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Stanford University Law School
- Securities Class Action Clearinghouse
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[Web note: Page formatting approximates, but does not match exactly, that of filed paper document.]
UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS
_____________________________________
STEVEN COOPERMAN and )
SCOTT SKLAR, on ) CIVIL ACTION NO.
behalf of themselves and all others ) 96-12272 DPW
similarly situated, )
)
Plaintiffs, ) COMPLAINT
)
v. )
)
INDIVIDUAL, INC., JOSEPH A. AMRAM, )
BRUCE D. GLABE, WILLIAM A. DEVEREAUX,) JURY TRIAL DEMANDED
MANUEL A. FERNANDEZ, FRANK A. INGARI,)
ELON KOHLBERG, MARINO R. POLESTRA, )
DANIEL ROSEN, SHARON L. STUDER, )
ROBERTSON, STEPHENS & COMPANY LLC, )
HAMBRECHT & QUIST LLC and )
OPPENHEIMER & CO., INC., )
)
Defendants. )
_____________________________________)
Plaintiffs Steven Cooperman and Scott Sklar make the following
allegations upon information and belief, except as to allegations
specifically pertaining to the named plaintiffs and their counsel,
based on the facts alleged below, which are predicated upon, inter
alia, a review of relevant filings made with the Securities and
Exchange Commission ("SEC"), press releases, news and analysts'
reports and the investigation undertaken by and through plaintiffs'
counsel. Plaintiffs believe that further substantial evidentiary
support will exist for the allegations set forth below after a
reasonable opportunity for discovery.
NATURE OF THE ACTION
1. This is a federal securities class action on behalf of a
class (the "Class") consisting of all purchasers of the common
stock of Individual, Inc. ("Individual" or the "Company") between
March 15, 1996 and July 24, 1996, inclusive ("the Class Period"),
under the Securities Act of 1933 (the "Securities Act"). Plaintiffs
also bring claims under certain provisions of the Massachusetts
General Law. As demonstrated below, in connection with the initial
public offering on or about March 15, 1996 (the "Offering") of
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Individual's common shares, and continuing throughout the Class
Period, defendants made materially false and misleading statements
and omitted from disclosure material facts about Individual's
business that were materially false and misleading, artificially
inflating the price of Individual common stock throughout the Class
Period, thereby injuring Class members.
JURISDICTION AND VENUE
2. The claims asserted herein arise under and pursuant to
Sections 11, 12(a)(2) and 15 of the Securities Act, as amended, 15
U.S.C. §§ 77k, 77l(a)(2) and 77o, and related state law.
3. This Court has jurisdiction over this action under Section
22 of the Securities Act, 15 U.S.C. § 77v and 28 U.S.C. §§ 1331 and
1337, and the doctrine of supplemental jurisdiction, codified at 28
U.S.C. § 1367.
4. Venue is proper in this judicial district pursuant to
Section 22 of the Securities Act and 28 U.S.C. § 1391(b) and (c).
Individual has its corporate headquarters and principal place of
business in this District at 8 New England Executive Park West,
Burlington, Massachusetts 01803, and the acts charged herein,
including the preparation and dissemination of materially false and
misleading information, occurred in substantial part in this
District.
5. In connection with the acts alleged in this complaint, the
defendants, directly or indirectly, used the means and
instrumentalities of interstate commerce, including, but not limited
to, the mails, interstate telephone communications and the
facilities of the national securities markets.
PARTIES
6. a. Plaintiff Steven Cooperman purchased his Individual
shares, as described below, in connection with and traceable to the
Offering, which shares were issued and sold pursuant to the
Registration Statement (the "Registration Statement") and Prospectus
(the "Prospectus"), and was damaged thereby, as follows:
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| Date of Purchase | No. of Shares Purchased | Price/Share |
|---|---|---|
| May 3, 1996 | 2000 | $21 |
| May 3, 1996 | 450 | $21 |
| May 6, 1996 | 200 | $22 |
| May 6, 1996 | 4000 | $21 1/2 |
| May 6, 1996 | 550 | $21 1/2 |
| May 6, 1996 | 3000 | $22 |
| May 7, 1996 | 1000 | $22 1/4 |
| May 9, 1996 | 700 | $22 1/2 |
| May 31, 1996 | 1000 | $21 |
| June 12, 1996 | 1000 | $18 1/4 |
b. Plaintiff Scott Sklar purchased 500 Individual shares
on May 15, 1996, at $22 3/8 per share, in connection with and
traceable to the Offering, which shares were issued and sold
pursuant to the Registration Statement and Prospectus, and was
damaged thereby.
7. Defendant Individual develops and markets customized
information services that provide knowledge workers with daily
personalized current reports through a variety of delivery vehicles,
including facsimile, electronic email, groupware, intranets and the
Internet. Pursuant to the Offering, Individual sold at least
2,500,000 shares of its stock to the public at $14.00 per share,
realizing proceeds in excess of $29 million, after expenses.
Individual is organized under the laws of the State of Delaware and
maintains its principal executive offices at 8 New England Executive
Park West, Burlington, Massachusetts 01803. Individual shares are
listed and traded on the NASDAQ National Market System, an efficient
market, under the ticker symbol "INDV."
8. Defendant Joseph ("Yosi") A. Amram ("Amram") was at all
relevant times Chief Executive Officer, President and a Director of
the Company. During fiscal year 1995, Amram received compensation
in the amount of $108,733, exclusive of a $20,000 bonus. Amram also
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received during 1995, under the Company's stock option plan, options
to purchase 181,667 shares of Individual stock under favorable
terms. According to the Prospectus, after the Offering, Amram would
be the beneficial owner of over 1.6 million shares of Individual
common stock, or approximately 13.2 percent of the Company's then
outstanding shares. Amram received over $420,000.00 by selling
32,350 shares of Individual stock at a net price of $13.02 per share
in connection with the Offering. Defendant Amram was a signatory to
the Registration Statement filed in connection with the Offering.
9. Defendant Bruce D. Glabe ("Glabe") was at all relevant
times Executive Vice President, Chief Financial Officer and
Treasurer of the Company. During fiscal year 1995, Glabe received
compensation in the amount of $118,750, exclusive of a $21,760
bonus. Defendant Glabe also received during 1995, under the
Company's stock option plan, options to purchase 41,250 shares of
Individual stock. Defendant Glabe was a signatory to the
Registration Statement filed in connection with the Offering.
10. Defendant William A. Devereaux ("Devereaux") was at all
relevant times a Director of the Company and was a signatory to the
Registration Statement filed in connection with the Offering.
According to the Prospectus, Devereaux was the beneficial owner of
283,883 shares of Individual common stock, which represented
approximately 2.4% of the shares outstanding after the Offering.
11. Defendant Manuel A. Fernandez ("Fernandez") was at all
relevant times a Director of the Company and was a signatory to the
Registration Statement filed in connection with the Offering.
According to the Prospectus, Fernandez was the beneficial owner of
26,562 shares of Individual common stock, which represented less
than 1% of the shares outstanding after the Offering. Fernandez
resigned as a Director of the Company on or about July 19, 1996,
just five days prior to the negative announcement that Amram was
taking an indefinite leave of absence, which caused the price of
Individual's stock to plummet.
12. Defendant Frank A. Ingari ("Ingari") was at all relevant
times a Director of the Company and was a signatory to the
Registration Statement filed in connection with the Offering.
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According to the Prospectus, Ingari was the beneficial owner of
3,125 shares of Individual common stock, which represented less than
1% of the shares outstanding after the Offering. Ingari resigned as
a Director of the Company on or about June 26, 1996, just one month
prior to the negative announcement that Amram was taking an
indefinite leave of absence, which caused the price of Individual's
stock to plummet.
13. Defendant Elon Kohlberg ("Kohlberg") was at all relevant
times a Director of the Company and was a signatory to the
Registration Statement filed in connection with the Offering.
According to the Prospectus, Kohlberg was the beneficial owner of
3,375 shares of Individual common stock, which represents less than
1% of the shares outstanding after the Offering.
14. Defendant Marino R. Polestra ("Polestra") was at all
relevant times a Director of the Company and was a signatory to the
Registration Statement filed in connection with the Offering.
15. Defendant Daniel Rosen ("Rosen") was at all relevant times
a director of the Company and was a signatory to the Registration
Statement filed in connection with the Offering. Rosen is the
designee of Microsoft, Inc. ("Microsoft") on the Board of Directors.
Microsoft was the beneficial owner of 9% of Individual's outstanding
common stock after the Offering.
16. Defendant Sharon L. Studer ("Studer") was at all relevant
times a Director of the Company and was a signatory to the
Registration Statement filed in connection with the Offering.
Studer is the designee of Knight-Ridder, Inc. ("Knight-Ridder") on
the Board of Directors. After the Offering, Knight-Ridder was the
beneficial owner of 7.7% of Individual's outstanding common stock.
17. The defendants identified in paragraphs 8-16 above are
sometimes referred to herein collectively as the "Individual
Defendants." Because of the Individual Defendants' positions with
and/or their stock ownership in the Company, they had access to the
adverse, non-public information about Individual's management
problems and disagreements between Amram and the other members of
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the Board, as well as the business, finances, products, markets and
present and future business prospects of the Company, via access to
internal corporate documents, conversations and connections with
other corporate officers and employees, attendance at management and
Board of Directors meetings and committees thereof and via reports
and other information provided to them in connection therewith.
18. It is appropriate to treat the Individual Defendants as a
group for pleading purposes and to presume that the false and
misleading information conveyed in the Company's Registration
Statement and Prospectus, as alleged herein are the collective
actions of the narrowly defined group of defendants identified
above. Each of the Individual Defendants directly participated in
the management of the Company, and was involved in drafting,
producing, reviewing and/or disseminating the false and misleading
statements alleged herein, and was aware that the false and
misleading statements were being issued regarding the Company and
approved or ratified these statements. Each of the Individual
Defendants signed the Registration Statement in connection with the
Offering and therefore had a duty to ensure that the Registration
Statement and Prospectus were complete and accurate and did not omit
any material information necessary to make the statements made
therein not misleading.
19. Each of the Individual Defendants had a duty to
disseminate promptly 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 materially
misleading or untrue. Each of the Individual Defendants also had a
duty to disclose any trends that would materially affect earnings
and the present and future operating results of Individual, so that
the market price of the Company's publicly traded securities would
be based upon truthful and accurate information.
The Underwriter Defendants
20. Defendant Robertson, Stephens & Company LLC ("Robertson
Stephens") acted as one of the co-lead underwriters in connection
with the Offering. Robertson Stephens purchased 750,000 shares of
Individual common stock, which it in turn sold to members of the
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investing public in connection with the Offering.
21. Defendant Hambrecht & Quist LLC ("H&Q") acted as one of
the co-lead underwriters in connection with the Offering. H&Q
purchased 750,000 shares of Individual common stock, which it in
turn sold to members of the investing public in connection with the
Offering.
22. Defendant Oppenheimer & Co., Inc. ("Oppenheimer") acted as
one of the co-lead underwriters in connection with the Offering.
Oppenheimer purchased 375,000 shares of Individual common stock,
which it in turn sold to members of the investing public in
connection with the Offering.
23. Robertson Stephens, H&Q and Oppenheimer are hereinafter
collectively referred to as the "Underwriter Defendants." The
Underwriter Defendants substantially participated in the commission
of the wrongs alleged herein through their involvement in the
Offering of Individual's common stock. The Underwriter Defendants
were at all relevant times entities engaged in the business of
investment banking, underwriting and selling securities to the
investing public. The Underwriter Defendants were the underwriters
for the Offering, which was a "firm commitment" underwriting, for
which they received substantial underwriting discounts and
commissions totaling $2,450,000, and an option, which they
exercised, to purchase 375,000 additional shares of Individual
common stock in connection with the Offering, which they were then
free to sell to members of the investing public. Prior to the
Offering, the Underwriter Defendants conducted or were required to
conduct an investigation into the business, operations, prospects,
financial condition and accounting and management control systems of
Individual, known as a "due diligence investigation." In the course
of such investigation, the Underwriter Defendants would have
obtained knowledge of the facts alleged herein if they had acted
with reasonable care (if they did not, in fact, have such
knowledge). At all relevant times herein, the Underwriter
Defendants had a duty promptly to disseminate truthful and accurate
information with respect to Individual and its operations.
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24. References to "defendants" herein includes, unless
otherwise stated, Individual, the Individual Defendants, and the
Underwriter Defendants.
PLAINTIFFS' CLASS ACTION ALLEGATIONS
25. Plaintiffs bring this action as a class action pursuant to
Federal Rules of Civil Procedure 23(a) and (b)(3) on behalf of a
Class, consisting of all persons who purchased or otherwise acquired
shares of Individual common stock on or traceable to the Offering
from March 15, 1996 (the date of the Offering) through July 24,
1996, inclusive, and who were damaged thereby. Excluded from the
Class are defendants, the officers and directors of the Company at
all relevant times, members of their immediate families and their
legal representatives, heirs, successors or assigns and any entity
in which defendants have or had a controlling interest.
26. 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 plaintiffs at this time and can only be
ascertained through appropriate discovery, plaintiffs believe that
there are thousands of members of the Class. Pursuant to the
Offering, at least 2,500,000 shares of Individual stock were sold.
As of June 30, 1996, there were approximately 14 million shares of
Individual common stock outstanding, millions of which were actively
traded during the Class Period on the NASDAQ National Market System,
an efficient market.
27. Plaintiffs' 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 and
state law that is complained of herein.
28. Plaintiffs will fairly and adequately protect the
interests of the members of the Class and have retained counsel
competent and experienced in class action and securities litigation.
29. 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:
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a. Whether the federal securities laws were violated by
defendants' acts as alleged herein;
b. Whether statements made by defendants to the
investing public during the Class Period contained in the
Registration Statement and Prospectus misrepresented material facts
about the business and management of Individual;
c. Whether the market price of Individual's common
stock during the Class Period was artificially inflated due to the
material misleading statements and failure to correct such
statements complained of herein; and
d. To what extent the members of the Class have
sustained damages and the proper measure of damages.
30. A class action is superior to all other available methods
for the fair and efficient adjudication of this controversy since
joinder of all members is impracticable. Furthermore, as the
damages suffered by individual 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.
SUBSTANTIVE ALLEGATIONS
The Company And Its Principal Founder -- Yosi Amram
31. Individual was founded in January 1989, principally by
defendant Amram. Through an exclusive license for Cornell
University's SMART technology, Individual's intelligent software
agents search each day through 10,000 to 20,000 stories from over
600 information sources and deliver to its users the specialized
stories by 8:00 a.m. Eastern Time each business day through various
vehicles, including facsimile, electronic mail, groupware, intranets
and the Internet.
32. The Company offers its customized information services to
two different classes of users: enterprises and single users. Its
enterprise service is called "First!," which is a daily,
comprehensive full-text news service, typically delivered
electronically to groupware or intranet platforms on a subscription
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basis. Its single-user services include "HeadsUp," "Physician's
NewScan" and "NewsPage." "HeadsUp" is a subscription-based service
consisting of headlines and abstracts of news reports and a full-
text option. "Physician's NewScan" is a version of HeadsUp targeted
to the health care market, which is sponsored by pharmaceutical
companies and delivered without charge to qualifying medical
professionals. "NewsPage" is an Internet news site containing story
briefs and full text, which also contained targeted advertising with
links to advertisers' Web sites. The NewsPage service is primarily
supported by advertisers and thus provides no subscription fees to
the Company. "BookWire," another Internet service, is also
advertiser-supported and free of charge to users.
33. As of December 31, 1995, Individual had approximately
88,000 users of its enterprise and single-user services. By June
1995, that number had grown to over 280,000.
34. In September 1993, Individual sold to Knight-Ridder
600,000 shares of Series F Preferred Stock of the Company at a price
of $5.00 per share, for a total of $3,000,000 (equivalent to 900,000
shares of common stock, as converted in connection with the
Offering, or 7.7% of the shares then outstanding). Pursuant to an
agreement signed in connection with that sale, Knight-Ridder had the
right to designate a director to sit on the Board. Defendant Studer
was Knight-Ridder's nominee until Individual announced, on May 31,
1996, that Mindi Kiernan had replaced Studer as Knight-Ridder's
nominee on the Board.
35. Similarly, in October 1995, Individual sold to Microsoft
700,000 shares of Series G Preferred Stock of the Company at a price
of $15.00 per share, for total consideration of $10,500,000
(equivalent to 1,050,000 shares of common stock, as converted in
connection with the Offering, or 9% of the shares then outstanding).
Pursuant to an agreement signed in connection with that sale,
Microsoft had the right to designate a director to sit on the Board.
Defendant Rosen was and currently is that nominee.
36. The principal founder of Individual, Yosi Amram, a former
Israeli army officer, was, in large part, responsible for its rapid
growth from a start-up to a public company. Indeed, Amram started
Individual in the living room of his apartment. According to an
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August 9, 1996 Simba Information Inc. report, Richard Vancil,
Individual's vice president of marketing, was quoted as saying about
Amram, "He's a great entrepreneur, Yosi's been the spark behind this
company."
37. Amram's undisclosed strategy both before and after the
Offering was to expand into new business lines and experiment with
new business ventures, both of which strategies often meant taking
substantial risks and expending large sums of money. In fact, just
prior to Amram's departure from Individual, he reported told
Bloomberg News on July 18, 1996, "We're simply not concerned about
profit."
38. It was this type of thinking that characterized Amram's
strategy for the direction of Individual. A venture capitalist
before founding the Company, Amram envisioned expanding the
Company's acquisitions, even at the expense of profitability. The
Board of Individual, however, did not agree with Amram's unabashed
expansionist philosophy either before or after the Offering.
Because the market in which Individual was operating was becoming
increasingly more competitive, the Board (minus Amram) wanted to
focus on steadily expanding the Company's subscriber base and
remaining ahead of the competition in its core businesses. At the
time of the Offering, the Board's core business focus was, thus,
highly incompatible with Amram's focus on rapidly acquiring new
types of companies.
39. The conflict between Amram and the rest of the Board, at
the highest levels of the Company, over the direction the Company
would take was a material undisclosed fact at all relevant times
herein.
The Offering And The Materially False And
Misleading Registration Statement and Prospectus
40. On or about January 31, 1996, Individual publicly
announced that it had filed a Registration Statement with the SEC
for an initial public offering of 2.5 million shares of common
stock. The Offering was being managed by the Underwriter Defendants
and was a "firm commitment" underwriting.
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41. On or about March 15, 1996, Individual's Registration
Statement was declared effective by the SEC and 2,500,000 shares
were offered to the public at a price of $14 per share, the high end
of the expected range. Of the 2,500,000 shares, 2,300,000 were
being sold by the Company and 200,000 were being sold by selling
stockholders, including defendant Amram.
42. At the time the Registration Statement was declared
effective, there was wide disagreement between Amram, on the one
hand, and the rest of the Board members on the other hand, as to the
strategic direction of the Company. Because Amram had been the
principal founder and the driving force behind the creation and
growth of the Company, his continued presence at the Company was
critical to investors for Individual's stability, organization and
financial success. Moreover, Amram was primarily responsible for
establishing Individual's highly touted business partnerships and
joint ventures before and after the Offering and charting its path
for future growth and innovation. In short, Amram, a colorful and
dynamic public figure, was the essence of the Company in the eyes of
the investment community.
43. Thus, Amram was a highly visible figure whose activities
on behalf of the Company were closely followed by the investment
community both prior to and after the Offering. Given the extreme
discord between Amram and the rest of the Board that was in
existence at the time of the Offering, it was inevitable that Amram
would have to leave Individual and the market would react harshly to
such a development. Yet, the Prospectus makes no mention of such
discord, nor of any of the then-existing vast differences of opinion
between Amram and the rest of the Board on the basic business model
for the Company -- the business model which was the foundation for
all future activities that would determine whether or not Individual
would be able to prosper and grow as in the past and benefit from
Amram's innovative presence.
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44. The Prospectus was materially false and misleading in
various respects. For example, the Prospectus (at page 4) states
that:
The Company believes the mutually reinforcing dynamics of its
business model are key to sustaining its growth and meeting
its strategic objectives.
That statement was materially misleading because it failed to
disclose that Individual's "business model" was, at that time, the
subject of profound disagreement between its renowned founder and
CEO and the rest of the Board members.
45. Moreover, the Prospectus states, in the "Risk Factors"
section:
The Company's future success depends, in significant part,
upon the continued services of its key technical, editorial,
sales, product development and senior management personnel ....
The loss of the services of one or more of these key employees
could have a material adverse effect on the Company. [Emphasis
added.] (at pages 12-13)
The Prospectus does not disclose, however, that, due to the then-
existing rift and polar differences of opinion between Amram and the
rest of the Board regarding the direction the Company should take to
expand and become profitable, there was a substantial danger that
the continued presence of the central such "key employee" was
already in serious jeopardy, and the departure of key management
personnel was, thus, imminent.
46. While the Prospectus states (at page 13) that "[t]here can
be no assurance that the Company will be able to retain its key
personnel," this generalized, boilerplate disclaimer was materially
insufficient to apprise investors of the then-existing serious and
fundamental differences between Amram and the rest of the Board,
which made it highly unlikely that Amram could continue to work with
the Board given that he was apparently isolated in his views.
Indeed, the Prospectus went on to admit that "[d]epartures and
additions of personnel, to the extent disruptive, could have
material adverse effect on the Company." Due to the then-existing
fundamental difference of opinion between Amram and the rest of the
Board over the direction of the Company it was inevitable that the
fissiparous state of the Individual Board would be and was
intensifying and would imminently result in a highly "disruptive"
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corporate break-up involving Amram's ouster.
47. In discussing the "Use of Proceeds" from the Offering, the
Prospectus (at page 16) states that a portion of the net proceeds
would be used for "general corporate purposes," as well as "the
acquisition of businesses, services and technologies that are
complementary to those of the Company." [Emphasis added]. The
Prospectus (at page 16) continues:
The Company presently has no commitments or understandings for
any such acquisitions, and is not presently engaged in any
discussions or negotiations for any such acquisitions, and no
portion of the net proceeds has been allocated for any specific
acquisitions.
48. Contrary to the language in the Prospectus, however,
during this time, Amram was planning and pursuing outside
investments by Individual that were not "complementary to those of
the Company." In fact, Amram's proposals were, in some cases, for
acquisitions and investments far afield of Individual's core
businesses contrary to the language in the Prospectus. Thus, at the
time of the Offering, Individual, through Amram, was actually
engaged in discussions for acquisitions and other business
combinations that were not, in fact, "complementary" to the Company.
49. Moreover, this statement was materially misleading because
it failed to disclose that the Board could not agree on what
acquisitions were "complementary to those of the Company" nor on the
pace at which such acquisitions should be made, which was creating a
fateful conflict and threatening the continued presence of Amram as
Individual's principal officer.
Post-Offering Events: The Price of Individual's
Stock Continues to Rise In the Aftermarket
50. During the months following the March 15, 1996 effective
date of the Offering, it became even more apparent internally that
the rift between Amram and the Board that existed prior to the
Offering was steadily growing into a chasm. Yet, there was not even
a hint of such discord to the investing public. In fact, as the
Company announced new strategic alliances to the investing public,
the price of the stock was rapidly increasing.
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51. For example, in an April 2, 1996 Business Wire report,
Individual reportedly announced a new customized news service
designed specifically for the Microsoft Exchange Server. The
service, called "First! for Exchange," provides tailored news
directly to a company's Microsoft Exchange Server every day.
Thereafter, on April 10 and 11, 1996, the dates on which investment
analysts at several major brokerage firms initiated coverage of
Individual, Individual announced a joint venture with Toshiba to
form a new company to provide customized news services in Japanese
over the Internet. Based on the Toshiba announcement as well as the
Microsoft alliance, H&Q and Robertson Stephens, two of the
Underwriter Defendants, rated Individual a "BUY." Individual's
stock rose almost 7% those days on the news.
52. On or about April 23, 1996, Individual announced its first
quarter results. Revenues for the first quarter of 1996 were a
record $5.0 million compared to $3.4 million in the prior year's
period, for an increase of 46%. The Company also announced losses
per share of $0.25 on a pro forma basis versus $0.17 on a pro forma
basis in the prior year's period. The increase in net loss was
attributed to high sales expenses, including the cost of advertising
sales, additional new subscriber acquisition expenses, product
development expenses to develop new delivery platforms and products,
and interest cost. In addition, Individual announced that its
number of users increased 233% over the prior year's period. Amram
was quoted as saying, "We are extremely pleased with the growth in
quarterly revenue and the growth in the number of users of our
services, which has increased by over 50% in the past three months."
Amram continued, "In addition to our growth in revenue, Individual
completed an initial public offering and announced strategic
relationships that are intended to attract new users to Individual's
services." On this news, Oppenheimer, also one of the Underwriter
Defendants, initiated coverage of Individual, rating it
"Outperform." From April 22, 1996 through April 24, 1996,
Individual's stock price rose from $16.00 to $20.00 per share, a
total increase of over 22% in three days.
53. On or about June 3, 1996, Individual announced that it had
entered into an agreement with FreeLoader, Inc. ("FreeLoader") to
acquire that company for $38 million, which included 1.8 million
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shares of Individual common stock and $2 million in cash.
FreeLoader's off-line downloading services allows users to "surf the
Web" and store the information on a hard disk drive for later
retrieval.
54. On or about May 31, 1996, Individual announced that it had
added three new members to its management team, and made a change to
its Board of Directors. Amram stated, "Individual is continuing to
build its team to maximize on the significant market opportunities
that lie before us." The board seat was filled by Mindi Kiernan,
Assistant Vice President and Assistant to the Chairman and CEO of
Knight-Ridder, who was replacing defendant Studer, also of Knight-
Ridder. No mention was made, however, of the continuing problems
between Amram and the rest of the Board.
Negative Disclosures Contradicting
the Representations in the Prospectus
55. The above post-Offering events and representations
underscore the materiality of the representations and assertions
made in the Prospectus regarding the alleged stability and strength
of Individual's business and the growth opportunities created by its
business model. However, unbeknownst to investors who purchased
Individual's shares during the Class Period, the Company was,
throughout that time, subject to the undisclosed material and
increasing risk that defendant Amram would be forced to leave the
management ranks of the Company, placing in disarray the Company's
business plan and strategies for future growth.
56. On July 24, 1996, Individual made a surprise announcement
that Amram was taking an "indefinite leave of absence" from the
Company due to a disagreement with the Board over "the pace of
acquisitions." Individual's shares immediately fell $4.00, to $5
1/2 per share, in midday trading. Earlier, the stock touched $3 7/8
per share, before closing at $6.00 on the day, down 37 percent from
the previous day's close of $9.50 per share and down drastically
from a Class Period high of $23 3/4 per share. Robert Lentz,
Individual's CFO, reportedly explained that Amram wanted the Company
to move faster in making acquisitions and investments as the
Internet's popularity exploded.
- 16 -
57. Individual also announced on that day that two other Board
members had resigned. The first, defendant Fernandez, on July 19,
1996, purportedly resigned due to a "conflict of interest" between
Individual and his own company, the Gartner Group. The second,
defendant Ingari, on June 26, 1996, purportedly resigned due to
heavy demands on his time by his own company, Shiva Corporation.
58. This shocking press release starkly contradicted
defendants' prior representations in the Prospectus, dated only four
months earlier. Their prior representations in the Prospectus
concerning Individual's need to retain its key management personnel
and its intention to acquire businesses that would be
"complementary" to its own were rendered materially false and
misleading by defendants' failure to adequately and properly
disclose the serious conflicts with Amram, the key member of
management, regarding his imminent departure due to serious
differences of view as to the course of Individual's future growth
and acquisitions. At least by March 15, 1996 -- the effective date
of the Prospectus and the Offering -- the Company was experiencing a
serious board-level struggle over the direction and operation of the
Company which was threatening its business model and the continued
ability of the Board to function as a single working unit and which
would result in the ouster or departure of Individual's founder and
principal officer.
59. According to a July 24, 1996 Bloomberg News report,
Amram's leave came as a shock to those who follow the Company. One
Oppenheimer analyst, who downgraded the stock to "market perform"
from "outperform," stated that Amram was the reason why the Company
originally was able to go public. Furthermore, in that report,
Robert Lentz, Individual's CFO, was quoted as describing Amram's
departure as a "significant event" because Amram had "been a driver
of the Company."
60. According to one July 25, 1996 Bloomberg News report, the
Company stated that the "disagreement" between Amram and the rest of
the Board was due to the fact that Amram wanted to augment the speed
and breadth of Individual's acquisitions and investments as the
Internet's popularity was exploding, but the Board strongly
disagreed. According to the same Bloomberg News report, the co-
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manager of a large growth fund said, commenting on Amram's
departure, "It's hard to make headway in a battle if the company's
direction is still a matter of debate."
61. Similarly, according to a July 30, 1996 Robertson Stephens
report, the then acting chairman of Individual, defendant Devereaux,
stated in a conference call that Amram's departure was due to his
desire to become more aggressive with Internet acquisitions and the
Board's belief that it was not appropriate to allow Amram to pursue
these venture capital activities using Individual's funds and
resources. Rather, the Board's plan was to pursue strategically
moderate deals, which could easily be integrated into the Company's
core business without disrupting the Company's subscriber and
revenue growth momentum and creating internal operational stresses
and strains.
62. Thereafter, on the morning of August 7, 1996, Amram issued
a public statement that he would resign as CEO in protest over the
Board's actions during the prior two weeks. Those actions included,
according to Amram, his ouster without notice after he told other
directors of his plan to establish another company, "Free Spirit
Holdings," to invest in the entertainment, media and health care
industries. Amram was purportedly planning to contribute 100,000
shares of Individual stock to Free Spirit Holdings and he wanted the
Company to contribute another 100,000 shares, which proposal the
Board rejected. Amram said he would try to resolve the issue with
the Board over the pace of acquisitions and would "take whatever
action may be appropriate to regain and to reconfirm his position
with the company and to lead it [to] continued growth" if no
agreement were reached.
63. Later that day, on August 7, 1996, Amram called for a
Special Meeting of the Stockholders to be held on August 21, 1996,
and requested at that day's Board Meeting that an independent
committee be created to evaluated the performance of the Board
members.
64. At the end of the day, on August 7, 1996, the Company
announced that it had terminated the employment of Amram, although
he still remained a member of the Board. The Company denied that
Amram had been ousted as President without his knowledge as there
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had been a conference call to discuss his departure that had
included Amram and all of the other members of the Board.
65. The next day, on August 8, 1996, Amram issued a statement
that he had quit his position with the Company but that he would
fight to regain leadership. Individual disputed Amram's legal
ability to call a Special Meeting of Shareholders and called Amram's
press release a frivolous action.
66. On August 9, 1996, Richard Vancil, Individual's vice
president of marketing, was quoted as saying, "There was a
divergence of strategy. Yosi wanted rapid and multiple acquisitions
and the board was focusing on growing the core business." Vancil
further stated that "Amram's strategy was more in line with a
venture capital strategy."
67. Individual's stock price has not recovered from its
precipitous drop in connection with the Amram departure, and
continues to trade below $6.00 per share. In addition, according to
the November 4, 1996 issue of Barron's, Individual has projected
that is unlikely to be profitable until at least 1998.
68. Thus, the fundamental disagreements between Amram and the
Board over the direction and strategy of the Company, which existed
at the time of the Offering but were not disclosed in the
Prospectus, and which continued throughout the Class Period, were
finally revealed to the investing public.
69. In the Company's second quarter 10-Q for the period ending
June 30, 1996, filed with the SEC on or about August 14, 1996, the
Company stated that it had "terminated the employment of Joseph A.
Amram" in August 1996, and that it was in the process of
implementing various management changes. In connection therewith,
the Company stated, in the second quarter 10-Q, "There can be no
assurance that these management changes will not have a material
adverse effect on the Company's business, results of operations and
financial condition, as well as on perceptions of the Company by
current and prospective investors," thereby conceding that its
management structure and stability are critical to Individual's
operations and material to its public perception.
- 19 -
70. In wrongful disregard of the truth and/or as part of their
ongoing efforts to continue the illusion of Individual's business
success and stability as a new public company, defendants made or
participated in the making of materially false and misleading
statements to the investing public as particularized above. These
representations were materially false and misleading when made for
the reasons set forth above.
71. The July 24, 1996, announcements and disclosures revealed
organizational problems within Individual's Board, including the
struggle for control over the direction and future acquisitions of
the Company, which by their nature were ongoing, severe and highly
disruptive to Individual's business and the value of its stock.
These problems were operative through the relevant time period and
contradicted and discredited defendants' false statements made to
the investing public in the Prospectus, and were never corrected
during the Class Period.
COUNT I
[Against All Defendants For Violations
Of Section 11 Of The Securities Act]
72. Plaintiffs repeat and reallege each and every allegation
contained above.
73. This Count is brought pursuant to Section 11 of the
Securities Act, 15 U.S.C. § 77k, on behalf of the Class, against all
defendants.
74. When it was declared effective by the SEC, the
Registration Statement for the Offering, which contained the
Prospectus, was inaccurate and misleading, contained untrue
statements of material facts, omitted to state other facts necessary
to make the statements made not misleading, and concealed and failed
adequately to disclose material facts as described above.
75. The Company is the registrant for the Offering. The
defendants named herein were responsible for the contents and
dissemination of the Registration Statement and the Prospectus.
76. As issuer of the shares, Individual is strictly liable to
plaintiffs and the Class for the misstatements and omissions.
- 20 -
77. Each of the Individual Defendants signed the Registration
Statement and was a director of the Company (except for Glabe) at
the time it was declared effective.
78. The Underwriter Defendants acted as underwriters for the
Offering. As such, they were responsible for the contents of the
Registration Statement and the Prospectus. The Underwriter
Defendants failed to make a reasonable investigation or possess
reasonable ground for believing that each of the statements
contained in the Registration Statement and the Prospectus was true,
and did not omit any material facts and was not materially
misleading.
79. None of the defendants named herein made a reasonable
investigation or possessed reasonable grounds for the belief that
the statements contained in the Registration Statement and the
Prospectus were true and without omissions of any material facts and
were not misleading.
80. Defendants issued, caused to be issued and participated in
the issuance of materially false and misleading written statements
to the investing public which were contained in the Registration
Statement and Prospectus, which misrepresented or failed to
disclose, inter alia, the facts set forth above. By reasons of the
conduct herein alleged, each defendant violated, and/or controlled
a person who violated, Section 11 of the Securities Act.
81. Plaintiffs acquired Individual shares issued pursuant to,
or traceable to, and in reliance on, the Registration Statement and
Prospectus.
82. Plaintiffs and the Class have sustained damages. The
value of Individual shares has declined substantially subsequent and
due to defendants' violations.
83. At the times they purchased Individual shares, plaintiffs
and other members of the Class were without knowledge of the facts
concerning the wrongful conduct alleged herein and could not have
reasonably discovered those facts prior to July 24, 1994. Less than
one year elapsed from the time that plaintiffs discovered or
reasonably could have discovered the facts upon which this Complaint
is based to the time that plaintiffs filed their Complaint. Less
than three years elapsed from the time that the securities upon
which this Count [missing text]
- 21 -
COUNT II
[Against Defendants Individual And Amram
And The Underwriter Defendants For Violations
Of Section 12(a)(2) Of The Securities Act]
84. Plaintiffs repeat and reallege each and every allegation
contained above.
85. This Count is brought by plaintiffs pursuant to Section
12(a)(2) of the Securities Act on behalf of all purchasers of
Individual shares in connection with, and traceable to, the
Offering, and does not sound in fraud.
86. The defendants named in this Count were sellers, offerors,
and/or solicitors of sales of the shares offered pursuant to the
March 15, 1996 Prospectus.
87. The Prospectus contained untrue statements of material
facts, omitted to state other facts necessary to make the statements
made not misleading, and concealed and failed to disclose material
facts. The actions of solicitation by the defendant named in this
Count included participating in the preparation of the materially
false and misleading Prospectus.
88. The defendants named in this Count owed to the purchasers
of Individual shares, including plaintiffs and other class member
purchasers of Individual shares, the duty to make a reasonable and
diligent investigation of the statements contained in the Offering
materials, including the Prospectus contained therein, to insure
that such statements were true and that there was no omission to
state a material fact required to be stated in order to make the
statements contained therein not misleading.
89. Plaintiffs and other members of the Class purchased or
otherwise acquired Individual shares pursuant to and traceable to
the defective Prospectus. Plaintiffs did not know, or in the
exercise of reasonable diligence could not have known, of the
untruths and omissions contained in the Prospectus.
90. Plaintiffs, individually and representatively, hereby
offer to tender to the defendants named in this Count those
securities which plaintiffs and other Class members continue to own,
on behalf of all members of the Class who continue to own such
- 22 -
securities, in return for the consideration paid for those
securities together with interest thereon.
91. By reason of the conduct alleged herein, these defendants
violated, and/or controlled a person who violated, § 12(a)(2) of the
Securities Act. Accordingly, plaintiffs and members of the Class
who hold Individual shares purchased in the Offering have the right
to rescind and recover the consideration paid for their Individual
shares and hereby elect to rescind and tender their Individual
shares to the defendants named in this Count. Plaintiffs and
members of the Class who have sold their Individual shares are
entitled to rescissory damages.
92. Less than three years elapsed from the time that the
securities upon which this Count is brought were sold to the public
to the time of the filing of this action. Less than one year
elapsed from the time when plaintiffs discovered or reasonably could
have discovered the facts upon which this Count is based to the time
of the filing of this action.
COUNT III
[Against The Individual Defendants For
Violations of Section 15 of the Securities Act]
93. Plaintiffs repeat and reallege each and every allegation
contained above.
94. This Count is brought pursuant to Section 15 of the
Securities Act against the Individual Defendants.
95. Individual is liable as an issuer under Section 11 of the
Securities Act and as a seller under Section 12(a)(2) of the
Securities Act as set forth in Counts I and II above.
96. Each of the Individual Defendants was a controlling person
of Individual by virtue of his or her position as a director and/or
senior officer of Individual or by serving as representatives of a
major shareholder on the Board. Each of the Individual Defendants
signed the Registration Statement which allowed the Offering to be
successfully completed.
97. As a result, the Individual Defendants are liable under
Section 15 of the Securities Act for Individual's primary violations
of Sections 11 and 12(a)(2) of the Securities Act.
- 23 -
COUNT IV
[Against Individual, Amram And The Underwriter Defendants
Pursuant to Chapter 110A, Section 410(a)(2)
Of The Massachusetts Blue Sky Law]
98. Plaintiffs repeat and reallege each and every allegation
contained above.
99. This Count is brought by plaintiffs pursuant to Chapter
110A, Section 410(a)(2) of the Massachusetts Blue Sky Law on behalf
of plaintiffs against Individual, Amram and the Underwriter
Defendants.
100. The defendants named in this Count offered or sold
Individual common stock to plaintiffs and other members of the Class
by means of untrue statements of material facts or omissions to
state material facts necessary in order to make the statements made,
in the light of the circumstances under which they were made, not
misleading.
101. Plaintiffs and other members of the Class did not know and
in the exercise of reasonable care could not have known of the
untruths or omissions alleged above.
102. Plaintiffs and other members of the Class have sustained
injury and suffered damages.
103. Plaintiffs and other members of the Class hereby tender
their Individual common stock purchased in the Offering in exchange
for the consideration they paid for their Individual common stock
together with interest at six percent per year from the date of
payment, costs and reasonable attorneys' fees (less the amount of
any income or distributions, in cash or in kind, received on the
Individual common stock). In the alternative, if plaintiffs or
other members of the Class no longer own the shares of Individual
common stock they purchased in the Offering, they are entitled to
recover damages which are equal to the amount which would have
otherwise been recoverable upon a tender of their Individual common
stock less the value of their stock when it was sold plus interest
at six percent per year from the date of disposition.
104. The defendants named in this Count are jointly and
severally liable to plaintiffs and other members of the Class.
- 24 -
105. The claims asserted in is Count were brought within four
years after the acts and transactions constituting the acts or
transactions complained of herein and within one year after
plaintiffs received actual notice or upon the exercise of reasonable
diligence should have known of the facts constituting the violation.
COUNT V
[Against The Individual Defendants And The Underwriter
Defendants Pursuant to Chapter 110A,
Section 410(b) Of The Massachusetts Blue Sky Law]
106. Plaintiffs repeat and reallege each and every allegation
contained above.
107. This Count is brought by plaintiffs pursuant to Chapter
110A, Section 410(b) of the Massachusetts Blue Sky Law on behalf of
plaintiffs and the Class against the Individual Defendants and the
Underwriter Defendants.
108. Individual is liable as a seller under Chapter 110A,
Section 410(a)(2) of the Massachusetts General Law.
109. The Individual Defendants directly or indirectly
controlled Individual by virtue of their positions as senior
officers and/or directors of Individual or by serving as
representatives of a major shareholder on the Board during the Class
Period.
110. The Underwriter Defendants are each broker-dealers who
materially aided in the sale of Individual common stock in the
Offering.
111. Each of the defendants named in this Count in exercise of
reasonable care could have known of the existence of the facts by
reason of which liability is alleged to exist in this action.
112. The defendants named in this Count are jointly and
severally liable to plaintiffs and other members of the Class.
- 25 -
JURY TRIAL DEMANDED
Plaintiffs hereby demand a trial by jury.
PRAYER FOR RELIEF
WHEREFORE, plaintiffs, on behalf of themselves and the Class,
pray for judgment as follows:
A. declaring this action to be a plaintiff class action
properly maintained pursuant to Rule 23(a)
and (b)(3) of the Federal Rules of Civil Procedure;
B. awarding plaintiffs and other members of the Class damages
together with interest thereon;
C. awarding plaintiffs and other members of the Class damages
in accordance with Section 11 of the Securities Act on
Counts I and III;
D. awarding plaintiffs and the Class rescission on Counts II
and III to the extent they still hold Individual shares,
or if sold, awarding rescissory damages in accordance with
Section 12(a)(2) of the Securities Act;
E. awarding plaintiffs and other members of the Class their
costs and expenses in this litigation, including
reasonable attorneys' fees, accountants' fees and experts'
fees and other costs and disbursements; and
F. awarding plaintiffs and other members of the Class such
other and further relief as may be just and proper under
the circumstances.
Dated: November 13, 1996
BERMAN DEVALERIO & PEASE LLP
/s/
_____________________________
Glen DeValerio, BBO# 122010
Jeffrey C. Block, BBO# 600747
One Liberty Square
Boston, MA 02109
(617) 542-8300
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MILBERG WEISS BERSHAD
HYNES & LERACH LLP
/s/
_____________________________
David J. Bershad
Steven G. Schulman
Janine L. Pollack
One Pennsylvania Plaza
New York, NY 10119
(212) 594-5300
FARUQI & FARUQI
/s/
______________________________
Nadeem Faruqi
415 Madison Avenue
New York, NY 10017
(212) 986-1074
- and -
SPECTOR & ROSEMAN, P.C.
/s/
______________________________
Robert M. Roseman
Jeffrey L. Kodroff
2000 Market Street
12th Floor
Philadelphia, PA 19103
(215) 864-2400
Attorneys for Plaintiffs
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