| Michael D. Braun (167416) STULL, STULL & BRODY 10940 Wilshire Boulevard Suite 2300 Los Angeles, CA 90024 (310) 209-2468 Jules Brody Jeffrey C. Block
UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA
NATURE OF THE ACTION This is a securities class action on behalf of public investors who purchased the securities of Osicom Technologies Inc. (NASDAQ:FIBR) ("Osicom" or the "Company") during the period from July 1, 1998 through April 20, 1999 (the "Class Period"). Named as defendants are the Company and its Chairman and Chief Executive Officer, Par Chadha ("Chadha"), and its former Chief Financial Officer, John H. Gorman ("Gorman"). On July 1, 1998, at the beginning of the Class Period, Osicom falsely reported that it had entered into an exclusive agreement to supply wireless personal digital assistant communication products to a Japanese customer, with the value of such agreement estimated to be approximately $90 million over a two-year period. According to the Company's announcement concerning the contract, it expected to begin shipping some of the relevant devices by February 1999. The next day, the price of the Company's common stock soared by 20 percent. After the market was led to believe throughout the Class Period that Osicom would receive substantial revenues from this new contract, it was shocked to learn in a press release issued by the Company on April 20, 1999 that the contract was worth far less than had originally been represented, and did not even require any purchases of the product by the customer. In the announcement, Osicom stated that the devices were never shipped and that no shipments were planned because anticipated orders from the customer had never been received. Bloomberg News reported on April 21, 1999, that defendant Chadha had confirmed that the contract at issue had, in fact, only guaranteed a $175,000 payment to Osicom for engineering work to design the device. Moreover, Chadha conceded that the contract did not specify a number of units to be sent to the customer and that, although he had never heard of the customer, Osicom did no credit check on the company before issuing the press release touting the value of the purported contract. In response to learning that the "contract" highlighted by the defendants was only worth $175,000 rather than the more than $90 million reported at the beginning of the Class Period, the market reacted swiftly, with the price of Osicom's common stock plummeting from a high of $28-3/4 per share on March 30, 1999 to $10-1/2 before trading was halted by NASDAQ on April 21, 1999, indicative of the damages suffered by plaintiff and other members of the Class. JURISDICTION AND VENUE This Court has jurisdiction over the subject matter of this action pursuant to Section 27 of the Securities Exchange Act of 1934 (the "Exchange Act"), 15 U.S.C. §78aa, and 28 U.S.C. §1331. The claims asserted herein arise under Sections 10(b), and 20(a) of the Exchange Act, 15 U.S.C. §§78j(b) and 78t(a), and Rule 10b-5 promulgated thereunder by the Securities and Exchange Commission (the "SEC"), 17 C.F.R. 240.10b-5. Venue is proper in this District pursuant to Section 27 of the Exchange Act and 28 U.S.C. §1391(b) and (c). Osicom's principal executive offices are located in this District, the defendants transact business here, and many of the acts and transactions constituting the violations of law alleged herein, including the preparation, issuance, and dissemination of materially false and misleading statements to the investing public, occurred in this District. In connection with the acts, conduct and other wrongs alleged herein, defendants, directly and indirectly, used the means and instrumentalities of interstate commerce, including the United States mails and interstate telephone communications. THE PARTIES The Plaintiff Plaintiff Gadi G. Hill ("plaintiff") purchased common stock of Osicom during the Class Period as reflected in the attached certificate and was damaged thereby. The Defendants Defendant Osicom is a New Jersey corporation headquartered at 2800 28th Street, Suite 100, Santa Monica, California 90405. The Company portrays itself as a leading provider of integrated networking and bandwidth aggregation solutions for enhancing the performance of existing data and telecommunications networks. According to the Company's press releases, it combines expertise across multiple disciplines to offer fiber transport, remote access, virtual private networking, video switching and transport, and network systems-on-silicon to carrier and enterprise customers. Defendant Chadha is and, at all times relevant to this Complaint, was Chairman of the Board and Chief Executive Officer of the Company. Defendant Gorman was Chief Financial Officer of the Company at the beginning of the Class Period and remained so until September 1998. Chadha and Gorman are referred to collectively herein as the "Individual Defendants." During the Class Period, the Individual Defendants participated in the operation and management of the Company, and conducted and participated, directly and indirectly, in the conduct of Osicom's business affairs. Because of their positions, the Individual Defendants knew or were reckless in not knowing the adverse non-public information about the purported contract with the Japanese customer. As officers and/or directors of a publicly owned company, the Individual Defendants had a duty to disseminate accurate and truthful information with respect to Osicom's financial condition and results of operations, and to correct promptly any public statements issued by the Company which had become materially false or misleading. Because of their positions of control and authority as the most senior officers of Osicom, the Individual Defendants were able to, and did, control the contents of the various reports, press releases and public filings which the Company disseminated in the marketplace during the Class Period concerning the contact at issue. Throughout the Class Period, the Individual Defendants exercised their power and authority to cause Osicom to engage in the wrongful acts complained herein. The Individual Defendants, therefore, were "controlling persons" of Osicom within the meaning of Section 20(a) of the Exchange Act. In this capacity, they participated in the unlawful conduct alleged which artificially inflated the market price of the Company's common stock. PLAINTIFF'S CLASS ALLEGATIONS Plaintiff brings this action as a class action pursuant to Rule 23(a) and (b)(3) of the Federal Rules of Civil Procedure on behalf of a class consisting of all persons and entities who purchased securities of Osicom between July 1, 1998 and April 20, 1999, inclusive, and were damaged thereby ("the Class"). Excluded from the Class are defendants herein, officers and directors of Osicom, members of their immediate families, and the heirs, successors or assigns of any of the foregoing. The members of the Class are so numerous that joinder of all members is impracticable. While the exact number of Class members is unknown to the plaintiff at this time and can only be ascertained through appropriate discovery, the plaintiff believes there are, at a minimum, thousands of members of the Class who purchased Osicom common stock during the Class Period. Osicom reported in its Form 10-Q for the quarter ending October 31, 1998, which it filed with the Securities and Exchange Commission on December 15, 1998, that as of that date the number of outstanding shares of Osicom common stock totaled 8,711,869. Common questions of law and fact exist as to all members of the Class and predominate over any questions affecting solely individual members of the Class. Among the questions of law and fact common to the Class are:
Plaintiff's claims are typical of the claims of the members of the Class as plaintiff and members of the Class sustained damages arising out of defendants' wrongful conduct in violation of federal law as complained of herein. Plaintiff will fairly and adequately protect the interests of the members of the Class and has retained counsel competent and experienced in class actions and securities litigation. Plaintiff has no interests antagonistic to or in conflict with those of the Class. A class action is superior to all other available methods for the fair and efficient adjudication of the controversy since joinder of all members of the Class is impracticable. Furthermore, because the damages suffered by the individual Class members may be relatively small, the expense and burden of individual litigation makes it impracticable for the Class members individually to redress the wrongs done to them. There will be no difficulty in the management of this action as a class action. Plaintiff will rely, in part, upon the presumption of reliance established by the fraud-on-the-market doctrine in that:
FALSE AND MISLEADING STATEMENTS On July 1, 1998, Osicom issued a press release which was widely published on Business Wire, headed "Supply Agreement Diversifies Osicom's Far East Product Offerings in Wireless Communications." In the release, Osicom announced "that its Far East Division has entered into an exclusive OEM agreement to supply wireless personal digital assistant (PDA) communication product to a customer in Japan," adding that "[t]he value of this agreement is estimated at about U.S. $90 million spread over a two year period." The press release went on to state: In addition to a conventional voice conversation, the wireless PDA communication product allows callers to view an MPEG2 image of the other party downloaded at the initiation of each call. The built-in camera can also transmit other still images to be displayed on the built-in screen. Users of this as yet unnamed product will also be able to download video games for a fee from Internet Service Providers (ISP) and play them off-line -- a service with expected high demand in Japan and other Far East markets. Commenting on the status of the agreement, Osicom Chief Financial Officer John H. Gorman said, "This agreement alone could double the Far East Division's current revenue base. The customer for the wireless PDA communication has already paid its contractually obligated non-recurring engineering expenses and is expected to begin accepting delivery of the product in February, 1999." Based on customer projections, the Company expects the dollar value of monthly shipments from this agreement to be approximately US $4.0 million over the first twenty-four months of the contract. Gorman continued, "The product itself is still in prototype stage. As we get closer to the ship date and are able to get a better sense of likely order quantities, we will provide more details about the likely impact of this contract on the Division's P and L." As would be expected, the market reacted strongly to this apparently very favorable news, with the price of Osicom's common stock rising by 20 percent the next day, July 2, 1998. Throughout the Class Period, the defendants continued to keep the market up-to-date on the contract through quarterly conference calls, which were available on its website playback by consumers. These updates continued to represent that the contract was valid and that the Company was moving forward with its development of the product -- known as "Palra." Moreover, on December 3, 1998, Osicom issued a press release to announce its financial results for the third quarter ending October 31, 1998. Discussing the positive outlook for its Hong Kong-based wholly-owned subsidiary, Uni Precision Industrial, Ltd. ("Uni"), the Company stated: Further bolstering future sales of the Division will be the previously announced contract to supply a wireless PDA communication product to a customer in Japan, the fulfillment of which is expected to begin during the Company's first fiscal quarter of next year. When completed over its 2-year span, the contract is expected to represent over $90 million in sales to the Division. In the press release, the Company also suggested that it was contemplating selling the Uni division, based on its success as a result of the "contract," stating: The Company is pursuing the sale of this business unit in order to focus on its core, higher-margin businesses. To that end, the Company is in discussions with several interested parties and will disclose further details as they develop. On March 30, 1999, Bloomberg News published a story concerning Osicom, following an interview with Chadha. According to the report, Osicom had, as of March 18th, only supplied test units, with no sales having been finalized because the Japanese service provider, which Chadha finally identified as Mobile Entertainment Gear, was waiting for the wireless service to be set up. But Chadha informed Bloomberg News that "Osicom 'might ship 20,000 units,' which would sell for about $240 each, during the next three months." As for why the Company had not issued any releases concerning the delay in the contract, Bloomberg News reported, Chadha explained that Osicom "provided the information on its quarterly conference calls with analysts, 'which were available for playback.'" The news that shipments under the contract were imminent further bolstered the Company's common stock price, which reached a year-long high that day of $28-3/4 per share, before closing at $27-1/8. As explained below, the representations made by defendants during the Class Period were false and misleading, as, among other things, they misrepresented the nature and terms of the purported "contract" with the Japanese customer. In particular, defendants failed to disclose the material fact that the "contract" only required the customer to pay $175,000 for development costs with no further contractual obligations, in contrast to the representation that the contract had an estimated "value" of more than $90 million. THE REVELATION On April 20, 1999, Osicom issued another press release which finally disclosed that the purported $90 million contract with the Japanese customer was, in effect, a sham. In the release, the Company admitted that the contract merely "specified a series of product development tasks with non-recurring engineering expenses to be reimbursed by the customer," with no actual required purchases of the product. Osicom's July 1, 1998 estimate of the $90 million value of the "contract" was based on the customer's "estimate of shipments." The release then added: [T]he product development tasks specified in the contract have been finished and the production prototypes completed, but anticipated purchase orders to authorize product shipments have not yet been received. Consequently, no shipments of the new product to Japan have taken place to date, and none are currently set. Bloomberg News published a story concerning Osicom and its press release the following day, April 21, 1999. According to its report, Chadha had agreed on April 15, 1999 to provide a copy of the purported contract to analysts for examination, but the April 20, 1999 press release indicated that Osicom "had decided not to make the contract available." Instead, the Company issued the press release to report that "the devices were never shipped and no shipments are planned because anticipated orders from the unnamed customer were never received." In an interview with Bloomberg News, according to its April 21st report, Chadha stated that the contract only guaranteed that Osicom would receive $175,000 toward engineering work to design the PDA, with no subsequent purchases guaranteed in the contract and no identification of the number of units that were anticipated to be shipped. Moreover, Bloomberg News reported that, although Chadha had never heard of the customer before the contract, "Osicom didn't do a credit check on the company before issuing the July press release." In addition, Chadha told Bloomberg News that the unnamed customer was developing services to be delivered on the Osicom device with a Japanese wireless company, NTT DoCoMo. When NTT DoCoMo was provided with Osicom's product description literature, however, a spokesman for the company stated that it had "no record of receiving a proposal for equipment with specifications matching those of Osicom's." Bloomberg News also reported that, according to Chadha, Palra was not even "wireless," as had been represented in the July 1, 1998 press release. Instead, the device must be connected by wire to a wireless phone, and while it was supposed to allow users to see and hear each other, "it can't send or transmit on its own." The market's reaction to the news that the $90 million contract was, in fact, only worth $175,000 was dramatic, as could be expected. On April 21, 1999, the day after the announcement concerning the true extent of the contract, the price of the common stock plummeted to $10-1/2 per share, before NASDAQ halted all trading in the stock. In discussing the materiality of the misrepresentation made by defendants on July 1, 1998 concerning the "contract," Bloomberg News stated in its April 21, 1999 report: Last summer's press release about the contract was good news for investors in the Santa Monica-based company, which lost more than $30 million over the prior four years. The contract's estimated value nearly equaled the $94.6 million in revenue the company would report for fiscal 1999, which ended Jan. 31. "That's pretty significant for a company this size," said Charles Elston, a professor of securities law at Stetson College of Law in St. Petersburg, Florida. "The market viewed it as an extremely positive development." Because plaintiff and the Class acquired Osicom securities at prices that were inflated a result of defendants' false and misleading statements during the Class Period, they have been injured in an amount to be determined at trial. NON-APPLICABILITY OF SAFE HARBOR The statutory safe harbor provision for forward-looking statements does not apply to the allegations herein. The defendants are liable for their statements as pleaded because, at the time the statements were made, the speaker knew that the statements were false and/or misleading, and the statements were authorized and/or approved by an executive officer of Osicom who knew that the statements were false and/or misleading. Moreover, the alleged representations misrepresented or omitted material existing facts, rather than projections or estimates of future events. None of the historic or present tense statements made by the defendants were assumptions underlying or relating to any plan, projection or statement of future economic performance, as they were not stated to be such assumptions underlying or relating to any projection or statement of future economic performance when made nor were any of the projections or forecasts made by defendants expressly related to or stated to be dependent on those historic or present tense statements when made. CLAIM FOR RELIEF COUNT I
During the Class Period, defendants engaged in a plan, scheme, conspiracy and course of conduct, pursuant to which they knowingly or recklessly engaged in acts, transactions, practices and courses of business which operated as a fraud and deceit upon plaintiff and the other members of the Class; made various untrue statements of material facts 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; and employed devices, schemes and artifices to defraud in connection with the purchase and sale of securities. Such scheme was intended to, and, throughout the Class Period, did artificially inflate and maintain the market price of Osicom common stock and cause plaintiff and the other members of the Class to purchase Osicom common stock at inflated prices. Pursuant to the above plan, scheme, conspiracy and course of conduct, each of the defendants participated directly or indirectly in the preparation and/or issuance of the statements and documents described above, including statements made to securities analysts and the media that were designed to influence the market for Osicom common stock. Such statements and documents were materially false and/or misleading in that they failed to disclose the true terms and conditions of the purported contract with the Japanese customer, which only required payments of $175,000 and included no obligations to purchase additional product, making the representation that the contract was worth some $90 million patently misleading. Defendants had actual knowledge of the materially false and misleading statements and material omissions alleged herein and intended thereby to deceive plaintiff and the other members of the Class, or, in the alternative, defendants acted with reckless disregard for the truth in that they failed or refused to ascertain and disclose such facts as would reveal the materially false and misleading nature of the statements made, although such facts were readily available to defendants. Said acts and omissions of defendants were committed willfully or with reckless disregard for the truth. In addition, each defendant knew or recklessly disregarded that material facts were being misrepresented or omitted as described above. Information showing that defendants acted knowingly or with reckless disregard for the truth is peculiarly within defendants' knowledge and control. As the senior managers and directors of the Company, the Individual Defendants had knowledge of the details of the Company's internal affairs, including the terms of the contract that was the subject of the public representations. The Individual Defendants are liable both directly and indirectly for the wrongs complained of herein. Because of their positions of control and authority, the Individual Defendants were able to and did, directly or indirectly, control the content of the statements of the Company. As officers and directors of a publicly-held company, the Individual Defendants had a duty to disseminate timely, accurate, and truthful information with respect to the Company's businesses, operations, future financial condition and future prospects. As a result of the dissemination of the aforementioned false and misleading reports, releases and public statements, the market price of Osicom common stock was artificially inflated throughout the Class Period. In ignorance of the adverse facts concerning the true terms of the contract, which were concealed by defendants, plaintiff and the other members of the Class purchased Osicom common stock at artificially inflated prices and relied upon the price of the stock, the integrity of the market for the stock and/or upon statements disseminated by defendants and were damaged thereby. During the Class Period, Osicom common stock was traded on an active and efficient market. Plaintiff and the other members of the Class, relying on the materially false and misleading statements described herein, which the defendants made, issued or caused to be disseminated, or relying upon the integrity of the market, purchased shares of Osicom common stock at prices artificially inflated by defendants' wrongful conduct. Had plaintiff and the other members of the Class known the truth, they would not have purchased said shares or would not have purchased them at the inflated prices that were paid. At the time of the purchases by plaintiff and the Class, the true value of Osicom stock was substantially lower than the prices paid by plaintiff and the other members of the Class. The market price of Osicom common stock declined sharply upon public disclosure of the facts alleged in this complaint. By reason of the conduct alleged herein, defendants knowingly or recklessly, directly or indirectly, have violated Section 10(b) of the Exchange Act and Rule 10-5 promulgated thereunder. COUNT II Plaintiff repeats and re-alleges each of the above paragraphs as though fully set forth herein. The Individual Defendants acted as a controlling persons of Osicom. By reason of their senior management positions at the Company, the Individual Defendants had the power to direct the actions of, and exercised the same to cause the Company to engage in the unlawful acts and conduct complained of herein. The Individual Defendants exercised control over the general operations of the Company and possessed the power to control the specific activities which comprise the primary violation about which plaintiff and the other members of the Class complain. By reason of the above conduct, the Individual Defendants are liable pursuant to Section 20 of the Exchange Act for the violations of Osicom. PRAYER FOR RELIEF WHEREFORE, plaintiff demands judgment against defendants as follows: 1. Determining that the instant action may be maintained as a class action under Rule 23, Federal Rules of Civil Procedure, and certifying the named class plaintiffs; 2 Requiring defendants to pay damages sustained by plaintiff and the Class by reason of the acts and transactions alleged herein; 3 Awarding plaintiff and the other members of the Class prejudgment and post-judgment interest, as well as their reasonable attorneys' fees, expert fees and other costs; and 4. Awarding such other and further relief as this Court may deem just and proper. DEMAND FOR JURY TRIAL Plaintiff hereby demands a trial by jury. Dated: April 22, 1999 Michael D. Braun STULL, STULL & BRODY By: ________________________ Jules Brody Stanley M. Grossman Attorneys for Plaintiff This is an electronic approximation of the actual document. We apologize for any formatting irregularities or errors which may have occurred during the conversion process. |