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EXHIBIT (a)(5)(I)
Cause No. GN003407
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MARILYN STAHL, On Behalf of Herself and } IN THE DISTRICT COURT OF
All Others Similarly Situated, }
}
Plaintiff, }
}
vs. } TRAVIS COUNTY, TEXAS
}
PCORDER.COM, INC., TRILOGY }
SOFTWARE, INC., ROBERT W. STEARNS, }
LINWOOD A. LACY, JR., PETER J. BARRIS, }
ROSS A. COOLEY and JOSPEH A. }
LIEMANDT, } 250th JUDICIAL DISTRICT
}
Defendants }
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PLAINTIFF'S ORIGINAL PETITION
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Pursuant to Rule 190.1 of the Texas Rules of Civil Procedure, plaintiff
would show that discovery is intended to be conducted under Level 3 of this Rule
due to the complexity of this case.
INTRODUCTION
1. This is a class action on behalf of the public stockholders of
pcOrder.com, Inc. ("pcOrder" or the "Company") against pcOrder, its Board of
Directors and Trilogy Software, Inc. ("Trilogy"), arising out of Trilogy's
September 27, 2000 offer to purchase the outstanding shares of pcOrder for
$6.375 per share, via a tender offer (the "Tender Offer").
2. Trilogy Software owns virtually all of pcOrder's outstanding
Class B shares, which shares represent 62% of pcOrder's total outstanding common
equity. Trilogy, through its CEO, defendant Joseph A. Liemandt, is also a
director of pcOrder, and with the assistance of the other Individual Defendants
seeks to obtain control of pcOrder in violation of the Individual Defendants'
fiduciary obligations by, among other things, concealing pcOrder's third quarter
results until after the merger was announced. By concealing this information
until the merger was announced, the Individual Defendants intended to cap the
price of pcOrder stock, thus limiting the price that Trilogy would have to pay
pcOrder shareholders for their shares. The Individual Defendants have also
agreed
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to several unlawl provisions designed to further ensure that Trilogy is
successful in its efforts to squeeze plaintiff and the Class out of their
holdings of pcOrder. Given pcOrder's $78 million in cash, Trilogy's offer to
acquire the remaining outstanding shares of pcOrder for $40 million actually
represents an offer to purchase the 37.5% equity investment in pcOrder which
Trilogy does not already own for a mere $11 million. By acquiring the remaining
37.5% of pcOrder shares, Trilogy will net approximately $29 million in cash from
the merger. Thus by paying $40 million, or $6.375 per share for pcOrder's 6.5
million outstanding class A shares, Trilogy will obtain pcOrder's current cash
position of $78 million for Trilogy's own uses.
3. Each of the defendants has directly violated and/or aided and
abetted the other defendants' violations of the fiduciary duties owed to the
public shareholders of pcOrder. Absent judicial intervention, the merger will be
consummated which will result in irreparable harm to the plaintiff and the
Class. This action does not seek damages from defendants. Plaintiff and the
Class seek solely equitable and injunctive relief.
JURISDICTION AND VENUE
4. This Court has jurisdiction over each of the defendants because
they conduct business in, reside in and/or are citizens of Texas. Certain of the
defendants are residents and citizens of Texas, including defendants Joseph A.
Liemandt, Robert W. Stearns and Ross A. Cooley, and pcOrder and Trilogy, which
have their principal places of business in the State of Texas. Moreover, many of
the defendants reside in this county and the conduct at issue took place in this
county. Venue is proper in this Court because defendants' wrongful acts arose in
and emanated from this county.
PARTIES
5. Plaintiff Marilyn Stahl ("Stahl") at all times relevant hereto
has been a stockholder of pcOrder. Plaintiff is a resident of Travis County,
Texas.
6. Defendant pcOrder is a Delaware corporation with is principal
executive offices located at 5001 Plaza on the Lake, Austin, Texas 78746.
pcOrder's common shares are publicly traded on the NASDAQ. pcOrder has over 6.5
million shares outstanding held by hundreds if not
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thousands of shareholders. pcOrder may be served with process through its
President, Christina Jones, at 5001 Plaza on the Lake, Austin, Texas 78746.
7. Defendant Robert W. Stearns is a director of the Company.
Stearns is also a Managing Director of Sternhill Partners, and may be served
with process at 777 Post Oak Blvd., #250, Houston, Texas 77056.
8. Defendant Linwood A. Lacy, Jr. is a director of the Company.
Lacy is also the Chairman of the Board of Directors of Shopping4Sure.com and may
be served with process at 6 Cambridge Drive, Trumbull, Connecticut 06611.
9. Defendant Peter J. Barris is a director of the Company. Barris
is also the Managing General Partner of New Enterprise Associates and may be
served with process at 11951 Freedom Drive, Suite 1240, Reston, Virginia 20190.
10. Defendant Ross A. Cooley is Chairman, Chief Executive Officer
and a director of the Company. Cooley may be served with process at the Company,
5001 Plaza on the Lake, Austin, Texas, 78746.
11. Defendant Joseph A. Liemandt is the Chairman of the Board, CEO
and the Founder of Trilogy. Liemandt is also a director of pcOrder. Liemandt may
be served with process at Trilogy, 6034 W. Courtyard Drive, Austin, Texas 78730.
12. The defendants named in paragraphs 7-11 are sometimes
collectively referred to herein as the "Individual Defendants."
13. Defendant Trilogy Software, Inc. is an Austin-based software
company and controlling shareholder of pcOrder. Trilogy may be served with
process through its CEO, Joseph A. Liemandt, 6034 W. Courtyard Drive, Austin,
Texas 78730.
14. By virtue of their positions as directors and/or officers of
pcOrder, the Individual Defendants have, and at all relevant times had, the
power to control and influence, and did control and influence and cause pcOrder
to engage in the practices complained of herein.
FIDUCIARY DUTIES OF THE INDIVIDUAL DEFENDANTS
15. By reason of the above Individual Defendants' positions with the
Company as officers and/or directors, said individuals are in a fiduciary
relationship with plaintiff and the other public
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stockholders of pcOrder and owe plaintiff and the other members of the Class a
duty of highest good faith, fair dealing, loyalty and full, candid and adequate
disclosure.
16. Each of the Individual Defendants is required to act in good
faith, in the best interests of a corporation's shareholders and with such care,
including reasonable inquiry, as would be expected of an ordinarily prudent
person. In a situation where the directors of a publicly traded company
undertake a transaction that may result in a change in corporate control
(particularly when it involves a decision to eliminate the shareholders' equity
investment in a company), the applicable state law requires the directors to
take all steps reasonably required to maximize the value shareholders will
receive rather than use a change of control to benefit themselves. To diligently
comply with this duty, the directors of a corporation may not take any action
that;
(a) adversely affects the value provided to the
corporation's shareholders;
(b) contractually prohibits them from complying with or
carrying out their fiduciary duties;
(c) discourages or inhibits alternative offers to purchase
control of the corporation or its assets; or
(d) will otherwise adversely affect their duty to search and
secure the best value reasonably available under the circumstances for the
corporation's shareholders.
17. As described herein, the Individual Defendants have breached
their fiduciary duties. Defendants cannot fulfill their fiduciary obligations
after implementing provisions that disable them from maximizing shareholder
value. The Individual Defendants have breached their fiduciary obligation to act
reasonably.
CLASS ACTION ALLEGATIONS
18. Plaintiff brings this action pursuant to Rule 42 of the Texas
Rules of Civil Procedure on her own behalf and as a class action on behalf of
all holders of pcOrder common 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.
19. This action is properly maintainable as a class action.
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20. The Class is so numerous that joinder of all members is
impracticable. There are over 6.5 million shares of pcOrder stock issued. The
shares trade on the NASDAQ and thousands of pcOrder stockholders of record are
located throughout the United States.
21. Questions of law and fact are common to the Class and
predominate over questions affecting any individual Class members. The common
questions include, inter alia, the following:
(a) whether the defendants breached their fiduciary duties of
care, loyalty and/or candor owed by them to plaintiff and the other members of
the Class in connection with the proposed sale of pcOrder;
(b) whether the 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
proposed sale of pcOrder;
(c) whether the defendants have, in bad faith or for improper
motives, erected and/or retained barriers to discourage other offers for the
Company or its assets;
(d) whether plaintiff and the other members of the Class would
be irreparably harmed were the provisions and conduct detailed herein allowed to
persist; and
(e) whether the compensation to be paid to plaintiff and the
Class is unfair and inadequate.
22. The defendants have acted or refused to act on grounds generally
applicable to the Class thereby making appropriate final injunctive relief with
respect to the Class as a whole.
23. Plaintiff is committed to prosecuting this action and has
retained competent counsel experienced in litigation of this nature. The claims
of plaintiff are typical of the claims of the other members of the Class and
plaintiff has the same interests as the other members of the Class. Accordingly,
plaintiff is an adequate representative of the Class and will fairly and
adequately protect the interests of the Class.
24. Plaintiff anticipates that there will be no difficulty in the
management of this litigation as a class action.
25. For the reasons stated herein, a class action is superior to
other available methods for the fair and efficient adjudication of this
controversy.
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BACKGROUND TO PROPOSED MERGER
26. pcOrder offers partners a database of more than 100,000 products,
including IT, consumer electronics and office products. The detailed product
content includes technical specifications and product attributes, marketing text
and product images. Value added services available through pcOrder's Content
Source include expert reviews and product rebate information. Tailored to the IT
industry, Content Source is designed to convert browsers into buyers by
supplying comprehensive product information in one location at the point of
sale. In essence, pcOrder's e-commerce platform allows major industry players to
streamline their distribution channels and develop new business models. In 1999
alone, the Company's software and content was used by more than 19,000 product
sales representatives from more than 4,400 reseller organizations. In February
1999, pcOrder went public selling 2.2 million shares to the public for total
proceeds of $43 million. By December 1999, pcOrder's shares had reached new
heights, trading above $50 per share. Defendants caused pcOrder to sell an
additional 3 million shares, raising approximately $150 million in a secondary
offering at $53.31 per share. In the months that followed, the defendants
stopped their practice of issuing numerous positive statements to securities
analysts and investors as had been pcOrder's practice since going public in
1999. Although, shareholders anxiously awaited the release of pcOrder's third
quarter results, the defendants knew that if they were to disclose pcOrder's
third quarter results prior to the announcement of the merger, Trilogy would be
forced to pay a substantially higher price for pcOrder shares. In fact,
defendants knew, unbeknownst to pcOrder shareholders, that pcOrder's third
quarter (which ended September 30, 2000) had ended on an extremely positive
note. pcOrder's gross margins jumped to 46.8% from 39.9%, DSOs improved
dramatically dropping from 68 to 48, and deferred revenue increased 83.1% to
$21.6 million. Operating margins had also improved as the Company cut sales and
marketing expenses by 39%, research and development expenses by 9%, and G&A
expenses by 8%, sequentially.
27. At the time of the announcement of the merger, Trilogy owned virtually
all of pcOrder's outstanding Class B stock, which represents 62% of pcOrder's
total outstanding common stock. Trilogy, through its CEO, defendant Liemandt,
was also a director of pcOrder, and with the assistance of the Individual
Defendants sought to obtain control of pcOrder at an artificially depressed
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price and did so by, among other things, concealing pcOrder's third quarter
results until after the merger was announced. By concealing this information
until the merger was announced, the defendants would effectively be able to cap
the price of pcOrder stock, thus limiting materially the price that would be
paid to pcOrder shareholders for their shares. With Trilogy already owning 62.5%
of pcOrder, including 62.5% of pcOrder's $78 million in cash, Trilogy's $40
million offer to acquire the remaining outstanding shares of pcOrder effectively
represents an offer to purchase the balance of the Company's 37.5% equity
interest for just $11 million.
THE PROPOSED MERGER
28. On October 25, 2000, pcOrder announced its Q3 2000 results and the
terms of the merger. The release stated:
pcOrder.com Inc. today announced financial results for the quarter and
nine months ended September 30, 2000. pcOrder announced under a
separate press release that Trilogy Software, Inc. and pcOrder have
entered into a definitive agreement under which Trilogy will commence
a cash tender offer to acquire all of pcOrder's outstanding Class A
Common Stock.
pcOrder reported third quarter revenues of $13.4 million,
representing 3 percent growth when compared to revenues for the same
period last year and a 13 percent decline from the prior quarter.
Software and subscriptions revenues totaled $6.9 million and content
and services revenues totaled $6.5 million for the quarter.
Approximately $1.4 million of the software and subscriptions revenues
came from non-recurring license and subscription revenues, primarily
related to contracts terminated during the quarter. In addition,
approximately $1.2 million of the content and services revenues came
from non-recurring consulting services rendered to its affiliate,
Trilogy.
pcOrder reported a net loss of $0.2 million or $0.01 per share
for the third quarter compared with a net loss of $0.7 million or
$0.05 per share for the same period in 1999. Excluding the non-
recurring software and services revenues recorded during the quarter,
the Company's net loss would have totaled approximately $2.8 million
or $0.17 per share for the quarter. Fourth quarter revenues are
expected to decline below $10 million.
For the nine months ended September 30, 2000, revenues totaled
$44.1 million versus $29.6 million for the same period last year.
pcOrder also reported a net loss of $4.8 million or $0.29 per share
for the nine months ended September 30, 2000. This compares with a net
loss of $6.5 million or $0.43 per share for the same period in 1999.
29. On the same day, pcOrder announced it had signed a merger agreement
with Trilogy, stating:
Trilogy Software, Inc. and pcOrder.com Inc. today jointly announced
that they have signed a definitive merger agreement under which
Trilogy will commence a cash
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tender offer to acquire all of pcOrder's outstanding Class A common stock
at a price of $6.375 per share. Any shares of pcOrder's Class A common
stock not purchased in the tender offer will be acquired by Trilogy in a
subsequent merger transaction at the same $6.375 per share cash price.
Trilogy currently owns all of pcOrder's outstanding Class B common stock,
which represents 62.5% of pcOrder's outstanding common stock.
The Board of Directors of pcOrder approved the merger agreement and
tender offer based upon the recommendation of pcOrder's Special Committee
comprised of pcOrder's two independent directors. The Special Committee has
received an opinion of their financial advisors, Dain Rauscher Wessels,
that the consideration to be received by the stockholders of pcOrder (other
than Trilogy or its affiliates) pursuant to the merger agreement is fair to
such stockholders from a financial point of view.
Trilogy has been advised by SG Cowen Securities Corporation with
respect to the transaction.
The tender offer will commence on or prior to November 6, 2000, and
will be made only by an offer to purchase and other offering documents,
copies of which will be filed with the Securities and Exchange Commission
and mailed to pcOrder stockholders.
CAUSE OF ACTION
Breach of Fiduciary Duty of Loyalty
and Due Care Against All Defendants
30. Plaintiff repeats and realleges each allegation set forth herein.
31. The Individual Defendants have thus far failed to announce active
auction, open bidding or other procedures best calculated to maximize
shareholder value. Instead of attempting to obtain the highest price reasonably
available for pcOrder's shareholders, the defendants have taken actions in
violation of applicable state law which will only serve their own interests
and/or the interests of pcOrder's largest shareholder, while inhibiting the
maximization of shareholder value.
32. The Individual Defendants were and are under a duty:
(a) to fully inform themselves of the market value of pcOrder before
taking, or agreeing to refrain from taking, action;
(b) to act in the interests of the equity owners;
(c) to maximize shareholder value;
(d) to obtain the best financial and other terms when the Company's
independent existence will be materially altered by a transaction; and
(e) to act in accordance with their fundamental duties of due care
and loyalty.
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33. By the acts, transactions and courses of conduct alleged herein,
defendants, individually and as part of a common plan and scheme, or in breach
of their fiduciary duties to plaintiff and the other members of the Class, are
implementing and abiding by a process that will deprive plaintiff and other
members of the Class of the true value of their investment in pcOrder.
34. pcOrder shareholders will, if defendants' actions are allowed to
stand, be deprived of the opportunity for substantial gains the plaintiff and
Class members may realize if an active auction or open bidding process is
allowed to occur.
35. By reason of the foregoing acts, practices and course of conduct, the
defendants failed to exercise ordinary care and diligence in the exercise of
their fiduciary obligations toward plaintiff and the other pcOrder public
stockholders and were assisted in that failure by Trilogy which knowingly
assisted defendants' wrongful acts.
36. In light of the foregoing, plaintiff demands that the Individual
Defendants, as their fiduciary obligations require, immediately rescind all
agreements to pay defendants any "change of control" benefits or payments.
37. As a result of these defendants' failure to take such steps to date,
plaintiff and the other members of the Class have been and will be prevented
from obtaining a fair price for their shares.
38. Defendants are not acting in good faith toward plaintiff and the other
members of the Class, and have breached and are continuing to breach their
fiduciary duties to plaintiff and the members of the Class.
39. As a result of defendants' unlawful actions, plaintiff and the other
members of the Class will be irreparably harmed. Unless the defendants' actions
are enjoined by the Court, defendants will continue to breach their fiduciary
duties owed to plaintiff and the members of the Class, and will engage in a
process that inhibits the maximization of shareholder value.
40. Plaintiff and the other members of the Class have no adequate remedy
at law.
PRAYER
WHEREFORE, plaintiff demands judgment and preliminary and permanent
injunctive relief, in plaintiff's favor and in favor of the Class and against
defendants as follows:
A. Declaring that this action is properly maintainable as a class action;
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B. Declaring and decreeing that the Trilogy merger agreement was entered
into in breach of the fiduciary duties of the Individual Defendants and is
therefore unlawful and unenforceable;
C. Enjoining defendants from proceeding with the Trilogy merger agreement
and Tender Offer;
D. Enjoining defendants from consummating the merger unless and until the
Company discloses all material facts regarding the merger and implements
procedures to obtain the highest possible price for the Company;
E. Directing the Individual Defendants to exercise their fiduciary duties
to obtain a transaction which is in the best interests of shareholders until the
process for the sale or auction of the Company is completed and the highest
possible price is obtained;
F. Awarding plaintiff the costs and disbursements of this action,
including reasonable attorneys' and experts' fees; and
G. Granting such other and further equitable relief as this Court may
deem just and proper.
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Respectfully submitted,
BASKIN, BENNETT & KOMKOV, L.L.P.
James D. Baskin III
Leon V. Komkov
919 Congress Avenue, Suite 1000
Austin, TX 78701
Telephone: 512/381-6300
Facsimile: 512/322-9280
By: /s/ James D. Baskin III, by permission
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James D. Baskin III
State Bar No. 01872050
MILBERG WEISS BERSHAD
HYNES & LERACH LLP
William S. Lerach
Darren J. Robbins
Randall H. Steinmeyer
600 West Broadway, Suite 1800
San Diego, CA 92101
Telephone: 619/231-1058
Facsimile: 619/231-7423
ATTORNEYS FOR PLAINTIFF
VERIFICATION
STATE OF TEXAS S
S
COUNTY OF TRAVIS S
BEFORE ME, the undersigned Notary Public, on this day personally
appeared Marilyn Stahl, who being duly sworn on oath deposed and said that she
is the plaintiff in the above-styled and numbered cause; that she has read the
foregoing Original Petition, and that each statement of fact therein is true and
correct based upon a review of the public filings of Defendants.
/s/ Marilyn Stahl
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Marilyn Stahl
SUBSCRIBED AND SWORN TO BEFORE ME on the 28th day of November, 2000, to
certify which, witness my hand and official seal.
[NOTARY SEAL OF /s/ L.M. Ondrechen
L.M. ONDRECHEN] ----------------------------------
Notary Public in and for Texas
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