Exhibit (a)(1)(K)
IN THE COURT OF CHANCERY IN THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
- ------------------------------------------
JAMES KAUFMAN and BARRIE KAUFMAN,
as Trustees by and for the KAUFMAN FAMILY
TRUST 9/03/98 and COLIN GILBERT, on Behalf Case No. 20059-NC
of themselves, and All Others Similarly --------
Situated, CLASS ACTION
------------
Plaintiffs,
-against-
CURTIS A. HESLER, ROBERT R. WALKER,
LESTER HOCHBERG, DAVID C. CHANCE, DAVID
LOCKWOOD, TIMO RIUKKA, SATISH K. GUPTA,
VICTOR SHEAR, INTERTRUST TECHNOLOGIES
CORPORATION, and FIDELIO ACQUISITION
COMPANY, LLC,
Defendants.
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COMPLAINT
Plaintiffs, by and through their attorneys, allege upon personal knowledge
as to themselves and their own acts and upon information and belief as to all
other matters, based upon the investigation conducted by counsel, which
included, inter alia, a review or public documents filed with the United States
Securities and Exchange Commission ("SEC") and other published materials, as
follows:
SUMMARY OF THE ACTION
1. This is a class action brought by plaintiffs on behalf of the public
stockholders of InterTrust Technologies Corporation ("InterTrust" or the
"Company") common stock for
injunctive and other appropriate relief in connection with the sale of
InterTrust to Fidelio Acquisition Company, LLC ("Fidelio"), through a tender
offer and merger that commenced on November 22, 2002 and is set to expire on
December 20, 2002 (hereinafter, the "Tender Offer" or the "Tender Offer and
Merger").
2. The Tender Offer is unfairly structured to guarantee that Fidelio is
the only purchaser in a position to purchase InterTrust. The decision of the
Individual Defendants (defined below), who constitute InterTrust's Board of
Directors, to pursue the proposed transaction will deny InterTrust's
shareholders of the opportunity to share appropriately in the true value of
InterTrust's assets. Plaintiffs allege that they and the other public
stockholders of InterTrust are entitled to seek to enjoin the proposed
transaction or, alternatively, to rescind the transaction and/or recover damages
in the event the transaction is consummated.
PARTIES
3. Plaintiffs James Kaufman and Barrie Kaufman are trustees of the
Kaufman Family Trust 9/03/98 ("Kaufman Trust"), which is, and at all times
relevant to the action has been, a shareholder of InterTrust. As of the date of
the Tender Offer, the Kaufman Trust owned 250,000 shares of InterTrust common
stock.
4. Plaintiff Colin Gilbert is, and at all relevant times to the action, a
shareholder of InterTrust. As of the date of the Tender Offer, Mr. Gilbert owned
approximately 230,000 shares of InterTrust common stock.
5. Defendant InterTrust is a Delaware corporation based in California.
InterTrust is engaged in inventing and defining technologies for Digital Rights
Management ("DRM"), including various trusted competing technologies that enable
secure management of digital processes and information.
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6. Defendant Fidelio is a Delaware limited liability company whose
members are Koninklijke Philips Electronics N.V. ("Philips"), Sony Corporation
of America ("SCA") and Stephens Acquisition LLC ("Stephens"). Fidelio Sub, Inc.
("Fidelio Sub"), a Delaware corporation and a wholly owned subsidiary of
Fidelio, was organized to acquire all of the outstanding shares of InterTrust
pursuant to the Tender Offer and Merger. Fidelio Sub has not conducted any
activities other than in connection with the Tender Offer and the Merger since
its organization. "Fidelio" hereinafter refers to Fidelio and Fidelio Sub, as
well as Philips, SCA and Stephens.
(a) Philips is a corporation organized under the laws of Netherlands
with its principal executive offices located at Breitner Center, Amstelplein 2,
1096 BC Amsterdam, The Netherlands. Philips is Europe's largest and one of the
world's largest electronics companies.
(b) SCA is a New York corporation and an indirect, wholly owned
subsidiary of Sony Corporation, a Japanese corporation ("Sony"). SCA's principal
executive offices are located at 550 Madison Avenue, 33rd Floor, New York, New
York, 10022. SCA is a leading manufacturer of audio, video, communications and
information technology products for the consumer and professional markets.
(c) Stephens is a newly formed entity that has not conducted any
business other than in connection with the Tender Offer and Merger. Stephens is
an Arkansas limited liability company and a wholly owned subsidiary of Stephens
Group, Inc. Stephens Group, Inc. is a privately held, Little Rock, Arkansas
based holding company, and is the parent of Stephens Inc., an investment banking
firm that is a member of the National Association of Securities Dealers and the
New York Stock Exchange. The principal executive offices of Stephens,
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Stephens Group, Inc. and Stephens Inc. is 111 Center Street, Suite 500, Little
Rock, Arkansas 72201.
7. Defendant Curtis A. Hessler ("Hessler") is a Board member of the
Company.
8. Defendant Robert R. Walker ("Walker") is a Board member of the Company.
9. Defendant Lester Hochberg ("Hochberg") is a Board member of the Company.
10. Defendant David C. Chance ("Chance") is a Board member of the Company,
and its former Vice Chairman.
11. Defendant David Lockwood ("Lockwood") is the Vice Chairman, President
and CEO as well as a Board member of the Company.
12. Defendant Timo Ruikka ("Ruikka") is a Board member of the Company.
13. Defendant Satish K. Gupta ("Gupta") is a Board member of the Company.
14. Defendant Victor Shear ("Shear") is the Chairman of the Board of the
Company.
15. The defendants named above in P.P. 6-14 are sometimes collectively
referred to herein as the "Individual Defendants." Each Individual Defendant
owed and owes the Company and its public stockholders fiduciary obligations and
were and are required to, inter alia, further the best interests of the Company
----- ----
and its public stockholders; undertake an adequate evaluation of the Company's
worth as to potential merger/acquisition candidates; refrain from abusing their
positions of control; and refrain from favoring their own interests at the
expense of the Company and its stockholders.
CLASS ACTION ALLEGATIONS
------------------------
16. Plaintiffs bring this action on their own behalf and as a class action
pursuant to Rule 23 of the Rules of the Court of Chancery, on behalf of all
holders of InterTrust stock who are being and will be harmed by defendants'
actions described below (the "Class"). Excluded
4
from the Class are defendants herein and any person, firm, trust, corporation,
or other entity related to or affiliated with any
defendant.
17. This action is properly maintainable as a class action.
18. The Class is so numerous that joinder of all members is impracticable.
According to InterTrust's SEC filings, there were more than 96 million shares of
InterTrust common stock outstanding.
19. There are questions of law and fact that are common to the Class and
that predominate over questions affecting any individual Class member. The
common questions include, inter alia, the following:
----- ----
(a) whether defendants have breached their fiduciary duties of
loyalty, independence or due care with respect to plaintiffs and
the other members of the Class in connection with the Tender
Offer;
(b) whether the Individual Defendants are engaging in self-dealing in
connection with the Tender Offer;
(c) whether the Individual Defendants are unjustly enriching
themselves and other insiders or affiliates of InterTrust;
(d) whether defendant have breached any of their other fiduciary
duties to plaintiffs and the other members of the Class in
connection with the Tender Offer, including the duties of good
faith, disclosure, diligence, honesty and fair dealing;
(e) whether the defendants, in bad faith and for improper motives,
have impeded or erected barriers to discourage other offers for
the Company or its assets; and
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(f) whether plaintiffs and the other members of the Class would
suffer irreparable injury were the transactions complained of
herein consummated.
20. Plaintiffs' claims are typical of the claims of the other members of
the Class and plaintiffs do not have any interests adverse to the Class.
21. Plaintiffs are adequate representatives of the Class, have retained
competent counsel experienced in litigation of this nature and will fairly and
adequately protect the interests of the Class.
22. The prosecution of separate actions by the individual members of the
Class would create a risk of inconsistent or varying adjudications with respect
to individual members of the Class which would establish incompatible standards
of conduct for the party opposing the Class.
23. Plaintiffs anticipate that there will be no difficulty in the
management of this litigation. A class action is superior to other available
methods for the fair and efficient adjudication of this controversy.
24. Defendants have acted on grounds generally applicable to the Class
with respect to the matters complained of herein, thereby making appropriate the
relief sought herein with respect to the Class as a whole.
SUBSTANTIVE ALLEGATIONS
InterTrust's Future Prospects
25. InterTrust is engaged in inventing and defining DRM technologies,
including various trusted competing technologies that enable secure management
of digital processes and information. InterTrust is a leading holder of
intellectual property in DRM, with at least 26 U.S. patents and at least 85
patent applications pending worldwide. InterTrust's patent portfolio
6
covers software and hardware technologies that can be implemented in a broad
range of products that use DRM, including digital media platforms, web services
and enterprise infrastructure.
26. A significant factor with respect to InterTrust's future prospects
concerns broad and ongoing litigation against the Microsoft Corporation
("Microsoft"). As described in a Company press release dated June 24, 2002:
InterTrust Technologies Corporation (Nasdaq: ITRU) today
announced that it is further substantially broadening its
patent infringement lawsuit against Microsoft Corporation
(Nasdaq: MSFT). In accordance with a schedule agreed to by the
parties, InterTrust served on Microsoft infringement
allegations that add four new patents and more than doubles
the number of new claims to the litigation, bringing the
totals to 11 patents, 144 claims and over 190 separate
infringement scenarios.
Since initially suing Microsoft for patent infringement in
April 2001, InterTrust has expanded the lawsuit by adding
numerous significant Microsoft products and services that use
InterTrust's patented innovations in basic infrastructure for
trusted computing and digital rights management. InterTrust is
now seeking an injunction against the following Microsoft
products, among others: Windows XP, Office XP, Microsoft.NET,
a number of Microsoft.NET-based products and services, Windows
Media Player, new embedded products such as Windows CE for
automotive, XBOX, and aspects of Microsoft's ActiveX
technology. InterTrust is also seeking compensatory and
punitive damages for Microsoft's acts of infringement.
27. In the Company's Form 10-Q for the quarter ended September 30,
2002, filed just days after the Company's November 13, 2002 announcement of the
Tender Offer and Merger, the Company discussed the significant ongoing
litigation against Microsoft, that discovery has started in the case and that a
Markman hearing on a portion of the patents under dispute is scheduled for the
second quarter of 2003.
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Negotiations Leading To The Tender Offer and Merger
- ---------------------------------------------------
28. According to the Tender Offer Statement filed in connection with the
Tender Offer and Merger, representatives of InterTrust first met with
representatives of SCA regarding a potential patent licensing arrangement in
January 2002, and the parties engaged in negotiations regarding the terms of a
DRM patent license agreement through April 2002. On April 25, 2002, SCA informed
InterTrust that an acquisition of InterTrust was one of several alternatives
that SCA was considering, in addition to entering into a DRM patent license
agreement with InterTrust, as a means of establishing a patent licensing
program.
29. On May 9, 2002, concurrent with the announcement of its first quarter
financial results, InterTrust announced that it would narrow its business focus
to licensing intellectual property. On May 23, 2002, shortly following that
announcement, InterTrust and Sony announced that it had signed a global patent
license agreement with Sony (the "Sony License Agreement"):
InterTrust Licenses Patents to Sony for Integration into Future
Digital Rights Management Products and Services
SANTA CLARA, Calif., May 23, 2002--InterTrust Technologies
Corporation (Nasdaq: ITRU) today announced a global licensing
agreement with Sony Corporation (NYSE: SNE) that will allow Sony to
use certain InterTrust patents in products that distribute digital
consumer media content.
Under the agreement, InterTrust will receive a $28.5 million fee, in
addition to running royalties for future Sony products and services
that integrate InterTrust patents related to digital rights management
(DRM).
InterTrust, which holds key patents in trusted computing and DRM, has
licensed its intellectual property to Sony for the development,
manufacture and marketing of digital media products and services
across its diverse media and electronics business units.
8
30. In the Company's 10-Q for the quarter ended June 30, 2002, the Company
reported that it would not be booking any of the $28.5 million as revenue,
because under the Sony License Agreement $20 million was to be refunded if Sony
or affiliates acquired the Company, and because the remaining $8.5 million would
be booked in connection with other pending deals.
31. Item 601 of Regulation S-K of the SEC provides, in relevant part, for
the filing of any contract "not made in the ordinary course of business which is
material to the registrant and is to be performed in whole or in part at or
after the filing of the registration statement or was entered into not more than
two years before such filing." The Sony License Agreement was clearly material
to the Company. Indeed, as reported in the Company's Form 10-Q for the period
ended September 30, 2002, filed just a few days after the announcement of the
Tender Offer and Merger:
License revenues were $8.8 million, or 99% of total revenues, for the
three months ended September 30, 2002, as compared to $1.5 million, or
80% of total revenues, in the three months ended September 30, 2001,
and primarily represent the recognition of deferred revenue related to
the Sony agreement and amortization of deferred license fees. License
revenues for the nine months ended September 30, 2002 were $9.7
million, up from $4.5 million for the nine months ended September 30,
2001. The increase for both the three and nine month periods was due
to the $8.5 million revenue from the Sony license completed in May
2002.
32. Nonetheless, in order to keep the price of InterTrust shares
artificially low so that it could be acquired by Sony at a bargain price, the
Individual Defendants violated the disclosure laws and never filed the Sony
License Agreement. Indeed, the details and terms of the Sony License Agreement
were not made public until the Tender Offer commenced on November 22, 2002. Had
defendants obeyed the disclosure laws and filed the Sony License Agreement,
InterTrust would have been "in play" much earlier and the consequent price to be
paid for an
9
acquisition of InterTrust would have been much higher. The Sony License
Agreement was hidden from public view so that only Sony or its affiliates would
be in a position to acquire InterTrust.
33. In early November 2002, representatives of InterTrust met with
representatives of SCA to discuss the terms of an amendment to the Sony License
Agreement, which would eliminate the field of use limitations in the original
Sony License Agreement and the obligation to pay ongoing royalties with respect
to any services or content using the licensed patents. Also in early November
2002, representatives of InterTrust met with representatives of Philips to
discuss the terms of a patent license agreement that would be substantially
identical to the Sony License Agreement.
34. On November 9, 2002, the InterTrust Board held a special meeting to
discuss a combined offer SCA and Philips for the shares of InterTrust, as well
as the terms of the proposed amendment to the Sony License Agreement and a
possible license agreement with Philips. The InterTrust Board authorized the
team negotiating on behalf of InterTrust to negotiate an acquisition at a price
of no less than $4.50 per Share.
35. On November 10, 2002, representatives of SCA and Philips indicated that
each of them had secured internal approvals to negotiate a transaction at a
price of $4.25 per share. Representatives of InterTrust stated that, although no
formal board meeting had been held, most of InterTrust's directors had been
contacted and were prepared to endorse a transaction at $4.25 per Share.
The Tender Offer and Merger
36. On November 13, 2002 it was announced in a press release that
InterTrust had entered into a definitive merger agreement (the "Merger
Agreement") pursuant to which Fidelio
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would commence the Tender Offer to purchase all outstanding shares of common
stock of InterTrust for $4.25 per share in cash, conditioned upon the tendering
of shares representing a majority of InterTrust's outstanding common stock and
other customary conditions. Pursuant to stockholder support and tender
agreements, certain principal stockholders of InterTrust owning approximately
20% of the outstanding common stock of InterTrust agreed to tender all of their
shares into the Tender Offer and to grant irrevocable proxies to Fidelio to vote
in the manner specified in such agreements. Under the Merger Agreement, shares
of InterTrust common stock not purchased through the Tender Offer would be
converted into the right to receive $4.25 per share, without interest.
37. The Tender Offer commenced on November 22, 2002 through the
dissemination of a Tender Offer to InterTrust shareholders and a Schedule 14D
filing with the SEC. In addition to all of the outstanding shares of InterTrust
common stock, the Tender Offer includes stock purchase rights issued pursuant to
a Rights Agreement, dated as of June 8, 2001, between InterTrust and American
Stock Transfer and Trust Company, Inc., at a purchase price of $4.25 per Share.
In addition to SCA and Philips, the Tender Offer Statement lists Stephens, which
was not mentioned as a party to the Merger Agreement in InterTrust's previous
announcement of the Tender Offer, as a member of Fidelio.
38. The purpose of the Tender Offer and the Merger is to acquire control of
the entire equity interest in InterTrust. After consummation of the Merger,
Fidelio will be merged with and into InterTrust, with InterTrust as the
surviving company in the Merger. Accordingly, the Tender Offer and Merger will
transfer 100% of InterTrust's revenues and profits to Fidelio with all of
InterTrust's operations thereby accruing to the benefit of Fidelio -- i.e., to
SCA, Philips and Stephens.
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The Individual Defendants' Recommendation
39. In the Solicitation/Recommendation Statement on Schedule 14D-9 (the
"Schedule 14D-9") filed with the SEC in connection with the Tender Offer and
signed by defendant Lockwood, the Individual Defendants recommended that the
Company's stockholders accept the Tender Offer, tender their shares pursuant to
the Tender Offer and approve the Merger and the Merger Agreement. The Schedule
14D-9 stated that as to the factors considered by the Board of Directors in its
recommendation, the Individual Defendants did not attempt to weigh the value to
the Company of success against Microsoft in the ongoing litigation, even though
a Markman hearing is scheduled for soon after the Merger. The only mention of
this litigation is in connection with a discussion of the "Opportunities and
Challenges Facing the Company," which includes as "risks" to the Company "the
risks associated with resolving the Microsoft litigation, including the risk
that the Company's patents or claims could be rejected or narrowed by the
Court."
40. The recommendation of the Individual Defendants was based, at least in
part, on the opinion of Allen & Co., the financial advisor on the transaction,
which concluded that the share price to be received by InterTrust shareholders
in the Tender Offer and Merger is fair from a financial point of view. However,
according to the Schedule 14D-9, in rendering its fairness opinion, Allen & Co.
"did not give any effect to, and not attempt to assign any value to, any
commercial arrangements entered into by InterTrust or [Fidelio] in connection
with the merger, including the Sony License Amendment, the Philips License
Agreement and the Philips License Amendment." Moreover, Allen & Co. engaged in
no analysis whatsoever of the value of the Microsoft litigation to InterTrust.
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41. In addition, under the terms of an engagement letter, dated January 8,
2002, InterTrust agreed to pay Allen & Co., in addition to a retainer of
$500,000 creditable against any transaction fee that may become due, a
transaction fee of 2% of the first $1 billion in any sale of the Company
completed by January 8, 2003. Thus, Allen & Co. stands to gain $9.1 million if
the Merger goes through, Allen & Co. was patently conflicted in its analysis of
whether the Merger was fair to InterTrust shareholders, since it was motivated
by its own interest in making sure that a transaction occurred by the end of
2002. In sum, Allen & Co.'s analysis could not have been reasonably relied upon
by the InterTrust Board of Directors in connection with their recommendation.
42. The Individual Defendants were also clearly motivated to make sure that
the transaction occurred since they stood to thereby gain millions of dollars
from accelerating stock options. As described in the Schedule 14D-9, in the
event of a change of control of the Company, the vesting of options held by
defendant Lockwood to acquire 2.5 million shares would accelerate on most
unvested shares, while acceleration will vest for defendant Wood with respect to
an option for 675,000 shares. In addition, pursuant to acceleration letters,
upon an extraordinary corporate transaction of the Company, 100% of any unvested
shares granted to certain executive officers will become vested: (1) options to
defendant Maher for 350,000 shares; (2) options granted to defendant Nguyen for
400,000 shares; (3) options granted to defendant Scadina for 50,000 shares; (4)
options granted to defendant Sharnoon for 450,000 shares. Thus, as a group, the
Individual Defendants will receive several millions of dollars worth of
accelerated stock options pursuant to the Tender Offer and Merger.
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Deterrence of Bidders Other Than Fidelio
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43. The Company has in place a stock purchase rights plan ("Rights
Agreement") pursuant to which rights were distributed at a rate of one right for
each share of InterTrust common stock held by stockholders of record as of June
28, 2002. The rights plan acts as a poison pill ("Poison Pill") by diluting the
value of InterTrust stock should an unwanted suitor seek to gain control of
InterTrust without the consent of InterTrust's Board of Directors. Effective
November 13, 2002, the Individual Defendants amended the Rights Agreement to
provide that Fidelio will not be considered an "acquiring person" in connection
with the Tender Offer and Merger. Therefore, the Poison Pill is no longer in
effect with respect to Fidelio but it remains in effect as to all suitors other
than Fidelio.
44. The Poison Pill as currently utilized dramatically impairs the rights
of Class members to exercise freedom of choice in a proxy contest or to avail
themselves of a bona fide offer to purchase their shares by an acquiror
unfavored by incumbent management, i.e., any suitor other than Fidelio. This
fundamental shift of control of the Company's destiny from the hands of its
shareholders to the hands of the Individual Defendants results in a heightened
fiduciary duty of the Individual Defendants to consider, in good faith, third
party bids, and further requires the Individual Defendants to pursue a third
party's interest in acquiring the Company and to negotiate in good faith with a
bidder on behalf of the Company's shareholders. The only legitimate use of the
Poison Pill is to maximize consideration to shareholders in any acquisition of
the Company, and by suspending the Poison Pill as to Fidelio and to Fidelio
only, the Individual Defendants have achieved precisely the opposite effect, in
violation of their fiduciary duties.
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45. The Individual Defendants have engaged in other acts in order to make an
acquisition of InterTrust untenable for any third party other than Fidelio.
Under Section 8.5 of the Merger Agreement, if the Company enters into an
alternative proposal, a termination or "breakup" fee of $16 million, plus up to
$2.5 million in expenses, will be awarded to Fidelio. This breakup fee,
amounting to approximately 4% of the transaction amount, significantly raises
the ante for any other potential offeror. Moreover, as alleged below, an
additional $7 million will need to be paid to Fidelio for cancellation of patent
rights granted to it by the Company, making the total "breakup" fee, in effect
$25.5 million, or nearly 5% of the transaction amount.
46. In addition, in connection with the Tender Offer and Merger, the Individual
Defendants have acted to significantly expand the patent rights granted under
the Sony License Agreement and have provided Philips with those same rights. On
November 13, 2002, at the same time the Tender Offer and Merger was announced,
InterTrust entered into an Amendment to the Sony License Agreement (the "Sony
License Amendment") with Sony, which expanded the Sony License Agreement to
cover all fields, to include additional products and services in the definition
of licensed products and services, and to terminate Sony's royalty obligations
under the Sony License Agreement. As stated therein, the purpose of the Sony
License Amendment was as follows:
By this Agreement, the Parties desire to expand the rights
granted to Sony by the Agreement, in particular for InterTrust
to grant to Sony a royalty free, fully paid-up, nonexclusive
license in all fields under the Licensed Patents for Sony
products and services in accordance with the terms of this
Amendment.
47. Also on November 13, 2002, InterTrust entered into a Foundation Patent
License Agreement with Philips (the "Philips License Agreement"), the terms of
which are substantially the same as the terms of the Sony License Agreement.
Simultaneously therewith, InterTrust
15
entered into an Amendment to the Philips License Agreement (the "Philips License
Agreement") with Philips, the terms of which are also substantially the same as
the terms of the Sony License Amendment.
48. In exchange for this major expansion of rights, Sony has agreed to pay
InterTrust $6 million on the Sony License Amendment, while Philips has agreed to
pay Sony $12.5 million ($11.5 million on the Philips License Agreement and $1
million on the Philips License Amendment). However, those payments will
obviously inure to Fidelio, and thereby Sony and Philips, after the Merger is
consummated. Under the terms of these agreements, the Company or any successor
may terminate these agreements by paying $7 million and $6 million on the Sony
License Amendment and $1 million on the Philips License Amendment.
49. In effect, the Individual Defendants have transferred the "Crown Jewels" of
InterTrust to Fidelio. The Sony License Agreement and the Phillips License
Amendment were timed in connection with the Tender Offer so as to make
InterTrust unattractive to any entity other than Fidelio since any other
acquiror would be saddled with the license agreements with SCA and Philips until
the expiration of the last of the licensed patents. Alternatively, any other
acquiror would be required to pay an additional $7 million in order to eliminate
the patent rights granted to Fidelio. Therefore, the total "breakup" fee to any
other suitor would actually be $25.5 million, or over 5% of the transaction
amount.
CAUSE OF ACTION
Claim for Breach of Fiduciary Duties
50. InterTrust represents a highly attractive acquisition candidate. The
Individual Defendants' decision to lock in the transaction with Fidelio by
making it impossible for any other
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suitor to seek to acquire InterTrust will deprive the Company's public
shareholders of the enhanced premium that further negotiation or exposure of
InterTrust to the market could provide.
51. By reason of their positions with InterTrust, the Individual Defendants are
in possession of non-public information concerning the financial condition and
prospects of InterTrust, and especially the true value and expected increased
future value of InterTrust and its assets, which they have not disclosed to
InterTrust's public stockholders. The terms of the proposed transaction are
grossly unfair to the Class, and the unfairness is compounded by the gross
disparity between the knowledge and information possessed by the Individual
Defendants by virtue of their positions of control of InterTrust and that
possessed by InterTrust's public shareholders.
52. Defendants owe fundamental fiduciary obligations to InterTrust's
stockholders to take all necessary and appropriate steps to maximize the value
of their shares. In addition, the Individual Defendants have the responsibility
to act independently so that the interests of the Company's public stockholders
will be protected, to consider seriously all bona fide offers for the Company,
and to conduct fair and active bidding procedures or other mechanisms for
checking the market to assure that the highest possible price is achieved.
Further, the directors of InterTrust must adequately ensure that no conflict of
interest exists between the Individual Defendants' own interests and their
fiduciary obligations to maximize stockholder value or, if such conflicts exist,
to insure that all such conflicts will be resolved in the best interests of the
Company's stockholders.
53. Defendants have refused to take those steps necessary to ensure that
InterTrust's stockholders will receive maximum value for their shares of
InterTrust stock. Defendants have refused to seriously consider offers, other
than the offer of Fidelio, and have failed to announce
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any active auction or open bidding procedures best calculated to maximize
shareholder value in selling the Company. In addition, defendants have enacted
unreasonable barriers which have made it untenable for any party other than
Fidelio to acquire the Company. Moreover, despite their duty to maximize
shareholder value, the defendants have clear and material conflicts of interest
and are acting to better their own interest at the expense of InterTrust's
public shareholders.
54. The proposed sale is wrongful, unfair and harmful to InterTrust's public
stockholders, and represents an effort by the Individual Defendants to
aggrandize their own financial position and interests at the expense of and to
the detriment of Class members. The transaction is an attempt to deny plaintiffs
and the other members of the Class their rights while usurping the same for the
benefit of Fidelio on unfair terms.
55. The Individual Defendants have violated the fiduciary duties owed to the
public shareholders of InterTrust, including their duties of loyalty, disclosure
and duty of care. The Individual Defendants' agreement to the terms of the
Tender Offer, its timing, and the failure to auction the Company and invite
other bidders, and the Individual Defendants' failure to provide a market check
demonstrates a clear absence of the exercise of loyalty to InterTrust's public
shareholders.
56. By transferring the "Crown Jewels" of the Company to Fidelio, thereby
assuring that no other potential bidder would be able to bid on the Company, the
Individual Defendants have locked themselves into a merger with Fidelio without
fully informing themselves about or intentionally ignoring the intrinsic worth
of InterTrust.
57. The Individual Defendants have breached their fiduciary and other common law
duties owed to plaintiffs and other members of the Class in that they have not
and are not
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exercising independent business judgment and have acted and are acting to the
detriment of the Class.
58. Because the Individual Defendants have breached their duties of
loyalty, disclosure, good faith and independence in connection with the sale of
InterTrust, the burden of proving the inherent or entire fairness of the
Acquisition, including all aspects of its negotiation and structure, is placed
upon the Individual Defendants as a matter of law.
59. Defendant Fidelio has knowingly aided and abetted the breaches of
fiduciary duty committed by the other defendants to the detriment of
InterTrust's public shareholders. Indeed, the proposed transaction could not
take place without the active participation of Fidelio.
60. As a result of the actions of the Individual Defendants, plaintiffs and
the other members of the Class have been and will be damaged in that they have
not and will not receive their fair proportion of the value of InterTrust's
assets and businesses and/or have been and will be prevented from obtaining a
fair and adequate price for their shares of InterTrust's common stock.
61. Plaintiffs seek preliminary and permanent injunctive relief and
declaratory relief preventing defendants from inequitably and unlawfully
depriving plaintiffs and the Class of their rights to realize a full and fair
value for their stock, and to compel defendants to carry out their fiduciary
duties to maximize shareholder value.
62. Only through the exercise of this Court's equitable powers can
plaintiffs be fully protected from the immediate and irreparable injury which
defendants' action threaten to inflict. Defendants are precluding the
stockholders' enjoyment of the full economic value of their investment by
failing to proceed expeditiously and in good faith to evaluate and pursue a
premium acquisition proposal that would maximize shareholder value.
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63. Unless enjoined by the Court, defendants will continue to breach their
fiduciary duties owed to plaintiffs and the members of the Class, and/or aid and
abet and participate in such breaches of duty, and will prevent the sale of
InterTrust at an appropriate premium, all to the irreparable harm of plaintiffs
and other members of the Class.
64. Plaintiffs and the Class have no adequate remedy at law.
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WHEREFORE, plaintiffs demand judgment as follows:
(a) Declaring this to be a proper class action, certifying plaintiffs as
class representatives, and appointing their counsel to represent the Class;
(b) Ordering the Individual Defendants to fulfill their fiduciary duties
to plaintiffs and the other members of the Class by announcing their intention
to:
(i) Cooperate fully with any entity or person, having a bona fide
interest in proposing any transactions that would maximize shareholder value;
(ii) Immediately undertake an appropriate evaluation of InterTrust's
worth as a merger/acquisition candidate;
(iii) Take all appropriate steps to enhance
InterTrust's value and attractiveness as a merger/acquisition candidate;
(iv) Take all appropriate steps to effectively expose InterTrust to
the marketplace in an effort to create an active auction of the Company;
(v) Act independently so that the interests of the Company's public
stockholders will be protected; and
(vi) Adequately ensure that no conflicts of interest exist between
the Individual Defendants' own interests and their fiduciary obligation to
maximize shareholder value or, in the event such conflicts exist, to ensure that
all conflicts of interest are resolved in the best interests of the public
stockholders of InterTrust;
(vii) Require the proper implementation of InterTrust's poison pill so
as to maximize shareholder value;
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(c) Ordering the Individual Defendants, jointly and severally, to account
to plaintiffs and the Class for all damages suffered and to be suffered by them
as a result of the acts and transactions alleged herein;
(d) Awarding plaintiffs the costs and disbursements of this action,
including a reasonable allowance for plaintiffs' attorneys' and experts' fees;
and
(e) Granting such other and further relief as may be just and proper.
DATED: November 27, 2002
CHIMICLES & TIKELLIS LLP
/s/ Pamela S. Tikellis
---------------------------
Pamela S. Tikellis
Robert J. Kriner, Jr.
One Rodney Square
Post Office Box 1035
Wilmington, DE 19899
Telephone: (302) 656-2500
Attorneys for Plaintiffs
OF COUNSEL:
WOLF HALDENSTEIN ADLER FREEMAN
& HERZ LLP
Michael Jaffe
270 Madison Avenue
New York, New York 10016
Telephone: (212) 545-4600
Fax: (212) 545-4653
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