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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.]
BERGER & MONTAGUE, P.C.
SHERRIE R. SAVETT
CAROLE A. BRODERICK
STUART J. GUBER
1622 Locust Street
Philadelphia, Pennsylvania 19103
Telephone: (215) 875-3000
GOLD BENNETT & CERA LLP
SOLOMON B. CERA (99467)
595 Market Street, Suite 2300
San Francisco, California 94105
Telephone: (415) 777-2230
Attorneys for Plaintiffs
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF CALIFORNIA
SAN JOSE DIVISION
JAMES C. NEVIUS and WILLIAM MOLAIR, On) Case No. C 97 20454 (PVT)
Behalf Of Themselves and All Others ) [filed May 19, 1997]
Similarly Situated, ) CLASS ACTION
)
Plaintiffs, ) COMPLAINT FOR VIOLATIONS
) OF THE SECURITIES EXCHANGE
v. ) ACT OF 1934
)
READ-RITE CORPORATION, CYRIL J. )
YANSOUNI, and FREDERIC SCHWETTMANN, ) JURY TRIAL DEMANDED
)
Defendants. )
______________________________________)
Plaintiffs, on behalf of themselves and all others similarly
situated, for their complaint against defendants, allege on
information and belief, except as to the allegations of paragraph
2, which are made on knowledge, as follows:
NATURE OF THE ACTION
1. This is a class action brought on behalf of the
plaintiffs and all other persons, other than defendants and their
affiliates, who purchased the securities of defendant Read-Rite
Corporation ("Read-Rite" or the "Company") during the period from
March 2, 1996 through June 19, 1996, inclusive (the "Class Period")
COMPLAINT FOR VIOLATIONS OF THE SECURITIES EXCHANGE ACT OF 1934 -1-
and who sustained damage as a result of those purchases. During
the Class Period the defendants knowingly or recklessly made or
caused or permitted to be made misrepresentations of material fact
and/or omitted material facts necessary to make statements that
were made not misleading with regard to the Company's operations,
financial position, products and financial performance, in
violation of the federal securities laws. This conduct operated to
artificially inflate the market price of Read-Rite securities
during the Class Period, thereby damaging plaintiffs and the Class,
who purchased the Company's securities relying on the market price
thereof as an accurate reflection of its true value. As a result
of defendants' misconduct, the market price of Read-Rite common
stock reached as high as $26.875 during the Class Period, and fell
to as low as $12.625 in the five trading days after the Class
Period, losing more than 50% of its value.
THE PARTIES
2. (a) Plaintiff James C. Nevius purchased Read-Rite common
stock during the Class Period as follows:
200 shares on March 18, 1996 at a total cost of $3,600.12;
200 shares on March 21, 1996 at total cost of $3,953;42;
150 shares on March 25, 1996 at a total cost of $2,838.18;
50 shares on March 27, 1996 at a total cost of $971.10;
and
400 shares on April 22, 1996 at a total cost of $8,391.44.
(b) Plaintiff William Molair purchased Read-Rite common
stock during the Class Period as follows:
175 shares on March 14, 1996 at a total cost of $3,543.75;
175 shares on March 19, 1996 at a total cost of $2,909.38;
and
100 shares on March 30, 1996 at a total cost of $2,137.50.
3. Defendant Read-Rite has its headquarters and principal
place of business in Milpitas, California. The securities of Read-
Rite were traded in an efficient market on the NASDAQ National
Market System during the Class Period. Read-Rite claims to be the
world's leading independent supplier of magnetic recording heads
for rigid disk drives.
COMPLAINT FOR VIOLATIONS OF THE SECURITIES EXCHANGE ACT OF 1934 -2-
4. (a) Defendant Cyril J. Yansouni ("Yansouni") was
Chairman of the Board of Directors and Chief Executive Officer of
Read-Rite during the Class Period. Because of defendant Yansouni's
positions, he knew the material, adverse non-public information
about Read-Rite's business, finances, products, markets and present
and future business prospects as alleged herein via access to
internal corporate documents (including the Company's operating
plans, budgets and forecasts and reports of actual operations
compared thereto), conversations and connections with other
corporate officers and employees, attendance at management and
Board of Directors' meetings and committees thereof and via reports
and other information provided to him in connection therewith.
(b) Defendant Frederic Schwettmann ("Schwettmann") was
President, Chief Operating Officer and a director of Read-Rite
during the Class Period. Because of defendant Schwettmann's
positions, he knew the material, adverse non-public information
about Read-Rite's business, finances, products, markets and present
and future business prospects as alleged herein via access to
internal corporate documents (including the Company's operating
plans, budgets and forecasts and reports of actual operations
compared thereto), conversations and connections with other
corporate officers and employees, attendance at management and
Board of Directors' meetings and committees thereof and via reports
and other information provided to him in connection therewith.
5. The defendants identified in ¶4(a)-(b) are referred to
herein as the Individual Defendants.
JURISDICTION AND VENUE
6. Jurisdiction exists pursuant to §27 of the Securities
Exchange Act of 1934 ("Exchange Act"), 15 U.S.C. §78aa, and 28
U.S.C. §1331. The claims asserted arise under §§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.
7. (a) Venue is proper in this District pursuant to §27 of
the Exchange Act and 28 U.S.C. §1391(b). Many of the acts giving
rise to the violations complained of occurred in this District; and
COMPLAINT FOR VIOLATIONS OF THE SECURITIES EXCHANGE ACT OF 1934 -3-
(b) Assignment of this action to the San Jose Division
is appropriate as a substantial part of the events, transactions,
misrepresentations, or omissions identified herein occurred in
Santa Clara County.
CLASS ACTION ALLEGATIONS
8. Plaintiffs bring this action as a class action pursuant
to Rules 23(a) and 23(b)(3) of the Federal Rules of Civil Procedure
on behalf of a class (the "Class") consisting of all persons who
purchased the securities of Read-Rite during the period March 4,
1996 through June 19, 1996, inclusive. Excluded from the Class are
the defendants herein, members of the immediate families of the
Individual Defendants, any entity in which any defendant has a
controlling interest, and the legal affiliates, representatives,
heirs, controlling persons, successors, and predecessors in
interest or assigns of any such excluded party.
9. Because over 46 million shares of the Company's common
stock were outstanding and because the Company's common stock was
actively traded on the NASDAQ National Market System 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 can only be determined by appropriate discovery, plaintiffs
believe that Class members number at least in the hundreds and that
they are geographically dispersed.
10. Plaintiffs' claims are typical of the claims of the
members of the Class because plaintiffs and all of the Class
members sustained damages arising out of the defendants' wrongful
conduct complained of herein.
11. Plaintiffs will fairly and adequately protect the
interests of the Class members and have retained counsel who are
experienced and competent in class and securities litigation.
Plaintiffs have no interest which is contrary to or in conflict
with the members of the Class plaintiffs seek to represent.
12. 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 members of the Class may be
relatively small, the expense and burden of individual litigation
COMPLAINT FOR VIOLATIONS OF THE SECURITIES EXCHANGE ACT OF 1934 -4-
make it impossible for the members of the Class to individually
redress the wrongs done to them. There will be no difficulty in
the management of this action as a class action.
13. Questions of law and fact common to the members of the
Class predominate over any questions which may affect only
individual members in that defendants have acted on grounds
generally applicable to the entire 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;
(b) Whether the Company's and the Individual
Defendants' publicly disseminated releases and statements during
the Class Period omitted and/or misrepresented material facts and
whether defendants breached any duty to convey material facts or to
correct material facts previously disseminated;
(c) Whether defendants participated in and pursued the
common course of conduct complained of;
(d) Whether the defendants acted willfully and/or
recklessly in omitting and/or misrepresenting material facts;
(e) Whether the market price of Read-Rite securities
during the Class Period was artificially inflated due to the
material omissions and/or misrepresentations complained of herein;
and
(f) Whether the members of the Class have sustained
damages and, if so, what is the appropriate measure of damages.
CONTROLLING PERSONS
14. Defendants Yansouni and Schwettmann, by reason of their
executive and Board positions, were controlling persons of Read-
Rite during the Class Period and had the power and influence, and
exercised the same, to cause Read-Rite 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
COMPLAINT FOR VIOLATIONS OF THE SECURITIES EXCHANGE ACT OF 1934 -5-
concerning Read-Rite. 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
purchasers of Read-Rite securities 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 Read-Rite 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
plaintiffs and other Class members; (ii) artificially inflate the
price of Read-Rite securities during the Class Period; and (iii)
cause plaintiffs and the other members of the Class to purchase
Read-Rite securities 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 Read-Rite
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 Read-Rite's business, products and finances that
reached the public and caused the inflation in the price of Read-
Rite's securities.
BACKGROUND FACTS
18. Read-Rite manufactures and sells magnetic recording heads
for rigid disk drives. In the relevant time period Read-Rite
manufactured and sold ferrite metal-in-gap ("MIG") recording heads
and thin film recording heads. As the Company admitted in its
Annual Report on Form 10-K for the fiscal year ending September 30,
1995, which was filed with the SEC on or about December 27, 1995,
the market for MIG recording heads was declining, because thin film
technology provided higher areal densities (i.e., greater
capacity), and, as a result, the Company expected that MIG
recording heads would represent a smaller portion of the Company's
business in its fiscal year ending September 30, 1996. In fact,
the Company's 1995 Form 10-K stated that the "Company anticipates
COMPLAINT FOR VIOLATIONS OF THE SECURITIES EXCHANGE ACT OF 1934 -6-
that in fiscal 1996 it will begin to transition its Philippines
operations from MIG production to thin film production, as it is
becoming increasingly difficult for MIG technology to meet rapidly
advancing technical performance requirements at costs competitive
with the Company's thin film operations."
19. Virtually all of Read-Rite's sales were to a small number
of customers that manufactured disk drives. In the Company's 1995
fiscal year, 90% of its sales were to four customers. Those
customers and the percentage of Read-Rite's sales represented by
each were: Western Digital - 37%, Quantum - 29%, Conner Peripher-
als ("Conner") - 13%, and Maxtor - 11%. In February 1996, Conner
Peripherals was acquired by Seagate Technology, Inc., a
manufacturer of disk drives that also manufactured recording heads.
The extent to which Conner would continue to purchase recording
heads from Read-Rite after Conner was acquired by Seagate was a
matter that was highly material to investors.
20. As the Company stated in its 1995 Form 10-K, personal
computer demand for improved performance and greater capacity was
driving the computer industry's demand for greater performance and
higher data storage capacity. In the Company's 1993 fiscal year,
the capacity for a single disk, 3.5 inch drive increased from
approximately 120 megabytes ("MB") to approximately 270 MB. This
capacity increased to approximately 420 MB by the end of fiscal
1994, and to approximately 635 MB by the end of fiscal 1995. By
the September 30, 1995 end of the Company's 1995 fiscal year, the
computer industry was demanding still higher capacity, with the
result that disk drive manufacturers were designing disk drives
with increased capacity, which, in turn, required recording heads
with higher capacity.
21. As a result, the status of Read-Rite's development and
production of more advanced recording heads with greater capacity
was highly material to investors. In the late fall of 1995,
defendant Yansouni told the New York Society of Security Analysts
that the Company's advanced thin film recording heads, known as the
Tripad 2 and Tripad 3 heads, with capacities of 650 MB to 800 MB
were "in qualification," meaning that its customers were deciding
whether these products would qualify for purchase by them. In
COMPLAINT FOR VIOLATIONS OF THE SECURITIES EXCHANGE ACT OF 1934 -7-
order to qualify for purchase by disk drive customers, a manufac-
turer of recording heads must demonstrate that the heads have been
produced in volume.
22. Shortly before the beginning of the Class Period, Read-
Rite learned that to participate in certain customer programs, the
Company's new generation of Tripad recording heads would have to
incorporate a new technical feature, known as an "undershoot
reduction" which the Company had not yet begun to develop. The
development of the necessary processes for incorporation of this
new feature in Read-Rite products, did not even begin until the
quarter ending March 31, 1996, and the need to incorporate the new
technical feature delayed the introduction of these advanced
products by many months. This highly material fact, however, was
not disclosed to the investing public until the Company filed its
Annual Report on Form 10-K for its 1996 fiscal year ending
September 30, 1996. Thus, at the beginning of the Class Period,
the Company knew it would have to incorporate this new technical
feature in its advanced thin film recording heads, knew that the
need to incorporate this new feature would substantially delay
introduction of those products, and knew that these facts would
have materially adverse consequences for the Company's financial
performance and market share. None of these material facts were
disclosed during the Class Period.
DEFENDANTS' FALSE AND MISLEADING
STATEMENTS DURING THE CLASS PERIOD
A. March 2, 1996 Statement
23. The March 4, 1996 issue of Barron's, which was dissemi-
nated on March 2, 1996, included an article which reported on an
interview with defendant Yansouni. In response to questions about
the prospects for future purchases of Read-Rite's recording heads
by Conner Peripherals in view of the fact that Connor had been
merged into Seagate Technology, defendant Yansouni stated: "I
can't prove that Seagate will continue to buy our products. But
we're being designed into some Conner products right now that
survived Seagate's rationalization of its product line after the
merger. If we execute, we'll continue to have business with
Seagate." (Emphasis added). This representation was materially
misleading at the time it was made, as was later admitted by the
COMPLAINT FOR VIOLATIONS OF THE SECURITIES EXCHANGE ACT OF 1934 -8-
Company after the end of the Class Period. After the end of the
Class Period, the Company stated to securities analysts that,
consistent with Read-Rite's earlier expectations, Conner/Seagate
was unlikely to be a customer at the September 30, 1996 end of the
Company's 1996 fiscal year. Indeed, Conner/Seagate product plans
did not include the use of the Company's advanced Tripad recording
heads, Conner/Seagate never bought any of the Company's thin film
recording heads, and the Company's knowledge that Conner/Seagate
would cease purchases from the Company by no later than September
30, 1996 was deliberately withheld from the market. In fact, in
its Form 10-K for the year ended September 30, 1996, Read-Rite
identified Seagate as "the Company's primary competitor in the
merchant market among 'captive' head manufacturers." (Emphasis
added.)
B. March 13, 1996 Statement
24. On March 13, 1996, Read-Rite publicly disclosed that it
did not expect to meet analysts' current earnings and revenue
forecasts for the quarter ending March 31, 1996. The Company
represented that this was attributable to large start-up costs for
new products and a product mix weighted towards low margin
products. At that time the analysts' mean earnings estimate for
that quarter was $0.59 per share, as compared with reported
earnings of $0.53 per share in the same quarter of the prior year.
As reported by Reuters on March 13, 1996, the Company stated:
"We continue to incur significant start-up costs on a large
number of new product programs, yet have not achieved volume
production on these programs necessary to absorb such costs".
"Further, due to slower production ramps on new products, our
product mix this quarter is heavily weighted towards more
mature, and thus lower priced and lower mar-gin, products."
(Emphasis added.)
25. The representations identified in the preceding paragraph
were known by the Company to be materially misleading when made, in
that the Company was several months away from completing
development of its advanced Tripad heads, and, therefore, was
nowhere near volume production of those products. The Company
therefore knew at the time of the March 13, 1996 announcement that
the vast majority of the start-up costs for those products had not
yet even been incurred. In addition, these representations were
COMPLAINT FOR VIOLATIONS OF THE SECURITIES EXCHANGE ACT OF 1934 -9-
materially misleading by reason of the failure to disclose the
fact, which was later admitted by the Company, that the Company had
learned that to participate in certain customer programs, Read-
Rite's advanced thin film recording heads would have to include a
new technical feature, known as undershoot reduction, that the
Company did not even begin to develop until the quarter ending
March 31, 1996, which would necessarily delay the introduction of
those products by many months.
C. April 17, 1996 Statement
26. On April 17, 1996, Read-Rite issued a press release in
which defendant Yansouni stated that:
We enter the third quarter of fiscal 1996 having achieved
design-ins for a number of new products using our advanced
inductive Tripad heads.... (Emphasis added.)
27. The representation in the preceding paragraph was known
by defendant Yansouni to be materially false and misleading when
made. Contrary to the representations of defendant Yansouni, the
Company had not achieved design-ins for a "number" of new products
as of the end of the second quarter of the 1996 fiscal year.
D. April 18, 1996 Statements
28. On or about April 18, 1996, Read-Rite conducted a
quarterly conference call with investment professionals, Read-Rite
shareholders and others to discuss the Company's results for the
quarter ending March 31, 1996. During that conference call,
defendant Yansouni and/or defendant Schwettmann stated:
(a) Demand for Read-Rite products continued to be good;
(b) Read-Rite had completed its transition to its
Tripad 2 product and was at that time ramping up to high volume
production of those products; and
(c) Read-Rite had completed its development of its
850MB Tripad 3 recording head, was in the final testing phase for
this product, and expected to ramp up production of this product in
the quarter ending June 30, 1996.
29. The foregoing representations were known to be materially
false and misleading at the time they were made because:
COMPLAINT FOR VIOLATIONS OF THE SECURITIES EXCHANGE ACT OF 1934 -10-
(a) The Company had not completed development of its
Tripad 3 product as of April 18, 1996. As was later admitted by
the Company, shortly before the beginning of the Class Period,
Read-Rite had learned that to participate in new customer programs,
Company products would have to incorporate a key technical feature,
known as undershoot reduction, which the Company had not yet
developed. The result was that completion of development of the
products needed by the Company's customers was significantly
delayed. Smith Barney reported on July 18, 1996, well into the
fourth quarter of the Company's fiscal 1996 year and after the end
of the Class Period, that
The Tripad 850 MB head... is still in final design stages.
Even at that there is a need to ramp volume production to
'prove' to the customer that the product works.
On the same day, PaineWebber reported that Read-Rite had "fallen
behind" in both the Tripad 2 and Tripad 3 programs. Moreover, the
Company later stated in its Form 10-K for the year ending September
30, 1996 as follows:
The failure by the Company to execute on technologies
necessary to consistently obtain qualification on any of such
volume programs will have a material adverse effect on the
Company's business, financial condition and results of
operations. For example, in the second quarter of fiscal
1996, the Company learned that to participate in certain
customer programs, Company products would have to incorporate
a new technical feature which the Company had not yet begun
developing. Though the Company began development of necessary
processes for this feature in the second quarter [of fiscal
1996], thereafter the Company incurred significant start-up
costs without concurrently achieving the volume production
necessary to absorb those costs, thus materially and adversely
impacting both the Company's revenues and gross margins.
Though the Company moved rapidly to develop and qualify these
processes, in mid-fiscal 1996 the timing of the introduction
of these processes caused delays in new product introductions
and adversely affected the Company's business, financial
condition and results of operations. (Emphasis added).
In fact, it was not until as late as December 4, 1996 that
PaineWebber reported that the Company was on schedule to complete
transition to Tripad 3;
(b) The Company had not completed transition to its
Tripad 2 product as of April 18, 1996. As reported by Smith Barney
COMPLAINT FOR VIOLATIONS OF THE SECURITIES EXCHANGE ACT OF 1934 -11-
on November 1, 1996, at a meeting of securities analysts on October
31, 1996, Read-Rite stated that at that time, six months after the
April representations, the Company was then in full transition to
volume production of Tripad 2 and Tripad 3; and
(c) The Company was unable to achieve consistency in
manufacturing of its advanced Tripad products due to defects in its
ion milling and etching processes. It was not until October 1996
that improvements in those processes had been accomplished, and
volume production of advanced Tripad heads was therefore delayed
until December 1996.
(d) The representation that demand for Read-Rite's
products was strong was misleading by reason of the failure to
disclose the fact, which was admitted by defendant Yansouni after
the Class Period on May 14, 1997, in an article appearing in The
San Francisco Chronicle, that Read-Rite had rejected the request of
its principal customer, Western Digital Corp., to add a capacity-
expanding improvement to Read-Rite's Tripad products. As a result
of Read-Rite's rejection, Western Digital had shifted a substantial
portion of its orders to two Read-Rite competitors that would
supply the feature. This caused Read-Rite to lose market share, as
the Company's sales to Western Digital remained flat while Western
Digital's sales increased sharply, and Read-Rite supplied a
materially lower percentage of Western Digital's purchase of
recording heads.
30. The foregoing false and misleading representations were
highly material to the investing public, as evidenced by several
analyst reports issued on or shortly after April 18, 1996 which
repeated the representations that Tripad 2 was ramping up in high
volume and that development of Tripad 3 was complete. Smith Barney
stated with respect to the purported completion of development of
Tripad 3, that "this should give the company a significant...
market advantage".
31. On May 20, 1996, Read-Rite made a presentation at the
Smith Barney Technology Conference in which the Company stated that
it was in final qualification trials for Tripad 3. In fact, as
described above, the Company had not even completed development of
Tripad 2 as late as July 18, 1996.
COMPLAINT FOR VIOLATIONS OF THE SECURITIES EXCHANGE ACT OF 1934 -12-
32. On June 19, 1996, to the shock of the market, Read-Rite
issued a press release which announced that the Company expected
sales for the quarter ending June 30, 1996 to be below the $258
million sales reported for the quarter ending March 31, 1996. That
decline was due to the Company's previously undisclosed inability
to produce and ship Tripad 2 products. As a result of this
disclosure, the market price of the Company's stock fell from a
high of $17.25 per share the day before the disclosure to a low of
$12.625, a decline of approximately 25%, in the five trading days
after disclosure, with reported trading volumes of more than 15
million shares in those five days.
33. The timing of the completion of the Company's development
of and transition to these higher capacity Tripad 2 and Tripad 3
products was extremely important to its success in the market. The
Company's competitors were also developing higher capacity
recording heads, and the Company's market share depended heavily on
remaining abreast of or ahead of technological developments in the
recording head industry. Indeed, the Company's quarterly report on
Form 10-Q for the quarter ending June 30, 1996, which was filed
with the SEC on or about August 15, 1996, states: "the Company has
experienced declining sales during the second and third quarters of
fiscal 1996. The primary reason for the decline in sales in these
periods is the late release of several advanced inductive products
for major customer programs." That Form 10-Q further disclosed
that the Company expected sales for the quarter ending September
30, 1996 and the quarter ending December 31, 1996 to be
"significantly lower" than the $238.3 million reported for the
quarter ending June 30, 1996. One of the factors cited was, inter
alia, the "slow ramping to volume production on several new product
lines." Similarly, the Company's Annual Report on Form 10-K for
the fiscal year ending September 30, 1996, which was filed with the
SEC on or about December 18, 1996, stated that "delays in the
introduction of the Company's new recording heads materially and
adversely affected both the Company's revenues and gross profit
margins.
34. On July 17, 1996, Read-Rite issued a press release
reporting the Company's financial results for the quarter ending
COMPLAINT FOR VIOLATIONS OF THE SECURITIES EXCHANGE ACT OF 1934 -13-
June 30, 1996. The July 17 press release revealed that the
Company's sales in the quarter had fallen to $238.3 million, a
decline of $20 million from the preceding quarter and that the
Company experienced a loss of almost $23 million for the quarter,
including charges of $10 million for the write-off of inventory
related items and fixed assets associated with end-of-life
products. Moreover, the July 17 press release reported the
startling statements by defendant Yansouni that: "We anticipate
sales will be significantly lower than the $238.3 million for the
third quarter of fiscal 1996 and expect to post a great loss for
operations for the fourth quarter of fiscal 1996". The July 17
press release further reported the belated admission by defendant
Yansouni that the quarter ending June 30, 1996 had been "difficult"
because the Company was late entering the market with several key
products. Moreover, the Company's quarterly report on Form 10-Q
for the quarter ending June 30, 1996, which was filed with the SEC
on or about August 15, 1996, stated:
The Company has experienced declining sales during the second
and third quarters of fiscal 1996 [January 1, 1996 - June 30,
1996]. The primary reason for the decline in sales in these
periods is the late release of several advanced inductive
products [Tripad 2 and Tripad 3] for major customer programs.
The Form 10-Q stated that sales for the quarter ending September
30, 1996 and for the quarter ending December 21, 1996 were expected
to be "significantly lower" than the $238.3 million reported for
the quarter ending June 30, 1996. One of the factors cited as a
cause for this decline was "slow ramping to volume production on
several new product lines". That Form 10-Q also attributed the
Company's dramatically reduced gross profit margin in the quarter
ending June 30, 1996 in part to "significant start-up costs"
associated with new programs, and stated that the Company's gross
margin the following quarter would be even worse, due in part to
the same factors.
FIRST CLAIM FOR RELIEF
For Violation of Section 10(b) Of The
Exchange Act And Rule 10b-5 Against All Defendants
35. Plaintiffs incorporate by reference ¶¶1-34.
COMPLAINT FOR VIOLATIONS OF THE SECURITIES EXCHANGE ACT OF 1934 -14-
36. Each of the defendants: (a) knew or had access to the
material adverse non-public information about Read-Rite'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 Read-Rite.
37. 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.
38. Defendants violated §10(b) of the Exchange Act and Rule
10b-5 in that they:
(a) Employed devices, schemes and artifices to defraud;
(b) Made untrue statements of material facts or omitted
to state material facts necessary in order to make 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 as a fraud or deceit upon plaintiffs and others
similarly situated in connection with their purchases of Read-Rite
common stock during the Class Period.
(d) Plaintiffs and the Class have suffered damages in
that, in reliance on the integrity of the market, they paid
artificially inflated prices to acquire Read-Rite securities.
Plaintiffs and the Class would not have purchased Read-Rite
securities 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.
SECOND CLAIM FOR RELIEF
For Violation Of Section 20(a) Of
The Exchange Act Against Individual
Defendants Yansouni and Schwettmann
39. Plaintiffs incorporate by reference ¶¶1-38.
COMPLAINT FOR VIOLATIONS OF THE SECURITIES EXCHANGE ACT OF 1934 -15-
40. Defendants Yansouni and Schwettmann were controlling
persons of Read-Rite during the Class Period within the meaning of
§20(a) of the Exchange Act. By reasons of their positions as
officers and directors of Read-Rite, defendants Yansouni and
Schwettmann had the power and authority to cause Read-Rite to
engage in the wrongful conduct complained of herein.
41. By reason of such wrongful conduct, defendants Yansouni
and Schwettmann are liable pursuant to §20(a) of the Exchange Act.
As a direct and proximate result of these defendants' wrongful
conduct, plaintiffs and the other members of the Class suffered
damages in connection with their purchases of the Read-Rite
securities during the Class Period.
BASIS OF THE ALLEGATIONS
42. Plaintiffs have made the foregoing allegations, other
than those in paragraph 2 concerning the named plaintiffs, based
upon the investigation of plaintiffs' counsel, which included a
review of Read-Rite'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 Read-Rite's competitors and customers. It is
believed that substantial evidentiary support will exist for the
allegations set forth herein after a reasonable opportunity for
discovery.
PRAYER FOR RELIEF
WHEREFORE, plaintiffs pray for judgment as follows:
1. Declaring this action to be a proper class action
pursuant to Rules 23(a) and 23(b)(3) of the Federal Rules of Civil
Procedure on behalf of the Class defined herein;
2. Awarding plaintiffs and the members of the Class
compensatory damages;
3. Awarding plaintiffs and the members of the Class pre-
judgment and post-judgment interest, as well as reasonable
attorneys' fees, expert witness fees and other costs;
COMPLAINT FOR VIOLATIONS OF THE SECURITIES EXCHANGE ACT OF 1934 -16-
4. Awarding such other relief as this Court may deem just
and proper.
JURY DEMAND
Plaintiffs demand a trial by jury.
Dated: May _____, 1997 BERGER & MONTAGUE, P.C.
/s/
By ____________________________
Sherrie R. Savett
- and -
Dated: May 19, 1997 GOLD BENNETT & CERA LLP
/s/
By ____________________________
Solomon B. Cera
Attorneys for Plaintiffs
COMPLAINT FOR VIOLATIONS OF THE SECURITIES EXCHANGE ACT OF 1934 -17-
CERTIFICATION OF NAMED PLAINTIFF
PURSUANT TO FEDERAL SECURITIES LAWS
William Molair, ("Plaintiff") duly swears and says, as to
the claims asserted under the federal securities laws, that:
1. Plaintiff has reviewed the complaint and authorized
its filing.
2. Plaintiff did not purchase the security that is the
subject of this action at the direction of plaintiff's counsel or
in order to participate in this private action.
3. Plaintiff is willing to serve as a representative
party on behalf of the class, including providing testimony at
deposition and trial, if necessary.
4. Plaintiff's transactions in the security that is the
subject of this action during the Class Period are attached hereto
as Exhibit A.
5. Plaintiff has not sought to serve as a class
representative in any case in the last 3 years.
6. Plaintiff will not accept any payment for serving as
a representative party on behalf of the class beyond the
Plaintiff's pro rata share of any recovery, or as ordered or
approved by the court, including any award for reasonable costs and
expenses (including lost wages) directly relating to the
representation of the class.
I declare under penalty of perjury that the foregoing is
true and correct. Executed this 4th day of May,
1997, at Columbia, South Carolina.
/s/
_________________________________
WILLIAM MOLAIR
EXHIBIT A
Security Transactions Date Total Cost
-------- ------------ ---- ----------
Read-Rite Shares Purchased:
----------------
175 03/14/96 $3,543.75
175 03/19/96 $2,909.38
100 03/30/96 $2,137.50
CERTIFICATION OF NAMED PLAINTIFF
PURSUANT TO FEDERAL SECURITIES LAWS
James C. Nevius, ("Plaintiff") duly swears and says, as
to the claims asserted under the federal securities laws, that:
1. Plaintiff has reviewed the complaint or a
substantially similar draft of the complaint and authorized its
filing.
2. Plaintiff did not purchase the security that is the
subject of this action at the direction of plaintiff's counsel or
in order to participate in this private action.
3. Plaintiff is willing to serve as a representative
party on behalf of the class, including providing testimony at
deposition and trial, if necessary.
4. Plaintiff's transactions in the security that is the
subject of this action during the Class Period are attached hereto
as Exhibit A.
5. Plaintiff has not sought to serve as a class
representative in any case in the last 3 years.
6. Plaintiff will not accept any payment for serving as
a representative party on behalf of the class beyond the
Plaintiff's pro rata share of any recovery, or as ordered or
approved by the court, including any award for reasonable costs and
expenses (including lost wages) directly relating to the
representation of the class.
I declare under penalty of perjury that the foregoing is
true and correct. Executed this 19th day of May,
1997, at Fair Haven, New Jersey.
/s/
_________________________________
JAMES C. NEVIUS
EXHIBIT A
Security Transactions Date Total Cost
-------- ------------ ---- ----------
Read-Rite Shares Purchased:
----------------
200 03/18/96 $3,600.12
200 03/21/96 $3,953.42
150 03/25/96 $2,838.18
50 03/27/96 $ 971.10
400 04/22/96 $8,391.44