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/raid1/www/Hosts/bankrupt/CAR_Public/021209.mbx C L A S S A C T I O N R E P O R T E R Monday, December 9, 2002, Vol. 4, No. 243 Headlines ARIZONA: High Court To Review Rulings In Manufacturers' Antitrust Suits AUTOTOTE/SCIENTIFIC GAMES: Suit Charges Negligent Operation Of Wagering BLOCKBUSTER INC.: Engaged in Negotiations To Settle Rental Fees Suits COLORADO: Annual Parade Of Homes Made Accessible To Disabled Persons CRACKER BARREL: To Add "Sexual Orientation" term To Anti-Bias Policy DELTATHREE INC.: Asks NY Court To Dismiss Consolidated Securities Suit DIGIMARC CORPORATION: NY Court Dismisses Officers, Directors From Suit ENGAGE INC.: Asks NY Court To Dismiss Consolidated Securities Lawsuit ENGAGE INC.: Parties Agree To Dismiss Amended Securities Lawsuit in DE FORD MOTOR: Speed Responsible For Texas Police Officer's Death In Crash FOUNDRY NETWORKS: Asks CA Court To Dismiss Consolidated Securities Suit FOUNDRY NETWORKS: Asks NY Court To Dismiss Consolidated Securities Suit INTERNET CAPITAL: Asks NY Court To Dismisses Securities Fraud Lawsuit INTERTRUST TECHNOLOGIES: Court Dismisses Officers, Directors From Suit MARTHA STEWART: Securities Fraud Lawsuits To Be Consolidated in S.D. NY MARTHA STEWART: Insider Trading, Derivative Suits in NY, DE MICHIGAN: High Court To Rule on University's Affirmative Action Policy MISSOURI: Suit Filed Over Cell Phone 911 Charges, Undelivered Service NETRO CORPORATION: NY Court Dismisses Officers, Directors From Lawsuit NEXTEL PARTNERS: NY Court Dismisses Officers From Securities Fraud Suit NTL INC.: NY Securities Fraud Lawsuit Stayed Due To Chapter 11 Filing REGISTER.COM: NY Court Dismisses Officers From Securities Fraud Suits REGISTER.COM: Faces Consumer Suit Over Domain Name Renewal Policy in NY SECURITIES LITIGATION: Investment Banks Fear Wave Of Shareholder Suits SELECTICA INC.: NY Court Dismisses Officers, Directors From Fraud Suit SELECTICA INC.: CA Federal Court Remands Derivative Suit To State Court SWITCHBOARD INC.: NY Court Dismisses Officers, Defendants For Lawsuit TELECOMMUNICACIONES DE PUERTO RICO: Faces Suits Over Touchtone Service WASHINGTON: Lawsuit Over Municipal Bond Issue Gets Class Certification New Securities Fraud Cases ANNUITY AND LIFE: Scott + Scott Commences Securities Suit in CT Court ANNUITY AND LIFE: Hoffman & Edelson Lodges Securities Suit in CT Court TRANSACTION SYSTEM: Kirby McInerney Lodges Securities Suit in NE Court TXU CORPORATION: Milberg Weiss Lodges Securities Fraud Suit in N.D. TX ********* ARIZONA: High Court To Review Rulings In Manufacturers' Antitrust Suits ----------------------------------------------------------------------- The Arizona Supreme Court recently agreed to review lower court rulings that say businesses and consumers can file antitrust price-fixing lawsuits directly against manufacturers, the Associated Press Newswires reports. Tobacco companies and glass manufacturers filed appeals in an attempt to turn away the class actions filed against them instead of the middlemen who actually sold the products to the customers. The manufacturers argued that the state Court of Appeals twice erred in recent cases by not following a 25-year-old US Supreme Court ruling on who can file price-fixing lawsuits. Lawyers for the state and for the plaintiffs in two recent cases argue that the state can decide its own its own course on the issue and should do so to protect consumers. The state Supreme Court agreed to hear separate appeals on ruling issued by Court of Appeals panels in cases from Tucson and Phoenix. In each case, a trial judge had ruled that the plaintiffs could not directly sue the manufacturers because the plaintiffs bought the products through retailers or wholesalers and not from the manufacturers. The trial judges' rulings relied on a 1977 U.S. Supreme Court decision saying federal law bars so-called "indirect purchaser" antitrust lawsuits. The manufacturers argue Arizona law requires courts to follow the federal practice because the Legislature has not decided otherwise. The Court of Appeals panels decided otherwise, however, and overturned the trial judges' rulings. The appeals panels cited the Arizona Constitution's mandate that state government protect consumers by prohibiting monopolies, price-fixing and other barriers to fair competition. Without allowing the ultimate purchasers to sue manufacturers themselves, enforcement of the state's antitrust policy will be undermined, said the Court of Appeals panels. The appeals judges reasoned that because middlemen would be able to pass on manufacturers' overcharges to consumers without challenges, incentives on the middlemen to bring lawsuits against the manufacturers' price-fixing behavior would be eliminated. AUTOTOTE/SCIENTIFIC GAMES: Suit Charges Negligent Operation Of Wagering ----------------------------------------------------------------------- A proposed class action by professional gambler Jimmy "The Hat" Allard was filed recently, in a Los Angeles court, accusing Autotote/Scientific Games Corp. of negligence in operating Pick-Three, Pick-Four and Pick-Six wagering at horse tracks, Associated Press Newswires reports. An employee of Autotote, a subsidiary of Scientific Games, has admitted in court to falsified winning bets in three instances. They were topped by a $3.1 million Pick-Six total payoff on the Breeders' Cup races October 26, for six tickets that cost the alleged conspirators just $1,152. Payment of the money was withheld and put in escrow when the six identical tickets aroused suspicion of thoroughbred racing officials. The Lisoni & Lisoni law firm of Pasadena filed the suit in Los Angeles Superior Court, seeking unspecified monetary damages suffered by Mr. Allard and other bettors. Attorneys Joseph and Gail Lisoni said in a statement that due to flaws in the Company's system and security the "betting public may have been cheated out of countless millions of dollars for possibly the past eight years." "The Autotote employee was able to take advantage of an innate flaw in Autotote's computerized wagering system," says the lawsuit filed by Mr. Allard "on behalf of himself and all others similarly situated" throughout the United States. The suit further alleges that "Autotote knew or should have known that they had designed, manufactured, installed and placed into the stream of commerce a pari-mutuel wagering system containing ineffective security safeguards." Chris Harn of Newark, Del., a former senior software engineer at Autotote was fired October 30. He has pleaded guilty in White Plains, NY, to federal charges of conspiracy to commit fraud and money laundering. In his admission, Mr. Harn named as accomplices Derrick Davis and Glen DeSilva, his former fraternity brothers at Drexel University in the 1990s. They have been charged with wire fraud and are to appear in court next week. Mr. Harn said he used his access to Autotote's computer systems to change bets on Pick-Six races to include the winning horses when results of the first four races were known. The law firm said it was expected other Pick-Six players would join the lawsuit. "The exact number of such class members can easily be discovered from the data records of Autotote," the Allard lawsuit says. Brooks Pierce, president of Autotote, based in Newark, Del., said at a California Horse Racing Board meeting last month, that his company would soon be scanning each Pick Six bet after the first leg had been run, changing the routine of waiting until after four of the six races. The National Thoroughbred Racing Association announced last week that a consulting firm headed by former New York Mayor Rudolph Giuliani had been hired to review the industry's electronic wagering system. BLOCKBUSTER INC.: Engaged in Negotiations To Settle Rental Fees Suits --------------------------------------------------------------------- Blockbuster, Inc. is engaging in various negotiations to settle several class actions filed by consumers, relating to the extended viewing fee policies in its video rental store chains. The Company faces lawsuits in state courts in: (1) Illinois, (2) California, (3) Ohio, (4) Maryland, (5) Texas, (6) New York, (7) New Jersey, (8) Delaware, (9) Massachusetts, (10) Washington, D.C., (11) Florida and (12) Pennsylvania These cases allege common law and statutory claims for fraud and deceptive practices and unlawful business practices regarding the Company's extended viewing fee policies for customers who choose to keep rental product beyond the initial rental term. Some of the cases also allege that these policies impose unlawful penalties and result in unjust enrichment. There are currently 19 lawsuits pending, 18 of which are putative class action lawsuits. In April 2001, the Company reached a preliminary settlement in two of the Texas cases, which provides for a national settlement class and does not admit liability. In January 2002, the Texas court entered a final judgment approving a national class settlement, which included settlements in 12 of the 18 pending lawsuits, including those in Maryland, Texas, New York, New Jersey, Delaware, Massachusetts, Washington, D.C., Florida and Pennsylvania. Under the approved settlement, the Company would make certificates available to class members for rentals and discounts and would pay up to US$9.25 million in attorneys' fees in connection with the settlement. Two different parties objecting to the settlement filed notices of appeal. In April 2001, an Illinois state court entered a provisional order, subject to further review and final determination, certifying plaintiff and defendant classes in order that putative class counsel in Illinois would have an opportunity to be heard regarding the national class settlement. In February 2002, on the basis of the Texas settlement, the Company filed a motion to dismiss the Illinois complaint that was subject to the provisional certification order and a motion to compel arbitration as to some of the putative class members. In September 2002, the Illinois state court judge denied the motion to dismiss and refused to compel arbitration. The Company has filed an interlocutory appeal in Illinois of the trial court's denial of the motion to compel arbitration. In another Illinois case, on June 11, 2002, a federal judge dismissed the complaint due to the Texas settlement. On July 30, 2002, a California state judge ruled that the class claim allegations should be dismissed because of the Texas settlement. The Company is also a defendant in four Canadian class actions filed by customers in Toronto, Ontario, Montreal, Quebec, Vancouver, British Columbia and Regina, Saskatchewan between July 2001 and July 2002 concerning extended viewing fee policies in Canada. The Company believes the plaintiffs' positions in all of these cases are without merit and, if necessary, intends to vigorously defend itself. COLORADO: Annual Parade Of Homes Made Accessible To Disabled Persons -------------------------------------------------------------------- The annual Parade of Homes will have wheelchair-accessible ramps and video monitors showing homes' upper and lower levels as part of a preliminary settlement in a class action against the Home Builders Association of Metropolitan Denver. US District Judge Edward Nottingham has approved a preliminary settlement in the 2001 case, brought by three people who claimed the annual tour of luxury homes violated the Americans With Disabilities Act. The three plaintiffs, all wheelchair users, said they were unable to enter some of the homes for lack of wheelchair ramps. They also alleged that parking areas, paths, common areas and concession stands were inaccessible to disabled visitors. The case was later given class action status. The association maintained that the Parade of Homes was exempt from the Americans With Disabilities Act because the homes in the tour were private dwellings not public accommodations. As part of the settlement, the Home Builders Association admitted no wrongdoing. The defendants agreed to add ramps, video monitors, and provide accessible pathways, parking spaces, entertainment areas and concession stands. Kevin Williams, an attorney with the Colorado Cross-Disability Coalition, said the agreement helped clarify what had been a difficult issue. "These homes are built with the intention of being opened to the public," said Mr. Williams, who represented the plaintiffs along with attorney Amy Robertson. The settlement will not receive final approval until a March 7, 2003 hearing that will allow comment. CRACKER BARREL: To Add "Sexual Orientation" term To Anti-Bias Policy -------------------------------------------------------------------- The board of directors of the Cracker Barrel restaurant chain voted to add the term "sexual orientation" to the company's anti-discrimination policy, a move lauded by a gay rights organization as having "enormous significance," the Associated Press Newswires reports. The unanimous vote took place recently, after a shareholder meeting, said Julie Davis, Cracker Barrel spokeswoman. "We expect it to have no impact on day-to-day business, because we already had a policy in place that prohibited all discrimination in the workplace," Ms. Davis said. In the past, said Ms. Davis, the board of directors thought it redundant to add anything more. Kim I. Mills of the Human Rights Campaign, a Washington-based lobbying organization for gay rights, said, "This small step has enormous significance for every gay and lesbian employee who has ever experienced job discrimination." "Cracker Barrel has undergone important cultural changes in the past 10 years, but until now has resisted rewriting its nondiscrimination policy," said Ms. Mills. "This long-awaited change is a watershed, and we welcome it." Gay groups began targeting Cracker Barrel in the early 1990s after a memo was leaked indicating that employees should "demonstrate normal heterosexual values." "It was an unauthorized memo that never should have happened," Ms. Davis said. "It was rescinded and the statements repudiated at the time." "The change of heart about specifying "sexual discrimination" in the policy stemmed from stockholder sentiment, said Ms. Davis. In October, a federal judge in Atlanta, denied class action status in a discrimination lawsuit against Cracker Barrel, which accused the company of widespread racism, from segregating black customers in the smoking section to denying them service. The Company, based in Lebanon, Tenn., about 30 miles east of Nashville, operates 463 restaurants in 41 states. The restaurants play up a rural image with a "general store" decor and down-home menu. DELTATHREE INC.: Asks NY Court To Dismiss Consolidated Securities Suit ---------------------------------------------------------------------- Deltathree, Inc. asked the United States District Court for the Southern District of New York to dismiss the consolidated securities class action pending against it, certain of its former officers and directors, and various underwriters of its initial public offering in November 1999, The suit alleges, among other things, that the registration statement and prospectus filed with the Securities and Exchange Commission for purposes of the IPO were false and misleading because they failed to disclose that the underwriters allegedly: (1) solicited and received commissions from certain investors in exchange for allocating to them shares of Company stock in connection with the IPO; and (2) entered into agreements with their customers to allocate such stock to those customers in exchange for the customers agreeing to purchase additional shares in the aftermarket at predetermined prices. In August 2001, the court ordered that the suit, along with hundreds of IPO allocation cases against other issuers, be transferred to Judge Shira Scheindlin for coordinated pre-trial proceedings. By order dated October 12, 2001, Judge Scheindlin adjourned all defendants' time to respond to or answer any of the complaints until further order of the court. In July 2002, omnibus motions to dismiss the complaints based on common legal issues were filed on behalf of all issuers (and underwriters). The court has not issued a decision on any of those motions. These cases remain at a preliminary stage and no discovery proceedings have taken place. The Company believes that the claims asserted against it in these cases are without merit and intends to defend vigorously against them. DIGIMARC CORPORATION: NY Court Dismisses Officers, Directors From Suit ---------------------------------------------------------------------- The United States District Court for the Southern District of New York dismissed Digimarc Corporation's officers and directors from the consolidated securities class action pending against them, the Company and certain underwriters of the Company's initial public offering. The suit alleges, among other things, that the underwriters of the Company's initial public offering violated securities laws by failing to disclose certain alleged compensation arrangements (such as undisclosed commissions or stock stabilization practices) in the Company's initial public offering registration statement. Similar complaints have been filed against multiple other issuers that have had initial public offerings since 1998. The Company intends to defend these actions vigorously. During the third quarter, settlement discussions were initiated in connection with this litigation. Individual officer and director defendants entered into tolling agreements and, pursuant to a court order dated October 9, 2002, were dismissed from the litigation without prejudice. Although no assurance can be given that this matter will be resolved favorably, the Company believes that the resolution of these lawsuits will not have a material adverse effect on its consolidated financial position, results of operations or cash flows. ENGAGE INC.: Asks NY Court To Dismiss Consolidated Securities Lawsuit --------------------------------------------------------------------- Engage, Inc. asks the United States District Court for the Southern District of New York to dismiss the consolidated securities class action pending against it, several of its present and former officers and directors and the underwriters for its July 20,1999 initial public offering. The suit, filed on behalf of those persons who purchased the Company's common stock between July 19, 1999 and December 6, 2000, alleges violations of the Securities Act of 1933 and the Securities Exchange Act of 1934. Specifically, the suit alleges that the defendants failed to disclose "excessive commissions" purportedly solicited by and paid to the underwriter defendants in exchange for allocating shares of Company stock to preferred customers and alleged agreements among the underwriter defendants and preferred customers tying the allocation of IPO shares to agreements to make additional aftermarket purchases at pre-determined prices. Plaintiffs claim that the failure to disclose these alleged arrangements made the Company's prospectus incorporated in the Company's registration statement on Form S-1 filed with the SEC in July 1999 materially false and misleading. The Company believes that these allegations are without merit and intends to vigorously defend against the plaintiffs' claims. As the litigation is in an initial stage, the Company is not able to estimate the possibility of loss or range of loss, if any, that might result. ENGAGE INC.: Parties Agree To Dismiss Amended Securities Lawsuit in DE ---------------------------------------------------------------------- Parties in the securities class action agreed to dismiss with prejudice the consolidated class action pending against Engage, Inc. in the Court of Chancery of the State of Delaware in New Castle County. The first suit was filed in February 2002, a putative class action lawsuit was filed naming the Company, each member of our Board of Directors, and CMGI, Inc., the Company's majority stockholder, as defendants. The suit alleges that CMGI manipulated the Company to enter into transactions that unfairly favor CMGI and that CMGI and the Company's directors have breached their respective fiduciary duties to the Company and the Company's minority stockholders by: (1) approving and entering into certain secured convertible notes that the Company issued to CMGI in October 2001 on terms that were unfair to the Company and its minority stockholders; (2) approving and recommending to Company stockholders the approval of a proposal in the Company's Proxy Statement dated February 20, 2002 relating to the potential issuance of the Company's common stock in connection with conversion of these notes; and (3) approving and soliciting the approval of Company stockholders of the proposals in the Proxy Statement relating to three proposed reverse stock splits of the Company's common stock in order to avoid delisting from Nasdaq The suit also alleges that certain disclosures in the Proxy Statement with respect to the foregoing proposals were materially misleading and incomplete. Plaintiffs seek: (i) injunctive relief with respect to the notes and the proposed reverse stock splits, (ii) rescission of the issuance of the notes and proposed reverse stock splits, (iii) disgorgement of alleged profits and benefits obtained by the defendants, (iv) rescissory and/or compensatory damages, (v) reasonable attorneys' fees and expenses, and (vi) other unspecified damages In addition, the plaintiffs also sought an injunction to prevent approval of the foregoing proposals at the Company's Annual Meeting of Stockholders originally scheduled for March 15, 2002 (and later postponed until March 29, 2002). On February 28, 2002, the court denied plaintiffs' requests for a preliminary injunction hearing and permission to allow expedited discovery in the lawsuit prior to the Annual Meeting. On May 22, 2002, plaintiffs filed an amended complaint reiterating the claims previously alleged and adding an additional allegation that a merger proposal announced on May 21, 2002 whereby CMGI would acquire all outstanding shares of the Company's common stock not already owned by CMGI is a coercive transaction that allegedly does not satisfy the entire fairness standard under Delaware law. On May 21, 2002, two related putative class action lawsuits were filed in the Court of Chancery for the State of Delaware, challenging the fairness of the CMGI-Engage merger proposal announced on May 21, 2002. The suits seek injunctive relief and/or rescission, disgorgement of any profits received by defendants, attorneys' fees and other unspecified damages. The foregoing actions subsequently were consolidated. On October 18, 2002, the parties to the litigation filed a Stipulation and Order of Dismissal, dismissing the consolidated action with prejudice. In connection with the stipulation of dismissal, the parties are negotiating the reimbursement of a portion of plaintiff's counsel's fees. The Company does not believe that the resolution of this issue will have a material impact on its financial condition. FORD MOTOR: Speed Responsible For Texas Police Officer's Death In Crash ----------------------------------------------------------------------- Ford Motor Co. blames vehicle speed for the Dallas police officer's death in the crash involving his Crown Victoria Police Interceptor vehicle, and not mechanical flaws in the company's police cruisers, according to a letter received by the city from the company, the Fort Worth Star-Telegram reports. In its letter, the Company wrote that a preliminary investigation has found that car's speed was likely to blame for the "unusual, devastating and severe accident" in which officer Patrick Metzler, 31, was killed. "Indeed, there is no car designed and marketed anywhere in the world to maintain fuel system integrity in catastrophic 80 mph collisions," the Company wrote. The company also noted that the vehicle that struck officer Metzler's car had a "cow pusher" bumper that protruded deeply into the patrol car and caused extensive frame damage. City Attorney Madeleine Johnson called the company's response "disappointing" and wants Ford officials to meet with the city very soon to address safety concerns about the Crown Victoria Police Interceptor vehicle. Ms. Johnson last month threatened to sue Ford if it did not comply with the city's demands for additional frame shields on vehicles, as well as shields for the gas tanks, its demands to see data on crash-tested vehicles and for sworn testimony about the cars' safety modifications. In response to the city's request for sworn testimony, the Company said that relevant documents and depositions would likely be made available to Dallas because it plans to become part of a class action against the Company. The city wants proof the vehicles are safe after officer Metzler's death in a Ford Crown Victoria patrol car burst into flames after a rear-end collision on U.S. 75. Several other people have died in Crown Victoria explosions. "The city believes that Ford owes the city a duty of candor and full disclosure on this matter, which involves the lives and safety of our law enforcement officers," said David Perry, a Corpus Christi lawyer who is advising the city, in a letter sent to Ford Tuesday, asking that Ford representatives meet with him and Ms. Johnson on Thursday to respond to her requests for information. Ford officials could not be reached for comment. Officer Metzler died of smoke inhalation and burns after a Jeep Wrangler, driven by Jeffrey Goddard of Dallas, crashed into the back of the officer's patrol car on northbound Central Expressway, on October 23. The accident occurred as Mr. Metzler slowly escorted a highway construction convoy along U.S. 75. Mr. Goddard was charged with intoxication manslaughter, and remains jailed on $100,000 bail. In September, Ford announced that it would put shields around the gas tanks of 350,000 police vehicles nationwide, but, Dallas had not yet received its shields at the time of Officer Metzler's death. Since then, Ford has been rushing upgrade kits to the city, which has nearly 1,000 Crown Victorias. All of the cars should have the shields by the end of the year, according to Police Chief Terrell Bolton. FOUNDRY NETWORKS: Asks CA Court To Dismiss Consolidated Securities Suit ----------------------------------------------------------------------- Foundry Networks, Inc. asked the United States District Court for the Northern District of California to dismiss the consolidated securities class action filed against it following the Company's announcement in December 2000 of its anticipated financial results for the fourth quarter ended December 31, 2000. The Company labeled the suit "without merit." The consolidated suit alleges violations of federal securities laws and purported to seek damages on behalf of shareholders who purchased the Company's common stock during the period from September 7, 2000 to December 19, 2000. In October 2001, the court granted the Company's motion to dismiss the consolidated amended complaint without prejudice and with leave to amend. In December 2001, attorneys for lead plaintiffs filed a second amended complaint. The Company reviewed the second amended complaint and moved to dismiss that complaint as well. On June 6, 2002, the court granted the Company's motion to dismiss the second amended complaint without prejudice and with leave to amend. On July 8, 2002 attorneys for lead plaintiffs filed a third amended complaint, which the Company again moved to dismiss. That motion has been fully briefed and the parties are awaiting a decision by the Court. FOUNDRY NETWORKS: Asks NY Court To Dismiss Consolidated Securities Suit ----------------------------------------------------------------------- Foundry Networks, Inc. asked the United States District Court for the Southern District of New York to dismiss the consolidated securities class action filed on behalf of all persons who purchased the Company's common stock from September 27, 1999 through December 6, 2000. The suit names as defendants, the Company, three of its officers, and investment banking firms that served as underwriters for the Company's initial public offering in September 1999. The amended complaint alleges violations of Sections 11 and 15 of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934, on the grounds that the prospectus incorporated in the registration statement for the offering failed to disclose, among other things, that: (1) the underwriters had solicited and received excessive and undisclosed commissions from certain investors in exchange for which the underwriters allocated to those investors material portions of the shares of the Company's stock sold in the initial public offering; and (2) the underwriters had entered into agreements with customers whereby the underwriters agreed to allocate shares of the Company's stock sold in the initial public offering to those customers in exchange for which the customers agreed to purchase additional shares of the Company's stock in the aftermarket at pre-determined prices. The amended complaint also alleges that false analyst reports were issued following the IPO. The Company and its officers were served with the complaint, only after the maximum 120 days for service allowed under the Federal Rules of Civil Procedure had elapsed. No specific damages are claimed. The Company is aware that similar allegations have been made in lawsuits relating to more than 300 other initial public offerings conducted in 1999 and 2000. Those cases have been consolidated for pretrial purposes before the Honorable Judge Shira A. Scheindlin. Motions to dismiss were filed on behalf of all named defendants (over 1,000 in total) in the litigation. A hearing on the defendants' motion to dismiss was held on November 1, 2002. Management believes that the allegations in the class action lawsuits against Foundry Networks and its officers are without merit and management intends to contest them vigorously. The litigation process is inherently uncertain. If the outcome of the litigation is adverse to the Company and if, in addition, the Company is required to pay significant monetary damages in excess of available insurance, its business could be significantly harmed. INTERNET CAPITAL: Asks NY Court To Dismisses Securities Fraud Lawsuit --------------------------------------------------------------------- Internet Capital Group, Inc. asked the United States District Court for the Southern District of New York to dismiss the consolidated securities class action pending against it, certain of its present and former officers and directors, and underwriters. The suit generally alleges violations of Sections 11 and 12 of the Securities Act of 1933 and Rule 10b-5 promulgated under the Securities Exchange Act of 1934, based on, among other things, the dissemination of statements allegedly containing material misstatements and/or omissions concerning the commissions received by the underwriters of the initial public offering and follow-on public offering of the Company. The suit also alleges the defendants failed to disclose the existence of purported agreements by the underwriters with some of the purchasers in these offerings to buy additional shares of the Company's stock subsequently in the open market at pre-determined prices above the initial offering prices. The claims in these cases have been consolidated for pre-trial purposes (together with other issuers and underwriters) before one judge in the Southern District of New York federal court. In June and July 2002, defendants, including the Company defendants, filed motions to dismiss plaintiffs' complaints on numerous grounds. That motion was argued before the court on November 1, 2002 and the parties are now awaiting a decision by the court. There have been no other material developments in these cases to date. INTERTRUST TECHNOLOGIES: Court Dismisses Officers, Directors From Suit ---------------------------------------------------------------------- The United States District Court for the Southern District of New York dismissed Intertrust Technologies, Inc.'s officers and directors from the consolidated securities class action pending on behalf of purchasers of the Company's stock from October 26,1999 and May 16,2001. The suit also names as defendants the Company and the members of the underwriting syndicate involved in the Company's initial public offering and/or secondary public offering. The complaints allege, among other things, that the Company and the other defendants named in the complaints violated the federal securities laws by issuing and selling the Company's common stock in its initial public offering in October 1999 and its secondary public offering in April 2000 without disclosing to investors that certain of the underwriters in the offering allegedly solicited and received excessive and undisclosed commissions from certain investors. The Company believes that the allegations against it are without merit. However, there is no assurance that the Company will be successful in the defense of this lawsuit, and an unfavorable result could have an adverse affect on the Company's financial position, results of operations, or cash flows. MARTHA STEWART: Securities Fraud Lawsuits To Be Consolidated in S.D. NY ----------------------------------------------------------------------- Martha Stewart Living Omnimedia, Inc. expects that the seven securities class actions pending against it will be consolidated in the United States District Court for the Southern District of New Yorks. The suits are: (1) Semon v. Martha Stewart Living Omnimedia, Inc. (filed August 6, 2002), (2) Crnkovich v. Martha Stewart Living Omnimedia, Inc. (filed September 4, 2002), (3) Rahilly v. Martha Stewart Living Omnimedia, Inc. (filed September 6, 2002), (4) Rosen v. Martha Stewart Living Omnimedia, Inc. (filed August 21, 2002), (5) MacKinnon v. Martha Stewart Living Omnimedia, Inc. (filed August 30, 2002), (6) Steele v. Martha Stewart Living Omnimedia, Inc. (filed September 13, 2002), and (7) Hackbarth v. Martha Stewart Living Omnimedia, Inc. (filed September 18, 2002) The first three suits name only the Company as defendants while the last four suits name the Company, Martha Stewart and: (i) Gregory R. Blatt, (ii) Dora Braschi Cardinale, (iii) Sharon L. Patrick, (iv) Margaret Roach, (v) Suzanne Sobel, (vi) Lauren Podlach Stanich, (vii) Gael Towey, (viii) L. John Doerr, and (ix) Kleiner Perkins Caufield & Byers The plaintiffs in all seven of these actions assert violations of Section 10(b) of the Securities Exchange Act of 1934, and rules promulgated thereunder. The suits are brought on behalf of persons who acquired Company stock on the open market and relate to Ms. Stewart's sale of 3,928 shares of ImClone Systems stock on December 27, 2001. The plaintiffs allege that Ms. Stewart, both directly and through representatives, speaking for herself and in her capacity as Chief Executive Officer of the Company, made statements about the sale that were materially false and misleading. The plaintiffs allege that as a result of these false and misleading statements, the market price of the Company's stock was inflated during the putative class periods and dropped after the alleged falsity of Stewart's statements became public. The Hackbarth, Rosen, Steele and MacKinnon complaints further allege that the individual defendants sold Company stock while in possession of material, non-public information. The Company believes it has meritorious defenses to the suits and intends to vigorously defend against them. MARTHA STEWART: Insider Trading, Derivative Suits in NY, DE ----------------------------------------------------------------------- Martha Stewart Living Omnimedia, Inc. is a nominal defendant in six shareholder derivative actions, which also name Martha Stewart as a defendant. The suits are: (1) Beck v. Stewart, filed on August 13, 2002 in New York State Supreme Court; (2) Kramer v. Stewart, filed on August 20, 2002 in New York State Supreme Court; (3) Beam v. Stewart, initially filed on August 15, 2002 and amended on September 6, 2002, in Delaware Chancery Court; (4) Alexis v. Stewart, filed on October 3, 2002 in Delaware Chancery Court; (5) Acosta v. Stewart, filed on October 10, 2002 in the US District Court for the Southern District of New York; and (6) Richards v. Stewart, filed on November 1, 2002 in Connecticut Superior Court. The suits also name the Company's present and former directors and officers as defendants. All six derivative actions allege that Stewart breached her fiduciary duties to the Company by engaging in insider trading in ImClone stock and making false and misleading statements about such trading. The plaintiffs allege that these actions have diminished Ms. Stewart's reputation and injured the Company through lost revenues, loss of reputation and good will, decreased stock price, and increased costs. The plaintiffs further alleges that: (i) Ms. Stewart's actions have jeopardized the Company's intellectual property; (ii) the directors breached their fiduciary duties by failing to monitor Ms. Stewart's affairs to ensure she did not harm the Company; (iii) Ms. Stewart and the other directors breached their fiduciary duties by failing to address the impropriety of the Company's payment of split dollar insurance premiums; and (iv) Ms. Stewart and Mr. Doerr usurped corporate opportunities by selling personally-owned Company stock to an investment firm without first presenting the Company with the opportunity to sell its stock to the firm. The plaintiff in Alexis also alleges that Ms. Stewart breached the terms of her employment agreement with the Company. The plaintiff in Richards further alleges against all of the named defendants: (a) intentional breach of fiduciary duty by, among other things, acting in reckless disregard of, and failing to prevent, Ms. Stewart's insider trading in ImClone stock, violating federal securities laws by selling Company stock while in possession of material, non-public information, misuse of corporate information, and gross mismanagement of the Company; (b) negligent breach of fiduciary duty; (c) abuse of control; (4) constructive fraud; (5) gross mismanagement; and (6) waste While still in their preliminary stages, the Company believes it has substantial defenses to these actions. The Company also expects these lawsuits will later be ordered consolidated. MICHIGAN: High Court To Rule on University's Affirmative Action Policy ---------------------------------------------------------------------- The US Supreme Court will rule on whether universities can consider the race of applicants in making admissions decisions, a common practice at US schools to bolster the number of visible minority students, the National Post reports. The court agreed to review the University of Michigan's affirmative action policies for its undergraduate and law programs. Rejected white applicants launched class actions against the prestigious college in 1997. Each lawsuit asserted that less qualified visible minority students were admitted in their place because the entrance threshold is lower for Hispanic, African-American and Native-American applicants. The Supreme Court in recent years has rolled back race-sensitive hiring policies at government agencies, but it has not weighed in on the controversial practice in higher education admissions since its landmark Bakke decision involving the University of California in 1978. In that ruling, a sharply divided court struck down racial quotas in college admissions. However, it upheld the constitutionality of considering race in deciding whom to accept, affirming that racial diversity in the nation's colleges is an essential and compelling interest. The Supreme Court could overturn the Bakke decision on the grounds that it contravenes the equal protection guarantee in the US Constitution or in the federal civil rights laws. Ten states have asked the Supreme Court to hear the cases because lower courts have rendered conflicting decisions. Colleges in their jurisdictions need clarity on the question of "whether and to what degree they may consider the race of applicants in attempting to create a diverse student body," the states' brief says. The High Court will consider two cases involving the University of Michigan - one launched by two rejected undergraduate applicants, and the other by an unsuccessful law school candidate. The lawsuits were merged after lower courts rendered conflicting decisions. The Sixth Circuit court heard both cases together on appeal. The higher court did not issue a decision in the undergraduate admissions case, but last May reversed the lower court's law school ruling that the attainment of a diverse student body is not a compelling government interest. Five of the nine judges on the Sixth Circuit found the law school admissions policy permissible under the Constitution because the educational benefits of a racially diverse campus justify race-based admissions policies. Four judges dissented and characterized the policy as a "straightforward instance of racial discrimination by a state institution." Barbara Grutter, the applicant in the law school case, is supported by the Washington-based Center for Individual Rights, which pleaded with the Supreme Court to end "reverse discrimination" on campuses. "Clearly this is an issue of great national importance," Mary Sue Coleman, President of the University of Michigan, said of the Supreme Court's decision to hear the cases. "Now is not the time to turn back the clock. A ruling overturning Bakke could result in the immediate resegregation of our nation's top universities, both public and private." The university's expert witness testified that, in California and Texas, the elimination of affirmative action programs has meant a drastic reduction in visible minority students. For example, in 1996, 10.3 percent of first-year law students at the University of California at Los Angeles were black. In 2000, 1.4 percent of the entering class was black. The Supreme Court will hear arguments in the cases early next year, and is expected to render a decision by the end of June. MISSOURI: Suit Filed Over Cell Phone 911 Charges, Undelivered Service --------------------------------------------------------------------- Monthly fees that three cell phone companies already charge for 911 service they do not deliver, prompted class actions and a Missouri attorney general's inquiry, The Kansas City Star reports. Some cell phone companies are charging monthly fees for the 911 service, even though local governments have not had the money to install their end of the system. The Federal Communications Commission (FCC) wants the 911 service nationwide, but has not told phone companies and state and local governments how to pay for necessary equipment and software. The result outraged a number of cell phone customers. Two Missouri residents filed a lawsuit in Jackson County against Nextel Inc., alleging it charges a monthly fee of $1.55 for 911 services under the heading, "taxes, fees and assessments." The lawsuit has been transferred to federal court in Kansas City. Nextel spokeswoman, Leigh Horner, said that Nextel is required by FCC to provide the service. She said that the company has spent hundreds of millions of dollars on the system. What is lacking in this explanation is the fact that local governments are trying to raise the money to provide the necessary equipment to make that final connection. Last week, class actions also were filed in Cole County, Missouri, naming Sprint PCS and Alltell as defendants in a similar suit alleging deception, said Timothy Van Ronzelen, in Jefferson City, attorney for the plaintiffs in all three lawsuits. "We think that the way it is labeled and advertised, it's "snuck" in there as a tax, when it is not," Mr. Van Ronzelen said. The lawsuit is seeking to have the charges refunded to the customers. Sprint, based in Overland Park, lists the charges on monthly bills under the category of "USA regulatory obligations and fees," spokesman Daniel Wilinsky said. Mr. Wilinsky said Sprint is making the charges to meet federal mandates for a 911 system for cell phone users. Mr. Van Ronzelen says government mandates are not an excuse for assessing the fee, when the customer is not receiving the service. Missouri Attorney General Jay Nixon is looking into the 911 fees, spokesman Scott Holste said. Mr. Nixon is responsible for enforcing laws on unfair merchandising, but it is too early to say what, if any, action his office will take, said Mr. Holste. NETRO CORPORATION: NY Court Dismisses Officers, Directors From Lawsuit ---------------------------------------------------------------------- The United States District Court for the Southern District of New York dismissed Netro Corporation's officers and directors as defendants in the consolidated securities class action filed on behalf of shareholders who purchased the Company's common stock between August 18, 1999 and December 6, 2000. The suit initially named as defendants the Company and: (1) Richard Moley, (2) Gideon Ben-Efraim, (3) Michael T. Everett, (4) Dain Rauscher, Inc., (5) FleetBoston Robertson Stephens, Inc., and (6) Merrill Lynch, Pierce, Fenner and Smith, Inc. The suit alleges claims against the Company arising under Section 11 of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder, and against the individual defendants under Section 10(b), Rule 10b-5 and Section 20(a) of the Exchange Act, and Section 15 of the 1933 Act. The claims allege various misconduct arising from the Company's August 1999 initial public offering and March 2000 follow-on offering of its common stock, including, among other things, that the disclosures made in connection with the offerings were incomplete or misleading in various respects. The allegations include, among other things, that the Company and the individual defendants failed to disclose that the underwriter defendants: (i) charged the Company excessive commissions and inflated transaction fees in violation of the securities laws and regulations; and (ii) allowed certain investors to take part in the Company's initial public offering in exchange for promises that these investors would purchase additional shares in the after-market for the purpose of inflating and maintaining the market price of the Company's common stock. The suit is one of more than 1,000 lawsuits currently pending in the US District Court for the Southern District of New York against more than 300 different issuers, certain officers and directors of these issuers and more than 45 different underwriters arising out of initial public offerings occurring between December 1997 and December 2000. By Order dated August 9, 2001, Chief Judge Michael B. Mukasey assigned the IPO Allocation Litigation, to the Honorable Shira A. Scheindlin for all pre-trial purposes. On September 7, 2001, Judge Scheindlin adjourned the time for all defendants in the IPO Allocation Litigation, including the Company and the individual defendants, to answer, move or otherwise respond to current and future complaints indefinitely pending further instruction from the court. On October 9, 2002, the claims against the individual defendants were dismissed without prejudice on consent of the parties. The remaining defendants have moved to dismiss the consolidated complaint and await the Court's decision on the motion. The suit is in the earliest stages. The Company believes the claims asserted against it are without merit, and intends vigorously to defend themselves against those claims. NEXTEL PARTNERS: NY Court Dismisses Officers From Securities Fraud Suit ----------------------------------------------------------------------- The United States District Court for the Southern District of New York dismissed two of Nextel Partners, Inc.'s executive officers as defendants in a consolidated securities class action pending on behalf of all persons who acquired the Company's common stock between February 22, 2000 and December 6, 2000. The suit initially named as defendants the Company and: (1) John Chapple, President, Chief Executive Officer and Chairman of the Board, (2) John D. Thompson, Chief Financial Officer and Treasurer, (3) Goldman Sachs & Co., (4) Credit Suisse First Boston Corporation, (5) Morgan Stanley & Co. Incorporated and (6) Merrill Lynch Pierce Fenner & Smith Incorporated The complaint alleges the defendants violated the Securities Act of 1933 and the Securities Exchange Act of 1934 by issuing a registration statement and prospectus that were false and misleading in that they failed to disclose that: (i) the defendant underwriters allegedly had solicited and received excessive and undisclosed commissions from certain investors who purchased the Company's common stock issued in connection with its initial public offering; and (ii) the defendant underwriters allegedly allocated shares of the Company's common stock issued in connection with the Company's initial public offering to investors who allegedly agreed to purchase additional shares of the Company's common stock at pre-arranged prices. The Company disputes the complaints' allegations suggesting any wrongdoing on the Company's part or by its officers, and intends to defend the action vigorously. The Company will pursue all appropriate remedies available to it and its officers. NTL INC.: NY Securities Fraud Lawsuit Stayed Due To Chapter 11 Filing --------------------------------------------------------------------- The consolidated securities class action filed against NTL, Inc. may not proceed against the Company, due to the Company's voluntarily filing of Chapter 11 Bankruptcy. The consolidated suit was commenced in the United States District Court, Southern District of New York on behalf of purchasers of the securities of NTL, Inc. (NYSE: NLI) between August 9, 2000 and November 29, 2001, inclusive. The suit is pending against the Company and: (1) George S. Blumenthal, (2) J. Barclay Knapp, (3) Steven Carter and (4) John F. Gregg The suit alleges that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder, by issuing a series of material misrepresentations to the market between August 9, 2000 and November 29, 2002, thereby artificially inflating the price of Company securities. The Company does not know of any facts that would support these allegations, and the defendants intend to defend the lawsuits vigorously. As a result of the Chapter 11 filing, the cases may not currently proceed against the Company itself. Moreover, the Plan provides for a discharge and for releases that will effectively bar the suits from continuing against the Company following confirmation. However, the executives named in the suits remain defendants in the suits and will continue as such post confirmation. REGISTER.COM: NY Court Dismisses Officers From Securities Fraud Suits --------------------------------------------------------------------- The United States District Court for the Southern District of New York dismissed Register.com, Inc.'s Chief Executive Officer Richard D. Forman and former Vice President of Finance and Accounting Alan G. Breitman as defendants in the consolidated securities class action pending. The suit also names as defendants the Company, Goldman Sachs & Co. and Lehman Brothers, Inc., two of the underwriters in the syndicate for the Company's March 3, 2000 initial public offering (IPO). Goldman Sachs & Co. and Lehman Brothers, Inc. distributed 172,500 of the 5,750,000 shares in the IPO. The suit seeks unspecified damages as a result of various alleged securities law violations arising from activities purportedly engaged in by the underwriters in connection with the Company's initial public offering. Plaintiffs allege that the underwriter defendants agreed to allocate stock in the Company's initial public offering to certain investors in exchange for excessive and undisclosed commissions and agreements by those investors to make additional purchases of stock in the aftermarket at pre-determined prices. Plaintiffs allege that the prospectus for the Company's initial public offering was false and misleading in violation of the securities laws because it did not disclose these arrangements. On October 9, 2002, the court dismissed the individual defendants from the case without prejudice based on Stipulations of Dismissal filed by the plaintiffs and the Individual Defendants. The Company intends to vigorously defend the action, which is being coordinated with over three hundred other nearly identical actions filed against other companies before one judge in the US District Court for the Southern District of New York. REGISTER.COM: Faces Consumer Suit Over Domain Name Renewal Policy in NY ----------------------------------------------------------------------- Register.com, Inc. faces a class action filed in the Supreme Court of the State of New York, which alleges that its SafeRenew program violates New York law. In an effort to protect the Company's customers' online identities, the SafeRenew program was implemented in January 2001 on an "opt-out basis" to .com, .net and.org registrations registered through the www.register.com website, and was subsequently expanded to cover certain ccTLDs registered through this website. Under the terms of the Company's services agreement, at the time a covered registration comes up for renewal, the Company attempts to charge a registrant's on-file credit card a one year renewal fee and, if the charge is successful, to renew the registration for an additional one-year period. Plaintiff alleges the violation of certain New York statutes as well as a breach of contract, money had and received and unjust enrichment. Plaintiff further seeks to enjoin the Company from automatically renewing domain name registrations, an award of compensatory damages, restitution, disgorgement of profits (plus interest), cost and expenses, attorneys' fees, and punitive damages. The Company intends to vigorously defend against these claims. It is management's opinion, after consultation with counsel, that the ultimate resolution of such claims, lawsuits and pending actions will not materially affect the Company's financial position or operations. SECURITIES LITIGATION: Investment Banks Fear Wave Of Shareholder Suits ---------------------------------------------------------------------- Leading investment banks are battling US regulators in an effort to stave off massive legal liabilities that could stem from a settlement of investigations into conflicts of interest on Wall Street, according to a Financial Times report. The two sides, the banks and the regulators, are entering final negotiations. The banks are resisting admissions of wrongdoing and pressing the regulators to limit disclosure of evidence against them. The banks fear that investigators' findings included in a settlement could boost class actions filed by investors claiming they were misled by the Wall Street analysts. Legal experts estimate damages from such suits could top $5 billion. The regulators, led by Eliot Spitzer, New York attorney general, want to provide ammunition for civil suits that could provide "restitution" for investors. "The language of the findings is more critical to the banks than the fine," said Marvin Pickholz, a New York securities lawyer. "They need to leave themselves room to defend themselves from civil litigation." Regulators hope the talks on a "global" settlement will end soon, setting the stage for a series of meetings starting on December 11, where banks will learn the details of their punishment. State and federal regulators, led by the Securities and Exchange Commission and Mr. Spitzer, have been investigating whether banks promised customers overly-optimistic stock research or lucrative IPO allocations to win investment banking assignments. The two sides have reached a broad agreement on changes to prevent further abuses. The regulators have told a dozen banks of fines totaling more than $1 that are likely to be imposed as part of the deal. They range from as much as $500 million for Citigroup's Salomon Smith Barney investment banking arm to as little as $50 million for a group of other banks including Goldman Sachs, Deutsche Bank and Morgan Stanley. The regulators are giving the banks a last chance to respond to specific charges this week. The precise findings in a settlement will be closely watched, because they could indicate whether individual executives will face charges after the broader agreement. SELECTICA INC.: NY Court Dismisses Officers, Directors From Fraud Suit ---------------------------------------------------------------------- The United States District Court for the Southern District of New York dismissed Selectica, Inc.'s officers and directors from the consolidated securities class actions pending on behalf of purchasers of the Company's common stock from March 13,2000 to December 6,2000. The suit also names as defendants the Company and Credit Suisse First Boston Corporation (CSFB), as the underwriter of its March 13, 2000 initial public offering (IPO). The suit alleges that the Company, the officer and director defendants and CSFB violated federal securities laws by making material false and misleading statements in the prospectus incorporated in the Company's registration statement on Form S-1 filed with the SEC in March, 2000 in connection with the IPO. Specifically, the complaint alleges, among other things, that CSFB solicited and received excessive and undisclosed commissions from several investors in exchange for which CSFB allocated to those investors material portions of the restricted number of shares of common stock issued in the Company's IPO. The complaint further alleges that CSFB entered into agreements with its customers in which it agreed to allocate the common stock sold in our IPO to certain customers in exchange for which such customers agreed to purchase additional shares of our common stock in the after- market at pre-determined prices. The complaint also alleges that the underwriters offered to provide positive market analyst coverage for the Company after the IPO, which had the effect of manipulating the market for Company stock. Plaintiffs contend that, as a result of the omissions from the prospectus and alleged market manipulation through the use of analysts, the price of the Company's stock was artificially inflated between the date of the IPO and December 6, 2000 and that the defendants are liable for unspecified damages to those persons who purchased stock during that period. The suit was consolidated before a single judge along with other similar cases brought against numerous other issuers, their officers and directors and their underwriters, that make similar allegations involving the allocation of shares in the IPOs of those issuers. The consolidation was for purposes of pretrial motions and discovery only. On July 15, 2002, the Company and the officer and director defendants, along with other issuers and their related officer and director defendants, filed a joint motion to dismiss based on common issues. Opposition and reply papers have been filed and the court has heard oral argument. The court has not yet decided the matter. On October 8, 2002, the individual officers and directors entered into a stipulation of dismissal and tolling agreement with plaintiffs. As part of that agreement, plaintiffs dismissed the case without prejudice against the individual defendants. The court ordered the dismissal without prejudice on October 9, 2002. The Company intends to mount a vigorous defense against the suit, but cannot give any assurance that the court will issue a favorable decision. SELECTICA INC.: CA Federal Court Remands Derivative Suit To State Court ----------------------------------------------------------------------- The United States District Court for the Northern District of California ordered the shareholder derivative lawsuit filed against Selectica, Inc. to be remanded to the Superior Court of California in Santa Clara County. The suit names as defendants against certain of the Company's officers and directors, Credit Suisse First Boston Corporation, underwriters of the Company's IPO, and against the Company as nominal defendant. The action was filed by a shareholder purporting to assert on behalf of the Company claims for: (1) breach of fiduciary duty, (2) aiding and abetting and conspiracy, (3) negligence, (4) unjust enrichment, and (5) breach of contract, The suit relates the pricing of shares in the Company's IPO. On June 6, 2002, the shareholder plaintiff filed an amended complaint dropping the breach of contract claim against CSFB and adding claims against CSFB for breach of an agent's duty to its principal and for violation of the California Unfair Competition Law, based on alleged violations of certain rules of the National Association of Securities Dealers. On July 17, 2002, CSFB removed the action to the United States District Court for the Northern District of California, with the Company's consent and the consent of the officer and director defendants. Thereafter, CSFB filed a motion to dismiss the action on the grounds that plaintiff lacks standing under federal procedural rules, and plaintiff filed a motion to transfer the action to federal court in New York for coordination with the securities class action pending there. On September 16, 2002, recognizing that the action was likely to return at some point to state court, the parties stipulated to take the pending motions to dismiss and to transfer off calendar and to have the action remanded to state court. The responses of all defendants to the amended complaint are currently due in late November 2002. The Company believes that the securities class action allegations against it and its officers and directors are without merit and intends to contest them vigorously. However, the litigation is in its preliminary stages and the Company cannot predict its outcome. SWITCHBOARD INC.: NY Court Dismisses Officers, Defendants For Lawsuit --------------------------------------------------------------------- The United States District Court for the Southern District of New York dismissed Switchboard, Inc.'s officers and directors as defendants in a securities class action pending against them, the Company and the managing underwriters of the Company's initial public offering. The officers named in the suit are: (1) Douglas J. Greenlaw, officer, (2) John P. Jewett, former officer, and (3) Dean Polnerow, officer The suit alleges that the registration statement and final prospectus relating to the Company's initial public offering contained material misrepresentations and/or omissions related, in part, to excessive and undisclosed commissions allegedly received by the underwriters from investors to whom the underwriters allegedly allocated shares of the initial public offering. In July 2002, the defendants joined in an omnibus motion to dismiss which challenges the legal sufficiency of plaintiffs' claims. The motion was filed on behalf of hundreds of issuer and individual defendants named in similar lawsuits. Plaintiffs opposed to the motion, and the Court heard oral argument on the motion earlier this month. On September 30, 2002, the lawsuit against Messrs. Greenlaw, Polnerow and Jewett was dismissed without prejudice. There have been no further material developments in the litigation. The Company intends to vigorously defend against the suit. TELECOMMUNICACIONES DE PUERTO RICO: Faces Suits Over Touchtone Service ---------------------------------------------------------------------- Telecommunicaciones de Puerto Rico filed a motion in the Superior Court of Puerto Rico requesting discovery with respect to the class certification of lawsuits filed by three residential telephone service subscribers and one business service subscriber under the Puerto Rico Telecommunications Act of 1996. The plaintiffs claim that the Company's charges for touchtone service are not based on cost, and are therefore in violation of the Act. On July 16, 2002, one residential telephone service subscriber and three business service subscribers filed a class action with the same Superior Court under the Act. The plaintiffs claim that the Company's unit charges for local measured service are not based on cost, and are therefore in violation of the Act. The plaintiffs requested that the Superior Court: (1) issue an order certifying the case as a class action; (2) designate the plaintiffs as representatives of the class; (3) find that the charges are illegal; (4) establish a maximum charge based on cost and (5) order the Company to reimburse every subscriber for excess payments made since September 1996. At this preliminary stage of the process, management and the Company's legal counsel are evaluating the case. The Company believes the suit does not meet the requirements of a class action but must enter into a discovery process, including the taking of depositions to establish this. WASHINGTON: Lawsuit Over Municipal Bond Issue Gets Class Certification ---------------------------------------------------------------------- A Washington state judge has approved class-action status for a lawsuit by investors who claim they lost money in a $20 million municipal bond issue, the Associated Press Newswires reports. The suit will be pursued in Island County Superior Court on behalf of more than 200 bond buyers. The bonds were issued by the Holmes Harbor Sewer District of Whidbey Island to finance a private office development on 40 acres in Everett. Construction of the six-building complex never began. Seven commissioners issued the bonds in October 2000. Ten months later, the state auditor's office said the bond issue was illegal because the money was destined to another county outside the sewer district. The auditor's office also said the commissioners had committed public funds for a private project by Everett developer Terry Martin. Six bond investors, plaintiffs in the lawsuit, requested the class action status in order to allow all buyers of the bonds to join the lawsuit, which was filed last year against the developers, brokers, lawyers and others who helped float the deal. The sewer district agreed to help buy the 40 acres and pay for surface- water and sewer work in exchange for a $100,000 administrative fee. The bonds were to be backed by future revenue from office park tenants. The case has the potential to become the largest municipal bond failure in the state since the 1980s default by the Washington Public Power Supply System in the development of nuclear power systems. Michael DeLeo, attorney for Terry Martin, Everett developer of the private office park, and his limited-liability partnership, said the business park is not dead and that the bondholders are continuing to be paid interest. The thorny issues in the circumstances swirling about the instant bond issue, such as, did the sewer district, whether intentionally or not, issue bonds beyond the scope of its authority of issuance, are not dealt with in the optimistic statement by Mr. DeLeo. New Securities Fraud Cases ANNUITY AND LIFE: Scott + Scott Commences Securities Suit in CT Court --------------------------------------------------------------------- Scott + Scott, LLC initiated a securities class action in the United States District Court, District of Connecticut on behalf of purchasers of the securities of Annuity and Life Re (Holdings), Ltd. (NYSE: ANR) during the period from February 12, 2001 through November 19, 2002, inclusive against the Company and: (1) Frederick S. Hammer, (2) Lawrence S. Doyle and (3) John F. Burke The suit alleges that defendants violated the federal securities laws by issuing a series of materially false and misleading statements and/or concealing material adverse facts throughout the class period, thereby artificially inflating the price of the Company's securities. Throughout the class period, the Company reported strong revenue growth and stable projected earnings. The suit alleges, however, that defendants failed to disclose and/or misrepresented the following adverse facts, among others: (i) that the Company had failed to properly account for embedded derivatives contained in its annuity reinsurance contracts in 2001; (ii) that, since at least 2001, the Company had understated a portion of its liabilities and expenses; (iii) that the Company lacked adequate internal controls and was therefore unable to ascertain the true financial condition of the Company; and (iv) that as a result, the value of the Company's balance sheet and financial results were materially overstated at all relevant times. On November 19, 2002, the last day of the class period, the Company announced that it would be restating its financial results for 2000, 2001 and the first and second quarters of 2002 due to the Company having improperly accounted for embedded derivatives contained in its annuity reinsurance contracts during those years. The Company's stock plummeted 44% upon this revelation. For more details, contact David R. Scott or Neil Rothstein by Phone: 800-404-7770 by E-mail: drscott@scott-scott.com or nrothstein@scott- scott.com or visit the firm's Website: http://www.scott-scott.com ANNUITY AND LIFE: Hoffman & Edelson Lodges Securities Suit in CT Court ---------------------------------------------------------------------- Hoffman & Edelson, LLC initiated a securities class action in the United States District Court, District of Connecticut on behalf of purchasers of the securities of Annuity and Life Re (Holdings), Ltd. (NYSE:ANR) during the period from February 12, 2001 through November 19, 2002, inclusive against the Company and: (1) Frederick S. Hammer, (2) Lawrence S. Doyle and (3) John F. Burke The suit alleges that defendants violated the federal securities laws by issuing a series of materially false and misleading statements and/or concealing material adverse facts throughout the class period thereby artificially inflating the price of the Company's securities. Specifically, the suit alleges that defendants failed to disclose and/or misrepresented the following adverse facts, among others: (i) that the Company had failed to properly account for embedded derivatives contained in its annuity reinsurance contracts in 2001; (ii) that, since at least 2001, the Company had understated a portion of its liabilities and expenses; (iii) that the Company lacked adequate internal controls and was therefore unable to ascertain the true financial condition of the Company; and (iv) that as a result, the value of the Company's balance sheet and financial results were materially overstated at all relevant times. On November 19, 2002, the last day of the class period, the Company announced that it was going to restate its financial results for 2000, 20001 and the first and second quarters of 2002 due to the Company having improperly accounted for embedded derivatives contained in its annuity reinsurance contracts during those years. The Company's stock plummeted 44% upon this revelation. For more details, contact Jerold B. Hoffman or Marc H. Edelson by Mail: 45 W. Court Street, Doylestown, PA 18901 by Phone: 877-537-6532 (toll free) by Fax: 215-230-8735 or by E-mail: jhoffman@hofedlaw.com. TRANSACTION SYSTEM: Kirby McInerney Lodges Securities Suit in NE Court ---------------------------------------------------------------------- Kirby McInerney & Squire, LLP initiated a securities class action in the United States District Court for District of Nebraska on behalf of all purchasers of Transaction Systems Architects, Inc. (NasdaqNM: TSAIE) common stock during the period from December 29, 1999 and August 14, 2002, inclusive. The action charges the Company, as well as its chief executive and chief financial officers, with violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934. The violations, as the complaint alleges, stem from the issuance of allegedly false and misleading financial statements during the period identified, which had the effect of artificially inflating the price of the Company's shares. On August 14, 2002, the Company announced that the Company would conduct a re-audit of the financial statements for fiscal years (ended September 30th) 1999, 2000 and 2001. On November 19, 2002, the Company confirmed that all these financial statements would be restated. After these disclosures, Company shares swiftly lost value. For more details, contact Pamela E. Kulsrud or Orie Braun by Mail: 830 Third Avenue, 10th Floor New York, New York 10022 by Phone: (212) 317-2300 or (888) 529-4787 or by E-Mail: obraun@kmslaw.com TXU CORPORATION: Milberg Weiss Lodges Securities Fraud Suit in N.D. TX ---------------------------------------------------------------------- Milberg Weiss Bershad Hynes & Lerach, LLP initiated a securities class action in the United States District Court for the Northern District of Texas on behalf of purchasers of TXU Corporation (NYSE: TXU) publicly traded securities during the period between April 25, 2002 and October 11, 2002, including preferred shareholders of TXU Europe CAP I 9-3/4 TOPRS (NYSE: TEG-A). The complaint charges the Company and certain of its officers and directors and its underwriters with violations of the Securities Act of 1933 and the Securities Exchange Act of 1934. TXU provides electric and natural gas services, merchant energy trading, energy marketing, telecommunications and energy-related services. The complaint alleges that during the class period, defendants represented that the Company could succeed in the competition created by deregulation. Defendants then represented that TXU's European operations were improving, it would succeed competition in the U.K. market and it was on track to report EPS of $4.35+ and $4.60+ in 2002 and 2003, respectively. As a result of these allegedly false statements, TXU's stock traded at artificially inflated levels, as high as $56 per share. Due to this inflation, defendants were able to complete a secondary offering of 11.8 million shares of common stock, priced at $51.15 per share and 8.8 million units of FELINE PRIDES (equity linked debt securities), raising nearly a billion dollars in much needed financing. Subsequent to the offering, defendants needed to maintain a high stock price to avoid triggering additional debt and the conversion of preferred stock into common stock pursuant to a partnership agreement. On October 4,2002, the Company issued an earnings warning, indicating that due to customer attrition and ongoing problems in Europe the Company would report 2002 EPS of only $3.25. On this news, the Company's stock price declined to $27 per share, from more than $40 per share the prior week. However, the stock remained inflated as defendants concealed the extreme liquidity problems from which the Company was suffering. Defendants even assured the market that the Company was strong financially and that the dividend was "sound and secure." Then, on October 14,2002, before the market opened, TXU stunned the market with news that it was cutting its dividend 80%, to $0.125 per share and would no longer support its European operations. The Company's stock price immediately collapsed on this news to as low as $10.10 per share before closing at $12.94, a one day drop of 31%, on volume of 39 million shares. For more details, contact William Lerach or Darren Robbins by Phone: 1- 800-449-4900 by E-mail: wsl@milberg.com or visit the firm's Website: http://www.milberg.com. ********* S U B S C R I P T I O N I N F O R M A T I O N Class Action Reporter is a daily newsletter, co-published by Bankruptcy Creditors' Service, Inc., Trenton, New Jersey, and Beard Group, Inc., Washington, D.C. Enid Sterling, Aurora Fatima Antonio and Lyndsey Resnick, Editors. Copyright 2002. All rights reserved. ISSN 1525-2272. This material is copyrighted and any commercial use, resale or publication in any form (including e-mail forwarding, electronic re- mailing and photocopying) is strictly prohibited without prior written permission of the publishers. Information contained herein is obtained from sources believed to be reliable, but is not guaranteed. The CAR subscription rate is $575 for six months delivered via e-mail. 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