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Stanford University Law School
- Securities Class Action Clearinghouse
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UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF WASHINGTON
AT SEATTLE
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Kevin E. Murray, ) C97-0402
On His Own Behalf and On )
Behalf of All Others ) Civil Action No.
Similarly Situated, )
)
Plaintiff, ) PLAINTIFF'S CLASS ACTION
) COMPLAINT FOR VIOLATION
v. ) OF FEDERAL AND STATE
) SECURITIES LAWS AND PENDENT
RIDE, INC., ) STATE LAW CLAIMS
ROGER B. MADISON, JR., )
JAMES J. SALTER, )
TIM POGUE, and ) JURY TRIAL DEMANDED
MARK M. SALTER, )
Defendants. )
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JURISDICTION AND VENUE
1. Jurisdiction and venue of this Court are founded on
Section 27 of the Securities Exchange Act of 1934 (the "Exchange
Act"), 15 U.S.C. § 78aa, Sections 1331 and 1337 of Title 28, 28
U.S.C. §§ 1331, 1337, and principles of supplemental jurisdiction,
28 U.S.C. § 1367.
2. The claims herein arise under Sections 10(b) and 20(a) of
CLASS ACTION COMPLAINT-1
the Exchange Act, 15 U.S.C. §§ 78j(b), 78t(a), Rule lOb-5
promulgated thereunder by the Securities and Exchange Commission
(the "SEC"), and the principles and statutes of Washington law.
3. Acts and conduct charged herein, including the
dissemination of false and misleading reports and the issuance of
false and misleading information to the investing public, occurred
in this district. In addition, Ride, Inc.'s ("Ride" or the
"Company") executive offices are located in this District.
4. In connection with the acts and course of conduct alleged
in this Complaint, the defendants directly and indirectly used the
means and instrumentalities of interstate commerce, including the
United States mails and interstate telephone communications, and
the facilities of the national securities markets.
THE PARTIES
5. Plaintiff Kevin E. Murray purchased 110 shares of Ride
common stock on September 7, 1995, at $ 17.625 per share.
Plaintiff Murray resides in Ashburn, Virginia.
6. Defendant Ride is incorporated in the State of
Washington, and maintains its headquarters in Preston, Washington.
Ride claims to be a leading designer, manufacturer and marketer of
snowboards and related products through its subsidiaries: Ride
Snowboard Co. ("Snowboard"), CAS Sports International, Inc.
("CAS"), Thermal Snowboards, Inc. ("Thermal") and SMP (Sex-Money-
Power) Clothing, Inc. ("SMP"). Ride acquired CAS, a sporting goods
O.E.M. and close-out business formerly owned by Jamie Salter, in
August 1994. Ride acquired Thermal, a snowboard manufacturer, and
CLASS ACTION COMIPLAINT-2
5150 Snowboards, Inc. ("5150"), a premium brand of snowboards, in
September 1995, later merging 5150 with and into Snowboard. Ride
acquired SMP, an apparel company that markets active wear in the
snowboard, skateboard, surf and motocross markets, in October,
1995. Self-proclaimed as the world's second largest snowboard and
related-products company, Ride often stated with respect to the
relevant time period that snowboarding was the fastest growing
sport in the world, and that its unique "brand segmentation"
marketing strategy would permit Ride to exploit the explosive
growth opportunities of the snowboard industry. According to Ride,
the Company's goal since its inception has been to capture a
significant share of the large and growing market for snowboards
and related products. In its early years, Ride experienced rapid
growth, with $208,000 in sales for 1992, $5.8 million in sales for
1993, and $25.3 million in sales for 1994. Earnings for those same
years was a loss of $209,000 for 1992, and income of $414,000 and
$1.86 million for 1993 and 1994, respectively. Because of Ride's
historical above-average rate of revenue and earnings growth, and
Ride's representations regarding the prospects for it and
snowboarding to continue their high growth rates, Ride was
considered by the investing public as a "growth stock." Growth
stocks are traditionally awarded higher P/E (stock price-to-
earnings) ratios by the investing public.
7. (a) Defendant Roger B. Madison, Jr. ("Madison"), was
Chairman of the Board of Directors of Ride during the Class Period.
Because of his position, he knew of adverse, nonpublic information
CLASS ACTION COMPLAINT-3
about Ride's business, products, markets, and present and future
business prospects 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 him in connection therewith. During the
Class Period, based on inside, non-disclosed information, defendant
Madison sold 136,000 shares of Ride common stock (17.5% of his
holdings) for approximately $2.31 million.
(b) Defendant James J. Salter ("Jamie Salter") was Chief
Executive Officer of Ride at the onset of the Class Period until
May 1996. From June 1996 through the end of the Class Period,
Jamie Salter was Vice Chairman of the Board of Directors. Because
of his position, he knew of adverse, nonpublic information about
Ride's business, products, markets, and present and future business
prospects 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 him in connection therewith. During the Class Period, based on
inside, non--disclosed information, defendant Jamie Salter sold
284,000 shares of Ride common stock (19.7% of his holdings) for
approximately $4.83 million.
(c) Defendant Tim Pogue ("Pogue") was President of Ride
at the onset of the Class Period until August 1996. From September
1996 until October 1996, Pogue was President of the Ride [rest
of sentence unreadable].
CLASS ACTION COMPLAINT-4
Because of his position he knew of
adverse, non-public information about Ride's business, products,
markets, and present and future business prospects 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 him in connection
therewith. During the Class Period, based on inside, non-disclosed
information, defendant Pogue sold 66,000 shares of Ride common
stock (19.1% of his holdings) for approximately $1.12 million.
(d) Defendant Mark M. Salter ("Mark Salter") was vice
Chairman of the Board of Directors of Ride and/or Director of
Investor Relations during the Class Period. Because of his
position, he knew of adverse, non-public information about Ride's
business, products, markets, and present and future business
prospects 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 him in connection therewith. During the Class Period, based on
inside, nondisclosed information, defendant Mark Salter sold
240,000 shares of Ride common stock (18.5% of his holdings) for
approximately $4.08 million.
8. The defendants enumerated in paragraph 7 above are
collectively referred to as the "Individual Defendants."
9. Each of the above defendants participated in and
CLASS ACTION COMPLAINT-5
conspired to effect and/or consciously or recklessly pursue the
unlawful conduct herein alleged in order to inflate the market
price of Ride common stock.
10. Each of the Individual Defendants is liable as a direct
participant in the wrongs complained of herein. Additionally,
because of their positions of control and authority as officers and
directors, the Individual Defendants were able to and did control
the contents of the Company's public filings, in regards to which
their conduct was at least reckless, and the various financial
reports, press releases and public statements of Ride. As officers
and directors of a publicly held company, the Individual Defendants
had a duty to promptly disseminate accurate and truthful
information with respect to Ride's operations, prospects and
financial status.
SUMMARY OF THE CASE
11. During the Class Period, defendants knowingly or
recklessly engaged in a course of conduct designed to mislead the
plaintiff and the investing public in order to maintain Ride prices
at artificially high levels throughout the Class Period.
Defendants continuously touted the Company, its future prospects,
its technology, the market for its product and, in particular, its
ability to sustain an extraordinarily high rate of sales revenue
and income growth. These representations and others, however, were
false and misleading.
12. The snowboard manufacturing industry poses few technical
CLASS ACTION COMPLAINT-6
or other barriers to entry. As such, and in part due to the growth
in snowboarding and demand for snowboards, by early 1995 many new
companies were entering the business of making snowboards. At the
same time, many of the companies that had already been producing
snowboards moved to radically expand their snowboard production
capacity. The net result was that while Ride was touting a
purported 35% expected growth in snowboard demand for 1995, the
reality was that Ride knew or recklessly disregarded that the
number of snowboards available to the market in 1995 would likely
grow by twice as much.
13. Despite this expected snowboard glut, Ride focused on and
hyped the purportedly high growth in snowboarding and snowboard
demand, while omitting to disclose to the investing public that
even if Ride's prediction as to 35% growth in snowboard demand
proved accurate, such growth would pale in comparison to the number
of snowboards that were being produced for the 1995-1996 snowboard
season (generally, November 1995 to March 1996). As such, Ride
knew or recklessly disregarded that, for this reason alone, the
short-term prospects for its own earnings growth were not nearly as
positive as Ride led investors to believe.
14. The prospects for Ride's earnings growth, however, were
even worse than implicated by the world-wide glut of snowboards in
general. According to Ride, approximately 19% of its $25.3 million
in revenue for 1994 came as a result of sales to the Japanese
market (with 72% of revenues attributed to North America, and 9% to
Europe and elsewhere). For 1995, Ride represented that 23% of its
CLASS ACTION COMPLAINT-7
total revenues were generated by sales to the Japanese market (with
67% attributed to North America and 10% to Europe and elsewhere).
Ride knew or recklessly disregarded, however, that such
representations were patently misleading. In reality, a
significant number of additional Ride snowboards went into the
Japanese market via "gray market" transactions, where the sales
were only nominally made to companies in North America before the
snowboards were "trans-shipped" to Japan's retail marketplace.
Accounting for such sales as sales to the North American market
overstated Ride's actual sales to the North American market,
understated Ride's actual sales to the Japanese market, and misled
investors as to the extent to which Ride relied on sales to the
Japanese market for its growth.
15. Ride also knew or recklessly disregarded, but failed to
disclose, that by late 1995 it had glutted the Japanese market with
its snowboards. In addition to the fact that a great number of
Ride snowboards went into Japan via the "gray market" in 1995, Ride
increased by more than threefold the number of snowboards it sent
into Japan via its so-called exclusive distributor for that market,
Far East Trading, Ltd. ("Far East").
16. Ride announced in October, 1995, that it had signed a
new, three-year agreement (for 1996-1998) with Far East for
exclusive distribution to Japan, and that the agreement provided
for "substantially increased" "minimum purchase commitments." In
fact, according to Ride, Far East's "minimum" purchase commitment
for 1996 called for an increase of more than 50% from 1995's
CLASS ACTION COMPLAINT-8
levels, with similar large increases for 1997 and 1998. In total,
the new agreement supposedly provided for minimum purchases of
$124.6 million over the three years for the Japanese market alone;
in comparison, Ride's total revenues for 1995, including its
acquisitions, was $74.8 million.
17. The agreement with Par East provided no assurances of
sales in any amount. In truth, Far East could at any time decline
to purchase any Ride snowboards, and the only consequence to Far
East would be a possible loss of its right to be the only
10 distributor of Ride snowboards in Japan. In reality, Ride could
not count on any minimum. purchases from the Far East agreement.
Nevertheless, Ride continued to falsely represent the Far East
agreement as guaranteeing Ride a minimum of $33 million in sales
for 1996, thus leading investors to believe that Ride was virtually
assured of meeting its projected sales figures for the year. In
fact, Far East's actual pre-season orders for 1996 fell well short,
failing to even approach $33 million.
18. Retailers, for their part, had little need or desire for
more snowboards from Ride until such time as they could sell the
Ride snowboards they already had. As a result, Ride knew or
recklessly disregarded, but failed to disclose, that its pre-season
orders for the 1996-1997 snowboard season (orders which would be
placed by April, 1996) would undoubtedly be well below what the
market was led to expect.
19. Ride also moved quickly to disarm or stifle any negative
rumors or rumblings. For example, in February, 1996, a noted
CLASS ACTION COMPLAINT-9
financial commentator expressed a bearish outlook for Ride, opining
that the rumored excess snowboards at the retail level could lead
to savage price discounting, rising receivables, and possibly even
a loss for Ride on the year. Defendant Jamie Salter moved quickly
to contradict the commentator point-by-point. In addition, Salter
went so far as to guarantee that it was "not possible" for Ride to
lose money in 1996, assuring the investing public that he was
comfortable with analysts' estimates of $0.80-0.85 per share in
earnings. The "impossible" came true, however, when on March 3,
1997 Ride announced a loss of $5.5 million for 1996, or $0.52 per
share.
20. Ride misleadingly focused investors on the purported
growth in snowboarding and snowboard demand, telling investors that
sell-through remained strong, and that Ride believed that the
bottom line for 1996 would continue to grow. In fact, Ride went so
far, via defendant Madison, to represent that revenues for the year
would be in the range of $90-$95 million, with earnings per share
in the same proportion to sales as compared with the previous year.
Although Ride tacitly acknowledged some level of excess snowboard
inventory at the retail level, defendant Jamie Salter told the
investing public that somehow this was a good thing -- a "positive
coming into the market" -- that would not affect Ride's sales going
forward.
21. Ultimately, Ride would find it impossible to any longer
hide the problems related to the incredible glut of its snowboards
in the retail marketplace. Finally, on December 30, 1996, Ride
CLASS ACTION COMPLAINT-10
publicly acknowledged that it had a significant problem with excess
inventory levels associated with the glut of snowboards in the
retail market. Ride announced that it was taking a one-time charge
in its fourth quarter of $9 million, $6.5 million of which was to
account for the significant decrease in value that its excess
inventory had as close-out merchandise.
22. The Individual Defendants reaped substantial gain from
their manipulation and scheme to defraud by insuring that they
would keep their high level positions in Ride for which they
received substantial prestige, power and financial remuneration.
In addition, each of the Individual Defendants owned substantial
amounts of Ride common stock which purportedly constituted the
majority of each Individual Defendant's net worth. Thus, each
Individual Defendant benefitted greatly from the stock's inflated
value, and through the sale of substantial amounts of the Company's
stock during the Class Period at inflated values, reaping many
millions of dollars.
23. As a result of the scheme to manipulate and defraud, Ride
common stock traded at artificially inflated levels as high as
$34.875 (on December 26, 1995) per share during the Class Period.
By the time the entire truth regarding the defendants' scheme was
revealed to the market on December 30, 1996 (when Ride admitted to
its severe inventory problems caused by the extreme oversupply of
its snowboards and took a $9 million charge) Ride stock had lost
approximately 82% of that value, closing on December 30, 1996 at
$6.125 per share. Furthermore, the price of Ride common stock
CLASS ACTION COMPLAINT-11
continued to decline subsequent to that disclosure, closing at
$4.875 per share on March 13, 1997.
24. The market for Ride common stock was open, well-developed
and efficient at all relevant times.
PLAINTIFF'S CLASS ALLEGATIONS
25. The named plaintiff brings this action as a class action
pursuant to Rule 23 (a) and (b) (3) of the Federal Rules of Civil
Procedure ("FRCP") on behalf of a class (the "Class") consisting of
all persons who purchased the common stock of Ride during the
period beginning on August 10, 1995 (the date on which Ride filed
its secondary offering), through and including December 30, 1996
(at which time Ride, finally admitting to a severe inventory
backlog caused by an extreme oversupply of its snowboards, took a
$9 million charge, in part to reflect the significantly lower value
of the excess inventory as close-out) (the "Class Period"), with
the exception of defendants, their past and present subsidiaries,
affiliates and entities they control, and members of the immediate
families of the Individual Defendants.
26. Members of the Class are so numerous and geographically
dispersed that joinder of all Class members is impracticable.
During the Class Period, there was in excess of 10 million shares
of Ride common stock outstanding, held by hundreds or thousands of
stockholders.
27. Plaintiff will fairly and adequately protect the
interests of the members of the Class and has retained counsel
CLASS ACTION COMPLAINT-12
component and experienced in class and securities litigation.
28. Plaintiff's claims are typical of the claims of the
members of the Class as plaintiff and all members of the Class
sustained damages arising out of defendants' wrongful conduct in
violation of federal and state law as complained of herein.
29. A class action is superior to other available methods for
the fair and efficient adjudication of this controversy because
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 the Class members to individually redress the wrongs
done to them.
30. There are questions of law and fact common to this Class
which predominate over any questions solely affecting individual
members of the Class. Among the questions of law and fact common
to this Class are:
(a) whether the federal and state securities laws were
violated by defendants' acts as alleged herein;
(b) whether defendants participated in and pursued the
common course of conduct complained of;
(c) whether the documents disseminated to the investing
public, and other public statements made and/or
caused to be made by the defendants during the
Class Period, omitted and/or misrepresented
material facts about the Company's business
affairs, financial condition and current and future
CLASS ACTION COMPLAINT-13
prospects.
(d) whether the defendants acted willfully, recklessly
or negligently in omitting to state and/or
misrepresenting material facts;
(e) whether the market price of Ride common stock
during the Class Period was artificially inflated
due to the non-disclosure and/or misrepresentations
complained of herein; and
(f) whether the members of the Class have sustained
damages, and, if so, the proper measure of those
damages.
31. Plaintiff knows of no difficulty which will be
encountered in the management of this litigation which would
preclude its maintenance as a Class Action.
FACTUAL ALLEGATIONS
The Scheme To Defraud: Ride and its Public Statements
32. As described herein, during the Class Period the
defendants made or caused to be made a series of materially false
or misleading statements about the business and prospects of Ride.
The statements made or caused to be made by the defendants were
materially false and/or misleading at the time made, which the
defendants knew and/or recklessly disregarded, as particularized
below.
33. On or about August 10, 1995, the Company and certain
insiders and/or members of management offered two million shares of
CLASS ACTION COMPLAINT-14
common stock to the investing public through a prospectus filed
along with a Registration Statement Form S-1 (the "Offering"). Of
the two million shares offered, 1,165,400 were sold by Ride, with
the other 834,600 shares sold by various insiders and/or
management. While the Offering generally described, in a
boilerplate manner, the securities being sold as involving a "high
degree of risk," the information provided was materially misleading
by and through its failure to state material facts necessary in
order to make the statements made not misleading. As a whole, the
Offering focused on and emphasized the purported explosive growth
in the sport of snowboarding and, thus, the demand for snowboards,
along with Ride's intent to generate increasing revenues and
earnings growth through the capture of an increasing share of the
purported burgeoning demand. The Offering omitted, however, to
inform the investing public that Ride knew or recklessly
disregarded the fact that the purported growth in snowboard demand
paled in comparison to the growth in snowboard manufacturing
capacity, and that the retail market for snowboards faced an
imminent glut of snowboards from Ride and other snowboard brands.
In particular, estimates indicated that approximately 850,000
snowboards were sold in 1994, and that with the 35% growth in
demand that Ride routinely touted, sales for 1995 were expected to
be approximately 1.1 million. Industry production capacity,
however, had grown and was growing at a much higher rate, with 1995
snowboard production estimates ranging from 1.6 to 1.8 million - in
other words, an excess of anywhere from 500,000 to 700,000
CLASS ACTION COMPLAINT-15
snowboards in a total market of 1.1 million. In fact, Ride itself
was responsible for a significant amount of the drastic increase,
as Ride intended to increase the snowboards it produced or had
produced for it from approximately 85,000 in 1994, to 230,000 in
1995. As such, Ride failed to disclose that it knew or recklessly
disregarded the fact that it faced an imminent, certain, and huge
oversupply of its and others' snowboards in the retail market, and
that it was patently unreasonable to expect to continue to sustain
the revenue and earnings growth previously experienced.
34. Specifically, the following statements made in connection
with Ride's August 10, 1995 Offering were materially misleading for
the reasons stated:
(a) Quoting the National Sporting Goods Association
("NSGA"), Ride stated:
the number of snowboarders in the United
States increased from 1.8 million in 1993 to
2.1 million in 1994, a 17% annual growth rate.
The Company believes that similar growth rates
are being experienced in the other major
international markets, making snowboarding one
of the fastest growing sports in the world.
[Prospectus at 3.1 [Emphasis added.]
This statement was materially misleading because it focused on and
emphasized the purported growth in snowboard demand while omitting
any mention of the fact that the rate of growth in snowboard supply
vastly exceeded any purported increase in demand, and failed to
provide material information with regard to the imminent risks
posed to Ride and its prospects by the oversupply of its and
others, snowboards.
CLASS ACTION COMPLAINT-16
(b) In the offering's Risk Factors section, Ride stated
the following with regard to the Company's contractual arrangement
with its Japanese distributor, Far East:
The Company's [exclusive] Japanese distributor
accounted for approximately 18% ... of the
Company's net sales in 1994 .... [Prospectus
at 7.]
This statement was materially, misleading because since Far East was
Ride's "exclusive" distributor for the Japanese market, Ride was
impliedly representing such sales as virtually its total sales to
the Japanese market. As Ride knew or recklessly disregarded,
though, during the time periods indicated, a material and
substantial additional number of Ride's snowboards were sold in the
Japanese retail market via the "gray market" transactions. Thus,
the statement was materially misleading because it materially and
substantially understated Ride's actual snowboard sales to (and
reliance on) the Japanese retail market.
(c) In the offering's "Business" section, the Company
provided the following table purporting to set forth Ride's sales
revenues on a geographic basis:
The Company's North American and Export
Sales (in thousands) are set forth below
for the year ended December 31, 1994.
North America. . . . . . . .$18,300 72%
Japan.. . . . . . . . . . . .4,861 19
Europe and other. . . . . . .2,188 9
Net sales. . . . . . . . . .25,349 100%
====== ====
[Prospectus at 22.] These- representations were materially
misleading because as Ride knew or recklessly disregarded, a
CLASS ACTION COMPLAINT-17
material and substantial number of snowboard sales Ride represented
and characterized as sales made in the North American retail
market, were actually "gray market" sales made to the Japanese
retail market. As Ride knew or recklessly disregarded, this
materially and substantially overstated the actual sales of Ride's
snowboard product to (and reliance on) the. North American retail
market, as well as materially and substantially understated Ride's
actual snowboard sales to (and reliance on) the Japanese retail
market.
35. On September 5, 1995, Ride issued a press release
announcing its acquisition of Thermal and 5150. In conjunction
with the acquisition, defendant Madison made the following
statement:
Our acquisition of Thermal's snowboard
production capabilities should increase Ride's
gross margins as we produce an increasing
percentage of -our snowboards at Thermal's
facility. In addition, our new domestic
production capabilities will reduce our
reliance on outside suppliers and our exposure
to currency exchange swings without altering
Ride's strong partnership with current key
snowboard suppliers, from whom we intend to
continue to purchase an increasing number of
snowboards. [Business Wire, 9-5-95.]
36. On October 19, 1995, Ride issued a press release
regarding third quarter revenues and earnings in which defendant
Madison proclaimed: "We are very pleased to announce another
quarter of record growth and profitability for our company." "The
continued strong growth in the worldwide snowboard market, coupled
with retailer interest driven by consumer demand for Ride product
CLASS ACTION COMPLAINT-18
lines, contributed to this quarter's results." [PR Newswire, 10-19-
95.] This statement was materially misleading because it focused
on and emphasized the purported growth in snowboard demand while
omitting any mention of the fact that the rate of growth in
snowboard supply vastly exceeded any purported increase in demand,
and failed to provide material information with regard to the
imminent risks posed to Ride and its prospects by the excess supply
of its and others, snowboards.
37. On October 19, 1995, Ride conducted a conference call
with certain analysts and others. In the conference call, Ride
touted industry studies indicating snowboard sales growth of 35-50%
annually, with the market in Canada growing by more than 80%.
Also, at least two times during the call, Ride stated that it was
comfortable with fourth quarter and fiscal 1996 estimates.
["Posting" (i.e., e-mail message) in the Ride folder of The Motley
Fool bulletin board section of America OnLine (hereafter, "AOL's
Motley Fool Ride folder"), 10-19-95, 10-20-95.] These statements
were materially misleading because they focused on and emphasized
the purported growth in snowboard demand while omitting any mention
of the fact that the rate of growth in snowboard supply vastly
exceeded any purported increase in demand, and failed to provide
material information with regard to the imminent risks posed to
Ride and its prospects by the excess supply of its and others'
snowboards.
38. On October 30, 1995, Ride issued a press release touting
a new three year agreement with its Japanese market distributor,
CLASS ACTION COMPLAINT-19
Far East, stating:
The agreement, which has been in effect since
December 7, 1992, was renewed for the three
years ending December 31, 1998 and provides
for substantially increased minimum purchase
commitments over the three year term of the
agreement. [Emphasis added.]
Over the last three years, FET has proven to
be a most trusted and successful partner to
Ride, and we look-forward to continuing our
strong track record of growth in the Japanese
market with FET. [PR Newswire, 10-30-95.]
These statements were materially misleading because the so-called
"minimum purchase commitments" touted by Ride actually guaranteed
Ride no sales of any amount whatsoever. Furthermore, the
statements were materially misleading because they implied that
Ride expected increased Japanese sales even though Ride knew or
recklessly disregarded that an oversupply of Ride and other
snowboards existed in Japan, and was worsening. In fact, as Ride
knew or recklessly disregarded, as a result of the large number of
"gray market" transactions in Ride snowboards and the fact that
Ride's shipments into the Japanese market via Far East had
increased threefold from 1994, up to four times the number of its
snowboards were entering the Japanese market in 1995 than had
entered in 1994. In addition, Ride knew or recklessly disregarded
that it was already significantly understating its actual sales to
the Japanese retail market due to how it represented and accounted
for "grey-market" transactions, and that these facts, individually
and collectively, made it extremely unlikely that Far East would
meet the supposed "minimum purchase commitment" levels.
CLASS ACTION COMPLAINT-20
39. On December 1, 1995, defendant Madison responded to a
question about a recent decline in Ride's stock price with the
following posting to the AOL Motley Fool Ride folder:
While we don't comment on movements in our
stock price, we can comment on the question of
whether there is any news out regarding Ride
and its business.
The short answer is that there is no news....
[Emphasis added.]
I also heard a rumor that due to the lack of
snow in the west, Ride was experiencing
sluggish inventory movement. This is not true
either. In fact, we remain comfortable with
analysts' projections for the fourth quarter
and for 1996. [Emphasis added.]
One bit of news that has been disclosed
publicly is our new contract with our Japanese
distributor. About four weeks ago, we issued
a press release indicating that we had renewed
our agreement with Japan for three years and
that the agreement involved a "substantial"
increase in the distributor's purchase
commitments. Well, about two weeks ago, we
attached a copy of that agreement to our third
quarter 10Q, and that contract provides for
minimum purchase commitments by our Japanese
distributor over the next three years of
$124.6 million. Naturally, we are very
pleased with this development. [Emphasis
added.]
We hope and trust that this addresses any
questions regarding recent news about Ride.
Madison's statement that Ride was not experiencing sluggish
inventory movement was materially misleading because Ride knew or
recklessly disregarded that Ride snowboards were suffering from
poor "sell-through" at the retail level, and that until a snowboard
was actually sold to an end user a retailer was unlikely to place
further orders, and could unilaterally cancel orders already placed
CLASS ACTION COMPLAINT-21
but not yet filled. Further, Madison's statement regarding the
"minimum purchase commitments" of Ride's Japanese distributor, Far
East, was materially misleading because the so-called "minimum
purchase commitments" by Far East actually guaranteed Ride of no
sales of any amount whatsoever, and given the glut of Ride and
other snowboards in the Japanese market, it was highly unlikely
that Far East would place orders with Ride for the so-called
"minimum" amounts.
40. On January 12, 1996, defendant Madison called several
analysts during the day to encourage them to revise their earnings
models. The revision was that a greater percentage of the
Company's predicted revenues and earnings would fall in the second
half of 1996 than had been previously estimated. According to
Madison, the revision was necessary because the analysts had been
a little optimistic about Ride's seasonal vulnerability, and that
costs were increasing as a result of Ride's increased manufacturing
capacity and spending on research. Madison was quick to add,
however, that gross margins were increasing as well, and that he
was "very comfortable" with the analysts' updated models which,
although reallocating estimated earnings and revenues to overweight
the second half of the year, maintained or increased the earnings
and revenues estimates for the full year. [Reuters, 1-12-96.]
These statements were materially misleading because Ride knew or
recklessly disregarded that there was a great oversupply of Ride
and other snowboards currently in the distribution channel, which
would seriously undermine Ride's sales for the 1996-1997 snowboard
CLASS ACTION COMPLAINT-22
season (sales which would primarily occur in the third and fourth
quarters of calendar year 1996) Furthermore, this oversupply,
which would cause retailers to refrain or abstain from ordering, or
in some cases to cancel orders previously made, would necessarily
result in an unwanted build-up of inventory for Ride in the second
half of the year, not the increased earnings and revenues Ride
represented.
41. On January 12, 1996, Hambrecht & Quist analyst Shelly
Young, after being counseled by defendant Madison, revised her
earnings model to overweight the second half of 1996, while leaving
her overall 1996 estimate unchanged. According to Young, Ride
officials said the new numbers reflected the Company's growing
complexity and seasonality. [Reuters, 1-12-96.]
42. On January 12, 1996, investment advisor Dain Bosworth,
after being counseled by defendant Madison, revised its earnings
model to overweight the second half of 1996, while increasing its
overall 1996 earnings estimate. Reflecting and relaying the
information that defendant Madison had passed on during the phone
call, Dain Bosworth said: "For several reasons, we believe Ride
will recognize higher absolute operating expenses in 1996 than our
previous expectations -- largely offset by higher expected gross
margins and a more favorable full year sales outlook." (Emphasis
added.) [Reuters, 1-12-96.]
43. On January 12, 1996, Ride stock lost $8.50 per share
(over 25% of its value), falling from $33.50 to $25, in response to
the news of the revised earnings models. Hearing of the drop,
CLASS ACTION COMPLAINT-23
defendant Madison responded quickly to soothe the market,
reportedly stating, "I am amazed at the apparent level of panic."
(Emphasis added.) "Our SG&A [selling, general and administrative
costs] is becoming more fixed because of the fact that we acquired
a manufacturing plant and because we're adding SG&-A to support
increased levels of sales that are happening." (Emphasis added.)
"A lot of that you incur in the first quarter even though the
revenues don't come till the third and fourth quarters." [Reuters,
1-12-96.] These statements were materially misleading because Ride
knew or recklessly disregarded the fact that there was a great
oversupply of Ride and other snowboards remaining unsold at the
retail level, which would greatly undermine Ride's ability to
generate sales for the 1996-1997 snowboard season, which in turn
would severely and negatively impact Ride's revenues and earnings
for the latter half of 1996.
44. On January 12, 1996, the following posting was made to
the AOL Motley Fool Ride folder, relaying a conversation with and
statements made by defendant Madison about the revised earnings
models and the stock market's reaction:
I spoke briefly with Roger Madison,
Chairman of Ride, today after market close.
He did not understand why the market reacted
the way it did, because it was, in his eyes, a
fairly positive report by Dain Bosworth.
While sales estimates were lowered for the
first two quarters, they were raised by a
nickel for fiscal year 1996. He said he was
comfortable with the numbers. [Emphasis
added.]
45. On January 22, 1996, Ride issued the following press
CLASS ACTION COMPLAINT-24
release, announcing its revenues and earnings for 1995:
Ride, Inc. (Nasdaq: RIDE), a leading
manufacturer and worldwide marketer of
snowboards and related products, today
announced record revenues and earnings for the
fourth quarter and year ended December 31,
1995.
* * *
"We are very pleased with the Company's
financial performance in 1995," said Ride
chairman Roger Madison. "Our fourth quarter
results reflect the momentum at the company
and within the snowboard industry as a whole,"
he added. [Emphasis added.]
"With the acquisition of Thermal
Snowboards' manufacturing capabilities in
September and our increased focus on R&D, Ride
has become a more product driven company,"
said James Salter, Ride's chief executive
officer. "The product improvements and
innovations we are making, coupled with our
diversified branding strategy, make us very
excited about the Company's direction in
1996." [Emphasis added.]
[PR Newswire, 1-22-96.] These statements were materially
misleading because they focused on and emphasized the purported
growth in snowboard demand, even though Ride knew or recklessly
disregarded that there was a great oversupply of Ride and other
snowboards remaining unsold at the retail level, which would in
turn severely undermine Ride's ability to generate sales and
revenues during the latter half of 1996, in conjunction with sales
for the 1996-1997 snowboard season.
46. On January 22, 1996, a Reuter's Financial Service Report,
reporting on Ride's announcement of fourth quarter revenues and
earnings, related that officials at Ride were "bullish about growth
CLASS ACTION COMPLAINT-25
prospects." According to the report:
Chief executive Jamie Salter said Ride enjoyed
good geographic diversification throughout
North America, Europe and the Far East,
particularly Japan. Salter said Ride
controlled about 17-20 percent of the
worldwide snowboard market, which is worth
$600-$750 million overall and growing by 30-40
percent annually.
The report also passed on that Salter claimed Ride was not
detecting any price pressure, although there were new price points
at the lower end, and that Salter hoped to be able to pass Ride's
lower costs on to retailers and, in turn, consumers, this year.
[Reuters, 1-22-96.] Salter's statements, as reflected in the
report, were materially misleading because Ride knew or recklessly
disregarded that the great oversupply of Ride and other snowboards
had glutted and remained unsold at the retail level, thus severely
undermining Ride's immediate term "growth prospects." Furthermore,
these statements were materially misleading because Ride was
already implementing heavy discounting and easy credit in order to
sell its oversupply of snowboards to retailers.
47. On February 9, 1996, a posting was made to the AOL Motley
Fool Ride folder reporting on a January 22, 1996, Ride conference
call with analysis. According to the posting, Ride management
(Madison and Jamie Salter) conveyed the following during the
conference call:
1. Ride reported that they are not having
any more difficulty than they did last year
collecting from retailers. There has been
much discussion here that this was a
possibility due to bad snow conditions out
west, but Ride says the money was coming in
CLASS ACI'ION COMPLANT-26
January.
2. Those bad snow conditions are ONLY out
west, and Ride likes to stress that they are a
diversified international business. Jamie
Salter, CEO, stated that the American west was
the source of about 15-25% of total Ride brand
business and about 10% of Ride, Inc. overall.
They specifically pointed to booming snowboard
business in Quebec and northern Europe (where
they recently opened an office).
* * *
4. Ride has about 17-20% of the [worldwide]
market, which they claim is growing at least
at the rate of 30-40% per year.
The ski industry claims a far slower growth rate,
which Ride rabidly disputes.
* * *
7. It was [their] opinion, that [despite]
the huge number of snowboard players, that
many of them will have difficulty due to their
financial condition. Retailers don't want to
be stuck in November without product.
[Emphasis added.]
8. Margins will increase due to the Thermal
manufacturing. Ride said that they would pass
some of that on to the consumer, in an attempt
to undersell leading competitors at the top
end.
[AOL Motley Pool Ride folder, 2-9-96.] These statements were
materially misleading because by this time Ride was already heavily
discounting its snowboards and extending easy credit to retailers
in order to get retailers to purchase its snowboards. These
statements were further materially misleading because they focused
on and emphasized the purported growth in snowboard demand, while
ignoring the fact that there was a great oversupply of Ride and
other snowboards remaining unsold at the retail level, and that the
CLASS ACTION COMPLAINT-27
supply of snowboards continued to vastly exceed snowboard demand,
just as growth in snowboard production capacity continued to far
exceed-any purported growth in demand.
48. On February 12, 1996, CNBC financial correspondent Dan
Dorfman expressed comments regarding a bearish outlook for Ride.
Dorfman said that some professionals indicated that a glut of
snowboard manufacturers and a surge in competition would lead to
"savage" price discounting for Ride, and that Ride's accounts
receivables were increasing due in part to extending easier credit
terms. Dorfman also reported that some professionals cited huge
inventories at the retail levels and heavy discounting as support
for believing that Ride could lose money this year. Dorfman
reported, however, that Ride's CEO, Jamie Salter, said he did not
see a problem with either inventory levels or competition, stating
that, in fact, the smaller snowboard manufacturers were creating
new price points which would ultimately benefit larger companies,
such as Ride, by bringing more people into the sport. Salter
stated, "The company's accounts receivables are down from year -
ago levels. Credit terms have never been as tough as they are now
and are actually getting tougher due to the retail environment."
Salter added that he was "comfortable" with analysts' 1996
estimates of $.80-.85 a share, stating that it was "not possible"
for Ride to lose money this year. [Emphasis added.] [Dow Jones
News, 2-12-96.] These statements were materially misleading
because by this time Ride was already heavily discounting and
extending easy credit terms to retailers in order to get retailers
CLASS ACTION COMPLAINT-28
to purchase Ride's oversupply of snowboards. Furthermore, these
statements were materially misleading because Ride knew or
recklessly disregarded that the great oversupply of Ride and other
snowboards remaining unsold at the retail level would cause
retailers to refrain or completely abstain from ordering, or in
some cases to cancel orders previously made, with respect to
snowboards for the 1996-1997 snowboard season, thus leading to a
significant build-up of excess snowboard inventory at Ride during
the latter half of 1996. In addition, due to the foregoing,
defendant Jamie Salter knew it was misleading to express "comfort"
with 1996 earnings estimates of $0.80-0.85 per share, and, in
particular, to unequivocally guarantee that it was "not possible"
for Ride to lose money in 1996. Indeed, Salter's guarantee was not
borne out; on March 3, 1997, Ride reported a loss for 1996 of $5.5
million ($0.52 per share). [PR Newswire, 3-3-97.1
49. On February 13, 1996, defendant Madison posted the
following to the AOL Motley Fool Ride folder:
Fabit9 mentioned our ad in a recent issue of a
snowboarder consumer magazine.
In 1993, one of our competitors copied our
then-logo with the word "Hype" in the place of
"Ride" and distributed stickers to the market.
Apparently, the word was that Ride was simply
"Hype" not performance.
Since 1993, Ride's revenues have grown from
$5.8 million in 1993 to $74.8 million in 1995.
We believe that our products, performance is
unbeaten by any in the world. We resurrected
the "Hype-what it is" as simply as a good-
spirited way to show the snowboard consumer
(especially the "hardcore" consumers that knew
the source of the "Hype" logo) that we're here
CLASS ACTION COMPLAINT-29
to stay.
We believe that Ride's growth - both with and
without the acquisitions - has out paced the
revenue of every major player in the industry.
We will continue to let our results speak for
themselves.
These statements were materially misleading because as Ride knew or
recklessly disregarded, the substantial oversupply of Ride and
other snowboards remaining unsold at the retail level meant that
retailers would refrain or completely abstain from ordering, or in
some cases to cancel orders already made, with respect to
snowboards for the 1996-1997 snowboard season, which in turn would
cause a significant build-up in Ride's snowboard inventories during
the latter half of 1996. Since the glut of Ride and other
snowboards had to clear the distribution channel before Ride could
sell additional snowboards, Ride's short term growth prospects were
dismal, and it was further misleading to tout Ride's historic
growth in the face of the known or recklessly disregarded current
problems with the continuing oversupply of Ride and other
snowboards.
50. On February 14, 1996, defendant Madison made the
following-posting in the AOL Motley Fool Ride folder:
[A] couple of weeks ago, Ride management held
a conference call with some 100 analysts and
investors to discuss the earnings release that
had been released that morning. [Eric
Terkowitz, of Motley Fool] was invited to
participate, but couldn't, so we forwarded a
tape of the conference call to him. He
forwarded a number of questions regarding that
call to me, and I have set forth my responses
below for everyone's information:
CLASS ACTION COMPLAINT-30
* * *
<<2. Who, or what, is the greatest threat to
Ride as a company?>>
This answer will probably disappoint you, but
I believe that the greatest threat to Ride
hasn't changed at all -- it comes from the
challenges of managing our growth and staying
on top of product advancements. With the
roughly 200% growth we experienced last year,
we had to work very hard to stay on top of
managing our company. Although the growth
won't be as spectacular this year in terms of
percentage gains, the absolute growth we
believe we will experience (and remember, from
a bigger base!) Doses great challenges. I'm
not aware of any snowboard company -- public
or otherwise -- which has had our growth rate
AND been profitable. [Emphasis added.]
Just to be complete, I will also comment on
what many probably think are our biggest
threats: overproduction in the market and the
rumored pending entry into the market of
"bigger players" such as the large ski
companies. I'll comment [on] the issue of
overproduction in #6 below, so let me address
the issue of new large entrants into the
market:
* * *
We believe that the ski companies will get a
share of the market, particularly the cross-
over skier market. ...However, one needs to
realize that some of these "bigger players"
have already been in the snowboard market for
quite some time, with very limited success.
...So, we welcome the new competition. Some
of the new competitors, if they materialize,
may gain enough market share to survive, but
we believe that our head start (in terms of
our market share) and our product design and
market presence will ensure our long-term
profitability. [Emphasis added.]
* * *
<<5. Jamie mentioned that with the Japanese
deal, you are already "half way there". Half
CLASS ACTION COMPLAINT-31
way to where? To meet last year[']s pre-season
orders, to meet this year's hoped for pre-
season orders? Can you clarify?>> [Emphasis
added.]
* * *
With the signing of the agreement with our
Japan distributor, we obtained a commitment
for at least $34 million (this is an
approximate number, again, since I am away
from the office and don't have a copy of the
Japanese agreement with me). Although this is
not half of the analysts' estimates of
approximately $120 million in 1996 revenues
for Ride, it does indeed give us an excellent
start toward meeting our sales goals. We
expect to be in a position to announce our
total preseason orders for the year (which
were $51 million in 1995) on or about April
15. [Emphasis added.]
6. There has been much discussion lately
about all of the production that will be
around for next season, with strong hints of
over-production. How has this affected your
business decisions, if at all?
Jamie Salter, whose experience and judgment in
this business I trust more than anyone's, I
believe said it best either during that
conference call or during one of our follow-up
calls with an institutional investor. Very,
very few snowboards are built on "spec" --
that is, without corresponding orders. While
some boards will certainly be built in this
way, we don't believe that factories will
produce substantial quantities without orders.
This would represent a capital risk too large
for too little potential return.
On a related note, there has been a lot of ink
lately on the supposed slowdown in the
snowboard industry (including Mr. Dorfman's
recent comments). We have stated [ad] nauseam
that we simply don't see this occurring, so I
won't repeat it here. However, I recently saw
something which I believe speaks volumes. On
page 69 of the January 29 issue of Time
Magazine, there is another article which
describes the fast growth in the snowboard
CLASS ACTION COMPLAINT-32
industry which, of course, is not anything
that hasn't already appeared in a number of
places. But I did see something in that
article which I frankly thought was
astounding. After reporting that Rossignol
had seen 100% growth in its snowboard
production over the last three years (again,
nothing to write home about, just a 26%
compound annual growth rate), Time quoted
Rossignol's product manager as saying that, by
2005, we could see every other person on the
mountain on a snowboard! [Emphasis added.]
I thought that this comment was astounding for
two reasons. First, consider its source. As
a leading ski company with little snowboard
share, Rossignol has every reason to downplay
the growth of the snowboard market. Second,
one must realize that today snowboarding is
only at approximately 15-20% the size of the
ski market. Even if the ski market continues
to shrink, saying that the snowboard market
will be the same size as the ski market by
2005 is growth indeed!
These statements were materially misleading because Ride knew or
recklessly disregarded that a great amount of Ride and other
snowboards remained unsold at the retail level, which would cause
retailers to refrain or completely abstain from ordering, or in
some cases to cancel orders previously made, regarding snowboards
for the 1996-1997 snowboard season. As such, Ride' s immediate, term
growth prospects were dismal, as the oversupply of its snowboards
would necessarily result in an unwanted build-up of snowboard
inventory for Ride in the second half of the year. In conjunction,
these statements were materially misleading because they focused on
the purported growth in snowboard demand while ignoring the
continuing problems of excess supply and manufacturing
overcapacity. Additionally, these statements were materially
CLASS ACTION COMPLAINT-33
misleading because Far East's "commitment" was anything but; in
fact, Ride's agreement with Far East guaranteed Ride of no sales in
any amount, and defendant Madison knew that it was misleading to
represent that due to the agreement, Ride already had an "excellent
start" toward meeting 1996 sales projections.
51. On February 29, 1996, Ride issued a press release
regarding its revenues and earnings for 1995. Defendant Madison
stated: "We are very pleased with the company's financial
performance in 1995." "We believe that Ride's results for 1995
reflect continued growth in the world snowboard market and
Ride's increasing share of the market." [Emphasis added.] In
addition, defendant Jamie Salter stated, "The excellent response
that we have received for our 1996-1997 product line indicates to
us that our acquisitions and emphasis on research and development
in 1995 were well placed." "We look forward to another successful
year in 1996." [Emphasis added.] [P.R. Newswire, 2-29-96.] These
statements were materially misleading because they unduly focused
on and emphasized the purported growth in snowboard demand, while
omitting to disclose the great oversupply of Ride and other
snowboards remaining unsold in the retail market, and the
continuing overcapacity of snowboard production. Further, since
the great amount of Ride and other snowboards remaining unsold at
the retail level would cause retailers to refrain or completely
abstain from ordering, or in some cases to cancel orders previously
made, regarding snowboards for the 1996-1997 snowboard season
(sales which would ordinarily be made in the third and fourth
CLASS ACTION COMPLAINT-34
quarters of 1996), Ride knew or recklessly disregarded that its
full year results for 1996 would be dismal. Specifically, defendant
Jamie Salter, due to the foregoing, knew that Ride's outlook for
1996 was dismal, and that it was misleading to represent that Ride
was looking forward to "another successful year in 1996."
52. In or about April, 1996, Ride distributed its 1995 annual
report to its shareholders and/or filed it with the SEC. Among
other statements Ride made in the report are the following:
The year can be summed up in one word -
Growth. Growth in the number of people
snowboarding; Growth in sales and earnings;
Growth in our product lines; Growth in our
manufacturing capacities, Growth in our family
of employees, retailers and shareholders.
[Emphasis added.]
Snowboarding has become the fastest growing
sport in the world - and Ride substantially
out paced the snowboard industry, recording
significant increases in sales and earnings
while broadening its product lines and
production capacities. Our results in 1995
clearly demonstrated that the Company is well-
positioned to take advantage of this rapid
industry growth. [Emphasis added.]
Revenues in fiscal 1995 of $74.8 million
represented an increase of 195% over revenues
of $25.3 million in fiscal 1994. Earnings of
almost $6 million in 1995 increased by 219%
over earnings of approximately $1.9 million in
the comparable period last year, an indication
of our ability to successfully manage this
explosive growth. [Emphasis added.]
[Annual Report at 3.]
While the Company's expansion has been
spectacular in many ways, we have refined our
system of internal control so that our growth
is carefully planned and managed. We have
paid particular attention to each department
and added experienced managers, where
CLASS ACTION COMPLAINT-35
appropriate, to help guide our younger
employees. [Emphasis added.]
In the coming year, we intend to focus our
efforts on expanding market share,
consolidating recent acquisitions and
increasing our customer base in North America,
Europe and Japan. We will continue to
concentrate on new product development,
managing our growth and maintaining our
progressive image through unique marketing,
merchandising and promotional programs.
[Emphasis added.]
[Annual Report at 5.] These statements were materially misleading
because they unduly focused on and emphasized the purported growth
in snowboarding and snowboard demand, while omitting to disclose
the great oversupply of Ride and other snowboards at the retail
level, and the continued snowboard production overcapacity.
Additionally, the Ride officers signing-off on the filing knew that
the statements were materially misleading, because rather than
being "well-positioned" to take advantage of purported industry
growth, a great deal of Ride and other snowboards remained unsold
at the retail level, which would cause retailers to refrain or
completely abstain from ordering, or in some cases to cancel orders
previously made, with regard to snowboards for the 1996-1997
snowboard season. Furthermore, these statements were materially
misleading because Ride's growth was not "carefully planned and
managed," as the Company lacked any focused long-range business or
strategic plan. In fact, during interviews for a news story about
Ride that appeared in the November 27, 1996 Wall Street Journal,
Ride's then new president, Robert Hall, explicitly acknowledged,
and Ride's then former President, Tim Pogue, implicitly
CLASS ACTION COMPLAINT-36
acknowledged, this lack of a business plan.
53. On April 5, 1996, defendant Madison posted a message in
the AOL Motley Fool Ride folder, stating in part:
Since the first quarter has now ended, we are
in a "quiet period" until after the release of
our earnings and pre-season orders. ...
We expect to release both Ql earnings and pre-
season orders either the week of April 15 or
the following week. The exact timing will
depend on our progress in processing the
orders which continue to come in every day.
[Emphasis added.]
This statement was materially misleading because it implied that
Ride was encountering strong demand in its pre-season orders, when
Ride knew or recklessly disregarded that its pre-season orders
(orders for the 1996-1997 snowboard season) were falling, and
ultimately would fall, well below expectations.
54. On or about April 9, 1996, Ride filed with the SEC its
Form 10-K for its fiscal year ended December 31, 1995. In the 10-
K, Ride made the following statements:
Based on published industry data, sales of
snowboards, boots and bindings (hard goods) in
the United States for the 1995-96 season
increased 27.9% at the retail level. European
and Japanese markets also generated
substantial sales volume, and the Company
believes these markets are experiencing growth
rates similar to that of the North American
market. [12-31-95 10-K at 3.]
These statements were materially misleading because Ride failed to
disclose that regardless of the purported historic growth in
snowboard demand, there was a glut of Ride and other snowboards at
the retail level both in the North American and overseas markets,
CLASS ACTION COMPLAINT-37
which would cause retailers in those markets to refrain or
completely abstain from ordering, or in some cases to cancel orders
previously made, regarding snowboards for the upcoming 1996-1997
snowboard season. As Ride knew or recklessly disregarded, this
would cause Ride to incur an unwanted and substantial build-up in
its snowboard inventories, such that any express or implied
representations of significant growth for 1996 were patently
unreasonable.
55. On April 18, 1996, Ride held a conference call with
analysts regarding results of its first quarter for 1996, and to
try to put a positive "spin" on the poor pre-season orders. During
the conference call, defendant Madison stated:
I just mention in passing that for those of
you who haven't received the press release
yet, you'll notice right off the bat, we have
taken the step of making an unusually broad
disclosure this time. We did that because we
are actually quite excited about the prospects
of this Company and we think there's a lot of
good news in there as well as of course
perhaps, some bad and we want to be as
complete as possible in our disclosure. ...
Let me just mention again, we are pleased with
these results, despite the changes that are
going on in the snowboard industry in the
short run, we are very, very pleased and we do
think that Ride is very well positioned.
(Emphasis added.]
* * *
[The press release] also mentioned why we've
included this year a separate comparison of
'96 to '95 pre-season orders plus first
quarter sales, and the reason is that we have
had substantial increase[s] in first quarter
sales. A number of those sales that would be
comparable last year were held off until the
second quarter and so by having these higher
CLASS ACTION COMPLAINT-38
sales, it did reduce the pre-season orders and
we believe its more relevant to look at the
sum of the two. Let me just comment briefly
on a few strategic and marketing issues....
First of all, we believe that the growth in
the snowboard industry world wide is very,
very strong at the consumer level. We believe
that the total sell-through, if you will, at
retail stores around the world is still in the
neighborhood of 35% growth a year, if not
stronger. [Emphasis added.]
* * * *
[W]e're very upbeat. We see 1996 top line and
bottom line continuing to grow although not as
fast as we had originally thought. We feel
comfortable at this time, in the $90-$95
million range in revenues, and will be able to
give you a little bit more direction to come
in the future, however, at this point we can
say that earnings per share will be roughly
proportionate to the sales, versus what they
were last year. I also should mention that at
this point we believe that the longer term,
say in the 2-4 year time frame, growth rate of
our revenues ought to be in the 30-35% range.
We're very comfortable with that. [Emphasis
added.]
In addition, during a question-and-answer part of the conference
call, when asked about Ride's expectations for receiving additional
orders, Defendant Madison stated:
In the past we planned on a little bit
less than 20% in terms of re-orders mainly
from our Christmas holiday program. This year
we anticipate it to be a little higher than
last year and in previous years because of how
the dealers are holding their orders back
However, we will continue to be on the
conservative side of where we feel the
industry is. [Emphasis added.]
Also during the question-and-answer part of the conference call,
defendant Jamie Salter tried to squelch any concerns about any
alleged problems regarding excess supply::
CLASS ACTION COMPLAINT-39
[Defendant Jamie Salter:] The one thing that I
think is really good is that the excess
inventory that is in the pipeline, I believe
that approximately that 50% and that may even
be a lower figure than that, it may be closer
to the 40%, went in to the pipeline at reduced
prices. This is very good when inventory goes
into the pipeline at reduced prices. It's not
good for the people that have to sell it into
that marketplace, but it is very good for the
retailers and the consumers because it creates
new price points that never would have been in
the market. So I actually see this as a
positive coming into the market because this
inventory should move out of the stores in
early pre-season sales and should not effect
the in-line sales going forward. [Emphasis
added.]
[Transcript of April 18, 1996 Ride Conference Call with Analysts,
posted in AOL Motley Fool Ride folder on May 1, 1996.] These
statements were materially misleading because Ride continued to
focus on and emphasize the purported growth in snowboard demand
while downplaying or failing to disclose the ongoing oversupply of
Ride and other snowboards at the retail level, and the continuing
problem of excess snowboard manufacturing capacity. In addition,
due to the continuing glut, oversupply and over capacity, defendant
Jamie Salter knew it was misleading to characterize the problems as
temporary, and that, contrary to his representations, the glut and
oversupply problem would severely affect "in-line sales going
forward." Moreover, defendant Jamie Salter also knew it was
misleading to characterize the extreme oversupply of snowboards in
the "pipeline" as a "positive coming into the market," because it
would cause retailers to refrain or completely abstain from
ordering, or in some cases to cancel orders previously made,
CLASS ACTION COMPLAINT-40
regarding snowboards for the 1996-1997 snowboard season. In
addition, defendant Madison knew, for the reasons enumerated above,
that it was misleading to lead the market to believe that Ride
would achieve revenues of $90-95 million in 1996, or that the 1996
"top line and bottom line" would show continued growth.
56. On April 19, 1996, Ride common stock lost $1.75 per share
(13.7%), falling from $12.75 to $11, in response to the Company's
announcement that its preseason order for the 1996-97 snowboard
season fell well below analysts, estimates. [Dow Jones News, 4-19-
96.]
57. On May 2, 1996, Defendant Madison made the following
posting to the AOL Motley Fool Ride folder in response to a
question regarding "sell-through" of Ride's snowboards:
Overall, we do not believe that sell-through
is any more of a problem than it is for the
five or six major competitors. Our sell-
through, we believe, is much better than it is
for the 100 or more smaller competitors out
there. That is not to say that in some
markets (Japan, for instance) our sell-through
may be lagging somewhat behind, but we think
we have addressed that problem by not forcing
too much inventory into that market for this
year.
These statements were materially misleading because they attempted
to downplay the seriousness and severity of Ride's problems with
sell-through at the retail level, even though Ride knew or
recklessly disregarded that sell-through of Ride snowboards was
extremely poor, and that there was a vast oversupply of Ride
snowboards in the distribution channel that would continue to
affect Ride's revenues throughout the latter part of 1996.
CLASS ACTION COMPLAINT-41
58. On or about May 6, 1996, Ride conducted its annual
meeting in Kirkland, Washington. During the meeting, when asked to
comment on Ride's declining stock price, defendant Madison
"shrugged off the numbers," instead emphasizing the continued
growth potential of snowboarding and Ride's position as the second
largest snowboard supplier in the world. Madison also stated,
"We've made some mistakes .... but we believe we are on the right
track." [Seattle Times, 5-7-96.] These statements were materially
misleading because they continued to emphasize the supposed "growth
potential" of snowboard demand while failing to disclose the great
oversupply of Ride and other snowboards at the retail level, and
the problems associated with the continuing excess snowboard
production capacity. Moreover, defendant Madison knew that it was
misleading to lead the market to believe that Ride was "on the
right track," because the oversupply of snowboards at the retail
level would cause a substantial and dangerous increase in Ride's
snowboard inventories, which would adversely affect Ride's revenues
and earnings for the latter half of 1996, and would continue until
such time as the excess Ride snowboards were flushed out of the
distribution channel.
59. On May 30, 1996, Ride investor relations representative
Deven Perschke ("Perschke") made the following representations,
having reason to know that the representations would be posted in
the AOL Motley Fool Ride folder. According to Perschke, Ride
believed that it would be able to ship its entire line of products
for the 1996-1997 snowboard season without problems. Perschke also
CLASS ACTION COMPLAINT-42
represented that Ride was adhering to a "build-to-order"
philosophy, which meant that Ride would not get stuck with
inventory at the end of the season if the snowboards did not get
bought for some reason, be it a glut of snowboards or something
else. Perschke's representations were posted to the AOL Motley
Pool Ride folder on May 30, 1996. Perschke knew these statements
were materially misleading, because he and Ride knew that Ride's
purported "build-to-order" philosophy would not prevent Ride from
getting stuck with excess inventory at the end of the season
because pre-season orders for snowboards could be unilaterally
canceled by the retailer placing the order. In addition, Perschke
and Ride knew that the representations regarding Ride's purported
"build-to-order" philiosophy were materially misleading, in that
Ride committed itself to accept snowboards from its manufacturers
based on Far East's supposed "minimum purchase commitments," when
Far East's "commitments" were neither orders nor guaranteed sales.
Moreover, the statements were materially misleading because Ride
knew or recklessly disregarded that due to the oversupply of Ride
and other snowboards remaining unsold at the retail level from the
1995-1996 snowboard season, some retailers who placed pre-season
orders for the 1996-1997 snowboard season would cancel those orders
and, and due to the great oversupply of Ride and other snowboards,
Ride would be unable to sell its excess snowboard inventory to
other retailers or distributors.
60. On July 18, 1996, Ride issued a press release regarding
earnings results for its second quarter and the six months ending
CLASS ACTION COMPLAINT-43
June 30, 1996. According to Ride, the results reflected the
"seasonal nature" of its business and were "somewhat more
favorable" than what Ride had expected. Ride further asserted that
it expected most of its sales and earnings to be generated in the
latter half of the year for the foreseeable future, although it was
making efforts to reduce the seasonality of its business. [Dow
Jones News, 7-18-96.] These statements were materially misleading
because Ride knew or recklessly disregarded that the great
oversupply of Ride and other snowboards and the continuing excess
snowboard production capacity, and the aforementioned adverse
effect these factors would have on orders, sales, and revenues in
the latter half of 1996.
61. On July 22, 1996, defendant Madison made a posting to the
AOL Motley Fool Ride folder in which he proclaimed "we are
comfortable with revenue projections in the $90-95 million range
for the year." Defendant Madison knew that this statement was
materially misleading because he and Ride knew or recklessly
disregarded that due to the oversupply of Ride and other
snowboards, the continued poor sell-through of Ride snowboards, the
possibility of retailers canceling orders previously placed for
Ride snowboards and the continuing excess snowboard production
capacity, Ride was highly unlikely to come anywhere near meeting
such revenue projections.
62. In mid August, 1996, Ride filed its Form 10-Q with the
SEC for the quarter ending June 30, 1996, in which substantial
increases in carrying inventories are reflected (see 6-30-96 10-Q
CLASS ACTION COMPLAINT-44
at 6). Ride explained away the increase in the inventory as
"associated with the larger scope of the Company's business and the
addition of internal manufacturing through its September,
acquisition of Ride manufacturing." [6-30-96 10-Q at 9.] This
statement was materially misleading because Ride knew or recklessly
disregarded that the increases in its inventory were associated
with and caused by the oversupply of Ride and other snowboards
remaining unsold at the retail level, and the continuing over
capacity existing for snowboard production.
63. On October 28, 1996, Ride announced third-quarter
earnings far below analysts' expectations. Defendant Madison
attributed the lackluster performance in part to delays in
snowboard binding production and apparel shipments from overseas
suppliers. [Journal American, 10-29-96.] This statement was
materially misleading because it omitted to disclose a significant
and primary reason for the poor results: the great oversupply of
Ride and other snowboards remaining unsold at the retail level,
which was causing a significant build-up in Ride's snowboard
inventory, and which could not be resolved until this excess
product was cleared from the distribution channel.
64. On or about November 13, 1996, Ride filed its Form 10-Q
with the SEC for the quarter ending September 30, 1996. Commenting
on a significant increase in inventories and receivables, Ride made
the following statements:
A significant amount of the Company's sales
have extended terms which come due in
fourth quarter which contributed to the
CLASS ACTION COMPLAINT-45
receivables buildup. Inventories totaled
$16.3 million at September 30, 1996 compared
to $4.3 million as of September 30, 1995. The
increase is attributable to several factors
including: (a) higher raw materials and work
in progress inventories from the increased
scope of the Company's manufacturing
operations; (b) additional inventories from
the Company's SMP subsidiary which was
purchased in the fourth quarter of 1995; (c)
earlier product deliveries from suppliers in
1996; and (d) late reductions in order from
the Company's primary Japanese distributor for
which inventory commitments had already been
made with suppliers. The Company expects to
sell a significant portion of the inventory on
hand through shipping its remaining backlog of
orders in the fourth quarter, through normal
reorder activity and through close-out sales.
[9-30-96 10-Q at 9-10.]
65. On November 27, 1996, the following article concerning
Ride, titled "A Snowboard Start-Up Hits Big Bumps," appeared in the
Wall Street Journal:
"Go big or go home."
This brash motto of snowboarders was
applied by James Salter and Tim Pogue in the
management of Ride Inc., their snowboard
equipment start-up. As a result, they almost rode the
company into the ground.
* * *
Says Mr. Salter: "My mistake was not bringing
in a chief operations officer much earlier in
the game."
* * *
But the worst problem concerned long-
range planning: There was little. "They
didn't even have a business - plan when I
arrived," Mr. Hall says. Phone calls to a
handful of retailers and friends served as
market research, and numerous decisions were
based solely on the whims of the employees and
CLASS ACTION COMPLAINT-46
team riders. Relying on industry data that
were flawed at best, "they didn't know how big
the business was, or what its Potential was,"
Mr. Hall says. [Emphasis added.]
Convinced that the Japanese market could
deliver big growth, Mr. Salter pushed his
distributor there to sign a large contract.
But the market was becoming saturated and the
distributor soon canceled orders, leaving Ride
swamped with inventory and unable to meet its
growth projections. "He should have been much
closer to the Japanese market," [Hambrecht &
Quist analyst Shelly] Young says.
Mr. Salter disagrees. "I was very close
to the Japanese market," he says. "The
distributor should have had a better handle on
the market ... and should have advised our sales
staff of changes."
Inexperienced at investor relations, Mr.
Salter quarreled with an analyst who
questioned his optimistic projections during
an investor conference call' After several
analysts pulled their "buy" recommendations on
Ride's stock, some analysts say, Mr. Salter
stopped taking their calls.
At about this time, as the founders' new-
found wealth was shrinking, the partnership
unraveled. "The numbers everybody wanted and
the reality of what Ride could do were two
different things," Mr. Pogue says. It was about
about snowboarding anymore. It was about
pleasing Wall Street." [Emphasis added.]
By the time Mr. Hall arrived, Mr. Pogue
felt relieved. "He was the first person I had
seen in a while that had a plan. ..."
[Emphasis added.]
[Wall Street Journal, 11-27-96.]
66. On December 30, 1996, Ride issued a press release
indicating that it would take a fourth quarter charge of $9
million, $6.5 million of which was to reflect the devaluation of
its inventory because of a glut of its snowboards in the
CLASS ACTION COMPLAINT-47
marketplace. Ride announced that it expected a loss fourth
quarter of $2.2 million to $2.4 million, or $.20 to $.22 a share,
before accounting for the charge. According to the average
estimate of analysts surveyed by Zacks Investment Research, Ride
had been expected to break even. In the release, Ride chief
financial officer, Scott Stewart, stated:
We continue to have excess inventories, due
primarily to canceled commitments from a
Japanese distributor and from an oversupply of
snowboards from other manufacturers. As a
result, we are writing down our inventories to
reflect their lower value as close-out items.
Ride President and CEO, Robert Hall, stated in part:
[E]xcess inventories throughout the snowboard
industry from oversupply has led to
discounting, putting strong pressure on gross
margins in the fourth quarter.
After Ride's disclosure, Ride common stock suffered a 9.3%
loss in value on the day, closing at $6.125. [PR Newswire,
Reuters, 12-30-96.]
67. On March 3, 1997, Ride announced its results for the
fourth quarter and full year 1996. According to Ride, it posted a
net loss for the quarter of $8.5 million ($0.80 per share),
compared to net income of $1.9 million ($0.16 per share) for the
year earlier period. Sales for the fourth quarter were down from
the year earlier period, to $14.1 million from $25.7 million. Pro
forma sales for the fourth quarter, without the CAS close-out and
brokered O.E.M. businesses sold on October 11, 1996, were also down
from the year earlier period, to $13.9 million from $15.2 million.
Sales for the year were $75.7 million, far below the $90-95 million
CLASS ACTION COMPLAINT-48
Ride had expressed comfort with as recently as the third quarter o
1996. Pro forma sales increased a modest 11%, from $54.7 million
to $60.5 million. For the year, Ride posted a net loss of $5.5
million ($0.52 per share), as compared to the year earlier when
Ride posted net income of $6.0 million ($0.57 per share) Pro
forma, the net loss for 1996 was $6.2 million ($0.58 per share), as
compared to pro forma net income for 1995 of $5.2 million ($0.42
per share). [PR Newswire, 3-3-97.]
68. As of the close of the market on March 13, 1997, Ride
common stock was trading at $4.875 per share.
Summary of Facts the Defendants
Knew and/or Recklessly Disregarded Giving Rise to
a strong inference of Scienter and/or Recklessness
69. Defendants knew and/or recklessly disregarded numerous
material facts which give rise to a strong inference that they
acted with scienter and/or recklessly, including that by the summer
of 1995, both world-wide snowboard production capacity and actual
snowboard production had increased dramatically, and was going to
continue to do so. Indeed, the defendants knew or recklessly
disregarded the fact that throughout at least the last half of
1995, as well as throughout most of 1996, the rate at which
snowboard production capacity and actual production was increasing,
materially and substantially exceeded the rate at which the demand
for snowboards in the retail market was increasing. According to
some estimates, 850,000 snowboards were sold in 1994, of around
950,000 produced. Accepting Ride's often-touted estimate that
CLASS ACTION COMPLAINT-49
demand would grow by 35%, that meant industry demand would amount
to about 1.1 million snowboards in 1995. Estimated production
capacity for 1995, however, was between 1.6 to 1.8 million
snowboards. As such, in 1995 alone there would be anywhere from
500,000 to 700,000 excess snowboards produced, plus whatever had
been left over from 1994. Ride itself was a substantial part of
the problem, going from approximately 85,000 snowboards in 1994, to
a planned 230,000 snowboards in 1995. Worse yet, snowboard
production capacity was expected to experience similar excessively
high growth in 1996. Even so, Ride knew or recklessly disregarded
the fact that as a result of the world-wide and Ride's own excess
snowboard production, a world-wide glut of excess Ride and other
snowboards in both the wholesale and retail market developed by the
latter part of 1995. Additionally, Ride knew or recklessly
disregarded the fact that the glut of excess Ride and other
snowboards would make it patently unreasonable to expect the ever-
increasing number of Ride snowboards to sell well at the retail
level (i.e., poor "sell through"), and that these problems would
manifest as early as late 1995, and throughout 1996.
70. In addition, Ride knew or recklessly disregarded the
substantial extent to which its historical growth and growth
prospects were predicated on the Japanese retail market. As Ride
knew or recklessly disregarded, a material and substantial number
of snowboard sales Ride represented and characterized as sales made
in the North American retail market, were actually "gray market"
sales that never went to -- and were never intended to go to -- the
CLASS ACTION COMPLAINT-50
North American retail market. As Ride knew or recklessly
disregarded, many U.S. retailers would "pad" their orders (place
orders for more product than they themselves wanted), and then upon
receipt of the product would sell off the "padded" amount to a
"gray marketer." (In most cases, the retailer was approached by
the "gray marketer" prior to the time that the retailer placed the
padded order, thus pre-arranging the "gray market" sale.) Then, as
Ride knew or recklessly disregarded, the "gray marketers" would
export the product from the U.S. and into Japan ("trans-ship") for
sale in the Japanese retail market. Apparently, a material and
substantial portion of Ride's total 1994 snowboard sales, both in
terms of gross number and in terms of percentage of sales, were
sent into the Japanese retail market via "gray market"
transactions. For 1995, as many as 1/2 of the approximately 50,000
Ride division snowboards that Ride represented and accounted for as
sold to the North American retail market may have actually gone
into the Japanese retail market via "gray market" transactions. As
such, Ride's actual sales to the Japanese retail market for 1995
were substantially higher than implied and represented, and may
have actually accounted for the majority of Ride division snowboard
sales. In addition, although Ride knew of or recklessly
disregarded the existence of the material and significant "gray
market" sales and "trans-shipment" of its snowboards to the
Japanese retail market, Ride nevertheless represented and accounted
for these "gray market" sales as North American retail market
sales. As Ride knew or recklessly disregarded, this materially and
CLASS ACTION COMPLAINT-51
substantially overstated the actual sales of Ride's snowboards
the North American retail market, as well as materially
substantially understated Ride's actual snowboard sales to (and
reliance on) the Japanese retail market.
71. Ride also knew or recklessly disregarded that by at least
the late fall/early winter of 1995, the Japanese retail market that
Ride so heavily relied upon was also becoming completely glutted
with a great excess of snowboards in general, and with Ride
snowboards in particular. Ride knew or recklessly disregarded that
as a result of the up to 25,000 Ride snowboards that had entered
the Japanese retail market via "gray market" transactions, in
conjunction with the 35,000 - 40,000 snowboards that Ride sent into
the Japanese retail market via Far East, four or more times the
number of Ride snowboards went into the Japanese retail market in
1995 as had in 1994. As such, Ride knew or recklessly disregarded
that an extreme glut of its snowboards existed in the Japanese
retail market by late 1995. As such, sales of Ride snowboards --
through Ride's regular distribution channel in the market, Far
East, as well as through the "gray market" -- would suffer greatly.
Moreover, as Ride knew or recklessly disregarded, due to Ride's
representation and accounting of the Japanese "gray market" sales
as North American retail market sales, the glut of Ride product in
Japan would severely affect not only Ride's attributed and actual
sales to the Japanese retail market, but also the sales Ride
characterized and accounted for as sales to the North American
retail market.
CLASS ACTION COMPLAINT-52
72. Furthermore, Ride knew or recklessly disregarded that
"exclusive distribution agreement" for the important Japanese
market that Ride had entered into with Far East did not assure Ride
of making any sales of any amount whatsoever. Ride repeatedly
extolled the agreement as providing commitments for minimum
purchases in large and increasing amounts; the amount of the
supposed "commitment" for 1996 purchases -- $33 million -- would
have meant an increase of more than 50% from Far East's 1995
purchases, with similarly large increases for 1997 and 1998. Far
East's supposed "commitments" for substantial and increasing
purchases from Ride, however, guaranteed Ride no sales of any
amount, as Far East could decline to make any purchases whatsoever.
As Ride knew or recklessly disregarded, since by late 1995 the
Japanese retail market had an extreme glut of excess snowboards
and particularly of Ride snowboards -- Far East would decline to
purchase Ride snowboards in amounts anywhere near the amounts it
had supposedly "committed" to under the distribution agreement. In
fact, the preseason orders Far East ultimately placed with Ride in
the Spring of 1996 fell well short of the $33 million firm
"commitment" Ride had touted to the investing public as giving it
an "excellent start" toward its 1996 sales projections.
73. As Ride knew or recklessly disregarded, the excessive
amount of Ride and other snowboards in the retail market, and the
Japanese retail market in particular, virtually insured the poor
sell-through of Ride's snowboards. This would cause retailers and
distributors to severely limit or completely refrain from placing
CLASS ACTION COMPLAINT-53
new orders during the Spring 1996 ordering season (approximately
February to April) for snowboards to be sold the upcoming snowboard
season (approximately November 1996 - March 1997) In addition,
this would cause some retailers to cancel orders already placed,
but not yet filled. Moreover, Ride knew or recklessly disregarded
the fact that from and as a consequence of all of the foregoing
problems, Ride would necessarily incur a material and significant
buildup in its finished goods inventory, as Ride had firm purchase
commitments for its brands of snowboards from the companies that
produced them, as well as had already committed to its own
snowboard production at its Thermal plant. Attempting to conceal
the problem, Ride engaged in activities such as severe discount
pricing, extending extremely favorable credit terms to retailers
("easy credit"), and abandoning it much-touted "brand segmentation
marketing strategy" by attempting to sell Ride snowboards to as
many retailers and distributors as possible. All the while,
however, Ride made statements and representations to the market
intended to, inter alia, lead the market to believe that business
was great, sell-through was good, and the purported growth in
snowboarding insured Ride's continued growth. As Ride knew or
recklessly disregarded, however, the ongoing snowboard production
overcapacity and the retail market glut of its and others,
snowboards meant that Ride would at some point have to take drastic
measures to rid itself of its substantial and increasing finished
goods inventory. Ultimately, at the end of 1996, Ride took a
substantial one-time, non-recurring charge in order to reflect the
CLASS ACTION COMPLAINT-54
significantly lower value of its excess finished goods inventory
close-out product.
COUNT I
SECTION 10(b) OF THE EXCHANGE ACT AND
RULE l0b-5 OF THE SECURITIES AND EXCHANGE COMMISSION
74. Plaintiff incorporates by reference and realleges each
paragraph above as though fully set forth herein.
75. During the Class Period, the defendants, singly and in
concert, engaged in a plan, scheme and unlawful course of conduct,
pursuant to which they knowingly and recklessly engaged in acts,
transactions, practices, and courses of business which operated as
a fraud and deceit upon plaintiff and other members of the Class,
and made various deceptive and untrue statements of material facts
and 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 to plaintiff and other class members.
The purpose and effect of said scheme was to induce plaintiff and
the Class to purchase Ride common stock during the Class Period at
artificially inflated prices and to inflate the value of the stock
which was held directly or indirectly by defendants.
76. During the Class Period, defendants, pursuant to said
plan, scheme and unlawful course of conduct, knowingly and
recklessly issued, caused to be issued, participated in the
issuance or the preparation and issuance of deceptive and
materially misleading statements to the investing public, which
CLASS ACTION COMPLAINT-55
were contained in or omitted from various documents, including a
Form 10-K, Form 10-Qs, and various other statements, as
particularized above.
77. In particular, the statements and omissions in the public
filings and the other statements made during the Class Period were
materially misleading for the reasons set forth above.
78. Each of the defendants knew or recklessly disregarded the
fact that the aforesaid acts and practices, misleading statements,
and omissions would adversely affect the integrity of the market in
Ride common stock and/or artificially inflate or maintain the price
of such stock. The Company's common stock is traded on an active
and efficient market and, is followed by numerous stock market
analysts. Had the adverse facts-defendants concealed been
disclosed, Ride stock would not have sold at the artificially
inflated prices it did during the Class Period.
79. By reason of the foregoing, defendants, directly and
indirectly, violated Section 10(b) of the Exchange Act and Rule
10b-5 promulgated thereunder in that they (a) employed devices,
schemes and artifices to defraud, (b) made untrue statements of
material facts or omitted to state material facts necessary in
order to make 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 which operated as a fraud and
deceit upon plaintiff and other members of the Class in connection
with their purchase of Ride stock during the Class Period.
80. As a result of the foregoing, the market price of Ride
CLASS ACTION COMPLAINT-56
common stock was artificially inflated during the Class Period. In
ignorance of the misleading nature of the representations describeb
above, plaintiff and other members of the Class relied to their
detriment on the integrity of the market as to the price of these
securities. Alternatively, plaintiff and other members of the
Class relied on the material misstatements and omissions of the
defendants.
81. The price of Ride common stock declined materially upon
public disclosure of the true facts which had been misrepresented
or concealed as alleged in this Complaint. Plaintiff and other
members of the Class have suffered substantial damages as a result
of the wrongs herein alleged.
COUNT II
SECTION 20(a) OF THE EXCHANGE ACT
82. Plaintiff incorporates by reference and realleges each
paragraph above as though fully set forth herein.
83. Each of the Individual Defendants were controlling
persons of Ride within the meaning of § 20(a) of the Exchange Act,
by virtue of their positions as officers and/or directors of Ride
and their direct or indirect ownership of voting shares of Ride.
84. By virtue of their positions as controlling persons of
Ride, each of these Individual Defendants are jointly and severally
liable under § 20(a) of the Exchange Act to the plaintiff for
damages suffered as a result of the acts and omissions set forth
above.
CLASS ACTION COMPLAINT-57
COUNT II
WASHINGTON STATE SECURITIES ACT
85. Plaintiff incorporates by reference and realleges the
allegations contained in the preceding paragraphs as if fully set
forth herein.
86. This Count is asserted against all defendants for
primary and secondary liability and is asserted against each of the
officers and directors of Ride named as defendants herein in their
capacity as control persons and as each was a substantial factor in
the sale of Ride common stock.
87. Ride and the Individual Defendants knew or were
negligent in failing to know of the material facts set forth above,
which were misrepresented or omitted. Because of their board
membership and/or their executive and managerial positions with
Ride, the Individual Defendants: (1) knew or had access to
information concerning the unlawful practices described herein
above, which information material to Ride was not disclosed; (2)
rendered substantial assistance in drafting, reviewing and/or
approving the statements, advertisements, releases, responses to
media and shareholder inquiries, quarterly reports and other public
representations of Ride which omitted to describe or falsely
described Ride's financial condition and prospects; and (3) were
each sellers of Ride stock by virtue of their key roles in
establishing the market price of Ride stock.
88. Throughout the Class Period, the Individual Defendants
CLASS ACTION COMPLAINT-58
negligently disseminated releases, statements and report, referred
to herein that misrepresented or were misleading regarding Ride's
business and finances, liabilities and earnings or which omitted to
disclose material facts necessary to make the statements made, in
light of the circumstances under which they were made, not
misleading in that they failed to disclose or misrepresented the
material adverse facts described herein.
89. During the Class Period, the Individual Defendants,
individually and in concert, directly or indirectly, engaged and
participated in or aided and abetted a continuous course of conduct
and conspiracy that inflated Ride's earnings and concealed adverse
material information regarding the business and prospects of the
Company as specified herein. The Individual Defendants employed
devices, schemes, and artifices to defraud and engaged in acts,
practices, and a course of conduct as herein alleged in an effort
to commit a fraud on the integrity of the market for the company's
stock and to maintain artificially high market prices for the
common stock of Ride. This included the formulation of, making of
and/or participation in the making of, untrue statements of
material facts and the omission to state material facts necessary
in order to make the statements made, in light of the circumstances
under which they were made, not misleading, and engaged in acts,
practices, and courses of business which operated as a fraud and
deceit upon plaintiff and the Class, all of the above in connection
with the purchase of Ride securities by plaintiff and members of
the Class.
CLASS ACTION COMPLAINT-59
90. By reason of the conduct alleged herein, the individual
Defendants have violated RCW 21.20.010 et seq., 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 plaintiff and others similarly situated
in connection with their purchases of Ride common stock during the
Class Period.
91. Plaintiff and the Class have suffered substantial damages
in that, without knowledge of defendants' unlawful conduct and in
reliance on the integrity of the market, they paid artificially
inflated prices for Ride stock as a result of defendants,
violations of RCW 21.20.010 et seq. Plaintiff and the Class would
not have purchased Ride stock at the prices they paid, or at all,
if they had been aware of the material information concealed by
defendants as alleged hereinabove, at the time of the purchases by
plaintiff and the Class of Ride common stock, the fair market value
of said securities was substantially less than the prices paid by
them.
92. Defendant Ride is liable for aforesaid misrepresentations
and omissions as a seller pursuant to RCW 21.20.430(1). The
Individual Defendants constitute, officers and/or directors and/or
employees and as such are liable for the aforesaid
misrepresentations and omissions pursuant to RCW 21.20.430(3), and
CLASS ACTION COMPLAINT-60
to the extent each also was a seller of stock.
93. Each of the defendants participated in and/or materially
aided in the acts alleged herein and are liable for the aforesaid
omissions and misrepresentations pursuant to RCW 21.20.010 and
21.20.430.
COUNT IV
WASHINGTON CONSUMER PROTECTION ACT
94. Plaintiff incorporates by reference and realleges the
allegations contained in the preceding paragraphs as if fully set
forth in this paragraph.
95. This Count is based on the Washington Consumer Protection
Act, RCW 19.86.020 and 19.86.090.
96. Defendants engaged in unfair and deceptive acts and
practices in the conduct of trade or commerce in violation of RCW
19.86.090. This conduct implicates a public interest in investors
not being deceived while investing in publicly-traded companies
headquartered in Washington. Further, this conduct is capable of
repetition, evidenced by the insider Defendants, selling of Ride
stock in 1995 while concealing adverse material facts.
97. Plaintiff and members of the Class are entitled to
recover their damages, prejudgment interest, attorneys, fees and
three times their actual damages sustained pursuant to RCW
19.86.090.
CLASS ACTION COMPLAINT-61
COUNT V
NEGLIGENT MISREPRESENTATION
98. Plaintiff incorporates by reference and realleges the
allegations contained in the preceding paragraphs as if fully set
forth in this paragraph.
99. For the purpose of inducing public investors, including
the Plaintiff and other members of the Class, to purchase Ride's
shares, and with intent to deceive such investors, and to enrich
the Individual Defendants, defendants employed a scheme and
conspiracy to defraud as a part of which defendants made and
participated in the making of material misrepresentations of fact
to plaintiff and other members of the Class as set forth and as
further part of which defendants omitted to state material facts
set forth herein.
100. Plaintiff and other members of the Class were ignorant of
the material misrepresentations and omissions described herein. In
reliance upon said misrepresentations and the integrity of the
market for Ride shares, and in ignorance of the true facts, and in
reliance on the fidelity, integrity and superior knowledge of
defendants, plaintiff and other members of the Class were induced
to and did purchase Ride shares. Had plaintiff and other members of
the Class known the true facts, they would not have purchased such
securities or would not have purchased them at the prices that were
paid. By reasons thereof, plaintiff and the other members of the
Class have been damaged and demand exemplary and punitive damages
against each defendant.
CLASS ACTION COMPLAINT-62
BASIS OF ALLEGATIONS
101. Plaintiff has alleged the foregoing based upon the
investigation of his counsel, which included a review of Ride's SEC
filings, securities analysts' reports and advisories about the
Company, press releases and new stories about the Company, public
statements made by the Company or Company officials in various
forums, and discussions with consultants and others, and believe
that substantial evidentiary support exists and will be found for
the allegations made herein after a reasonable opportunity for
discovery.
WHEREFORE, plaintiff, on his own behalf and on behalf of the
Class, prays for judgment, as follows:
A. Declaring this action to be a proper class action;
B. Awarding plaintiff and all members of the Class damages in
an amount which may be proven at trial, together with interest
thereon;
C. Awarding plaintiff and the Class their costs and expenses
incurred in this action, including reasonable attorneys',
accountants, and experts, fees; and
D. Such other and further relief as may be just and proper.
JURY DEMAND
102. Plaintiff demands a trial by jury on all issues.
DATED: March 14, 1997
CLASS ACTION COMPLAINT-63
Carl Lopez
LOPEZ & FANTEL
1510 14th Avenue
Seattle, WA 98122
(206) 322-5200
Steven J. Toll
Matthew J. Ide
COHEN, MILSTEIN, HAUSFELD & TOLL, P.L.L.C.
1301 5th Avenue
Suite 2905
Seattle, Washington 98101
206) 521-0080
COUNSEL FOR PLAINTIFF
CLASS ACTION COMPLAINT-64