Exhibit 99.1
CAULEY, GELLER, BOWMAN
& COATES, LLP
BRIAN J. ROBBINS (190264)
600 West Broadway, Suite 930
San Diego, CA 92101
Telephone: 619/702-7350
619/702-7351 (fax)
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PAUL Y. GELLER
One Boca Place, Suite 421A
2255 Glades Road
Boca Raton, FL 33431
Telephone: 561/750-3000
561/750-3364 (fax)
Attorneys for Plaintiff
SUPERIOR COURT OF THE STATE OF CALIFORNIA
COUNTY OF SAN MATEO
NEIL MACKLIN, On Behalf of Himself and All ) VIA FAX
Others Similarly Situated, )
) Case No. C-418930
Plaintiff, )
) CLASS ACTION
vs. )
) COMPLAINT BASED UPON SELF
CROSSWORLDS SOFTWARE, INC., ) DEALING AND BREACH OF
ANDREW K. LUDWICK, ALFRED J. ) FIDUCIARY DUTY
AMOROSO, COLIN F. RAYMOND, ALBERT )
A. PIMENTEL, KATRINA A. GARNETT, )
TERRENCE F. GARNETT and DOES 1-25, )
inclusive, )
Defendants. )
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Plaintiff, by his attorneys, alleges as follows:
SUMMARY OF THE ACTION
1. This is a stockholder class action brought by plaintiff on behalf of
the holders of CrossWorlds Software, Inc. ("CrossWorlds" or the "Company")
common stock against CrossWorlds and its directors arising out of defendants'
efforts to complete the sale of CrossWorlds to International Business Machines
("IBM") (the "Acquisition") at a grossly inadequate and unfair price and their
efforts to provide certain insiders and directors with preferential treatment at
the expense of, and which is unfair to, the public shareholders. This action
seeks equitable relief only.
2. CrossWorlds provides e-business infrastructure software that enables
the integration and automation of business processes using the Internet. The
Company's products are based on an enterprise-class architecture. CrossWorlds
provides pre-build connectivity solutions.
3. In pursuing the unlawful plant to cash out CrossWorlds' public
stockholders for grossly inadequate consideration, cash of the defendants
violated applicable law by directly breaching and/or aiding the other
defendants' breaches of their fiduciary duties of loyalty, due care,
independence, good faith and fair dealing.
4. In fact, instead of attempting to obtain the highest price reasonably
available for CrossWorlds for its shareholders, the individual defendants spent
a substantial effort tailoring the structural terms of the Acquisition to meet
the specific needs of IBM.
5. In essence, the proposed Acquisition is the product of a hopelessly
flawed process that was designed to ensure the sale of CrossWorlds to one buying
group, and one buying group only, on terms preferential to IBM and to subvert
the interests of plaintiff and the other public stockholders of CrossWorlds.
JURISDICTION AND VENUE
6. This Court has jurisdiction over the cause of action asserted herein
pursuant to the California Constitution, Article VI, ss. 10, because this case
is a cause not given by statute to other trial courts.
7. This Court has jurisdiction over CrossWorlds because CrossWorlds
conducts business in California and is a citizen of California, as it has its
principal place of business at 577 Airport Blvd., Suite 800, Burlingame,
California. CrossWorlds is a citizen of California. Likewise, certain of the
individual defendants, including defendants Amoroso and Ludwick, are citizens of
California. This action is not removable.
8. Venue is proper in this Court because the conduct at issue took place
and had an effect in this Country.
PARTIES
9 Plaintiff Neil Macklin is, and at all times relevant hereto was, a
shareholder of CrossWorlds.
10. Defendant CrossWorlds is a corporation with its principal place of
business located at 577 Airport Blvd., Suite 800, Burlingame, California.
CrossWorlds provides e-business infrastructure software that enables the
integration and automation of business processes using the Internet. The
Company's products are based on an enterprise-class architecture. CrossWorlds
provides pro-built connectivity solutions.
11. Defendant Andrew K. Ludwick ("Ludwick") is the former President, CEO
and director of the Company.
12. Defendant Alfred J. Amoroso ("Amoroso") is the President, CEO and
director of the Company.
13. Defendant Colin F. Raymond ("Raymond") is a director of the Company.
14. Defendant Albert A. Pimentel ("Pimentel") is a director of the
Company.
15. Defendant Katrina A. Garners ("K. Garnett") is a director of the
Company.
16. Defendant Terence J. Garnett ("T. Garnett") is a director of the
Company.
17. The defendants named above in P.P. 11-16 are sometimes collectively
referred to herein as the "Individual Defendants."
18. The true names and capacities of defendants sued herein under
California Code of Civil Procedure ss.474 as Does 1 through 25, inclusive, are
presently not known to plaintiff, who therefore sues these defendants by such
fictitious names. Plaintiff will seek to amend this
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Complaint and include these Doe defendants' true names and capacities when they
are ascertained. Each of the fictitiously named defendants is responsible in
some manner for the conduct alleged herein and for the injuries suffered by the
Class.
Defendants' Fiduciary Duties
19. In any situation where the directors of a publicly traded corporation
undertake a transaction that will result in either (i) a change in corporate
control or (ii) a break-up of the corporation's assets, the directors have an
affirmative fiduciary obligation to obtain the highest value reasonably
available for the corporation's shareholders, and if such transaction will
result in a change of corporate control, the shareholders are entitled to
receive a significant premium. To diligently comply with these duties, the
directors may not take any action that:
(a) adversely affects the value provided to the corporation's
shareholders;
(b) will discourage or inhibit alternative offers to purchase
control of the corporation or its assets;
(c) contractually prohibits them from complying with their fiduciary
duties;
(d) will otherwise adversely affect their duty to search and secure
the best value reasonably available under the circumstances for the
corporation's shareholders; and/or
(e) will provide the directors with preferential treatment at the
expense of, or separate from, the public shareholders.
20. In accordance with their duties of loyalty and good faith, the
defendants, as directors and/or officers of CrossWorlds, are obligated to
refrain from:
(a) participating in any transaction where the directors' or
officers' loyalties arc divided;
(b) participating in any transaction where the directors or officers
receive or are entitled to receive a personal financial benefit not equally
shared by the public shareholders of the corporation; and/or
(c) unjustly enriching themselves at the expense or to the detriment
of the public shareholders.
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21. Plaintiff alleges herein that the Individual Defendants, separately
and together, in connection with the Acquisition, violated the fiduciary duties
owed to plaintiff and the other public shareholders of CrossWorlds, including
their duties of loyalty, good faith and independence, insofar as they stood on
both sides of the transaction and engaged in self-dealing and obtained for
themselves personal benefits, including personal financial benefits not shared
equally by plaintiff or the Class. Further, plaintiff alleges that the
defendants placed an artificial lid on the price of the stock by withholding the
release of Cross World's "record" and better than expected quarterly results
until hours after the Company announced they had already agreed to sell the
Company for just $4.65 per share. As a result of the Individual Defendants'
self-dealing and divided loyalties, neither plaintiff nor the Class will receive
adequate or fair value for their CrossWorlds common stock in the proposed
Acquisition.
22. Because the Individual Defendants have breached their duties of
loyalty, good faith and independence in connection with the Acquisition, the
burden of proving the inherent or entire fairness of the Acquisition, including
all aspects of its negotiation, structure, price and teams, is placed upon the
Individual Defendants as a matter of law.
CLASS ACTION ALLEGATIONS
23. Plaintiff brings this action on his own behalf and as a class action
pursuant to California Code of Civil Procedure ss.382 on behalf of all holders
of CrossWorlds stock who are being and will be harmed by defendants' actions
described below (the "Class"). Excluded from the Class are defendants herein and
any person, firm, trust, corporation, or other entity related to or affiliated
with any defendants.
24. This action is properly maintainable as a class action.
25. The Class is so numerous that joinder of all members is impracticable.
According to CrossWorlds' SEC filings, there were more than 26.7 million shares
of CrossWorlds common stock outstanding as of July 31, 2001.
26. There are questions of law and fact which are common to the Class and
which predominate over questions affecting any individual Class member. The
common questions include, inter alia, the following:
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(a) whether defendants have breached their fiduciary duties of
undivided loyalty, independence or due care with respect to plaintiff and the
other members of the Class in connection with the Acquisition;
(b) whether the Individual Defendant are engaging in self-dealing in
connection with the Acquisition;
(c) whether the Individual Defendants have breached their fiduciary
duty to secure and obtain the best price reasonable under the circumstances for
the benefit of plaintiff and the other members of the Class in connection with
the Acquisition;
(d) whether the Individual Defendants are unjustly enriching
themselves and other insiders or affiliates of CrossWorlds;
(e) whether defendants have breached any of their other fiduciary
duties to plaintiff and the other members of the Class in connection with the
Acquisition, including the duties of good faith, diligence, honesty and fair
dealing;
(f} 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
(g) whether plaintiff and the other members of the Class would
suffer irreparable injury were the transactions complained of herein
consummated.
27. Plaintiffs claims are typical of the claims of the other members of
the Class and plaintiff does not have any interests adverse to the Class.
28. Plaintiff is an adequate representative of the Class, has retained
competent counsel experienced in litigation of this nature and will fairly and
adequately protect the interests of the Class.
29. the prosecution of separate actions by 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.
30. Plaintiff anticipates 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.
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31. 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.
THE PROPOSED ACQUISITION
32. CrossWorlds provides e-business infrastructure software that enables
the integration and automation of business processes using the Internet. The
Company's products are based on an enterprise-class architecture. CrossWorlds
provides pre-built connectivity solutions.
33. On October 30, 2001, at 8:02 a.m., IBM and CrossWorlds announced that
they signed an agreement for the sale of CrossWorlds to IBM. The press release
stated in part:
IBM and CrossWorlds Software, Inc. today announced the two companies
have entered into a definitive agreement for IBM to acquire CrossWorlds in
a cash transaction valued at $129 million.
The acquisition further strengthens IBM's business in the
fast-growing e-business infrastructure software segment, a key strategic
priority for the company. IBM's Web Sphere e-business infrastructure
software revenue grew 75% year-to-year in the third quarter of 2001 - the
tenth consecutive quarter of double-digit growth. And MQSeries, IBM's
integration software, grew 12% in the same time period.
According to IDC, software supporting the unique business-process
integration requirements of specific industries, such as CrossWorlds'
products, represents the fastest growing sub-segment of e-business
infrastructure software with annual growth of 25%. IDC estimates the
opportunity for this sub-segment will be $4 billion by 2005.
The acquisition extends the unparalleled breadth of IBM's portfolio
of e-business infrastructure software, known as, middleware. And it
addresses a key customer need for solutions that include both application
server and integration software.
34. On October 30, 2001, after the close of the market, the Company issued
a press release entitled, "CrossWorlds Software Achieves Record Revenues of
$21.7 Million and Becomes Profitable One Quarter Ahead of Schedule in Fiscal
2001 Third Quarter." The press release stated in part:
CrossWorlds Software, a leading business integration provider, today
announced its financial results for the third quarter ended September 30,
2001. CrossWorlds also announced that it has entered into a definitive
merger agreement with IBM for IBM to acquire CrossWorlds in a cash
transaction valued at $129 million.
Third quarter financial highlights include:
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- Record revenues of $21.7 million
- Pro forma profitability one quarter ahead of projections, at $0.03
per share
- Record gross margin at 68 percent
Total revenue for the third quarter was $21.7 million, compared with
$15.1 million in the prior year comparable period, representing an
increase of 44 percent. License revenue for the third quarter was a record
$10.6 million, compared with $6.6 million in the prior year comparable
period, resenting [an] increase of 62 percent. Pro forma income for the
third quarter, excluding restructuring charges and non-cash charges for
deferred stock-based compensation, was $0.9 million, or $0.03 per share,
compared to a loss of $7.2 million, or $0.28 per share, in the prior year
comparable period.
Net loss, including these restructuring charges and non-cash charges
for deferred stock-based compensation, was $1.5 million, or $0.06 per
share, compared with a loss of $7.9 million, or $0.30 per share, in the
same period a year ago.
"We are very pleased that we remained profitability in Q3, one
quarter ahead of schedule, while at the same time balancing our bottom
line achievement with record revenues," said James Budge, CrossWorlds'
CFO.
"I am delighted that we continued to exceed our top and bottom line
financial objectives in Q3 and we were able to achieve profitability one
quarter ahead of projections," said Fred Amoroso, CrossWorlds' President
and CFO.
35. This earnings announcement was a surprise to CrossWorld's shareholders
as these results were far better than the Company had led shareholders to
believe. Had defendants released this news prior to the acquisition
announcement, defendants knew that CrossWorld's stock would spike above the
acquisition price.
SELF-DEALING
36. The self-dealing, conflicts of interest and conduct harmful to the
interests of the shareholders result from at least the following:
(a) The $4.65 price offered to the public shareholders is
inadequate; and
(b) The realizable value from growth and a recovery of the Company's
historic performance is far in excess of $4.65 per share. The $4.65 per share
price does not reflect this fact nor the fact that the offer is a substantial
discount to where CrossWorlds stock would have traded had the defendants not
concealed CrossWorlds' third quarter results until after the announcement of the
acquisition.
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37. The Acquisition is designed to essentially freeze CrossWorlds' public
stockholders out of a large portion of the valuable assets which have produced,
and defendants expect will continue to produce, substantial revenue and
earnings, and these assets are being sold for grossly inadequate consideration
to IBM.
38. If the Acquisition is consummated, plaintiff and the other members of
the Class will no longer own shares in a "growth" company or benefit from the
revelations of record third quarter results which defendants concealed, but
rather will be cashed our of their CrossWorlds stock for just $4.65 per share.
39. The director defendants are obligated to maximize the value of
CrossWorlds to the shareholders. The Class members are being deprived of their
right to a fair and unbiased process to sell the Company and the opportunity to
obtain maximum value and terms for their interests, without preferential
treatment to the insiders.
40. By reason of their positions with CrossWorlds, the Individual
Defendants are in possession of non-public information concerning the financial
condition and prospects of CrossWorlds, and especially the true value and
expected increased future value of CrossWorlds and its assets, which they have
not disclosed to CrossWorlds' public stockholders. Moreover, despite their duty
to maximize shareholder value, the defendants have clear and material conflicts
of interest and are acting to better their own interests at the expense of
CrossWorlds' public shareholders. In fact, in order to further their own
interests, defendants withheld CrossWorlds' "record" third quarter operating
results until after they announced the acquisition.
41. The proposed sale is wrongful, unfair and harmful to CrossWorlds'
public stockholders, and represents an effort by defendants to aggrandize their
own financial position and interests at the expense of and to the detriment of
Class members. The Acquisition is an attempt to deny plaintiff and the other
members of the Class their right to share proportionately in the true value of
CrossWorlds' valuable assets, and future growth in profits and earnings, while
usurping the same for the benefit of IBM on unfair and inadequate terms.
42. As a result of defendants' unlawful actions, plaintiff and the other
members of the Class will be damaged in that they will not receive their fair
portion of the value of CrossWorlds' assets and business and will be prevented
from obtaining the real value of their equity ownership of the Company.
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43. In light of the foregoing, the Individual Defendants must, as their
fiduciary obligations require:
- Undertake an appropriate evaluation of CrossWorlds' worth as
an acquisition candidate.
- Withdraw their consent to the sale of IBM and allow the shares
to trade freely without impediments.
- Act independently so that the interests of CrossWorlds' public
stockholders will be protected, including, but not limited to,
the retention of truly independent advisors and/or the
appointment of a truly independent special Committee.
- Adequately ensure that no conflicts of interest exist between
defendants' own interests and their fiduciary obligation to
maximize stockholder value or, if such conflicts exist, to
ensure that all conflicts be resolved in the best interests of
CrossWorlds' public stockholders.
44. The Individual Defendants have also approved the Acquisition so that
it transfers 100% of CrossWorlds' revenues and profits to IBM, thus all of
CrossWorlds' operations will now accrue to the benefit of IBM. By contrast,
plaintiff and the Class will be frozen out of all of these revenues, earnings
and profits.
CAUSE OF ACTION
Claim for Breech of Fiduciary Duties
45. Plaintiff repeats and realleges each allegation set forth herein.
46. The defendants have violated fiduciary duties of care, loyalty, candor
and independence owed to the public shareholders of CrossWorlds and have acted
to put their personal interests ahead of the interests of CrossWorlds
shareholders.
47. By the acts, transactions and courses of conduct alleged herein,
defendants, individually and acting as a part of a common plan, are attempting
to unfairly deprive plaintiff and other members of the Class of the true value
of their investment in CrossWorlds.
48. The Individual Defendants have violated their fiduciary duties by
entering into a transaction with CrossWorlds without regard to the fairness of
the transaction to CrossWorlds shareholders. Defendant CrossWorlds directly
breached and/or aided and abetted the other
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defendants' breaches of fiduciary duties owed to plaintiff and the other holders
of CrossWorlds stock.
49. As demonstrated by the allegations above, the defendant directors
failed to exercise the care required, and breached their duties of loyalty, good
faith, candor and independence owed to the shareholders of CrossWorlds because,
among other reasons:
(a) they failed to take steps to maximize the value of CrossWorlds
to its public shareholders and they took steps to avoid competitive bidding, to
cap the price of CrossWorlds stock and to give IBM an unfair advantage, by,
among other things, failing to solicit other potential acquirors or alternative
transactions;
(b) they failed to properly value CrossWorlds; and
(c) they ignored or did not protect against the numerous conflicts
of interest resulting from the directors' own interrelationships or connection
with the Acquisition.
50. Because the Individual Defendants dominate and control the business
and corporate affairs of CrossWorlds, and are in possession of private corporate
information concerning CrossWorlds' assets (including its actual results which
defendants concealed until after the announcement of the acquisition) business
and future prospects, there exists an imbalance and disparity of knowledge and
economic power between them and the public shareholders of CrossWorlds which
makes it inherently unfair for them to pursue any proposed transaction wherein
they will reap disproportionate benefits to the exclusion of maximizing
stockholder value.
51. By reason of the foregoing acts, practices and course of conduct, the
defendants have failed to exercise ordinary care and diligence in the exercise
of their fiduciary obligations toward plaintiff and the other members of the
Class.
52. As a result of the actions of defendants, plaintiff and the Class will
suffer irreparable injury in that they have not and will not receive their fair
portion of the value of CrossWorlds' assets and businesses and have been and
will be prevented from obtaining a fair price for their common stock.
53. Unless enjoined by this Court, the defendants will continue to breach
their fiduciary duties owed to plaintiff and the Class, and may consummate the
proposed Acquisition
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which will exclude the Class from its fair share of CrossWorlds' valuable assets
and businesses, and/or benefit them in the unfair manner complained of herein,
all to the irreparable harm of the Class, as aforesaid.
54. Defendants are engaging in self dealing, are not acting in good faith
toward plaintiff and the other member of the Class, and have breached and are
breaching their fiduciary duties to the members of the Class.
55. As a result of the defendants' unlawful actions, plaintiff and the
other members of the Class will be irreparably harmed in that they will not
receive their fair portion of the value of CrossWorlds' assets and business and
will be prevented from obtaining the real value of their equity ownership of the
Company. Unless the proposed Acquisition is enjoined by the Court, defendants
will continue to breach their fiduciary duties owed to plaintiff and the members
o f the Class, will not engage in arm's-length negotiations on the Acquisition
terms, and will not supply to CrossWorlds' minority stockholders sufficient
information to enable them to cast informed votes on the proposed Acquisition
and may consummate the proposed Acquisition, all to the irreparable harm of the
members of the Class.
56. Plaintiff and the members of the Class have no adequate remedy at law.
Only through the exercise of this Court's equitable powers can plaintiff and the
Class be fully protected from the immediate and irreparable injury which
defendants' actions threaten to inflict.
PRAYER FOR RELIEF
WHEREFORE, plaintiff demands preliminary and permanent injunctive relief
in his favor and in favor of the Class and against defendants as follows:
A. Declaring that this action is properly maintainable as a class action;
B. Declaring and decreeing that the Acquisition agreement was entered into
in breach of the fiduciary duties of the defendants and is therefore unlawful
and unenforceable;
C. Enjoining defendants, their agents, counsel, employees and all persons
acting in concert with them from consummating the Acquisition, unless and until
the Company adopts and implements a procedure or process to obtain the highest
possible price for shareholder;
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D. Directing the Individual Defendants to exercise their fiduciary duties
to obtain a transaction which is in the best interests of CrossWorlds'
shareholders until the process for the sale or auction of the Company is
completed and the highest possible price is obtained;
E. Rescinding, to the extent already implemented, the Acquisition or any
of the terms thereof;
F. Imposition of a constructive trust, in favor of plaintiff, upon any
benefits improperly received by defendants as a result of their wrongful
conduct;
G. Awarding plaintiff the costs and disbursements of this action,
including reasonably attorneys' and experts' fees; and
H. Granting such other and further equity relief as this Court may deem
just and proper.
DATED: November 1, 2001 CAULEY, GELLER, BOWMAN
& COATES, LLP
BRIAN J. ROBBINS
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BRIAN J. ROBBINS
600 West Broadway, Suite 930
San Diego, CA 92101
Telephone-, 619/702-7350
619/702-7351 (fax)
CAULEY, GELLER, BOWMAN
& COATES, LLP
PAUL J. GELLER
One Boca Place, Suite 421A
2255 Glades Road
Boca Raton, FL 33431
Telephone: 561/750-3000
561/750-3364 (fax)
Attorneys for Plaintiff
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