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Stanford
University Law School
- Securities Class Action Clearinghouse
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MILBERG WEISS BERSHAD
HYNES & LERACH LLP
WILLIAM S. LERACH (68581)
ALAN SCHULMAN (128661)
BLAKE M. HARPER (115756)
600 West Broadway, Suite 1800
San Diego, CA 92101
Telephone: 619/231-1058
SCHIFFRIN & CRAIG, LTD.
RICHARD S. SCHIFFRIN
MICHAEL D. CRAIG
Three Bala Plaza East
Suite 400
Bala Cynwyd, PA 19004
Telephone: 610/667-7706
Attorneys for Plaintiff
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF CALIFORNIA
ROBERT HOCKEY, On Behalf of Himself ) Civ. No. C-96-0815 MHP
and All Others Similarly Situated, )
) CLASS ACTION
Plaintiff, )
)
vs. )
)
AJIT K. MEDHEKAR, SID AGRIWAL, C.N. ) COMPLAINT FOR VIOLATION OF
REDDY, C.N. REDDY INVESTMENTS, ) THE SECURITIES EXCHANGE ACT
INC., N. DAMODAR REDDY, N.D.R. ) OF 1934
INVESTMENTS, INC., RONALD K. )
SHELTON and ALLIANCE SEMICONDUCTOR )
CORP., )
)
Defendants. ) Plaintiff Demands A
____________________________________) Trial By Jury
SUMMARY OF ACTION
1. This is a class action on behalf of all persons who
purchased the common stock of Alliance Semiconductor Corp.
("Alliance" or the "Company") between July 11, 1995 and
December 29, 1995 (the "Class Period"), complaining of a fraudulent
scheme and course of business that operated as a fraud or deceit on
purchasers of Alliance common stock due to defendants' false and
misleading statements about Alliance. Anticipating a cyclical
decline in the semiconductor industry, which would result in
falling demand for, an excess supply of, and decreasing prices for
the static random access memory ("SRAM") chips Alliance sold -- on
March 28, 1995, Alliance completed a huge public offering (the
"Offering") in which Alliance and certain insiders sold 3,750,000
shares* for $30.70 per share and by which Alliance raised $96
million and the insiders pocketed $13 million, while agreeing to a
"lock-up," i.e., not sell any more of their stock for 90 days,
i.e., until June 28, 1995.
2. During May-June 1995, Alliance's stock stagnated and on
June 28, 1995, when the "lock-up" expired, was still selling for
$30-$31 per share -- no increase over the late March 1995 Offering
price. However, on July 11, 1995, Alliance reported very strong
first quarter fiscal 1996 results, which it attributed to "soaring"
and "strong demand" for its products and "firm prices" while fore-
casting 100%+ yearly sales growth and fiscal 1996 earnings per
share of $l.30-$1.32.* After this extremely favorable announce-
_____________________
* Adjusted to reflect a subsequent 3-for-2 stock split.
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ment, Alliance's stock soared to $43-3/4 and Alliance's top five
insiders engaged in a massive burst of insider selling beginning on
July 14, 1995, unloading 512,500 shares at as high as $47 per
share, within a whisker of Alliance's all-time high of $48-1/4,
pocketing $31.3 million and completing their selling on
September 8, 1995, just before word leaked into the market of price
weakness for 256K SRAM chips and Alliance's stock began to decline.
3. When Alliance's stock began to decline in September 1995,
Alliance's insiders continued to inflate the stock's price by
assuring the market the SRAM price erosion would have no signi-
ficant negative impact on Alliance as it had minimum exposure to
the 256K SRAM chips that were falling in price, its 256K SRAM
products targeted the telecommunications industry where such chips
were still in short supply and commanded premium prices, demand for
Alliance's other chips remained strong, that Alliance had success-
fully transitioned its business to the production of 1 Mbit chips
which it was receiving adequate supplies of in fiscal 1996, and
thus, Alliance still anticipated revenue increases of over 100% and
that its fiscal 1996 results would be higher than earlier forecast,
reaching over $1.80-$2.00 per share. But, then suddenly, in late
December 1995, Alliance revealed, contrary to its prior representa-
tions, that it would take a very large ($10+ million) writedown due
to excessive 256K SRAM inventory and suffer a major earnings
shortfall due to that writedown, poor sales of and falling prices
of its other chip products, and a serious wafer production problem
with its 1 Mbit SRAM products at the foundry that supplied 70% of
Alliance's product [United Microelectronics Corp. ("UMC")] which
was resulting in low chip yields and thus major product shortfalls
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for Alliance. After these revelations, Alliance stock plunged to
as low as $9 per share compared to the $30-1/2 per share plaintiff
paid for Alliance stock on November 2, 1995 and the stock's
all-time high of $48-1/4 per share reached in August 1995, when
Alliance's insiders were in the midst of their selling spree and
when they were assuring the market that strong demand and firm
prices existed for Alliance's products which would lead to huge
earnings per share gains in the third and fourth quarters of fiscal
1996 and throughout fiscal 1997.
4. After Alliance was formed in the mid-1980's by N. Damodar
Reddy ("N.D. Reddy") and his brother C.N. Reddy ("C.N. Reddy"), it
went bankrupt due to huge losses resulting from their mismanagement
and Alliance's failure to successfully manufacture its own semicon-
ductor chips. After the Reddys reorganized Alliance in 1991,
Alliance supplied memory products to the personal computer network-
ing telecommunications and instrumentation industries, including
SRAMs and DRAMs (dynamic random access memories) which were manu-
factured for it by overseas foundries, the most important of which
was UMC, which supplied Alliance with 70%+ of its products. As
reorganized, Alliance suffered further losses in fiscal 1992.
However, due to the strong cyclical upsurge in the semiconductor
industry, Alliance finally earned a small profit ($.18 per share)
in fiscal 1993 and, in late 1993 went public via an initial public
offering underwritten by Hambrecht & Quist and Needham & Co. which
raised $18.6 million for Alliance.
5. Historically, the semiconductor industry has been
cyclical and suffered periodic downturns characterized by over-
capacity and/or weak demand during which the stocks of companies
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in, or dependent on, the semiconductor industry declined substan-
tially.l By 1995, the semiconductor industry had enjoyed an
exceptionally long period of strong demand and Alliance reported
profits during fiscal 1994 and 1995. However, Alliance's insiders
were concerned that when the next cyclical decline in the semicon-
ductor industry occurred, Alliance's profitability would decline or
disappear, making it very difficult for Alliance to raise capital
and Alliance's insiders would suffer serious financial losses,
which could be catastrophic for the Reddys, due to the concentra-
tion of their net worth in Alliance stock.
6. Thus, in early 1995, the Reddys and other Alliance
insiders wanted to raise as much capital for Alliance as possible
while selling some of their Alliance holdings before the next
cyclical decline in the semiconductor industry overtook Alliance,
as this would give Alliance a large cash hoard to help it survive
the downturn and would let the insiders sell off some of their
Alliance shares before the stock declined in price. Thus, on
March 28, 1995, Alliance, with the assistance of investment banking
firms Hambrecht & Quist and Lehman Brothers ("Lehman"), undertook
the Offering of Alliance stock at $46 per share, in which Alliance
____________________
1 Alliance's November 1993 Prospectus stated:
The semiconductor industry has historically been cyclical
and subject to significant economic downturns at various
times, characterized by diminished product demand,
accelerated erosion of average selling prices and over-
capacity. Although the semiconductor industry in recent
periods has experienced increased demand and production
capacity constraints, it is uncertain how long these
conditions will continue. The Company may experience
substantial period-to-period fluctuations in future
operating results due to general semiconductor industry
conditions, overall economic conditions or other factors.
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sold 3.3 million shares and insiders, including the Reddys, sold
450,000 shares, raising $96.4 million for Alliance and $13.1
million for the insiders. This was the maximum amount of shares
Alliance and its insiders could feasibly sell in a secondary
offering at that time.
7. While the Reddys and other Alliance insiders were eager
to sell off more of their Alliance holdings into the open market
after the Offering, they were not able to immediately do so. In
connection with the Offering (as is normal in stock offerings where
insiders sell stock), those insiders had been required to agree to
what is known as a "lock-up," a 90-day period following a secondary
offering, during which insiders who sold in the offering will not
sell any more of their stock. The purpose of such a "lock-up"
provision is to prevent insiders, after they have just sold stock
in a registered public offering, from selling off their stock when
they know the issuers' business is about to decline. Thus,
Alliance's insiders were not permitted to sell any of their
Alliance stock for 90 days after the date of the Prospectus, i.e.,
until June 28, 1995.
8. During June, Alliance received indications that demand
for its 256K SRAM chips was softening, its rate of new orders was
decreasing and prices for its 256K SRAM chips were softening. This
softening of demand, decline in new orders and softening in prices
of 256K SRAMs posed a grave danger to Alliance's ability to
continue to achieve earnings growth and was viewed with great
concern by Alliance's insiders. Also, Alliance's insiders knew
that if disclosure of the slowdown in orders or weakening of demand
for (or price softening of) Alliance's 256K SRAMs was made,
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Alliance stock would fall sharply and this would eliminate their
ability to sell their shares after the expiration of the "lock-up"
at high, profitable prices. To make matters worse, since the March
Offering Alliance stock had stagnated and, on June 28, 1995 when
the "lock-up" expired, Alliance's stock still sold at $30-$31 per
share -- the same as the Offering price three months earlier.
9. On or about June 28, 1995, the lock-up expired. On
July 11, 1995, Alliance reported record first quarter fiscal 1995
results, telling investors demand for its 256K SRAM products was
very strong which Alliance expected to continue through next year,
Alliance was deluged with orders and prices for its products were
very firm, actually allowing Alliance to increase prices on some
products, while forecasting fiscal 1996 revenues and earnings per
share of $300+ million and $l.80, respectively. Alliance stock
soared on this favorable information, hitting $43-3/4 by July 18,
1995. On July 14, 1995, Alliance's top five officers began bailing
out, engaging in a massive insider selling spree -- unloading
512,500 shares at as high as $47 per share, pocketing $31.3 million
between July 14, 1995 and September 8, 1995. While Alliance's
insiders were unloading their shares, Alliance told investors that
demand for its products remained strong while forecasting increased
fiscal 1996 earnings per share of close to $2.00.
10. Just as Alliance's insiders completed their selling
spree, information circulated in the markets of price weakness in
SRAM products, causing Alliance's stock to decline. However,
Alliance assured the markets that it had minimum exposure to the
SRAM products that were experiencing price weakness, that demand
for its products remained strong and, in some instances, was
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increasing. As 1995 unfolded, Alliance continued to assure
investors that demand for its products remained strong, its
remaining 256K SRAM products were mostly for the telecom industry
where demand was still accelerating and chips commanded premium
prices, thus insulating Alliance from the adverse impact of 256K
SRAM price erosion. Finally, Alliance assured investors it had
successfully transitioned its product line away from 256K SRAMs and
to new 1 Mbit SRAM products, that Alliance had stopped all 256K
SRAM production and that Alliance's main foundry was now producing
sufficient quantities of Alliance's 1 Mbit product for it to meet
demand. During most of this time, Alliance's insiders were telling
securities analysts to increase their third and fourth quarter
fiscal 1996 earnings per share forecasts to $.53 and $.56, respec-
tively, and for fiscal 1996 to $l.80-$2.00 -- with further huge
gains forecast in fiscal 1997 -- revenues of $450 million and
earnings per share of $2.40+.
11. Then, on December 29, 1995 -- completely contrary to its
prior assurances -- Alliance revealed that it would have to take a
huge write-off due to excess 256K SRAM inventories and that 1 Mbit
wafers produced by its largest foundry supplier had failed to meet
specifications and resulted in very low yields, due to wafer
contamination and other manufacturing process problems. As a
result of this huge write-off, these manufacturing problems and
decreases in selling prices for its products, Alliance's revenues
and earnings for the quarter ending December 31, 1995, would
decline significantly from revenues for the quarter ended
September 30, 1995. A few days later, Alliance reported terrible
results for its fiscal 1996 third quarter of revenues of $46.4
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million -- a decline of 40% from the prior quarter; net income of
only $2.2 million -- a decline of 90% from the prior quarter; and
earnings per share of only $.05 -- a decline of 90% from the prior
quarter! These horrible results were due to weak demand for
Alliance's products, the severe impact of price-cutting on its
revenues and profit margins, manufacturing problems with its new
1 Mbit SRAM products resulting in low yields and insufficient
product to fill orders, as well as a $10 million write-off for
excess inventory of 256K SRAM chips. Alliance also revealed its
results for next quarter to end March 31, 1996, would also be very
poor, subsequently indicating those results will be no better than
the terrible December quarter and that another large inventory
write-off was likely, meaning that Alliance's fiscal 1996 earnings
per share will decline from fiscal 1995 instead of the huge
increase defendants had forecast. After these revelations,
Alliance stock collapsed to as low as $9 per share, compared to its
Class Period high of $48-1/4 and the $40-$47 per share at which the
five individual defendants -- Alliance's top officers -- had
unloaded 512,500 shares, pocketing $31.3 million.
12. The positive statements about Alliance's business made by
defendants during the Class Period were each materially false and
misleading when made, and failed to disclose, inter alia, the
following adverse information, disclosure of which was necessary to
make the statements made not false and misleading, and which
adverse facts were then known only to defendants due to their
access to Alliance's internal corporate data:
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(a) Alliance was encountering weakening of demand for
certain of its SRAM products, especially 256K SRAMs, which was
resulting in a slowing of orders for those products;
(b) Alliance was encountering a softening in prices for
its 256K SRAM products because of weakening demand and an
increasing supply of these products in the marketplace;
(c) Demand for Alliance's SRAM products was not
"soaring" and was not nearly as strong as Alliance stated;
(d) That Alliance was not increasing prices to any
significant extent for any of its important products as it was, in
fact, encountering softening prices with respect to its major
product line, i.e., 256K SRAMs;
(e) That Alliance's main Taiwanese foundry, UMC, was not
equipped or qualified to produce the 1 Mbit SRAM products which
Alliance was relying upon that foundry to produce in large quantity
to permit Alliance to transition its business away from dependence
on 256K SRAMs;
(f) That Alliance had not successfully transitioned its
business away from 256K SRAMs to 1 Mbit SRAMs, as its UMC foundry
was encountering substantial and persistent production, diffi-
culties with wafers for Alliance's 1 Mbit product line, resulting
in extremely low yields and insufficient 1 Mbit product for
Alliance to generate the revenues necessary to offset the adverse
impact on its business of softening demand for, and falling prices,
of 256K SRAMs;
(g) Alliance was not largely insulated from the impact
of weakening demand for, and falling prices of, 256K SRAMs, nor was
the impact of those adverse market factors on it minimal as, in
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fact, a significant portion of Alliance's ongoing revenue stream
depended upon the sale of 256K SRAMs and Alliance still held a
large inventory of 256K SRAMs, the value of which was being
impaired by falling prices for 256K SRAMs, meaning that Alliance
would likely have to take a large write-down on its 256K SRAM
inventory;
(h) Demand for Alliance's telecom SRAM products was not
particularly robust, as demand in this market was sluggish as well
and orders in this area of Alliance's business were slowing and
price-cutting was prevalent here also;
(i) The portion of Alliance's 256K SRAM inventory for
telecom products was not sufficiently large to permit Alliance to
offset the negative impact on it of weakening demand for and
falling prices of Alliance's other 256K SRAM products;
(j) Alliance had not successfully shifted its product
mix towards synchronous and asynchronous SRAM products, which were
in tight supply and commanded premium prices as, in fact, a
significant portion of Alliance's business continued to be
dependent upon 256K SRAMs, for which demand was weakening and the
prices of which were falling, which was having a negative adverse
impact on Alliance's business;
(k) Alliance faced a major risk and danger to its
business, as it had accumulated a huge inventory of 256K SRAM
products at a time when demand for those products was softening and
the prices of those products were falling, thus creating a substan-
tial risk that Alliance would have to take a major inventory write-
down on those products which would adversely impact Alliance's
results from operations;
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(l) Alliance's revenues, net income and earnings per
share were being adversely impacted by the negative factors set
forth above and, as a result, the Company's results from operations
were materially below internal corporate forecasts and budgets and
much lower than had been forecast and was being forecast by and for
Alliance; and
(m) As a result of the foregoing negative factors,
defendants knew that Alliance's forecasts of fiscal 1996 earnings
per share of $1.30-$2.08, fiscal 1997 earnings per share of $2.51-
$2.60, and third and fourth quarter fiscal 1996 earnings per share
of $.53 and $.56, respectively, were false when made, as those
forecasts were inconsistent with and contradicted by the above
adverse conditions, which were impacting Alliance's business at the
time those forecasts were made.
13. The chart below shows the increase in Alliance stock
while defendants were issuing their false and misleading statements
about the Company and its insiders' stock sales at inflated prices
and the subsequent collapse of the stock.
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Alliance Semiconductor Corp.
January 3, 1995 - February 21, 1996
Daily Stock Prices
JURISDICTION AND VENUE
14. Jurisdiction exists pursuant to §27 of the Exchange Act,
15 U.S.C. §78aa, and 28 U.S.C. §1331. The claims asserted arise
under §§10(b) and 20(a) of the Exchange Act, 15 U.S.C. §§78j(b) and
78t(a), and Rule lOb-5.
15. (a) Venue is proper in this District pursuant to §27 of
the Exchange Act and 28 U.S.C. §1391(b). Many of the acts giving
rise to the violations complained of occurred in this District.
(b) Assignment of this action to the San Jose Division
is appropriate as a substantial part of the events or omissions
identified herein occurred in Santa Clara County.
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16. In connection with the wrongs complained of, defendants
used the instrumentalities of interstate commerce, the U.S. mails
and the facilities of the national securities markets.
CLASS ALLEGATIONS
17. Plaintiff brings this action as a class action pursuant
to Federal Rules of Civil Procedure 23(a) and (b)(3) on behalf of
all persons who purchased the stock of Alliance during the Class
Period (the "Class"), except defendants, members of their immediate
families and any entity in which a defendant has a controlling
interest.
18. The members of the Class are so numerous that joinder of
all members is impracticable. Alliance has more than 160 million
shares of stock outstanding. During the Class Period, millions of
shares of Alliance's stock were purchased by thousands of persons
who were damaged thereby.
19. Plaintiff's claims are typical of the claims of the Class
because plaintiff and the Class members sustained damages from
defendants' wrongful conduct.
20. Plaintiff will adequately protect the interests of the
Class. Plaintiff has retained counsel who are experienced and
competent in class action securities litigation. Plaintiff has no
interests which are in conflict with those of the Class.
21. A class action is superior to other available methods for
the fair and efficient adjudication of this controversy.
22. Common questions of law and fact predominate over
questions which affect only individual members. Among the
questions of law and fact common to the Class are:
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(a) Whether the federal securities laws were violated by
defendants' acts;
(b) Whether Alliance's statements during the Class
Period misrepresented and/or omitted material facts;
(c) Whether defendants pursued the fraudulent scheme and
course of business complained of;
(d) Whether defendants acted intentionally or
recklessly;
(e) Whether the market price of Alliance's stock was
artificially inflated due to the activities complained of; and
(f) The extent and measure of damage sustained by the
Class.
THE PARTIES
23. Plaintiff Robert Hockey purchased 100 shares of Alliance
stock on November 2, 1995 at $30-1/2 per share and was damaged
thereby.
24. Defendant Alliance Semiconductor Corp. is headquartered
at San Jose, California. Alliance is a fabless supplier of memory
products to the personal computer, networking, telecommunications
and instrumentation industries. Alliance sells SRAMs and DRAMs.
During the Class Period, Alliance stock was traded in an efficient
market on the NASDAQ system.
25. (a) Defendant N. Damodar Reddy is Chairman of the Board,
President and CEO of Alliance. Because of N.D. Reddy's position
with Alliance, he had access to the adverse non-public information
about Alliance's business, finances, products, markets and present
and future business prospects via access to internal corporate
documents (including the Company's operating plans, budgets and
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forecasts and reports of actual operations compared thereto),
conversations and connections with other corporate officers and
employees, attendance at management and Board of Directors'
meetings and committees thereof and via reports and other informa-
tion provided to him in connection therewith. Defendant N.D.R.
Investments, Inc. ("N.D.R. Investments") is N.D. Reddy's wholly-
owned investment company and a vehicle for owning and trading in
some of his Alliance stockholdings. During the Class Period and as
part of the fraudulent scheme, defendant N.D. Reddy sold 227,500
shares of Alliance stock at an artificially inflated prices [sic],
pocketing $14.1 million.
(b) Defendant C.N. Reddy is Senior Vice President-
Operations of Alliance, a director and N.D. Reddy's brother.
Because of defendant C.N. Reddy's position with Alliance, he had
access to the adverse non-public information about Alliance's
business, finances, products, markets and present and future
business prospects via access to internal corporate documents
(including the Company's operating plans, budgets and forecasts and
reports of actual operations compared thereto), conversations and
connections with other corporate officers and employees, attendance
at management meetings and via reports and other information
provided to him in connection therewith. Defendant C.N. Reddy
Investments, Inc. ("C.N. Investments") is C.N. Reddy's wholly-owned
investment company and a vehicle for owning and trading in some of
his Alliance stockholdings. During the Class Period and as part of
the fraudulent scheme, defendant C.N. Reddy sold 230,000 shares of
Alliance stock at artificially inflated prices, pocketing $13.9
million.
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(c) Defendant Sid Agrawal ("Agrawal") is Vice President-
Marketing of Alliance. Because of defendant Agrawal's position
with Alliance, he had access to the adverse non-public information
about Alliance's business, finances, products, markets and present
and future business prospects via access to internal corporate
documents (including the Company's operating plans, budgets and
forecasts and reports of actual operations compared thereto),
conversations and connections with other corporate officers and
employees, attendance at management meetings and via reports and
other information provided to him in connection therewith. During
the Class Period and as part of the fraudulent scheme, defendant
Agrawal sold 12,500 shares of Alliance stock at artificially
inflated prices, pocketing $615,625.
(d) Defendant Ajit K. Medhekar ("Medhekar") is Vice
President-Memory Products of Alliance. Because of defendant
Medhekar's position with Alliance, he had access to the adverse
non-public information about Alliance's business, finances,
products, markets and present and future business prospects via
access to internal corporate documents (including the Company's
operating plans, budgets and forecasts and reports of actual
operations compared thereto), conversations and connections with
other corporate officers and employees, attendance at management
meetings and via reports and other information provided to him in
connection therewith. During the Class Period and as part of the
fraudulent scheme, defendant Medhekar sold 30,000 shares of
Alliance stock at artificially inflated prices, pocketing over $2
million.
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(e) Defendant Ronald K. Shelton ("Shelton") is Vice
President, Finance and Administration and Chief Financial Officer
of Alliance. Because of defendant Shelton's position with
Alliance, he had access to the adverse non-public information about
Alliance's business, finances, products, markets and present and
future business prospects via access to internal corporate
documents (including the Company's operating plans, budgets and
forecasts and reports of actual operations compared thereto),
conversations and connections with other corporate officers and
employees, attendance at management and Board of Directors'
meetings and committees thereof and via reports and other
information provided to him in connection therewith. During the
Class Period and as part of the fraudulent scheme, defendant
Shelton sold 12,500 shares of Alliance stock at artificially
inflated prices, pocketing $637,500.
(f) The individuals named as defendants in (a)-(e) are
referred to herein as the "Individual Defendants."
26. Defendants N.D. Reddy and C.N. Reddy, by reason of their
executive positions with Alliance, Board membership and their
stockholdings of in excess of five million shares of Alliance stock
-- each owned in excess of 20% of Alliance's outstanding stock --
were controlling persons of Alliance and had the power and
influence, and exercised the same, to cause Alliance to engage in
the conduct complained of herein.
27. During the Class Period, each of the Individual
Defendants occupied positions that made them privy to non-public
information concerning Alliance. Because of their positions and
access, each of these defendants knew that the adverse facts
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specified herein were being concealed from the public. Notwith-
standing their duty to refrain from selling Alliance stock while in
the possession of material, adverse, non-public information
concerning Alliance, the defendants sold 512,500 shares of the
Company stock, pocketing $31.3 million from their fraudulent scheme
and misuse of material non-public information.
28. As officers, directors and/or controlling persons of a
publicly-held company whose common stock was traded in an open,
actively traded and efficient market on NASDAQ, and, as sellers of
Alliance stock, defendants had a duty to disseminate accurate and
truthful information promptly with regard to Alliance's operations,
business, relationships with customers, finances, markets, manage-
ment, earnings, and future business prospects, to correct any
previously issued statements that had become untrue and to disclose
any adverse trends that would materially affect the present and
future financial operating results of the Company, so that the
market price of the Company's stock would be based upon truthful
and accurate information.
29. The Individual Defendants controlled and/or possessed the
power and authority to control the contents of the Company's
quarterly reports, prospectuses, press releases and presentations
to securities analysts and thereby the investing public. Each
Individual Defendant was provided with copies of the Company's
filings, reports and press releases alleged herein to be misleading
prior to or shortly after their issuance and had the ability and
opportunity to prevent their issuance or cause them to be
corrected. Because of their positions and access to material
non-public information available to them, each of these defendants
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knew or recklessly disregarded that the adverse facts specified
herein had not been disclosed to and were being concealed from the
public and that the positive representations which were being made
were then materially false and misleading. As a result, each of
the defendants is responsible for the accuracy of the public
reports and releases detailed herein as "group published" informa-
tion and is therefore responsible and liable for the representa-
tions contained therein.
30. Each of the defendants is liable as a participant in a
fraudulent scheme and course of business that operated as a fraud
or deceit on purchasers of Alliance stock, including making false
and misleading statements. The scheme: (i) deceived the investing
public regarding Alliance; (ii) artificially inflated the price of
Alliance stock; (iii) caused plaintiff and the Class to purchase
Alliance stock at inflated prices; and (iv) permitted the
Individual Defendants to sell 512,500 shares of their Alliance
stock at inflated prices, pocketing more than $31.3 million.
ALLIANCE'S INTERNAL FORECASTS,
PLANS AND PROJECTIONS
31. A key management tool for Alliance's top executives was
its annual budget or forecast, by which the Company's Board, after
input from its top executives, set performance goals for Alliance
and then closely monitored the Company's actual performance, i.e.,
results of operations, compared to the budgeted and/or forecasted
results. Each of the Individual Defendants was aware of Alliance's
forecast and budget and of internal reports comparing Alliance's
actual results to those previously budgeted and/or forecasted.
Alliance's top executives used its budget and forecast as the basis
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for the statements they made publicly about the Company's perfor-
mance during the Class Period. Based on the negative internal
reports of the Company's actual performance compared to that
budgeted and forecasted, the Individual Defendants each knew that
during the Class Period Alliance's business was not performing as
well as previously forecasted or publicly represented because
demand for its 256K SRAM products was softening, the rate of orders
for those products was declining, prices for its 256K SRAMs were
falling, Alliance was acquiring or had accumulated excess inven-
tories of 256K SRAMs that would require large write-offs and that
Alliance's UMC foundry was having serious and persistent problems
producing the new 1 Mbit SRAM chips which Alliance desperately
needed to offset its sharp revenue losses due to reduced sales of
256K SRAMs at lower prices. As a result of these negative factors,
each of the Individual Defendants knew Alliance could not meet the
revenue and earnings forecasts made by and for Alliance for the
second half of fiscal 1996 and that those forecasts were false.
STATUTORY SAFE HARBOR
32. The statutory safe harbor provided for forward-looking
statements under certain circumstances does not apply to any of the
allegedly false forward-looking statements pleaded in this
Complaint. None of the forward-looking statements pleaded at ¶¶2,
3, 9, 10, 38, 44, 47-50, 53 and 54 was identified as a "forward-
looking statement" when made. Nor was it stated that actual
results "could differ materially from those projected." Nor did
meaningful cautionary statements identifying important factors that
could cause actual results to differ materially from that in the
forward-looking statements accompany those forward-looking state-
- 20 -
ments. Alternatively, to the extent that the statutory safe harbor
does apply to any forward-looking statements pleaded in ¶¶2, 3, 9,
10, 38, 44, 47-50, 53 and 54, the defendants are liable for those
false forward-looking statements because at the time each of those
forward-looking statements was made the speaker knew the forward-
looking statement was false and the forward-looking statement was
authorized and/or approved by an executive officer of Alliance who
knew that those statements were false when made.
BACKGROUND TO THE CLASS PERIOD
33. Alliance was formed in the mid-1980's by N.D. Reddy and
his brother C.N. Reddy. Alliance went bankrupt in 1991 due to huge
losses resulting from their mismanagement and Alliance's failure to
successfully manufacture its own semiconductor chips. After the
Reddys reorganized Alliance in 1991, it suffered further losses in
fiscal 1992. However, due to the cyclical upsurge in the semicon-
ductor business, Alliance finally earned a small profit ($.18 per
share) in fiscal 1993 and, in late 1993 went public via an initial
public offering which raised $18.6 million.
34. Alliance's insiders knew that the semiconductor industry
was cyclical and suffered periodic downturns characterized by over-
capacity and/or weak demand during which the stock of companies in,
or dependent on, that industry declined substantially. By 1995,
the semiconductor industry had enjoyed an exceptionally long period
of strong demand and Alliance's insiders were concerned that when
the next cyclical decline in the semiconductor industry occurred,
Alliance's profitability would decline or disappear, making it very
difficult for Alliance to raise capital and they would suffer
serious financial losses, which could be catastrophic for the
- 21 -
Reddys, due to the concentration of their net worth in Alliance's
stock.
35. Thus, they wanted to raise as much capital for Alliance
as possible while selling some of their Alliance holdings before
the next cyclical decline overtook Alliance. On March 28, 1995,
Alliance, with the assistance of investment banking firms Hambrecht
& Quist and Lehman, undertook a second and much larger public
offering of Alliance stock, in which Alliance sold 3,300,000 shares
and insiders, including the Reddys, sold 450,000 shares, at $30-3/4
per share, raising $96.4 million for Alliance and $13.1 million for
the insiders. In each instance, this was the maximum amount of
shares Alliance and its insiders could feasibly sell in a secondary
offering at that time.
36. In connection with the Offering, it was understood that,
after the Offering, Hambrecht & Quist and Lehman would serve as
intermediaries through which Alliance could distribute information
to the securities markets and would have their securities analysts
issue favorable research reports on Alliance which would help
stimulate interest in the Company and support its stock price, at
least until Alliance's insiders had a chance to sell off more of
their stock into the trading market.
37. While the Reddys and their fellow insiders were eager to
sell off more of their Alliance holdings into the open market after
the Offering, they were not able to immediately do so. As is
normal in stock offerings where insiders sell stock, Alliance's
insiders had agreed to a 90-day "lock-up" period following the
Offering, during which they could not sell any more of their stock,
i.e., June 28, 1995. In order to boost Alliance's stock price so
- 22 -
that it would move to higher levels when the lock-up expired and
they could sell off more of their Alliance stock, defendants made
very positive statements about Alliance after the March Offering.
38. On May 4, 1995, N.D. Reddy appeared before the Hambrecht
& Quist Technology Conference in San Francisco on behalf of
Alliance. He told the assembled analysts and institutional
investors that:
• Reddy expected Alliance's better than 100% yearly
sales growth "to continue."
• Demand for Alliance's SRAM chips was soaring.
• Demand for Alliance's chips should increase as Intel
began to start producing its P6 chip in volume in 1996.
• Reddy endorsed forecasts of $1.94-$1.96* fiscal 1996
earnings per share for Alliance.
Reuters reported this information to the market, where it became
part of the total mix of information affecting Alliance's stock
price.
39. During June, Alliance received indications that demand
for its 256K SRAM chips was softening, its rate of new orders was
decreasing and prices for its 256K SRAM chips were softening. This
softening of demand, decline in new orders and softening in prices
of 256K SRAMs posed a grave danger to Alliance's ability to
continue to achieve earnings growth and was thus viewed with great
concern by Alliance's insiders. Also, Alliance's insiders knew
that if disclosure of the slowdown in Alliance's orders or
weakening of demand for or price softening of 256K SRAMs was made,
Alliance stock would fall sharply and that this would eliminate
their ability to sell their shares after the expiration of the
____________________
* Pre-split. $1.29-$1.30 post-split.
- 23 -
"lock-up" at high, profitable prices. Worse yet, since the March
Offering, Alliance stock had performed poorly and, on June 28, 1995
when the "lock-up" expired, Alliance stock still sold at $30-$31
per share -- the same as the Offering price three months earlier.
40. Thus, in order to push Alliance stock to higher levels so
that they could profit more from the sales of their Alliance stock,
the Individual Defendants commenced their fraudulent scheme and
course of business that operated as a fraud or deceit on purchasers
of Alliance stock by making false and misleading statements about
Alliance that artificially inflated the price of its stock.
FALSE AND MISLEADING STATEMENTS DURING THE CLASS PERIOD
41. The statements made by N.D. Reddy on May 4, 1995 and set
forth in ¶38 were alive, uncorrected and affected the price of
Alliance stock on July 11, 1995, the start of the Class Period.
42. On July 11, 1995, Alliance reported its results for the
quarter ended June 30, 1995, Alliance's first quarter of fiscal
1996 which fiscal year would end March 31, 1996. Alliance reported
outstanding, record-breaking results -- revenues of $57 million,
net income of $14.9 million and earnings per share of $.54, in each
instance, huge increases over both the prior quarter and the like
quarter in fiscal 1995, and amounts which significantly exceeded
analysts' expectations. The release stated:
"Alliance's results for the most recent quarter
represent the eleventh consecutive quarter in which
Alliance has set new company records for revenues and net
income," said N. Damodar Reddy, Alliance's president and
chief executive officer.
"The strong growth in both revenues and net income
reflect continued strong market demand for our SRAM
products. . . . [d]emand for our high performance, 3.3
volt SRAMs continues to increase . . . [and] current
- 24 -
industry supply constraints have created a favorable
pricing environment . . . continued Mr. Reddy.
On July 11, 1995, Alliance also announced a 3-for-2 stock split.
43. On July 11, 1995, N.D. Reddy and Shelton spoke to
securities analysts by telephone and told them that:
• The SRAM market was red hot and demand for
Alliance's SRAM products, including its 256K SRAMs, was
very strong, resulting in Alliance being deluged with
orders.
• Alliance had been successful in obtaining a suffi-
cient supply of products to meet the extremely strong
demand it was encountering.
• Pricing for Alliance's products was very firm, with
prices for certain products increasing.
• Alliance expected the SRAM market to remain very
strong for the next year.
As a result of these favorable factors, Alliance guided analysts to
increase their forecasts of Alliance's earnings and to now antici-
pate and forecast fiscal year 1996 revenues and earnings per share
of $290+ million and $2.55+, respectively, with further large
increases in fiscal 1997. Analysts reported this information to
the market, where it became part of the total mix of information
affecting Alliance's stock price.
44. On July 12, 1995, Alliance's stock, which had closed at
$37-11/64 on July 11, soared on huge volume, reaching an all-time
high of $40-3/4, continuing to climb to $43-3/4 on July 13, to
$47-1/2 on July 26, and reached its all-time high of $48-l/4 on
August 2. As Alliance stock soared to its all-time high, its five
top insiders, i.e., the Individual Defendants, unloaded their
shares, selling 512,500 shares at prices as high as $47 per share,
between July 14, 1995 and September 8, 1995, pocketing $31.3
million.
- 25 -
45. In late August 1995, N.D. Reddy and/or Shelton met with
securities analyst Michael Gumport of Lehman Brothers and told him
demand for Alliance products was strong and that Alliance's fiscal
1996 earnings forecast remained the same. Lehman Brothers reported
this information to the market, where it became part of the total
mix of information affecting Alliance's stock price.
46. The positive statements about Alliance's business made by
defendants before July 11, 1995 that were affecting the market
price of Alliance's stock on July 11, 1995 and the positive state-
ments made between July 11, 1995 and late August 1995, were each
materially false and misleading when made, and failed to disclose,
inter alia, the following adverse information, disclosure of which
was necessary to make the statements made not false and misleading,
and which adverse facts were then known only to defendants due to
their access to Alliance's internal corporate data:
(a) Alliance was encountering weakening of demand for
certain of its SRAM products, especially 256K SRAMs, which was
resulting in a slowing of orders for those products;
(b) Alliance was encountering a softening in prices for
its 256K SRAM products because of weakening demand and an
increasing supply of these products in the marketplace;
(c) Demand for Alliance's SRAM products was not
"soaring" and was not "strong" as Alliance stated;
(d) That Alliance was not increasing prices to any
significant extent for any of its important products as it was, in
fact, encountering softening prices with respect to its major
product line, i.e., 256K SRAMs;
- 26 -
(e) Alliance faced a major risk and grave danger to its
business, as it had accumulated a huge inventory of 256K SRAM
products at a time when demand for those products was softening and
the prices of those products were falling, thus creating a
substantial risk that Alliance would have to take a major inventory
write-down which would adversely impact Alliance's results from
operations; and
(f) As a result of the foregoing negative factors,
defendants knew that forecasts of fiscal 1996 earnings per share of
$1.80 were false when made, as those forecasts were inconsistent
with and contradicted by the above adverse conditions, which were
impacting Alliance's business at the time those forecasts were
made.
47. In early September 1995, information of price weakness in
SRAM products, including declining spot prices, entered the market-
place. Semiconductor stocks, including Alliance, declined. To try
to halt this decline, one of Alliance's top executives spoke to
Charles Boucher of Hambrecht & Quist and told him:
• Alliance had minimum exposure to the products and
the market showing price weakness.
• Alliance was successfully transitioning its business
to 3.3V and 1 Mbit SRAM's, where supply remained light,
prices were firm and average selling prices (and profits)
higher.
• Alliance's new 3.3V 32k x 32 synchronous burst SRAM
was receiving excellent early customer response and
acceptance with strong orders.
• Alliance expected to achieve higher earnings per
share for fiscal 1996 than earlier forecast.
- 27 -
Hambrecht & Quist reported this information to the market, where it
became part of the total mix of information affecting Alliance's
stock price.
48. On October 10, 1995, Alliance reported its results for
the quarter ended September 30, 1995 (its second quarter of fiscal
1996) again reporting very strong results -- revenues of $77
million, net income of $20 million and earnings per share of $.48
per share -- in each instance, increases over the prior quarter and
the like quarter in fiscal 1995 and in excess of analysts'
expectations. The release stated:
"Alliance's results for the most recent quarter
represent the twelfth consecutive quarter in which
Alliance has set new company records for revenues and net
income," said N. Damodar Reddy, Alliance's president and
chief executive officer.
"The strong growth in both revenues and net income
reflect strong demand during the quarter for our SRAM
products. In particular, demand for our high perfor-
mance 3.3 volt SRAMs continued to grow, with revenues
from this product line increasing by more than 40 percent
over the June 1995 quarter.
More importantly, we began volume shipments of our
32k x 32 synchronous burst SRAM, the next generation of
leading-edge SRAM products. This product, increasingly
required by high-end Pentium (120 mhz and above) systems
for optimum performance, is expected to contribute an
increasingly greater percentage of our revenues in future
quarters as demand for high-end Pentium systems continues
to expand.
In addition, demand for our high performance
1-megabit asynchronous SRAM has expanded significantly in
non-PC market segments such as networking and telecommun-
ications. It is anticipated that revenues from this
product driven by the growth in non-PC market segments,
will contribute an increasingly higher percentage of our
revenues in future quarters."
49. On October 10, 1995, N.D. Reddy and Shelton spoke to
securities analysts by telephone and guided them to increase their
third and fourth quarter fiscal 1996 revenue and earnings per share
- 28 -
forecasts for Alliance to $88 million and $97 million and $.53 and
$.56, respectively. They also told the analysts that:
• Alliance was enjoying strong demand for its products
which resulted in better than expected results.
• While prices were expected to continue to decline
for 32k x 8 SRAMs, the impact on Alliance would be
minimal, as it had successfully shifted its product mix
toward synchronous and asynchronous SRAMs which were in
tight supply and commanded premium prices.
• Alliance was having no difficulty obtaining product
to meet the strong demand for its products.
• The outlook for Alliance's quarter to end December
30, 1995 -- the third quarter of fiscal 1996, was
extraordinarily good, with most of the quarter being
booked already and pricing in the backlog relatively
firm.
Analysts reported this information to the market where it became
part of the total mix of information affecting Alliance's stock
price, while raising their earnings estimates for Alliance fiscal
1996 and fiscal 1997 years to $1.93-$2.08 and $2.51-$2.66, respec-
tively. Alliance stock jumped from a low of $26 per share on
October 10, 1995 to a high of $34-1/4 per share on October 11, 1995
based on this very positive information.
50. In mid-October 1995, Alliance had discussions with
analyst Michael Gumport of Lehman and told him that:
• Alliance's transition to 1 Mbit production was
successful and soon 100% of Alliance's products would be
in this category.
• This transition largely insulated Alliance from the
falling prices for 256K SRAM products.
• Alliance's remaining 256K SRAM products targeted
telecom where demand for the highest speed chips was
still accelerating and Alliance's products still
commanded premium prices.
• Alliance's transition to 1 Mbit products would
enable Alliance to continue to achieve sequential
quarterly sales and earnings per share growth.
- 29 -
Lehman reported this information to the market, where it became
part of the total mix of information affecting Alliance's stock
price. Alliance's stock price jumped from $27-1/4 to $32-3/4 in
two days on high volume after this information entered the market.
51. On October 31, 1995, Alliance met with analysts at the
American Electronics Association conference in Monterey,
California, and told them that:
• Average selling prices for Alliance's products were
flat or up, due to improved product mix.
• Alliance had successfully transitioned to 1 Mbit
SRAM products.
Analysts reported this information to the market, where it became
part of the total mix of information affecting Alliance's stock
price.
52. Each of the positive statements about Alliance's business
made by defendants during late August through October 31, 1995 were
materially false and misleading when issued, and failed to
disclose, inter alia, the following adverse information, disclosure
of which was necessary to make the statements made not false and
misleading, and which facts were then known only to defendants due
to their access to Alliance's internal corporate data:
(a) Alliance was encountering weakening of demand for
its 256K SRAMs, which was resulting in a slowing of orders for
those products;
(b) Alliance was encountering a softening in prices for
its 256K SRAM products because of weakening of demand and an
increasing supply of these products in the marketplace;
(c) Demand for Alliance's products was not "strong" as
Alliance stated;
- 30 -
(d) That Alliance's main Taiwanese foundry, UMC, was not
qualified to produce the 1 Mbit SRAM products which Alliance was
relying upon that foundry to produce in large quantities to permit
Alliance to transition its business away from dependence on 256K
SRAMs;
(e) That Alliance had not "successfully transitioned"
its business away from 256K SRAMs to 1 Mbit SRAMs, as its UMC
foundry was encountering substantial and persistent production
difficulties with wafers for Alliance's 1 Mbit product line,
resulting in extremely low yields and insufficient 1 Mbit product
for Alliance to generate the revenues necessary to offset the
adverse impact on its business of softening demand for, and falling
prices, of 256K SRAMs;
(f) Alliance was not "largely insulated" from the impact
of weakening demand for, and falling prices of, 256K SRAMs, nor was
the impact of those adverse market factors on it minimal as, in
fact, a significant portion of Alliance's ongoing revenue stream
depended upon the sale of 256K SRAMs and Alliance still held a
large inventory of 256K SRAMs, the value of which was being
impaired by falling prices for 256K SRAMs, meaning that Alliance
would likely have to take a large write-down on its 256K SRAM
inventory;
(g) Demand for Alliance's telecom SRAM products was not
still accelerating, as demand in this market was sluggish as well
and orders in this area of Alliance's business were slowing and
price-cutting was prevalent here also;
(h) The portion of Alliance's 256K SRAM inventory for
telecom products was not sufficiently large to permit Alliance to
- 31 -
offset the negative impact on it of weakening demand for and
falling prices of Alliance's other 256K SRAM products;
(i) Alliance had not successfully shifted its product
mix towards synchronous and asynchronous SRAM products, which were
in tight supply and commanded premium prices as, in fact, a
significant portion of Alliance's business continued to be
dependent upon 256K SRAMs, for which demand was weakening and the
prices of which were falling, which was having a negative adverse
impact on Alliance's business;
(j) Alliance faced a major risk and danger to its
business, as it had accumulated a huge inventory of 256K SRAM
products at a time when demand for those products was softening and
the prices of those products were falling, thus creating a substan-
tial risk that Alliance would have to take a major inventory write-
down on those products which would adversely impact Alliance's
results from operations;
(k) Alliance's revenues, net income and earnings per
share were being adversely impacted by the negative factors set
forth above and, as a result, the Company's results from operations
were materially below internal corporate forecasts and budgets and
much lower than had been forecast and was being forecast by and for
Alliance; and
(l) As a result of the foregoing negative factors,
defendants knew that Alliance's forecasts of fiscal 1996 and 1997
earnings per share of $1.92-$2.08 and $2.51-$2.60, respectively,
and of third and fourth quarter fiscal 1996 earnings per share of
$.53 and $.56, respectively, were false when made, as those
forecasts were inconsistent with and contradicted by the above
- 32 -
adverse conditions, which were impacting Alliance's business at the
time those forecasts were made.
53. Beginning on November 7, 1995, Alliance's stock fell
sharply on rumors that demand for SRAM chips was falling and prices
of SRAM products were declining. In an effort to halt this decline
on or about November 15-16, 1995, Alliance officials communicated
with analyst Michael Gumport of Lehman to tell him that notwith-
standing price declines for some SRAM products, Alliance's business
was strong, and that:
• Telecom SRAM demand for Alliance's products was
particularly robust.
• The major transition away from 250K SRAMs to 1 Mbit
devices had succeeded and Alliance had stopped all 256K
SRAM production.
• Alliance expected sales for its December quarter to
be up at least 15% to $88+ million.
• Alliance would achieve 15% sequential growth or
better in the near term.
Lehman reported this information to the market, where it became
part of the total mix of information affecting Alliance's stock
price.
54. During early December 1995, as information entered the
marketplace that SRAM price weakness had spread to 1 Mbit SRAM
products and Alliance's stock declined, Alliance officials spoke to
analyst Boucher at Hambrecht & Quist and told him that despite the
worsening price erosion in the 256K SRAM market, Alliance expected
to achieve previously forecast December quarterly results, because:
• Alliance had executed well in transitioning its
product mix to next generation products in terms of
speed, density, voltage and functionality and this
continuous mix shift toward higher performance products
would minimize the Company's exposure to price erosion.
- 33 -
• Alliance was not changing estimates and would likely
meet December quarter estimates of $88 million and $.53
earnings per share with $.56 earnings per share in the
March quarter, as well.
55. Each of the positive statements about Alliance's business
made by defendants during November and December 1995 were mater-
ially false and misleading when issued, and failed too disclose,
inter alia, the following adverse information, disclosure of which
was necessary to make the statements made not false and misleading,
and which facts were then known only to defendants due to their
access to Alliance's internal corporate data:
(a) That Alliance's main Taiwanese foundry, UMC, was not
equipped or qualified to produce the 1 Mbit SRAM products which
Alliance was relying upon that foundry to produce in large quantity
to permit Alliance to transition its business away from dependence
on 256K SRAMs;
(b) That Alliance had not successfully transitioned its
business away from 256K SRAMs to 1 Mbit SRAMs, as its UMC foundry
was encountering substantial and persistent production difficulties
with wafers for Alliance's 1 Mbit product line, resulting in
extremely low yields and insufficient 1 Mbit product for Alliance
to generate the revenues necessary to offset the adverse impact on
its business of softening demand for, and falling prices, of 256K
SRAMs;
(c) Alliance was not largely insulated from the impact
of weakening demand for, and falling prices of, 256K SRAMs, nor was
the impact of those adverse market factors on it minimal as, in
fact, a significant portion of Alliance's ongoing revenue stream
depended upon the sale of 256K SRAMs and Alliance still held a
- 34 -
large inventory of 256K SRAMs, the value of which was being
impaired by falling prices for 256K SRAMs, meaning that Alliance
would likely have to take a large write-down on its 256K SRAM
inventory;
(d) Demand for Alliance's telecom SRAM products was not
"particularly robust," as demand in this market was sluggish as
well and orders in this area of Alliance's business were slowing
and price-cutting was prevalent here also;
(e) The portion of Alliance's 256K SRAM inventory for
telecom products was not sufficiently large to permit Alliance to
offset the negative impact on it of weakening demand for and
falling prices of Alliance's other 256K SRAM products;
(f) Alliance had not successfully shifted its product
mix towards synchronous and asynchronous SRAM products, which were
in tight supply and commanded premium prices as, in fact, a
significant portion of Alliance's business continued to be
dependent upon 256K SRAMs, for which demand was weakening and the
prices of which were falling, which was having a negative adverse
impact on Alliance's business;
(g) Alliance faced a major risk and danger to its
business, as it had accumulated a huge inventory of 256K SRAM
products at a time when demand for those products was softening and
the prices of those products were falling, thus creating a substan-
tial risk that Alliance would have to take a major inventory write-
down on those products which would adversely impact Alliance's
results from operations;
(h) Alliance's revenues, net income and earnings per
share were being adversely impacted by the negative factors set
- 35 -
forth above and, as a result, the Company's results from operations
were materially below internal corporate forecasts and budgets and
much lower than had been forecast and was being forecast by and for
Alliance; and
(i) As a result of the foregoing negative factors,
defendants knew that Alliance's forecasts of 15% sequential growth,
third quarter fiscal 1996 revenue of $88 million and third and
fourth quarter fiscal 1996 earnings per share of $.53 and $.56,
respectively, were false when made, as those forecasts were
inconsistent with and contradicted by the above adverse conditions,
which were impacting Alliance's business at the time those
forecasts were made.
56. During December, Alliance's stock continued to erode
despite Alliance's assurances that its business was strong and that
the softening demand and price weakness for SRAM chips would have
only a minimum impact on it. Then, on December 29, 1995, Alliance
finally revealed that it would have to take a huge write-off due to
excess 256K SRAM inventories and that wafers produced by its
largest foundry supplier had failed to meet specifications and
resulted in very low yields, due to wafer contamination and other
manufacturing process problems. As a result of this huge write-
off, these manufacturing problems and decreases in selling prices
for its products, Alliance's revenues and earnings for the quarter
ending December 31, 1995, would be significantly below the results
for the quarter ended September 30, 1995.
57. A few days later, Alliance reported terrible results for
its third quarter of fiscal 1996 ended December 31, 1995 --
revenues of $46.4 million -- a decline of 40% from the prior
- 36 -
quarter; net income of only $2.2 million -- a decline of 90% from
the prior quarter; and earnings per share of only $.05 -- a decline
of 90% from the prior quarter! These horrible results were due to
weak demand for Alliance's products, the severe impact of price-
cutting on its revenues and profit margins, manufacturing problems
with its new 1 Mbit SRAM products resulting in low yields and
insufficient product to fill orders, as well as a $10 million
write-off for excess inventory of 256K SRAM chips. Alliance also
revealed its results for the quarter to end March 31, 1996, would
also be very poor, subsequently indicating those results will be no
better than the terrible December quarter and that another large
inventory write-off was likely.
ALLIANCE'S BOILERPLATE DISCLAIMERS AND WARNINGS
58. (a) On August 14, 1995, Alliance filed its Report on
Form 10-Q for the first quarter of fiscal 1996 ended July 1, 1995,
which was signed by N.D. Reddy and Shelton, which stated:
Factors That May Affect Future Results
The Company's future operating results may be
affected by a number of uncertainties, including general
economic conditions, the rate of growth in the personal
computer market and other competitive factors. In
particular, the markets for the Company's products are
characterized by rapid technological change, evolving
industry standards, product obsolescence and significant
price competition and, as a result, are subject to
decreases in average selling prices.
The Company currently relies on outside foundries to
manufacture all of the Company's products. Reliance on
these foundries involves several risks, including
constraints or delays in timely delivery of the Company's
products, reduced control over delivery schedules,
quality assurance and costs. Although the Company is
continuously evaluating sources of supply and seeking to
add additional foundry capacity, there can be no
assurance that such additional capacity can be obtained
at acceptable prices, if at all. The occurrence of any
supply or other problem resulting from these risks could
- 37 -
have a material adverse effect on the Company's operating
results.
As a result of the foregoing factors, as well as
other factors affecting the Company's operating results,
past performance should not be considered to be a
reliable indicator of future performance and investors
should not use historical trends to anticipate results or
trends in future periods. In addition, stock prices for
many technology companies are subject to significant
volatility. If revenues or earnings fail to meet
expectations of the investment community, there could be
an immediate and significant impact on the market price
of the Company's common stock.
(b) On November 13, 1995, Alliance filed its Report on
Form 10-Q for the second quarter of fiscal 1996 ended September 30,
1995, signed by N.D. Reddy and Shelton, which stated:
Factors That May Affect Future Results
The Company's future operating results may be
affected by a number of uncertainties, including general
economic conditions, the rate of growth in the personal
computer market and other competitive factors. In
particular, the markets for the Company's products are
characterized by rapid technological change, evolving
industry standards, product obsolescence and significant
price competition and, as a result, are subject to
decreases in average selling prices.
The Company currently relies on outside foundries to
manufacture all of the Company's products. Reliance on
these foundries involves several risks, including
constraints or delays in timely delivery of the Company's
products, reduced control over delivery schedules,
quality assurance and costs. Although the Company is
continuously evaluating sources of supply and seeking to
add additional foundry capacity, there can be no
assurance that such additional capacity can be obtained
at acceptable prices, if at all. The occurrence of any
supply or other problem resulting from these risks could
have a material adverse effect on the Company's operating
results.
As a result of the foregoing factors, as well as
other factors affecting the Company's operating results,
past performance should not be considered to be a
reliable indicator of future performance and investors
should not use historical trends to anticipate results or
trends in future periods. In addition, stock prices for
many technology companies are subject to significant
volatility. If revenues or earnings fail to meet
- 38 -
expectations of the investment community, there could be
an immediate and significant impact on the market price
of the Company's common stock.
However, the supposed warnings in these SEC filings were nothing
but generic warnings that contained no specific factual disclosure
of the adverse factors which were actually negatively impacting
Alliance's business as of July 11, 1995, as set forth above. This
language in Alliance's SEC reports did not change at all even
though the state of Alliance's business had materially changed for
the worse between July 1, 1995 and November 13, 1995, including a
softening of demand for Alliance's products resulting in a slowing
of orders, price-cutting affecting the value of 256 SRAM products
of which Alliance had millions in inventory and Alliance's
unsuccessful effort to transition to 1 Mbit SRAM products,
exacerbated by severe production problems for the products at its
largest foundry (UMC), resulting in low yields and an inadequate
supply of product for Alliance to meet orders, all of which were
actually adversely impacting Alliance's results. In fact,
Alliance's July 1 and September 30, 1995 10-Qs were themselves
false and misleading because Alliance was not merely facing the
abstract risks described, but was, in fact, already encountering
the reality of changing conditions in the semiconductor industry,
i.e., softening demand, resulting in slowing orders for Alliance,
price-cutting of products which it was dependent on and serious
product problems at its largest foundry (UMC), which were adversely
affecting Alliance and was resulting in lower than planned revenues
and net income, which defendants knew would result in a collapse of
Alliance's stock price. Thus, Alliance's 10-Q's for its second and
third quarters of fiscal 1996 failed to disclose that:
- 39 -
• Demand for Alliance's 256K SRAM products had
softened, resulting in a slowing of orders.
• Prices for Alliance's 256K SRAM products had
softened, which would have a major negative impact on
Alliance due to its huge inventories of unsold 256K
SRAMs.
• Alliance's main foundry supplier, UMC, had no proven
ability to supply large quantities of 1 Mbit SRAMs and
its effort to manufacture such products for Alliance was
plagued by quality problems, the chips did not meet
specifications and very low yields were resulting.
• Alliance was not successfully transitioning away
from 256K SRAM products to 1 Mbit SRAM products, as its
financial results still depended on sales of 256K SRAMs
and it had a very large inventory of 256K SRAM products
and its main foundry was not able to produce 1 Mbit SRAMs
in sufficient quantities to enable Alliance to make the
transition.
• Alliance's revenues, net income and earnings per
share were being negatively impacted by the adverse
factors set forth above.
59. The boilerplate, inadequate and false and misleading
sections of Alliance's 10-Qs set forth above were prepared for
Alliance by its legal counsel, the Venture Law Group, a law firm
specializing in representing high-tech public companies and in
assisting them in attempting to create barriers to suits against
them for violations of the securities laws. The above quoted
sections of Alliance's 10-Qs were the Venture Law Group's boiler-
plate product, the same as or very similar to form boilerplate
disclosures the firm drafted for other high-tech companies and
which were not intended to make any accurate or meaningful
disclosure of the facts actually impacting or affecting the subject
company; but rather, only to list every conceivable contingency
that might impact the business in the future, regardless of what
the actual facts concerning the business really were at the time
the filing was made.
- 40 -
DEFENDANTS' INSIDER SELLING
60. While Alliance's officials were issuing favorable false
statements about Alliance's business, the defendants sold 500,000+
shares of the stock they owned for proceeds of about $31.3 million
to profit from the artificial inflation in the Alliance stock price
their fraud had created. Notwithstanding their access to confi-
dential information as a result of their status as directors and/or
officers of the Company, the Individual Defendants sold significant
amounts of Alliance shares at artificially inflated prices
throughout the Class Period while in possession of material
non-public information.
DATE SHARES PRICE PROCEEDS
NAME SOLD SOLD PER SHARE FROM SALE
Agrawal, S. 07/26/95 2,500 $68.25 $ 170,625
09/07/95 10,000 44.50 445,000
------- ----------
12,500 $ 615,625
Medhekar, A. 07/25/95 10,000 $66.25 $ 662,500
07/26/95 10,000 68.25 682,500
07/27/95 10,000 70.50 705,000
------- ----------
30,000 $ 2,050,000
Reddy, C.N. 07/14/95 10,000 $62.00 $ 620,000
07/17/95 5,000 64.00 320,000
07/19/95 10,000 58.00 580,000
07/21/95 15,000 60.75 911,250
07/24/95 30,000 63.50 1,905,000
07/25/95 15,000 65.25 978,750
07/25/95 15,000 66.25 993,750
07/25/95 30,000 66.30 1,989,000
07/26/95 5,000 70.25 351,250
07/26/95 5,000 70.00 350,000
07/27/95 15,000 70.50 1,057,500
07/27/95 5,000 70.00 350,000
07/27/95 10,000 70.25 702,500
07/31/95 5,000 70.50 352,500
08/11/95 15,000 44.00 660,000
08/14/95 25,000 45.25 1,131,250
09/08/95 15,000 44.25 663,750
------- ----------
230,000 $13,916,500
- 41 -
DATE SHARES PRICE PROCEEDS
NAME SOLD SOLD PER SHARE FROM SALE
Reddy, N.D. 07/14/95 5,000 $63.00 $ 315,000
07/14/95 10,000 62.00 620,000
07/17/95 7,500 63.85 478,875
07/17/95 5,000 63.85 319,250
07/19/95 10,000 58.00 580,000
07/21/95 10,000 61.75 617,500
07/24/95 10,000 63.25 632,500
07/24/95 10,000 63.00 630,000
07/25/95 15,000 67.00 1,005,000
07/25/95 15,000 65.00 975,000
07/25/95 10,000 66.00 660,000
07/25/95 10,000 64.25 642,500
07/26/95 10,000 68.75 687,500
07/26/95 5,000 70.00 350,000
07/27/95 15,000 70.17 1,052,550
07/27/95 15,000 70.50 1,057,500
07/27/95 5,000 70.50 352,500
07/27/95 15,000 70.25 1,053,750
07/31/95 5,000 70.25 351,250
08/03/95 15,000 42.00 630,000
08/14/95 10,000 45.00 450,000
08/16/95 15,000 47.00 705,000
------- ----------
227,500 $14,165,675
Shelton, R. 07/14/95 5,000 $61.50 $ 307,500
09/08/95 7,500 44.00 330,000
------- ----------
12,500 $ 637,500
------- ----------
GRAND TOTAL: 512,500 $31,385,300
CLAIM FOR RELIEF I
Section 10(b) Of The
Exchange Act And Rule 10b-5
61. Plaintiff incorporates by reference ¶¶1-60.
62. Each of the defendants: (a) knew or had access to the
material adverse non-public information about Alliance's financial
results and then existing business conditions, which was not
disclosed and (b) participated in drafting, reviewing and/or
approving the misleading statements, releases, reports and other
public representations of and about Alliance.
- 42 -
63. During the Class Period, defendants, with knowledge of or
reckless disregard for the truth, disseminated or approved the
false statements specified above, which were misleading in that
they contained misrepresentations and failed to disclose material
facts necessary in order to make the statements made, in light of
the circumstances under which they were made, not misleading.
64. Defendants have violated §10(b) of the Exchange Act and
Rule 10b-5 promulgated thereunder in that they: (a) employed
devices, schemes and artifices to defraud; (b) made untrue
statements of material facts or omitted to state material facts
necessary in order to make statements made, in light of the
circumstances under which they were made, not misleading; or (c)
engaged in acts, practices and a course of business that operated
as a fraud or deceit upon the purchases of Alliance stock during
the Class Period.
65. Plaintiff and the Class have suffered damage in that, in
reliance on the integrity of the market, they paid artificially
inflated prices for Alliance stock. Plaintiff and the Class would
not have purchased Alliance stock at the prices they paid, or at
all, if they had been aware that the market prices had been
artificially and falsely inflated by defendants' false and
misleading statements.
CLAIM FOR RELIEF II
Section 20(a) Of The Exchange Act
66. Plaintiff incorporates by reference ¶¶1-65.
67. N.D. and C.N. Reddy acted as controlling persons of the
Company within the meaning of §20 of the Exchange Act. By reason
of their executive positions at Alliance, Board membership and
- 43 -
stock ownership, as alleged above, the Reddys had the power and
authority to cause the Company to engage in the wrongful conduct
complained of herein. Alliance controlled each of the Individual
Defendants and all of its employees.
68. By reason of such wrongful conduct, Alliance and the
Reddys are liable pursuant to §20(a) of the Exchange Act. As a
direct and proximate result of these defendants' wrongful conduct,
plaintiff and the other members of the Class suffered damages in
connection with their purchases of the Company's securities during
the Class Period.
BASIS OF ALLEGATIONS
69. Plaintiff has alleged the foregoing based upon the
investigation of his counsel, which included a review of Alliance's
SEC filings, securities analysts' reports and advisories about the
Company, press releases issued by the Company, media reports about
the Company and discussions with consultants, and believes that
substantial evidentiary support will exist for the allegations set
forth in ¶¶l, 5, 6, 8, 12, 27, 31, 35, 37, 39, 40, 46, 52, 55,
58-60 after a reasonable opportunity for discovery.
PRAYER FOR RELIEF
WHEREFORE, plaintiff prays for judgment as follows:
1. Declaring this action to be a proper class action
pursuant to Rules 23(a) and 23(b)(3) of the Federal Rules of Civil
Procedure on behalf of the Class defined herein;
2. Awarding plaintiff and the members of the Class
compensatory damages;
- 44 -
3. Awarding plaintiff and the members of the Class
pre-judgment and post-judgment interest, as well as reasonable
attorneys' fees, expert witness fees and other costs;
4. Awarding extraordinary, equitable and/or injunctive
relief as permitted by law, equity and the federal statutory
provisions sued hereunder, pursuant to Rules 64, 65 and any
appropriate state law remedies; and
5. Awarding such other relief as this Court may deem just
and proper.
JURY DEMAND
Plaintiff demands a trial by jury.
DATED: March __, 1996 MILBERG WEISS BERSHAD
HYNES & LERACH
WILLIAM S. LERACH
ALAN SCHULMAN
BLAKE M. HARPER
________________________________
WILLIAM S. LERACH
600 West Broadway, Suite 1800
San Diego, CA 92101
Telephone: 619/231-1058
SCHIFFRIN & CRAIG, LTD.
RICHARD S. SCHIFFRIN
MICHAEL CRAIG
Three Bala Plaza East
Suite 400
Bala Cynwyd, PA 19004
Telephone: 610/667-7706
Attorneys for Plaintiff
- 45 -
CERTIFICATION OF NAMED PLAINTIFF
PURSUANT TO FEDERAL SECURITIES LAWS
Robert Hockey ("Plaintiff") declares, as to the claims
asserted under the federal securities laws, that:
1. Plaintiff has reviewed the complaint and authorized its
filing.
2. Plaintiff did not purchase the security that is the
subject of this action at the direction of plaintiff's counsel or
in order to participate in this private action.
3. Plaintiff is willing to serve as a representative party
on behalf of the class, including providing testimony at deposition
and trial, if necessary.
4. Plaintiff's transaction in the security that is the
subject of this action during the Class Period is as follows:
Security Transaction Date
-------- ----------- ----
Common Stock Purchased 100 shares November 2, 1995
5. During the three years prior to the date of this
Certificate, Plaintiff has sought to serve or served as a repre-
sentative party for a class in the following actions filed under
the federal securities laws: None.
6. Plaintiff has sought to serve or served as a represen-
tative party for a class in the following actions filed subsequent
to December 22, 1995: None.
7. The Plaintiff will not accept any payment for serving as
a representative party on behalf of the class beyond the
Plaintiff's pro rata share of any recovery, except such reasonable
costs and expenses (including lost wages) directly relating to the
representation of the class as ordered or approved by the court.
I declare under penalty of perjury that the foregoing is true
and correct. Executed this 1st day of March, 1996, at
Barrington, New Jersey.
/s/
_______________________________
ROBERT HOCKEY