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Stanford University Law School
- Securities Class Action Clearinghouse
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MILBERG WEISS BERSHAD
HYNES & LERACH LLP
WILLIAM S. LERACH (68581)
ALAN SCHULMAN (128661)
DARREN J. ROBBINS (168593)
600 West Broadway, Suite 1800
San Diego, CA 92101
Telephone: 619/231-1058
LAW OFFICES OF LAWRENCE G.
SOICHER
LAWRENCE G. SOICHER
300 Park Avenue, 20th Floor
New York, NY 10022
Telephone: 212/980-7000
Attorneys for Plaintiffs
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF CALIFORNIA
RANDALL M. HAROW and LARRY ) No. C-97-1388 MHP
SCHUPPAN, On Behalf of Themselves )
and All Others Similarly Situated, ) CLASS ACTION
)
Plaintiffs, )
vs. ) COMPLAINT FOR VIOLATION OF
) THE SECURITIES EXCHANGE ACT
YES! ENTERTAINMENT CORP., DONALD D. ) OF 1934
KINGSBOROUGH and SOL KERSHNER, )
)
Defendants. ) Plaintiffs Demand A
____________________________________) Trial By Jury
NATURE OF THE ACTION
1. This is a securities class action on behalf of all
purchasers of the common stock of Yes! Entertainment Corp. ("Yes!"
or the "Company") between March 29, 1996 and December 12, 1996 (the
"Class Period"), seeking to remedy violations of federal securities
laws committed by Yes!, its Chief Executive Officer and its Chief
Financial Officer which violations involved misrepresentations
regarding Yes!'s operations and sales as well as the status and
success of several of its newly introduced products, including
V-Link -- a 900 Mhz mobile telephone system targeted at teenage
consumers which defendants asserted would be the Company's flagship
product for the 1996 holiday selling season. Throughout 1996, Yes!
claimed that "by the end of this year" Yes! would "sell hundreds of
thousands" of units of V-Link and that V-Link sales combined with
sales of Yes!'s other toy products would ensure 1996 revenues and
net income of $100 million and $7.5 million, respectively. Despite
defendants' claims that large retailers such as Toys R Us and
WalMart were Yes!'s biggest supporters, the truth was that in order
to get major retailers to accept shipments of V-Link in time for
the 1996 holiday season Yes! opted to flout FCC regulations and
ship V-Link to retailers while concealing the fact that Yes! was
required to receive final marketing approval from the FCC prior to
shipment. The defendants also misrepresented the status of and
prospects for Power Penz, a series of activity toys/ball-point
pens, stating throughout the Class Period that Power Penz were
meeting with strong market acceptance and were continuing to "show
positive sales increases." As defendants continued to assure
investors that Yes! was "beating the Street's earnings estimates,"
COMPLAINT FOR VIOLATION OF THE SECURITIES EXCHANGE ACT OF 1934 - 1 -
would continue to grow profitably during 1996, and that huge
retailers such as WalMart and Target were demanding more and more
of Yes!'s products, the price of Yes!'s stock price soared reaching
a high of $16-3/4 per share. On December 12, 1996, when it was
revealed that Yes! had violated federal law by shipping V-Link
without FCC approval and that the Company could be fined and/or
have the product removed from retailers' shelves, Yes!'s stock
price collapsed to $6-3/4 per share. Thereafter, as the defendants
revealed the true extent of Yes!'s problems, including the fact
that V-Link did not function properly, that Yes! had not shipped
Power Penz units in volume and that Yes! would suffer a huge loss
of over $13.8 million for 1996, the price of Yes! stock dropped to
as low as $3 per share, an 80% decline from its Class Period high.
BACKGROUND
2. Yes! was founded in late 1992 by Donald Kingsborough
("Kingsborough"), the founder and former CEO of Worlds of Wonder
("WOW"), a company which developed and marketed Teddy Ruxpin, the
well-known toy whose success catapulted WOW's stock price to lofty
heights before it also came crashing to more earthly levels when it
was revealed that WOW was suffering multi-million dollar losses and
would default on $80 million worth of newly-issued debentures --
before a single interest payment was ever paid!1
3. After the WOW debacle, Kingsborough moved on to found
Yes!. Between 1993 and 1995, Yes! developed and marketed a series
of children's electronic and audio products which met with moderate
____________________
1 Worlds of Wonder filed bankruptcy almost immediately after
selling $80 million of debt to the public, but not before defendant
Kingsborough and other WOW insiders dumped $9.9 million of their
own WOW stock.
COMPLAINT FOR VIOLATION OF THE SECURITIES EXCHANGE ACT OF 1934 - 2 -
success. However, despite the fact that Yes! was continually
losing money (suffering losses of over $21 million in 1994 alone)
Kingsborough was able to continue to raise money through private
placements of debt and equity because the Company was generating
substantial revenue ($36.4 million by 1994) and Kingsborough was
promising that Yes! would become profitable by 1995. Yes!
completed no less than nine rounds of debt and/or equity financing
between January 1993 and April 1995. By late Spring 1995, many of
the investors who had collectively invested over $40 million in
Yes!'s money-losing operations were unwilling to continue to put
more money into Yes!.2 Likewise, defendants Kingsborough and Sol
Kershner ("Kershner") were unwilling to put additional funds into
Yes!'s money-losing operations. Consequently, Kingsborough sought
to take Yes! public, so that the defendants could raise a large sum
of money by selling shares of the Company to the public and provide
the Venture Investors with a viable exit strategy. Consequently,
defendants took Yes! public in order to: (i) raise the millions of
dollars necessary to fund Yes!'s operations for another 6-12
months; (ii) minimize their own liability for the unfounded
promises that were made by them to induce the Venture Investors to
invest in Yes!; (iii) create a liquid market for Yes! stock so that
they could later sell their own Yes! stockholdings; (iv) reduce
their own exposure for Yes!'s debt which they had personally
____________________
2 Prior to its IPO, various investors, including investment
funds managed and/or controlled by Yes! directors Gary L. Nemetz,
David C. Costine, Esmond T. Goei, and/or Michael Morroco
(collectively, the "Venture Investors"), made equity investments in
and/or made loans to the Company.
COMPLAINT FOR VIOLATION OF THE SECURITIES EXCHANGE ACT OF 1934 - 3 -
guaranteed; and (v) receive repayment on the debt owed to them by
Yes!.
4. In June 1995, the defendants took Yes! public, selling
2.5 million units in a $9.5 million public offering underwritten by
GKN Securities. Subsequent to Yes!'s IPO, the price of the
Company's stock did not perform as defendants had promised the
Venture Investors it would and, in fact, never exceeded $10 per
share. In February 1996, Yes! reported "record" results for fiscal
1995 and, importantly, finally reported substantial earnings of
almost $3.5 million. However, even this did not invigorate the
price of Yes! stock. This caused defendants Kingsborough and
Kershner grave concern as they collectively held almost 500,000
shares and options to purchase Yes! shares, and they realized that
the various investors who had financed Yes!'s operations during the
years prior to the IPO by purchasing and/or lending Yes! over $40
million were getting restless, as defendants Kingsborough and
Kershner had assured them that Yes! would perform well once it
received the substantial cash infusion from the Company's 1995 IPO
and subsequent warrant conversion. In order to sell some of their
own Yes! stock, allow Yes!'s Venture Investors to register and/or
dump substantial amounts of their Yes! stock and importantly, get
V-Link (the Company's flagship product for 1996) on store shelves
in time for the 1996 holiday season, the defendants embarked on the
scheme and wrongful course of business complained of herein.
OVERVIEW OF DEFENDANTS' SCHEME TO DEFRAUD
5. Pursuant to the defendants' scheme and fraudulent course
of business involved, the defendants repeated [sic] misrepresented the
status and success of certain of Yes!'s products, including V-Link.
COMPLAINT FOR VIOLATION OF THE SECURITIES EXCHANGE ACT OF 1934 - 4 -
For example, Yes! represented that: (i) Yes! would be in compliance
with applicable law if prior to shipping the product Yes! simply
sent a working version of V-Link to an independent laboratory to
confirm that the device did not "interfere" with other
electromagnetic devices; (ii) Yes! had five patents on V-link, a
product which "looks and acts" just like a cell phone; (iii) V-Link
did not require FCC review and approval prior to shipment; and
(iv) Yes! would ship "hundreds of thousands" of units of V-Link in
1996 and that Yes! was spending "a ton" on advertising to support
this product. Further, defendants repeatedly emphasized that Yes!
would experience "high growth" and "high profit" in 1996 in large
part due to V-Link, which defendant Kingsborough assured investors
would "ship in August," and was such a hot product that Yes! would
ship "hundreds of thousands" of units in 1996. The defendants'
false statements had the desired effect, inflating the price of
Yes! stock and allowed Yes! insiders to dump their Yes! stock at
inflated prices. To immunize themselves from liability for
participating in the fraud, the defendants concocted false and
misleading boilerplate "risk disclaimers" designed to immunize
themselves from liability for participating in their fraudulent
scheme. Despite the defendants' use of carefully crafted "risk
disclaimers," when asked pointblank, defendant Kingsborough denied
that V-Link was subject to FCC regulation!
6. Defendants' fraudulent course of business was a success
as defendants maintained that V-Link would ship hundreds of
thousands of units in 1996 and, that V-Link would make a substantial
contribution to Yes!'s 1996 results, allowing defendants to
generate substantially higher revenue growth from V-Link during the
COMPLAINT FOR VIOLATION OF THE SECURITIES EXCHANGE ACT OF 1934 - 5 -
third quarter of 1996 than they would have otherwise been able to
had they disclosed the truth about Yes!'s FCC application for V-
Link.
7. Defendants' scheme and fraudulent course of business
began to unravel when V-Link's August introduction was "delayed."
As rumors of delays and problems with V-Link and Yes!'s new Power
Penz lines leaked into the market, the price of Yes! stock reacted
negatively dropping back to the $10 level. In order to avoid a
total collapse in the price of Yes! stock, Kingsborough continued
to conceal the fact that Yes! would not be able to commence
shipping V-Link even in October if Yes! obeyed the law and waited
to receive final marketing approval from the SEC prior to shipping
V-Link. Because the defendants were under extreme pressure to get
these products on store shelves for the holiday selling season, the
defendants not only concealed that V-Link was subject to FCC
regulation -- they shipped V-Link BEFORE submitting V-Link to the
FCC for final marketing approval. Knowing that large national
retailers such as WalMart or Toys R Us would never purchase or
stock an item which required FCC approval but lacked such approval,
the defendants pretended nothing was amiss and continued selling
the product to wholesalers and retailers.
8. Then on December 12, 1996, the defendants were forced to
partially disclose their scheme when a well-respected San Francisco
financial news columnist revealed that Yes! had not obtained FCC
approval for V-Link -- a product which defendants themselves
claimed would have an audio transmission range of over 1-2 miles by
1997 -- despite the fact that it was subject to FCC regulation and
required FCC approval prior to being sold. This revelation was in
COMPLAINT FOR VIOLATION OF THE SECURITIES EXCHANGE ACT OF 1934 - 6 -
direct contrast to defendant Kingsborough's prior representations
that FCC approval of V-Link was not necessary prior to the
distribution of V-Link. Adding insult to injury, the defendants
also disclosed that certain of Yes!'s products, including V-Link,
did not work. These revelations stunned the securities markets and
caused the price of Yes! stock to tumble as much as 20%, closing at
$6-3/4 per share. Despite having been specifically asked by
investors and securities analysts about whether V-Link was subject
to FCC regulation and/or required FCC approval and having denied
the same, and despite having been advised and counseled by its own
general counsel and Wilson, Sonsini, Goodrich & Rosati's, one of
California's preeminent law firms, the defendants feigned surprise
claiming that they believed that Yes! was only required to file an
application with the FCC (which, even if true, was something they
had previously lied about to investors) and did not have to obtain
actual approval prior to distribution of V-Link!
9. On December 20, 1996, Yes! admitted that it would pay a
fine for flouting the FCC regulations. On February 6, 1997, the
defendants confirmed Yes!'s disastrous fourth quarter and fiscal
1996 results, revealing that 1996 had in fact been a disaster for
Yes! and that despite defendants' representations that 1996 revenue
and earnings estimates of $100 million and $7.5 million,
respectively, were "conservative," Yes! had suffered a huge loss of
$12.5 million on $69.1 million in revenue. The defendants also
disclosed that the fourth quarter of 1996 had in fact been "a weak
retail environment for toys" and that the defendants had not made
volume shipments of Power Penz because Yes! was having problems
producing working versions of the product. The chart below
COMPLAINT FOR VIOLATION OF THE SECURITIES EXCHANGE ACT OF 1934 - 7 -
highlights Yes! sharp decline in operating performance during the
Class Period at a time when defendants asserted that Yes! was
posting strong financial results:
Yes! Entertainment Quarterly Results
in thousands, except EPS
1995
3/31 6/30 9/30 12/31 Year
------ ------ ------- ------- -------
Revenues $5,667 $4,694 $18,610 $26,702 $55,673
Net Income -1,402 -2,495 3,080 4,295 3,478
EPS $ 0.40 $ 0.40 $ 0.41
1996
3/31 6/30 9/30 12/31 Year
------ ------ ------- ------- -------
Revenues $8,935 $11,551 $29,600 $19,600 $69,686
Net Income -891 -1,214 3,400 -13,900 -12,605
EPS- $0.07 -$0.09 $ 0.23 -$ 0.99 -$ 0.92
10. The chart below demonstrates the price action of Yes!
stock as defendants issued their false and misleading statements,
and illustrates the collapse in Yes! stock as the truth emerged.
Yes! Entertainment Corp.
June 8, 1995 - April 10, 1997
Daily Stock Prices
COMPLAINT FOR VIOLATION OF THE SECURITIES EXCHANGE ACT OF 1934 - 8 -
JURISDICTION AND VENUE 11. This Court has jurisdiction over this action pursuant to §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 §§10(b) and 20(a) of the Exchange Act, 15 U.S.C. §§78j(b) and 78t(a), and Rule 10b-5, 17 C.F.R. §240.10b-5, promulgated thereunder by the SEC. 12. Venue is proper in this District pursuant to §27 of the Exchange Act and 28 U.S.C. §1391(b). Many of the acts giving rise to the violations complained of, including the dissemination of false and misleading information, occurred in this District. 13. In connection with the wrongs complained of, the defendants used the instrumentalities of interstate commerce, the U.S. mails and the facilities of the national securities markets. CLASS ACTION ALLEGATIONS 14. Plaintiffs bring this action as a class action pursuant to Federal Rules of Civil Procedure 23(a) and 23(b)(3) on behalf of all persons who purchased the stock of Yes! during the Class Period (the "Class"), except defendants, members of their immediate families and any entity in which a defendant has an interest. 15. The members of the Class are so numerous that joinder of all members is impracticable. Yes! has more than 13 million shares of stock outstanding. During the Class Period, an average of more than 225,000 Yes! shares traded each day. Yes! shares were purchased by thousands of persons who were damaged as a result of defendants' misconduct. COMPLAINT FOR VIOLATION OF THE SECURITIES EXCHANGE ACT OF 1934 - 9 -
16. Plaintiffs' claims are typical of the claims of the Class because plaintiffs and the Class members sustained damages from defendants' wrongful conduct. 17. Plaintiffs will adequately protect the interests of the Class. Plaintiffs have retained counsel who are experienced and competent in class action securities litigation. Plaintiffs have no interests which conflict with those of the Class. 18. A class action is superior to other available methods for the fair and efficient adjudication of this controversy. 19. Common questions of law and fact predominate over questions which affect only individual members. Among the questions of law and fact common to the Class are: (a) Whether the defendants' statements during the Class Period misrepresented and/or omitted material facts; (b) Whether defendants pursued the fraudulent scheme and course of business complained of; (c) Whether defendants acted knowingly or recklessly; (d) Whether the federal securities laws were violated by defendants' acts; (e) Whether the market price of Yes! stock was artificially inflated due to the activities complained of; and (f) The extent and measure of damage sustained by the Class. INTRADISTRICT ASSIGNMENT 20. This action is properly brought in the Northern District of California, San Francisco Division, in that this action arose in Alameda County, California and because a substantial part of the events or omissions which give rise to this action occurred or took COMPLAINT FOR VIOLATION OF THE SECURITIES EXCHANGE ACT OF 1934 - 10 -
place in Alameda County. Many of the defendants, including the Company, are located in Pleasanton, California where Yes!'s executive offices are located. THE PARTIES 21. (a) Plaintiff Randall M. Harow purchased 43,000 shares of Yes! stock during the Class Period as detailed in the attached certification and was damaged thereby. (b) Plaintiff Larry Schuppan purchased 5,000 shares of Yes! stock during the Class Period as detailed in the attached certification and was damaged thereby. 22. Defendant Yes! has its executive offices and principal place of business in Pleasanton, California. Yes! develops, manufactures and markets technology-based children's products, including electronic products. Yes! shares are traded on the NASDAQ National Market System. 23. (a) Defendant Donald D. Kingsborough ("Kingsborough") was at all times relevant the founder, Chairman of the Board and Chief Executive Officer of Yes!. Because of Kingsborough's position, he knew the adverse non-public information about Yes!'s business, finances, products defects 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 him in connection therewith. COMPLAINT FOR VIOLATION OF THE SECURITIES EXCHANGE ACT OF 1934 - 11 -
(b) Defendant Sol Kershner ("Kershner") was at all times relevant a member of the Board, Chief Financial Officer and Chief Operating Officer of Yes!. Because of defendant Kershner's position, he knew the adverse non-public information about Yes!'s business, finances, products, 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 him in connection therewith. (c) Defendants Kingsborough and Kershner are referred to herein as the Individual Defendants. 24. As officers, directors and/or controlling persons of a publicly-held company whose stock is registered with the SEC under the Exchange Act and traded on the NASDAQ National Market System, the Individual Defendants had a duty to promptly disseminate accurate and truthful information with respect to the Company's operations, business, products, markets, management, earnings, and present and future business prospects, to correct any previously issued statements that had become untrue and to disclose any adverse trends that would materially affect the present and future financial operating results of the Company, so that the market price of the Company's stock would be based upon truthful and accurate information. 25. The Individual Defendants, because of their positions with the Company, controlled the contents of its quarterly and COMPLAINT FOR VIOLATION OF THE SECURITIES EXCHANGE ACT OF 1934 - 12 -
annual reports, press releases and presentations to securities analysts. Each Individual Defendant was provided with copies of the Company's 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. MOTIVE AND OPPORTUNITY 26. Each defendant had the opportunity to commit and participate in the violations of law described herein. Defendants Kingsborough and Kershner were the two top officers of and directors of Yes!. These defendants controlled Yes!'s press releases, corporate reports, SEC filings and its communications with analysts, including conference calls and individual discussions with large shareholders and securities analysts. The defendants controlled the public dissemination of information about Yes!'s business, products and finances that reached the public and impacted the price of Yes! stock. 27. Defendants Kershner and Kingsborough had the motive to commit and participate in the violations of law described herein, COMPLAINT FOR VIOLATION OF THE SECURITIES EXCHANGE ACT OF 1934 - 13 -
as these defendants were under extreme pressure from the Venture Investors to boost the price of Yes! stock as the Venture Investors had been funding Yes!'s money-losing operations prior to the IPO to the tune of $40 million and desperately viewed the IPO as a mechanism which would finally allow them to recapture their investment in the Company by selling Yes! shares into the marketplace. Consequently, when the price of Yes! stock stagnated in early 1996, the Venture Investors made their displeasure very clear to Kingsborough. Defendants Kershner and Kingsborough also had another more personal motive -- a substantial portion of their wealth consisted of Yes! stock and options to purchase Yes! stock. 28. The defendants concocted the scheme complained of herein in order to boost the price of Yes! stock by fostering substantial investor interest in Yes! by emphasizing that Yes! would increase 1996 revenue and net income by 100% and 300%, respectively. However, in order to meet the revenue projections fostered by him regarding Yes!'s 1996 revenues and earnings, defendant Kingsborough had to make sure that the Company's flagship products for the 1996 holiday season were shipped to stores in time for the 1996 holiday selling season, thereby generating the sales projected by defendants. Given that the defendants' most optimistic expectation was that operational V-Link units would not be available until July 1996, defendant Kingsborough was unwilling to take the risk of putting retailers on notice that V-Link required final marketing approval from the FCC prior to distribution, as any delay in production of V-Link or in the FCC approval process would necessarily result in shipment of V-Link being delayed past the 1996 holiday selling season and have a potentially disastrous COMPLAINT FOR VIOLATION OF THE SECURITIES EXCHANGE ACT OF 1934 - 14 -
impact on Yes!'s 1996 revenues, earnings and stock price. Consequently, defendants Kershner and Kingsborough opted to partake in a high stakes gamble, hoping that market-ready units of V-Link would be available for FCC submission in time to allow approval prior to shipment for the 1996 holiday selling season or that, if the FCC application and approval process was not completed prior to shipment, approval would be obtained before the truth about their unlawful conduct reached retailers or the securities markets. Defendants' motive for participating in the scheme and fraudulent course of business complained of herein was due in part to the defendants' belief that any sanctions that might be assessed against them for their misconduct would be relatively minor and, in any case, would in all likelihood come after Yes! had closed all of its sales for the 1996 holiday selling season. FALSE AND MISLEADING STATEMENTS MADE PURSUANT TO AND IN CONNECTION WITH DEFENDANTS' SCHEME AND WRONGFUL COURSE OF BUSINESS 29. On or about March 29, 1996, defendants caused to be filed with the SEC Yes!'s 1995 Annual Report on Form 10-K. The Report on Form 10-K was prepared and signed by Kingsborough and Kershner. (a) The Report on Form 10-K discussed V-Link's features and functions, stating: Communications In 1996, the Company expects to introduce V-Link, a new communications product to be marketed to teen ages [sic] twelve to eighteen. V-Link is designed to permit teens to communicate with each other within a 1,000 foot radius (such as in a school or at a shopping mall) without any toll or monthly charges. V-Link will also include voice mail and messaging capabilities, together with the ability to have private conversations or talk on a party line. An extended rechargeable battery and battery recharger will be sold separately. COMPLAINT FOR VIOLATION OF THE SECURITIES EXCHANGE ACT OF 1934 - 15 -
(b) Concealing that Yes! needed final marketing approval from the FCC prior to selling V-Link and in order to immunize themselves from liability for their scheme, the defendants included a carefully crafted but misleading risk discussion in the Report on Form 10-K, which stated: Because V-Link is a complicated consumer electronics product, the Company anticipates that it will incur substantial expense in completing the development and tooling for its manufacture. The Company also expects that it will devote a substantial portion of its marketing budget to the introduction of V-Link. In the event that the Company is unable to complete, or is delayed in the completing the development or tooling for the manufacture of V-Link, the Company's financial results would be materially adversely impacted. In addition, in the event the Company is unable to effectively market V-Link, or if V-Link is not well- received by the teen consumer, the Company would be unable to recover its investment in V-Link, which would have a material adverse effect on the Company's financial results. * * * Government and Industry Regulation The Company is subject to the provisions of the Federal Hazardous Substances Act and the Federal Consumer Product Safety Act. Those laws empower the Consumer Product Safety Commission to protect children from hazardous toys and other articles. The Consumer Product Safety Commission has the authority to exclude from the market articles which are found to be hazardous and can require a manufacturer to repurchase such toys under certain circumstances. In the pre-production stages and periodically thereafter, the Company sends sample toys to independent laboratories to test for compliance with the Consumer Product Safety Commission's rules and regulations, as well as with the voluntary product standards of the Toy Manufacturers of America. Similar laws exist in specific jurisdictions within the United States as well as in certain foreign countries. The Company designs its products to exceed the highest safety standards imposed either by government or industry regulatory authorities. In the event that the Company violates any such rule or regulation, sale of the offending product could be enjoined. To date, the Company has not experienced any material safety or governmental compliance problems with respect to its products. In the event that the Company violates any COMPLAINT FOR VIOLATION OF THE SECURITIES EXCHANGE ACT OF 1934 - 16 -
such rule or regulation, sale of the offending product could be enjoined. (c) Noting that "the Company's operating results and financial condition would be materially adversely affected" if Yes! was "not able to complete the development, tooling, manufacture and successful marketing of its 1996 product lines," the Report on Form 10-K went on to state: The Company does not currently anticipate any delays in the shipment of its 1996 products. However, the production and shipment of the Company's 1996 products is subject to a number of risks, including development risks associated with highly technical products such as V-Link, and there can be no assurance that the Company will be able to complete the development, tooling, manufacture or successful marketing of its 1996 products. This risk is compounded by the large number of new products the Company is introducing in 1996 . . . . 30. During one-on-one conversations in the two weeks prior to and in anticipation of the Company's planned release of Yes!'s results for the quarter ended March 31, 1996, defendants Kingsborough and/or Kershner made representations to Raymond F. Jansen and Lisa Ulman of GKN Securities. In addition to providing analyst Raymond F. Jansen with Yes!'s estimated financial results for the just-completed quarter (prior to public dissemination of these numbers), defendants represented: • That the more than $20 million received by the Company from its June 1995 IPO and subsequent warrant conversion had provided the Company with sufficient operating funds to allow Yes! to achieve the "large" sales increases for 1996 then being disseminated by the defendants. • That the Company's 1996 product introductions, including V-Link and the new Power Penz lines, would contribute to Yes! COMPLAINT FOR VIOLATION OF THE SECURITIES EXCHANGE ACT OF 1934 - 17 -
generating $100-$105 million in revenues during 1996 and that Yes! would achieve earnings per share of at least $0.75. • That V-Link would be rolled out by August 1996. • That Yes!'s profit margins would increase dramatically during 1996, due in part to the Company's substantially improved liquidity. 31. On April 23, 1996, Yes! issued a release containing the Company's results for the first quarter of 1996 which appeared over the Business Wire. Stating that the products which Yes! would be introducing later in the year would "contribute significantly" to the Company's 1996 financial results, the press release stated: Discussing first quarter results, Donald D. Kingsborough, chairman and chief executive officer of Yes! Entertainment Corporation, stated, "We are pleased with our financial results for the first quarter of 1996. First quarter demand for our products remained strong enabling us to increase sales 58 percent. The small loss for the first quarter was due to costs associated with building our infrastructure and the marketing and promotion of our new product lines. We expect sales of these products and products to be introduced later this year to contribute significantly to our strong selling season in the third and fourth quarters." * * * Mr. Kingsborough continued, "We are excited and encouraged about our new product launches scheduled throughout 1996." 32. On or about April 24, 1996, Yes! filed with the SEC and disseminated to shareholders its 1995 Annual Report. The Annual Report contained a letter signed by defendants Kingsborough and Kershner which stated: As we look to 1996, we are confident that our products will again be well-received. We were very pleased with the toy trade's reaction to our presentation at the 93rd 1996 American International Toy Fair held in February 1996. Some of the highlights included . . . V-LinkTM, a new and innovative communications device for COMPLAINT FOR VIOLATION OF THE SECURITIES EXCHANGE ACT OF 1934 - 18 -
teens that allows them to call each other, chat on a party line, leave messages . . . all without monthly charges. These and the many other new and exciting 1996 products will allow the Company to build on the success of 1995. 33. The statements made by defendants during March and April 1996, as detailed in ¶¶29-32, were each false and misleading when made. The true facts, which were then known only to defendants based upon confidential internal Yes! data, were: (a) That Yes! was having problems producing working models of V-Link and certain Power Penz lines, including Rimshots, Secrets, Coder and Laser Shots, the products which Yes! was relying upon for its 1996 holiday selling season; (b) That the V-Link models used in Yes!'s presentation at the American International Toy Fair were phoney, as the defendants, up until that point, had been unable to produce a functioning version of V-Link which could provide 1,000 foot communication range, voice-messaging, conference call and private conversation features; (c) That V-Link was not a combination cell phone/voice mail device as claimed by defendants, but rather was a $75+ walkie- talkie which did not offer the services or features claimed by defendants; (d) That Yes! was unable to get volume shipments of operable Power Penz from Hong Kong during 1996, as Yes!'s Chinese production factories were unable to produce large amounts of operable product; (e) That V-Link was a communications device which was regulated by and required final marketing approval from the FCC prior to its shipping to retailers; COMPLAINT FOR VIOLATION OF THE SECURITIES EXCHANGE ACT OF 1934 - 19 -
(f) That because of (a)-(e) above, the defendants did in fact anticipate delays in the shipment of V-Link, as Yes! did not have an operational version of V-Link and expected it would take at least six months to resolve these serious and persistent problems, receive FCC approval and generate volume shipments from its Chinese production facilities; (g) That because of (a)-(e) above, defendants lacked any reasonable basis to expect and did not in fact expect Yes! to experience a "strong selling season" during the second half of 1996; and (h) That because of (a)-(f) above, defendants lacked any reasonable basis to believe and did not in fact believe that Yes! would generate $100 million and $7.5 million, respectively, in 1996 revenues and earnings. 34. On June 5, 1996, defendant Kingsborough participated in a presentation to securities analysts in New York: (a) During the presentation he emphasized the significance of V-Link, stating: The first question everyone is asking me is "are you going to deliver V-Link?" The answer is yes, there'll be delivery in August and we are going to sell hundreds of thousands of these by the end of this year. What is V-Link. V-Link is a short distance, 900 megahertz mobile telephone for kids. . . . This is a product that has tremendous technology, you have five patents on this product, and what we're going to do in 1997 is we're going to extend the distance to between one and two miles and also it will work with a five line telephone. I will be able to call Johnny down in his office if I'm driving down the street, and he'll be able to answer on his phone and I'll be able to talk directly to him on my V-Link while he's on a regular telephone. Exciting category, we're spending a ton of advertising money in this area in 1996, and we're going to establish a whole new area called Kid's Communication. This is what it looks like, it looks just like a cell phone, it acts just like a cell COMPLAINT FOR VIOLATION OF THE SECURITIES EXCHANGE ACT OF 1934 - 20 -
phone and we did this because that's what kids want, is they want cell phones. (b) Kingsborough addressed concerns about Yes!'s manufacturing and production capabilities, stating: Manufacturing it is a critical ingredient. It's one of the [problems with] Worlds of Wonder, and that is I didn't get seasoned enough people who really understood the Orient, who understood how to get products out of there and what did we do, we went and hired people who had been at Mattel and Hasbro and Kenner, and we hired these people with 20 or 30 years of experience and they have done a remarkable job. But you notice what I said earlier, we're three and four weeks early on almost every single one of our products, and that's because these people have tremendous experience in the Orient. The Orient is almost 30% of our entire work staff. It's headquartered there for manufacturing and quality and on all the products that we launched in 1995, we had less than a 1% defective rate on any of our products. (c) When asked about the Company's operations and prospects, Kingsborough stated: In 1995 revenues increased 53%, a profit grid of 52% of sales [in] 1995 and operating expenses were reduced to 46%. You'll see that same trend. You'll actually see our margins increase slightly over 1995, it'll be starting more than 52% in 1996. It's one of the highest margins, Mattel has the highest margins in the industry, currently, we're probably second, in margins. These improved financial results allow us to build inventory a little bit earlier and that's why you'll see, why you see us beating the estimates in the street in the first half of this year. . . . We're going to continue to grow, our interest is to grow, obviously, we're still a small company. But we're not going to grow uncontrollably. We're only going to grow in what our operational capabilities allow us, and we're only going to grow profitably. We're not going to grow and sit in a meeting and say "Oh, but we grew, and next year we're going to be profitable." We're going to grow profitably or we'll reduce the amount of growth we're going to have. And the way you do this in the toy business is really pretty simple, and that is to keep your break even very low, and that's in fact what we're doing. This year the analysts estimate that we'll do about $100 million in revenues, I'm here to tell you today that that's very conservative. Analysts think that we're going to do about $7.5 million in profit and I'm here today to tell you that's conservative. And one of the reasons that we're so confident of that is that we have very tight cost COMPLAINT FOR VIOLATION OF THE SECURITIES EXCHANGE ACT OF 1934 - 21 -
control. We hired a phenomenal guy who's installed a very good system to make sure that our expenses stay in line. * * * Our retailers are very interested in our product lines because we bring the customers to them. They're very supportive, Walmart, Toys-R-Us, Target, they accept us, you call them, they would be the biggest supporters of our stock today. And we have established a very strong management team. 35. The statements made by Kingsborough in June 1996, as detailed in ¶34, were each false and misleading when made. The true facts, which were then known only to defendants based upon confidential Yes! data, were: (a) That because V-Link was still not functional, the defendants did not expect to deliver volume quantities of the product to retailers by August 1996 in time for the holiday selling season; (b) That because of design flaws in V-Link, Yes! would not be able to obtain FCC final marketing approval in time to ship V-Link to retailers in time for the 1996 holiday season; (c) That Yes! had not been able to manufacture products at a defect rate of 1%; (d) That V-Link was simply an overhyped walkie-talkie that did not work; (e) That because of (a)-(d) above, defendants did not expect Yes! to sell "hundreds of thousands" of units of V-Link during 1996; (f) That Yes!'s Chinese manufacturing facilities were unable to generate functioning V-Link units within the cost range estimated by defendants; COMPLAINT FOR VIOLATION OF THE SECURITIES EXCHANGE ACT OF 1934 - 22 -
(g) That Yes!'s margins had deteriorated as the Company's marketing and advertising expenses had increased by over 100% in 1996; (h) That due to problems with V-Link, it was more likely that margins would deteriorate as compared to 1995 rather than increase due to the large amount of inventory Yes! was carrying which increased its risk of excess inventory; and (i) That because of (a)-(h) above, the defendants had no basis to believe and did not believe that Yes! would continue to grow in the second half of 1996 or generate $100 million and $7.5 million, respectively, in 1996 revenues and earnings. 36. On October 23, 1996, Yes! issued a release entitled: "Yes! Entertainment Reports Record Third Quarter And Nine Months Financial Results." The release stated: Yes! ENTERTAINMENT CORPORATION today announced record financial results for the third quarter and nine months ended September 30, 1996. Revenues for the third quarter increased 59% to a record $29,636,000 from $18,610,000 reported for the third quarter ended September 30, 1995. Net income for the period increased to $3,391,000 or $0.23 per share based on 14,913,000 weighted average shares outstanding, compared to $3,080,000, or $0.29 per share based on 10,750,000 weighted average shares outstanding, for the same period a year ago. * * * Commenting on the results, Don Kingsborough, chairman and chief executive officer, stated, "The Company continued to see strong sales of its Yes! GearTM line of products, including the recently introduced Yak BakwardsTM, a hand-held device that lets kids record their voice and then play it backwards, and Mega MikeTM, a hand- held microphone with built-in sound effects such as applause, cheering, booing, laughing, a buzzer and a rim shot. COMPLAINT FOR VIOLATION OF THE SECURITIES EXCHANGE ACT OF 1934 - 23 -
Additionally, our expanded line of Power PenzTM, toys that take form in fully functional ball point pens, also continued to show positive sales increases." * * * Mr. Kingsborough concluded, "We are pleased to note the Company was able to report a profit for the first nine months of fiscal 1996. As we increase our marketing and advertising efforts in anticipation of the holiday selling season, we expect retail sales of our exciting products to increase, and look forward to commencing shipments of V-LinkTM, Yes!'s entry into teenage communications, which we expect to take place in October." 37. Attempting to immunize themselves for liability for their scheme, the defendants included a paragraph in the October 23, 1996 press release which contained a generic statement noting that the Company's results "might differ materially" from those contained in the release due to risks unidentified therein. The press release failed to inform shareholders of a single "risk factor" which could adversely impact Yes!'s results. 38. On November 19, 1996, Yes! filed with the SEC, Post- Effective Amendment No. 4 to Yes!'s June 1995 S-1 Registration Statement ("Amendment No. 4"). Amendment No. 4 was prepared, reviewed and/or signed by defendants Kershner and Kingsborough and stated: The Company also expects to directly address the teen market for the first time with a new line of communication products marketed under the name V-Link (TM), which is designed to be a short-range, toll-free radiophone system that includes voice-messaging, conference call and private conversation features. * * * Dependence on 1996 Products. In 1996, the Company has introduced and expects to commence sales of a number of new product lines, such as the V-Link and the Mrs. Fields(R) Baking Factory. In addition, the Company also expects to expand its existing product lines in 1996, particularly its Yes! Gear line of products. COMPLAINT FOR VIOLATION OF THE SECURITIES EXCHANGE ACT OF 1934 - 24 -
Manufacturing of certain of these items, in particular V-Link, in commercial quantities has not commenced or is just commencing. The Company expects that completing the development and the manufacture of its 1996 product lines will place great demands on management and other Company resources. In particular, V-Link is a complicated consumer electronics product, and the Company expects it will incur substantial expense in completing the manufacture of V-Link. If the Company is not able to complete the development, tooling, manufacture and successful marketing of its 1996 product lines, the Company's operating results and financial condition would be materially adversely affected. 39. The statements made by defendants in ¶¶36 and 38 were false and misleading when made. The true facts, which were then known to defendants based upon internal Yes! data, were: (a) That despite the illegality of doing so, in order to ensure that retailers would accept shipments of V-Link in time for the 1996 holiday selling season, defendants concealed that FCC final marketing approval for V-Link was required prior to shipment of V-Link to retailers; (b) That Yes! faced monetary sanctions and/or other adverse regulatory actions because of defendants' blatant disregard and violation of FCC regulations; (c) That because of production problems during the second half of 1996, Yes! was not producing volume quantities of its new Power Penz lines; (d) That because of dramatic declines in revenue and increased costs, including a doubling of marketing and advertising costs, Yes! was suffering multi-million dollar losses; (e) That Yes! was in violation of covenants contained in its Accounts Receivable Management ("ARM") agreement with BNY Financial Corp; COMPLAINT FOR VIOLATION OF THE SECURITIES EXCHANGE ACT OF 1934 - 25 -
(f) That because of (a)-(b) above, the defendants in fact anticipated at least six-month delays in the shipment of V-Link because of the problems with V-Link, including the need to receive FCC final marketing approval and generate volume shipments from its Chinese production facilities; (g) That Yes! only began shipping V-Link in November 1996; (h) That Yes! had been able to ship only minimal amounts of V-Link in time for the 1996 holiday selling season and that those units sold by the Company did not operate properly and did not have a 1,000 foot range; (i) That Yes!'s results for the third quarter were materially overstated due to its failure to adequately and accurately reserve for sales returns and excess inventory which Yes!'s insiders knew was a large risk to the Company due to the accumulation of inventory in the channel and at Yes! which was not FCC approved and did not operate to properly; and (j) That because of (a)-(i) above, the defendants had no basis to believe and did not believe that Yes! would continue to grow in the second half of 1996 or generate $100 million and $7.5 million, respectively, in 1996 revenues and earnings. 40. On December 12, 1996, it was revealed by a well-respected San Francisco financial news columnist that Yes! had not obtained FCC approval for the sale of V-Link (a product which defendants themselves claimed would have an audio transmission range of over 1-2 miles by 1997) despite the fact that V-Link was subject to FCC regulation and required FCC approval prior to being sold. This revelation was in direct contrast to defendant Kingsborough's COMPLAINT FOR VIOLATION OF THE SECURITIES EXCHANGE ACT OF 1934 - 26 -
previous representations that FCC approval of V-Link was not necessary prior to the distribution of V-Link. It was also disclosed that certain of Yes!'s products, including V-Link, did not work, stunning the securities markets and causing the price of Yes! stock to tumble as much as 20% to $6-3/4 per share. 41. Despite having been specifically asked by investors and securities analysts about FCC regulation and approval for V-Link and having denied the same, and despite having been advised and counseled by one of California's preeminent law firms and the Company's own general counsel, the defendants feigned surprise claiming that they believed that Yes! was only required to file an application with the FCC (which, even if true, was something they had previously concealed from investors), but had believed Yes! did not have to obtain final marketing approval from the FCC prior to distribution of V-Link! 42. On December 20, 1996, Yes! admitted that it would pay a fine in connection with its illegal conduct. On February 6, 1997, the defendants confirmed Yes!'s disastrous fourth quarter and fiscal 1996 results, revealing that despite defendants' representations that 1996 revenue and earnings estimates of $100 million and $7.5 million, respectively, were "conservative," Yes! had experienced a loss of $12.5 million on a mere $69.1 million in revenue. Yes!'s gross margin for 1996 had decreased to 38.8% in contrast to defendants' earlier representations that margins would increase from the 52.2% margins reported in 1995. Despite their representations as late as October 23, 1996 that Power Penz "continued to show positive sales increases" and that they expected sales of Power Penz to "increase," the defendants also disclosed COMPLAINT FOR VIOLATION OF THE SECURITIES EXCHANGE ACT OF 1934 - 27 -
that the fourth quarter of 1996 had been "a weak retail environment for toys" and that the defendants were having problems shipping working versions of Power Penz Pen Phones. 43. When Yes! later filed its Report on Form 10-K for the year ended December 31, 1996, it reported that its gross margin had been adversely affected by "an increase in returns and allowances and inventory provisions in 1996 as compared to 1995." That these increases occurred primarily in the fourth quarter of 1996 is evident due to the fact that the explanation was not included in the quarterly Form 10-Q and by the trends in gross margin: Yes! Entertainment Quarterly Gross Margin
COMPLAINT FOR VIOLATION OF THE SECURITIES EXCHANGE ACT OF 1934 - 28 -
STATUTORY SAFE HARBOR 44. 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 at ¶¶29-32, 34 and 38, as none of those statements was identified as a "forward- looking statement" when made. Nor was it stated that actual results "could differ materially from those projected." Nor did any of the statements made in ¶¶29-32, 34 and 38 contain any meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those in the forward-looking statements. To the extent the statutory safe harbor is applicable to any of the statements plead at ¶¶29-32, 34, 36 and 38, the defendants are liable for those false forward- looking statements because at the time each of those forward- looking statements was made, the speaker actually knew the forward- looking statement was false and the forward-looking statement was authorized and/or approved by an executive officer of Yes! who actually knew that those statements were false when made. COUNT I For Violation Of Section 10(b) Of The Exchange Act And Rule 10b-5 Against All Defendants 45. Plaintiffs incorporate by reference ¶¶1-44. 46. Each of the defendants: (a) knew or had access to the material adverse non-public information about Yes!'s financial results and then existing business conditions, which was not disclosed; and (b) participated in drafting, reviewing and/or approving the misleading statements, releases, reports and other public representations of and about Yes!. COMPLAINT FOR VIOLATION OF THE SECURITIES EXCHANGE ACT OF 1934 - 29 -
47. During the Class Period, defendants, with knowledge of or reckless disregard for the truth, disseminated or approved the false statements specified above, which were misleading in that they contained misrepresentations and failed to disclose material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading. 48. Defendants have violated §10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder in that they: (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 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 the purchasers of Yes! stock during the Class Period. 49. Plaintiffs and the Class have suffered damage in that, in reliance on the integrity of the market, they paid artificially inflated prices for Yes! stock. Plaintiffs and the Class would not have purchased Yes! stock at the prices they paid, or at all, if they had been aware that the market prices had been artificially and falsely inflated by defendants' false and misleading statements. COUNT II For Violation Of Section 20(a) Of The Exchange Act Against All Defendants 50. Plaintiffs incorporate by reference ¶¶1-49. 51. Defendants Kingsborough and Kershner acted as controlling persons of Yes! within the meaning of §20 of the Exchange Act. By COMPLAINT FOR VIOLATION OF THE SECURITIES EXCHANGE ACT OF 1934 - 30 -
reason of Kingsborough's position as a founder of Yes!, Chairman of the Board and CEO of Yes! and Kershner's position as a member of the Board, COO and CFO of Yes!, they had the power and authority to cause Yes! to engage in the wrongful conduct complained of herein. Yes! controlled both of the Individual Defendants and all of its employees. 52. By reason of such wrongful conduct, the defendants are liable pursuant to §20(a) of the Exchange Act. As a direct and proximate result of these defendants' wrongful conduct, plaintiffs and the other members of the Class suffered damages in connection with their purchases of Yes! stock during the Class Period. BASIS OF ALLEGATIONS 53. Plaintiffs have alleged the foregoing based upon the investigation of their counsel, which included a review of Yes!'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, 3-7, 23-28, 30, 33, 35, 37, 39-41 and 44-52 after a reasonable opportunity for discovery. PRAYER FOR RELIEF WHEREFORE, plaintiffs pray for judgment as follows: 1. Declaring this action to be a proper 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 compensatory damages; COMPLAINT FOR VIOLATION OF THE SECURITIES EXCHANGE ACT OF 1934 - 31 -
3. Awarding plaintiffs and the members of the Class pre-judgment and post-judgment interest, as well as reasonable attorneys' fees, expert witness fees and other costs; 4. Awarding extraordinary, equitable and/or injunctive relief as permitted by law, equity and the federal statutory provisions sued hereunder, pursuant to Rules 64, 65 and any appropriate state law remedies; and 5. Awarding such other relief as this Court may deem just and proper. JURY DEMAND Plaintiffs demand a trial by jury. DATED: April 17, 1997 MILBERG WEISS BERSHAD HYNES & LERACH LLP WILLIAM S. LERACH ALAN SCHULMAN DARREN J. ROBBINS /s/ _______________________________ WILLIAM S. LERACH 600 West Broadway, Suite 1800 San Diego, CA 92101 Telephone: 619/231-1058 LAW OFFICES OF LAWRENCE G. SOICHER LAWRENCE G. SOICHER 300 Park Avenue, 20th Floor New York, NY 10022 Telephone: 212/980-7000 Attorneys for Plaintiffs COMPLAINT FOR VIOLATION OF THE SECURITIES EXCHANGE ACT OF 1934 - 32 -
CERTIFICATION OF NAMED PLAINTIFF PURSUANT TO FEDERAL SECURITIES LAWS Randall Harow ("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: PURCHASES Price Security Transaction Date Per Share -------- ----------- ---- --------- Common Stock Purchased 10,000 shares September 25, 1996 $12-7/8 Common Stock Purchased 5,000 shares September 27, 1996 $13-1/8 Common Stock Purchased 5,000 shares October 17, 1996 $14-5/8 Common Stock Purchased 5,000 shares October 23, 1996 $14-1/4 Common Stock Purchased 7,000 shares November 13, 1996 $11-7/8 Common Stock Purchased 4,000 shares November 14, 1996 $12 Common Stock Purchased 2,000 shares November 14, 1996 $11 Common Stock Purchased 3,000 shares November 15, 1996 $11-7/16 Common Stock Purchased 2,000 shares November 22, 1996 $10-5/8 SALES Security Transaction Date Per Share -------- ----------- ---- --------- Common Stock Sold 7,000 shares November 13, 1996 $12.30 5. During the three years prior to the date of this Certificate, Plaintiff has sought to serve or served as a repre- sentative party for a class in the following actions filed under the federal securities laws:
6. Plaintiff has sought to serve or served as a represen- tative party for a class in the following actions filed subsequent to December 22, 1995: 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 16 day of April, 1997, at Worcester, Massachusetts. /s/ _______________________________ RANDALL HAROW
CERTIFICATION OF NAMED PLAINTIFF PURSUANT TO FEDERAL SECURITIES LAWS LARRY SCHUPPAN ("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: Price Security Transaction Date Per Share -------- ----------- ---- --------- Common Stock Purchased 5,000 shares May 31, 1996 $13-1/2 5. During the three years prior to the date of this Certificate, Plaintiff has sought to serve or served as a repre- sentative party for a class in the following actions filed under the federal securities laws: 6. Plaintiff has sought to serve or served as a represen- tative party for a class in the following actions filed subsequent to December 22, 1995:
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 16 day of April, 1997, at Grand Island, NE. /s/ _______________________________ LARRY SCHUPPAN