___________________________________
)
LAURE SALERNO, )
345 East 73rd Street )
Penthouse C )
New York, NY 10021 )
on behalf of herself and all ) Civil Action No.
others similarly situated, )
) CASE NUMBER 1:98CV02465
Plaintiff, ) JUDGE: Joyce Hens Green
) DECK TYPE: Civil General
v. ) DATE STAMP: 10/16/98
)
BAAN COMPANY N.V., )
11911 Freedom Drive )
Reston, VA 20190 )
(and) )
Vanenburgerallee 13 )
3882 RH Putten )
The Netherlands )
JAN BAAN, )
c/o Baan Company N.V. )
11911 Freedom Drive )
Reston, VA 20190 )
TOM C. TINSLEY, )
c/o Baan Company N.V. )
11911 Freedom Drive )
Reston, VA 20190 )
N. M. (KLAAS) WAGENAAR, )
c/o Baan Company N.V. )
11911 Freedom Drive )
Reston, VA 20190 )
Z.G. PAUL BAAN, )
c/o Baan Company N.V. )
11911 Freedom Drive )
Reston, VA 20190 )
WILLIAM O. GRABE, )
General Atlantic Partners )
125 East 56th Street )
New York, NY 10022 )
DAVID C. HODGSON, )
General Atlantic Partners )
125 East 56th Street )
New York, NY 10022 ) CLASS ACTION
AMAL M. JOHNSON, )
Baan USA, Inc. )
2350 Mission College Blvd. )
Suite 1300 )
Santa Clara, CA 95054 )
-and- )
VANENBURG VENTURES, B.V., ) JURY TRIAL DEMANDED
Vanenburgerallee 13 )
P.O. Box 231 )
The Netherlands )
)
Defendants. )
___________________________________)
COMPLAINT FOR VIOLATION OF THE
SECURITIES EXCHANGE ACT OF 1934
OVERVIEW OF ACTION
1. This is a class action on behalf of purchasers of
Baan Corp. ("Baan" or the "Company") American Depository Receipts
("ADR's") between January 30, 1998 and October 12, 1998 (the
"Class Period"). This action alleges that defendants made false
and misleading statements about Baan's business, finances and
future prospects.
2. Beginning prior to and continuing throughout the
Class Period, defendants undertook a scheme and course of conduct
intended to inflate Baan's results through various financial
manipulations. For example, to increase quarterly reported
revenues throughout 1997 and into 1998, so as to meet Wall Street
estimates and expectations, Baan used off balance sheet
transactions with affiliates to overstate the Company's earnings.
For fiscal year 1997, Baan's earnings were inflated as much as
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24%. Controlled by Baan founder Jan Baan, and his brother
defendant Paul Baan, these affiliates accepted massive shipments
of software so that the Company could maintain the illusion of
rapid growth and competitiveness sufficient to mislead investors
to bid up the Company's securities prices and "earnings"
multiple. Defendants herein used Baan's inflated securities
price as currency to close several material acquisitions during
the Class Period.
3. Through improper revenue recognition methods,
facilitated by non arm's length agreements with its reseller
affiliates, Baan was able to manipulate its revenue and earnings
so as to report impressive growth throughout 1997 and the first
half of 1998, and mislead the public to believe that Baan was
able to effectively compete with its largest rival, SAP of
Germany.
4. As Baan reported its 1997 results, and defendants
made extremely bullish comments about Baan's prospects in 1998
and beyond, the Individual Defendants named herein took advantage
of the inflated price of Baan's securities to sell more than
130,000 shares of the Baan securities they owned for proceeds of
about $5,635,000. At the same time, entities controlled by two
defendants sold 559,959 Baan shares for proceeds of $25,115,776.
only a few weeks prior to the end of the Class Period, other
senior Baan executives sold more than 224,000 Baan ADRs,
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pocketing greater than $6,800,000, while in possession of
material, adverse inside information.
5. On October 12, 1998, Baan disclosed a material
shortfall in revenues and a huge loss for the third quarter, well
below analysts' expectations and the Company's forecasts,
reflecting, contrary to the explanation given by the Company, the
material effect on Baan's financial results of the improper
practices that defendants could no longer freely utilize to
manage its financial results. The Company revealed that, instead
of earnings $0.15 per share as forecast, Baan would suffer a huge
loss of as much as $0.16 per share for the third quarter of 1998.
Baan also warned that the fourth quarter of 1998 would be
disastrous as well. The price of Baan's ADR's reacted sharply to
these revelations, dropping $4.375 per share, or 25%, to $13.50,
on almost 15 time's Baan's average one-day NASDAQ trading volume.
6. The positive statements about Baan's business and
financial projections and results during the Class Period were
materially false and misleading when issued because defendants
failed to disclose, inter alia, the following adverse information
which was then known only to defendants due to their access to
internal Baan data:
(a) That Baan was factoring accounts receivable
through an off balance sheet related party to mask the
uncollectibility of receivables;
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(b) That Baan had recognized revenue throughout
1997 in violation of Generally Accepted Accounting Principles
("GAAP"), overstating 1997 earnings by as much as 24%;
(c) That Baan was not gaining customers at the
rate required to meet its publicly announced financial
projections, but was maintaining the appearance of revenue and
earnings growth by "selling" to related entities, courtesy of
non-arm's length agreements, with minimal actual sell-through,
thus materially inflating revenues in violation of GAAP;
(d) That customer acceptance of Baan's Enterprise
Resource Planning ("ERP") software was far less robust than
defendants' bullish statements had led the investing public to
believe;
(e) That future direct demand for many of Baan's
products would be constrained by the excess levels of product
already held by distributors and other resellers;
(f) That there was no basis for making positive
representations about Baan's revenues and margins, as defendants
knew that Baan was being forced to give discounts and special
incentives to close sales and that Baan was shipping more product
to the distributor/reseller channel than was being resold to end-
users, and which would adversely affect Baan's sales and margins
going forward; and
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(g) That absent Baan's improper revenue
recognition and non arm's length transactions with affiliates,
Baan was experiencing little if any growth, and its projections
of future growth were false.
JURISDICTION AND VENUE
7. Jurisdiction exists pursuant to §27 of the
Securities Exchange Act of 1934 ("Exchange Act"), 15 U.S.C.
§78aa, and 28 U.S.C. §1331. The claims asserted herein arise
under §§10(b) and 20(a) of the Exchange Act, 15 U.S.C. §§78j(b),
and 78t(a), and Rule 10b-5.
8. 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.
9. In connection with the wrongs complained of,
defendants used the instrumentalities of interstate commerce
including the U.S. mails and the facilities of the national
securities markets.
THE PARTIES
10. Plaintiff Laure Salerno, who resides at 345 East
73rd Street, Penthouse C, New York, New York, purchased 100
shares of Baan ADRs on October 2, 1998 at $22 11/16 per share and
has been damaged thereby.
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11. Defendant Baan was founded in The Netherlands in
1978. Baan shipped its first information systems in 1982. It now
has dual headquarters in Putten, The Netherlands, and at 11911
Freedom Drive, Reston, Virginia 20190. Since May 19, 1995, Baan
ADR's have traded in an efficient market on the NASDAQ National
Market System under the symbol "BAANF." Since May 23, 1995, Baan
securities have also traded on the Official Market of the
Amsterdam Stock Exchange under the symbol "BAAN." Baan provides
enterprise business management software for an open systems
client/server computing environment. The Company's products
address an organization's entire value chain, from front office
functions (such as interaction with customers and sales) to more
traditional back-office operations (such as order management and
inventory control) associated with Enterprise Resource Planning
("ERP").
12. Defendant Jan Baan founded the Company's business
in May 1978 and was Managing Director and Chief Executive Officer
("CEO") until July 2, 1998 when he resigned as CEO. Prior to
January 1, 1998, he was also a Managing Director of Baan
Investment B.V. ("BIBV"), now known as Vanenburg Ventures B.V.
("VVBV").
13. Defendant Tom C. Tinsley ("Tinsley") joined the
Company in November 1995 as Managing Director, President and
Chief Operating Officer ("COO"). His appointment as Managing
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Director was approved at the Annual General Meeting of
Shareholders in April 1996. Defendant Tinsley became Chairman of
the Board of Managing Directors in April 1998 and CEO in July
1998.
14. N. M. (Klaas) Wagenaar ("Wagenaar") joined the
Company in August 1997 as Senior Vice President, Administration
and Chief Financial Officer ("CFO"). Defendant Wagenaar has
global responsibility for all finance, human resource and legal
operations of the Company. In addition, defendant Wagenaar became
COO in April 1998. Prior to joining the Company, Mr. Wagenaar was
COO of VVBV.
15. Defendant J.G. Paul Baan ("Paul Baan") joined the
Company in January 1982 and was named Managing Director of the
Company's Netherlands operating subsidiary in January 1986. In
January 1994 he was named COO, in January 1995 he was appointed
Vice Chairman and Managing Director and in October 1995 he was
appointed President. In April 1996, Paul Baan resigned as Vice
Chairman, Managing Director and President of the Company, and
served as Chairman of the Board of Supervisory Directors from
April 1996 through December 1997. Since December 1994, Paul Baan
has been President and Managing Director of VVBV, and effective
January 1, 1998, he became Chairman of VVBV.
16. Defendant William O. Grabe ("Grabe") became a
Supervisory Director of the Company in May 1995 and served as
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Chairman of the Board of Supervisory Directors until April 1996.
On or about February 2, 1998, defendant Grabe sold 40,000 Baan
shares at $45.30 per share, pocketing $1,812,000 while in
possession of material inside information. Defendant Grabe has
been a Managing Member of General Atlantic Partners ("General
Atlantic") or a general partner of its predecessor partnership
since April 1992. On or about February 25, 1998, General
Atlantic sold 205,673 Baan shares at $45.60 per share, reaping
$9,377,763, while defendant Grabe was in possession of material
inside information. On or about February 26, 1998, General
Atlantic sold 76,627 Baan shares at $45.29 per share, reaping
$3,471,203, while defendant Grabe was in possession of material
inside information. Also on or about February 26, 1998, General
Atlantic sold 209,127 Baan shares at $44.10 per share, reaping
$9,222,501, while defendant Grabe was in possession of material
inside information. Defendant Grabe is also a general partner of
GAP Coinvestment Partners, L.P ("GAP"). On or about February 26,
1998, GAP sold 50,159 Baan shares at $44.10 per share, reaping
proceeds of $2,212,012 while in possession of material inside
information. Also on February 26, 1998, GAP sold 18,373 Baan
shares at $45.30, reaping proceeds of $832,297 while in
possession of material inside information.
17. Defendant David C. Hodgson ("Hodgson") became a
Supervisory Director of the Company in May 1995. On or about
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February 26, 1998, defendant Hodgson sold 40,000 Baan shares at
$45.30, pocketing $1,812,000 while in possession of material
inside information. Defendant Hodgson has been a Managing Member
of General Atlantic or a general partner of its predecessor
partnership since its formation in 1989. On or about February
25, 1998, General Atlantic sold 205,673 Baan shares at $45.60 per
share, reaping $9,377,763, while defendant Hodgson was in
possession of material inside information. On or about February
26, 1998, General Atlantic sold 76,627 Baan shares at $45.29 per
share, reaping $3,471,203, while defendant Hodgson was in
possession of material inside information. Also on or about
February 26, 1998, General Atlantic sold 209,127 Baan shares at
$44.10 per share, reaping $9,222,501, while defendant Hodgson was
in possession of material inside information. Defendant Hodgson
is also a general partner of GAP. On or about February 26, 1998,
GAP sold 50,159 Baan shares at $44.10 per share, reaping proceeds
of $2,212,012 while in possession of material inside information.
Also on or about February 26, 1998, GAP sold 18,373 Baan shares
at $45.30, reaping proceeds of $832,297 while in possession of
material inside information.
18. Defendant Amal M. Johnson ("Johnson") joined the
Company as President of Baan U.S.A., Inc., a subsidiary of the
Company, in October 1994. In February 1995, Ms. Johnson was
additionally named Vice President, Americas Operations of the
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Company and in January 1996 she was promoted to Executive Vice
President, Americas operations. In January 1997, Ms. Johnson was
appointed acting Managing Director of the Company and Executive
Vice President, Baan Affiliates & Marketing. Her appointment as
Managing Director was approved at the Annual General Meeting of
Shareholders of May 1997. In January 1998, Ms. Johnson took over
responsibility for the Baan Supply Chain Division. In her current
capacity, Ms. Johnson is responsible for market positioning,
development, sales and marketing for the Company's supply chain
products. On or about August 7, 1998, defendant Johnson sold
50,000 Baan ADR's, while in possession of material, adverse
inside information, pocketing $2,010,945 in proceeds from the
sale.
19. Defendant VVBV, formerly BIBV, together with its
subsidiaries, is controlled by Jan Baan and Paul Baan, and owns
approximately 39% of the outstanding Common Shares of the
Company. In 1997, VVBV and Baan formed Baan Midmarket Solutions
("BMS"), 85% owned by VVBV and 15% owned by Baan. Jan Baan and
Paul Baan, by virtue of their positions as managing directors of
VVBV and the control they exercise over the entities that own and
control the shares of VVBV, effectively have the power to vote
the Common Shares of the Company owned by VVBV. Jan Baan and
Paul Baan will therefore also have the effective power to
influence significantly the outcome of matters submitted for
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shareholder action, including the appointment of members of the
Company's Management and Supervisory Boards, and may be deemed to
have control over the management and affairs of the Company. This
significant equity interest in the Company may have the effect of
making certain transactions more difficult absent the support of
Jan Baan and Paul Baan. Included in the Company's channel
partners are approximately 15 companies which are owned by BBS
Holding B.V., a majority-owned subsidiary of VVBV. These BBS-
related entities are commonly referred to as the Baan Business
Systems network ("BBS").
20. The individuals named as defendants in ¶¶ 12 - 18
above are referred to herein as the "Individual Defendants."
Because of the Individual Defendants, positions as officers
and/or directors of the Company, they knew the adverse non-public
information about its 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 them in connection
therewith.
21. Defendants Jan Baan, Tinsley and Wagenaar, by
reason of their positions as CEO and Chairman of Baan's Board of
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Directors, President, COO and CFO were controlling persons of
Baan and had the power and influence, and exercised the same, to
cause Baan to engage in the conduct complained of herein.
22. During the Class Period, each individual Defendant
occupied a position that made him or her privy to non-public
information concerning Baan. Because of this access, each of
these defendants knew that the adverse facts specified herein
were being concealed. Notwithstanding their duty to refrain from.
selling Baan securities while in the possession of material, non-
public information concerning Baan, the defendants, or entities
that they controlled, sold nearly 560,000 shares of the Company's
stock, profiting by more than $25 million from their fraudulent
scheme.
23. Each defendant had the opportunity to commit and
participate in the fraud. The Individual Defendants were the top
officers of Baan and they controlled its press releases,
corporate reports, SEC filings and its communications with
analysts. Thus, they controlled the public dissemination of, and
could falsify, the information about Baan's business, products,
financial results and future prospects that reached the public
and impacted the price of its securities.
24. Each of the Individual Defendants also had the
motive to commit and participate in the fraud. In recent years,
Baan's stock traded at a price earnings multiple reserved for
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premier growth companies with track records of meeting the
investment community's expectations for high profit growth. This
stock performance enabled Baan's corporate executives to exercise
stock options and to sell stock at large profits and enabled Baan
to grow by using its stock to make acquisitions of other
companies. The executives wanted to maintain their positions
with Baan which would have been threatened had Baan's actual poor
results been exposed. For all these reasons, maintaining Baan's
image of strong growth and its high stock price was extremely
important to Baan's top executives. Defendants also wanted to
cover up the problems with and deterioration in Baan's business
to make it appear that Baan's business was succeeding and
achieving the 50% (or more) growth they had forecasted, so that
its stock would trade at artificially inflated levels, high
enough so that they, or entities that they controlled, could
insider trade by selling significant amounts of their Baan stock,
pocketing large sums for themselves. Also, the defendants were
motivated to conceal the serious problems Baan was having with
customers in an attempt to maintain Baan's competitive position
with respect to competitors such as SAP, PeopleSoft, J.D.
Edwards, SSA and Oracle, which was increasingly impaired by the
success of these competitors, and would have been even more
seriously damaged if Baan admitted the truth about its business.
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25. 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 Baan ADR's, including false and
misleading statements and/or concealed material, adverse facts.
The scheme: W deceived the investing public regarding Baan's
business; (ii) artificially inflated the price of Baan ADR's;
(iii) caused plaintiff and other members of the Class to purchase
Baan ADR's at inflated prices; and (iv) permitted the Individual
Defendants, or entities under their direct control, to sell
approximately 560,000 shares of Baan stock at as high as $45.60
per share, pocketing more than $25 million.
FALSE AND MISLEADING
STATEMENTS DURING THE CLASS PERIOD
26. On January 29, 1998, PR Newswire carried Baan's
announcement of "record revenues and earnings for the fourth
quarter and year ended December 31, 1997." The Individual
Defendants caused the Company to report:
Net revenues in 1997 rose 65% to $684.0
million, compared with net revenues of $415.5
million for 1996 .... Strong demand in 1997
for the Company's software resulted in
license revenue growth of 82% to $437.8
million, compared with $240.7 million in
1996. Pro forma net income for the
year(excluding restructuring and other
charges related to acquisitions) increased
133% to $85.4 million, or $0.41 per diluted
share, compared with net income of $36.6
million, or $0.19 per diluted share, for the
1996 year. As reported, net income for 1997
was $77.2 million, or $0.37 per diluted
share. Excluding restructuring and other
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charges, gross margin and operating margin
for 1997 improved to 68% and 18%,
respectively, compared with 62% and 14% for
1996.
Total net revenues for the fourth
quarter were $220.0 million, up 65% over net
revenues of $133.2 million for the fourth
quarter of 1996 .... License revenues in the
quarter grew 72% to $145.6 million, compared
with license revenues of $84.9 million for
the 1996 fourth quarter. Pro forma net
income for the quarter (excluding
restructuring and other charges related to
acquisitions) increased 86!k to $30~8 million,
or $0.15 per diluted share, compared with net
income of $16.6 million, or $0.08 per diluted
share for the fourth quarter of 1996. As
reported, net income for the quarter was
$29.1 million, or $0.14 per diluted share.
The Company experienced strong growth
across all geographies in 1997. Europe,
Middle East and Africa represented 45% of
total revenues and grew 58% during the year.
Germany surged 87% to surpass The Netherlands
as the Company's leading European market.
Revenues in North America increased 74% in
1997 to comprise 42% of total revenues.
Japan and the Asia/Pacific region accounted
for 8% of total revenues, with combined
growth of 94%.
Collections of receivables improved
further in the fourth quarter, and days sales
outstanding dropped 11 days to 104 days.
Product Offering Extended
"Our strategic goal in 1997 was to
expand our footprint into and beyond the ERP
space, and we have been very successful,"
said Tom Tinsley, President and Chief
operating Officer. "Through buying, building
and partnering, we broadened our capabilities
and reach beyond traditional ERP and now
provide integrated solutions across the
extended value chain, from the front office
to the supply chain. Revenues from Customer
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Interaction Software and Supply Chain
Management products have exceeded our
original expectations and the integration
process is on track."
Throughout 1997, the Company made
significant progress in broadening the scope
of its product offerings through
acquisitions, core development work and
strategic partnerships.
27. On January 30, 1998, the start of the Class
Period, AFX News reported that defendant Jan Baan said it was
possible that company's sales would reach $1 billion in 1998.
Speaking at a news conference after the company's 1997 results,
defendant Jan Baan said, "Analysts expect us to report sales of 1
billion dollars this year, and there is indeed a chance we will.'
There is also a chance that ratios will improve." Defendant Jan
Baan noted that analysts expect Baan's sales growth in 1998 to be
greater than the 33% forecast for German rival SAP AG. Turning to
long-term growth prospects, Jan Baan said U.S. research
institutes expect the world software market to be worth $34
billion in 2001. He added that other studies suggested Baan will
be the world number one and the U.S. number two in the field of
ERP software by 2002. Defendant Wagenaar said Baan has so far
experienced "little impact" from the crisis in Asia, where the
Company is active in Japan, China and South Korea. "We are
relatively small in Korea. We have adopted a wait-and-see policy
regarding Korea and will continue to do so for the time being,"
Wagenaar said.
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28. On January 30, 1998, Computergram International
reported that excluding one time restructuring charges of $2.5
million and $12.1 million for the quarter and year, respectively,
"earnings per share came in at $0.15 for the quarter which is
exactly what the First Call consensus was looking for and $0.41
for the year, a penny better than estimates."
29. On January 30, 1998, AFX News reported that,
according to defendant Jan Baan, the Company had sales of over
$100 million in both Germany and the U.S. in 1997, and there were
four or five countries in which the Company had sales of $50 to
$100 million dollars. Defendant Jan Baan added, "If we had
placed 300 [R&D] employees elsewhere, sales would have been 50 -
60 million dollars higher. But this proves that we are not just
thinking short-term."
30. On February 2, 1998, as Baan's insiders began
dumping their shares, the London Financial Times reported, "Jan
Baan, chairman, said the company had increased its market share
,to some 13 per cent last year at the expense of its leading
competitor, SAP of Germany. In the coming years Baan should
continue to outpace the growth of the market, even though this is
expected to expand by an annual 45 to 50 per cent, he added.,'
31. On February 9, 1998, AFX News reported that Jan
Baan stated that the Company plans to treble its sales to $2
billion by 2000. "[Jan] Baan said that technological advantages
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will enable the Company to win market share from current leader
SAP AG. Within the next three years, the [Baan] group will be
able to command a 10% share on the global market for business
software for small and medium-sized companies, the chairman
said... While SAP's share of the global market has fallen to 61%
from 73% since 1994, Baan has been able to expand its share to
15%, Baan said."
32. On February 24, 1998, Computergram International
announced that Baan had agreed to acquire UK financial software
house Coda Group Plc for an anticipated $86.6 million. Baan
stated that it would integrate Coda's financial software,
enabling it to improve its standalone position in the financial
marketplace, as well as improve the capabilities of its ERP
offering. Baan stated that it would buy all of Coda's shares,
and would issue 0.0695 new Baan common shares for each
outstanding Coda share.
33. On March 17, 1998, the Singapore Business Times
reported that Baan's revenue from the Asia, Pacific grew 94%. "For
this year, in Asia-Pacific, we will still hit at least double
digit growth but maybe not double," Baan Asia Pacific president,
Christopher Chung stated. Asia Pacific accounts for 8% of Baan's
revenue. Chung said Baan will not be seriously affected by the
Asia currency crisis, because it does not have a strong presence
in the countries that are badly hit. Baan's business in Japan,
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which accounts for half of its Asia Pacific revenue, is growing
well, Chung said. The other Asian countries Baan focuses on are
Singapore and Malaysia.
34. Defendants' statements in ¶¶ 27, 29, 30, 31 and 33
were materially false and misleading when made because, inter
alia:
a. Baan was having great difficulty competing in
the ERP marketplace with its rivals SAP, J.D. Edwards, Oracle,
SSA and PeopleSoft;
b. SOP 97-2 governed financial results starting
in the first quarter of 1998, making it more difficult for Baan.
to report revenue;
c. Baan was having little success obtaining
Value Added Resellers ("VARs") beyond its "captive" affiliated
resellers;
d. Baan's VARs and affiliated resellers were
having very limited channel sell-through to actual Baan software
end-users; and
e. Worldwide economic turmoil was already
causing Baan's limited sell-through to end-users to diminish even
further.
35. On April 14, 1998, AFX News reported that Baan had
formed a U.S. executive office in Reston, Virginia and appointed
several key executives in a bid to expand its U.S. presence.
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Defendant Tinsley became the new office's chairman and defendant
Wagenaar became its CFO. Jan Baan, founder and CEO of the
Company, was also slated to work at the Reston office. The
office operates in conjunction with U.S. operations in Menlo
Park, California.
36. On April 20, 1998, AFX News reported that analysts
expected Baan to report a net profit for the first quarter 1998
of $24.2 million - $25.4 million, up from $12.8 million in the
first quarter of 1997. Earnings per share were forecasted to
rise to $0.12 - $0.13 per share from $0.07 for the first quarter
of 1997. AFX News reported that ING Barings analyst Cornelis Bos
expected profit of $25.4 million and total revenues up 57% to
$209 million for the first quarter of 1998. AFX News also
reported that Friesland Bank Securities analyst Jorn van
Breukelen had forecasted $24.2 million for first quarter 1998
earnings, and a Bank Labouchere analyst was looking for first
quarter 1998 net income of $25 million.
37. On April 21, 1998, the Individual Defendants
caused Baan to release its first quarter 1998 results. PR
Newswire carried Baan's report:
Total net revenues for the first quarter of
1998 were $176 million, up 32% over net
revenues of $133 million for the same period
in 1997. License revenue in the quarter grew
8% to $90 million, compared with license
revenue of $83 million for the first quarter
of 1997. Maintenance and service revenue for
the quarter increased 74% to $86 million as
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compared to $49 million for the first quarter
of 1997. Net income for the quarter
decreased 81% to $2.4 million, or $0.01 per
diluted share, compared with net income or
$12.8 million, or $0.06 per diluted share for
the first quarter of 1997. The Company's
first quarter results reflect an increase in
deferred revenues of $71 million in the
quarter. Approximately $43 million of the
increase is due principally to the
uncertainty in the implementation of the new
accounting pronouncement, Statement of
Position (SOP) 97-2, "Software Revenue
Recognition." Detailed implementation
guidelines for this standard have not yet
been issued. Because of this uncertainty,
the Audit Committee and management have
determined to defer revenue from licensed
software that has been delivered to the
customer under certain signed contracts even
though they may have been paid in full.
Amounts due under such contracts generally
would have been recognized as revenue under
the preceding accounting standard, SOP 91-1.
Management, acting under the guidance of the
Audit Committee, will continue to monitor and
evaluate the impact of SOP 97-2 in future
quarters. Including the $43 million impact of
implementing SOP 97-2, revenues would have
been $219 million. Revenue growth, as
adjusted, would have been 59% and 64% for
license revenue and total revenue,
respectively. "Our first quarter was in many
ways the best quarter that we had since going
public in 1995. However, due to uncertainty
in the new American guidelines for revenue
recognition, we have decided, in consultation
with the Audit Committee to take the position
that we should defer several contracts that
we initially felt would be in line with SOP
97-2. Accordingly, our reported revenue and
profitability for the quarter will appear
disappointing and will likely overshadow the
fact that our deferred revenues increased
from $30 million at the end of the fourth
quarter of 1997 to over $100 million at the
end of the first quarter of 1998.
- 22 -
38. On April 21, 1998, citing the newspaper Het
Financieele Dagblad, AFX News reported that Baan had revised its
gross margin forecast for the period from 1998 - 2000 to between
19% and 22% from its previous estimate of 21% in 1998, 23% in
1999 and 26% in 2000. Het Financieele Dagblad also reported that
Baan was aiming to be bigger in ERP software than Oracle and
PeopleSoft after the year 2000. Later that day, AFX News
reported that defendant Wagenaar claimed that Baan had not
lowered growth estimates as reported by Het Financieele Bagblad
and that these revised estimates were the paper's own figures and
not Baan's.
39. On April 23, 1998, Computergram International
reported that Baan's first quarter 1998 net income of $0.01 per
share had fallen well short of First Call estimates of $0.11 per
share.
40. On April 23, 1998, AFX News reported that Morgan
Stanley Dean Witter analysts said though they lowered their Baan
earnings per share forecast to $0.24 from $0.63 for 1998, and to
$0.51 from $0.91 for 1999, citing the company's lower-than-
expected first quarter results, they reiterated their
"accumulate" rating for the stock.
41. On April 27, 1998, Computer Reseller News quoted
defendant Tinsley:
With respect to changes in SOP 97-2, we hit a
gray area in this new revenue standard
- 23 -
relating to deals that had been leased. The
leasing arrangements we did in the first
quarter were identical to the leasing deals
we did in 1997. We were, therefore,
surprised by action in the last three days.
42. Defendant Tinsley's statements in ¶41 were false
and misleading when made because:
a. SOP 97-2 had been in final form since October
1997;
b. Baan and the individual Defendants were not
"surprised" with the required accounting treatment for the
Company's leasing arrangements, which was unchanged from 1997;
and
c. Baan's primary competitors, SAP, Oracle, J.D.
Edwards, SSA and PeopleSoft were all in compliance with SOP 97-2
by the first quarter of 1998.
43. On April 29, 1998, Computergram International
reported:
Jan Baan, the Calvinist CEO of Dutch software
company Baan, is known for his modest
management style. So the brazen ambition he
displayed at the announcement of the
company's 1997 annual results must have
surprised many. Baan, he said, would assume
the number one spot in the US business
application software market by 2001.
Certainly, the company's strong results must
have buoyed his confidence. For the fourth
quarter, net profits were up 76% to $29.1m,
on revenue that rose 65% to $220m. For the
year, profits soared 111% to $77.2m on
revenue up 65% to $684m. And certainly, the
enterprise resource planning (ERP) software
market is booming at present. Investment bank
- 24 -
Lehman Brothers describes it as "an
exceptional environment", and analysts at
Banc-America Robertson Stephens have forecast
that sales of client/server business
applications software will reach $21.4bn by
2001, from $5.8bn in 1997.... Klaas
Waagener, the company's chief financial
officer, insists that Baan is closing the gap
on SAP. In 1995, he says, license revenues
from SAP's R/3 outstripped Baan's license
revenues by a ratio of 10:1. In 1996, the
ratio had narrowed to 7:1. Last year, it was
just 4.3:1.
44. On April 30, 1998 the Malaysian New Straits Times
reported:
BAAN Asia-Pacific is remarkably bullish about
its market prospects in the region this year
and has targeted total revenues to hit a
minimum of US$80 million (RM304 million), up
from US$50 million last year. The company is
also confident that revenues will more than
double next year, with figures ringing to the
tune of US$200 million. Baan Asia- Pacific's
president Christopher Chung said the
company's rapid growth is partly due to the
fact that it is a fairly new player in the
region's enterprise resource planning (ERP)
market as its local operations started barely
five years ago. "Speed is very important in
today's competitive marketplace. Growth with
speed is the fundamental differentiator
between competitors," he told reporters in
Denver, Colorado, in conjunction with Baan
World 198 which ended last week.
45. On April 30, 1998, Computergram International
reported that "a senior Baan executive said yesterday that the
company does not expect to experience any slowdown in the ERP
market until at least 2002."
- 25 -
46. On May 6, 1998, AFX News reported:
Baan['s] use of accounting methods to boost
income was criticized by U.S. brokerage
Prudential Bache, Algemeen Dagblad, reported,
citing the broker's analyst Douglas Cook.
The paper said Baan's annual report deposited
with the U.S. SEC showed the group sold
receivables to its affiliate Baan Business
Systems (BBS) to boost income by $50 million
in 1997 or 11% of its total license income,
according to the Prudential Bache analyst.
The figure included $18 million in potential
future license income, it said. Prudential
Bache also said Baan booked profits on unsold
BBS inventories in its results last year, it
reported.
47. On May 7, 1998, PR Newswire carried the following
Baan press release regarding Baan's Annual Report on Form 20-F,
filed with the SEC and signed by defendant Wagenaar:
The relationship between Baan Company and BI
is a key ingredient in the company's
accelerated growth strategy, as has been
disclosed on several previous occasions. In
addition to several press releases, in
February and March of this year Baan Company
discussed at some length its relationship
with BI in open meetings in Reston, Putten,
and Paris with over 300 analysts and
representatives of the media.
Form 20-F is an official document required to
be filed with the United States Securities
Exchange Commission and it contains Baan
Company's audited 1997 year-end financials.
in connection with the Form 20-F filing and
consistent with the company's policy of open
disclosure of its accounting practices, Baan
Company made further disclosures about the
nature of its relationships with BI. Those
disclosures were broader than is ordinarily
necessary, as Baan Company deemed it
appropriate because BI is effectively
controlled by Jan Baan, the founder of Baan
- 26 -
Company, and his brother Paul. BI owns
approximately 39% of Baan Company's
outstanding shares. BI in turn is 100% owned
by a charitable foundation (Oikonomos)
established by Jan and Paul Baan. Baan
Company has no equity interest in BI.
The relationship between Baan Company and BI
is designed to make available to Baan users a
comprehensive set of offerings to meet their
broader needs around the enterprise software
provided by Baan Company. Since 1996, Baan
Company has had an ongoing reseller
relationship with BI and certain BI
subsidiaries under which BI is licensed to be
a Baan Company reseller in what is popularly
known as the mid-market (companies with
revenues of between US dollars 50 million -
dlrs 350 million).
The mid-market is projected by many analysts
and industry watchers as a potentially
lucrative for ERP vendors. Baan's products
have proved to be well suited to this market,
but companies in this market have unique
needs and demands that require a different
go-to-market strategy compared to large
companies. Baan Company, therefore, working
with BI, designed a mid-market strategy
establishing a focused indirect channel to
maximize Baan's potential for realizing
leadership in the mid-market.
-- In 1997, Baan Company managed 150 mid-
market partners; of those, approximately 15
were BI subsidiaries (under the umbrella of
Baan Business Solutions, or BBS) and the
remainder were other third-party
distributors. To seize the expanding market
opportunity and achieve increased economies
of scale and faster time to market, BI in
1997 created Baan Midmarket Solutions ("BMS")
to coordinate all of its mid-market reselling
activities. Baan Company, which has a
minority 15% interest in BMS, entered into an
agreement with BMS under which it (BMS) will
be Baan Company's primary reseller in the
mid-market, and henceforth most revenues from
- 27 -
the indirect channel to Baan Company will
flow through BMS.
-- Baan Company accounts for its reseller
agreements with BI (and now, going forward,
with BMS specifically) -- both in terms of
recognizing revenue and costs -- in the same
way in which it accounts for its reseller
agreements with other third parties.
-- Its indirect channel strategy is meeting
Baan Company's expectations. Mid-market
license revenue is growing as a percentage of
our overall license revenue portfolio. As
reflected in Baan Company's earnings
releases, revenues Baan Company generated in
1997 in the mid-market accounted for 26% of
total license revenue, up from 11% in 1996.
Baan Company will continue its ongoing
efforts to improve the way it communicates
the relationship between Baan Company and BI
as an integral part of the company's policy
of open disclosure for all accounting
practices.
48. On May 7, 1998, Computergram International
reported that Baan, s annual report, filed with the SEC:
shows that Baan put $11.6 million worth of
software licenses through its books in 1997,
but that these licenses hadn't actually been
sold by the end of the year.... The filing
also suggests that Baan recognized $13
million in revenue in 1997 from an
arrangement it has with Baan Midmarket
Solutions, a distributer in which Baan Co NV
holds a 15% stake.... The company's shares
have now fallen by a total 25% since the
first quarter [1998] results were published,
closing Wednesday at $43.50, and prompting
chief executive Klaas Wagenaar to call the
reaction "overblown." The company said that
it will release a statement addressing the
matters raised by the filing.
- 28 -
49. On May 7, 1998, AFX News cited defendant Wagenaar
as stating that Baan would explain its problems with its first
quarter 1998 financials "within a week. ... Wagenaar said the
company considered releasing an interim statement yesterday,
following a sharp fall in the company's share price in Amsterdam
and New York, but eventually decided not to: 'It's not worth
reacting that way to panic.'"
50. On May 11, 1998, Information Week reported:
As a financial analyst, it helps to
understand the arcane rules of U.S. GAAP
(generally accepted accounting principals).
In fact, if you don't understand them, it's
difficult to analyze whether a significant
accounting change is really material to the
fortunes of a company. For example, effective
Dec. 15, 1997, the Accounting Standards
Executive Committee's SOP (Statement of
Position) 97-2 superseded SOP 91-1.
Before you turn the page on me, you should
know that these guidelines address the major
issue of revenue recognition for software
sales....
You can imagine multiyear software contracts
with extended payment terms being recognized
as revenue on day one. The end result was
high earnings but poor cash flow. For
accountants, this mismatch increased business
risk and therefore needed to be adjusted. The
new SOP made it clear that revenue must be
allocated according to the fair value of each
element of the bundled software and services
sale. Any revenue that's associated with
undelivered portions of the bundle must be
deferred until the service or product is
delivered.
One of the most important provisions is the
separation of service revenue from software
- 29 -
revenue. Service revenue must be recognized
ratably over the life of the contract. For
implementation firms, revenue related to
software that requires significant
modification will be accounted for on a
percentage-completion basis. These accounting
guidelines will tend to depress short-term
revenue and earnings.
Many software companies have already adopted
the new SOP and will therefore see minimal
impact on their financial statements. But
companies that sell bundled software products
requiring major implementation services will
find this may have a material impact on
short-term earnings. Just ask Baan NV, with
U.S. headquarters in Menlo Park, Calif. In
its fiscal 1998 first quarter, $43 million in
sales were deferred to the balance sheet
instead of the income statement. Sales were
$176.2 million for the whole quarter, so this
had a significant impact. According to Baan,
the long-term impact of the new policy has
not yet been defined, so accurate forecasting
is unclear. Interestingly, the change
resulted in revenue growth of 32% instead of
64% year-over-year if the deferred sales were
included. Earnings were even more
dramatically affected earnings per share
dropped to 1 cent from 6 cents in the first
quarter of 1997.
The hard part to understand is why the policy
seems to have hit Baan harder than companies
such as rival SAP. In Baan's most recently
released 1997 disclosure filing with the
Securities and Exchange Commission, other
accounting issues that caused some alarm were
raised. Baan Business Systems (BBS), a
related party and subsidiary of Baan
Midmarket Solutions (85% owned by Baan
Investments and controlled by the principals
of Baan NV), are resellers and distributors
for Baan NV. According to the disclosure,
about $11.6 million of licensing revenue
recognized by related parties remained in
their inventory. The inventory was sold in
the ensuing quarter, but it looks like they
- 30 -
recognized the sale a quarter early. This
implies Baan may be factoring accounts
receivables through their subsidiaries in
order to mask rising receivables.
In 1997, Baan acknowledged $32.3 million in
revenue from BBS. But part of the revenue
total may have been recognition of future
license revenues for licenses transferred to
BBS. These are all disturbing accounting
practices. They may have rational reasons
behind them, but combined, they look
suspicious.
51. On May 14, 1998, AFX News reported that Baan's
auditors, Ernst & Young, had resigned and that Baan had engaged
Coopers & Lybrand to begin as the Company's auditors starting on
May 13, 1998.
52. On May 14, 1998, AFX News reported that Baan's
"newly implemented accounting standards will include immediate
recognition of revenue from license agreements financed by
outside lending institutions. It said the new business practices
will facilitate its ability to recognize revenue fully and
immediately on most if not all financed transactions.'"
53. On May 15, 1998, the Wall Street Journal reported,
"Baan Co, the Dutch software company under fire for aggressive
accounting practices, says it will change some of its sales-
financing methods; says its financial auditor has resigned due to
potential conflict of interest."
54. On May 15, 1998, M2 Presswire reported that Baan
would no longer be a party to financing agreements with its
- 31 -
customers. The Company stated that the new business practice
would not impact Baan's previously released results. Baan stated
that it had an established practice of submitting all
transactions with affiliates to its outside auditors on a
quarterly basis, and that all such transactions would continue to
require the review and approval of disinterested members of the
Baan Company Supervisory Board. "We believe these clarifications
address the uncertainties surrounding the implementation of [SOP
97-2] and reinforce our business practices," said defendant
Wagenaar.
55. Defendants' statements in ¶¶ 43, 44, 45, 47, 48,
49, 52 and 54 were materially false and misleading when made
because, inter alia:
a. Baan was having great difficulty competing in
the ERP marketplace with its rivals SAP, J.D. Edwards, Oracle,
SSA and PeopleSoft;
b. SOP 97-2 governed financial results starting
in the first quarter of 1998, making it more difficult for Baan
to report revenue;
c. Baan was having little success obtaining
Value Added Resellers ("VARs") beyond its "captive" affiliated
resellers;
- 32 -
d. Baan's VARs and affiliated resellers were
having very limited channel sell-through to actual Baan software
end-users; and
e. Worldwide economic turmoil was already
causing Baan's limited sell-through to end-users to diminish even
further.
56. On May 15, 1998, Computergram International
reported that Baan shares rose 8.3% on news that Baan had
sacked its independent auditors, Moret, Ernst
& Young, the timing of which shows exactly
who Baan is blaming for the bungled financial
releases of the last fortnight. The optimism
stems from the news that Baan is extricating
itself from any financing transactions used
by its customers to facilitate the purchase
of Baan software.... But despite this move,
Baan is still unable to bring the $43
[million] of revenues onto its books which it
was forced to defer from its first quarter
[1998] results.... The $43 [million] of
deferred income will be gradually added back
over the coming quarter, taking up to two
years to recognize, according to comments
made to Reuters by Klaas Wagenaar, Baan's
chief operating officer. In other words,
these amounts are still not yet in compliance
with the new SOP.... SOP 97-2 has been
available since October [1997], and in draft
format for several months before that.
57. On May 15, 1998, AFX News reported that Baan had
cleared much of the uncertainty surrounding the stock and that
"analysts said they plan to raise their 1998 and 1999 EPS
estimates by 'roughly 5 to 10 percent.'"
- 33 -
58. On May 18, 1998, Computer Reseller News reported
that:
In January, Baan reported its total revenue
grew to $684 million in 1997. But a recent
Baan Form 20-F filing with the U.S.
Securities and Exchange Commission shows part
of Baan's revenue came from selling software
to companies related to itself. Baan also
appears to have shifted costs it should have
incurred itself onto the related companies,
said Neil Herman, analyst with Salomon Smith
Barney, a New York investment firm.
The 20-F is the form foreign companies use to
explain their annual financial results to the
SEC.
From Baan's filing, Herman concluded the
company may have overstated its 1997 earnings
by as much as 24 percent.
At the very least, Baan seems to have been
doing some fancy footwork to maintain the
appearance of rapid growth, Herman said.
"My fear is that Baan is losing customers,
and meanwhile is under pressure to maintain
its existing growth rate, and all of this
junk with selling to related parties reflects
that problem," Herman said.
Officials at The Baan Co. declined to be
interviewed for this story.
Herman is not the only one voicing concern.
Baan's own auditors recently forced the
company to disqualify $4.4 million that Baan
previously recognized as revenue for 1997.
The auditors-a Dutch subsidiary of Ernst &
Young-have dropped Baan as a client, The New
York Times reported on May 10.
Much of Ban's revenue shuffling involves a
set of companies that Baan formed in order to
sell through to the channel. Those companies
include Baan Investment B.V., BBS Holdings
- 34 -
and Baan Midmarket Solutions (BMS). Here is
how they are connected:
- Baan Investment is a private company owned
by Jan and Paul Baan, the brothers who
founded The Baan Co. Baan Investment owns 39
percent of the stock of The Baan Co.
- BBS Holdings is controlled by Baan
Investment. BBS Holdings owns 15 Baan
resellers.
- Baan Midmarket Solutions (BMS) is a
subsidiary of Baan Investment. Baan founded
BMS last year to manage its reseller program.
Baan Investment owns 85 percent of BMS; the
remaining 15 percent is owned by The Baan Co.
Baan Investment, BBS Holdings and BMS have
reseller relationships with Baan. Herman
said he fears The Baan Co. boosted its
revenue by stuffing software licenses into
its own home-made channel.
Baan said the software is all sold through to
customers. But in North America, at least,
sell-through appears to have been modest. For
example, Baan's largest North American
reseller, Crowe Chizek LLP, Grand Rapids,
Mich., did $10 million in Baan-related
business last year. But that $10 million
figure includes not just software, but
services and consulting, said Stephen
Nagengast, managing executive at Crowe
Chizek.
Baan's three North American distributors last
year-Keylink Systems, a division of Pioneer-
Standard Electronics Inc., Integration
Alliance Corp. and Gates/Arrow Distributing-
all said in recent interviews they did not
sell much Baan products last year.
Gates/Arrow, for example, did not realize any
revenue from Baan software until the fourth
quarter, said Eric Williams, vice president
of marketing at Gates/Arrow, Greenville, S.C.
Baan has been aggressively courting the
channel, hoping to recruit resellers. But
- 35 -
the company has met with mixed results,
recruiting only 30 VARs in more than a year.
Resellers have reason to be concerned about
Baan, Herman said. "At the very least,
resellers should be wondering why Baan owns
all of these other companies who are
resellers of Baan product. If I'm a reseller,
where do I stand in relation to them? Am I
going to be treated the same as them? Are
they going to have a competitive advantage?"
he said.
Herman's analysis of Baan's 20-F also came up
with the following revelations about Baan's
1997 financial results:
- The Baan Co. boosted revenue by selling
accounts receivable to related reseller
partners.
- The Baan Co. sold long-term customer
contracts to its related reseller companies,
enabling Baan to recognize revenue from those
contracts now rather than waiting until the
contracts were fulfilled.
- The Baan Co. raised $8.6- million by
providing services to Baan Investment. Those
services included such things as the use of
computers and marketing activities. But The
Baan Co. and Baan Investment had no formal
agreement regarding the cost of such
services.
- Companies under the Baan Investment
umbrella "have made expenditures and incurred
substantial costs that are not included in
Baan's consolidated financial statements,"
according to Herman's report.
Doug Sallen, vice president of business
development at BMS, said part of the reason
The Baan Co. spun out BMS last year was to
avoid having to incur expenses related to
setting up a reseller channel.
- 36 -
"Baan Investment has provided funding for BMS
to take an expense line that we're sure to
see over the next two years. We're an off-
balance-sheet company, a privately funded
activity," Sallen said.
Baan's shuffling of revenue and expenses
among a set of related companies makes it
difficult for investors to get a true picture
of the company's operating finances, analysts
said.
"This is the kind of thing that makes the'
hair on the back of your neck stand up," said
Jeff Matthews, general partner at RAM
Partners Ltd., an investment firm in
Greenwich, Conn.
At a recent price of $42, Baan's stock is
trading at about 100 times its earnings per
share. That is an extraordinary price-
earnings multiple-about double the multiple
Microsoft Corp. carries. "I wouldn't touch a
company that trades at 100 times earnings and
has questionable revenue recognition
practices," said Matthews.
"The related party transactions are a natural
cause for concern, and cast a shadow over the
quality of the company's earnings," said
Charles Phillips, analyst with Morgan Stanley
Dean Witter & Co., an investment firm based
in New York.
59. On June 1, 1998, the London Financial Times
reported that Baan had agreed to bring on more outside directors
after institutional shareholders at its annual meeting attacked
the Company for a lack of openness. "ABP, one of the largest
domestic pension funds, voted against the reappointment to the
supervisory board of two directors including Paul Baan, brother
of Jan Baan, the company's founder and chief executive."
- 37 -
60. On June 4, 1998, AFX News reported that Merrill
Lynch analysts Christopher Shilakes and Julie Tylman said that
they raised their 1998 EPS estimate for Baan to $0.59 per share
from $0.44 per share to reflect the Company's new accounting
principles. They also adjusted their full year 1998 revenue
estimates to $1 billion from $929.8 million.
61. On June 30, 1998, the Wall Street Journal and
Milwaukee Journal Sentinal reported that Baan customer Snap-on
Tools had lost sales of $50 million in the prior six months
because of glitches in its ERP software. The Baan ERP system,
installed in December 1997, was blamed for much of Snap-on's
restructuring and lost sales revenue. The Milwaukee Journal
quoted Alexander Paris, Sr., analyst with Barrington Research of
Chicago, "[C]omputer woes have caused [Snap-on] to lose $40
million to $50 million in sales since March [19981.0
62. On July 2, 1998, PR Newswire carried the following
Baan press release:
The Baan Company announced that Jan Baan,
founder of the Company and current chief
executive officer, will become Chairman of
its Management Board subject to ratification
by shareholders, and that Tom Tinsley will be
appointed as president and chief executive
officer.
"After twenty years of building The Baan
Company and guiding its growth, I feel -- and
the Supervisory and Management Boards agree -
- that my move to the Chairman's role will
give me the opportunity to provide continued
- 38 -
stewardship in the development of the
organization," said Jan Baan, who is 52....
Since he joined the company in November 1995,
Tom Tinsley has led the development and
expansion of The Baan Company's growth
strategy. He has been the architect of The
Baan Company's move to a multi-product
enterprise applications company and to a
high-volume software provider.
Additionally, Tinsley has played a key role
in expanding the company's relationship with
Microsoft Corporation. "I am pleased to take
part in the leadership of the company as it
progresses to the next phase of its global
growth. Product extension and sales channel
expansion will continue to be important
elements of The Baan Company's growth
strategy," said Tom Tinsley.... He and Jan
Baan continue as members of The Baan
Company's Executive Office, along with Klaas
Wagenaar, chief operating officer and chief
financial officer.
Graham Sharman also announced that, effective
July 7, 1998, he will be resigning as a
member of The Baan Company's Supervisory
Board. Mr. Sharman, a board member since
1995, was recently named president of
Vanenburg Ventures (formerly Baan Investment)
and plans to give full attention to his
responsibilities in that position. The Baan
Company has initiated the search for one or
more new Supervisory Board members.
63. On July 6, 1998, TechWeb News reported that Baan
Investment B.V., the venture-capital firm that owns a 39% stake
in Baan changed its name to Vanenburg Ventures B.V. ("VVBV") .
TechWeb added that VVBV planned to sell off Baan Business Systems
("BBS") and Baan Midmarket Solutions ("BMS") , and had retained
Goldman Sachs to advise it on the sales.
- 39 -
64. On July 8, 1998, The Wall Street Journal Europe
reported that:
a. Baan's dealings with affiliated entities
controlled by defendants Jan Baan and Paul Baan made it "hard for
investors to be sure just how healthy or unhealthy Baan is;"
b. VVBV claimed that it would "realize the value
of" two of VVBV's reseller subsidiaries causing Baan investors
the largest confusion and concern by selling them;
c. "Jan Baan offered [AlliedSignal] a fixed-
price [software] deal without knowing how large and complex the
installation would be, explaining that Baan needed a high-profile
client to boost its stock price;"
d. "Affiliated companies also have taken over
some support functions Baan once performed, relieving the public
company of million of dollars in costs;" and
e. "Jan Baan says the public company is aiming
for $2 billion in revenue by the year 2000, more than triple last
Year's [revenue]."
65. On July 13, 1998, Information Week noted that
Baan:
has been under a cloud since it revealed
earlier this year that it had sold products
and services worth $66.3 million to companies
controlled by Baan Investment, a private
holding company for the Baan brothers'
interests. The arrangement gave the
appearance that Baan Co. was bolstering its
financial results by selling products to
- 40 -
affiliated companies and counting the
transactions as revenue before the products
had been resold to customers.
* * *
"There are still additionally questions,"
says Steven Kahl, a financial analyst at
Piper Jaffray Inc. For instance, Baan Co.
still has a 15% interest in an affiliate of
Vannenburg. How will that revenue be
recognized?
66. On July 13, 1998, Computer Reseller News reported
that Jan Baan, co-founder of Baan, relinquished his CEO post to
Tom Tinsley, president. Jan Baan and Tinsley both continued as
members of the Company's executive office, along with Klaas
Wagenaar, COO and CFO.
67. On July 17, 1998, TechWeb News reported that Baan
revised its first quarter 1998 net profit down to $2.136 million
from $2.4 million. Baan acknowledged, "Certain reclassifications
and adjustments have been made to the financial statements."
68. Similarly, on July 20, 1998, the Wall Street
Journal reported, "Baan Co NV, the Dutch software company, under
fire for its aggressive accounting practices, revises its first-
quarter profit figure downward by 12.5% to $2.1 million."
69. On July 28, 1998, regarding expected results for
Baan's second quarter of 1998, AFX News wrote:
Baan Co NV is expected to report at tomorrow
second quarter net profit of 24.9-33.1 mln
usd, compared with 16.4 mln usd a year
earlier, according to analysts' forecasts.
ING Barings analyst Cornelis Bos said he
expects Baan to report net profit of 27 mln
usd on total sales of 249 mln usd, up 58 pct
- 41 -
from a year earlier. Operating profit is
seen at 38.7 mln usd, Bos said. He said this
includes an estimated 3 mln usd in pre-tax
costs related to the acquisition of Coda and
added that it is still not clear what the
total costs of the acquisition, integration
and restructuring will be .... The ING
Barings analyst said he estimates second-
quarter EPS at 0.13 usd, up 48 pct from a
comparable 0.09 usd a year earlier, adding
that this is based on Baan's average 1997 tax
rate of 32 pct. He also affirmed his full
year 1998 and 1999 EPS estimates of 0.56 usd
and 0.89 usd respectively. Bos said he rates
Baan a "hold", adding that he sees today's
announcement that Jan Baan is to step down as
chairman of Baan Co's board directors as a
positive move. "This should clear up some of
the confusion surrounding the relationship
between Baan Investments, now called I
Vanenburg, and Baan Company," Bos said. He
added that although the announcement of Jan
Baan's departure was not entirely unexpected,
what was not clear was what his future role
in Baan would be.
Edwin Flick of MeesPierson said he estimates
second-quarter net profit at 33.1 mln usd
before non-recurring charges related to the
integration of Coda, which he estimates at 12
mln usd before tax. This brings the bottom
line figure for the second quarter to 24.9
mln usd, he said. Second-quarter sales are
estimated at 238 mln usd including Coda,
compared with an adjusted 157.5 mln usd in
1997, Flick said, with operating income put
at 35.6 mln usd. He said he expects
maintenance and service revenues to have
grown at a slightly higher rate than license
revenues. Flick noted that Baan's withdrawal
as a party to the financing arrangements
between customers and external financing
organizations means the company will be able
to book sales and profits on transactions
with a financing arrangement upon the
completion of the transaction. The
additional deferred revenues of 43 mln usd
from the first quarter will be "realized
- 42 -
gradually over the next two years," with an
estimated 13 mln usd "falling free" in 1998,
according to Flick. The MeesPierson analyst
said the sale by Vanenburg Ventures -
formerly Baan Investments -- of its stakes in
BBS and BMS, both major Baan resellers and
service providers, should remove potential
conflicts of interests between the Baan
brothers and Baan Company. It should also
clear up a great deal of the confusion
concerning related party transactions, he
said. The inclusion of Coda -- expected to
have a "neutral bottom line effect" in the
full year 1998 -- plus the "free fall" of
deferred income, should bring the operating
margin before non-recurring charges to around
20 pct, Flick said. Flick noted that Baan is
expanding its position in the fast-growing
segment of small to medium-sized companies.
He said he rates the share a "buy" and
estimates full year EPS for 1998, 1999 and
2000 at 0.60 usd, 1.03 usd and 1.48 usd
respectively.
Oyens & Van Eeghen analyst Harry Luchtenveld
said he sees Baan reporting second quarter
net profit before one-off charges of 31.6 mln
usd, up 92 pct on the second quarter of 1997.
Total second quarter sales are estimated at
253.3 mln usd, with operating result seen at
47.4 mln usd, he said. He said license
revenues are expected to increase by 83 pct,
with 70 pct of this organic, Coda accounting
for 8 pct and the release of deferred income
for the remaining 5 pct. Luchtenveld noted,
however, that his net profit estimate does
not include a one-off reorganization charge
for the integration of Coda, as "nobody
really knows how much this will be yet".
Operating margin is expected to have improved
slightly to 18.3 pct from IS pct in the
second quarter of 1998, with the higher
margins of existing activities offset by the
first time inclusion of Coda, Luchtenveld
said. He said he estimates second quarter
EPS at 0.16 usd, adding that he rates the
stock "outperformer." Turning to the full
year results, Luchtenveld said he sees full
- 43 -
year net profit at 133 mln usd on sales of
1.03 bln usd, with operating result at 193
mln usd. Full year EPS is seen at 0.76 usd,
he said. On today's news that Jan Baan is to
step down from the Baan Co board, he said
that while it remains difficult to predict
what the share price will do, he is confident
it will continue to outperform the market.
70. On July 29, 1998, PR Newswire carried the
following Baan press release:
Baan ... reported net income for the second
quarter ended June 30, 1998 of $17.1 million,
or $0.08 per diluted share, compared with net
income of $16.9 million or $0.08 per diluted
share in the 1997 second quarter. The 1998
net income includes a non-recurring $14.4
million restructuring expense related to Baan
Company's May 1998 acquisition of CODA Group
plc (CODA), which lowered EPS by $0.05.
Excluding this charge and related tax
benefits, pro forma EPS for the 1998 second
quarter increased by 63%, to $0.13 per
diluted share or $26.9 million.
"Baan Company's business performance
continues to develop according to our plan to
be the technology product company that
defines the new growth market for high-
volume, packaged enterprise applications.
The results validate the success of our
strategy to provide the broadest portfolio of
enterprise applications to address the core
business processes common to companies of all
sizes and industries, and deliver these
products through both direct and indirect
distribution channels," said Tom Tinsley,
President, CEO and Chairman, Baan Company.
Total revenues grew 46% year over year to
reach $230 million for the 1998 second
quarter. Excluding the effect of currency
translations, 1998 second quarter revenue
growth would have been 53%.
- 44 -
71. Defendants, statements in ¶ 70 were materially
false and misleading when made because, inter alia:
a. Baan was having great difficulty competing in
the ERP marketplace with its rivals SAP, J.D. Edwards, Oracle,
SSA and PeopleSoft;
b. SOP 97-2 governed financial results starting
in the first quarter of 1998, making it more difficult for Baan
to report revenue;
c. Baan was having little success obtaining
Value Added Resellers ("VARs") beyond its "captive" affiliated
resellers;
d. Baan's VARs and affiliated resellers were
having very limited channel sell-through to actual Baan software
end-users; and
e. Worldwide economic turmoil was already
causing Baan's limited sell-through to end-users to diminish even
further.
72. On July 29, 1998, following the announcement of
Baan's second quarter 1998 results, AFX News reported that Baan
shares were down 6.5% because investors had been led to expect
second quarter net income of $24.9 million to $33.1 million,
instead of the $17.1 million that the Company actually reported.
73. In an August 31, 1998 Baan press release, carried
by PR Newswire, Baan announced that BMS was "building channel
- 45 -
momentum with significant reseller relationships and customer
successes resulting in market share gains for Baan Company's
enterprise applications."
74. The statement by Baan in 1 73 was materially false
and misleading when made because, inter alia:
a. BMS and other VVBV subsidiaries were holding
millions of dollars of Baan software in inventory; '
b. Such unsold inventory accounted for as much
as half of Baan's 1997 profits;
c. BMS and other VVBV subsidiaries were merely
of f balance sheet tools for Baan to hide costs and channel
uncollectible receivables; and
d. VVBV was unable to find a buyer for BMS (as
well as BBS), other than Baan, because of the improper, non arm's
length arrangements between these entities and Baan.
75. On September 28, 1998, an article in Barron's
noted the "complex and ambiguous relationship between Baan,
Vannenburg Ventures and a handful of other interlocking Baan
family-run companies." Barron's noted, "Among other
irregularities, it booked sales for which it had not yet been
paid and reported income derived from its sister companies."
76. On October 12, 1998, in a Baan press release
carried on PR Newswire, Baan revealed that it would not meet
First Call's consensus analyst third quarter 1998 earnings
- 46 -
estimates, as reported by Reuters, of $0.15 per share. Instead,
the Company announced a stunning loss of $0.13 to $0.16 per share
on third quarter 1998 revenues of $190 million to $195 million.
Baan stated:
that preliminary results for the first nine
months of 1998 show a 3096 increase in
revenues to approximately $600 million over
the comparable period in 1997. For the third
quarter ended September 30, 1998, the Company
expects to report revenues in the range of
$190 million to $195 million and a loss of
$0.13 to $0.16 per share. These anticipated
results are preliminary and are based on
partial information and management
assumptions. The Company plans to announce
its final results for the quarter on October
28, 1998.
The Company believes license revenue growth
was affected by a combination of the
following factors: global economic conditions
and market volatility, which produced
uncertainty among customers in making IT
purchasing decisions, and reallocation of
customers, IT budgets to fix the Year 2000
problems of their existing systems. As a
result, potential customers deferred or
delayed IT projects and those that signed
deals, decreased their software expenditures,
particularly in the U.S. market. Baan
expects these trends to continue into future
periods until economic conditions improve and
companies complete the correction of their
Year 2000 problems. In light of these
uncertain economic conditions the Company is
reevaluating its business outlook and
reassessing the impact on its future
operating plans....
The Baan Company has been transitioning to a
high-volume, low-cost distribution model
through the expansion of its indirect channel
to more than 220 resellers....
- 47 -
77. On October 12, 1998, CBS MarketWatch reported that
Baan's preliminary revenue estimates were about $80 million less
than Goldman Sachs analysts Charles Elliott and Rick Sherlund had
expected.
78. On October 12, 1998, Reuters reported that Baan
was trading down 27.62%, to $12 15116 per share, on five times
normal early morning trading volume.
79. On October 12, 1998, AFX Newsreported that,
during a conference call with analysts, defendant Tinsley
attributed the huge third quarter loss to 30 large orders, worth
a combined $60 million, that did not come through in third
quarter 1998. Defendant Tinsley lamented that September was
usually a strong month for Baan but volatility in the financial
markets and a deteriorating economy caused a number of U.S.
customers, particularly in the production sector, to postpone
their orders. Tinsley added that only one order was lost to a
competitor, adding that Baan was hardest hit in the top segment
of the market. Tinsley refused to make any more "concrete"
announcements until Baan releases its formal third quarter
results on October 28, 1998 because the Company is currently in
discussions with several customers that may postpone additional
orders.
80. On October 12, 1998, just as Baan shares plunged
28% on the Amsterdam Stock Exchange to a two year low, Agence
- 48 -
France Presse reported an otherwise strong rally in the Dutch
stock exchange. Specifically, the AEX index of leading Dutch
shares shot up 5.7% for the day.
81. After the close of NASDAQ trading on October 12,
1998, AP Online and the Wall Street Journal Interactive Edition
reported that 10,151,400 Baan ADRs traded on the NASDAQ, almost
15 times Baan's normal trading volume! Baan's NASDAQ share price
closed down $4 3/8 per share, or 24%, to $13 1/2. Baan's plunge is
all the more dramatic in light of the day's approximately 4%
increases in both the NASDAQ Composite Index and the Morgan
Stanley High-Tech Index.
82. On October 12, 1998, just as Baan's share price
collapsed under the burden of the Company's huge third quarter
loss, the Wall Street Journal reported that SAP saw a 43%
increase in sales for the same period. Also on October 12, 1998,
the London Financial Times reported that SAP stuck to its
forecasted 30% to 35% increase in pre-tax profits for 1998. SAP
also expects to meet its target of 40% annual year-over-year
sales growth for 1998. SAP's shares soared on the news.
83. On October 13, 1998, the Wall Street Journal
Interactive Edition quoted defendant Tinsley as stating, "A
significant part of our revenue gets done at the end of a
quarter, and the last 10 days of September [1998] were not a
wonderful time to do significant transactions," Defendant
- 49 -
Tinsley claimed that the shortfall wasn't apparent as recently as
two weeks earlier. The Wall Street Journal emphasized, however,
that "analysts dismissed Baan's explanation of events, blaming
strategic missteps by the Company. Baan's attempt to concentrate
on the lower-cost but higher-volume midmarket through a cadre of
third-party resellers hasn't been implemented quickly enough to
compensate for the loss of multinational customers," some analysts
said. 'I would argue the issue with Baan is one of internal
problems, rather than with market movements,' said George
O'Connor, an analyst with United Kingdom investment bank
Granville PLC."
84. On October 13, 1998, Agence France Press quoted
Dutch analyst Jan Koen Balt, "The announcement came as a total
surprise, and nobody expected Baan to wind up in the red. Baan
has always announced 35 percent growth. When it comes in with a
drop, not to mention a loss, that has a bombshell effect."
85. Also on October 13, 1998, The Wall Street Journal
Interactive Edition reported that Baan extended its sharp losses
following Monday's profit warning. By mid-afternoon in Amsterdam
on October 13, 1998, Baan had shed another 8.5% after plunging
29% on Monday. At the close of NASDAQ trading on October 13,
1998, Bloomberg News Service showed Baan down 15.28%, to 11 7/16.
86. On October 13, 1998, The Wall Street Journal
Europe reported that Baan's stunning shortfall:
- 50 -
sent a shudder through the Amsterdam Stock
Exchange. More than 25 million shares were
traded Monday [October 1-2], 10 times the
daily average and the most Baan shares ever
traded in a single day, according to the
exchange.
"In my trading history I can't remember a
share in Holland that has been hit this hard
in one day's time," said a trader who makes a
market in Dutch shares at a U.S. bank in
London.
Investors also voiced concern over a series
of transactions between Baan and companies
controlled by the Baan brothers, which some
analysts have said could have contributed up
to 30% of Baan's pretax profit [in the first
quarter of 1998]....
In the summer, Baan, while saying it had done
nothing wrong, said it would take steps to
address investor concern, including the sale
or partial sale of its stakes in two of the
affiliated companies, Baan Business Systems
and Baan Midmarket Solutions. Neither has
been sold yet.
FALSE FINANCIAL STATEMENTS
87. In order to overstate its revenues, net income and
earnings per share during 1997 and 1998, the defendants caused
Baan to enter into non-arm's length transactions with affiliated
resellers and improperly report revenue from software license
sales to these affiliated resellers. Baan recognized revenue
from non-arm's length transactions causing 1997 full year through
the first two quarters of 1998 results to be presented in
violation of GAAP.
- 51 -
88. GAAP are those principles recognized by the
accounting profession as the conventions, rules and procedures
necessary to define accepted accounting practice at the
particular time. Regulation S-X (17 C.F.R. §210.4-01(a)(1))
states that financial statements filed with the SEC which are not
prepared in compliance with GAAP are presumed to be misleading
and inaccurate, despite footnote or other disclosure.
89. The Company's reported results for the year ended
December 31, 1997 and the three fiscal quarters of 1998, and
statements regarding those results, were false and misleading
when made because the Company failed to comply with GAAP by
improperly recognizing revenue from software licenses with
affiliates.
90. FASB Statement No. 48 (revenue recognition where
the right of return exists) specifies criteria for recognizing
revenue on a sale in which a product may be returned, whether as
a matter of contract or as a matter of existing practice, either
,by the ultimate customer or by a party who resells the product to
others and requires that the amount of future returns can be
reasonably estimated in order to recognize revenue. FASB
Statement No.- 48 also states:
The ability to make a reasonable estimate of
the amount of future returns depends on many
factors and circumstances that will vary from
one case to the next. However, the following
factors may impair the ability to make a
reasonable estimate:
- 52 -
a. The susceptibility of the product to
significant external factors, such as
technological obsolescence or changes in
demand
b. Relatively long periods in which a
particular product may be returned
c. Absence of historical experience
with similar types of sales of
similar products, or inability to
apply such experience because of
changing circumstances, for
example, changes in the selling
enteprises marketing policies or
relationships with its customers
d. Absence of a large volume of relatively
homogeneous transactions
The existence of one or more of the above
factors, in light of the significance of
other factors, may not be sufficient to
prevent making a reasonable estimate;
likewise, other factors may preclude a
reasonable estimate.
91. Statement of Position ("SOP") 97-2, issued by the
AICPA's Accounting Standards Executive Committee, became
effective for software arrangements entered into in fiscal years
beginning after December 15, 1997. Baan's first quarter 1998
financial statements were required to include the effects of SOP
97-2 on its revenue recognition. The basic revenue recognition
criteria restated by SOP 97-2 are as follows:
- Persuasive evidence of an arrangement must exist;
- Delivery must have occurred;
- The vendor's fee must be fixed or determinable; and
- Collectibility must be probable.
- 53 -
92. SOP 97-2 provides that if an arrangement includes
multiple elements, the fee should be allocated to the various
elements based on objective evidence of fair value. Vendors such
as Baan may not tally sales of software to a related party as
recognized revenue until sell-through is guaranteed.
93. Due to its financial improprieties, the Company
presented its financial results during the Class Period (and
prior thereto) in a manner which violated GAAP. Further, the
undisclosed adverse information concealed by defendants during
the Class Period is the type of information which, because of SEC
regulations, regulations of the national stock exchanges and
customary business practice, is expected by investors and
securities analysts to be disclosed and is known by corporate
officials and their legal and financial advisors to be the type
of information which is expected to be and must be disclosed.
94. Authoritative accounting literature (APB Opinion
No. 28) provides that:
There is a presumption that users of
summarized interim financial data will have
read the latest published annual report,
including the financial disclosures required
by generally accepted accounting principles
and management's commentary concerning the
annual financial results, and that the
summarized interim data will be viewed in
that context. In this connection, the
management is encouraged to provide
commentary relating to the effects of
significant events upon the interim financial
results.
- 54 -
During the Class Period, defendants failed to comply
with GAAP in that interim financial statements which were
disseminated to the investing public failed "to provide
commentary relating to the effects of significant events upon the
interim financial results."
95. According to GAAP (Statement Of Financial
Accounting Standards No. 57, Related Party Disclosures -- "FASB
No. 57"):
Reliability of financial information involves
"assurance that accounting measures represent
what they purport to represent." Without
disclosure to the contrary, there is a
general presumption that transactions
reflected in financial statements have been
consummated on an arms-length basis between
independent parties. However, that
presumption is not justified when related
party transactions exist because the
requisite conditions of competitive, free-
market dealings may not exist. Because it is
possible for related party transactions to be
arranged to obtain certain results desired by
the related parties, the resulting accounting
measures may not represent what they usually
would be expected to represent.
Because of this ("FASB No. 57") states that:
Information about transactions with related
parties is useful to users of financial
statements in attempting to compare an
enterprise's results of operations and
financial position with those of prior
periods and with those of other enterprises.
It helps them to detect and explain possible
differences. Therefore, information about
transactions with related parties that would
make a difference in decision making should
be disclosed so that users of the financial
statements can evaluate their significance.
- 55 -
96. As noted in FASB No. 57, "as part of Accounting
Series Release No. 280, General Revisions of Regulation S-X, the
Securities and Exchange Commission integrated the disclosure
requirements . . . pertaining to related party transactions into
Regulation S-X. In addition, FASB No. 57 mandates that
"financial statements shall include disclosures of material
related party transactions" and that disclosures "shall" include"
A description of the transactions, including
transactions in which no amounts or nominal
amounts were ascribed, for each of the
periods for which income statements are
presented, and such other information deemed
necessary to an understanding of the effects
of the transactions on the financial
statements. (Emphasis added.)
97. In contravention of the provisions of FASB No. 57,
the Company's financial statements which were disseminated to the
investing public during the Class Period failed to comply with
the foregoing GAAP.
98. Such disclosure is intended to clarify the
investment communities understanding of the operations of the
Company. As stated by the SEC in its Accounting Series Release
173: "it is important that the overall impression created by the
financial statements be consistent with the business realities of
the company's financial position and operations..."
99. As discussed herein, transactions between the
Company and its affiliates (related party transactions) were
arranged to obtain certain results desired by the related
- 56 -
parties. In accounting for these transactions, the resulting
accounting measures did not represent what the investing public
reasonably expected them to represent because the economic
substance of the transactions were ignored for financial
accounting purposes. Consequently, the overall impression
created by the financial statements was inconsistent with the
business realities of the company's financial position and
operations. In so doing, defendants violated Statement of
Financial Accounting Concepts No. 2 which states (in paragraph
160) that:
The principle that the quality of reliability
and, in particular, of representational
faithfulness leaves no room for accounting
representations that subordinate substance to
form.
100. Defendants not only failed to bring this fact to
the attention of the investing public, but falsely stated that
Baan's consolidated, interim and year-end financial statements
were prepared under United States generally accepted accounting
principles.
101. Baan had the responsibility to maintain sufficient
accounting controls to accurately report its financial results.
it is well settled that the representations made by a company in
its financial statements and in other financial disclosures to
the public are the representations of that company's management.
indeed, even, as in Baan's case, when a company issues audited
- 57 -
financial statements together with the report of that company's
independent auditors, that report always expressly provides that
"the financial statements are the responsibility of the company's
management."
DEFENDANTS' INSIDER SELLING
102. While Baan's insiders were issuing false and
misleading statements about Baan's business and finances, the
defendants sold 130,000 shares of the Baan stock they owned for
proceeds of about $5,635,000 to profit from the artificial
inflation in Baan's stock price their false statements had
created. At the same time, entities controlled by the defendants
sold 559,959 Baan shares for proceeds of $25,115,776.
Additionally, on or about September 8, 1998, Baan's senior vice
president of Central European Operations, Karl Heinz Voss, sold
224,000 Baan ADRs, at $30.69, pocketing $6,874,000.
Notwithstanding their access to non-public information as a
result of their positions with the Company, the Individual
,Defendants, entities under their control and other insiders, sold
Baan shares at artificially inflated prices throughout the Class
Period while in possession of material, non-public information.
103. During the Class Period other top Baan executives
sold many thousands of shares of their Baan stock based on inside
information about the problems with Baan's business.
- 58 -
104. Sophisticated members of the investment community
closely monitor the stock transactions of corporate insiders in
an effort to ascertain insiders, sentiment regarding their
company's prospects. The Wall Street Journal and Barron's carry a
weekly column and other data on significant insider trading and
several services exist which publish information about stock
sales by corporate insiders.
CLAIM FOR RELIEF I
Section 10(b) Of The Exchange Act
And Rule 10b-5 Against All Defendants
105. Plaintiffs incorporate by reference 1-104.
106. Each of the defendants: (a) knew or had access to
the material, adverse non-public information about Baan'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 Baan.
107. During the Class Period, with knowledge of or
reckless disregard for the truth, defendants 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.
- 59 -
108. 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 purchasers of Baan, ADR's during the
Class Period.
109. Plaintiffs and the Class have suffered damage in
that, in reliance on the integrity of the market, they paid
artificially inflated prices for Baan ADR's. Plaintiffs and the
Class would not have purchased Baan ADR's 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
Against Defendants Baan, Jan Baan, Wagenaar And Tinsley
110. Plaintiffs incorporate by reference ¶¶ 1-109.
111. Jan Baan, Wagenaar and Tinsley acted as
controlling persons of Baan within the meaning of §20 of the
Exchange Act. By reason of their respective positions as
Chairman of the Board and CEO, President, CFO and COO of Baan,
Jan Baan, and Tinsley Wagenaar had the power and authority to
- 60 -
cause Baan to engage in the wrongful conduct complained of
herein. Baan controlled each of the Individual Defendants and
all of its employees.
112. By reason of such wrongful conduct, Baan, Jan
Baan, Wagenaar and Tinsley are liable pursuant to 920(a) of the
Exchange Act. As a direct and proximate result of these
defendants, wrongful conduct, plaintiffs and the other members of
the Class suffered damages in connection with their purchases of
Baan ADR's during the Class Period.
CLASS ALLEGATIONS
113. Plaintiff brings this action as a class action
pursuant to Federal Rules of Civil Procedure 23(a) and 23(b)
(3) on behalf of all persons who purchased the ADR's of Baan
during the Class Period (the "Class"), except defendants,
members of their immediate families and any entity in which a
defendant has a controlling interest.
114. The members of the Class are so numerous that
joinder of all members is impracticable. Baan has more than 193
million shares of stock outstanding. During the Class Period,
millions of shares of Baan ADR's were purchased by thousands of
persons who were damaged thereby.
115. Plaintiff's claims are typical of the claims of
the Class because plaintiff and the Class members sustained
damages from defendants, wrongful conduct.
- 61 -
116. Plaintiff will adequately protect the interests of
the Class. Plaintiff has retained counsel who are experienced
and competent in class action securities litigation. Plaintiffs
have no interests which are in conflict with those of the Class.
117. A class action is superior to other available
methods for the fair and efficient adjudication of this
controversy.
118. 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:
(a) Whether the federal securities laws were
violated by defendants' acts;
(b) Whether Baan'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 Baan's ADR's was
artificially inflated due to the activities complained of; and
(f) The extent and measure of damage sustained by
the Class.
- 62 -
BASIS OF ALLEGATIONS
119. Plaintiff has alleged the foregoing based upon the
investigation of her counsel, which included a review of Baan'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 this complaint 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 o~
Civil Procedure on behalf of the Class defined herein;
2. Awarding plaintiff and the members of the Class
compensatory damages;
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
- 63 -
5. Awarding such other relief as this Court may deem
just and proper.
JURY DEMAND
Plaintiff demands a trial by jury.
DATED: October 16, 1998 Respectfully submitted,
/s/
__________________________________
ANDREW N. FRIEDMAN (DC Bar No. 375595)
COHEN, MILSTEIN, HAUSFELD
& TOLL, P.L.L.C.
1100 New York Avenue, N.W.
West Tower, Suite 500
Washington, D.C. 20005
Telephone: (202) 408-4600
NEIL ZOLA
BETSY MANIFOLD
WOLF HALDENSTEIN ADLER FREEMAN
& HERZ LLP
270 Madison Avenue
New York, New York 10016
Telephone: (212) 545-4600
STEPHEN T. RODD
JAMES JAY SEIRMARCO
ABBEY, GARDY & SQUITIERI, LLP
212 East 39th Street
New York, New York 10016
Telephone: (212) 889-3700
Attorneys for Plaintiff
S:\WP51\Baan\COMPLAIN.wp5(JJS:sab)
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SWORN CERTIFICATION
I, Laure Salerno, certify that:
1. I have reviewed the complaint and authorized its filing.
2. I 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
any private action arising under this title.
3. I am willing to serve as a representative party on behalf of a class
and will testify at deposition and trial, if necessary.
4. My transactions in the security Baan Company N.V. that is the subject
of this litigation during the class period set forth in the complaint
are as follows:
| Date of Transaction |
Number of Shares
Stating Whether
Purchased or Sold |
Price Per Share |
| 10/2/98 |
100 - Purchased |
$22 11/16 |
5. I have not served as or sought to serve as a representative party
on behalf of a Class under this title during the last three years.
6. I will not accept any payment for serving as a representative party,
except to receive my pro rata share of any recovery or as ordered or
approved by the court including the award to a representative of reasonable
costs and expenses (including lost wages) directly relating to the representation
of the class.
The foregoing are, to the best of my knowledge and belief, true and
correct statements.
|
/s/
_______________________________
Laure Salerno
|