According to a press release dated August 29, 2005, Cosi said a federal court had dismissed class-action claims by shareholders who participated in Cosi's initial public stock offering in November 2002.
The Complaint alleges that defendants violated Section 11 of the Securities Act of 1933 by issuing a false and misleading Registration Statement and Prospectus in connection with Cosi's initial public offering ("IPO") on November 21, 2002 of 5.5 million shares at $7 per share. The Prospectus misrepresented that the proceeds of the offering were sufficient to fund the Company's fast growth business plan for at
least two years, allowing Cosi to open between 53 and 59 new company-owned specialty sandwich shops in 2003. On February 3, 2003, just ten weeks after the IPO, Cosi shocked the market by announcing the immediate resignation of CEO and co-founder Andy Stenzler, that Cosi would lay off personnel, and that it would open only 10 new stores in 2003. In addition, the Company stated that it would immediately reverse its company-owned stores business model to one involving turning the business over to franchisees. The Complaint alleges that, at the time of
the IPO, Cosi's business plan had already failed, and that the proceeds raised in the offering were less than were needed to fund even the Company's short term needs. In reaction to this unexpected bad news, Cosi shares fell significantly, closing at $2.80 per share on February 4, 2003, down $1.67 or almost 40%.
The Complaint further alleges that the defendants failed to exercise reasonable due diligence to ensure that the Prospectus disclosed all material facts The defendants named in the Complaint are Cosi, Inc., former CEO Andy Stenzler, and the members of Cosi's Board of Directors who signed the Registration Statement for Cosi's November 21, 2002 IPO. Also named as a defendant is the lead underwriter for the IPO, William Blair & Co., LLC.