customer dissatisfaction. Also, the receiver links in the SkyTel 2-way network were weak, resulting in subscribers receiving multiple messages or in some cases no messages at all. Finally, Mtel's new Motorola Tango pagers did not function properly and would all have to be replaced, which would take months.
11. Mtel's fourth quarter 1995 loss of $40.3 million and cash flow deficit of $5.6 million plunged it into a financial crisis, as Mtel admitted that it had suffered huge cost overruns to complete and launch the 2-way system -- and still faced substantial additional expenditures to try to make the 2-way system work, which had already required extra borrowing by Mtel in late 1995. John E. Welsh, III, ("Welsh") an Mtel managing director, admitted, "We are having network problems" and that because of the size of the cost overruns Mtel had had to borrow much more than expected to pay for the 2-way system. He also admitted that Mtel would have to cut jobs and marketing and advertising expenses and have to sell assets to raise $50 million. Mtel also disclosed that the problems with its NOC and the software for its 2-way paging system were so serious that Mtel could not solve them and had been forced to bring in Lockheed Martin Corp. to oversee system repair. The software problems involved, inter alia, the defects in and malfunctions of the software subscriber database (which was supposed to support millions of subscribers but actually could support less than 50,000), resulting in system crashes and lost messages. The system could not provide 2-way paging on a true nationwide basis. As one analyst later wrote:
MTEL had deployed a nationwide 2-way N-PCS network in September of 1995. However, the launch was disastrous as the network was not fully built out, and coverage was lacking. Much of the problem stemmed from the fact that MTEL tried to do too much too fast, in turning on a nationwide network from day one.
12. Mtel also admitted that due to inadequate financial and management controls, Mtel's conversion to high-speed FLEX pagers for its 1-way paging service had failed as the Company had been forced to utilize slower speed POCSAG pagers for most of 1995 due to inadequate supplies of new high-speed FLEX pagers, which resulted in Mtel accumulating huge, excessive amounts of pagers, which in turn adversely impacted Mtel's financial condition and contributed to its violation of its bank lending covenants. Worse yet, Mtel's subscriber growth for its core 1-way paging service had slowed dramatically, in part, because of its inability to obtain enough high-speed FLEX pagers, which slowing growth rate was likely to continue. Mtel's credit rating was downgraded by Standard & Poor's and Moody's.
13. Upon these revelations, Mtel's stock collapsed, falling from $18-1/4 on Feb. 22 to $12-5/8 on Feb. 23, 1996, a 31% decline on trading volume of over 9 million shares, one of the largest one-day volume and percentage price declines for Mtel's stock in its history as a public company. When Mtel admitted that it would suffer huge losses throughout 1996 and could not predict when it would return to profitability, its stock continued to fall, reaching $9-7/8 by July 1996. During 1996, Mtel suffered huge operating losses of over $80 million on its 2-way paging service and will continue to suffer losses in 1997, which will exceed $65 million. Mtel's 2-way Destineer business has been a major failure -- generating cumulative revenues of only $8 million during its first year and less than 30,000 subscribers.
14. In Mtel's first quarter of 1996 it suffered large losses of $28.5 million (-$0.57 per share) and negative cash flow of $4.3 million. This was due to very weak new 1-way subscribers of only 60,000 (well below expectations) and continuing operational problems with Mtel's 2-way service, resulting in new subscribers of only 5,000, a performance so dismal that it caused one analyst to say that this "raises the serious question of whether the two-way network is even worth the cost." Defendant John Palmer said Mtel's bottom line would get "no relief until the fourth quarter" and that many of the problems were because Mtel "hurriedly assembled its software piecemeal" from disparate vendors. By Sept. 1996 -- a year after the launch of the new 2-way service -- Mtel had only 30,000 2-way clients -- 50% of them non-paying trial subscribers!
15. On May 14, 1996, The Wall Street Journal published an article about Mtel that stated:
SkyTel's two-way paging woes are another reminder of the perils of pushing much-hyped products to market before they are technologically ready. In fact, SkyTel and its parent now are suffering from what might be called the Newton syndrome -- the consumer backlash that strikes when a company makes big promises about snazzy new technologies and fails to deliver, as Apple Computer Inc. did with the Newton hand-held computer.
The problems with two-way paging . . . have hammered Mtel's earnings, forced it to abandon its original strategy and slowed the efforts of two-way paging backers, such as Motorola Inc. and AT&T Corp.
"I'd be foolish to say we don't have regrets" about rushing into the national market, says John Palmer, Mtel's chief executive officer. In hindsight, I would have tiptoed in."
* * *
What went wrong? The system has been bedeviled by software flaws, in large part because Mtel hurriedly assembled its software piecemeal from disparate vendors. "We came in after the system was already deployed," says Suresh Challa, vice president at PostModern Computing Technologies Inc., which makes software used in the national two-way paging network. "You can have problems if vendors aren't there at the design phase."
* * *
And no more promises or big ad campaigns, Mr. Palmer says. The company now has two-way pagers in place at 600 major companies, mostly on limited small-scale trials. . . . Mr. Palmer is more cautious. "We don't want to fumble again," he says. But he says he hasn't given up on his original goal of eventually getting 450,000 two-way customers.
16. The Dow Jones News Service on May 14, 1996 also reported that "Motorola executives tried to get Mtel to delay its rollout . . . . Motorola officials say privately that they were concerned about the ambitious SkyTel debut.... SkyTel.... has dramatically scaled back its ambitions.... [and] now says its main short-term goal is simply to be able to demonstrate that the service works."
17. For the second quarter of 1996 Mtel reported another huge loss as excessive expenses and losses from the 2-way paging network continued to harm its financial performance. Mtel lost $28.9 million -- $.59 per share. Analysts were furious over being misled. They said, regarding this debacle:
By Sept. 30, 1996, Mtel's cumulative revenues for the SkyTel 2-way service were only $8.1 million compared to cumulative costs of $124.2 million. By Dec. 31, 1996, Mtel had only 30,000 subscribers for the SkyTel 2-way service and had achieved cumulative revenues of less than $11 million in the 15 months since its introduction, compared to the 150,000+ subscribers and $60-$75 million in revenues confidently forecast by defendants during the Class Period. The graph below shows the horrible disparity between Mtel's excessive operating expenses for its 2-way service, compared to its puny revenues in the year after the service was initiated:
18. The disastrous collapse in Mtel's business due to the failure of its 2-way pager to work, the massive cost overruns incurred in launching the system, and the deterioration of Mtel's core 1-way pager business is shown below:
MTEL QUARTERLY RESULTS
(In thousands, except EPS)
1994
----
3/31 6/30 9/30 12/31 Year
------------------------------------------------------
Revenues $36,549 $34,302 $35,848 $41,311 $148,010
Net income 4,533 -3,679 -6,400 -13,030 -18,576
EPS $.07 -$.17 -$.24 -$.40 -$.76
"Cash Flow"
Earnings(1) 6,365 -1,951 -2,099 -4,600 -2,286
"Cash Flow"
Per Share(1) $.18 -$.05 -$.06 -$.14 -$.06
1995
----
3/31 6/30 9/30 12/31 Year
------------------------------------------------------
Revenues $50,628 $56,864 $64,423 $74,076 $245,991
Net income 4,008 -993 -6,640 -40,386 -52,027
EPS -$.13 -$.06 -$.17 -$.79 -$1.19
"Cash Flow"
Earnings(1)(2) 1,805 -3,459 -2,620 -5,655 -16,112
"Cash Flow"
Per Share(1) $.04 $.07 $.05 -$.ll -$.32
1996
----
3/31 6/30 9/30 12/31(3) Year
------------------------------------------------------
Revenues $80,584 $88,212 $92,006 $89,600
Net income -28,574 -28,897 -32,304
EPS -$.57 -$.59 -$.65
"Cash Flow"
Earnings(1) -4,385 4,409 5,263 3,200
"Cash Flow"
Per Share(1) -$.08 $.08 $.10
(1) Cash Flow Earnings are defined by the cable industry as earnings before
interest, taxes, depreciation and amortization. Per share amounts are
based on shares used to calculate EPS for common shares.
(2) Q4 95 Cash Flow Earnings excludes $18.3 million in charges for SkyTel 2-
Way launch costs.
(3) As estimated by Mtel on 2/6/97.
19. The chart below details the insider selling engaged in by certain of the Individual Defendants during the Class Period:
Shares
Acquired % Of
Shares By Option Remaining Holdings
Name Date Sold Price Proceeds Option Price Holdings Sold
---- ---- ------ ----- -------- -------- ------ --------- --------
Fugate 10/25/95 10,000 $30.88 $ 308,800 10,000 $2.25
10/25/95 13,000 $30.88 401,440 13,000 $6.13
11/02/95 22,000 $28.00 616,000 22,000 $6.13
11/03/95 15,000 $27.75 $ 416,250 15,000 $6.13 984
------ ---------- ------ -----
60,000 $1,742,490 60,000 984 98%
====== ========== ====== =====
Kriss 10/25/95 30,000 $30.13 $ 903,900 30,000 $13.50 0 100%
====== ========== ====== =====
Barksdale 06/15/95 12,000 $24.00 $ 288,000 12,000 $2.25
06/20/95 3,000 $23.88 $ 71,640 3,000 $2.25 3,000
------ ---------- ------ -----
15,000 $ 359,640 15,000 3,000 83%
====== ========== ====== =====
LaRoche 06/22/95 15,000 $27.38 $ 410,700 15,000 $17.25 0 100%
====== ========== ====== =====
GRAND TOTALS $23.88- $ 2.25-
120,000 $30.88 $3,416,730 120,000 $17.25 3,984
======= ========== ====== =====
20. The charts set forth below show the price action of Mtel stock and defendants' insider selling and illustrate that when compared to an index of similar stocks, the price action Mtel stock was due largely to company-specific events -- not market forces.
21. The graphs below show Mtel's stock action from Jan. 1, 1994 to Jan. 1, 1997, and the defendants' insider selling. The Individual Defendants only sold stock during the Class Period when they were inflating the price of Mtel's stock, and thus those sales were unusual in timing and in amount and dramatically out of line with their stock sales during the two years before the Class Period and the year after the Class Period:
22. Plaintiffs bring this action pursuant to §§10(b) and 20(a) of the Securities Exchange Act of 1934 as amended (the "Exchange Act") (15 U.S.C. §§78j(b) and 78t(a)) and Rule lOb-5 promulgated thereunder (17 C.F.R. §240.10b-5).
23. This Court has jurisdiction over the subject matter of this action pursuant to §27 of the Exchange Act (15 U.S.C. §78aa) and 28 U.S.C. §1331, as amended.
24. Venue is proper in this District pursuant to §27 of the Exchange Act, 15 U.S.C. §78aa. Many of the acts and transactions giving rise to the violations of law complained of herein, including the preparation and dissemination to the investing public of false and misleading information, occurred in this District. Mtel conducts its domestic U.S. pager services through its subsidiary, SkyTel, which is headquartered in Washington, DC, as is its Destineer subsidiary which operates its 2-way pager business. According to Mtel:
SkyTel currently leases approximately 41,200 square feet of office space in downtown Washington, D.C., pursuant to a lease which commenced on July 1, 1991. The lease term is for 10 years and has an average monthly rental rate of $108,140 plus SkyTel's proportionate share of operating costs and taxes. SkyTel has the option to renew the lease after June 30, 2001 for one five-year period at 95% of the then current market rate.
* * *
All domestic nationwide and regional messages are routed through one of SkyTel's operations centers located in Washington, D.C. and Jackson, Mississippi, before being transmitted to the satellite uplink. The Washington, D.C. operations center also maintains a full backup power plant and generator, and a direct telephone communications linkup with MCI Telecommunications Corporation ("MCI") , one of the current vendors of SkyTel's 800 services.
* * *
SkyTalk® is marketed as an additional feature providing customers with digital voice message storage and retrieval services which permit a caller to leave a recorded message for a subscriber on the one-way messaging system by dialing a toll-free number (1-800-SKYTALK). The message is stored in a voicemail computer which is linked with SkyTel's central computer in Washington, D.C.
* * *
SkyTel's one-way and two-way messaging operations in the United States, as well as most of Mtel's other domestic businesses, are subject to regulation by the FCC [in Washington, D.C.].
25. In connection with the acts, conduct and other wrongs complained of herein, the defendants, directly or indirectly, used the means and instrumentalities of interstate commerce, including the United States mails and interstate telephone communications, and the facilities of the national securities exchanges.
26. (a) Plaintiff Kris Lindblom purchased 100 shares of Mtel common stock on Dec. 11, 1995 at $23-1/4 per share, 100 shares of Mtel common stock on Jan. 24, 1996 at $19-5/8 and 100 shares of Mtel common stock on Jan. 25, 1996 at $17-3/8 and has been damaged as a result of defendants' conduct.
(b) Plaintiff Jack Fefer purchased 200 shares of Mtel common stock on Sept. 18, 1995 at $35-1/8 per share and has been damaged as a result of defendants' conduct.
27. Defendant Mtel sells wireless messaging services under the names of SkyPager, SkyWord, SkyTel and SkyTalk. As of April 30, 1996, the Company had some 54 million shares of common stock outstanding. During the Class Period, Mtel's common stock was actively traded on the NASDAQ National Market System in an efficient market.
28. Defendant SkyTel Corporation ("SkyTel") is a wholly-owned subsidiary of Mtel which operates Mtel's 1-way and 2-way messaging service.
29. (a) Defendant M. Bernard Puckett ("Puckett") was President and Chief Executive Officer of Mtel and Chief Executive Officer of SkyTel until he purportedly "resigned" on Jan. 3, 1996. Puckett had access to the adverse non-public information about Mtel's and SkyTel's businesses and finances via access to internal corporate documents (including Mtel's and SkyTel's operating plans, budgets and forecasts and reports of actual operations compared thereto), conversations and connections with other corporate officers and employees, attendance at management and Board of Directors' meetings and committees thereof and via reports and other information provided to him in connection therewith.
(b) Defendant Thomas G. Barksdale ("Barksdale") is a director of Mtel. Barksdale served as President of Mtel from 1988-1989. Barksdale had access to the adverse non-public information about Mtel's business-and finances via access to internal corporate documents (including Mtel's operating plans, budgets and forecasts and reports of actual operations compared thereto), conversations and connections with other corporate officers and employees, attendance at management and Board of Directors' meetings and committees thereof and via reports and other information provided to him in connection therewith. During the Class Period, Barksdale, while in possession of undisclosed inside information, unlawfully and improperly benefited by selling 15,000 shares of Mtel stock on the open market as follows:
Price Gross
Date Shares Sold Per Share Proceeds
---- ----------- --------- --------
06/15/95 12,000 $24.00 $ 288,000
06/20/95 3,000 23.88 71,640
---------
$ 359,640
=========
These sales represented 83% of the Mtel stock owned by Barksdale.
(c) Defendant Calvin C. LaRoche ("LaRoche") is Senior Vice President of Mtel. LaRoche had access to the adverse non-public information about Mtel's business and finances via access to internal corporate documents (including Mtel's operating plans, budgets and forecasts and reports of actual operations compared thereto), conversations and connections with other corporate officers and employees, attendance at management meetings and via reports and other information provided to him in connection therewith. During the Class Period, LaRoche, while in possession of undisclosed inside information, unlawfully and improperly benefited by selling 15,000 shares of Mtel stock on the open market as follows:
Price Gross
Date Shares Sold Per Share Proceeds
---- ----------- --------- --------
06/22/95 15,000 $27.38 $ 410,700
---------
$ 410,700
=========
This sale was 100% of the Mtel stock owned by LaRoche. (d) Defendant J. Robert Fugate ("Fugate") served as Chief Financial Officer and Senior Vice President-Finance of Mtel and Chief Financial Officer of SkyTel until he was fired on Feb. 22, 1996. Fugate had access to the adverse non-public information about Mtel's and SkyTel's businesses and finances via access to internal corporate documents (including Mtel's and SkyTel's operating plans, budgets and forecasts and reports of actual operations compared thereto), conversations and connections with other corporate officers and employees, attendance at management meetings and via reports and other information provided to him in connection therewith. During the Class Period, Fugate, while in possession of undisclosed inside information, unlawfully and improperly benefited by selling 60,000 shares of Mtel stock on the open market as follows:
Price Gross
Date Shares Sold Per Share Proceeds
---- ----------- --------- --------
10/25/95 23,000 $30.88 $ 710,240
11/02/95 22,000 $28.00 616,000
11/03/95 15,000 $27.75 416,250
----------
$1,742,490
==========
These sales represented 98% of the Mtel stock owned by Fugate. (e) Defendant Leonard G. Kriss ("Kriss") is Senior Vice President, General Counsel and Secretary of Mtel and Secretary of SkyTel. Kriss had access to the adverse not-public information about Mtel's and SkyTel's businesses and finances via access to internal corporate documents (including Mtel's and SkyTel's operating plans, budgets and forecasts and reports of actual operations compared thereto), conversations and connections with other corporate officers and employees, attendance at management meetings and via reports and other information provided to him in connection therewith. During the Class Period, Kriss, while in possession of undisclosed inside information, unlawfully and improperly benefited by selling 30,000 shares of Mtel stock on the open market as follows:
Price Gross
Date Shares Sold Per Share Proceeds
---- ----------- --------- --------
10/25/95 30,000 $30.13 $ 903,900
---------
$ 903,900
=========
This sale represented 100% of the Mtel stock owned by Kriss.
(f) Defendant Jai P. Bhagat ("Bhagat") is, and at all times relevant hereto, has been Executive Vice President and a director of Mtel and Skytel. Subsequent to May 1995, Bhagat was also Vice Chairman of Mtel's Board of Directors and President and Chief Executive Officer of SkyTel. Bhagat had access to the adverse non-public information about Mtel's and SkyTel's businesses and finances via access to internal corporate documents (including Mtel's and SkyTel's operating plans, budgets and forecasts and reports of actual operations compared thereto), conversations and connections with other corporate officers and employees, attendance at management and Board of Directors' meetings and committees thereof and via reports and other information provided to him in connection therewith.
(g) Defendant John N. Palmer ("Palmer") served as a director of SkyTel, Chairman of Mtel Is Board of Directors and, upon the resignation of Puckett on Jan. 3, 1996, assumed the duties of Chief Executive Officer of Mtel. Palmer had access to the adverse non-public information about Mtel's and SkyTel's businesses and finances via access to internal corporate documents (including Mtel's and SkyTel's operating plans, budgets and forecasts and reports of actual operations compared thereto), conversations and connections with other corporate officers and employees, attendance at management and Board of Directors' meetings and committees thereof and via reports and other information provided to him in connection therewith.
(h) The defendants named in ¶29(a)-(g) are referenced herein as the "Individual Defendants."
30. By reason of their stock ownership, management positions, and membership on Mtel's and/or SkyTel's Board of Directors, and their, ability to make public statements in the name of Mtel and/or SkyTel, defendants Puckett and Palmer were controlling persons and had the power and influence to cause Mtel and/or Skytel to engage in the unlawful conduct complained of herein. Because of their Board membership and/or executive and managerial positions with Mtel and/or SkyTel, each of the Individual Defendants had access to the adverse non-public information about the business, finances, products, markets and present and future business prospects of Mtel and/or SkyTel particularized herein via access to internal corporate documents, conversations or connections with corporate officers or employees, attendance at management and/or Board of Directors meetings and committees thereof and/or via reports and other information provided to them in connection therewith.
31. Defendants had a duty to promptly disseminate accurate and truthful information with respect to Mtel's operations and financial condition or to cause and direct that such information be disseminated and to promptly correct any previously disseminated information that was misleading to the market. As a result of their failure to do so, the value of Mtel common stock was artificially inflated during the Class Period, damaging plaintiffs and the Class.
32. The Individual Defendants, because of their positions with Mtel and/or SkyTel, controlled the contents of quarterly and annual reports, press releases and presentations to securities analysts. Each Individual Defendant was provided with copies of the reports and press releases alleged herein to be misleading prior to or shortly after their issuance and had the ability and opportunity to prevent their issuance or cause them to be corrected. Because of their positions and access to material non-public information available to them but not the public, each of these defendants knew or recklessly disregarded that the adverse facts specified herein had not been disclosed to and were being concealed from the public and that the positive representations which were being made were then false and misleading. As a result, each of the Individual Defendants is responsible for the accuracy of the corporate reports, filings and releases detailed herein as "group published" information and is therefore responsible and liable for the representations contained therein.
33. Each defendant had the opportunity to commit and participate in the fraud described herein. The Individual Defendants were top officers and directors of Mtel and/or SkyTel and they controlled their press releases, corporate reports, SEC filings and/or communications with analysts. Thus, they controlled the public dissemination of, and could falsify, the information about Mtel's and SkyTel's business and products that reached the public and impacted the price of Mtel stock. Also, SkyTel's 2-way paging service was Mtel's most important new product and source of revenue growth. Mtel's financial future was very much dependent upon the successful introduction of SkyTel 2-way service, a product in which Mtel had invested over $100 million by the beginning of 1995. Mtel's top executives were fully aware of the problems with defects in and failures of the system, including those encountered in the development, installation, start-up and operation of the 2-way service as they were vitally concerned with the development, deployment and operation of the system and were updated on a daily basis.
34. Each of the Individual Defendants also had the motive to commit and participate in the fraud. In 1995, Mtel's stock advanced to high levels -- a performance reserved for successful companies with prospects for strong growth. Mtel's apparent success and its stock' s performance contributed to the high profile of its top executives. For these reasons, maintaining Mtel's image of strong growth, technological success, and its high stock price was extremely important to Mtel's top executives. Mtel's executives also wanted to cover up the problems with and deterioration in Mtel's business (and their own mistakes and acts of mismanagement) to make it appear that Mtel's business was succeeding and achieving the growth they had forecasted, so that they could hold onto their jobs and the large compensation they received and so that Mtel's stock price would trade at artificially inflated levels, high enough so that some of them could insider trade by selling off significant amounts of their Mtel stock, pocketing large sums for themselves. Also, the defendants were motivated to misrepresent the status of the SkyTel 2-way pager project to conceal the serious product problems Mtel was having with that service in an attempt to get that product to market early enough so that Mtel could charge high prices for use of its 2-way system as it would be the only operator of a 2-way system, thereby recapturing some of Mtel's huge investment in the system and obtaining a competitive business advantage which could not have been achieved if Mtel admitted it was having serious problems with its most important new product/service, which would have caused potential customers to avoid purchasing or even trying the service.
35. In addition, defendants had a motive to inflate Mtel's stock price because during the Class Period they were attempting to arrange for Mtel to buy out the minority interest in Destineer held by other investors for about $80-85 million. Since Mtel did not have the cash or available credit to pay for this purchase in cash, it had to make the purchase by issuing millions of shares of Mtel common stock. Defendants wanted to complete this buyout to get rid of Mtel's minority partners, but they wanted to complete the acquisition by issuing the fewest number of shares possible, thus limiting the dilutive impact of the acquisition on Mtel's earnings per share. To do this, defendants needed to inflate the trading price of Mtel's stock as high as possible, making it worth more per share, which could only be accomplished by issuing false and misleading statements about the strength of Mtel's 1-way paging business and the success of its SkyTel 2-way paging service.
36. The federal statutory safe harbor provided for forward-looking statements under certain circumstances does not apply to any of the allegedly false statements pleaded in this Complaint. To the extent any statement pleaded herein is "forward-looking" within the meaning of the statue but was made prior to the enactment of the federal statutory Safe Harbor on Dec. 22, 1995, the safe harbor does not apply as that legislation may not be applied retroactively to conduct occurring prior to its effective date. Further, none of the statements pleaded at ¶¶38-45, 47-49, 51-52, 59-60, 69-71, 74-79, 82-85, 89, 92-94, 96, 1012-104, 108-109 and 116-117 were identified as "forward-looking statements" when made. Nor was it stated that actual results "could differ materially from those projected." Nor were the statements made in ¶¶38-45, 47-49, 51-52, 59-60, 69-71, 74-79, 82-85, 89, 92-94, 96, 1012-104, 108-109 and 116-117 accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from the statements made therein. To the extent that the statutory safe harbor does apply to any statements pleaded in ¶¶38-45, 47-49, 51-52, 59-60, 69-71, 74-79, 82-85, 89, 92-94, 96, 1012-104, 108-109 and 116-117, the defendants are liable for those statements because at the time each of those forward-looking statements was made the speaker knew the forward-looking statement was false and the forward-looking statement was authorized and/or approved by an executive officer of Mtel who knew that those statements were false when made.
37. Each of the defendants is liable as a participant in a scheme and wrongful course of business that operated as a fraud or deceit on purchasers of Mtel stock, including false and misleading statements and/or concealed material, adverse facts. The scheme and course of business: (i) deceived the business community and Mtel's customers regarding SkyTel's new 2-way service; (ii) deceived the investing public regarding Mtel's existing business, products, and services as well as future prospects; (iii) artificially inflated the price of Mtel stock; (iv) caused plaintiffs and other members of the Class to purchase Mtel stock at inflated prices; and (v) permitted certain of the Individual Defendants to sell 120,000 shares of Mtel stock at prices as high as $30-7/8 per share, pocketing some $3.4 million.
38. On Jan. 19, 1995, Mtel held a half-day conference for securities analysts at its headquarters to demonstrate its SkyTel 2-way paging service. During this conference, the presentation was lead by Puckett and Bhagat and included a demonstration of the 2-way paging service which showed that it "worked," provided guaranteed receipt of messages and the ability of the message recipient to respond to the message sender via the pager.
39. During the Jan. 19, 1995 conference, Mtel executives, including Puckett, Bhagat and Fugate, told securities analysts, portfolio managers and large Mtel shareholders who were present that:
The information disseminated by Mtel in the Jan. 19, 1995 conference entered the market and became part of the total mix of information impacting Mtel's stock price.
40. The events of Jan. 19, 1995 were reported by Bloomberg Business News:
Destineer Corp., a subsidiary of Mobile Telecommunication Technologies Corp., today announced that it successfully conducted the first hands-on demonstration of its two-way wireless messaging products and services as part of an analyst meeting held earlier today at Mtel's Jackson headquarters.
Analysts were given a demonstration of the Destineer network, by which information can be instantly exchanged via two-way messaging units, eliminating the need to respond to messages by a phone call. Destineer customers will also be able to communicate with personal computers and fax machines.
Analysts were invited to operate Destineer technology for themselves. This spring, the two-way service will be provided to selected corporations for use in the Dallas metro area as part of a final "beta test."
"Mtel has always been first to market with the most innovative wireless messaging technologies," said Jai P. Bhagat, chairman and chief executive officer of Destineer Corp. and executive vice president of Mtel. "Today's demonstration is further evidence that no one in the industry has more experience and knowledge in building sophisticated, reliable wireless messaging systems than Mtel. With Destineer, we have set a new standard in wireless messaging, in response to the needs of our customers."
41. On Feb. 15, 1995, Mtel issued a release reporting its fourth quarter 1994 and full-year 1994 results, which stated:
"Mtel's strong revenue and unit results for the fourth quarter and the year offer further evidence that our long-term strategic business plan, in place since January 1994, is yielding significant benefits," said John N. Palmer, chairman and chief executive officer of Mtel. "Unit growth at our SkyTel Corp. subsidiary accelerated significantly through the year, and we continued to make great strides internationally, adding units and strengthening our operations in several markets, particularly in Latin America. Construction of the company's two-way nationwide network is on target and will be serving the top 300 U.S. markets the second half of 1995."
42. On March 31, 1995, Mtel filed its 1994 Report on Form 10-K with the SEC. The Report was signed by Palmer, Fugate, Barksdale, Bhagat and Puckett, and stated:
In July 1994, the Company, Microsoft, certain of Microsoft's founders and certain other investors formed Destineer Corporation ("Destineer") to continue the development of Destineer's two-way nationwide wireless messaging network (the "Destineer Network") that is expected to commence commercial operation in 300 of the largest metropolitan areas in the United States in the second half of 1995. The Destineer Network will enable business travelers and consumers to send and receive two-way messages through the use of a new class of small low-power, light-weight devices, as well as lap-top and palm-top computers, without the need to know the location of the sender or receiver at the time of transmission. The Destineer Network will utilize a proprietary system architecture designed and developed by Mtel and will offer a broad range of communications services, including acknowledgment messaging, wireless two-way messaging and information services.
* * *
Destineer
Overview. Mtel has devoted significant efforts since 1991 to the development of its new two-way nationwide wireless messaging network (the "Destineer Network") that will be operated by Destineer Corp. ("Destineer") . . . . The Destineer Network will enable business travelers and consumers to send and receive two-way messages through the use of a new class of small, lightweight, user friendly devices, as well as laptop and palmtop computers, without the need to know the location of the sender or receiver at the time of transmission. Destineer will utilize a proprietary system architecture designed and developed by Mtel incorporating low-power subscriber equipment transmission technology and will offer a broad range of communications services, including acknowledgment paging, wireless two-way messaging and information services. The Company intends to commence commercial operation of the Destineer Network in 300 of the largest metropolitan areas in the United States in the second half of 1995.
Customers using the Destineer Network will be able to send and receive data to and from a variety of devices, including public and private E-mail systems, fax machines and wireless messaging devices. Customers on the Destineer Network will also be able to use terminal devices such as personal communicators, personal messaging units ("PMUs") and acknowledgment pagers, as well as notebook, laptop and palmtop computers through the use of transceivers using PCMCIA cards and embedded chip sets.
* * *
Destineer has established a team of professional managers, engineers and systems developers to facilitate the successful development of the Destineer Network Operations Center, infrastructure, support systems and customer/subscriber devices. Mtel employees, together with outside consultants, have developed a comprehensive project management technique for the development of the Destineer Network . . . .
System Description; Technology. The Destineer Network will be a location independent nationwide network. The Company believes that the Destineer Network will draw competitive advantages from its technology and infrastructure, its user-friendly advanced messaging platform, its Network Operations Center and its intuitive applications. The Network Operations Center will manage network traffic flow, connectivity to information service providers and other databases, customer profiles and accounts. Destineer's architecture is designed to permit almost instant delivery of messages and data transmissions to any major city in the U.S. Another important feature of the Destineer Network is extended battery usage . . . .
Over-the-air transmissions on the Destineer Network will utilize an innovative multi-carrier modulation technology. The Destineer Network has demonstrated transmission rates in excess of 24,000 bits per second for forward network links. This compares with 2,400 bits per second typically utilized at present by many messaging systems. The higher transmission speed will provide increased system capacity. The Destineer Network operates with synchronized transmitters on the same frequency within a given coverage area to optimize building penetration and reduce power requirements.
43. On April 15, 1995, Mtel issued its 1994 Annual Report to shareholders which contained a letter signed by Palmer, that stated:
Mtel's most recent innovations, the Destineer Network and SkyTel 2-Way, introduce a completely unique communications medium to the wireless world.
[W]e announced our new pricing structure, we announced a significant program of reinvestment to enable the further development of our two-way messaging technology. Because this decision meant that we would sacrifice earnings in the short term, it . . . was controversial. But . . . we now have incontrovertible evidence that our decision was the right one.
This has not only been a year of dynamic growth for SkyTel, but one in which we prepared for the future. Our Destineer Network and SkyTel 2-WayTM service will debut in 300 major markets across the United States in the second half of 1995. . . and we're building it now. And with our technological advantages . . . we have a head start on any other market entrant.
44. Mtel's 1994 Annual Report also stated it was:
Announcing a fundamental change in wireless communication: The phenomenon of two-way messaging with guaranteed delivery. Beginning in the second half of 1995, Mtel will deliver the breakthrough technology in wireless two-way communication, nationwide, anywhere, anytime.
* * *
[W]e are introducing the first two-way nationwide wireless messaging service with our own proprietary network and technology. . . .
The system is expected to begin operating in 300 major markets in the second half of 1995.
The Destineer technology represents a dramatic leap beyond the current technologies available. Messages can be sent via phone, fax, PC, the Internet or E-Mail systems. Within moments, the sender receives automatic acknowledgment that the message was received by the recipient's SkyTel unit, and the recipient can then respond immediately via the same unit.
The most basic applications of SkyTel 2-WayTM service will revolutionize the way people communicate. . . . In the not too distant future we anticipate that SkyTel 2-WayTM will enable you to conduct a variety of transactions wirelessly such as make travel arrangements, do your banking, make database inquiries, set your security system or check on product inventory.
* * *
Once again, we have proven that our true business advantage lies in the fact that we have the . . . expertise to develop the leading technology and the ability to bring that technology to market.
45. The Management's Discussion and Analysis section of Mtel's 1994 Annual Report also stated:
Mtel intends to commence commercial operation of the Destineer Network in 300 of the largest metropolitan areas in the United States in the second half of 1995.
* * *
Senior Notes -- In December 1994, Mtel issued $265 million principal amount of 13.5% Senior Notes . . . .
* * *
Senior Credit Facility -- SkyTel has received a commitment letter . . . in the principal amount of $60.0 million . . . .
* * *
Additional Financings
The Company anticipates that the net proceeds from the sale of the Senior Notes, existing cash balances, funds generated from operations, and funds available from the Company's proposed Senior Credit Facility will be sufficient to meet projected capital requirements for the next 24 months.
46. The defendants' positive statements issued between Jan. 19, 1995 and April 15, 1995 about Mtel's existing operations and prospects were each false and misleading when made and failed to disclose the following true facts, which were then known to the defendants:
(a) That Mtel had experienced serious and persistent problems in its initial beta tests of the 2-way system, as the system had numerous design defects which Mtel was unable to overcome, including:
(i) Software bugs in the program that operated the 2-way network and the NOC, resulting in frequent system crashes and lost messages during the initial beta tests;
(ii) Much shorter than anticipated battery life; and
(iii) Weak receiver links and defective Motorola Tango pagers resulting in lost or duplicative messages;
(b) That the initial beta tests of Destineer confirmed that the 2-way system did not offer guaranteed delivery of messages;
(c) That, as a result of the foregoing problems, a 1995 commercial launch of Mtel's SkyTel 2-way messaging system would not be possible and thus Mtel did not have "incontrovertible evidence" its decision to build SkyTel 2-way "was the right one," did not have "the expertise to develop leading technology and the ability to bring that technology to market," did not have a "head start," and SkyTel would not add to Mtel's momentum, earnings or cash flow during 1995-1997, but rather, lead to increased losses and negative cash flow;
(d) That Mtel was encountering significant cost overruns on the SkyTel 2-way project to date and because of these financial problems would not be able to finance a system with enough transmitters to provide true nationwide service during 1995;
(e) That, due to cost concerns, Mtel did not have sufficient financial resources to complete development and deployment of SkyTel 2-way without raising additional funds;
(f) That Mtel's management was being warned by Motorola that the 2-way system had serious problems and could not be ready for commercial service during 1995 and that serious operational problems would result from a premature rollout of the system;
(g) That the "test" or "demonstration" of the 2-way service during the Jan. 19, 1995 analyst conference was staged under conditions not at all indicative of actual use and was deceptive in suggesting that the system would work when, in fact, Mtel knew it had serious problems and likely would not work;
(h) That, due to the foregoing difficulties, Mtel would not be able to launch its 2-way paging service with coverage of the 300 largest U.S. metropolitan areas in the second half of 1995; and
(i) That Mtel did not have a "comprehensive project management technique for the development of the Destineer Network," as, in fact, the project was being pursued in a hasty, ad hoc manner, with needed software and hardware being acquired from disparate vendors without assuring compatibility and, in fact, the project was out of control, plagued by defective software and costs spiraling out of control.
47. In mid-May 1995, Mtel issued its first quarter 1995 Report to Shareholders which included a letter signed by Palmer, which stated:
Our 1994 Annual Report outlined a vision of our industry and of Mtel's leadership position within it. We are therefore very pleased to report that our strong performance in the first quarter of 1995 continues to validate that vision.
* * *
These results, which have met the expectations of our strategic plan announced last year, are especially gratifying as we enter a new era in wireless messaging . . . we have created through the development of our SkyTel 2-Way messaging service and our proprietary Destineer network.
* * *
Mtel reported a consolidated loss of $4,009,000, or 13 cents per common share for the first quarter . . . or seven cents per common share for the corresponding quarter of 1994. These results were fully in line with our projections as we continue to invest in . . . our soon-to-be-introduced two-way service.
* * *
Another exciting event was the first hands-on demonstration of our two-way wireless messaging products and services as part of our first company-hosted securities analysts meeting at our . . . headquarters. We have consistently been first to market with the most innovative wireless messaging technologies and this demonstration offered further evidence that no one in the industry has more experience and knowledge in building sophisticated, reliable wireless messaging technology than Mtel. Moreover, we are on target to launch two-way service to the top 300 markets nationwide in the second half of 1995.
* * *
We entered 1995 with a sense of optimism born of the results we achieved in 1994. It gives me great pride and satisfaction that 1995 is off to such an impressive start. We expect that the introduction of SkyTel 2-Way later this year will be the most exciting development in our industry since our introduction of nationwide Paging nearly eight years ago.
48. On May 15, 1995, Mtel filed with the SEC its Report on Form 10-Q for the quarter ended Mar. 31, 1995. The Report was signed by Palmer and Fugate, and stated:
Mobile Telecommunication Technologies Corp. ("Mtel" or the "Company") is the leading provider of nationwide messaging services in the United States.
* * *
The Company ... continues to develop and construct a two way nationwide wireless messaging network in the United States (the "Destineer Network"). The Destineer Network will enable its subscribers to send and receive two-way messages through the use of a new class of small low-power, light-weight devices, as well as lap-top and palm-top computers, without the need to know the location of the sender or receiver at the time of transmission. The Destineer Network will utilize a proprietary system architecture designed and developed by Mtel and will offer a broad range of communications services, including acknowledgment paging, wireless two-way messaging and information services. The Destineer Network is expected to commence commercial operation in the second half of 1995.
49. On May 25, 1995, Mtel issued a press release that stated:
Mtel plans to introduce its unique SkyTel® 2-Way communications medium in the second half of 1995. "We're laying the groundwork here for a $1 billion company," Mr. Palmer said.
50. As Mtel stock moved higher in June 1995, Barksdale and LaRoche each sold off 15,000 shares of their Mtel stock at $23-$27 per share, pocketing over $770,000 -- selling 83% and 100% of the Mtel stock they owned, respectively.
51. On July 6, 1995, Mtel announced that its number of paging units worldwide had reached 817,800 as of June 30, 1995. In the release, Puckett also emphasized the importance of the pending introduction of SkyTel's 2-way messaging service, stating:
"During the second half of 1995, the launch of SkyTel 2-Way will add to this momentum with a totally unique service providing far greater capabilities than any existing communications network."
52. In connection with its July 6, 1995 release, Mtel executives, including Puckett, Bhagat and Fugate, held a conference call for analysts, portfolio managers, large Mtel shareholders, brokers and stock traders on July 6, 1995. During that call and follow-up conversations with analysts they stated:
The information disseminated by Mtel in the July 6, 1996 conference call entered the market and became part of the total mix of information impacting Mtel's stock price.
53. On July 6, 1995, Smith Barney analyst C. Phillips issued a report on Mtel which was based on and repeated the information provided in the July 6, 1995 conference call, stating:
The significance of Destineer . . . is that it is approximately 9-12 months ahead of any company that is developing nationwide narrowband PCS . . . . MTEL management indicated that the actual Destineer Product has already been manufactured and is being used in beta-test markets . . . . Network construction is nearing completion and final optimization is anticipated by summer-end . . . .
54. On July 6, 1995, Alex. Brown & Sons analyst Mark Roberts issued a report on Mtel which was based on and repeated the information provided in the July 6, 1995 conference call, stating:
Strong Subscriber Gains Increase Our Confidence That MTEL Can Meet or Exceed Our Growth Expectations For 1995 and 1996. The Company's strong growth in its subscriber base reflects its ability to successfully execute a direct marketing strategy focused on selling high-value-added services. We believe MTEL is gaining significant market share among the Fortune 1000 companies . . . . Our full-year 1995 and 1996 EBITDA estimate is $13.7 million and $58.7 million on revenues of $232.8 million and $404.3 million, respectively.
55. On July 6, 1995, J.C. Bradford analyst Bob Bolen issued a report on Mtel which was based on and repeated the information provided in the July 6, 1995 conference call, and conversations with Puckett and Fugate following that call, stating:
The second half unit forecast is being raised somewhat to reflect the strong performance seen this quarter. Estimated net unit additions are now forecast at 178,500 for the second half, up from 153,000. The cash flow and EPS estimates are unchanged. We believe SkyTel Two-Way will be launched in September or October. . . . We believe that rapid SkyTel growth, expanding cash flow margins, and the pending SkyTel Two-Way launch bode well for the stock.
56. On July 6, 1995, Morgan Keegan analyst Ram Kasargod issued a report on Mtel, which was based on and repeated the information provided in the July 6, 1995 conference call, and conversations with Puckett and Fugate following that call, stating:
We are pleased to see MTEL beat growth expectations. We expect this to continue through the balance of 1995 and into 1996 when MTEL will benefit from the availability of two-way paging.
57. On July 14, 1995, Smith Barney issued a report, authored by C. Phillips, which was based on and repeated information issued during the July 6, 1995 conference call and conversations with Puckett and Fugate in the days following that call. The report stated:
-- We believe that there are three factors driving the momentum behind MTEL shares, including: 1) a greater focus on the rollout of Destineer, MTEL's personal communications services (PCS) Product . . . .
* * *
1) Destineer: . . . The significance of Destineer, in our opinion, is that it is approximately 9-12 months ahead of any company that is developing nationwide narrowband PCS . . . . We believe that the market is starting to acknowledge this lead, which, in our opinion, partially accounts for stock strength. MTEL management indicated that the actual Destineer product has already been manufactured and is being used in beta-test markets, suggesting the availability of the product once commercial service is introduced. Network construction is nearing completion and final optimization is anticipated by summer-end . . . .
58. The defendants' positive statements issued between May 1995 and July 6, 1995 about Mtel's business and prospects were each false and misleading when made and failed to disclose the following true facts, which were then known to the defendants:
(a) That Mtel was experiencing serious and persistent problems in the final beta test of the 2-way system which Mtel could not solve or overcome, including:
(i) Persistent difficulties in synchronizing transmitters;
(ii) Repeated malfunctions resulting in messages being received multiple times due to weak receiver links and defective Tango pagers which were unable to acknowledge or reply;
(iii) Serious and persistent software bugs in the program that operated the 2-way network and the NOC, resulting in frequent system crashes and lost messages; and
(iv) Much shorter than anticipated pager battery life;
(b) That, as a result of the foregoing, a 1995 commercial launch of Mtel's SkyTel 2-way messaging system would not be possible and would not add to Mtel's momentum, earnings or cash flow during 1995-1997, but rather, lead to increased losses and negative cash flow;
(c) That Mtel was encountering significant and accelerating cost overruns on its 2-way project and, due to a lack of adequate financial resources, could not deploy sufficient transmitters to allow true nationwide coverage;
(d) That the network was not being "fine-tuned" but, in fact, final beta testing was confirming the system's severe design defects and software shortcomings which could not be remedied;
(e) That Mtel management had been warned by Motorola of serious problems with the system and that significant operational problems would result from a premature rollout of the SkyTel 2-way system;
(f) That during 1995, when Mtel purportedly was upgrading its 1-way paging system with faster high-speed FLEX pagers, it actually was supplying customers with slower speed POCSAG pagers which was resulting in deteriorating levels of service in the 1-way system, contributing to slowing subscriber growth in Mtel's core 1-way paging business;
(g) That Mtel was inflating its core 1-way paging subscriber rolls by including, and by continuing to include as subscribers and accepting as new subscribers, persons who were uncreditworthy or who were seriously delinquent in paying their charges, thus inflating Mtel's 1-way paging subscriber rolls to conceal the deterioration in its core business; and
(h) That Mtel was accumulating excessive inventories of POCSAG pagers.
59. On July 26, 1995, Mtel released its second quarter 1995 results announcing that its revenues rose from $38.1 million in 2Q 1994 to $56.8 million in 2Q 1995, its net loss fell from $0.16 per share to $0.06 per share and its operating cash flow increased from a negative $1.9 million to a positive $3.5 million. Mtel's release quoted Puckett as stating:
"We have made real progress through the first half of 1995, and look forward to great things through the end of the year . . . ."
. . . "Most importantly, the launch of our SkyTel 2-Way network later this year will introduce the U.S. marketplace to the distinct advantages of two-way paging and messaging services, and usher in what we believe will be the most exciting period in Mtel's history."
60. In connection with the July 26, 1995 release, Mtel executives Puckett, Bhagat and Fugate held a conference call for analysts, portfolio managers, large Mtel shareholders, brokers and stock traders. During that call and in follow-up conversations with analysts they stated that:
The information Mtel disseminated in the July 26, 1995 conference call and afterward was disseminated to the market and became part of the total mix of information impacting Mtel's stock price.
61. On July 27, 1995, Smith Barney analyst C. Phillips issued a report on Mtel which was based on and repeated the information provided in the July 26, 1995 conference call, stating:
Results indicate that MTEL continues to bring all aspects of its business together. The financial turnaround of SkyTel, the company's core operations, continues to remain on track as evidenced by achieving not only positive operating cash flow (OCF) but sustaining net income. . . . Additionally, MTEL's personal communications service (PCS) subsidiary, Destineer, appears to be on track for 2H95 commercial launch as anticipated. . . .
* * *
SkyTel remains on track to reach 25% OCF margins by year-end and that the roll-out for Destineer will remain on schedule.
62. On July 27, 1995, Bear Stearns analyst D. Freedman issued a report on Mtel which was based on and repeated the information provided in the July 26, 1995 conference call, stating:
Mtel said that it now has enough 2-way units in inventory to start commercial service when it completes optimizing the network . . . . [T]his piece of news is important . . . .
Mtel ended the quarter with 695,700 domestic units in service and 122,100 proportionate international units in service, representing year-over-year growth rates of 108% and 75%, respectively.
* * *
To handle the accelerated growth, Mtel has focused on improving its processing center. Currently, the center has the capacity to ship 100,000 units per month (including repairs, swaps, and replacements of subscriber units). Within 120 days, management indicated that the capacity would rise to 200 000 units per month. . . . The fundamental reason for these changes is that Mtel is preparing to add millions of users, not just hundreds of thousands. This infrastructure Preparation is an important point to support the kind of unit growth we foresee for SkyTel 2-way.
The Sky-Tel 2-way network is in the final stages of optimization. Mtel reiterated that it is on target to bring all 300 cities on line this year . . . . On the conference call . . .Mtel said that it had enough 2-way subscriber units in inventory to launch the 2-way service.
63. On July 27, 1995, J.C. Bradford analyst Bob Bolen issued a report on Mtel which was based on and repeated the information provided in the July 26, 1995 conference call, stating:
The launch of the SkyTel 2-Way appears on track. . . . Management indicated that it has received a sufficient number of the SkyTel 2-Way pagers from Motorola to meet expected initial demand for this service. The network currently is operational, and is now being fine-tuned in preparation for its commercial launch. The network will be able to support an estimated three to five million users, which is more than enough capacity to meet expected demand for many years.
. . . We also are raising our 1996 Destineer revenue forecast to about $63 million from $32 million.
64. On July 27, 1995, Morgan Keegan analyst Ram Kasargod issued a report on Mtel, which was based on and repeated the information provided in the July 26, 1995 conference call, stating:
Discussion with the company indicates that it is on track to introduce two-way paging in 300 markets in H2:95.
65. On July 27, 1995, DLJ Securities analyst Dennis Leibowitz issued a report on Mtel, which was based on and repeated the information provided in the July 26, 1995 conference call, stating:
On a conference call yesterday, management stated that it is still on track to launch its two-way Destineer network in the second half of 1995.
66. On July 28, 1995, Alex. Brown analyst Mark Roberts issued a report on Mtel, which was based on and repeated the information provided in the July 26, 1995 conference call, stating: "Destineer on track for late 3Q roll out."
67. On August 2, 1995, Roberts followed up with a Company Report on Mtel in which he projected SkyTel 2-way revenues of $6.9 million for 1995 and $68.7 million for 1996. Roberts also projected that for Destineer, Mtel would have 152,150 units in service by the end of 1996.
68. The statements made by defendants in the July 26, 1995 conference call about Mtel's business and prospects were false and misleading when made and concealed the following material adverse information, which was then known to each of the defendants, including:
(a) That Mtel had been warned by Motorola, the supplier of the Tango pager used in SkyTel 2-way service as well as the overall technology for the system (ReFlex 50), that the service could not be ready for commercial launch in 1995 due to persistent and serious technical and software problems and that premature launch would result in system failure;
(b) That SkyTel 2-way service was not capable of providing true nationwide coverage, as Mtel had not had sufficient capital to complete all the needed technical upgrades to its electronic infrastructure necessary to accommodate a 2-way nationwide paging system and thus, SkyTel 2-way would service far more limited markets than had been indicated, and have much less commercial appeal, especially to its target market -- large customers;
(c) That Mtel was experiencing serious and persistent problems in its final beta tests of the 2-way system -- which could not be fixed -- including:
(i) Difficulties in synchronizing transmitters;
(ii) Malfunctions resulting in messages being received multiple times as defective Motorola Tango pagers were unable to acknowledge or reply;
(iii) weak receiver links resulting in lost or duplicative messages;
(iv) Software bugs in the program that operated the 2-way network and the NOC, resulting in frequent system crashes and lost messages;
(v) Much shorter than anticipated battery life; and
(vi) Insufficient functioning transmitters to allow true nationwide coverage, resulting in widespread area blackouts;
(d) That during 1995, when Mtel was purportedly upgrading its 1-way paging system with faster high-speed FLEX pagers, it was actually supplying customers with slower speed POCSAG pagers which was resulting in deteriorating levels of service in the 1-way system, contributing to slowing subscriber growth in Mtel's core 1-way paging business;
(e) That, in order to conceal the deterioration in its core 1-way paging business, Mtel was inflating its core 1-way paging subscriber rolls by including, and by continuing to include as subscribers and accepting as new subscribers, persons who were uncreditworthy or who were seriously delinquent in paying their charges;
(f) That Mtel was accumulating excessive inventories of POCSAG pagers;
(g) That, a result of the foregoing, a 1995 commercial launch of Mtel's SkyTel 2-way messaging system would not be possible and would not add to Mtel's momentum, earnings or cash flow during 1995-1997, but rather, lead to increased losses and negative cash flow;
(h) That Mtel was encountering significant cost overruns on its 2-way project;
(i) That the network was not being "fine-tuned" but, in fact, beta testing was confirming the system's severe design defects and software shortcomings which could not be remedied;
(j) That Mtel management had been warned by Motorola of serious operational problems that would likely result from the premature rollout of the Destineer system and had disregarded such warnings; and
(k) That due to the aforementioned problems, Mtel's management knew that estimates of 150,000 subscriptions by the end of 1996 and revenues of $60+ million in 1996 could not be attained.
69. On Aug. 7, 1995, PC Week published an interview with Puckett. When questioned regarding the steps taken by the defendants "to ensure the rapid adoption of two-way paging," Puckett responded:
Two-way technology is a natural extension, so the migration is easy.
70. In mid-Aug. 1995, Mtel issued its second quarter 1995 Report to Shareholders, which included a letter signed by Palmer, which stated:
Mtel's strategic growth program drove a record pace of expansion during the second quarter of 1995, both in terms of our revenues and our customer base. And as we launch SkyTel 2-WayTM during the second half of the year, we will continue to lead a revolution in wireless messaging and communications.
* * *
Our results for the second quarter are well in line with the goals we set for ourselves last year. As the distinct advantages of two-way paging become apparent, we expect the introduction of SkyTel 2-Way to generate excitement and new sales for both our one-way and two-way services. . . . We believe that in the foreseeable future our subscriber base will be measured not in hundreds of thousands of units in service, but in millions.
71. On Aug. 14, 1995, Mtel filed with the SEC its Report on Form 10-Q for the second quarter of 1995. The Report was signed by Palmer and Fugate and stated:
Destineer . . . is continuing to develop and construct a two-way nationwide wireless messaging network in the United States. . . . The Destineer Network will enable its subscribers to send and receive two-way messages. . . . The Destineer Network will utilize a proprietary system architecture designed and developed by Mtel and will offer a broad range of communications services, including acknowledgment paging, wireless two-way messaging and information services. The Destineer Network is expected to commence commercial operation in the second half of 1995.
72. During the first week of Sept. 1995, Puckett had conversations with J.C. Bradford analyst B. Bolen, telling him:
Bolen reported this information to the market where it became part of the total mix of information impacting Mtel's stock price.
73. On Sept. 12, 1995, Smith Barney issued a report, written by Phillips, based on information provided him by Puckett and Fugate which stated:
The significance of Destineer . . . is that it is approximately 9-12 months ahead of any company that is developing nationwide narrowband PCS. . . .
-- The initial Destineer rollout will provide service in 135 cities; the remaining 165 cities are constructed and are currently being fine-tuned. Service in all 300 key cities will be available by year-end.
74. On Sept. 13, 1995, while in New York City for meetings with securities analysts, brokers, portfolio managers and institutional investors, Puckett stated that the SkyTel 2-way paging service would cause a "revolution in personal messaging" and that because Mtel had been able to bring it to market so far in advance of its competitors, Mtel would be able to establish a strong base of loyal customers and gain a major competitive advantage, before competitive products came to market. During the mid-Sept. trip to New York City, Puckett discussed Mtel with Alex. Brown analyst Mark Roberts, telling him:
75. On Sept. 15, 1995, Mtel issued a release reported in the Reuters European Business Report, which quoted Puckett:
A revolution is about to hit the beeper business.
* * *
"This is a revolution, a real paradigm shift for the paging industry. We have created a different way for people to communicate, from their personal lives to their businesses . . . ."
76. On Sept. 19, 1995, Mtel formally introduced its SkyTel 2-way pager service as the first 2-way nationwide messaging service. The Company orchestrated a nationwide media splash which featured advertisements in or on The Wall Street Journal, USA Today, CNN, CNBC and ESPN. The Company announced that the service was available nationwide and offered guaranteed delivery of messages. Bhagat stated that "'SkyTel's 2-Way represents a major breakthrough toward wireless services that will rapidly become indispensable personal productivity tools."'
77. On Sept. 19, 1995, Mtel issued a release headlined: "Now You Can Answer Back From Your Pager; SkyTel Introduce[s] The First Two-Way Nationwide Pager Service" which stated:
SkyTel, a subsidiary of Mtel and the first company to offer nationwide paging, Tuesday introduced SkyTel 2-Way, the first two-way paging service that allows you to respond to messages quickly and easily, directly from your pager.
* * *
SkyTel 2-Way also offers Guaranteed Delivery so you are never left wondering if your page really did arrive. When a SkyTel 2-Way pager receives a message, it automatically sends back a response confirming delivery, and people sending messages can easily check if the message has been delivered.
. . . [T]he batteries last for weeks, not hours, so you can leave them on all the time.
78. On Sept. 19, 1995, SkyTel also issued a release, headlined "Skytel Launches First Two-Way Paging Service with Guaranteed Message Delivery And Immediate Response Capabilities; Breakthrough Personal communications Service (PCS) Available Now in 1,300 Cities Nationwide." The press release stated:
SkyTel Corp., a subsidiary of Mtel, Tuesday announced SkyTel 2-Way, the first two-way Paging service. . . .
The new personal communications service (PCS) is now available nationwide in 1,300 cities, covering the top 50 MSAs [Metropolitan Statistical Areas] across the United States, and SkyTel plans to further extend service by year-end.
SkyTel 2-way provides Guaranteed Delivery for all messages and gives pager users the ability to immediately respond from their pager. In addition, SkyTel 2-way retains all the strengths of one-way paging services used today by more than 30 million people in the United States -- including long battery life . . . .
"SkyTel 2-Way represents a major breakthrough toward wireless services that will rapidly become indispensable personal productivity tools," said Jai Bhagat, president and chief executive officer of SkyTel.
* * *
SkyTel 2-Way Breakthroughs
When people send messages to a traditional pager, they have no idea whether the message was delivered until they get a phone call or are made aware of some action that indicates the page was delivered. SkyTel 2-Way puts an end to that uncertainty.
-- Guaranteed Delivery. The system automatically confirms successful message delivery each time a message is received by a SkyTel 2-Way pager, so a sender can easily check whether the message was received. . . .
-- Immediate Response. For the first time ever, a person can respond to a message right from their pager.
* * *
Advanced Network Operations Center
SkyTel's two-way messaging is made possible through a sophisticated Network operations Center (NOC) . . . .
The NOC is the heart and brains of the network, serving as an intelligent control site and managing all network activity. The NOC integrates all incoming messages, distributes them, collects delivery confirmations and responses, and transmits them back to the message originator. The NOC also integrates with SkyTel's one-way system, allowing responses to be routed to SkyTel one-way pagers.
Price and Availability
SkyTel 2-Way service is immediately available in 1,300 cities across the United States and plans call for service to be further expanded by year-end.
* * *
SkyTel Corp., the leading brand in global wireless paging and messaging, provides paging and advanced messaging services in thousands of cities throughout North America and in 17 countries worldwide. With its strong established base of users and advanced technology, SkyTel leverages the convergence of computers, communications and mobility to help people work outside the confines of traditional offices.
Based in Washington, D.C., SkyTel is a subsidiary of Mobile Telecommunication Technologies Corp., Jackson, Mississippi (NASDAQ:MTEL), the pioneer in wireless messaging technology. Mtel uses digital technology and sophisticated software to facilitate personal communications through a variety of services and devices.
79. On Sept. 19, 1995, at a presentation for analysts, portfolio managers, large Mtel shareholders, brokers, institutional investors and stock traders at the New York Public Library and in one-on-one "breakout sessions," orchestrated in connection with the introduction of Mtel's 2-way paging service, Mtel (via Puckett, Palmer, Bhagat and Fugate) told those assembled that Mtel expected approximately 30,000 2-way subscribers in 1995, "hundreds of thousands" of persons/businesses to subscribe to its 2-way paging service within three years and that the 2-way service would be breakeven at 150,000 subscribers by late 1996 and cash flow positive by 1997. In these presentations they also stated:
The information that Mtel disseminated on Sept. 19, 1995 became part of the total mix of information impacting Mtel's stock price.
80. On Sept. 20, 1995, Bear Stearns issued a report, authored by D. Freedman, which was based on and repeated information provided to him on Sept. 19, 1995. The report stated that Mtel expected 30,000 2-way subscribers by year-end 1995, and by 1996 to have 180,000 2-way subscribers, and stated:
Five-year forward EBITDA growth . . . is still 50% compounded annually. We have not changed our 1997 estimate, but the incremental news on distribution for SkyTel 2-way has bolstered our confidence in the potential unit growth over the next few years . . . . We believe that more upside could exist as we hear more news and continue to monitor the performance of SkyTel*s business.
81. Mtel's stock reached its Class Period and all-time high of $36-3/8 on Sept. 22, 1995. The positive statements made by the defendants between Aug. 7, 1995 and Sept. 19, 1995 were false and misleading because defendants concealed the following adverse facts, which were then known to them:
(a) That the SkyTel 2-way paging system had not been adequately or extensively tested prior to commercial launch and, as a result of the testing that had been done, defendants were aware of serious technical failures and software problems with the system that could not be fixed and that it did not function adequately for commercial service;
(b) That prior to the commercial deployment of the SkyTel 2-way paging system, Mtel had been warned by Motorola, the supplier of the Tango pager, as well as the overall technology for the 2-way paging system (ReFlex 50), that the service was not ready for commercial launch due to persistent and serious technical and software problems discovered during beta testing and that premature launch would result in system failure;
(c) That SkyTel 2-way service was not capable of providing true nationwide coverage, as Mtel had not had sufficient capital to complete all the needed technical upgrades to its electronic infrastructure necessary to accommodate a 2-way nationwide paging system and, thus, the system would service far more limited markets than had been indicated, and have much less commercial appeal, especially to its target market -- large customers;
(d) That the new NOC was not functioning adequately or properly, due to serious defects in the key operating software and, as a result, SkyTel's 1-way and 2-way paging services were suffering from problems resulting in customer dissatisfaction;
(e) That during 1995, when Mtel had been purportedly upgrading its 1-way paging system with faster high-speed FLEX pagers, in fact it instead had been supplying customers with slower speed POCSAG pagers which was resulting in deteriorating levels of service in the 1-way system, contributing to slowing subscriber growth in Mtel's core 1-way paging business;
(f) That, in order to conceal the deterioration in its core 1-way paging business, Mtel was inflating its core 1-way paging subscriber rolls by including, and by continuing to include as subscribers and accepting as new subscribers, persons who were uncreditworthy or who were seriously delinquent in paying their charges;
(g) That Mtel was accumulating a huge amount of excessive inventories of POCSAG pagers, which was putting a severe financial strain on the Company and placing it in danger of going into violation of its bank lending covenants;
(h) That Mtel was experiencing serious and persistent problems in the operation of its 2-way paging system which could not be fixed, including:
(i) Difficulties in synchronizing transmitters;
(ii) Software bugs in the program that operated the 2-way network and the NOC, resulting in frequent system crashes and lost messages;
(iii) Much shorter than anticipated battery life;
(iv) Insufficient functioning transmitters to allow true nationwide coverage, resulting in widespread area blackouts;
(v) Defective Motorola Tango pagers being used by Mtel in its 2-way paging system; and
(vi) Because of (i) - (v) above, the network was experiencing repeated random crashes;
(i) That in order to meet the Fall 1995 introduction deadline, Mtel and the defendants had hurriedly assembled the 2-way messaging network without adequate testing, disregarding severe design defects in the system. For example:
(i) The 2-way network was not providing guaranteed message delivery as it had inadequate return-channel coverage in Mtel's top 15 markets, which was resulting in an inability to receive confirmations from pagers which in turn was resulting in the system treating the message as undelivered causing identical messages to be sent 5-9 times;
(j) That due to the hurried and haphazard approach to the construction and rollout of the 2-way network model Mtel was incurring huge cost overruns, far in excess of budgeted costs;
(k) That, a result of the foregoing, a 1995 commercial launch of Mtel's SkyTel 2-way messaging system would not be possible and would not add to Mtel's momentum, earnings or cash flow during 1995-1997, but rather, lead to increased losses and negative cash flow;
(l) That Mtel was disregarding warnings from Motorola about the adverse impact of rushing its 2-way paging system to market in order to meet Mtel's publicly projected late 3Q 1995 service introduction; and
(m) That, based upon the above, the defendants knew the SkyTel 2-way service had not commenced viable commercial operations in the Fall of 1995.
82. On Oct. 5, 1995, Mtel issued a release in which Puckett reassured investors:
"The initial results from SkyTel 2-Way, which was introduced on September 19, are very encouraging . . . we expect strong sales moving forward."
83. On Oct. 24, 1995, Mtel executives Puckett, Bhagat and Fugate arranged a conference call for analysts, portfolio managers, large Mtel shareholders, brokers and stock traders. During that call and in follow-up conversations with analysts they stated that:
This information that Mtel disseminated in the conference call and thereafter became part of the total mix of information impacting Mtel's stock price.
84. On Oct. 24, 1995, Mtel announced its results for the third quarter of 1995, ended Sept. 30, 1995, reporting that its loss per share had narrowed from $0.23 to $0.17. In connection with the dissemination of Mtel's third quarter results, Puckett stated how "pleased" he was with Mtel's "continuing strong growth." The release also stated:
"With the launch of SkyTel 2-Way service in September, Mtel is offering customers the telecommunication industry's most advanced paging and messaging technology."
85. In connection with the Oct. 24, 1995 release, Mtel executives Puckett, Fugate, Bhagat and Palmer held a conference call for analysts, portfolio managers, large Mtel shareholders, brokers and stock traders. During that call and in follow-up conversations with analysts they stated that:
The information Mtel distributed in the conference call and thereafter became part of the total mix of information impacting Mtel's stock price.
86. On Oct. 26, 1995, Smith Barney analyst C. Phillips issued a report which was based on and repeated the information provided in the Oct. 24, 1995 conference call. The report noted the "continuing improvement of the core SkyTel business" and that "SkyTel and SkyTel 2-Way (Destineer) . . . are very solid and are outperforming expectations." The report also stated:
SkyTel 2-Way (Destineer): MTEL launched service on its SkyTel 2-Way network on September 19, 1995. MTEL was pleased with the 963 SkyTel 2-Way units in service as of September 20, which were put on the system in only ten selling days. In addition, there are substantially more than 963 units that are currently in customers hands that are awaiting the close of a sales contract to be converted to revenue-generating units. . . .
-- As we see it, MTEL has the right mix of assets to attract investment from other telecom companies, as well as position itself for substantial growth as a stand-alone entity. Through its domestic SkyTel subsidiary, it is positioned to maintain leadership status in providing nationwide paging services. In addition, the company is enhancing asset value through investments in international paging markets and through its introduction of Skytel 2-Way (Destineer) service via its nationwide narrowband PCS networks. Recent results indicate that MTEL continues to bring all aspects of its business together.
87. On Oct. 25, 1995, J.C. Bradford analyst Bob Bolen issued a report on Mtel, which was based on and repeated the information provided in the Oct. 24, 1995 conference call, stating:
Initial roll-out of the SkyTel 2-Way service appears to be going relatively smoothly.
88. On Oct. 26, 1995, Smith Barney analyst C. Phillips issued a report on Mtel which was based on and again repeated the information provided in the Oct. 24, 1995 conference call. Noting the "continuing improvement of the core SkyTel business," the report stated:
We believe that MTEL's . . . two main assets, SkyTel and SkyTel 2-Way (Destineer) . . . are very solid and are outperforming expectations. . . . Growth in SkyTel OCF, in our opinion, will enable MTEL to absorb start-up losses expected to be incurred in 1996 for international and for the 2-way network. In addition, we believe that the overall growth rate from a subscriber, revenue and OCF basis are going to be higher over the next three years than in the company's previous history. . . .
-- To illustrate the improvement in MTEL's fundamentals, consolidated OCF is estimated to increase from a $5.5 million deficit in 1994 to a range of $16-$17.5 million (6.6% margins) in 1995 and to a range of $49-$51 million (12% margins) in 1996. SkyTel's fundamental improvement is also expected to be equally impressive. For the year, we estimate that the SkyTel segment will generate cash flow in a range of $46 million - $53 million (21% margins), a significant improvement from 1994 SkyTel cash flow of $9.7 million. OCF for the SkyTel segment is estimated to increase to the low $90 million range in 1996.
* * *
SkyTel 2-Way (Destineer): Mtel launched service on its SkyTel 2-Way network on September 19, 1995. Mtel was pleased with the 963 SkyTel 2-Way units in service as of September 30, which were put on the system in only ten selling days. . . .
89. In late Oct. 1995, Mtel issued its third quarter 1995 Report to Shareholders, which included a letter signed by Palmer, that stated:
Mtel's September 19, 1995 launch of SkyTel 2-WayTM represented an important milestone in the history of our Company and the wireless communications industry. SkyTel 2-Way is the first system of its kind providing wireless two-way communications from a unit about the size of a standard pager. The system was designed to appeal to the U.S. market's 30 million paging users, with features such as Guaranteed DeliveryTM of messages and the ability to immediately respond from your pager. The initial response has been positive, not only from the press, but also from our peers in the paging industry and, most importantly, our customers.
* * *
Mtel's results for the third quarter of 1995 included record revenue for the Company and record revenue and operating cash flow for SkyTel. In addition, we saw strong growth in our units in service during the period, both in the U.S. and overseas.
* * *
The number of paging and messaging units in service worldwide as of September 30, 1995 grew to 926,900, an increase of 111 percent from the third-quarter 1994 figure of 456,600. Mtel added 145,100 units during the third quarter, bringing the total number of pagers in service to 814,300 SkyTel units and 148,600 units from the Company's international operations. The SkyTel units included 963 SkyTel's 2-Way pagers sold in the initial nine business days following the launch.
* * *
The launch of SkyTel 2-Way allows Mtel to offer the most advanced range of paging services in the world, and . . .we believe we have created a foundation for growth through 1996 and beyond. In short, we're just getting started.
90. The statements made by defendants between Oct. 5, 1995 and the end of October 1995 about Mtel's business, operations and prospects were false and misleading when made, as the defendants knew but concealed the following adverse information:
(a) That the SkyTel 2-way paging system was not achieving a positive or good customer response nor was the system functioning smoothly or working well as, in fact, it was plagued by serious technical glitches and software problems which could not be fixed and thus it did not function adequately for commercial service;
(b) That Mtel's new NOC was not functioning adequately or properly, due to serious defects in the key operating software which Mtel could not fix and, as a result, Mtel's 1-way and 2-way paging services were suffering from problems resulting in customer dissatisfaction;
(c) That Mtel had been warned by Motorola, the supplier of the Tango pager used in the 2-way service, as well as the overall technology for the system (ReFlex 50), that the service was not ready for commercial launch due to persistent and serious technical and software problems and that premature launch would result in system malfunction and failure;
(d) That SkyTel 2-way service was not capable of providing true nationwide coverage, as Mtel had not had sufficient capital to complete all the needed technical upgrades to its electronic infrastructure necessary to accommodate a 2-way nationwide paging system and, thus, would service far more limited markets than had been indicated, and have much less commercial appeal, especially to its target market -- large customers;
(e) That during 1995, when Mtel was purportedly upgrading its 1-way paging system with faster high-speed FLEX pagers, it was actually supplying customers with slower speed POCSAG pagers which was resulting in deteriorating levels of service in the 1-way system, contributing to slowing subscriber growth in Mtel's core 1-way paging business;
(f) That, in order to conceal the deterioration in its core 1-way paging business, Mtel was inflating its core 1-way paging subscriber rolls by including, and by continuing to include as subscribers and accepting as new subscribers, persons who were uncreditworthy or who were seriously delinquent in paying their charges;
(g) That, as a result of these problems, the launch of Mtel's SkyTel 2-way messaging system was a disastrous failure and was resulting in and would continue to result in huge losses and greatly increased negative cash flow in during 1995, 1996 and 1997;
(h) That Mtel had accumulated a huge amount of excessive inventories of POCSAG pagers, which was putting a severe financial strain on the Company and placing it in danger of going into violation of its bank lending covenants;
(i) That Mtel's costs on the 2-way paging system had ballooned out of control with Mtel spending 30% more than it had anticipated in bringing the 2-way paging system to market, placing it on the verge of violating its bank lending covenants;
(j) That as a result of the above, defendants knew their forecast that Mtel would generate 25% cash flow margins by March 1996 was false; and
(k) That the initial results with SkyTel 2-way were not encouraging and the new system was not providing "strong sales," but was, in fact, a disaster for several reasons. For example:
(i) The 2-way network was not providing guaranteed message delivery as it had inadequate return-channel coverage in Mtel's top 15 markets as the Company was utilizing an excessive receiver-to-transmitter ratio which was resulting in an inability to receive confirmations from pagers which was resulting in the system treating the message as undelivered which in turn caused identical messages to be sent 5-9 times;
(ii) Mtel had not deployed sufficient transmitters to allow true nationwide coverage; and
(iii) The Motorola Tango pagers being used by SkyTel in its 2-way service were defective and, due to operational and design defects, Mtel had been forced to return a large number of the units to Motorola and would have to replace all such pagers.
91. During Oct. 25, 1995 to Nov. 3, 1995 -- over one month after the introduction of Mtel's new 2-way paging system which defendants knew was a disaster -- defendants Kriss and Fugate, Mtel's general counsel and chief financial officer, sold 30,000 and 60,000 shares of their Mtel stock at $27-$30 per share, pocketing proceeds of $900,000 and $1.7 million, respectively. These sales represented 100% and 98%, respectively, of the Mtel shares held by these two key Mtel insiders!
92. On Nov. 14, 1995, Mtel filed with the SEC its Report on Form 10-Q for the quarter ended Sept. 30, 1995. The Report was signed by Palmer and Fugate and stated:
Mobile Telecommunication Technologies Corp. ("Mtel" or the "Company") is the leading provider of nationwide messaging services in the United States. Mtel's principal subsidiary, SkyTel Corp. ("SkyTel"), operates the one-way nationwide paging system in the United States, and markets and distributes SkyTel 2-Way which is owned and operated by Mtel's wholly-owned subsidiary, Destineer Corp. ("Destineer"), and which was launched on September 19, 1995.
SkyTel 2-Way is the first two-way nationwide wireless messaging network in the United States and enables subscribers to send and receive two-way messages through the use of a new class of small low-power, light-weight devices, as well as lap-top and palm-top computers, without the need to know the location of the sender or receiver at the time of transmission. SkyTel 2-Way utilizes a proprietary system architecture designed and developed by Mtel and offers a broad range of communications services, including acknowledgment paging, wireless two-way messaging and information services.
93. During Nov. 1995, information entered the market that there were some technical problems with Mtel's new 2-way paging service. However, Mtel assured analysts, the investment community, customers and the business community that the problems were minor glitches which had been or were being fixed.
94. On Nov. 15, 1995, Mtel executives, including Palmer, Fugate and Puckett, communicated with D. Freedman from Bear Stearns and C. Phillips from Smith Barney and told them that:
This information became part of the total mix of information impacting Mtel's stock price.
95. On Nov. 20, 1995, Alex. Brown analyst Mark Roberts issued a report based upon the information provided to him by Puckett, Fugate and Palmer on or about Nov. 15, 1995. The report stated:
Management has reassured us that fundamentals remain strong and the growth expectations of all segments of the business are on track -- The Company was mystified last week at the share sell-off.
96. On Nov. 21, 1995, Mtel, via Ray O'Brien (Senior VP Sales/Marketing) and Scott Hamilton (Director of Investor Relations), held a conference call for securities analysts, portfolio managers, large Mtel shareholders, brokers and stock traders. The conference call was designed to distribute positive information and stem the decline in Mtel stock which had dropped by 20% recently. O'Brien and Hamilton reassured investors that:
This information became part of the total mix of information impacting Mtel's stock price.
97. On Nov. 21, 1995, Smith Barney analyst C. Phillips issued a report on Mtel which was based on and repeated the information provided in the Nov. 21, 1995 conference call, stating:
In light of MTEL's stock price decline . . . we thought that it might be helpful to dispel myth from reality.
MYTH #4: MTEL's two-way network does not work.
REALITY: MTEL's two-way network does work and the myth is not based upon any fact. MTEL management was forthright in admitting that they have encountered some minor start-up problems with the new technology. Some technology issues include: holes in network coverage, software glitches and a smaller than anticipated battery life. These issues either have been fixed or continue to be worked upon by Motorola (MOT) and MTEL. The issue of gaps in coverage is generally resolved once usage patterns are set and the company can install additional transmitters and receivers. In general, we do not believe that any of these technology issues are insurmountable and believe that they are characteristic of wireless technology in a developmental phase.
98. On Nov. 22, 1995, Morgan Keegan analyst Kasargod issued a report on Mtel which was based on and repeated the information provided in the Nov. 21, 1995 conference call, stating;
MTEL management yesterday updated investors on the current status of its recently launched 2-way service. . . . The company made the following comments about the outlook for 2-way.
Customer response to 2-way has been strong. Currently 400 of Fortune 1000 companies are testing units for a variety of applications . . . . By late Q1:96 significant sales should result from these efforts.
. . . Software bugs in pager units and transmitter synchronization issues cropped up and have been resolved.
99. On Nov. 22, 1995, J.C. Bradford analyst Bolen issued a report on Mtel which was based on and repeated the information provided in the Nov. 21, 1995 conference call, stating:
* * *
. . . MTEL held a conference call yesterday to address the roll-out of the SkyTel 2-way service, and the following points highlight the key issues discussed.
Competitive Service Offerings
. . . Mtel is the only provider of two-way messaging services today. A number of companies are developing such capabilities, but management stressed that they expect no competitive service offerings to be launched until first quarter 1997, at the earliest. By that time, Mtel will be well established with a [sic] extensive nationwide network, a next generation of two-way messaging services. and 100% market share.
Initial Glitches
Although a number of minor service glitches has been experienced, we expected that this would be the case and none of the problems to date cause us to be overly concerned. Some service areas have required transmitters/receivers to be added or relocated in an effort to fill coverage holes. This is a normal process, however, and MTEL even today adds/relocates transmitters on its more mature one-way network. Another problem discussed was an early software problem which caused certain transmitters to get out of synch with the network, which resulted in canceled messages and gave the effect of network coverage problems. These occurrences were random in nature, and Motorola has fixed the problem. Also discussed was the battery life of the 2-Way units. During the first few weeks, some of the pagers were draining batteries in less than one week, but software/hardware upgrades have improved the average battery life to about 21 days so far. The late arrival of some needed hardware upgrades also caused service to be slow during the first few weeks, but this hardware has been installed and is now fully operational.
* * *
Summary
Service performance has much improved from the earliest weeks. "Several thousand" units have been sold to date, and sales should begin to accelerate in first quarter of 1996 when all sales channels are fully trained and hitting on all cylinders.
100. On Nov. 28, 1995, Mtel issued a release stating:
"Mtel's leadership has been largely due to our ability to respond to the real-world demands of our market with advanced services and technology," Palmer added. "We were the first to offer text and wireless information services, and we have the most comprehensive international coverage in the world. Now, SkyTel 2-Way allows us to offer the industry's only Guaranteed Delivery(TM) of messages and the ability to respond to messages directly from a pager."
101. Defendants' Nov. 1995 statements were false and misleading when made. The true facts, which were then known to defendants, but concealed by them, were:
(a) That the SkyTel 2-way paging system had not merely encountered "minor glitches" that had been fixed, but rather, serious and persistent technical glitches and software problems with the system that could not be fixed and thus the system did not function adequately for commercial service;
(b) In connection with the commercial deployment of the SkyTel 2-way paging system, Mtel had been warned by Motorola, the supplier of the Tango pager and the overall technology for the system (ReFLEX 50), that the service was not ready for commercial launch due to persistent and serious technical and software problems and that premature launch would result in system failure;
(c) That the Company's 2-way service was not capable of providing true nationwide coverage, as Mtel had not had sufficient capital to complete all the needed technical upgrades to its electronic infrastructure necessary to accommodate a 2-way nationwide paging system and, thus, would service far more limited markets than had been indicated, and have much less commercial appeal, especially to its target market -- large customers;
(d) That Mtel's new network operations center was not functioning adequately or properly, due to serious defects, including software bugs, in the key operating software which could not be fixed and, as a result, Mtel's 1-way and 2-way paging services were suffering from problems resulting in customer dissatisfaction;
(e) That the initial results with SkyTel 2-way were not encouraging and the new system was not providing "strong sales," but was, in fact, a disaster for several reasons. For example:
(i) The 2-way network was not providing guaranteed message delivery as it had inadequate return-channel coverage in Mtel's top 15 markets as the Company was utilizing an excessive receiver-to-transmitter ratio which was resulting in an inability to receive confirmations from pagers which was resulting in the system treating the message as undelivered which in turn caused identical messages to be sent 5-9 times; and
(ii) The Motorola Tango pagers being used by SkyTel in its 2-way service were defective and, due to severe operational and design defects, Mtel had been forced to return a large number of the units to Motorola and would have to replace all those pagers.
(f) That, as a result of these problems, the launch of Mtel's SkyTel 2-way messaging system was a disastrous failure which was and would continue to result in huge losses and negative cash during 1995, 1996 and 1997;
(g) That during 1995, when Mtel was purportedly upgrading its 1-way paging system with faster high-speed FLEX pagers, it was actually supplying customers with slower speed POCSAG pagers which was resulting in deteriorating levels of service in the 1-way system, contributing to slowing subscriber growth in Mtel's core 1-way paging business;
(h) That, in order to conceal the deterioration in its core 1-way paging business, Mtel was inflating its core 1-way paging subscriber rolls by including, and by continuing to include as subscribers and accepting as new subscribers, persons who were uncreditworthy or who were seriously delinquent in paying their charges;
(i) That Mtel had accumulated a huge amount of excessive inventories of POCSAG pagers, which was putting a severe financial strain on the Company and placing it in danger of going into violation of its bank lending covenants;
(j) That Mtel's costs on the 2-way paging system had ballooned out of control with Mtel spending 30% more than it had anticipated in bringing the 2-way paging system to market, placing it on the verge of violating its bank lending covenants; and
(k) That as a result of the above, defendants knew their forecast that Mtel would generate 25% cash flow margins by March 1996 was false.
102. On Dec. 7, 1995, Puckett and Fugate told Phillips of Smith Barney that:
Motorola's FLEX pagers became available about a month ago, and MTEL has been aggressively shipping the units out to its alphanumeric customer base. Management indicated that there has been NO material impact on 4Q95 core paging results and that unit sales continue to be strong.
Phillips reported this information to the market where it became part of the total mix of information impacting Mtel's stock.
103. On Dec. 7, 1995, SkyTel issued a press release which stated:
SkyTel Corp., based in Washington, is the leading brand in global wireless paging and messaging, providing service in thousands of cities throughout North America and in 17 countries worldwide. In September 1995, SkyTel introduced SkyTel 2-Way, the first two-way paging service that offers guaranteed delivery and lets users respond to messages directly from their pager. With its strong established base of users and advanced technology, SkyTel leverages the convergence of computers, communications and mobility to help people work outside the confines of traditional offices.
104. On Dec. 8, 1995, Puckett made a presentation for Mtel at the Smith Barney High Yield Conference. During his presentation and in other conversations with analysts, Puckett stated that:
105. Based upon information obtained from Fugate and Puckett on Dec. 8, 1995, Phillips of Smith Barney issued a report about Mtel, stating that, although "conversations with management . . . revealed" that "expenses for the two-way paging business in its first full quarter of operation will be greater than originally anticipated . . . the company remains solidly on track."
106. The statements made by defendants on Dec. 7, 1995 and Dec. 8, 1995 were false when made and concealed the following true adverse facts, which were then known to defendants;
(a) That expenses were running not slightly "greater than originally anticipated" but, in fact, were so overwhelming that Mtel had expended such large sums on the system that Mtel was in violation of its bank covenants;
(b) That because Mtel had dramatically decreased its marketing budget for the 2-way network relative to its prior plans, the defendants knew that the Company's net subscriber additions in the first quarter of 1996 would not even exceed 5,000;
(c) That because of (a) and (b) above, Mtel was not "on track" to meet the revenue and cash flow projections made by defendants; and
(d) That the initial results with SkyTel 2-way were not encouraging and the new system was not providing strong sales, but was, in fact, a disaster for several reasons. For example:
(i) The 2-way network was not providing guaranteed message delivery as it had inadequate return-channel coverage in Mtel's top 15 markets as the Company was utilizing an excessive receiver-to-transmitter ratio which was resulting in an inability to receive confirmations from pagers which was resulting in the system treating the message as undelivered which in turn caused identical messages to be sent 5-9 times;
(ii) The NOC was unreliable, defective and not working, as the software being used in the NOC was defective and bug-ridden, which resulted in dropped messages and memory blackouts; and
(iii) The Motorola Tango pagers being used by SkyTel in its 2-way service were defective and, due to severe operational and design defects, Mtel had been forced to return a large number of the units to Motorola and would have to replace all such pagers.
107. On Jan. 3, 1996, Mtel announced that Puckett had resigned as CEO of Mtel for "personal reasons" and that Palmer, Mtel's Chairman, would become acting CEO. Mtel assured investors and the financial press that the resignation was for purely personal reasons and did not indicate that there was any problem with the SkyTel 2-way business or Mtel's business generally. This was false. Puckett had been pushed out -- in effect, fired -- due to his incompetence in bungling the launch of the 2-way paging system, its excessive cost and its defects. Palmer was quoted by Bloomberg Business News as stating "[w]e are steadily working to increase our competitive lead in two-way paging with new services and advanced, customized applications for SkyTel 2-Way."
108. On Jan. 4, 1996, Mtel issued a release, stating its total paging units in service as of Dec. 31, 1995 had increased to 1,098,500. Mtel also reported that the number of 2-way pagers in service had reached 15,400. Palmer asserted that Mtel's fourth quarter results were "extraordinary" stating:
"Our fourth quarter results were extraordinary, adding 70 percent more pagers than in the same period a year ago, even as we focused on the sales and operations of a totally new technology and service, SkyTel 2-Way . . . . To achieve this magnitude of growth as we rolled-out the first nationwide two-way paging and messaging service testifies to the commitment of our employees and to SkyTel's reputation for excellence. During 1996, our goal will be to fully capitalize on the new opportunities created by SkyTel 2-Way and by the tremendous growth underway by the paging market," Palmer added. "We have invested substantial resources into expanding the capacity of our one-way services, and our alliances with partners such as MCI and Sony have created powerful new channels to drive sales during the coming year. We anticipate significant growth in one-way services during 1996. In addition, we are steadily working to increase our competitive lead in two-way paging with new services and advanced, customized applications for SkyTel 2-Way."
109. On Jan. 4, 1996, Mtel held a conference call for analysts, portfolio managers, large Mtel shareholders, brokers and traders during which Palmer, Bhagat and Fugate stated:
The information disseminated by Mtel in the conference call became part of the total mix of information impacting Mtel's stock price.
110. On Jan. 4, 1996, Smith Barney analyst C. Phillips issued a report on Mtel which was based on and repeated the information provided in the Jan. 4, 1996 conference call, stating:
MTEL more than doubled its units in service worldwide, increasing units 105% from 4Q94 units of 536,600 to 1,098,500 at 4Q95. . . .
U.S. SkyTel Corp. (domestic one-way paging operations) added 93,900 units in the 4Q95 to reach 907,200 units, a 103% increase from 4Q94 units of 461,100 (66,600 net adds) . . . . Management indicated that approximately 37% of net additions came from MCI. Results continue to indicate that the restructured pricing plan, the reselling agreement with MCI and expansion of the direct sales force are having a significant impact on top line growth. . . . Actual domestic growth was slightly weaker than our expectations. Management indicated that it had limited the sales of one-way pagers during the quarter due to the limited availability of FLEX pagers from Motorola. MTEL was only able to sell one-way pagers for the months of October and December, which each produced 40,000+ units. We believe that the capacity issue was addressed at the end of last year, and on a run rate basis, MTEL expects to add between 110,000-120,000 one-way units in future quarters.
* * *
Destineer: MTEL launched SkyTel 2-Way (Destineer), its personal communications services (PCS) product, on September 19. At the end of 4Q95, there were 12,100 2-way pagers and 3,300 SkyTalk pagers for a total of 15,400 units. Results were better than our expectations of 10,000 units.
111. On Jan. 4, 1996, Hambrecht & Quist analyst Sood issued a report on Mtel, which was based on and repeated the information provided in the Jan. 4, 1996 conference call, stating:
-- Mtel currently has the only two-way messaging service available and its competitors will not have an equivalent product out until at least the second half of 1996. . . .
-- Mtel has stated that its one-way EBITDA margin for the quarter will not reach the 25% goal it set at the beginning of 1995 and we now believe it will be in the 23% to 24% range.
-- We expect the company's one-way paging will add 110,000 to 120,000 subscribers this quarter, approximately in line with last quarter's net additions and slightly less than we originally estimated. However, the shortfall is due to the company's emphasis on sales in its two-way paging division which should add more than 10,000 subscribers, significantly more than our conservative estimate of 7,500.
112. On Jan. 4, 1996, Bear Stearns analyst Matt Ellis issued a report on Mtel which was based on and repeated the information provided in the Jan. 4, 1996 conference call, stating:
After the close yesterday, MTEL announced that Bernard Puckett has stepped down as the CEO of MTEL. Due to some non-work related issues, Bernard could not commit to the amount of time demanded by the CEO position.
113. On Jan. 5, 1996, Bear Stearns analyst Matt Ellis issued a report on Mtel which was based on and again repeated information provided in the Jan. 4, 1996 conference call, stating:
We believe that MTEL accomplished three tasks with their conference call today: (1) demonstrated that MTEL's strategy and outlook remain the same; (2) illustrated that while the unit growth for the fourth quarter was below expectations the appearance of softer growth is misleading; (3) illustrated some potential for SkyTel 2-way and some advantages of coming first to market with 2-way paging. The conference call confirms our decision to maintain a buy recommendation on MTEL's common shares.
114. On Jan. 5, 1996, J.C. Bradford analyst Bolen issued a report on Mtel which was based on and repeated the information provided in the Jan. 4, 1996 conference call, stating:
SkyTel 1-Way expanded 103% to 907,200 units at quarter's end, for 93,863 net additions in the period. SkyTel 2-Way added 14,400 units for a total of 15,400 in service at the end of 1995. . . . SkyTel 1-Way growth was restricted by limited availability of Motorola flex units during November. Without this constraint, it looks like SkyTel could have exceeded its third quarter record of 117,000 units added. They are now receiving sufficient units, and growth is back to normal . . . .
SkyTel 2-Way growth to 15,400 units in service was very respectable given the early roll-out glitches. . . . Software glitches reportedly have been corrected; a second generation Tango unit will be available during the first quarter; and sales training is well underway. We now believe that the company can sell close to 200,000 units during 1996 and be at the 700,000 unit level by year-end 1997. . . .
. . . The market is narrowly focused on the cash-flow drain caused by SkyTel 2-Way and seemingly, its ultimate chances for economic success. First and foremost the system works, so the market must be concerned with potential demand and ultimate profitability.
115. On Jan. 5, 1996, J.P. Morgan analyst K. Abkemeier issued a report on Mtel, which was based on and repeated the information provided in the Jan. 4, 1996 conference call, stating:
Because Mtel will be the only provider of nationwide two-way messaging services for at least the next year, Mtel is well-positioned to enter into reseller agreements for advanced wireless messaging services.
Management alluded to positive announcements that should come out in January.
116. On Jan. 18, 1996, Mtel executives, including Palmer and Fugate, held a conference call for analysts, portfolio managers, large Mtel shareholders, brokers and stock traders. During that call and in follow-up conversations with analysts they stated that:
117. On Jan. 18, 1996, Mtel issued a release announcing and summarizing Mtel's Jan. 18, 1996 conference call, which stated:
John N. Palmer, Chairman of Mobile Telecommunication Technologies Corp. commented on the company's fourth quarter results at a company-hosted meeting with investment analysts today in New York.
Mr. Palmer stated that margins from Mtel's one-way paging business exceeded the company's expectations for the quarter, and start-up costs of Mtel's SkyTel 2-Way paging network were also above expectations.
Mr. Palmer continued that the consolidated impact of Mtel's one-way paging operations continues to improve, and the company's plan calls for the SkyTel 2-Way business to go cash-flow positive in the latter part of 1997.
The information Mtel distributed in the Jan. 18, 1996 conference call became part of the total mix of information impacting Mtel's stock price.
118. On Jan. 19, 1996, Smith Barney issued a report authored by C. Phillips which was based on and repeated information from the Jan. 18, 1996 conference call and stated:
-- Mobile Telecommunication Technologies (MTEL) held an upbeat analysts meeting in New York yesterday. Management remained very bullish in its expectations for both its one-way, two-way and international businesses, and the overall mood seemed very positive. While much of the information provided in the meeting had already been announced, some fundamental guidance was given on each of the segments.
* * *
SkyTel 2-Way: Presently, 75% of two-way customers are new users. The two-way network is currently operating at 98% efficiency in all 300 planned markets; the goal for 1996 is 99.9% efficiency. In 4Q95, costs are expected to be slightly higher than consensus expectations; however, they were in a range that management had anticipated. . . . Management did indicate that it expected to break-even on fixed costs in 1996 with 150,000 units.
119. On Jan. 22, 1996, Morgan Keegan issued a report on Mtel by Ram Kasargod that was based on and repeated information for the Jan. 18, 1996 conference call and stated:
We attended the MTEL analyst meeting in New York Thursday. . . . We believe that the rapid growth will continue throughout 1996 based on enhanced marketing relationships with Sony and MCI and the potential introduction of new products and services by the MSFT joint venture in the second half of 1996. . . . The company updated investors on the progress on its 2-way network indicating that technical bugs have been corrected and 98% efficiency has been achieved.
While there has been some confusions among investors about potential competition in 2-way, the company stressed that the network operations center is proprietary to MTEL. It took 4 years to develop, requiring 200 man years and 1.6 million lines of code. We believe this gives them a significant head start.
120. On Jan. 26, 1996, Morgan Keegan issued a report on Mtel written by Ram Kasargod which was based on and repeated information from the Jan. 18, 1996 conference call and stated:
We have had preliminary discussions with the company regarding the outlook in 1996 and 1997 in its three major business segments.
SKYTEL ONE WAY
The core domestic paging business is performing in line with expectations. Our expectations for this business segment are as follows:
1996 New 1997 New Rev ($mil) 310-320 380-390 OCF ($mil) 98-100 135-140Company continues to see solid growth in its core business . . . .
SKYTEL 2-WAY
* * *
The guidance from MTEL at the analyst meeting was that this business would turn cash flow positive by the end of 1997.
121. On. Jan. 30, 1996, Robinson Humphrey issued a report written by Perry Walter, which was based on and repeated information provided him during the Jan. 18, 1996 conference call, and stated:
MTEL Analysts' Meeting Highlights
- 4Q 95 EBITDA margins are expected to be above 25%, while costs associated with the 2-way start-up are expected to be higher than projected.
- MTEL expects 1-way EBITDA to reach $100 million in 199_ ? with EBITDA margins of 30% to 35%.
* * *
- Based on the information learned at a recent meeting, we are lowering our earnings estimates to ($0.92) in 1995 and ($2.02) in 1996. These correspond to EBITDA per share estimates of $0.11 and $0.38, respectively.
At MTEL's annual analysts' meeting, upgrades were given in each of the five key areas: SkyTel 1-way, SkyTel 2-way, international operations, technology/ advanced applications, and key alliances.
Before delving into each of these areas, we will first highlight what we believe are the key pieces of new information, in our opinion, are as follows:
- 4Q 95 EBITDA margins for SkyTel 1-Way should be above 25%. This is a target the company set a year ago an appears to have met.
- Expenses associated with the SkyTel 2-way operations were "slightly higher" than previously expected.
- For 1996, MTEL's management team set out the following goals: 1) Revenue growth is expected to be in the range of 25% to 40% for 1996 and 1997. 2) Domestic SkyTel 1-way should generate $100 million in EBITDA. The EBITDA margins are expected to ramp up through the year, but should average 30%-35% for the full year. Net profit margins of 15% to 20% are expected in 1996. 3) Add more subscribers in 1996 than in 1995 (approximately 500,000). 4) MTEL expects its 2-way operations to be at 150,000 subscribers by late 1996. At this level, the division should begin to fully cover its fixed costs. In late 1997, MTEL expects subscribers units to be at 450,000 and should break-even on an EBITDA basis at that time.
* * *
As far as the five key areas outlined above, the points made in each are highlighted below:
* * *
SkyTel 2-Way
- All of the software glitches and other problems found after the launch of 2-way service has been resolved.
122. The statements made by defendants between Jan. 3, 1996 and Jan. 18, 1996 were false and misleading when made and failed to disclose the following adverse information which was then known to defendants:
(a) That the SkyTel 2-way paging system was continuing to suffer from serious technical glitches and software problems, that it did not perform adequately and the problems could not be fixed;
(b) That, in connection with the commercial deployment of its 2-way paging system, Mtel had been warned by Motorola, the supplier of the Tango pager and the overall technology for the system (ReFlex 50), that the service was not ready for commercial launch due to persistent and serious technical and software problems and that premature launch would result in system failure;
(c) That the SkyTel 2-way service was not providing true nationwide coverage, as Mtel had not had sufficient capital to complete all the needed technical upgrades to its electronic infrastructure necessary to accommodate a 2-way nationwide paging system and, thus, would service far more limited markets than had been indicated, and have much less commercial appeal, especially to its target market -- large customers;
(d) That Mtel's new NOC was not functioning adequately or properly, due to serious defects in the key operating software which could not be fixed and, as a result, Mtel's 1-way and 2-way paging services were suffering from problems resulting in customer dissatisfaction;
(e) That during 1995, when Mtel was purportedly upgrading its 1-way paging system with faster high-speed FLEX pagers, it actually was supplying customers with slower speed POCSAG pagers which was resulting in deteriorating levels of service in the 1-way system, contributing to slowing subscriber growth in Mtel's core 1-way paging business;
(f) That Mtel was inflating its core 1-way paging subscriber rolls by including, and by continuing to include as subscribers and accepting as new subscribers, persons who were uncreditworthy or who were seriously delinquent in paying their charges, thus inflating Mtel's 1-way paging subscriber rolls to conceal the deterioration in its core business;
(g) That Mtel had accumulated a huge amount of excessive inventories of POCSAG pagers, which was putting a severe financial strain on the Company and had caused it to violate its bank lending covenants;
(h) That start-up costs relating to Mtel's 2-way network and other capital expenditures were not within the range that management had anticipated but, in fact, were 30% greater than previously projected and had caused Mtel to reach a leverage ratio in excess of its loan covenants;
(i) That many of its Fortune 1,000 customers were experiencing problems with SkyTel's 2-way message service despite the Company's earlier representations that the service offered guaranteed message delivery and adequate pager battery life to ensure and confirm message delivery;
(j) That Mtel could not reach 150,000 subscribers by 1996, as customers were dissatisfied with the service and even minor additional subscriber loads were causing extreme problems in the performance of Mtel's NOC and its 2-way network;
(k) That Mtel management had secretly adopted a plan to avoid rapid subscriber growth until Mtel and its outside consultant, Lockheed Martin, could try to resolve the severe operational defects plaguing the system;
(l) That to resolve the software problems that were plaguing the SkyTel 2-way service, Mtel its outside consultants had to completely upgrade its database software; and
(m) That the Motorola Tango pager being used by SkyTel in its 2-way service was suffering from such severe operational and design defects that Mtel had been forced to return a large number of the units to Motorola and would have to replace all those units.
123. After the market closed on Feb. 22, 1996, Mtel shocked the markets when it revealed that despite Palmer's statement on Jan. 4, 1996 that Mtel's fourth quarter results were "extraordinary," it had suffered a huge disaster. Mtel shocked the markets by revealing that its Chief Financial officer "resigned," that despite the representations to the contrary made by defendants since the end of the fourth quarter, Mtel had suffered a much larger loss for the fourth quarter of 1995 than had ever been previously forecast or indicated ($40 million/$0.79 per share), had incurred a huge cash flow deficit of $5.6 million, and that business was plagued by a number of serious problems which had so harmed the financial condition of the Company that it was in violation of its bank lending covenants and needed to raise additional capital by selling off assets. Mtel admitted that its SkyTel 2-way paging service, as well as its NOC, were plagued by serious and persistent operating and technical problems which Mtel was unable to solve and that Mtel had suffered huge cost overruns on the system -- and still faced more large expenditures to try to make it work. Mtel suffered a fourth quarter 1995 loss of $40.3 million and a cash flow deficit of $5.6 million, which plunged Mtel into a financial crisis. Mtel admitted to analysts that the 2-way network suffered from serious operational problems including: (i) holes in network coverage; (ii) software glitches; (iii) much shorter than anticipated battery life; and (iv) other technological problems which were resulting in duplication of message transmission and delays in response acknowledgment, resulting in increasing system load and delay in message transmission. In addition, Mtel admitted that there were not enough transmitters deployed to provide nationwide service for the 2-way network, resulting in a much reduced coverage area for SkyTel 2-way than SkyTel 1-way service and resulting customer dissatisfaction. Also, the receiver link in the SkyTel 2-way network was weak, resulting in subscribers receiving multiple messages or no messages at all. Finally, the new Tango pager itself did not function properly and had to be replaced, which could not be accomplished for months. Welsh admitted, "We are having network problems" adding that because of cost overruns, Mtel had had to borrow much more than expected to pay for the 2-way system. He also admitted that Mtel would have to cut jobs and spend less on marketing and advertising and would have to sell certain assets to raise $50 million. Mtel also disclosed that the problems with its NOC and the software for its 2-way paging system were so serious that Mtel could not solve them and had brought in Lockheed Martin to oversee these improvements. The software problems involved, inter alia, the defects in and malfunctions of the software subscriber database (that was supposed to support millions of subscribers but actually supported less than 50,000), which resulted in system crashes and lost messages, and thus, the system could not provide true 2-way paging on a nationwide basis. In addition, Mtel admitted that due to inadequate financial and management controls, its conversion to high-speed FLEX pagers for its 1-way paging service had failed to properly occur, as Mtel had been forced to utilize slower speed POCSAG pagers due to inadequate supplies of high-speed FLEX pagers, and resulted in Mtel accumulating huge, excessive amounts of pagers, which damaged its financial condition and contributed to its being in violation of its bank lending covenants. Worse yet, Mtel's subscriber growth for its core 1-way paging service had slowed dramatically, in part, because of its inability to obtain enough high-speed FLEX pagers, which slowing growth rate was likely to continue. Upon these revelations, Mtel's stock utterly collapsed, falling from $18-1/4 on Feb. 22 to $12-5/8 on Feb. 23, 1996, a 31% decline on trading volume of over 9 million shares, one of the largest one-day volume and percentage price declines for Mtel's stock in its history as a public company. Mtel's credit rating was downgraded by Standard & Poor's and Moody's. Mtel also admitted that it would suffer huge losses throughout 1996, it could not predict when it would return to profitability, and as a result, its stock continued to fall, ultimately reaching a low of $7-3/8 in early 1997. As one analyst later wrote:
MTEL had deployed a nationwide 2-way N-PCS network in September of 1995. However, the launch was disastrous as the network was not fully built out, and coverage was lacking. Much of the problem stemmed from the fact that MTEL tried to do too much too fast, in turning on a nationwide network from day one.
124. In Mtel's first quarter of 1996 it continued to suffer large losses of $28.5 million (-$0.57 per share) and negative cash flow of $4.3 million. This was due to very weak new 1-way subscribers of only 60,000 (well below expectations) and continuing operational problems with SkyTel's 2-way service, resulting in very weak new subscribers of only 5,000, a performance so bad that it caused one analyst to say it "raises the serious question of whether the two-way network is even worth the cost." Mtel had only 30,000 2-way clients -- 50% of them non-paying trial subscribers! Welsh admitted that Mtel "did not push the 2-way product" due to the technical problems and the 5,000 new subscribers was "very low." Palmer said Mtel's bottom line would get no "relief until the fourth quarter" and that many of the problems were because Mtel "hurriedly assembled its software piecemeal" from disparate vendors. During 1996, Mtel suffered huge operating losses of over $80 million on its SkyTel 2-way service will continue to suffer losses exceeding $65 million in 1997.
125. On May 14, 1996, The Wall Street Journal published an article about Mtel that stated:
SkyTel's two-way paging woes are another reminder of the perils of pushing much-hyped products to market before they are technologically ready. In fact, SkyTel and its parent now are suffering from what might be called the Newton syndrome -- the consumer backlash that strikes when a company makes big promises about snazzy new technologies and fails to deliver, as Apple Computer Inc. did with the Newton hand-held computer.
The problems with two-way paging . . . have hammered Mtel's earnings, forced it to abandon its original strategy and slowed the efforts of two-way paging backers, such as Motorola Inc. and AT&T Corp.
"I'd be foolish to say we don't have regrets" about rushing into the national market, says John Palmer, Mtel's chief executive officer. "In hindsight, I would have tiptoed in."
* * *
What went wrong? The system has been bedeviled by software flaws, in large part because Mtel hurriedly assembled its software piecemeal from disparate vendors. "We came in after the system was already deployed," says Suresh Challa, vice president at PostModern Computing Technologies Inc., which makes software used in the national two-way paging network. "You can have problems if vendors aren't there at the design phase."
* * *
And no more promises or big ad campaigns, Mr. Palmer says. The company now has two-way pagers in place at 600 major companies, mostly on limited small-scale trials. . . . Mr. Palmer is more cautious. "We don't want to fumble again," he says. But he says he hasn't given up on his original goal of eventually getting 450,000 two-way customers.
The Dow Jones News Service on May 14, 1996 also reported that "Motorola executives tried to get Mtel to delay its rollout . . . . Motorola officials say privately that they were concerned about the ambitious SkyTel debut . . . . SkyTel . . . has dramatically scaled back its ambitions . . . [and] now says its main short-term goal is simply to be able to demonstrate . . . that the service works."
126. For the second quarter of 1996, Mtel reported another huge loss as the excessive expenses for and losses from the 2-way paging network continued to harm its financial performance and condition. Mtel lost $28.9 million -- $0.59 per share. Analysts were furious over being mislead. They said of this debacle:
127. The disastrous collapse in Mtel's business due to the failure of its 2-way pager to work, the massive cost overruns incurred in launching the system, and the deterioration of Mtel's core 1-way pager business is shown below:
MTEL QUARTERLY RESULTS
(In thousands, except EPS)
1994
----
3/31 6/30 9/30 12/31 Year
------------------------------------------------------
Revenues $36,549 $34,302 $35,848 $41,311 $148,010
Net income 4,533 -3,679 -6,400 -13,030 -18,576
EPS $.07 -$.17 -$.24 -$.40 -$.76
"Cash Flow"
Earnings(1) 6,365 -1,951 -2,099 -4,600 -2,286
"Cash Flow"
Per Share(1) $.18 -$.05 -$.06 -$.14 -$.06
1995
----
3/31 6/30 9/30 12/31 Year
------------------------------------------------------
Revenues $50,628 $56,864 $64,423 $74,076 $245,991
Net income 4,008 -993 -6,640 -40,386 -52,027
EPS -$.13 -$.06 -$.17 -$.79 -$1.19
"Cash Flow"
Earnings(1)(2) 1,805 -3,459 -2,620 -5,655 -16,112
"Cash Flow"
Per Share(1) $.04 $.07 $.05 -$.ll -$.32
1996
----
3/31 6/30 9/30 12/31(3) Year
------------------------------------------------------
Revenues $80,584 $88,212 $92,006 $9,600
Net income -28,574 -28,897 -32,304
EPS -$.57 -$.59 -$.65
"Cash Flow"
Earnings(1) -4,385 4,409 5,263 3,200
"Cash Flow"
Per Share(1) -$.08 $.08 $.10
(1) Cash Flow Earnings are defined by the cable industry as earnings before
interest, taxes, depreciation and amortization. Per share amounts are
based on shares used to calculate EPS for common shares.
(2) Q4 95 Cash Flow Earnings excludes $18.3 million in charges for SkyTel 2-
Way launch costs.
(3) As estimated by Mtel on 2/6/97.
128. The chart below details the insider selling engaged in by certain of the Individual Defendants during the Class Period:
Shares
Acquired % Of
Shares By Option Remaining Holdings
Name Date Sold Price Proceeds Option Price Holdings Sold
---- ---- ------ ----- -------- -------- ------ --------- --------
Fugate 10/25/95 10,000 $30.88 $ 308,800 10,000 $2.25
10/25/95 13,000 $30.88 401,440 13,000 $6.13
11/02/95 22,000 $28.00 616,000 22,000 $6.13
11/03/95 15,000 $27.75 $ 416,250 15,000 $6.13 984
------ ---------- ------ -----
60,000 $1,742,490 60,000 984 98%
====== ========== ====== =====
Kriss 10/25/95 30,000 $30.13 $ 903,900 30,000 $13.50 0 100%
====== ========== ====== =====
Barksdale 06/15/95 12,000 $24.00 $ 288,000 12,000 $2.25
06/20/95 3,000 $23.88 $ 71,640 3,000 $2.25 3,000
------ ---------- ------ -----
15,000 $ 359,640 15,000 3,000 83%
====== ========== ====== =====
LaRoche 06/22/95 15,000 $27.38 $ 410,700 15,000 $17.25 0 100%
====== ========== ====== =====
GRAND TOTALS $23.88- $ 2.25-
120,000 $30.88 $3,416,730 120,000 $17.25 3,984
======= ========== ====== =====
129. The graphs below show Mtel's stock action from Jan. 1, 1994 to Jan. 1, 1997, and the defendants' insider selling. The Individual Defendants stock sales during that period, which show they only sold stock during the Class Period when they were inflating the price of Mtel's stock, and thus those sales were unusual in timing and in amount, were dramatically out of line with their stock sales during the two years before the Class Period and the year after the Class Period:
130. Plaintiffs incorporate by reference ¶¶l-129.
131. During the Class Period, defendants engaged in a plan, scheme and course of business, pursuant to which they knowingly and/or recklessly engaged in acts, transactions, practices, and courses of business which operated as a fraud upon plaintiffs and other members of the Class, and made various untrue statements of material fact and omitted to state material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading, to plaintiffs and other Class members as set forth above. The purpose and effect of said scheme was to induce plaintiffs and the members of the Class to purchase the Company's common stock during the Class Period at artificially inflated prices.
132. By reason of the foregoing, the defendants knowingly or recklessly violated §10(b) of the Exchange Act and Rule lOb-5 promulgated thereunder in that they themselves or a person whom they controlled: (a) employed devices, schemes and artifices to defraud; (b) made untrue statements of material facts or omitted to state material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; or (c) engaged in acts, practices and a course of business that operated as a fraud -,or deceit upon plaintiffs and other members of the Class in connection with their purchases of the Company's common stock during the Class Period.
133. As a result of the foregoing, the market price of the Company's common stock was artificially inflated during the Class Period. In ignorance of the false and misleading nature of the representations described above, plaintiffs and other members of the Class relied, to their damage, directly on the misstatements or on the integrity of the market both as to price and as to whether to purchase these securities. Plaintiffs and the other members of the Class would not have purchased Mtel stock at the market prices they paid, or at all, if they had been aware that the market prices had been artificially and falsely inflated by the defendants' false and misleading statements and concealments. At the time of the purchase of Mtel common stock by plaintiffs and the other members of the Class, the fair market value of said common stock was substantially less than the prices paid by plaintiffs. Plaintiffs and other members of the Class have suffered substantial damages as a result.
134. Plaintiffs incorporate by reference and reallege all paragraphs previously alleged herein, asserting these claims against defendants Puckett, Palmer and Mtel.
135. Individual Defendants Puckett and Palmer are liable under §20(a) as control persons of Mtel since, by virtue of their executive and directorial positions, their knowledge of and involvement in the Company's business, and stock ownership, and their power and ability to make public statements on behalf of the Company to shareholders, potential investors and the media, they had the power and ability to control the actions of the Company. Mtel, in turn, controlled each of the Individual Defendants.
136. Plaintiffs have alleged the foregoing based upon the investigation of their counsel, which included a review of Mtel's SEC filings, securities analysts reports and advisories about the Company, press releases issued by the Company, media reports about the Company and discussions with consultants, and believe that substantial evidentiary support will exist for the allegations set forth in ¶¶1, 4, 6-8, 11, 29, 30-39, 46, 52-58, 60-68, 72-74, 79-81, 83, 85-88, 90, 93-102, 104-107, 109-116, 118-122, 129-135 and after a reasonable opportunity for discovery.
137. Plaintiffs bring this action as a class action pursuant to Rules 23(a) and 23(b)(3) of the Federal Rules of Civil Procedure on behalf of a class (the "Class") consisting of all persons who purchased the common stock of Mtel between Jan. 19, 1995 and Feb. 22, 1996, inclusive (the "Class Period"). Excluded from the Class are the defendants herein, members of each Individual Defendant's immediate family, any entity in which any defendant has a controlling interest, and the legal affiliates, representatives, heirs, controlling persons, successors, and predecessors in interest or assigns of any such excluded party.
138. Because over 54 million shares of the Company's common stock were outstanding, and because the Company's common stock was actively traded, members of the Class are so numerous that joinder of all members is impracticable. While the exact number of Class members can only be determined by appropriate discovery, plaintiffs believe that Class members number at least in the thousands and that they are geographically dispersed.
139. Plaintiffs' claims are typical of the claims of the members of the Class, because plaintiffs and all of the Class members sustained damages arising out of defendants' wrongful conduct complained of herein.
140. Plaintiffs will fairly and adequately protect the interests of the Class members and have retained counsel who are experienced and competent in class and securities litigation. Plaintiffs have no interests that are contrary to or in conflict with the members of the Class plaintiffs seek to represent.
141. A class action is superior to all other available methods for the fair and efficient adjudication of this controversy, since joinder of all members is impracticable. Furthermore, as the damages suffered by individual members of the Class may be relatively small, the expense and burden of individual litigation make it impossible for the members of the Class individually to redress the wrongs done to them. There will be no difficulty in the management of this action as a class action.
142. Questions of law and fact common to the members of the Class predominate over any questions that may affect only individual members, in that defendants have acted on grounds generally applicable to the entire Class. Among the questions of law and fact common to the Class are:
(a) Whether the federal securities laws were violated by defendants' acts as alleged herein;
(b) Whether the Company's publicly disseminated releases and statements during the Class Period omitted and/or misrepresented material facts and whether defendants breached any duty to convey material facts or to correct material facts previously disseminated;
(c) Whether defendants participated in and pursued the common course of business complained of;
(d) Whether the defendants acted willfully, or recklessly, in omitting and/or misrepresenting material facts;
(e) Whether the market prices of Mtel common stock during the Class Period were inflated artificially due to the material nondisclosures and/or misrepresentations complained of herein; and
(f) Whether the members of the Class have sustained damages and, if so, what is the appropriate measure of damages.
WHEREFORE, plaintiffs, on their own behalf and on behalf of the Class, pray for judgment as follows:
1. Declaring this action to be a class action pursuant to Rules 23 (a) and 23 (b) (3) of the Federal Rules of Civil Procedure on behalf of the Class defined herein;
2. Awarding plaintiffs and the members of the Class rescissory or compensatory damages in an amount which may be proven at trial, together with interest thereon;
3. Awarding plaintiffs and the members of the Class pre-judgment and post-judgment interest, as well as their reasonable attorneys' and experts' witness fees and other costs; and
4. Awarding such other and further relief as this Court may deem just and proper including any extraordinary equitable and/or injunctive relief as permitted by law or equity to attach, impound or otherwise restrict the defendants' assets to assure plaintiffs have an effective remedy.
Plaintiffs hereby demand a trial by jury.
DATED: February ___, 1997
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THE CUNEO LAW GROUP, P.C. MILBERG WEISS BERSHAD ROSSBACHER & ASSOCIATES BERNSTEIN LIEBHARD & LIFSHITZ Attorneys for Plaintiffs |
Kris Lindblom ("Plaintiff") declares, as to the claims asserted under the federal securities laws, that:
1. Plaintiff has reviewed the complaint and authorized its filing.
2. Plaintiff did not purchase the security that is the subject of this action at the direction of plaintiff's counsel or in order to participate in this private action.
3. Plaintiff is willing to serve as a representative party on behalf of the class, including providing testimony at deposition and trial, if necessary.
4. Plaintiff's transaction (s) in the security that is the subject of this action during the Class Period is/are as follows:
Security Transaction Date -------- ----------- ---- Common Stock Purchased 100 shares December 11, 1995 Common Stock Purchased 100 shares January 24, 1996 Common Stock Purchased 100 shares January 25, 1996
5. During the three years prior to the date of this Certificate, Plaintiff has sought to serve or served as a representative party for a class in the following actions filed under the federal securities laws: None.
6. Plaintiff has sought to serve or served as a representative party for a class in the following actions filed subsequent to December 22, 1995: None
7. The Plaintiff will not accept any payment for serving as a representative party on behalf of the class beyond the Plaintiff's pro rata share of any recovery, except such reasonable costs and expenses (including lost wages) directly relating to the representation of the class as ordered or approved by the court.
I declare under penalty of perjury that the foregoing is true and correct. Executed this 21st day of Dec. 1996, at Oakridge, New Jersey.
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/s/ |
I, Jack Fefer, certify to the claims asserted under the federal securities laws that:
1. I am the plaintiff in this action. I have reviewed the complaint filed herewith in the captioned action (the "Complaint"), and have authorized the filing thereof.
2. Plaintiff did not purchase the security that is the subject of this action at the direction of plaintiff's counsel or in order to participate in any private action arising under this title.
3. Plaintiff is willing to serve as a representative party on behalf of a class and will testify at deposition and trial, if necessary.
4. Plaintiff's transaction in the security that is the subject of this litigation during the class period set forth in the Complaint is as follows:
Security Transaction Date
-------- ----------- ----
Common Stock Purchased 200 shares September 18, 1995
5. I have not filed an action where I served as, nor sought to serve as, a representative party on behalf of a class under this title during the last three years.
6. I will not accept any payment for serving as a representative party, except to receive my pro rata share of any recovery or as ordered or approved by the court including the award to a representative of reasonable costs and expenses (including lost wages) directly relating to the representation of the class.
I declare under penalty of perjury that, to the best of my knowledge and belief, the foregoing are true and correct statements.
Executed this 7th day of February, 1997 at St. Petersburg, Florida.
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/s/ |