MILBERG WEISS BERSHAD
HYNES & LERACH LLP
WILLIAM S. LERACH (68581)
DARREN J. ROBBINS (168593)
600 West Broadway, Suite 1800
San Diego, CA 92101
Telephone: 619/231-1058
    - and -
PATRICK J. COUGHLIN (111070)
100 Pine Street, Suite 2600
San Francisco, CA 94111
Telephone: 415/288-4545

BERNSTEIN LIEBHARD & LIFSHITZ, LLP
MEL E. LIFSHITZ
10 East 40th Street
New York, NY 10016
Telephone: 212/779-1414

Attorneys for Plaintiff
 
 

 
 

CHARLES ADAMS, On Behalf of Himself  and All Others Similarly Situated,                         Plaintiff,     vs. INDUS INTERNATIONAL, INC.,  WILLIAM J. GRABSKE, PHILIP  C. MEZEY and JOAN P. PLATT,                         Defendants. ____________________________________

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No. C-00-0436-EDL CLASS ACTION COMPLAINT FOR VIOLATION  OF THE SECURITIES EXCHANGE  ACT OF 1934         DEMAND FOR JURY TRIAL

 

1. This is a securities class action on behalf of all purchasers of the publicly traded securities of Indus International, Inc. ("Indus" or the "Company") between 10/28/99 and 1/27/00 (the "Class Period"), against Indus and certain of its officers and directors for violations of the Securities Exchange Act of 1934 (the "1934 Act").

2. Indus provides enterprise asset management software and service solutions. The Company's products are used to improve operational business functions for energy, manufacturing, industrial and other companies that have capital-intensive operations. Indus was formed in June 1997 through a merger and reorganization of TSW International, Inc. and The Indus Group, Inc. After the merger, Indus' stock traded in the $10 to $15 range for a short time and then decreased to the $5 to $8 range for the second half of 1998 and most of 1999 as Indus reported little in the way of revenue growth, particularly on license fees which had substantially higher gross margins than service and maintenance fee revenues. In early 1999, Indus hired new management in order to correct this shortfall. In March 1999, Indus named a new chairman and CEO and in April 1999 it hired a new CFO. This new management was motivated to appear successful in their efforts to reinvigorate Indus.

3. In late October 1999, Indus announced its results for the third quarter ended September 30, 1999, including better-than-expected license revenues of $9.935 million. On December 9, 1999, Indus announced a new business model including a strong focus on electronic business. These announcements caused Indus' stock to increase dramatically to as high as $13-5/8 per share.

4. Then on January 27, 2000, Indus admitted that its third quarter 1999 results had been false with license revenue overstated by $5 million.

5. On these shocking disclosures, Indus' stock price declined to as low as $5-15/16 per share from $9-11/16 the day earlier.

6. As a result of the defendants' false statements, Indus' stock price traded at inflated levels during the Class Period, increasing to as high as $13-5/8 in early January 2000. One individual defendant took advantage of this inflated stock price, selling 175,000 of shares for proceeds exceeding $2.1 million.⁽¹⁾

7. Jurisdiction is conferred by §27 of the 1934 Act. The claims asserted herein arise under §§10(b) and 20(a) of the 1934 Act and Rule 10b-5.

8. Venue is proper in this District pursuant to §27 of the 1934 Act. Many of the false and misleading statements were made in or issued from this District.

9. (a) The Company's principal executive offices are in San Francisco, California, where the day-to-day operations of the Company are directed and managed.

(b) Assignment of this action to the San Francisco Division is appropriate as a substantial part of the acts or omissions identified herein occurred in San Francisco County.

10. Plaintiff Charles Adams purchased Indus publicly traded securities as described in the attached certification and was damaged thereby.

11. Defendant Indus International, Inc. provides enterprise asset management software and service solutions. The Company's products are used to improve operational business functions for energy, manufacturing, industrial, and other companies that have capital-intensive operations. Indus operates worldwide. Indus' common stock trades in an efficient market on the NASDAQ National Market System.

12. (a) Defendant William J. Grabske ("Grabske") was Chairman and Chief Executive Officer of Indus until he was replaced on January 12, 2000.

(b) Defendant Joan P. Platt ("Platt") was Secretary and Chief Financial Officer of the Company until her resignation on December 9, 1999.

(c) Defendant Philip C. Mezey ("Mezey") is Senior Vice President, Strategy and Development of Indus. During the Class Period, and as part of the fraudulent scheme, Mezey sold 35,000 shares of Indus stock in November on inside information, pocketing over $296,000 and filed to sell additional 140,000 shares in January 2000.

13. The individuals named as defendants in ¶12(a)-(c) are referred to herein as the "Individual Defendants." The Individual Defendants, because of their positions with the Company, possessed the power and authority to control the contents of Indus' quarterly reports, press releases and presentations to securities analysts, money and portfolio managers and institutional investors, i.e., the market. Each defendant was provided with copies of the Company's reports and press releases alleged herein to be misleading prior to or shortly after their issuance and had the ability and opportunity to prevent their issuance or cause them to be corrected. Because of their positions and access to material non-public information available to them but not to the public, each of these defendants knew that the adverse facts specified herein had not been disclosed to and were being concealed from the public and that the positive representations which were being made were then materially false and misleading. Despite his duty not to sell Indus stock under such circumstances, defendant Mezey nonetheless did so. The Individual Defendants are liable for the false statements pleaded herein at ¶¶19-20 and 22-23, as those statements were each "group-published" information, the result of the collective action of the Individual Defendants.

14. In addition to the above described involvement, each Individual Defendant had knowledge of Indus' problems and was motivated to conceal such problems. Grabske and Platt were new to their positions as CEO and CFO, respectively, and wanted to prove they could successfully turn Indus around. Platt was hoping to land a more lucrative position with an Internet start-up and would be benefitted if her stint at Indus was successful. License revenue was a key item for Indus and its investors as it had higher margins than service and maintenance revenue and also was an indication of the growth of Indus and demand for its products, more so than service and maintenance revenues. Thus, the Individual Defendants were motivated to show growth in this key line item.

15. Platt, as CFO, was responsible for financial reporting and communications with the market. As CFO, many of the internal reports showing Indus' forecasted and actual growth were prepared by the finance department under Platt's direction and thus she was aware of significant downturn in Indus' forecasted results. Mezey had been with Indus for a few years and was anxious to be able to unload as many of his shares as possible in any upturn in the stock price and did so despite his knowledge, as Senior Vice President of Strategy and Development, that Indus' license revenues were not nearly as strong as reported.

16. Each defendant is liable for (i) making false statements, or (ii) failing to disclose adverse facts known to him/her about Indus while selling Indus stock, or (iii) participating in a fraudulent scheme which permitted Mezey to sell 175,000 shares of Indus stock at artificially inflated prices for $2.1 million in insider-trading proceeds. Defendants' fraudulent scheme and course of business that operated as a fraud or deceit on purchasers of Indus stock was a success, as it (i) deceived the investing public regarding Indus' prospects and business; (ii) artificially inflated the prices of Indus' publicly traded securities; (iii) caused plaintiff and other members of the Class to purchase Indus publicly traded securities at inflated prices; and (iv) permitted Mezey to sell off 175,000 shares of his Indus stock, pocketing $2.1 million in insider-trading proceeds.

17. Indus develops, markets, implements and supports enterprise asset management software and service solutions for capital-intensive industries worldwide. Marketed internationally as the Indus Solution Series, the offering consists of business application systems and industry best practice service packages which support such functional areas as: Asset & Work Management Systems, Materials & Procurement Systems, Safety & Compliance Systems, and Financial Integration products. Indus Solutions are designed to interoperate with popular third-party applications that provide best business practices function to its customers.

18. Indus was formed in June 1997 through a merger and reorganization of TSW International, Inc. and The Indus Group, Inc. After the merger, Indus' stock traded in the $10 to $15 range for a short time and then decreased to the $5 to $8 range for the second half of 1998 and most of 1999, as Indus reported little in the way of revenue growth, particularly on license fees which had substantially higher gross margins than service and maintenance fees. In early 1999, Indus hired new management in order to correct this shortfall. In March 1999, Indus named Grabske as chairman and CEO and in April it hired Platt as the new CFO. This new management was motivated to appear successful in its efforts to reinvigorate Indus.

19. On October 28, 1999, Indus issued a press release announcing its third quarter 1999 results:

Indus International, Inc. (Indus or the Company) (Nasdaq:IINT), the world's leading provider of Enterprise Asset Management (EAM) solutions, today reported results for the three and nine months ended September 30, 1999.

Revenues for the third quarter of 1999 were $ 50.9 million compared to $50.3 million reported for the third quarter of 1998. For the first nine months of 1999, revenues were $147.5 million compared to $140.6 million reported in the comparable 1998 period.

Net income for the third quarter, excluding a $0.1 million tax benefit for utilization of net operating loss carryovers and other tax credits, was $3.4 million, or $0.10 per share (diluted), compared to net income (on a comparable basis) of $1.7 million, or $0.05 per share (diluted), in the same period last year. Net income for the nine months ended September 30, 1999, excluding the after-tax benefit of $23.3 million from the sale of Indus' investment in TenFold Corporation in the second quarter 1999 and a $1.4 million tax benefit for utilization of net operating loss carryovers and other tax credits, increased to $8.4 million, or $0.24 per share (diluted), compared to net income (on a comparable basis) of $4.9 million, or $0.14 per share (diluted) in the same period last year.

Bill Grabske, Chairman and Chief Executive Officer of Indus, stated: "Our solid performance in the quarter is the result of our continued focus on delivering innovative best-of-breed products and services to meet the demanding needs of our customers. Software license fees exceeded our quarterly targets while continuing to be affected by a general industry slowdown. The services and maintenance revenues growth resulted primarily from new consulting and implementation projects for existing customers. We are pleased that we met our earnings target while making our initial investment in myindus.com, our recently announced eBusiness initiative focused on next generation Internet applications, portals and web-based content solutions for the EAM market.

* * *

Other Highlights of the Quarter

- New business initiatives including an alliance with Chevron PipeLine Company (CPL), a wholly-owned subsidiary of Chevron Corporation, to deliver an integrated pipeline management system for the oil and gas industry using the Indus Solution Series VMACS (Volumetric Management and Customer Service) software and services solution.

- Nine successful customer go lives during the quarter bringing the total for the year to nearly 50 customers globally. Customers within multiple industries, from around the world, are achieving success with the Indus Solution Series(TM), including:

- The Australian Northern Territory's Power and Water Authority (PAWA) rolled out its enterprise-wide asset management (EAM) and maintenance project -- WIMS - using the Indus Solution Series and Curator(TM).

- The Hanford Department of Energy and Detroit Edison are using the recently certified Indus/PeopleSoft integrated energy transmission and distribution enterprise software solution for streamlining asset management and supply chain business processes across the utilities sector.

- Omaha Public Power District, one of the largest publicly owned electric utilities in the United States, is implementing the Indus Knowledge Warehouse as its business intelligence technology solution.

Highlights of last week's IndusWorld Expo 99, the most successful and well-attended in Indus' history, included enhanced functionality for the Indus Solution Series and new strategic alliances with Ariba and PricewaterhouseCoopers. Attendees also previewed an early version of the myindus.com portal, leading to enrollment of more than 50 customers in the Charter Member Program, an advisory group that will shape the design and content of upcoming myindus.com releases.

21. On October 29, 1999, SG Cowen Securities issued a report on Indus in which SG Cowen rated Indus and forecast Indus earnings based on and repeating statements made to SG Cowen analysts Robert Schwartz and David Gremmels by Grabske and Platt. The report stated in part:

Q2 IN LINE WITH EXPECTATIONS-Yesterday, after the close, Indus reported Q3:99 revenue of $50.9MM (+1% Y/Y) and operating EPS of 10>, in line with our estimates of $51.0MM and 10>. License revenue of $9.9MM was $900,000 better than our estimate, but still down 24%, reflecting continued weak demand in core markets.

The accompanying unaudited condensed consolidated financial information has been prepared by management, in accordance with generally accepted accounting principles for interim financial information and pursuant to instructions to Form 10-Q and Article 10 of Regulation S-X. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the Securities and Exchange Commission's rules and regulations. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position at June 30, 1999 and results of operations and cash flows for all periods presented have been made.

AICPA Accounting Standards Executive Committee Statement of Position 97-2 "Software Revenue Recognition" (SOP 97-2) and Statement of Position 98-4 "Deferral of the Effective Date of a Provision of SOP 97-2 Software Revenue Recognition" (SOP 98-4) which contain new rules for timing of recognition or software company revenues, particularly as to license fee revenues where there are multiple elements to be delivered under a contract or arrangement with a customer, became effective for transactions beginning in 1998. Management believes the Company's current policy and its practices conform to the rules in these new accounting pronouncements. Under the Company's current policy, license fees on standard software products not requiring substantial modification and customization are recognized as revenue upon shipment to customers.

Indus International Realigns Management Responsibilities and Forms Global Technology Council to Spearhead New Business Model; Indus Poised to Capitalize on EAM Leadership Opportunities in New Millennium

... Indus International (Nasdaq: IINT), the world's leading provider of Enterprise Asset Management (EAM) solutions, today announced realignment of key management positions and the formation of a Global Technology Council. These changes are the natural progression in Indus' evolution to a new business model designed to leverage the company's leadership in the EAM market; ensure rapid acceptance of its myindus.com eBusiness initiative, led by Rick Beatty; and spearhead growth in strategic vertical industries.

Following are the highlights of the new organizational and strategic initiatives:

-- Consolidation of global marketing and sales, elevating the responsibilities of senior vice president Onagh Ash, an industry veteran with more than 20 years of senior sales management experience with SAP America, Oracle Corporation and GERS Retail Systems;

-- Appointment of Mark Hoey to a new position as senior vice president of global services. Hoey joined Indus from EDS, where he had responsibility for product/service offerings and the integration of ERP systems for the global utility industry;

-- Bob Pocsik, chief administrative officer, will expand his position to include oversight of information technology/information systems and public and legal affairs;

-- Formation of a Global Technology Council, chaired by Indus chairman and CEO Bill Grabske, that will set the technical direction for Indus and create a company-wide focus on all aspects of the Indus Solution Series and Internet development.

"Consistent with our stated intent to capitalize on our premier position in the EAM industry, we are empowering an elite leadership team that will create higher value for our shareholders and clients," said Bill Grabske, chairman and CEO of Indus International. "With our new structural alignment in place, and formation of a Global Technology Council, we are in an ideal position to support our innovative myindus.com eBusiness initiative and revolutionize the EAM industry."

25. On January 12, 2000, Indus issued two press releases, one to announce a replacement for Platt and another to announce the resignation of Grabske.

26. Then on January 27, 2000, after the markets closed, Indus issued a press release with horrible fourth quarter 1999 results and a major restatement of third quarter 1999 results due to improper revenue recognition:

Indus International (Nasdaq: IINT), one of the leading providers of Enterprise Asset Management (EAM) solutions, announced today that it is conducting an in-depth review of its revenue recognition practices with the assistance of its independent auditors. The results of the preliminary review indicate that revenue reported in the third quarter ended September 30, 1999, was overstated by approximately $5.0 million, all of which related to license fees, resulting in preliminary restated revenues of approximately $45.9 million, and a preliminary restatement of net income from $3.5 to $0.4 million.

In addition, the Company estimates a preliminary net loss of $9.0 million on revenues of $40.0 million, including license fees of $5.7 million for the fourth quarter ended December 31, 1999, resulting in preliminary net income of $21.0 million for the entire year on preliminary revenues of $182.5 million.

Preliminary restated revenues for the third quarter of 1999 were $45.9 million, including preliminary restated license fees of $4.9 million, compared to $50.3 million, including license fees of $13.0 million reported for the third quarter of 1998. Preliminary restated revenues for the first nine months of 1999 were $142.5 million, including preliminary restated license fees of $19.0 million, compared to $140.6 million, including license fees of $39.0 million for the first nine months of 1998.

For the fourth quarter of 1998, the Company had revenues of $54.9 million, including license fees of $16.6 million, and net income of $5.7 million. For the year 1998, the Company had revenues of $195.5 million, including license fees of $55.5 million and net income of $13.4 million.

28. In fact, Indus' results for the third quarter of 1999 were materially false and misleading. The fact that Indus will restate the third quarter results is essentially an admission that the results were materially false and in violation of Generally Accepted Accounting Principles ("GAAP").

29. GAAP are those principles recognized by the accounting profession as the conventions, rules and procedures necessary to define accepted accounting practice at a particular time. SEC 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. Regulation S-X requires that interim financial statements must also comply with GAAP, with the exception that interim financial statements need not include disclosure which would be duplicative of disclosures accompanying annual financial statements. 17 C.F.R. §210.10-01(a).

30. The fact that Indus has restated its financial statements for the third quarter 1999 is an admission that the financial statements originally issued were false and that the overstatement of revenues and income was material. Pursuant to GAAP, as set forth in Accounting Principles Board Opinion ("APB") No. 20, the type of restatement announced by Indus was to correct for material errors in its previously issued financial statements. See APB No. 20, ¶¶7-13. The restatement of past financial statements is a disfavored method of recognizing an accounting change as it dilutes confidence by investors in the financial statements, it makes it difficult to compare financial statements and it is often difficult, if not impossible, to generate the numbers when restatement occurs. See APB No. 20, ¶14. Thus, GAAP provides that financial statements should only be restated in limited circumstances, i.e., when there is a change in the reporting entity, there is a change in accounting principles used or to correct an error in previously issued financial statements. Indus' restatement was not due to a change in reporting entity or a change in accounting principle but was rather due to errors in previously issued financial statements. Thus the restatement is an admission by Indus that its previously issued financial results and its public statements regarding those results were false and misleading.

31. Plaintiff incorporates ¶¶1-30 by reference.

32. During the Class Period, defendants disseminated or approved the false statements specified above, which they knew or recklessly disregarded 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.

33. Defendants violated §10(b) of the 1934 Act and Rule 10b-5 in that they:

(a) Employed devices, schemes, and artifices to defraud;

(b) Made untrue statements of material facts or omitted to state material facts necessary in order to make statements made, in light of the circumstances under which they were made, not misleading; or

(c) Engaged in acts, practices, and a course of business that operated as a fraud or deceit upon plaintiff and others similarly situated in connection with their purchases of Indus publicly traded securities during the Class Period.

34. Plaintiff and the Class have suffered damages in that, in reliance on the integrity of the market, they paid artificially inflated prices for Indus publicly traded securities. Plaintiff and the Class would not have purchased Indus publicly traded securities 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' misleading statements.

35. As a direct and proximate result of these defendants' wrongful conduct, plaintiff and the other members of the Class suffered damages in connection with their purchases of Indus publicly traded securities during the Class Period.

36. Plaintiff incorporates ¶¶1-35 by reference.

37. Defendants Grabske, Platt and Mezey acted as controlling persons of Indus within the meaning of §20(a) of the 1934 Act. By reason of their positions as Chief Executive Officer and Chairman, CFO and Senior Vice President of Strategy and Development of Indus, respectively, and their ownership of Indus stock, the Individual Defendants had the power and authority to cause Indus to engage in the wrongful conduct complained of herein. Indus controlled each of the Individual Defendants and all of its employees. By reason of such conduct, the Individual Defendants and Indus are liable pursuant to §20(a) of the 1934 Act.

38. Plaintiff brings this action as a class action pursuant to Rule 23 of the Federal Rules of Civil Procedure on behalf of all persons who purchased Indus publicly traded securities (the "Class") on the open market during the Class Period. Excluded from the Class are defendants.

39. The members of the Class are so numerous that joinder of all members is impracticable. The disposition of their claims in a class action will provide substantial benefits to the parties and the Court. Indus had more than 32 million shares of stock outstanding, owned by hundreds if not thousands of persons.

40. There is a well-defined community of interest in the questions of law and fact involved in this case. Questions of law and fact common to the members of the Class which predominate over questions which may affect individual Class members include:

(a) Whether the 1934 Act was violated by defendants;

(b) Whether defendants omitted and/or misrepresented material facts;

(c) Whether defendants' statements omitted material facts necessary to make the statements made, in light of the circumstances under which they were made, not misleading;

(d) Whether defendants knew or recklessly disregarded that their statements were false and misleading;

(e) Whether the price of Indus' publicly traded securities was artificially inflated; and

(f) The extent of damage sustained by Class members and the appropriate measure of damages.

41. Plaintiff's claims are typical of those of the Class because plaintiff and the Class sustained damages from defendants' wrongful conduct.

42. Plaintiff will adequately protect the interests of the Class and has retained counsel who are experienced in class action securities litigation. Plaintiff has no interests which conflict with those of the Class.

43. A class action is superior to other available methods for the fair and efficient adjudication of this controversy.

44. The statutory safe harbor provided for forward-looking statements under certain circumstances does not apply to any of the allegedly false forward-looking statements pleaded in this Complaint. The safe harbor does not apply to Indus' allegedly false financial statements. None of the written forward-looking statements made were identified as forward-looking statements, nor was it stated that actual results "could differ materially from those projected." Nor did meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those in the forward-looking statements accompany those forward-looking statements. Each of the forward-looking statements alleged herein to be false was authorized by an executive officer of Indus and was actually known by each of the Individual Defendants to be false when made.

WHEREFORE, plaintiff prays for judgment as follows:

1. Declaring this action to be a proper class action pursuant to Rule 23;

2. Awarding plaintiff and the members of the Class damages, interest and costs;

3. Awarding equitable and/or injunctive relief as permitted by law or equity, including the imposition of a constructive trust upon the proceeds of defendant Mezey's insider trading, pursuant to Rules 64, 65, and any appropriate state law remedies; and

4. Awarding such other relief as the Court may deem just and proper.

Plaintiff demands a trial by jury.

DATED this 8th day of February, 2000.MILBERG WEISS BERSHAD

HYNES & LERACH LLP
WILLIAM S. LERACH
DARREN ROBBINS
 
 
 
 
 

___________________________
WILLIAM S. LERACH

600 West Broadway, Suite 1800
San Diego, CA 92101
Telephone: 619/231-1058

MILBERG WEISS BERSHAD
HYNES & LERACH LLP
PATRICK J. COUGHLIN
100 Pine Street, Suite 2600
San Francisco, CA 94111
Telephone: 415/288-4545

BERNSTEIN LIEBHARD & LIFSHITZ, LLP
MEL E. LIFSHITZ
10 East 40th Street
New York, NY 10016
Telephone: 212/779-1414

Attorneys for Plaintiff
 

N:\CASES\COMPLNTS\indus.cpt

1. Includes sales of 140,000 shares for which a Form 144 (intention to sell) was filed in January 2000. The Form 4 indicating that the sale occurred is not due to be filed until February 10, 2000.

Source: http://securities.milberg.com