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Stanford University Law School
- Securities Class Action Clearinghouse
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UNITED STATES DISTRICT COURT
DISTRICT OF CONNECTICUT
____________________________________
)
ISAAC BTESH on behalf of )
himself and all others similarly ) CASE NO. 398CV00213
situated, ) [filed Feb. 3, 1998]
)
Plaintiff, ) CLASS ACTION COMPLAINT
) FOR VIOLATIONS OF
v. ) FEDERAL SECURITIES LAWS
)
AL BAHNMAN, JAMES WILKINSON, )
DAVE CHARLES and MURRAY )
KLIPPENSTEIN, )
)
Defendants. )
____________________________________)
Plaintiff makes the following allegations upon
information and belief, except as to allegations specifically
pertaining to plaintiff and his counsel, based on the facts
alleged below, predicated upon the investigation undertaken by
and under the supervision of plaintiff's counsel, and plaintiff
believes that further substantial evidentiary support will exist
for the allegations set forth below after a reasonable
opportunity for discovery.
NATURE OF THE ACTION
1. This is a class action on behalf of all purchasers
of the common stock of Tee-Comm Electronics, Inc. ("Tee-Comm" or
the "Company") between July 31, 1996, and May 27, 1997,
inclusive, (the "Class Period"), seeking to pursue remedies under
the Securities Exchange Act of 1934 (the "Exchange Act"). This
action concerns the dissemination of materially false and
misleading statements relating to Tee-Comm's satellite television
division, AlphaStar Television Network, Inc. ("Alphastar").
JURISDICTION AND VENUE
2. The claims asserted herein arise under and
pursuant to 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 ("SEC") [17
C.F.R. § 240.10b-5].
3. This Court has jurisdiction over the subject
matter of this action pursuant to 28 U.S.C. §§1331 and 1337, and
Section 27 of the Exchange Act [15 U.S.C. §78aa].
4. Venue is proper in this District pursuant to Sec-
tion 27 of the Exchange Act, and 28 U.S.C. §1391(b). Tee-Comm's
97%-owned subsidiary, Alphastar, maintains its principal
executive offices in this District and the acts charged herein,
including the preparation and dissemination of materially false
and misleading information, occurred in substantial part in this
District.
5. In connection with the acts alleged in this com-
plaint, defendants, directly or indirectly, used the means and
instrumentalities of interstate commerce, including, but not
limited to, the mails, interstate telephone communications and
the facilities of the national securities markets.
PARTIES
6. Plaintiff Isaac Btesh, as set forth in the
accompanying certification which is incorporated by reference
herein, purchased Tee-Comm common stock at artificially inflated
prices during the Class Period and has been damaged thereby.
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7. (a) Tee-Comm, which is not a party herein because
of its recent voluntary filing of bankruptcy, is a corporation
incorporated under the Canada Business Corporations Act with its
principal executive offices at 775 Main Street East, Milton
Ontario. Tee-Comm describes itself as a manufacturer and
distributor of direct-to-home ("DTH") products in North America,
offers analog DTH programming services in Canada through TCI Home
Entertainment and offers digital DTH services in the United
States through Alphastar.
(b) Tee-Comm has several subsidiaries that
conduct business in the United States. Tee-Comm Inc., a Delaware
corporation, is a holding company that holds all of the shares of
Tee-Comm Distribution, Inc. -- a New York corporation that sells
the Company's DTH products through third-party distributors.
Alphastar, a Delaware corporation, was formed in March 1995 to
offer DTH service in the United States. On May 27, 1997,
Alphastar filed a voluntary petition for Bankruptcy.
8. (a) The individual defendants identified below
served, at all times material to the claims set forth herein, as
senior officers and/or directors of Tee-Comm in the positions set
forth opposite their names (the "Individual Defendants"):
Name Position
---- --------
Al Bahnman Chairman and CEO of Tee-Comm
James Wilkinson Chief Financial Officer of
Tee-Comm
Murray Klippenstein President and CEO of AlphaStar
[until March 5, 1997]
Dave Charles President and CEO of AlphaStar
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[from March 5, 1997 to end of
Class Period]
(b) Because of the Individual Defendants'
positions with the Company, they had access to the adverse
undisclosed information about its business, operations,
operational trends, finances, markets and present and future
business prospects via access to internal corporate documents
(including the Company'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 them in connection therewith.
9. It is appropriate to treat the Individual
Defendants as a group for pleading purposes and to presume that
the false, misleading and incomplete information conveyed in the
Company's public filings, press releases and other publications
as alleged herein are the collective actions of the narrowly
defined group of defendants identified above. Each of the above
officers and/or directors of Tee-Comm, by virtue of their high-
level positions with the Company, directly participated in the
management of the Company, was directly involved in the day-to-
day operations of the Company at the highest levels and was privy
to confidential proprietary information concerning the Company
and its business, operations, growth, finances, and financial
condition, as alleged herein. Said defendants were involved in
drafting, producing, reviewing and/or disseminating the false and
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misleading statements and information alleged herein, were aware
(or recklessly disregarded) that the false and misleading
statements were being issued regarding the Company and approved
or ratified these statements, in violation of the federal
securities laws.
10. As officers and/or directors and controlling
persons of a publicly-held company whose common stock was, and
is, registered with the SEC pursuant to the Exchange Act, traded
on the NASDAQ National Market, and governed by the provisions of
the federal securities laws, the Individual Defendants each had a
duty to disseminate promptly accurate and truthful information
with respect to the Company's financial condition and
performance, growth, operations, business, markets, management,
earnings and present and future business prospects, and to
correct any previously-issued statements that had become
materially misleading or untrue, so that the market price of the
Company's publicly-traded securities would be based upon truthful
and accurate information. The Individual Defendants'
misrepresentations and omissions during the Class Period violated
these specific requirements and obligations.
11. The Individual Defendants participated in the
drafting, preparation, and/or approval of the various public and
shareholder and investor reports and other communications
complained of herein and were aware of or recklessly disregarded
the misstatements contained therein and omissions therefrom, and
were aware of their materially false and misleading nature.
Because of their Board membership and/or executive and managerial
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positions with Tee-Comm, each of the Individual Defendants had
access to the adverse undisclosed information about Tee-Comm's
business prospects and financial condition and performance as
particularized herein and knew (or recklessly disregarded) that
these adverse facts rendered the positive representations made by
or about Tee-Comm and its business issued or adopted by the
Company materially false and misleading.
12. The Individual Defendants, because of their
positions of control and authority as officers and/or directors
of the Company, were able to and did control the content of the
various SEC filings, press releases and other public statements
pertaining to the Company during the Class Period. Each
Individual Defendant was provided with copies of the documents
alleged herein to be misleading prior to or shortly after their
issuance and/or had the ability and/or opportunity to prevent
their issuance or cause them to be corrected. Accordingly, each
of the Individual Defendants is responsible for the accuracy of
the public reports and releases detailed herein and is therefore
primarily liable for the representations contained therein.
13. Each of the defendants is liable as a participant
in a fraudulent scheme and course of business that operated as a
fraud or deceit on purchasers of Tee-Comm common stock, by
disseminating materially false and misleading statements and/or
concealing material adverse facts. The scheme: (i) deceived the
investing public regarding Tee-Comm's business, growth,
operations and the intrinsic value of Tee-Comm's common stock;
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and (ii) caused plaintiff and other members of the Class to
purchase Tee-Comm common stock at artificially inflated prices.
PLAINTIFF'S CLASS ACTION ALLEGATIONS
14. Plaintiff brings this action as a class action
pursuant to Federal Rule of Civil Procedure 23(a) and (b) (3) on
behalf of a Class, consisting of all persons who purchased Tee-
Comm common stock between July 31, 1996, and May 27, 1997,
inclusive (the "Class Period") and who were damaged thereby.
Excluded from the Class are defendants, the officers and
directors of the Company, at all relevant times, members of their
immediate families and their legal representatives, heirs, suc-
cessors or assigns and any entity in which defendants have or had
a controlling interest.
15. 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 plaintiff at this time and can
only be ascertained through appropriate discovery, plaintiff
believes that there are hundreds or thousands of members in the
proposed Class. As of December 31, 1995 Tee-Comm reported that
it had at least 25.9 million shares of Tee-Comm common stock
outstanding. Throughout the Class Period, Tee-Comm's common
stock was actively traded on the NASDAQ National Market and
Toronto Stock Exchange. Record owners and other members of the
Class may be identified from records maintained by Tee-Comm or
its transfer agent and may be notified of the pendency of this
action by mail, using the form of notice similar to that custom-
arily used in securities class actions.
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16. Plaintiff's claims are typical of the claims of
the members of the Class as all members of the Class are
similarly affected by defendants' wrongful conduct in violation
of federal law that is complained of herein.
17. Plaintiff will fairly and adequately protect the
interests of the members of the Class and has retained counsel
competent and experienced in class and securities litigation.
18. Common questions of law and fact exist as to all
members of the Class and predominate over any questions solely
affecting individual members of the Class. Among the questions
of law and fact common to the Class are:
(a) Whether the federal securities laws were vio-
lated by defendants' acts as alleged herein;
(b) Whether statements made by defendants to the
investing public during the Class Period misrepresented material
facts about the business, operations, expansion and growth of
Tee-Comm; and
(c) To what extent the members of the Class have
sustained damages and the proper measure of damages.
19. A class action is superior to all other available
methods for the fair and efficient adjudication of this contro-
versy since joinder of all members is impracticable. Further-
more, as the damages suffered by individual Class members may be
relatively small, the expense and burden of individual litigation
make it impossible for members of the Class to individually
redress the wrongs done to them. There will be no difficulty in
the management of this action as a class action.
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SUBSTANTIVE ALLEGATIONS
Applicability Of Presumption Of Reliance:
Fraud-On-The-Market Doctrine
20. At all relevant times, the market for Tee-Comm
stock was an efficient market for the following reasons, among
others:
(a) Tee-Comm common stock met the requirements
for listing, and were listed and actively traded on the NASDAQ, a
highly efficient and automated market;
(b) As a regulated issuer, Tee-Comm filed
periodic public reports with the SEC and the NASD;
(c) Tee-Comm regularly communicated with public
investors via established market communication mechanisms,
including through regular disseminations of press releases on the
national circuits of major newswire services and through other
wide-ranging public disclosures, such as communications with the
financial press and other similar reporting services; and
(d) Tee-Comm was followed by several securities
analysts employed by major brokerage firms who wrote reports
which were distributed to the sales force and certain customers
of their respective brokerage firms. Each of these reports was
publicly available and entered the public marketplace. Among the
brokerage firms which issued research reports on Tee-Comm during
the Class Period were: list of analysts.
21. As a result, the market for Tee-Comm common stock
promptly digested current information regarding Tee-Comm from all
publicly available sources and reflected such information in Tee-
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Comm's stock price. Under these circumstances, all purchasers of
Tee-Comm shares during the Class Period suffered similar injury
through their purchase of shares at artificially inflated prices
and a presumption of reliance applies.
Background Facts
22. Tee-Comm, through Alphastar, provided direct
satellite television service in the United States and was in the
process of launching service in Canada. Alphastar began
broadcasting in the United States in July 1996 but never started
broadcasting in Canada.
23. During the Class Period, defendants disseminated a
series of materially false and misleading statements concerning
Tee-Comm which portrayed the Company in highly positive terms
while failing to disclose that the Company was rapidly running
out of cash and was not generating sufficient new subscribers and
revenue to continue as a going concern. In particular,
defendants misrepresented and/or failed to disclose the following
facts in summary form: (i) Tee-Comm's inability to fund the
costs necessary to establish the Alphastar name in direct
television and generate sufficient numbers of subscribers;
(ii) Tee-Comm's inability to significantly grow its subscriber
base; (iii) the Company's dire financial condition and inability
to continue as a "going concern"; (iv) Tee-Comm's inability to
complete financing necessary for its survival; and (v) Tee-Comm's
dwindling supply of necessary cash and inability to fund
operations in the near term. Notwithstanding the Company's
dwindling cash and rapidly declining financial condition,
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defendants repeatedly pronounced their optimism for the Company's
continued success and highlighted Alphastar's entrance into the
direct television market. In truth and in fact, the Company was
on the verge of insolvency at all relevant times and unable to
effectively compete against better capitalized and more efficient
competitors.
Materially False And Misleading
Statements During The Class Period
24. The Class Period begins on July 31, 1996. On that
date, Tee-Comm issued a press release announcing its revenue and
earnings for the second quarter of 1996, the period ending June
30, 1996. The Company reported revenue of $4,283,000, and a net
loss for the quarter of $3,306,000, or $0.13 per share. The
press release quoted defendant Al Bahnman in pertinent part as
follows:
This results reflect our planned
transition from analogue to digital said Al
Bahnman, Tee-Comm's Chairman and CEO. With
the launch of our AlphaStar service on July
1st and the commencement of shipping of our
new digital receiver to our distribution
network, we look forward to significantly
increased equipment revenues and bringing
subscribers and related subscriber revenue on
line during the third quarter, he added.
[Emphasis added.]
25. On or around August 15, 1996, a report in Reuters
discussed Tee-Comm's entry into the DTH market in Canada. The
report stated pertinently:
Tee-Comm said it believed its AlphaStar
unit could deliver the country's first made-
in-Canada direct-to-home digital service with
its plan to beam initially the service to
customers through a U.S. satellite.
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* * *
"The bottom line is that -- subject to CRTC
approval, which we are confident that we will
obtain -- AlphaStar Canada is positioned to
establish Canada's first digital satellite
television service," said Tee-Comm Chief
Financial Officer Jim Wilkinson.
Wilkinson said Tee-Comm acknowledged and
deserved some of the criticism received for
its previous difficulties in helping to
launch ExpressVU. But he said now that the
company has successfully launched a U.S.
service, also called AlphaStar, it was ready
to make a similar offering in Canada.
[Emphasis added.]
26. Then, on August 21, 1996, Tee-Comm announced that
an agreement it had with Amway to sell its direct television
service had been canceled by Amway. A report carried by the
Canada Newswire stated pertinently:
Tee-Comm Electronics Inc. and its
subsidiary, AlphaStar Television Network
Inc., confirmed today that Amway Corp. has
notified them that it is terminating the
current distribution agreement signed by the
three companies in August of 1995.
Discussions will continue with Amway towards
potential new business terms. Murray
Klippenstein, President and CEO of AlphaStar,
said, "The issues and problems raised by
Amway in the past have been rectified. The
system is working beautifully and we have
been shipping systems to our distribution
network across the continental U.S., Hawaii,
Puerto Rico and the U.S. Virgin Islands since
July 1st." Klippenstein said the Tee-Comm is
currently shipping approximately 4,000
systems per week and is ramming up to meet
orders. "We are ready to meet all of our
distributors' needs in terms of equipment,
programming and satellite capacity," he
added. [Emphasis added.]
27. On September 17, 1996, the price of Tee-Comm's
common stock rose as rumors spread through the market that Tee-
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Comm was close to arranging an agreement with a new partner. A
report in the Financial Post stated pertinently:
"I can't comment about discussions that
are going on now," Jim Wilkinson, Tee-Comm's
chief financial officer, said yesterday.
Tee-Comm has made no secret of the fact
it is looking for a partner for its AlphaStar
Television Network Inc., which became the
fourth direct-broadcast satellite television
service in the U.S. when it launched July 1.
"Nesbitt Burns has been hired to act as
our adviser in seeking a strategic partner
for AlphaStar," said Wilkinson, adding the
deal could be a direct investment in
AlphaStar, which is now 97% owned by Tee-
Comm, or in Tee-Comm itself.
28. On or around October 17, 1996, Tee-Comm issued a
press release announcing an agreement with Skylink America, Inc.
("skylink") under which, AlphaStar is to provide signal for free-
to-great basic services and premium programming at all 800
skylink properties within the United States. Defendant
Klippenstein was quoted as follows:
Murray Klippenstein, President of
AlphaStar, noted, "This contract positions
AlphaStar as a leading supplier of satellite
television to the hospitality market and is
representative of the partnerships AlphaStar
has developed to broaden its distribution.
The Skylink agreement is more than just a
programming delivery contract - it is an
opportunity to advertise AlphaStar's direct-
to-home service to the 45 million travelers
who patronize Skylink hotel sites each year."
29. On October 29, 1996, a report in Reuters reported
comments made by defendant Wilkinson:
Tee-Comm Electronics Inc. is signing up
some 250 new subscribers a day for its new
home satellite television service in the
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United States, company chief financial
officer Jim Wilkinson said on Tuesday.
Wilkinson said the number of people
signing up continues to increase for the
service that was launched its AlphaStar
subsidiary. He said the company's target is
to sign up 940 new subscribers per day.
Tee-Comm has 12,000 subscribers for the
AlphaStar Television Network that was
launched in the quarter after beta testing in
July.
30. That same day, Tee-Comm issued a press release --
captioned Tee-Comm Electronics Inc. reports 83 percent increase
in third quarter revenue -- announcing its financial results for
the third quarter of 1996, the period ending September 30, 1996.
The company reported revenues of $16,290,000000(c) and a net loss
of $16,998,000, or $0.66 per share, compared to revenues of $0.66
per share, compared to revenues of $8,918,000(c) and $868,000(c),
or $0.04 per share, for the same period in the prior year.
Defendant Bahnman stated:
We've invested a tremendous amount of
time and energy to build an end-to-end
digital satellite network over the past two
years and I'm excited to see the results of
our efforts finally reaching the consumer,
said Al Bahnman, Chairman and CEO of Tee-
Comm. This quarter was dominated by a
rebound in equipment sales. As we strengthen
the equipment distribution channels that
provide the platform for AlphaStar's
programming services, we'll see U.S.
subscriber revenues begin to accelerate
during the fourth quarter. [Emphasis added.]
31. In a report carried by the Financial Post on
October 30, 1996, defendant Wilkinson sought to downplay the
negative results by attributing them to an accounting charge:
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Jim Wilkinson, Tee-Comm's chief
financial officer, said the jump is due to an
accounting requirement governing the
treatment of capital costs now that the
service is in operation.
Tee'Comm's AlphaStar Television Networks
Inc. launched its service in June. It has
12,000 customers, Wilkinson said, and is
adding about 250 new customers a day. But to
meet its business plan, Wilkinson said it
needs to increase that to about 950 customers
a day.
32. Then, on February 19, 1997, a report in Reuters
stated:
Satellite television company Tee-Comm
Electronics Inc on Wednesday said it expects
its low operating costs will make it a
profitable player in an increasingly crowded
market dominated by big spenders.
"We believe we will succeed, based on
our low operating costs," Jim Wilkinson,
Chief Operating Officer, told an investment
conference.
* * *
"That gives us a breakeven point of
500,000 subscribers, which we expect to reach
by late 1998," Wilkinson said.
33. The statements referenced above in paragraphs 24
to 32 were materially false and misleading because:
(a) the Company failed to disclose that it was
not signing up sufficient numbers of subscribers to meet its
operating goals and sustain its operations;
(b) the Company failed to disclose that its
operating costs were escalating at a high rate, thereby straining
the Company's ability to produce and distribute its products;
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(c) the Company created the false impression as
to its ability to finance its operations as at all relevant times
its weakening financial condition and its inability to
effectively produce and distribute its products undermined the
Company's ability to raise necessary financing and, in fact, the
Company never did raise any such financing;
(d) given the Company's weakening financial
condition and inability to effectively implement its business
plan, the Company knew but failed to disclose that its efforts to
obtain a financial partner for Alphastar was unlikely to ever
occur and, in fact, the Company never did establish such a
partnership; and
(e) given the foregoing, defendants'
representations as to the "successful launch" of Alphastar were
materially false and misleading and lacking in a reasonable basis
at all relevant times.
34. On March 5, 1997, Tee-Comm issued a press release
announcing that Murray Klippenstein had been replaced and that
Dave Charles had been appointed President and CEO of AlphaStar.
Defendant Charles was aware of the problems then plaguing
Alphastar but chose instead to highlight the purported positive
prospects for the Company:
All the players in the DTH market have
experienced lower than expected sales over
the last two years, said Mr. Charles, but in
many ways, AlphaStar has the best potential
for significant growth because of its
economies of scale, due to its signed
satellite coverage of both the U.S. and
Canada, and its targeted market focus.
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I'm sure we can grow the subscriber base
at a much quicker pace, he added. I wouldn't
take this on if I didn't believe that we're
going to be a major player in this business.
[Emphasis added.]
35. On March 20, 1997, Tee-Comm issued a press release
announcing its financial results for the 1996 fiscal year. The
Company reported total revenues of $42,915,000 compared to 1995
revenues of $39,078,000. The Company also reported a loss of
$34,973,000. The press release stated pertinently:
We anticipated a significant number of
the loss side because of the enormous capital
and operating costs required to launch and
maintain our AlphaStar direct-to-home
satellite television service in the United
States, said Al Bahnman, Chairman and Chief
Executive Officer. And while the development
of our DTH services is not moving as quickly
as expected, we're very encouraged by the
value and growth potential of the unique
digital platform we have built to service
both the Canadian and U.S. markets, he added.
At year end, AlphaStar had acquired
28,000 for its U.S. service. By mid-March,
1997, this number had increased to 43,000 and
is expected to rise with the recent launch of
the Canadian service, and new sales
initiatives in the U.S.
As previously announced, the company
will require additional capital of
approximately $100,000,000 in the first half
of 1997 to fund operations and subscriber
acquisition through to its break-even point.
The company plans to raise additional capital
through an offering of debt which is expected
to be completed within the next 60 days.
We have a very impressive case to take
to the financial community, said Jim
Wilkinson, Executive Vice President and Chief
Financial Officer. We are one of only four
companies in North America with a digital DTH
broadcast platform. And we are the only DTH
broadcaster covering virtually all of North
America, Central America, and Puerto Rico and
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the U.S. Virgin Islands with one satellite.
[Emphasis added.]
The press release was filed with the SEC on Form 6-K on or around
March 24, 1997.
36. On March 26, 1997, Reuters reported the following:
In response to heavy trading activity in
the Company's stock today, senior management
of Tee-Comm Electronics Inc. has reaffirmed
that it is proceeding on course with the
implementation and execution of its business
plan.
Speaking from a major industry trade
show in Las Vegas, newly-appointed AlphaStar
Television Network President and CEO Dave
Charles said, "We continue to move forward on
all phases of our business, and we have
received overwhelming response from
distributors and dealers over our
announcements concerning new Spanish-American
programming packages, and an innovative new
pricing structure for our U.S. DBS service."
The Company has stated that it is
approaching the financial marketplace to
raise further capital to enable it to grow
its subscribers base and proceed with its
plans for market growth and programming
development in three languages (English,
Spanish and French). This has been part of
Tee-Comm's strategic plan since it entered
the DBS market late last year. Tee-Comm's
low-cost operating structure, which includes
North America's only two-country DBS service
operating from a single platform, will result
in the lowest break-even point in the
industry.
The Company is confident that it will
raise additional capital because of its
unique position in both the American and
Canadian marketplaces.
In the United States, we have a unique
program offering, and with our new President
Dave Charles, we are accelerating our efforts
to grow our subscriber base, said Al Bahnman,
President and CEO of Tee-Comm. In Canada, we
are the only company that is providing a
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licensed digital DTH service, and response
has exceeded our expectations, he added.
The Company is confident that it will
execute its business plan. [Emphasis added.]
37. On or about April 3, 1997, Tee-Comm issued a press
release announcing that it had appointed Patrick Keeffe as Vice
President, Network Operations and Satellite Services. The press
release stated pertinently:
"The recent launch of our two digital direct-
to-home satellite services, Alpha-Star
Television Network and Alpha Star Canada,
warrants the creation of this new position,"
said Mr. Bahnman. "Pat's experience and
expertise in satellite technology make him an
obvious choice for the job."
With 25 years of direct experience in
satellite communications, Mr. Keeffe is one
of the industry's most highly regarded
technical experts. Prior to joining Tee-
Comm, Mr. Keeffe worked at Telesat Canada,
where he held a variety of management
positions, the last of which was Manager,
Broadcast Engineering. Mr. Keeffe began his
career at Northern Electric (now Nortel) as a
Technologist and Field Engineer.
"I look forward to the challenges this
position will bring, and to helping Tee-Comm
maintain and grow its position as a leader in
the DTH satellite television industry," said
Mr. Keeffe. "These are very exciting times
for the company." [Emphasis added.]
38. On or about March 27, 1997 an article in The
Financial Post quoted defendant Bahnman as follows:
"From a business perspective, this company is
in a better Position right now than it has
ever been," Bahnman said. [Emphasis added]
39. On or around April 7, 1997, Tee-Comm announced
that the Bank of Montreal had increased the operating line of
credit made available to the Company. The Company announced that
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in conjunction with this extended credit facility, Tee-Comm has
granted Bank of Montreal a five-year option to acquire up to 1.3
million shares of the company at an exercise price of $3.70 per
share, for a total potential holding of five percent of the
outstanding circumstances.
40. Then, on or about April 19, 1997, an article
appeared in The Toronto Star concerning Tee-Comm's proposed debt
offering. The article indicated that Tee-Comm had abandoned its
plan to raise $100 million through a debt offering, but was still
"confident of raising the necessary cash to support the corporate
business plan." The article quoted defendant Wilkinson, in part,
as follows:
"Several (alternative financing) proposals
have been put before us and are evaluating
them to determine which one is best for the
company," Tee-Comm vice-president Jim
Wilkinson said yesterday.
Defendant Wilkinson attributed the canceled deft offering to
softness in the bond market stating as follows:
Since then, the U.S. high-yield debt market
has come under heavy selling pressure,
forcing high-yield mutual funds in the United
States to sell part of their portfolios to
meet redemptions, Wilkinson said.
"If the funds are selling, they are not
interested in participating in new issues,"
said Wilkinson, to explain the company's
decision to drop the planned debt offering.
41. On or about May 8, 1997, Tee-Comm issued a press
release which stated as follows:
Tee-Comm Inc. (Tee-Comm) today announced that
it is in active discussions with a lender to
arrange a term financing to both replace its
existing bank facility and provide additional
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funding for the Company. The Company is also
considering proposing to its convertible
subordinated debentureholders a
recapitalization of its balance sheet which
may include an exchange of convertible
subordinated debentures for equity and the
investment of additional capital. The
objective of the Company is to obtain
additional funding for its operations and to
reduce its financial leverage. Tee-Comm is
not in a position to pay the interest due on
May 9 on its convertible subordinated
debentures.
42. On or about May 9, 1997, an article in The
Financial Post highlighted Tee-Comm's search for financing. The
article stated in pertinent part as follows:
Tee-Comm Electronics Inc., the first Canadian
company to develop its own direct-to-home
satellite television technology and the first
to launch a service in Canada, may be the
first to go out of business.
Tee-Comm will not be able to make a $5-
million interest payment to debenture holders
due today, it said yesterday.
The company has 15 days from today to find
the money before it is technically in default
on the $107 million in debentures, said chief
financial officer Jim Wilkinson.
"What is contemplated here is new financing
together with a proposal to restructure the
debentures," he said. "If we are successful
in implementing this process, the company
will emerge in a very short period of time in
a much stronger financial position, able to
move forward with its business plan."
43. The statements referenced above in paragraphs 34
to 42 were materially false and misleading because:
(a) the Company failed to disclose that it was
not signing up sufficient numbers of subscribers to meet its
operating goals and sustain its operations;
- 21 -
(b) the Company failed to disclose that its
operating costs were escalating at a high rate, thereby straining
the Company's ability to produce and distribute its products;
(c) the Company created the false impression as
to its ability to finance its operations as at all relevant times
its weakening financial condition and its inability to
effectively produce and distribute its products undermined the
Company's ability to raise necessary financing and, in fact, the
Company never did raise any such financing;
(d) given the Company's weakening financial
condition and inability to effectively implement its business
plan, the Company knew but failed to disclose that its efforts to
obtain a financial partner for Alphastar was unlikely to ever
occur and, in fact, the Company never did establish such a
partnership;
(e) the Company failed to disclose that it was
nearing insolvency and that without additional financing it would
be forced to file for Bankruptcy;
(f) the Company failed to disclose that it was
unable to effectively implement its business plan such that
prospective investors in the Company were discouraged from making
any investments in the Company;
(g) it was not true that the Company's debt
offering was canceled due to market conditions but rather because
the Company's business was failing and management was unable to
reverse this negative trend; and
- 22 -
(h) given the foregoing, defendants'
representations as to the "successful launch" of Alphastar were
materially false and misleading and lacking in a reasonable basis
at all times.
The Truth Begins To Emerge
44. The Class Period ends on May 27, 1997. On that
date, Tee-Comm issued a press release which stated as follows:
Tee-Comm Electronics Inc. (the "Corporation")
announced today that the Bank of Montreal, its existing
lender, yesterday demanded immediate repayment of its
existing credit facility and has appointed an interim
receiver in respect of the property and assets of the
Corporation and certain of its subsidiaries.
In addition, the board of directors has resigned
effective May 21, 1997.
The bank also appointed an interim receiver with respect to the
property and assets of the Company and some of its subsidiaries.
45. On May 27, 1997, Tee-Comm also announced that
AlphaStar had filed for Chapter 11 protection and that its chief
executive Al Bahnman had resigned and David Charles had also
left.
46. On June 2, 1997, Tee-Comm Distribution Inc. -- a
distributor of satellite television signal receiving equipment --
filed for bankruptcy protection.
47. On or about June 3, 1997, the NASDAQ halted
trading of Tee-Comm stock and was delisted from trading on NASDAQ
thereafter.
48. At the close of the Class Period, the price of
Tee-Comm common stock closed down at $0.50 per share (as of May
21, 1997) -- a decrease of 95% from a Class Period high of
- 23 -
$10.1875 per share, reached on September 16, 1996. At present,
Tee-Comm common stock is worthless.
49. The market for Tee-Comm's common stock was open,
well-developed and efficient at all relevant times. As a result
of these materially false and misleading statements and failures
to disclose, Tee-Comm common stock traded at artificially
inflated prices during the Class Period until the time the fact
that Tee-Comm's business was failing was understood by the
securities markets. Plaintiff and other members of the Class
purchased or otherwise acquired Tee-Comm common stock relying
upon the integrity of the market price of Tee-Comm stock and
market information relating to Tee-Comm and have been damaged
thereby.
50. During the Class Period, defendants materially
misled the investing public, thereby inflating the price of Tee-
Comm stock, by publicly issuing false and misleading statements
and omitting to disclose material facts necessary to make
defendants' statements, as set forth herein, not false and
misleading. Said statements and omissions were materially false
and misleading in that they failed to disclose material adverse
information and misrepresented the truth about the Company, its
business and operations, including, inter alia:
(a) the Company failed to disclose that it was
not signing up sufficient numbers of subscribers to meet its
operating goals and sustain its operations;
- 24 -
(b) the Company failed to disclose that its
operating costs were escalating at a high rate, thereby straining
the Company's ability to produce and distribute its products;
(c) the Company created the false impression as
to its ability to finance its operations as at all relevant times
its weakening financial condition and its inability to
effectively produce and distribute its products undermined the
Company's ability to raise necessary financing and, in fact, the
Company never did raise any such financing;
(d) given the Company's weakening financial
condition and inability to effectively implement its business
plan, the Company knew but failed to disclose that its efforts to
obtain a financial partner for Alphastar was unlikely to ever
occur and, in fact, the Company never did establish such a
partnership;
(e) the Company failed to disclose that it was
nearing insolvency and that without additional financing it would
be forced to file for Bankruptcy;
(f) the Company failed to disclose that it was
unable to effectively implement its business plan such that
prospective investors in the Company were discouraged from making
investments in the Company;
(g) it was not true that the Company's debt
offering was canceled due to market conditions but rather because
the Company's business was failing and management was unable to
reverse this negative trend; and
- 25 -
(h) given the foregoing, defendants'
representations as to the "successful launch" of Alphastar were
materially false and misleading and lacking in a reasonable basis
at all relevant times.
51. At all relevant times, the material
misrepresentations and omissions particularized in this Complaint
directly or proximately caused or were a substantial contributing
cause of the damages sustained by plaintiff and other members of
the Class. As described herein, during the Class Period,
defendants made or caused to be made a series of materially false
or misleading statements about Tee-Comm's business, prospects and
operations. These material misstatements and omissions had the
cause and effect of creating in the market an unrealistically
positive assessment of Tee-Comm and its business, prospects and
operations, thus causing the Company's common stock to be
overvalued and artificially inflated at all relevant times.
Defendants' materially false and misleading statements during the
Class Period resulted in plaintiff and other members of the Class
purchasing the Company's common stock at an artificially inflated
price, thus causing the damages complained of herein.
SCIENTER ALLEGATIONS
52. As alleged herein, defendants acted with scienter
in that defendants knew that the public documents and statements
issued or disseminated in the name of the Company were materially
false and misleading; knew that such statements or documents
would be issued or disseminated to the investing public; and
knowingly and substantially participated or acquiesced in the
- 26 -
issuance or dissemination of such statements or documents as
primary violations of the federal securities laws. As set forth
elsewhere herein in detail, defendants, by virtue of their
receipt of information reflecting the true facts regarding Tee-
Comm, their control over, and/or receipt and/or modification of
Tee-Comm's allegedly materially misleading misstatements and/or
their associations with the Company which made them privy to
confidential proprietary information concerning Tee-Comm,
participated in the fraudulent scheme alleged herein. With
respect to non-forward-looking statements and/or omissions,
defendants knew and/or recklessly disregarded the falsity and
misleading nature of the information which they caused to be
disseminated to the investing public.
53. The Individual Defendants engaged in such a scheme
to inflate the price of Tee-Comm common stock in order to: (i)
protect and enhance their executive positions and the substantial
compensation and prestige they obtained thereby; (ii) enhance the
value of their personal Tee-Comm securities; and (iii) enable the
Company to complete debt financing on favorable terms, although
defendants were unable to complete the financing before the
scheme unraveled.
NO SAFE HARBOR
54. The 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.
The specific statements pleaded herein were not identified as
"forward-looking statements" when made. Nor was it stated with
- 27 -
respect to any of the statements forming the basis of this
complaint that actual results "could differ materially from those
projected." To the extent there were any forward-looking
statements, there were no meaningful cautionary statements
identifying important factors that could cause actual results to
differ materially from those in the purportedly forward-looking
statements. Alternatively, to the extent that the statutory safe
harbor does apply to any forward-looking statements pleaded
herein, defendants are liable for those false forward-looking
statements because at the time each of those forward-looking
statements was made, the particular speaker knew that the
particular forward-looking statement was false, and/or the
forward-looking statement was authorized and/or approved by an
executive officer of Tee-Comm who knew that those statements were
false when made.
FIRST CLAIM
(Violations Of Section 10(b) Of The Exchange Act
And Rule 10b-5 Promulgated Thereunder Against
All Defendants)
55. Plaintiff repeats and realleges each and every
allegation contained above as if fully set forth herein.
56. During the Class Period, Tee-Comm and the
Individual Defendants, and each of them, carried out a plan,
scheme and course of conduct which was intended to and,
throughout the Class Period, did: (i) deceive the investing
public, including plaintiff and other Class members, as alleged
herein; (ii) artificially inflate and maintain the market price
of Tee-Comm securities; and (iii) cause plaintiff and other
- 28 -
members of the Class to purchase Tee-Comm common stock at
inflated prices. In furtherance of this unlawful scheme, plan
and course of conduct, defendants, and each of them, took the
actions set forth herein.
57. Defendants (a) employed devices, schemes, and
artifices to defraud; (b) made untrue statements of material fact
and/or omitted to state material facts necessary to make the
statements not misleading; and (c) engaged in acts, practices,
and a course of business which operated as a fraud and deceit
upon the purchasers of the Company's securities in an effort to
maintain artificially high market prices for Tee-Comm's
securities in violation of Section 10(b) of the Exchange Act and
Rule 10b-5. All defendants are sued either as primary
participants in the wrongful and illegal conduct charged herein
or as controlling persons as alleged below.
58. In addition to the duties of full disclosure
imposed on defendants as a result of their making of affirmative
statements and reports, or participation in the making of
affirmative statements and reports to the investing public, the
defendants had a duty to promptly disseminate truthful
information that would be material to investors in compliance
with the integrated disclosure provisions of the SEC as embodied
in SEC Regulation S-X (17 C.F.R. Sections 210.01 et seq.) and
Regulation S-K (17 C.F.R. Sections 229.10 et seq.) and other SEC
regulations, including accurate and truthful information with
respect to the Company's operations, financial condition and
- 29 -
earnings so that the market price of the Company's common stock
would be based on truthful, complete and accurate information.
59. Tee-Comm and the Individual Defendants,
individually and in concert, directly and indirectly, by the use,
means or instrumentalities of interstate commerce and/or of the
mails, engaged and participated in a continuous course of conduct
to conceal adverse material information about the business,
operations and future prospects of Tee-Comm as specified herein.
These defendants employed devices, schemes and artifices to
defraud, while in possession of material adverse non-public
information and engaged in acts, practices, and a course of
conduct as alleged herein in an effort to assure investors of
Tee-Comm's value and performance and continued substantial
growth, which included the making of, or the participation in the
making of, untrue statements of material facts and omitting to
state material facts necessary in order to make the statements
made about Tee-Comm and its business operations and future
prospects in the light of the circumstances under which they were
made, not misleading, as set forth more particularly herein, and
engaged in transactions, practices and a course of business which
operated as a fraud and deceit upon the purchasers of Tee-Comm
common stock during the Class Period.
60. Each of the Individual Defendants' primary
liability, and controlling person liability, arises from the
following facts: (i) the Individual Defendants were high-level
executives and/or directors at the Company during the Class
Period and members of the Company's management team or had
- 30 -
control thereof; (ii) each of these defendants, by virtue of his
or her responsibilities and activities as a senior officer and/or
director of the Company was privy to and participated in the
creation, development and reporting of the Company's internal
budgets, plans, projections and/or reports; (iii) each of these
defendants enjoyed significant personal contact and familiarity
with the other defendants and was advised of and had access to
other members of the Company's management team, internal reports
and other data and information about the Company's finances,
operations, and sales at all relevant times; and (iv) each of
these defendants was aware of the Company's dissemination of
information to the investing public which they knew or recklessly
disregarded was materially false and misleading.
61. The defendants had actual knowledge of the
misrepresentations and omissions of material facts set forth
herein, or acted with reckless disregard for the truth in that
they failed to ascertain and to disclose such facts, even though
such facts were available to them. Such defendants' material
misrepresentations and/or omissions were done knowingly or
recklessly and for the purpose and effect of concealing Tee-
Comm's operating condition and future business prospects from the
investing public and supporting the artificially inflated price
of its securities. As demonstrated by defendants' overstatements
and misstatements of the Company's business, operations and
earnings throughout the Class Period, defendants, if they did not
have actual knowledge of the misrepresentations and omissions
alleged, were reckless in failing to obtain such knowledge by
- 31 -
deliberately refraining from taking those steps necessary to
discover whether those statements were false or misleading.
62. As a result of the dissemination of the materially
false and misleading information and failure to disclose material
facts, as set forth above, the market prices of Tee-Comm
securities were artificially inflated during the Class Period.
In ignorance of the fact that market prices of Tee-Comm's
publicly-traded securities were artificially inflated, and
relying directly or indirectly on the false and misleading
statements made by defendants, or upon the integrity of the
market in which the securities trade, and/or on the absence of
material adverse information that was known to or recklessly
disregarded by defendants but not disclosed in public statements
by defendants during the Class Period, plaintiff and the other
members of the Class acquired Tee-Comm's securities during the
Class Period at artificially high prices and were damaged
thereby.
63. At the time of said misrepresentations and
omissions, plaintiff and other members of the Class were ignorant
of their falsity, and believed them to be true. Had plaintiff
and the other members of the Class and the marketplace known of
the true financial condition and business prospects of Tee-Comm,
which were not disclosed by defendants, plaintiff and other
members of the Class would not have purchased or otherwise
acquired their Tee-Comm securities during the Class Period, or,
if they had acquired such securities during the Class Period,
- 32 -
they would not have done so at the artificially inflated prices
which they paid.
64. By virtue of the foregoing, defendants have
violated Section 10(b) of the Exchange Act, and Rule 10b-5
promulgated thereunder.
65. As a direct and proximate result of defendants'
wrongful conduct, plaintiff and the other members of the Class
suffered damages in connection with their purchases of the
Company's securities during the Class Period.
SECOND CLAIM
(Violation Of Section 20(a) Of The Exchange Act
Against Individuals Defendants)
66. Plaintiff repeats and realleges each and every
allegation contained above as if fully set forth herein.
67. The Individual Defendants acted as controlling
persons of Tee-Comm within the meaning of Section 20(a) of the
Exchange Act as alleged herein. By virtue of their high-level
positions, and their ownership and contractual rights,
participation in and/or awareness of the Company's operations
and/or intimate knowledge of the Company's operations. The
Individual Defendants had the power to influence and control and
did influence and control, directly or indirectly, the decision-
making of the Company, including the content and dissemination of
the various statements which plaintiff contends are false and
misleading. The Individual Defendants were provided with or had
unlimited access to copies of the Company's reports, press
releases, public filings and other statements alleged by plain-
- 33 -
tiff to be misleading prior to and/or shortly after these state-
ments were issued and had the ability to prevent the issuance of
the statements or cause the statements to be corrected.
68. In particular, each of these defendants had direct
and supervisory involvement in the day-to-day operations of the
Company and, therefore, is presumed to have had the power to
control or influence the particular transactions giving rise to
the securities violations as alleged herein, and exercised the
same.
69. As set forth above, Tee-Comm and the Individual
Defendants each violated Section 10(b) and Rule 10b-5 by their
acts and omissions as alleged in this Complaint. By virtue of
their positions as controlling persons, the Individual Defendants
are liable pursuant to Section 20(a) of the Exchange Act. As a
direct and proximate result of defendants' wrongful conduct,
plaintiff and other members of the Class suffered damages in
connection with their purchases of the Company's common stock
during the Class Period.
WHEREFORE, plaintiff prays for relief and judgment, as
follows:
(a) Determining that this action is a proper
class action, designating plaintiff as Lead Plaintiff and
certifying plaintiff as a class representative under Rule 23 of
the Federal Rules of Civil Procedure and their counsel as Lead
Counsel;
(b) Awarding compensatory damages in favor of
plaintiff and the other Class members against all defendants,
- 34 -
jointly and severally, for all damages sustained as a result of
defendants' wrongdoing, in an amount to be proven at trial,
including interest thereon;
(c) Awarding plaintiff and the Class their
reasonable costs and expenses incurred in this action, including
counsel fees and expert fees; and
(d) Such other and further relief as the Court
may deem just and proper.
JURY TRIAL DEMANDED
Plaintiff hereby demands a trial by jury.
DATED: February 3, 1998
HARRIS BEACH & WILCOX
/s/
By: __________________________
J. Daniel Sagarin
Federal Bar No. CT04289
Elias A. Alexiades
Federal Bar No. CT03543
147 N. Broad Street
P.O. Box 112
Milford, Connecticut 06460
(203) 877-8000
MILBERG WEISS BERSHAD
HYNES & LERACH LLP
/s/
By: __________________________
Steven G. Schulman
Samuel H. Rudman
[CT05484]
One Pennsylvania Plaza
49th Floor
New York, NY 10119
(212) 594-5300
- 35 -
-- and --
Robert Zicklin, Esq.
LAVENTHALL & ZICKLIN
551 Fifth Avenue
New York, New York 10176
(212) 697-5084
Attorneys for Plaintiff
- 36 -
CERTIFICATION OF ISAAC BTESH
IN SUPPORT OF CLASS ACTION COMPLAINT
Isaac Btesh ("plaintiff") declares, as to the claims
asserted under the federal securities laws, that:
1. Plaintiff has reviewed the complaint prepared by
counsel in the above-captioned case and has authorized its
filing.
2. Plaintiff did not purchase the securities that are
the subject of the complaint at the direction of plaintiff's
counsel or in order to participate in any private action arising
under the federal securities laws.
3. Plaintiff is willing to serve as a representative
party on behalf of a class, including providing testimony at
deposition and trial, if necessary.
4. During the proposed Class Period, plaintiff
executed transactions in the securities of Tee-Comm Electronics,
Inc. as follows: See Attached Schedule.
5. In the past three years, plaintiff has not sought
to serve as a representative party on behalf of a class in an
action filed under the federal securities laws.
6. Plaintiff will not accept any payment for serving
as a representative party on behalf of a class beyond 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 13th day of January, 1997.
/s/
__________________________
Isaac Btesh
Schedule
Date Action Price Per Share
---- ------ ---------------
8/15/96 Purchase 13,000 shares $8.875
Purchase 7,000 shares $9.00