UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
________________________________________
:
MARION GREEN on behalf of herself :
and all others similarly situated, :
:
Plaintiff, : CASE NO.: H-98-3643
:
v. : CLASS ACTION COMPLAINT
: [filed Oct. 29, 1998]
ZAPATA CORPORATION, AVRAM A. GLAZER, : JURY TRIAL DEMANDED
ERIC T. FUREY, and JOSEPH L. VON :
ROSENBERG, III :
:
Defendants. :
________________________________________:
NATURE OF THE ACTION
1. This in a securities class action brought on behalf of
all purchasers of the common stock of Zapata Corporation ("Zapata"
or the "Company") during the period July 6, 1998 through October
15, 1998, inclusive (the "Class Period"), who sustained damage as
a result of those purchases.
2. During the Class Period, the defendants knowingly or
recklessly made misrepresentations of material fact and/or omitted
from disclosure material facts necessary to make statements that
were made not misleading, with regard to the Company's operations,
its Internet strategy, and its current and future business
prospects, in violation of the federal securities laws. This
conduct operated to artificially inflate the market price of Zapata
common stock during the Class Period.
3. Specifically, during the Class Period, defendants falsely
represented that Zapata was successfully implementing its highly
publicized Internet strategy, including by agreeing to acquire 25
different Internet businesses, by preparing to spin-off its
Internet business, by installing a new Internet management team,
and by working an a new "ZAP.com" Internet site to be unveiled in
the fall of 1998.
4. Defendants' misleading positive statements had their
intended effect, as the price of Zapata shares nearly doubled
overnight, from approximately $11 per share at the beginning of the
Class Period to close at $21.50 on July 6, 1998. Zapata's insiders
took advantage of this run-up in the price of Zapata stock, selling
off more than $5.6 million of their Zapata holdings at artificially
inflated prices on July 6 and 7, 1998. The sales of these shares
represented 100% of defendants Eric T. Furey's and Joseph von
Rosenberg's Zapata holdings, at peak prices as high as $23.95.
5. Just three months later, in a complete about-face, Zapata
revealed on October 15, 1998 that it would not be pursuing a single
one of the acquisitions it had so vigorously touted during the
Class Period, and that it had abandoned its Internet strategy. By
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the end of the day on October 15, 1998, Zapata stock closed at just
$6.875 per share.
6. As a result of defendants' wrongful conduct, plaintiff
and members of the Class, who purchased the company's stock relying
on the market price thereof as an accurate reflection of its true
value, were damaged.
JURISDICTION AND VENUE
7. This Court has jurisdiction over the subject matter of
this action pursuant to §27 of the Securities Exchange Act of 1934
("Exchange Act"), 15 U.S.C. §78aa; and 28 U.S.C. §1331 (federal
question jurisdiction).
8. This action arises under Sections 10(b) and 20(a) of the
Exchange Act, 15 U.S.C. §§78j(b), 78t(a), and Rule 10b-5
promulgated thereunder, 17 C.F.R. §240.10b-5.
9. Venue is proper in this district pursuant to Section 27
of the Exchange Act and 28 U.S.C. §1391(b). Zapata has its
corporate headquarters and principal place of business in this
District, and the acts alleged herein, including the preparation
and dissemination of materially false and misleading information,
occurred in substantial part in this District.
10. In connection with the Acts alleged in this complaint,
defendants, directly or indirectly, used the means and
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instrumentalities of interstate commerce, including, but not
limited to, the mails, interstate telephone communications and the
facilities of the national securities exchanges and markets.
PARTIES
11. Plaintiff Marion Green, as set forth in the accompanying
certification, purchased shares of Zapata common stock during the
Class Period and has been damaged thereby.
12. Defendant Zapata is a Delaware corporation with its
principal executive offices at 1717 St. James Place, Houston, Texas
77056. Zapata is a holding company with subsidiaries that produce
marine products and food packaging products. Through its 60% owned
subsidiary, Omega Protein Corporation, Zapata markets a variety of
marine protein such as fish meal and fish oil. Zapata is also the
holder of 40% of the outstanding common stock of Viskase Companies,
Inc., formerly known as Envirodyne Industries, Inc., which is
primarily engaged in the business of selling food packaging
products such as sausage casings and disposable food service
supplies.
13. The individual defendants ("Individual Defendants"), at
all times relevant to this action, served in the capacities listed
below. Each of the Individual Defendants had access to adverse,
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non-public information about the Company's business, finances,
products, and present and future business prospects during the
Class Period:
(a) Defendant Avram A. Glazer ("Glazer") is and was, at
all relevant times, a director, Chief Executive Officer and
President of Zapata.
(b) Defendant Eric T. Furey ("Furey") is and was, at all
relevant times, Vice President, General Counsel, and Corporate
Secretary of the Company. On July 6 and 7, 1998, defendant Furey
sold 112,500 shares of Zapata common stock at prices as high as
$23.95, realizing gross proceeds of approximately $1,758,775.
These sales represented 100% of defendant Furey's total holdings.
(c) Defendant Joseph L. von Rosenberg, III ("von
Rosenberg") is and was, at all relevant times, Chief Executive
Officer and President of Omega Protein Corporation, formerly Marine
Genetics Corporation, a subsidiary of the Company. On July 6 and
7, 1998, defendant von Rosenberg sold 312,000 shares of Zapata
common stock, which represented 100% of defendant von Rosenberg's
total holdings. Defendant van Rosenberg sold his shares at prices
an high as $23.95, realizing total proceeds of approximately
$3,844,901.
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CONTROLLING PERSONS
14. The Individual Defendants, by reason of their executive
and Board positions, were controlling persons of Zapata during the
Class Period and had the power and influence, and exercised the
same, to cause Zapata to engage in the conduct complained of.
15. During the Class Period, each Individual Defendant
occupied a position that made him privy to non-public information
concerning Zapata. Because of this access, each of these
defendants knew the adverse material facts specified herein and
that they were being concealed.
16. Each of the defendants is liable for making false and
misleading statements, and/or for willfully participating in a
scheme and course of business that operated as a fraud on purchas-
ers of Zapata common stock and damaged Class members in violation
of the federal securities laws. All of the defendants pursued a
common goal, i.e., inflating the price of Zapata common stock by
making false and misleading statements and concealing material
adverse information. The scheme and course of business was
designed to and did: (i) deceive the investing public, including
plaintiff and other Class members; (ii) artificially inflate the
price of Zapata's common stock during the Class Period; and (iii)
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cause plaintiff and the other members of the, Class to purchase
Zapata's common stock at inflated prices; and to sustain damages.
17. Each defendant had the opportunity to commit and
participate in the violations of law described herein. The
Individual Defendants were top officers and directors of Zapata and
they controlled its press releases, corporate reports, SEC filings
and its communications with analysts. Thus, the defendants
controlled the public dissemination of, and could misrepresent, the
information about Zapata's business, products and current and
future business prospects that reached the public and caused the
inflation in the price of Zapata's common stock.
PLAINTIFF'S CLASS ACTION ALLEGATIONS
18. Plaintiff brings this action as a class action pursuant
to Federal Rule of Civil Procedure 23(a) and (b)(3) on behalf of
the Class, consisting of all persons or entities who purchased the
common stock of Zapata during the Class Period, July 6, 1998
through October 15, 1999, inclusive. 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, successors or assigns and any entity in
which defendants have or had a controlling interest.
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19. Because over 24.1 million shares of Zapata common stock
were outstanding during the Class period, and because the Company's
stock was actively traded on the New York Stock Exchange during the
Class Period, 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 at least hundreds of members of the Class and that they
are geographically dispersed.
20. 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.
21. Plaintiff will fairly and adequately protect the
interests of the members of the Class and have retained counsel
competent and experienced in class and securities litigation.
22. 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 violated by
defendants' acts as alleged herein;
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(b) Whether defendants participated in and pursued the
common course of conduct complained of herein;
(c) Whether the defendants' publicly disseminated
releases and statements during the Class Period misrepresented
and/or omitted from disclosure material facts which were necessary
to have been included in order to make the representations made
therein not misleading;
(d) Whether the defendants acted willfully and/or
recklessly in omitting and/or misrepresenting material facts;
(e) Whether the market price of Zapata common stock was
artificially inflated during the Class Period due to the material
misrepresentations and omissions complained of herein; and
(f) To what extent the members of the Class have
sustained damages and the proper measure of damages.
23. A class action in superior to all other available methods
for the fair and efficient adjudication of this controversy since
joinder of all members is impracticable. Furthermore, as the
damages suffered by the 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 class action.
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SUBSTANTIVE ALLEGATIONS
Company Background
24. Zapata was founded in 1953 by former President George
Bush as an oil-drilling and gas, company. In 1993, financier
Malcolm Glazer bought a 32 percent stake in the Company. Shortly
after taking over as Chairman in 1994, Malcolm Glazer installed his
son, defendant Avram Glazer, as Zapata's Chief Executive, and began
to sell off the Company's oil and gas interests. During this time,
Malcolm Glazer also sold the Company his 31 percent share of
Envirodyne Industries, Inc. ("Envirodyne"), a food-packaging
manufacturer that primarily makes sausage casings. The Envirodyne
purchase reportedly helped finance Malcolm Glazer's 1995 purchase
of the National Football League's Tampa Bay Buccaneers, and is
currently the subject of shareholder litigation. In 1996, Malcolm
Glazer, who now controls 45% of the Company's stock, also attempted
to have the Company buy his Houlihan's Restaurant Group at a
substantial premium, but dropped those plans after Zapata
shareholders sued to block the deal.
25. In 1997, the Company sold the last of its energy holdings
and purchased two fish processing companies, including Omega
Protein Corp. ("Omega Protein"), which specializes in fish meal
used to supplement livestock feed. On April 8, 1998, Zapata sold
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40% of Omega Protein, its only operating subsidiary, in an initial
public offering, raising $86 million for the Company. With that
transaction, Zapata essentially became a closed-end mutual fund,
holding three assets: 60% of Omega Protein, 40% of Envirodyne, and
$112 million in cash.
26. An August 17, 1998 Fortune magazine article observed that
the Glazer family has "rarely been accused of operating with a
traditional business view," and noted that "the Glazers have on
several occasions been accused of improper self-dealing." As
reported in the August 17, 1998 Fortune article:
Zapata hasn't held an annual shareholders
meeting or issued a proxy statement since
December 1996. The Company operated for nine
months with just four directors -- Malcolm
Glazer; [defendant Avram] Glazer; a Baltimore
PR consultant whose clients include the
Glazers; and a former Zapata CEO under
contract to the company -- in violation of New
York stock exchange rules requiring at least
two outside directors. In June 1997 the
company added four new directors but handed
two of those positions to [defendant Glazer's]
brothers, keeping half the board seats cozily
in the immediate family. Zapata also pays
[defendant Glazer's] sister, who lives in New
York city, $95,000 a year to look for invest-
ment opportunities.
The Fortune article also quoted Denver attorney Daniel Wake,
who represents Zapata shareholders in lawsuits against the Glazers,
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as stating: "These guys run their publicly held companies as you
might a privately held company -- for their own benefit.
Zapata Announces Its New Internet Strategy
27. From the beginning of 1998 to May 1998, the American
Stock Exchange's index of Internet stocks was up 30 percent, as
Investors rushed to buy up Internet-related stocks. Defendants,
hoping to cash in on the rally in Internet stocks, set out to
convince the market that they too had an Internet strategy. To
this end, on April 27, 1998, Zapata announced in a press release
that it planned to change its name to ZAP Corp. and to initiate a
major strategic initiative to acquire and consolidate Internet and
E-commerce businesses. Defendant Glazer stated that the Company,
which had no previous technology experience, would be pursuing a
new goal: to "achieve global critical mass and be a major factor in
the Internet." Defendant Glazer further represented that the
Company had the resources to achieve these goals, with available
cash and securities valued at approximately $425 million.
28. The Company also announced on April 27, 1998 that it had
purchased the assets of two online magazines, Word and Charged,
from Icon CMT Corp, ("Icon"), an part of an agreement that included
buying $2 million in Internet communication services from Icon over
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the next two years. Both magazines had closed in March 1998 after
failing to attract enough advertising to be profitable.
29. Despite defendants' efforts to hype the Company's new
Internet strategy, the market failed to react to the Company's
April 27, 1998 announcements, with Zapata stock closing unchanged
at $11 3/8 on the day of the announcements. Undeterred, defendants
continued to tout the company's Internet strategy. For example:
(a) On May 5 1998, defendant Glazer stated that "[t]he
response to Zapata's announcement last week concerning its Internet
strategy has been tremendously favorable....Numerous Internet
businesses have been in contact with Zapata concerning possible
acquisitions and we hope to make some major announcements in the
coming weeks."
(b) On May 14, 1998, Zapata announced that it has had
"tremendous receptions to a national newspaper advertising campaign
it had initiated proclaiming "Zapata Will Buy Your Web Site."
Defendant Glazer stated in an interview published by the PR
Newswire on that day that: "These ads are part of Zapata's major
strategic initiative to acquire leading web businesses to create a
global Internet leader....We are pleased: at the outpouring of
interest in our campaign and we are currently evaluating numerous
acquisitions."
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(c) Defendant Glazer stated in a May 6, 1998 conference
call with analysts that the Company would "rapidly acquire and
consolidate Internet businesses an a scale never before seen," and
said, "Our goal is to become one of the premier Internet companies
in the world."
(d) In a May 15, 1998 interview with the New York Times,
defendant Glazer repeated that the Company would become a "major
player" in the Internet and electronic commerce business, stating
"[we] want to have a global network of sites."
30. On May 21, 1998, Zapata announced in a press release that
it had made an unsolicited bid to purchase Excite, Inc. ("Excite"),
a major World Wide Web search company, for $1.68 billion in stock.
Zapata offered the equivalent of $72 a share in newly issued Zapata
shares. In televised interviews aired on the day of the
announcement, defendant Glazer took the opportunity to reiterate
the Company's intention to become a "large player" in the Internet
business. For example, in an interview on CNNfn's "Street Sweep,"
defendant Glazer stated: "[W]e think if we can aggregate [a]
tremendous number of sites together that appeal to a broad variety
of people we can create a giant Internet network and be one of the
two or three or four biggest Internet players in the world and
that's our goal.
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31. Excite immediately rejected Zapata's buyout offer, citing
the "complete lack of synergy" between the companies and the
difference in market valuation. (Excite was at that time valued at
about $1.4 billion, while Zapata's market worth was then
approximately $260 million). Excite's vice president of investor
relations called the move "frivolous" and said it "smacked of a
publicity stunt."
32. Much to the disappointment of Zapata insiders, the public
market agreed that the merger proposal, and Zapata's Internet
strategy in general, was not to be taken seriously: Zapata's
shares fell 81.25 cents on the day of the May 21 announcement, to
close at $10.5625 per share.
33. By the end of May, 1998, defendants were aware that their
stated intention to make Zapata a "leader" in the Internet industry
was not being taken seriously by analysts and investors, and that
they had to make it appear that the Company's Internet strategy was
actually succeeding in order to inflate the price of Zapata's
stock. By doing so, they could reap millions of dollars in profits
by selling their Zapata shares at artificially inflated prices.
34. To achieve their objective, defendants concocted the
scheme complained of herein. Central to the defendants' scheme was
to convince the investing public that the Company's Internet
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strategy was being successfully implemented, even though Zapata
never seriously intended to enter the Internet business, and the
Company's alleged Internet "strategy" was nothing more than a
publicity campaign designed to inflate the price of Zapata stock
and line the pockets of Zapata insiders. To this and, during the
Class Period, defendants made the false and misleading statements
described below.
DEFENDANTS' FRAUDULENT SCHEME AND
UNLAWFUL COURSE OF BUSINESS
35. On July 6, 1998, defendants made several highly
publicized announcements designed to convince the market that
Zapata's Internet strategy was already a huge success. First, the
Company stated in a press release that it would split itself into
two separate, publicly traded entities: Zapata Corp., which would
focus on the Company's current marine protein and food packaging
operations; and ZAP Corp., which would incorporate its Internet
operations. According to the press release, ZAP Corp. would either
be spun off as a private company, or offered as a public concern
complete with its own initial public offering. Second, the Company
announced that it had entered into letters of intent to buy or
invest in a total of 21 World Wide Web sites and electronic
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commerce companies. The 21 sites and businesses purportedly would
be rolled up into one site, www.ZAP.com, which was being launched
that day "as a unique and exciting new Internet portal."
36. In the lengthy July 6, 1998 press release, defendants
boasted that "the consummation of the proposed transactions would
make ZAP.com among the ten largest Internet sites in the world
based on the number of users." The press release also contained
the extensive remarks of defendant Glazer, who insisted that Zapata
was making its Internet strategy "a reality":
'ZAP's goal is to become one of that largest
Internet companies in the world,' said Avram
Glazer, president and CEO of Zapata. He said
that ZAP.com would be heavily promoted. 'We
have the resources to make ZAP's strategy a
reality and to lead the consolidation
of this industry,' Glazer said.
He noted that almost every company with which
ZAP has entered into letters of intent is
profitable. Moreover, unlike other portals,
which almost invariably link users to sites
operated by others, ZAP will own most of its
sites and content and therefore benefit
financially from their use. 'ZAP will be both
the beginning and end destination for Internet
users. Thus, unlike most Internet companies,
ZAP investors should have a clear picture of a
business growing in revenue and earnings,' he
said.
Noting that most Internet companies lack the
capital to make acquisitions, which will fuel
industry consolidation, Glazer added that as
'the Internet grows one has to question the
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ultimate fate of portals that merely point
users to other sites." The Company is in
talks with a large number of other Internet
sites and E-commerce businesses that are aware
of the benefits of aligning themselves with
ZAP.
'The new ZAP.com," said Glazer is a 'cutting
edge portal to the Internet which will offer
almost everything today's avid computer user
is looking for." ZAP.com will have a "myriad
of features" including search, chat, stocks,
mutual fund and business and travel
information.
* * *
Glazer noted that ZAP started its Internet
initiative a little more than two months ago.
'Since then, ZAP has transformed itself from
an Internet newcomer into potentially becoming
one of the largest Internet companies in the
world. The rapid and aggressive global
Internet consolidation strategy being deployed
by ZAP is gaining unprecedented critical mass
and reach,' he explained.
The Company said it plans to widen the
existing viewer base by investing heavily in
promotion. 'The Internet properties that will
initially make up ZAP.com have historically
attracted tremendous audiences as stand alone
entities Just imagine the substantial
audience increase they will achieve as part of
ZAP.com's strongly promoted Internet portal
site,' he said.
(Emphasis added].
37. Defendants' statements had their intended effect, as
Zapata shares more than doubled on the day of the July 6, 1998
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announcement, to close at $21.50, up $11.625, or 118%. The number
of shares traded an July 6 alone totaled approximately 11.5
million, making Zapata the fifth most active stock in U.S. markets.
In the past 30 days, investors bought and sold an average of
107,000 shares during an entire day.
38. Zapata insiders did not hesitate to take advantage of
this run-up in the price of Zapata stock. On July 6 and 7,
defendants Furey and von Rosenberg unloaded 424,500 shares of their
own Zapata shares at prices as high as $23.95, pocketing over $5.6
million in this unprecedented selling spree.
39. Defendants' statements in paragraphs 35 and 36 above were
materially false and misleading and lacked a reasonable basis when
made because defendants knew or, but for reckless disregard for the
truth should have known, that Zapata had not achieved any success
in its Internet strategy, and had no real possibility of becoming
"one of the largest Internet companies in the world." In truth,
the Company's "Internet initiative" was nothing more than a hoax
designed to take advantage of the soaring prices of Internet stocks;
for the benefit of Zapata insiders. As was revealed just three
months later when the Company abruptly announced that it was
abandoning its Internet strategy, Zapata was not serious about
acquiring or investing in the Internet companies it had signed
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letters of intent with, and never intended to pursue an Internet
strategy. Indeed, in may cases, the Company conducted its "due
diligence" reviews of the Internet businesses it purportedly
intended to purchase solely by fax and overnight mail, without ever
visiting the companies.
40. After the Company's July 6, 1998 announcements,
defendants continued to tout the success of Zapata's Internet
strategy. For example, defendant Glazer, referring to the
Company's Internet strategy, stated in a televised interview with
CNNfn on July 6, 1998 that "our results of today speak for
[them]selves. So I think going forward it's going to make doing
deals a lot easier and it's going to show that we're a real player
in the Internet." [Emphasis added]. Defendant Glazer also
represented that "the response has been tremendous" to the
Company's ZAP.com Web site, and again boasted that "in the next
year or so you're going to find that ZAP is going to be one of the
largest Internet companies in the world. [Emphasis added].
41. Similarly, in a July 6, 1998 interview broadcast on CNN
Moneyline NewsHour with Lou Dobbs, defendant Glazer represented
that the Company had already "gone from a nothing to where we are
today....one of the top 10 Internet sites, Internet companies in
the world." [Emphasis added].
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42. The foregoing statements were materially false and
misleading. Far from owning one of the "top 10 Internet sites in
the world," Zapata had not successfully implemented its Internet
strategy and in fact had no intention of consummating the
acquisitions of the Internet companies it had signed letters of
intent with. Moreover, defendant Glazer's statements that Zapata
would become "one of the largest Internet companies in the world"
lacked a reasonable basis in light of these facts and the facts set
forth in paragraph 39 above.
43. Continuing its stream of materially misleading
statements, on July 10, 1998, the Company announced that it had
signed letters of intent to purchase two additional Web sites,
"Cool Chat" and "Advancing Women," bringing the Company's total Web
sites to 23. On July 17, 1999, the Company announced in a press
release that it had purchased its 24th Web site, "Bianca Troll
Productions, Inc.". These statements were materially false and
misleading for the reasons set forth in paragraphs 39 and 42,
above.
44. On July 23, 1998, the Company issued a press release
announcing that its earnings for the fiscal third quarter ended
June 30, 1998 will far exceed Wall Street estimates of $0.17 per
share. Defendant Glazer was quoted in the release as stating that
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"[o]ur strong profits will help fuel Zapata's rapid and aggressive
growth in the Internet." Zapata stock closed up $3.31 at $22.5625
on this news.
45. On July 27, 1998, Zapata announced that its ZAP Corp.
subsidiary had entered into a letter of intent to acquire yet
another Internet site, known as "Go College."
46. On July 30, 1998, the Company released its results for
the fiscal third quarter ended June 30, 1998, reporting earnings of
$58.1 million, or $2.52 per share, on revenue of $31.5 million.
Most of the profits came from the IPO of Zapata's fish oil
subsidiary, Omega Protein.
47. In a conference call with analysts held an the same day,
the third quarter results were announced, defendants again touted
the success of Zapata's Internet initiative, including its
acquisition program, and made several new announcements intended to
reinforce the impression that Zapata was successfully executing its
Internet strategy. For example, defendant Glazer represented that
the Company would soon be making a "major" acquisition that would
"greatly further the transformation of ZAP into one of the largest
Internet companies in the world." Glazer further stated that the
newest acquisition -- which he declined to identify -- would
provide the "core operational management team of ZAP." In
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addition, Glazer represented that an all-new ZAP.com "ultra gateway
site" would be launched in the fall, and that Zapata's ZAP Corp.
Internet subsidiary will develop its own Web sites. Defendant
Glazer also announced that Zapata will "very shortly" announce the
retention of an investment bank to determine the best way to
separate Zapata and ZAP Corp.
48. In response to this news, analysts issued "buy" ratings
on Zapata stock. For example, Riley Capital Research ("Riley
Capital") reiterated its "strong buy" rating an Zapata, citing,
among other things, defendant Glazer's "major acquisition"
announcement. In its research report, based an defendant Glazer's
comments in the July 30, 1998 conference call, Riley Capital
reported:
Mr. Glazer expects ZAP to be a profitable
company. Zapata has been extremely selective
in its acquisitions of under-capitalized
Internet businesses, paying less than $5 per
user and a little more than one times revenue
for the businesses it has acquired to date.
All but two of the announced acquisitions are
currently profitable, and all continue to see
traffic increases. The company has used
Zapata stock as the currency for most of the
acquisitions, leaving the company's war chest
of $122 million cash largely intact.
Moreover, ZAP should realize significant
economies of scale by eliminating many
redundant operational functions across the
various companies that have been and wi1l be
rolled up into ZAP. Finally. Zapata has
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already been approached by several parties who
wish to form strategic partnerships,
alliances, and sales arrangements that could
enhance ZAP's reach and profitability.
* * *
In conclusion, we continue to believe Mr.
Glazer will realize his ambitious vision to
build a major Internet company that rivals
today's biggest players. We think Zapata
shares continue to offer enormous upside
potential with a high margin of safety at
these price levels.
[Emphasis added].
49. The statements set forth in paragraphs 43-48 were
materially false and misleading for the reasons described in
paragraphs 39 and 42, above.
50. On August 5, 1998, Zapata issued a press release
reporting that ZAP Corp., its Internet subsidiary, had entered into
a letter of intent to acquire "Attitude Network," a Web site it
called "the leader in game information Web sites." Defendant Glazer
stated in the press release that "[w]e expect that Attitude
Network's highly regarded management team ... will be the core
management team of ZAP going forward and look to its management
expertise to help build ZAP."
51. The foregoing statements were materially false and
misleading for the reasons set forth in paragraphs 39 and 42,
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above. Defendant Glazer's representation that the Company would be
installing a new Internet management team was materially false and
misleading because defendants knew, or but for the reckless
disregard for the truth should have known, that Zapata had no
intention of consummating the acquisitions of the Internet
companies it had identified or of seriously pursuing its Internet
strategy, much less bringing in a new management team. In fact,
prior to, during, and after the Class Period, defendant Glazer was
the Company's only full-time employee.
52. Defendants continued to make misleading announcements
regarding Zapata's Internet acquisitions and the purported success
of its Internet strategy in August 1998. For example, on August
11, 1998, Zapata announced that it had entered into a letter of
Intent to acquire the online rights to Green Magazine, a financial
Web site. On August 31, 1998, Zapata issued a press release
announcing that it had retained Salomon Smith Barney to advise it
on plans to spin off its Internet business and buy other Internet
properties. Several news sources reported that Company officials
had stated that the spin-off would occur in the last three months
of 1998.
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53. The foregoing statements were materially false and
misleading for the reasons set forth in paragraphs 39 and 42,
above.
54. On October 15, 1998, just weeks after the Company had
indicated it was prepared to complete the spin-off of its Internet
business, and contrary to all of its prior statements, Zapata
shocked the market by announcing that it was abandoning all of its
previously announced Internet acquisitions and shelving its
Internet strategy.
55. The company blamed t1his total reversal on falling prices
of technology stocks and an inhospitable environment for new stock
offerings, but owners of the companies Zapata allegedly intended to
buy told a different story. As reported on October 16, 1998 in the
New York Times, representatives at certain of the acquisition
target companies "said they saw signs from the beginning that the
Company was not serious" about following through with the
acquisitions. For example:
Deborah Shatford, the president of Focused
Presence, which runs Comfind.com, an Internet
business directory, said she initially
approached Zapata in response to its
ad. She sent Zapata some basic information on
her company, and within a week, she said,
Zapata faxed her an offer to buy it, without
visiting the company or even talking to her on
the telephone.
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Similarly, Scott Cole, the Chairman of another acquisition
candidate, Mass Music, called Zapata "inept and unprofessional" and
said a "that the due diligence [review of Mass Music] was conducted
entirely by fax and overnight mail and that no one ever visited his
company."
56. Analysts were also surprised by the Company's about-face.
For example, Derek Brown, an analyst with Volpe Whalen Brown, was
quoted in an October 15, 1998 Dow Jones News Service story as
stating: "They were extremely vocal about their interest in getting
into the Internet business just a short while ago....[T]he fact
that they so quickly jumped in and so quickly jumped out certainly
seems odd to me."
57. By the time of the surprising October 15, 1998
announcement, Zapata stock had fallen to just $6.875, down $15 from
the lofty July, 1998 prices at which defendants Furey and von
Rosenberg were able to dump their own shares for millions of
dollars in profits.
DEFENDANTS' INSIDER SELLING
58. While defendants perpetrated their misleading statements
about the success of the Company's Internet strategy, defendants
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Furey and von Rosenberg sold 424,500 shares of their Zapata stock
for proceeds of over $5.6 million, profiting from the artificial
inflation in the stock's price their fraudulent scheme created.
Notwithstanding their access to non-public information as a result
of their positions with the Company, defendants Furey and von
Rosenberg sold the following amounts of Zapata stock just as the
stock reached its peak prices:
Shares Total
Date Sold Price Proceeds
Furey, Eric 07/06/98 20,000 $12.75 $ 255,000
07/06/98 30,000 $15.75 $ 472,500
07/06/98 30,000 $16.00 $ 480,000
07/06/98 30,000 $16.38 $ 491,400
07/07/98 2,500 $23.95 $ 59,875
Total: 112,500 $1,758,775
Shares Total
Date Sold Price Proceeds
von Rosenberg, Joseph 07/06/98 1,200 $12.88 $ 15,456
07/06/98 1,500 $15.81 $ 23,715
07/06/98 2,500 $13.00 $ 32,500
07/06/98 2,500 $16.13 $ 40,325
07/06/98 5,500 $16.44 $ 90,420
07/06/98 8,000 $16.25 $ 130,000
07/06/98 16,300 $12.75 $ 207,825
07/06/98 19,000 $15.88 $ 301,720
07/06/98 19,500 $16.38 $ 319,410
07/06/98 20,000 $15.25 $ 305,000
07/06/98 26,600 $16.50 $ 438,900
07/06/98 30,000 $15.38 $ 461,400
07/06/98 59,500 $15.75 $ 937,125
07/06/98 90,000 $16.00 $ 304,000
07/07/98 9,900 $23.95 $ 237,105
Total: 312,000 $3,844,901
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59. Defendants Furey and von Rosenberg sold all of their
shares an July 6 and 7, 1998, with knowledge of the facts known by
defendants but not disclosed publicly, as detailed in paragraphs 40
and 42, above. The sales of these shares represented 100% of
defendants Furey and von Rosenberg's Zapata holdings, at peak
prices an high as $23.95.
INAPPLICABILITY OF STATUTORY SAFE HARBOR
60. 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, to the extent
that said forward-looking statements were not identified as
"forward-looking" statements when made or to the extent that
meaningful cautionary statements identifying important factors that
could cause actual results to differ materially from those in the
forward-looking statements did not accompany those forward-looking
statements. Alternatively, to the extent that the statutory safe
harbor does apply to any forward-looking statements pleaded herein,
the defendants are liable for those false forward-looking
statements because at the time each of those forward-looking
statements was made, the speaker knew the forward-looking statement
was false and the forward-looking statement was authorized and/or
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approved by an executive officer of Zapata who knew that those
statements were false when made.
COUNT I
AGAINST ALL DEFENDANTS FOR VIOLATIONS
OF SECTION 10(b) OF THE EXCHANGE ACT AND RULE 10b-5
61. Plaintiff repeats and realleges each and every preceding
allegation as if fully set forth herein.
62. Each of the defendants: (a) knew or had access to the
material adverse non-public information about Zapata'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 Zapata.
63. 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 material misrepresentations or 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.
64. Defendants violated §10(b) of the Exchange Act and Rule
10b-5 in that they:
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(a) Employed devices, schemes and artifices to defraud;
(b) Made untrue statements of material facts or omitted
to state material facts necessary in order to make the statements
made, in light of the circumstances under which they were made, not
misleading; or
(c) Engaged in acts, practices and a course of business
that operated an a fraud or deceit upon plaintiff and others
similarly situated in connection with their purchases of Zapata
stock during the Class Period.
65. Plaintiff and the Class have suffered damages in that, in
reliance an the integrity of the market, they paid artificially
inflated prices to acquire Zapata stock. Plaintiff and the
Class would not have purchased Zapata common stock at the prices
they paid, or at all, if they had been aware that the market prices
had been artificially inflated by defendants' materially misleading
statements.
COUNT II
AGAINST THE INDIVIDUAL DEFENDANTS FOR
VIOLATIONS OF SECTION 20(a) OF THE EXCHANGE ACT
66. Plaintiff repeats and realleges each and every preceding
allegation as if fully set forth herein.
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67. The Individual Defendants were controlling persons of
Zapata during the Class Period within the meaning of §20(a) of the
Exchange Act. By reason of their positions an officers and
directors of Zapata, the Individual Defendants had the power and
authority to cause Zapata to engage in the wrongful conduct
complained of herein.
68. By reason of such wrongful conduct, the Individual
Defendants are liable pursuant to §20(a) of the Exchange Act. As
a direct and proximate result of these defendants' wrongful
conduct, plaintiff and the other members of the Class suffered
damages in connection with their purchases of the Zapata common
stock during the Class Period.
BASIS OF THE ALLEGATIONS
69. Plaintiff has made the foregoing allegations, other than
those in paragraph 11 concerning the named p1aintiff, based upon
the investigation of plaintiff's counsel, which included a review
of Zapata's SEC filings, securities analysts' reports and
advisories about the Company, press releases issued by the Company,
media reports about the Company, and publicly disseminated
documents concerning Zapata's competitors and customers. It is
believed that substantial evidentiary support will exist for the
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allegations set forth herein after a reasonable opportunity for
discovery.
WHEREFORE, plaintiff prays for relief and judgment, as
follows:
(a) Determining that this action is a proper class action,
certifying plaintiff as class representatives under Rule 23 of the
Federal Rules of Civil Procedure and their counsel as class
counsel;
(b) Awarding compensatory damages in favor of plaintiff and
other Class members against all defendants, 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.
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JURY TRIAL DEMANDED
Plaintiffs hereby demand a trial by jury on all issues so
triable.
DATED: October 29, 1998
LAW OFFICES OF WILLIAM B. EMMONS
/s/
By:______________________________
William B. Emmons
3223 Smith, Suite 303
Houston, TX 77006
Telephone: (713) 522-4435
BARRACK, RODOS & BACINE
Daniel E. Bacine
3300 Two Commerce Square
2001 Market Street
Philadelphia, PA 19103
Telephone: (215) 963-0600
Attorneys for Plaintiff
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