SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported) - October 18, 1995
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COMPUMED, INC.
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(Exact name of registrant as specified in its charter)
Delaware 0-14210 95-2860434
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(State or (Commission File (IRS Employer
other jurisdiction Number) Identification
of Incorporation) No.)
1230 Rosecrans Avenue, Suite 1000
Manhattan Beach, California 90266
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(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code - (310) 643-5106
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<PAGE>
ITEM 5. OTHER EVENTS
On October 18 and 19, 1995, the following securities
class action complaints were filed in the United States District
Court for the Central District of California against CompuMed,
Inc., a Delaware corporation (the "Registrant"):
1. Jeffrey Lynn v. Rod Raynovich and CompuMed, Inc.,
filed on October 18, 1995 (Civ. No. 95-7034);
2. CPA Data Systems, Inc. v. CompuMed, Inc., Rod N.
Raynovich, DeVere B. Pollom, Robert G. Funari,
Howard Mark, Robert Stuckelman and Russell Walker,
filed on October 18, 1995 (Civ. No. 95-7071);
3. Dana Bruno v. CompuMed, Inc., Rod N. Raynovich,
DeVere B. Pollom, Robert G. Funari, Howard L.
Mark and Robert G. Stuckelman, filed on
October 18, 1995 (Civ. No. 95-7051); and
4. Arthur Shinensky v. Rod Raynovich and CompuMed,
Inc., filed on October 19, 1995 (Civ. No. 95-
7069).
The complaints were filed by the named plaintiffs on behalf of
persons who purchased the Registrant's common stock during the
time period spanning from August 31, 1995 through October 17,
1995.
The complaints allege violations of federal securities
laws by the Registrant and certain of its officers and directors.
The complaints generally relate to the disclosure of certain caps
on the royalties receivable by the Registrant under the terms of
its Technology License Agreement, dated September 22, 1995, with
Merck & Co., Inc., pursuant to which the Registrant, effective
September 27, 1995, licensed its proprietary technology in the
OsteoGram(R) , a test which assists physicians in detecting
osteoporosis.
The complaints are included as Exhibits 99.1, 99.2,
99.3 and 99.4, respectively, and the press release issued by the
Registrant announcing the lawsuits is included as Exhibit 99.5.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(c) Exhibits.
Exhibit
Number Page
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99.1 Jeffrey Lynn v. Rod Raynovich and CompuMed,
Inc., filed on October 18, 1995 (Civ. No. 95-
7034).
99.2 CPA Data Systems, Inc. v. CompuMed, Inc., Rod
N. Raynovich, DeVere B. Pollom, Robert G.
Funari, Howard Mark, Robert Stuckelman and
Russell Walker, filed on October 18, 1995
(Civ. No. 95-7071).
99.3 Dana Bruno v. CompuMed, Inc., Rod N. Raynovich,
DeVere B. Pollom, Robert G. Funari, Howard Mark and
Robert G. Stuckelman, filed on October 18, 1995
(Civ. No. 95-7051).
99.4 Arthur Shinensky v. Rod Raynovich and
CompuMed, Inc., filed on October 19, 1995
(Civ. No. 95-7069).
99.5 Press Release, dated October 20, 1995.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned hereunto duly authorized.
Date: October 23, 1995 COMPUMED, INC.
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(Registrant)
/s/ Rod N. Raynovich
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Rod N. Raynovich
President and Chief Executive Officer
<PAGE>
EXHIBIT INDEX
Exhibit Page
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99.1 Jeffrey Lynn v. Rod Raynovich and CompuMed,
Inc., filed on October 18, 1995 (Civ. No. 95-
7034).
99.2 CPA Data Systems, Inc. v. CompuMed, Inc., Rod
N. Raynovich, DeVere B. Pollom, Robert G.
Funari, Howard Mark, Robert Stuckelman and
Russell Walker, filed on October 18, 1995
(Civ. No. 95-7071).
99.3 Dana Bruno v. CompuMed, Inc., Rod N. Raynovich,
DeVere B. Pollom, Robert G. Funari, Howard L. Mark
and Robert G. Stuckelman, filed on October 18, 1995
(Civ. No. 95-7051).
99.4 Arthur Shinensky v. Rod Raynovich and
CompuMed, Inc., filed on October 19, 1995
(Civ. No. 95-7069).
99.5 Press Release, dated October 20, 1995.
Exhibit 99.1
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
NOTICE OF ASSIGNMENT TO UNITED STATES MAGISTRATE JUDGE
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Pursuant to the Local Rules Governing Duties of Magistrate Judges, the
following Magistrate Judge has been designated to hear discovery motions
for this case at the discretion of the assigned District Judge:
[ ] Robert N. Block (RNBx) [ ] James w. McMahon (Mcx)
[ ] Rosalyn M. Chapman (RMCx) [X] Virginia A. Phillips (VAPx)
[ ] Elgin Edwards (EEx) [ ] Joseph Reichmann (JRx)
[ ] Charles F. Eick (Ex) [ ] Brian Q. Robbins (BQRx)
[ ] R.J. Groh, Jr. (JGx) [ ] Carolyn Turchin (CTx)
[ ] Stephen J. Hillman (SHx) [ ] Andrew J. Wistrich (AJWx)
Upon the filing of a discovery motion, the motion will be presented to
the United States District Judge for consideration and may thereafter be
referred to the Magistrate Judge for hearing and determination.
The Magistrate Judge's initials should be used on all documents filed
with the Court so that the case number reads as follows:
CV - 95 - 7034 MRP
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NOTE: A COPY OF THIS NOTICE MUST BE SERVED WITH THE
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COMPLAINT ON ALL DEFENDANTS.
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M-9 (08-959) NOTICE OF ASSIGNMENT TO UNITED STATES MAGISTRATE JUDGE
<PAGE>
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
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CASE NUMBER
Jeffrey Lynn
PLAINTIFF(S) CV- 95 - 7034 MRP (VAPx)
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vs.
Rod Raynovich, Compumed Inc. S U M M O N S
DEFENDANT(S)
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TO THE ABOVE-NAMED DEFENDANT(S), You are hereby summoned and required to
file with this court and serve upon
Law Offices of Brian Barry
Plaintiff's attorney, whose address is:
8424A Santa Monica Blvd., Suite 184
LA, CA 90069
Ph: 213-954-7210
Fax: 954-7235
an answer to the complaint which is herewith served upon you
within 20 days after service of this summons upon you, exclusive
of the day of service. If you fall to do so, judgment by default
will be taken against you for the relief demanded in the
complaint.
DATE: OCT 18 1995
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _
CLERK, U.S. DISTRICT COURT
By MARIA CORTEZ
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Deputy Clerk
(SEAL OF THE COURT)
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S U M M O N S
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CV-1A (1/87)
<PAGE>
Brian Barry (CSB # 135631)
LAW OFFICES OF BRIAN BARRY
8424-A Santa Monica Boulevard
Suite 184
Los Angeles, California 90069
Telephone: (213) 954-721
Fax: (213) 954-7235
Arthur N. Abbey
Mark C. Gardy
ABBEY & ELLIS
212 East 39th Street
New York, New York 10016
Telephone: (212) 889-3700
Attorneys for Plaintiff
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
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:
JEFFREY LYNN, : Civ. No. 95-7034 MRP (VAPx)
:
Plaintiff, :
: CLASS ACTION
- against - :
: PLAINTIFF DEMAND
ROD RAYNOVICH and COMPUMED, INC., : A TRIAL BY JURY
: - - - - - - - - -
:
:
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CLASS ACTION COMPLAINT
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Plaintiff, by his attorneys, for his complaint alleges
upon personal knowledge as to himself and his own acts and upon
information and belief as to all other matters as follows. Plaintiff's
information and belief is based upon, inter alia, the investigation made by
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and through his attorneys, including without limitation, public documents,
published reports and news articles.
JURISDICTION AND VENUE
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1. This Court has jurisdiction of this action pursuant to
Section 27 of the Securities Exchange Act of 1934 (the "Exchange Act"), 15
U.S.C. ss. 78aa, and 28 U.S.C. ss. 1331.
2. Plaintiff brings this action pursuant to ss. 10(b) and 20 of
the Exchange Act, 15 U.S.C. ss. 78j(b) and 78t, and Rule 10b-5 promulgated
thereunder by the Securities and Exchange Commission (the "SEC") and ss.
20A of the Exchange Act, 15 U.S.C. ss. 78u(d)(2)(c).
3. Venue is appropriate in this District pursuant to 28 U.S.C.
Sections 1391(b) and (c), because Compumed, Inc. ("Compumed" or the
"Company") has its corporate headquarters located in this District and is
doing business in this District. Plaintiff is informed and believes that
the individual defendant resides in this District.
4. In connection with the acts and conduct alleged
herein, the , directly and indirectly, used the means and
instrumentalities of interstate commerce, including the mails, telephone
communications, and the facilities of the national securities markets in
this District. Furthermore, the herein disseminated to the investing
public, reports and other documents relevant to the claims in this action,
prepared by or with the participation, acquiescence, encouragement,
cooperation or assistance of herein, within this District.
THE PARTIES
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5. Plaintiff Jeffrey Lynn ("Lynn") purchased 4000 shares of the
common stock of Compumed during the Class Period.
6. Defendant Compumed is a corporation organized under the laws
of the State of Delaware with its principal offices in Manhattan Beach,
California.
7. Defendant Rod Raynovich ("Raynovich") was at all relevant
times President and Chief Executive Officer of the Company.
CLASS ACTION ALLEGATIONS
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8. Plaintiff brings this action as a class action pursuant to
rule 23(a) and (b)(3) of the Federal Rules of Civil Procedure on behalf of
a class (the "Class") consisting of all persons who purchased or otherwise
acquired Compumed securities during the period September 27, 1995 through
October 17, 1995 (the "Class Period") and were damaged thereby. Excluded
from the Class is the defendant named herein, members of the immediate
family of the individually named defendant, his heirs, successor and
assigns and any subsidiary, affiliate, officer or employee or any
defendant.
9. The members of the Class are so numerous that joinder of all
members is impracticable. As of August 9, 1995, there were approximately
6.8 million shares of Compumed common stock outstanding. Compumed stock
was actively traded during the Class Period through the National
Association of Securities Dealers. Thousands of shares of Compumed stock
were traded during the Class Period and there was an efficient market for
the shares of Compumed stock. While the exact number of Class members is
unknown to plaintiff at this time and can only be ascertained through
appropriate discovery, plaintiff believes that there are hundreds, if not
thousands, of potential Class members. An efficient market for Compumed
securities existed at all times relevant to the Class Period.
10. Plaintiff's claims are typical of those of the other members
of the Class. Plaintiff and the other members of the Class sustained
injury as a result of ' acts alleged herein.
11. Plaintiff will fairly and adequately protect the interests
of the members of the Class and has retained counsel competent and
experienced in class and securities litigation. Plaintiff's interest is
not antagonistic to those of any other class members nor is plaintiff
subject to any unique defenses.
12. Common questions of law and fact exist as to all of the
Class and predominate over any questions affecting solely individual
members of the Class. Among the questions of law and fact common to
the Class are:
a. whether participated in the continuous scheme, plan and
course of conduct complained of herein;
b. whether the federal securities laws were violated by '
acts alleged herein;
c. whether the financial and other information issued by
or on behalf of Compumed during the Class Period and disseminated
to the investing public materially misrepresented or omitted to
state material facts about Compumed's business or future
prospects;
d. whether acted willfully, knowingly or recklessly or
with gross negligence or failed to exercise due care in
misrepresenting or failing to disclose material facts, or in
aiding and abetting such conduct;
e. whether the market price of Compumed's securities was
artificially inflated during the Class Period due to the
non-disclosure complained of herein; and
f. whether plaintiff and the Class have been damaged and
if so, what is the proper remedy and measure of damages under the
applicable law for the wrongs complained of herein.
13. A class action is superior to other available methods for
the fair and efficient adjudication of this controversy since joinder of
all members of the Class would be impracticable, damages to each individual
member of the Class may be relatively small and the expense and burden of
individual litigation makes it impossible for Class members to individually
seek redress for the wrongs done to them. There will be no difficulty in
the management of this action as a class action.
SUBSTANTIVE ALLEGATIONS
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14. Compumed manufactures, sells and distributes
electrocardiogram computer analysis equipment and distributes and
processes diagnostic tests for osteoporosis;
15. On August 31, 1995 it was announced that Merck & Co. and
Compumed were entering into an exclusive agreement to license Compumed's
OsteoGram(R). In return, Compumed was to receive a licensing fee and
royalty from Merck. No specific financial terms were disclosed at that
time.
16. Upon the announcement defendant Raynovich stated that:
RA technology is a safe, valuable,
inexpensive option for measuring
bone mass, particularly for
the thousands of physicians who already
have standard X-ray equipment in
their offices.
17. For the next month there was no further announcement about
the impending transaction. On September 27, 1995 it was finally announced
that the agreement between Merck and Compumed had been completed. Although
it was learned weeks later that the agreement had been signed on September
22, 1995, no specifics of the deal were announced other than the fact that
Merck would pay Compumed a licensing fee and royalties for five years.
Nowhere in the announcement was it disclosed that for the last two years of
the five-year agreement that the payments received by Compumed would be
capped at the lesser of $3 million or 10% of collected revenues for year
four and the lesser of $4 million or 10% of collected revenues for year
five. This provision was insisted upon by Merck prior to September 22,
1995.
18. Given that a company's stock price trades at a ratio of
price to earnings, ' knew or were reckless in not knowing that any
limitation on earnings would negatively affect the stock price of Compumed.
19. Thus, armed with the knowledge that there was a "cap" on the
payments to be paid by Merck and the resultant affect this would have on
Compumed's stock price, began to unload massive amounts of shares of
Compumed stock, before the public dissemination of the "cap."
20. The following insiders sold shares of Compumed as follows:
Name Position Date Shares
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Sold
- - -
Robert Funari Director 09/28/95 19,542
Howard Mark Director 09/25/95 22,800
Devere Pollom V.P. and CFO 09/08/95-09/12/95 5,000
Robert Stuckelman Director 09/21/95-09/29/95 90,000
Russell Walker Director 09/28/95 913
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Total 138,255
21. On October 11, 1995, apparently without the knowledge that
the agreement with Merck capped Compumed's earnings upside potential,
Montgomery securities rated Compumed a "buy." On that day Compumed's
shares rose almost $3 per share from a closing price of $14.375 on October
10, 1995 to close at $17.125 on October 11th on extraordinarily large
volume.
22. It was not until October 17, 1995, when Compumed
filed the Merck/Compued Agreement with the SEC, that the public
learned that the agreement, which had been signed September 22, 1995, would
cap payments at $3 million in 1999 and $4 million in 2000. As a result of
the disclosure of the cap, Compumed's stock dropped from $14.125 per share
to close at $8.25 per share, after reaching an in trading low of $7.
23. One analyst was quoted on the Bloomberg Business News
-----------------------
service as stating that the "cap hadn't been expected . . . everybody is
saying the company has mislead us and the company has lied to us."
24. Throughout the Class Period, the truth regarding the
Compumed\Merck Agreement was concealed from plaintiff and the investing
public.
25. During the Class Period, issued and disseminated various
documents and statements to the investing public, as set forth above, which
failed to disclose the terms of the Compumed\Merck Agreement and which had
the effect of artificially inflating the market prices of Compumed's
securities. The individual defendant, by reason of his position as a
primary executive officer of Compumed had actual knowledge of the omission
set forth above and intended thereby to deceive plaintiff and the other
members of the Class, or, in the alternative, acted with reckless disregard
for the truth when they failed to disclose the true facts.
26. were under a duty to disclose the material adverse
non-public information in light of the fact that persons within the Company
were trading on inside information and in light of the fact that undertook
such duty when they made any statements at all regarding the Merck/Compumed
Agreement.
27. The individual defendant manifested a conscious and
continuous intent to distort the truth and otherwise mislead the plaintiff
and the other members of the Class in order to artificially support and
maintain the market price of Compumed's securities.
28. During the Class Period, Compumed made affirmative
statements and failed to disclose material information concerning
Compumed. Under the circumstances, Compumed and the individual defendant
had the affirmative duty to speak fully and truthfully and disclose all
material information within its possession on the subject. Defendant's
disclosures were false when made and known to be such by virtue of, inter
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alia, omissions from its public statements.
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29. As a result of the materially false and misleading
information and of the failures to disclose material facts, as set forth
above, the market price of Compumed's securities were artificially inflated
during the Class Period. In ignorance of the falsity of the reports and
statements described above, plaintiff and the other members of the Class
relied, to their detriment, on the reports and statements described above
and/or on the integrity of the market prices of Compumed's securities
prevailing during the Class Period, in purchasing Compumed's securities in
the open market.
30. As a result of the wrongful conduct alleged herein,
plaintiff and the other members of the Class have suffered damages in an
amount to be proved at trial.
31. By virtue of the foregoing, have violated Section 10(b) of
the Exchange Act and Rule 10b-5 promulgated thereunder.
32. The individual defendant, by reason of his management
position was, during the time he held said positions at Compumed, a
"controlling" person within the meaning of Section 20 of the Exchange Act
and had the power and influence to control Compumed and exercised the same
to cause Compumed to engage in the illegal practices complained of herein.
The individual defendant, because of his position, had access to adverse
non-public information about the business plans and operations of Compumed
and acted to conceal the same in violation of his statutory and common law
duties as particularized above. By virtue of his position and conduct
therein, he has violated Section 20(a) of the Exchange Act.
WHEREFORE, plaintiff demands judgment against as follows:
A. Determining that this case is properly maintainable as a
class action pursuant to Rule 23 of the Federal Rules of Civil Procedure;
B. Awarding damages against, jointly and severally, in favor of
plaintiff and the other members of the Class for all losses and damages
suffered as a result of the acts and transactions complained of herein,
together with prejudgment interest from the date of the wrongs to the date
of the judgment herein;
C. Awarding plaintiff and the Class the costs and expenses
incurred in prosecuting this action, including reasonable attorney's and
expert's fees; and
D. Awarding plaintiff and the other members of the Class such
other and further relief as may be necessary.
Dated: October 18, 1995
Respectfully submitted,
LAW OFFICES OF BRIAN BARRY
By: /s/ Brian Barry
-----------------------------
Brian Barry (CSB # 135631)
8424-A Santa Monica Boulevard
Suite 184
Los Angeles, California 90069
Telephone: (213) 954-7210
Arthur N. Abbey
Mark C. Gardy
ABBEY & ELLIS
212 East 39th Street
New York, New York 10016
Telephone: (212) 889-3700
BARRY J. PINKOWITZ, ESQ.
230 Park Avenue
32nd Floor
New York, New York 10169
Telephone: (212) 682-4500
Attorneys for Plaintiff
<PAGE>
DEMAND FOR JURY TRIAL
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PLEASE TAKE NOTICE that pursuant to Rule 38(b) of the Federal
Rules of Civil Procedure, plaintiff hereby demands a trial by jury of all
issues triable by a jury.
Dated: October 18, 1995
Respectfully submitted,
LAW OFFICES OF BRIAN BARRY
By: /s/ Brian Barry
------------------------------
Brian Barry (CSB # 135631)
8424-A Santa Monica Boulevard
Suite 184
Los Angeles, California 90069
Telephone: (213) 954-7210
Arthur N. Abbey
Mark C. Gardy
ABBEY & ELLIS
212 East 39th Street
New York, New York 10016
Telephone: (212) 889-3700
BARRY J. PINKOWITZ, ESQ.
230 Park Avenue
32nd Floor
New York, New York 10169
Telephone: (212) 682-4500
Attorneys for Plaintiff
Exhibit 99.2
AO 440 (Rev. 5185) Summons in a Civil Action
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UNITED STATES DISTRICT COURT
CENTRAL CALIFORNIA
- - - - - - - - - - - - - - - DISTRICT OF- - - - - - - - - - - - - - - -
CPA DATA SYSTEMS, INC. on its behalf
and on behalf of all others
similarly situated SUMMONS ON A CIVIL ACTION
v. CASE NUMBER: 95-7071 WDK (AJWx)
COMPUMED, INC,, ROD N. RAYNOVICH,
DEVERE B. POLLOM, ROBERT G. FUNARI,
HOWARD MARK, ROBERT STUCKELMAN
and RUSSELL WALKER
TO: (Name and Address of Defendant)
COMPUMED, INC., ROD N. RAYNOVICH, DEVERE B. POLLOM, ROBERT G. FUNARI,
HOWARD MARK, ROBERT STUCKELMAN and RUSSELL WALKER, 1230 East Rosecrans,
Manhattan Beach, California.
YOU ARE HEREBY SUMMONED and required to file with the Clerk of this Court
and serve upon
PLAINTIFF'S ATTORNEY (name and address)
Lionel Z. Glancy #134180 (310) 319-3277
Law Offices of Lionel Z. Glancy
1299 Ocean Avenue Suite 323
Santa Monica California 90401
an answer to the complaint which is herewith served upon you, within 20
days after service of this summons upon you, exclusive of the day of
service. If you fail to do so, Judgment by default will be taken against
you for the relief demanded in the complaint.
FRANK E. GOODROE OCT 19 1995
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CLERK DATE
MARIA CORTEZ
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BY DEPUTY CLERK
<PAGE>
AO 440 (Rev. 5/85) Summons in a Civil Action
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RETURN OF SERVICE
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Service of the Summons and
Complaint was made by me (1) DATE
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NAME OF SERVER TITLE
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Check one box below to indicate appropriate method of service
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[ ] Served personally upon the defendant. Place where served: _ _ _
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __
[ ] Left copies thereof at the defendant's dwelling house or usual
place of abode with a person of suitable age and discretion then
residing therein.
Name of person with whom the summons and complaint were left: __
[ ] Returned unexecuted: _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __
[ ] Other (specify): _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __
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STATEMENT OF SERVICE FEES
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TRAVEL SERVICES TOTAL
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DECLARATION OF SERVER
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I declare under penalty of perjury under the laws of the United
States of America that the foregoing information contained in the
Return of Service and Statement of Service Fees is true and correct.
Executed on _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Date Signature of Server
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Address of Server
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1) As to who may serve a summons see Rule 4 of the Federal Rules of
Civil Procedure.
<PAGE>
LIONEL Z. GLANCY #134180
LAW OFFICES OF LIONEL Z. GLANCY
1299 Ocean Avenue
Suite 323
Santa Monica, California 90401
(310) 319-3277
JOSEPH J. TABACCO
BERMAN, DEVALERIO, PEASE
& TABACCO
235 Montgomery Street, Suite 2510
San Francisco, CA 94104
(415) 433-3200
STANLEY M. GROSSMAN
D. BRIAN HUFFORD
POMERANTZ HAUDEK BLOCK
& GROSSMAN
100 Park Avenue
New York, NY 10017
DAVID JAROSLAWICZ
JAROSLAWICZ & JAROS
150 Williams Street
New York, NY 10038
(212) 227-2780
Attorneys for Class Plaintiffs
UNITED STATES DISTRICT COURT
FOR THE CENTRAL DISTRICT OF CALIFORNIA
CPA DATA SYSTEMS, INC., on its ) Case No.
behalf and on behalf of all others )
similarly situated, ) SECURITIES FRAUD CLASS
) ACTION COMPLAINT
)
Plaintiff, )
)
v. ) Jury Trial Demanded
) - - - - - - - - - -
COMPUMED, INC., ROD N. RAYNOVICH, )
DEVERE B. POLLOM, ROBERT G. FUNARI, )
HOWARD MARK, ROBERT STUCKELMAN and )
RUSSELL WALKER, )
)
Defendants. )
)
- - - - - - - - - - - - - - - - - - - - )
Plaintiff, individually and on behalf of all other persons similarly
situated, by its undersigned attorneys, for its complaint, alleges upon
personal knowledge as to itself and its own acts, and upon information and
belief as to all other matters, based upon, inter alia, the investigation
----- ----
made by and through its attorneys, which investigation included, among
other things, a review of the public documents, analyst reports and news
releases of CompuMed Inc. ("CompuMed" or the "Company"):
NATURE OF ACTION
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1. Plaintiff brings this action as a class action on behalf of
itself and all other persons who purchased CompuMed stock on the open
market during the Class Period, as defined below, to recover damages caused
by defendants' violations of the federal securities laws with regards to
the preparation and dissemination to the investing public of false and
misleading information.
2. The materially false and misleading statements, which are
described in detail below, concerned an agreement entered into between
CompuMed and Merck & Co. for the marketing of a key technology of the
Company, called the OsteoGram. These false and misleading statements were
contained in public statements and press releases issued by CompuMed which
caused the market price of the Company's securities to be artificially
inflated.
JURISDICTION AND VENUE
- - - - - - - - - - - -
3. The claims alleged herein arise under Sections 10(b), 20 and
20A of the Securities Exchange Act of 1934 (the "Exchange Act"), 15 U.S.C.
ss. 78j(b), 78t and 78t-1, and Rule 10b-5, 17 C.F.R. ss. 240.10b-5
promulgated thereunder.
4. The jurisdiction of this Court is based on Section 27 of the
Exchange Act, 15 U.S.C. ss. 78aa and 28 U.S.C. ss. 1331 (federal question
jurisdiction).
5. Many of the acts alleged herein, including the
dissemination to the investing public of the misleading statements at
issue, occurred in substantial part in this District.
6. In connection with the acts, transactions and conduct
alleged herein, defendants used the means and instrumentalities of
interstate commerce, including the United States mails, interstate
telephone communications and the facilities of national securities
exchanges and markets.
THE PARTIES
- - - - - -
7. Plaintiff CPA Data Systems, Inc. purchased 1,000 shares of
CompuMed common stock on October 13, 1995 at the artificially inflated
price of $17-1/2 per share.
8. Defendant CompuMed develops the use of computer technology
for assisting in the treatment and diagnosis of medical problems. It is
based in Manhattan Beach, California.
9. Defendant Rod N. Raynovich is the President and Chief
Executive Officer of CompuMed.
10. Defendant Devere B. Pollom is a Vice President of CompuMed.
From September 8, 1995 through September 12, 1995, Pollom sold 5,000 shares
of CompuMed common stock at artificially inflated prices while in the
possession of material non-public information concerning the terms of the
Company's agreement with Merck. This sale represented a substantial
portion of his holdings.
11. Defendant Howard Mark is a Director of CompuMed. On
September 25, 1995, Mark sold 22,800 shares of CompuMed common stock at
artificially inflated prices while in the possession of material non-public
information concerning the terms of the Company's agreement with Merck.
This sale represented a substantial portion of his holdings.
12. Defendant Robert G. Funari is a Director of CompuMed. On
September 28, 1995, Funari sold 19,542 shares of CompuMed common stock
while in the possession of material non-public information concerning the
terms of the Company's agreement with Merck. This sale represented his
entire holdings in Company stock.
13. Defendant Robert Stuckelman is a Director of CompuMed. From
September 21, 1995 through September 29, 1995, Stuckelman sold 90,000
shares of CompuMed common stock while in the possession of material
non-public information concerning the terms of the Company's agreement with
Merck. This sale represented a substantial portion of his holdings.
14. Defendant Russell Walker is a Director of CompuMed. On
September 28, 1995, Walker sold 918 shares of CompuMed common stock while
in the possession of material non-public information concerning the terms
of the Company's agreement with Merck. This sale represented his entire
holdings in Company stock. Defendants Raynovich, Pollom, Funari, Mark,
Stuckelman and Walker are referred to herein collectively as the
"Individual Defendants."
15. Throughout the Class Period, the CompuMed acted through the
Individual Defendants, whom it portrayed and represented to the financial
press and the public as its valid representative. The wilfulness, motive,
knowledge and recklessness of the Individual Defendants are therefore
imputed to CompuMed, which is primarily liable for the securities law
violations of the Individual Defendants while acting in their official
capacities as Corporate representatives.
16. Throughout the Class Period the Individual Defendants were
portrayed and represented by themselves and CompuMed as being the true and
valid representatives of the Company. In making the alleged
misrepresentations and omissions, the Individual Defendants thereby acted
within the scope of the actual or apparent authority of CompuMed. As such,
the Company is liable for the acts of the Individual Defendants under the
doctrine of respondeat superior.
- - - - - - - - - -
17. The Individual Defendants, as officers and directors of the
Company, are controlling persons of CompuMed within the meaning of Section
20 of the Exchange Act. By reason of their positions with the Company,
they were able to and did, directly or indirectly, in whole or in material
part, control the content of public statements issued by or on behalf of
the Company. They participated in and approved the issuance of such
statements at or about the time of their issuance. By reason of their
positions with the Company, the Individual Defendants had access to
internal Company documents, reports and other information, including
information concerning the details of the agreement between CompuMed and
Merck, and attended management and/or board of directors meetings. As a
result of the foregoing, they were responsible for the truthfulness and
accuracy of the Company's public reports and releases described herein.
18. The Company and the Individual Defendants, as officers and
directors of a publicly-held company, had a duty to promptly disseminate
truthful and accurate information with respect to the Company and to
promptly correct any public statements issued by or on behalf of the
Company which had become false or misleading.
19. The Individual Defendants who sold shares of common stock
during the Class Period had a duty not to make such sales while in the
possession of material, non-public information, including the terms and
conditions of the CompuMed/Merck agreement. By selling such shares while
in the possession of such material, non-public information, the Individual
Defendants thereby violated the federal securities laws.
20. Each of the defendants knew or recklessly disregarded that
the misleading statements and omissions complained of herein would
adversely affect the integrity of the market for the Company's stock and
would cause the price of the Company's common stock to become artificially
inflated. Each of the defendants acted knowingly or in such a reckless
manner as to constitute a fraud and deceit upon plaintiff and the other
members of the Class.
21. Defendants are liable, jointly and severally, as direct
participants in or co-conspirators of the wrongs complained of herein.
CLASS ALLEGATIONS
- - - - - - - - -
22. Plaintiff brings this action as a class action pursuant to
Federal Rules of Civil Procedure 23(a) and (b)(3) on behalf of a class
consisting of all persons who purchased the Company's common stock during
the period from August 31, 1995 through October 17, 1995, inclusive (the
"Class Period"), and who suffered damages thereby (the "Class"). Excluded
from the Class are the defendants, members of the Individual Defendants'
families, any entity in which any defendant has a controlling interest or
is a parent or subsidiary of or is controlled by the Company, and the
officers, directors, employees, affiliates, legal representatives, heirs,
predecessors, successors and assigns of any of the defendants.
23. The members of the Class are located in geographically
diverse areas and are so numerous that joinder of all members is
impracticable. During the Class Period there were millions of shares of
CompuMed common stock outstanding. While the exact number of Class members
is unknown to the plaintiff at this time and can only be ascertained
through appropriate discovery, the plaintiff believes there are, at a
minimum, thousands of members of the Class who traded Company stock during
the Class Period.
24. Common questions of law and fact exist as to all members of
the Class and predominate over any questions affecting solely individual
members of the Class. Among the questions of law and fact common to the
Class are:
a. Whether defendants engaged in acts or conduct in
violation of the federal securities laws as alleged herein;
b. Whether defendants participated in and pursued the
common course of conduct complained of herein;
c. Whether the challenged public statements disseminated
to the investing public and to the members of the Class omitted or
misrepresented material facts about the agreement between CompuMed and
Merck, or became materially false and misleading during the Class Period;
d. Whether defendants had a duty to correct such
statements when they learned they had become false and misleading;
e. Whether defendants acted knowingly or recklessly in
making materially false and misleading statements or in failing to correct
such statements upon learning that they were materially false and
misleading;
f. Whether the market prices of the Company's securities
during the Class Period were artificially inflated because of the
defendants' conduct complained of herein; and
g. Whether the members of the Class have sustained damages
and, if so, what is the proper measure of damages.
25. The plaintiff's claims are typical of the claims of the
members of the Class as plaintiff and members of the Class sustained
damages arising out of defendants' wrongful conduct in violation of federal
law as complained of herein.
26. The plaintiff will fairly and adequately protect the
interests of the members of the Class and has retained counsel competent
and experienced in class and securities litigation. The plaintiff has no
interests antagonistic to or in conflict with those of the Class.
27. A class action is superior to other available methods for
the fair and efficient adjudication of this controversy since joinder of
all members of the Class is impracticable. Furthermore, because the
damages suffered by individual Class members may be relatively small, the
expense and burden of individual litigation make it impossible for the
Class members individually to redress the wrongs done to them. There will
be no difficulty in the management of this action as a class action.
28. Plaintiff will rely, in part, upon the presumption of
reliance established by the fraud-on-the-market doctrine in that:
(a) defendants made public misrepresentations or failed to
disclose material facts during the Class Period;
(b) the omissions and misrepresentations were material;
(c) the securities of the Company traded in an efficient market;
(d) the misrepresentations and omissions alleged would tend to
induce a reasonable investor to misjudge the value of the Company's
securities; and
(e) plaintiff and the members of the Class purchased their
Company stock between the time the defendants failed to disclose or
misrepresented material facts and the time the true facts were disclosed,
without knowledge of the omitted or misrepresented facts.
29. Based upon the foregoing, plaintiff and the members of the
Class are entitled to a presumption of reliance upon the integrity of the
market.
SUBSTANTIVE ALLEGATIONS
- - - - - - - - - - - -
BACKGROUND
- - - - - -
30. CompuMed designs methods by which computer
technology can be used to assist in the treatment and diagnosis
of medical problems. One of its most important potential
products is the OsteoGram, which assists in the diagnosis of osteoporosis
by measuring bone mass with standard x-ray equipment through the use of
radiographic absorptiometry ("RA") technology.
31. In a June 13, 1995 press release, CompuMed emphasized the
significance of the OsteoGram to the Company's future and highlighted its
ongoing effort to locate a strategic partner for the successful development
of the product:
"The company is . . . well positioned in the emerging field of
osteoporosis diagnostics, which is expected to grow rapidly with
the arrival of promising new drugs to treat osteoporosis," said
Raynovich. "CompuMed is pursuing its key objective for this year
in seeking a strategic partner for its OsteoGram low-cost,
easy-to-use bone density test. The OsteoGram is accessible to
all potential patients because it uses computer analysis of
simple hand X-rays performed in a physician's office."
32. On June 27, 1995, CompuMed reported that it was involved in
negotiations with another company to license its OsteoGram bone density
test. Although it did not disclose who the potential partner was or when
an agreement might be reached, the announcement nevertheless had a
substantial positive impact on the Company's stock price, which rose as
much as 1-1/8 to 6-3/16 on trading of more than 503,000 shares, or more
than three times its three-month daily trading average of 141,000 shares.
33. Forbes magazine subsequently reported on August 1, 1995 that
Merck might emerge as CompuMed's marketing partner, as Merck's new
osteoporosis drug, Fosamax, was believed to be benefitted substantially by
the use of the OsteoGram to identify the underdiagnosed disease of
osteoporosis by measuring bone density using computer analysis of standard
X-rays.
34. CompuMed issued another press release on August 11, 1995 in
which it reported its results for the third quarter ending June 30, 1995.
In that release, Raynovich stated: "The company is currently in the final
stage of negotiation for licensing of the OsteoGram. This was previously
announced on June 27, 1995."
THE COMPUMED/MERCK AGREEMENT
- - - - - - - - - - - - - -
35. After much anticipation, CompuMed and Merck finally reached
agreement on the licensing of the OsteoGram by the end of August. In a
joint press release dated August 31, 1995, the companies declared:
Under the agreement, Merck will obtain the worldwide, exclusive
rights to the OsteoGram from CompuMed, a Manhattan Beach,
Calif., firm. In return, CompuMed will receive a licensing
fee and royalties on all OsteoGram tests performed over a
period of five years. Specific financial terms of the
agreement were not disclosed.
They then stated that the closing of the agreement was contingent upon the
satisfaction of certain conditions by September 22, 1995.
36. Raynovich went to state in the release that "RA technology
is a safe, valuable, inexpensive option for measuring bone mass,
particularly for the thousands of physicians who already have standard
x-ray equipment in their offices."
37. On September 27, 1995, CompuMed announced that it had
completed its agreement with Merck, stating:
Under terms of the agreement, Merck will pay
CompuMed a licensing fee and royalties on all
OsteoGram tests performed for the next five
years. Merck will also work to develop
OsteoGram product improvements.
Raynovich was listed as the contact person for CompuMed in the press
release.
38. The statements made in both the August 31, 1995 and the
September 27, 1995 press releases were materially false and misleading
because, while they highlighted that CompuMed would received fees and
royalties on all tests performed over a period of five years, they failed
to disclose that in the last two years of the contract the amount of fees
and royalties which CompuMed could receive would be capped to a level
substantially limiting the Company's potential earnings from the agreement.
CompuMed's statement in the August press release that the specific
financial terms of the agreement were not being disclosed did not offset
the misleading nature of the information that was disclosed.
THE REVELATION OF THE FRAUD
- - - - - - - - - - - - - -
39. On October 17, 1995, CompuMed finally disclosed the true
details about its agreement with Merck, stating in a press release:
Under the license agreement for the first-
generation OsteoGram, Merck will pay CompuMed
royalties for each revenue-producing test using
the OsteoGram technology during the years 1996
through 2000. The royalties will escalate from
$2 to $4 per test over that period. These
royalties have no maximum amount during 1996
through 1998, but they are subject to a maximum
in 1999 equal to the lesser of 10 percent of
Merck's total collected revenues or $3 million
and a maximum in 2000 equal to the lesser of 10
percent of Merck's total collected revenues or
$4 million. There are no minimum royalties
under the agreement.
40. The previously undisclosed cap on royalty payments under the
agreement was highly material. According to the Merck/CompuMed press
release issued on August 31, 1995, only a small percentage of the 38
million women on the United States who are over 59 have had tests measuring
their bone mass, with analysts stating that less than 5 percent of
American women over 50 having been tested for osteoporosis. While this
indicates that a huge potential exists if women can be encouraged to take
such tests, it also suggests that it may take a period of years before a
substantial number of women do begin doing so. Thus, the cap placed on
CompuMed's earnings could well exist just when it would have been in a
position to benefit the most from the contract. In addition, by the end of
the five year agreement, competitors could well be in a position to take
away much of the business from CompuMed.
41. The materiality of the news concerning the cap on the
royalties which CompuMed could expect to receive is evidenced by the
reaction of the market. By the end of the day on October 17, CompuMed
stock had closed down 48 percent, declining by 7-3/4 to 8-1/4 per share on
trading of 5.15 million shares, losing all of the gains made since the
announcement of the agreement on August 31, 1995. This represented the
12th most active stock in U.S. composite trading and the single largest
percentage decliner. As reported that day by Bloomberg, the plummeting
stock price reflected investors' "disappointment over the terms of a
licensing agreement with Merck & Co. for CompuMed's osteoporosis test."
42. On October 18, 1995, the slide continued, with the stock
price falling another 19 percent, dropping by 1-9/16 to 6-11/16. According
to Bloomberg's summary of the day's results, this stock price fell on news
that Merck & Co. will pay less than expected for its osteoporosis test."
43. As demonstrated by the market 's sharp and efficient
reaction to CompuMed's announcement, the investing public had clearly been
misled by the Company. As reported by Bloomberg on October 17:
James Broadfoot, a CompuMed investor and chief
investment officer at $1.8 billion-asset Ivy
Management Inc. in Boca Raton, Florida, said the
royalty cap hadn't been expected. Today's stock
slide, he said, suggests "everybody is saying
the company has misled us and the company has
lied to us." Neither CompuMed or Merck had
revealed financial arrangements when first
announcing the agreement on Aug. 31. Several of
CompuMed's directors and a vice president have
sold a total of 137, 342 shares since then.
THE FALSE AND MISLEADING NATURE OF DEFENDANTS' REPRESENTATIONS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
44. At the time of both the August 31, 1995 and September 27,
1995 press releases, defendants clearly knew, but intentionally or
recklessly failed to disclose, the material terms of their agreement with
Merck, including one of the most critical items -- the cap on CompuMed's
royalty earnings for the last two years of the contract. In making,
authorizing or acquiescing in the statements contained in the press
releases, defendants therefore knew or recklessly disregarded the fact
that they were misleading the market, thereby artificially inflating the
price of the Company's common stock in violation of the federal securities
laws.
INSIDER SALES
-------------
45. From September 8, 1995 through September 29, 1995 Company
insiders sold a total of over 137,000 shares of CompuMed stock while with
knowledge of, and access to, material non-public information concerning
the terms of the CompuMed/Merck agreement. In so doing, the Individual
Defendants who made such sales, including defendants Pollom, Mark, Funari,
Stuckelman and Walker, made substantial profits by selling their shares at
prices which had been artificially inflated as a result of the Company's
misrepresentations and omissions. The plaintiff purchased its shares of
Company stock contemporaneously with these sales by the Individual
Defendants.
46. The sales by the Individual Defendants alleged herein are
not only sufficient facts from which to infer the defendants scienter in
making the alleged misrepresentations and omissions identified herein, but
they also created a duty on the part of defendants to disclose all material
non-public information in their possession at the time of such sales.
COUNT I
-----------
(AGAINST ALL DEFENDANTS FOR VIOLATIONS OF
SECTIONS 10(B) AND RULE 10B-5 AND AGAINST THE INDIVIDUAL
DEFENDANTS PURSUANT TO SECTION 20 OF THE EXCHANGE ACT)
47. Plaintiff repeats and realleges the foregoing paragraphs.
48. Throughout the Class Period, defendants caused to be issued
or participated in the preparation and issuance of the materially
misleading public statements described above and certain of the Individual
Defendants identified herein sold shares of CompuMed common stock while in
the possession of, or with access to, material non-public information.
49. Defendants had actual knowledge of the misrepresentations
and omissions of material facts set forth herein, or acted with reckless
disregard for the truth in that they failed to ascertain and to disclose
such facts, even though they were available to them.
50. A compelling inference of defendants' knowing and/or
reckless participation in a fraud arises from the trading by certain of the
Individual Defendants of Company stock at prices artificially inflated by
defendants' misleading statements and by the nature of the omitted facts
concerning the CompuMed/Merck agreement, facts of which it can be inferred
that Company officers and directors would have been aware at the time the
agreement was entered into.
51. As a result of the above described acts, defendants,
severally and in concert, directly and indirectly, by use of the means and
instrumentalities of interstate commerce, violated Section 10(b) of the
Exchange Act and Rule 10b-5 promulgated thereunder in that they knowingly
or recklessly (a) employed devices, schemes and artifices to defraud; (b)
made untrue statements of material facts or omitted to state material
facts necessary in order to make the statements made, in light of the
circumstances in which they were made, not misleading; or (c) engaged in
acts, practices and a course of business that operated as a fraud or deceit
upon plaintiffs and the Class in connection with their purchases of the
Company's common stock.
52. Because of their positions of control and authority as
officers and directors of the Company, the Individual Defendants had power
and influence, and exercised the same, over the Company, and were able to
and did, directly or indirectly, control the content of the aforesaid
statements relating to the Company. Therefore, they were controlling
persons of the Company within the meaning of Section 20(a) of the Exchange
Act and are liable thereunder. Because of their positions with the
Company, the Individual Defendants had access to adverse non-public
information about the financial condition, operations and future business
prospects of the Company as particularized herein and acted to misrepresent
and conceal the same.
53. With knowledge and/or reckless disregard of the truth, the
Individual Defendants caused or controlled the issuance of the public
statements containing misstatements and omissions of material facts as
alleged herein.
54. During the Class Period, the Company's common stock was
traded in an active and efficient securities market by means of a
nationwide electronic trading network which instantly and simultaneously
reflects, on thousands of trading screens, computerized market information
concerning stock price and trading activity as well as displaying relevant
current data concerning the Company supplied by news wire services. In
addition, the Company disseminated the false statements by the wire
services and financial press.
55. As a result of the deceptive practices and false and
misleading statements and omission described above, the market price of the
Company's stock was artificially inflated throughout the Class Period.
56. Plaintiff and the Class, relying on the integrity of the
market in the Company's stock and/or defendants' misrepresentations,
purchased Company stock during the Class Period at artificially inflated
prices. Had the plaintiff and the Class known the truth concerning the
misrepresented and omitted facts described herein, they would not have
purchased the Company's stock at the prices they did, if at all. At the
time of the purchases by plaintiff and the members of the Class, the true
value of the Company's stock was substantially less than the prices paid by
plaintiff and the Class. Accordingly, plaintiff and the members of the
Class have been damaged as a result of the defendants' wrongdoing.
COUNT II
---------
(AGAINST DEFENDANTS POLLOM, FUNARI, MARK, STUCKELMAN AND WALKER
FOR VIOLATIONS OF SECTION 20A OF THE EXCHANGE ACT)
57. Plaintiff repeats and realleges the foregoing paragraphs.
58. Defendants Pollom, Funari, Mark, Stuckelman and Walker sold
shares of CompuMed during the Class Period while in possession, or with
access to, material non-public information. These sales of CompuMed stock
by the Individual Defendants described herein were made contemporaneously
with plaintiff's purchase of the Company's common stock. As such, these
defendants are liable to the plaintiff and the Class for violations of
Section 20A of the Exchange Act.
WHEREFORE, plaintiff on behalf of itself and the Class pray for
judgment as follows:
1. Declaring this action to be a proper class action
maintainable pursuant to Rule 23 of the Federal Rules of Civil Procedure
and plaintiff to be a proper class representative;
2. Awarding plaintiff and the Class compensatory damages,
together with appropriate prejudgment interest at the maximum rate
allowable by law;
3. Awarding plaintiff and the Class their costs and expenses
for this litigation including reasonable attorneys' fees and other
disbursements; and
4. Awarding plaintiff and the Class such other and further
relief as may be just and proper under the circumstances.
Dated: October 19, 1995 LAW OFFICES OF LIONEL Z. GLANCY
By /s/ Lionel Z. Glancy
-------------------------------
Lionel Z. Glancy, Esquire
Attorney for Plaintiffs
1299 Ocean Avenue
Suite 323
Santa Monica, CA 90401
(310) 319-3277
BERMAN, DEVALERIO, PEASE
& TABACCO
By /s/ Joseph J. Tabacco lzg
--------------------------------
Joseph J. Tabacco
235 Montgomery Street
Suite 2510
San Francisco, CA 94104
(415) 433-3200
POMERANTZ HAUDEK BLOCK
& GROSSMAN
By /s/ Stanley M. Grossman lzg
-------------------------------
Stanley M. Grossman, Esq.
D. Brian Hufford, Esq.
100 Park Avenue
New York, NY 10017
JAROSLAWICZ & JAROS
David Jaroslawicz, Esq.
150 Williams Street
New York, NY 10038
(212) 227-2780
<PAGE>
DEMAND FOR JURY TRIAL
---------------------
Plaintiffs hereby demand a jury trial pursuant to Federal Rules
of Civil Procedure Rule 38 (b) and Local Rule 3.4.10.
Dated: October 19, 1995 LAW OFFICES OF LIONEL Z. GLANCY
By /s/ Lionel Z. Glancy
-------------------------------
Lionel Z. Glancy, Esquire
Attorney for Plaintiffs
1299 Ocean Avenue
Suite 323
Santa Monica, CA 90401
(310) 319-3277
BERMAN, DEVALERIO, PEASE
& TABACCO
By /s/ Joseph J. Tabacco lzg
-------------------------------
Joseph J. Tabacco
235 Montgomery Street
Suite 2510
San Francisco, CA 94104
(415) 433-3200
POMERANTZ HAUDEK BLOCK & GROSSMAN
By /s/ Stanley M. Grossman lgz
-------------------------------
Stanley M. Grossman, Esq.
D. Brian Hufford, Esq.
100 Park Avenue
New York, NY 10017
JAROSLAWICZ & JAROS
David Jaroslawicz, Esq.
150 Williams Street
New York, NY 10038
(212) 227-2780
Exhibit 99.3
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNLA
NOTICE OF ASSIGNMENT TO UNITED STATES MAGISTRATE JUDGE
- - - - - - - - - - - - - - - - - - - - - - - - - - - -
Pursuant to the Local Rules Governing Duties of Magistrate Judges, the
following Magistrate Judge has been designated to hear discovery motions
for this case at the discretion of the assigned District Judge:
[ ] Robert N. Block (RNBx) [ ] James W. McMahon (Mcx)
[ ] Rosalyn M. Chapman (RMCx) [ ] Virginia A. Phillips (VAPx)
[ ] Elgin Edwards (EEx) [ ] Joseph Reichmann (JRx)
[ ] Charles F. Eick (Ex) [ ] Brian Q. Robbins (BQRx)
[ ] R.J. Groh, Jr. (JGx) [ ] Carolyn Turchin (CTx)
[X] Stephen J. Hillman (SHx) [ ] Andrew J. Wistrich (AJWx)
Upon the filing of a discovery motion, the motion will be presented to
the United States District Judge for consideration and may thereafter be
referred to the Magistrate Judge for hearing and determination.
The Magistrate Judge's initials should be used on all documents filed
with the Court so that the case number reads as follows:
CV- 95 - 7069 MRP (SHx)
NOTE: A COPY OF THIS NOTICE MUST BE SERVED WITH THE
- - - - - - - - - - - - - - - - - - - - - - -
COMPLAINT ON ALL DEFENDANTS.
- - - - - - - - - - - - - -
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
M-9 (08/95) NOTICE OF ASSIGNMENT TO UNITED STATES MAGISTRATE JUDGE
<PAGE>
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
-------------------------------------------------------------------------
Arthur Shinensky CASE NUMBER
PLAINTIFF(S) CV- 95 - 7069 MRP (SHx)
---------------------------------
vs.
Rod Raynovich and Compumed, Inc. S U M M O N S
DEFENDANT(S)
-------------------------------------------------------------------------
TO THE ABOVE-NAMED DEFENDANT(S), You are hereby summoned and required to
file with this court and serve upon
Brian Barry, Esq.
Plaintiff's attorney, whose address is:
Law Offices of Brian Barry
8424A Santa Monica Blvd., Suite 184
Los Angeles, CA 90069
213-954-7210
an answer to the complaint which is herewith served upon you within 20
days after service of this summons upon you, exclusive of the day of
service. If you fail to do so, judgment by default will be taken
against you for the relief demanded in the complaint.
DATE: October 19, 1995
- - - - - - - - - - - -
CLERK, U.S. DISTRICT COURT
By DENISE HARRELL
- - - - - - - - - - - -
Deputy Clerk
(SEAL OF THE COURT)
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
S U M M O N S
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
CV-1A (1/87)
<PAGE>
Brian Barry (CSB # 135631)
LAW OFFICES OF BRIAN BARRY
8424-A Santa Monica Boulevard
Suite 184
Los Angeles, California 90069
Telephone: (213) 954-7210
Fax: (213) 954-7235
NADEEM FARUQI
FARUQI & FARUQI, LLP
415 Madison Avenue
New York, New York 10017
Tel: (212) 986-1074
ROBERT C. SUSSER
ROBERT C. SUSSER, P.C.
6 East 43rd Street - Suite 1900
New York, New York 10017
Tel: (212) 808-0298
Attorneys for Plaintiff
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
- - - - - - - - - - - - - - - - - - - - x
:
ARTHUR SHINENSKY, : Civ. No.
: CLASS ACTION COMPLAINT
Plaintiff, : FOR VIOLATION OF
: FEDERAL SECURITIES
- against - : LAWS
:
ROD RAYNOVICH and COMPUMED, INC., :
:
Defendants. : PLAINTIFF DEMANDS
: A TRIAL BY JURY
- - - - - - - - - - - - - - - - - - - - x - - - - - - - -
CLASS ACTION COMPLAINT
- - - - - - - - - - - -
Plaintiff, by his attorneys, for his complaint alleges upon
personal knowledge as to himself and his own acts and upon information and
belief as to all other matters as follows. Plaintiff's information and
belief is based upon, inter alia, the investigation made by and through
- - - - -
his attorneys, including without limitation, public documents, published
reports and news articles.
JURISDICTION AND VENUE
- - - - - - - - - - - -
1. This Court has jurisdiction of this action pursuant to
Section 27 of the Securities Exchange Act of 1934 (the "Exchange Act"), 15
U.S.C. ss. 78aa, and 28 U.S.C. ss. 1331.
2. Plaintiff brings this action pursuant to ss. 10(b) and 20
of the Exchange Act, 15 U.S.C. ss. 78j(b) and 78t, and Rule 10b-5
promulgated thereunder by the Securities and Exchange Commission (the
"SEC") and ss. 20A of the Exchange Act, 15 U.S.C. ss. 78u(d)t2)(c).
3. Venue is appropriate in this District pursuant to 28 U.S.C.
Sections 1391(b) and (c), because Compumed, Inc. ("Compumed" or the
"Company") has its corporate headquarters located in this District and is
doing business in this District. Plaintiff is informed and believes that
the individual defendant resides in this District.
4. In connection with the acts and conduct alleged herein, the,
directly and indirectly, used the means and instrumentalities of interstate
commerce, including the mails, telephone communications, and the facilities
of the national securities markets in this District. Furthermore, the
herein disseminated to the investing public, reports and other documents
relevant to the claims in this action, prepared by or with the
participation, acquiescence, encouragement, cooperation or assistance of
herein, within this District.
THE PARTIES
- - - - - -
5. Plaintiff Arthur Shinensky purchased 1400 shares of the
common stock of Compumed during the Class Period.
6. Defendant Compumed is a corporation organized under the laws
of the State of Delaware with its principal offices at 1230 Rosecrans Ave.,
Suite 1000, Manhattan Beach, California.
7. Defendant Rod Raynovich ("Raynovich") was at all relevant
times President and Chief Executive Officer of the Company.
CLASS ACTION ALLEGATIONS
- - - - - - - - - - - - -
8. Plaintiff brings this action as a class action pursuant to
rule 23(a) and (b)(3) of the Federal Rules of Civil Procedure on behalf of
a class (the "Class") consisting of all persons who purchased or otherwise
acquired Compumed securities during the period September 27, 1995 through
October 17, 1995 (the "Class Period") and were damaged thereby. Excluded
from the Class is the defendant named herein, members of the immediate
family of the individually named defendant, his heirs, successors and
assigns and any subsidiary, affiliate, officer or employee or any
defendant.
9. The members of the Class are so numerous that joinder of all
members is impracticable. As of August 9, 1995, there were approximately
6.8 million shares of Compumed common stock outstanding. Compumed stock
was actively traded during the Class Period through the National
Association of Securities Dealers. Thousands of shares of Compumed stock
were traded during the Class Period and there was an efficient market for
the shares of Compumed stock. While the exact number of Class members is
unknown to plaintiff at this time and can only be ascertained through
appropriate discovery, plaintiff believes that there are hundreds, if not
thousands, of potential Class members. An efficient market for Compumed
securities existed at all times relevant to the Class Period.
10. Plaintiff's claims are typical of those of the other members
of the Class. Plaintiff and the other members of the Class sustained
injury as a result of ' acts alleged herein.
11. Plaintiff will fairly and adequately protect the interests
of the members of the Class and has retained counsel competent and
experienced in class and securities litigation. Plaintiff's interest is
not antagonistic to those of any other class members nor is plaintiff
subject to any unique defenses.
12. Common questions of law and fact exist as to all members of
the Class and predominate over any questions affecting solely individual
members of the Class. Among the questions of law and fact common to the
Class are:
a. whether participated in the continuous scheme, plan
and course of conduct complained of herein;
b. whether the federal securities laws were violated by '
acts alleged herein;
c. whether the financial and other information issued by
or on behalf of Compumed during the Class Period and disseminated to the
investing public materially misrepresented or omitted to state material
facts about Compumed's business or future prospects;
d. whether acted willfully, knowingly or recklessly or with
gross negligence or failed to exercise due care in misrepresenting or
failing to disclose material facts, or in aiding and abetting such conduct;
e. whether the market price of Compumed's securities was
artificially inflated during the Class Period due to the non-disclosure
complained of herein; and
f. whether plaintiff and the Class have been damaged and if so,
what is the proper remedy and measure of damages under the applicable law
for the wrongs complained of herein.
13. A class action is superior to other available methods for
the fair and efficient adjudication of this controversy since joinder of
all members of the Class would be impracticable, damages to each individual
member of the Class may be relatively small and the expense and burden of
individual litigation makes it impossible for Class members to
individually seek redress for the wrongs done to them. There will be no
difficulty in the management of this action as a class action.
SUBSTANTIVE ALLEGATIONS
- - - - - - - - - - - -
14. Compumed manufactures, sells and distributes
electrocardiogram computer analysis equipment and distributes and processes
diagnostic tests for osteoporosis.
15. On August 31, 1995 it was announced that Merck & Co. and
Compumed were entering into an exclusive agreement to license Compumed's
OsteoGram(R). In return, Compumed was to receive a licensing fee and
royalty from Merck. No specific financial terms were disclosed at that
time.
16. Upon the announcement defendant Raynovich stated that:
RA technology is a safe,
valuable, inexpensive option for
measuring bone mass, particularly
for the thousands of physicians
who already have standard X-ray
equipment in their offices.
17. For the next month there was no further announcement about
the impending transaction. On September 27, 1995 it was finally announced
that the agreement between Merck and Compumed had been completed. Although
it was learned weeks later that the agreement had been signed on September
22, 1995, no specifics of the deal were announced other than the fact that
Merck would pay Compumed a licensing fee and royalties for five years.
Nowhere in the announcement was it disclosed that for the last two years of
the five-year agreement that the payments received by Compumed would be
capped at the lesser of $3 million or 10% of collected revenues for year
four and the lesser of S4 million or 10% of collected revenues for year
five. This provision was insisted upon by Merck prior to September 22,
1995.
18. Given that a company's stock price trades at a ratio of
price to earnings, ' knew or were reckless in not knowing that any
limitation on earnings would negatively affect the stock price of Compumed.
19. Thus, armed with the knowledge that there was a "cap" on the
payments to be paid by Merck and the resultant affect this would have on
Compumed's stock price, began to unload massive amounts of shares of
Compumed stock, before the public dissemination of the "cap."
20. The following insiders sold shares of Compumed as follows:
Name Position Date Shares
- - - - - - - - - - - - -
Sold
- - -
Robert Funari Director 09/28/95 19,542
Howard Mark Director 09/25/95 22,800
Devere Pollom V.P. and CFO 09/08/95-09/12/95 5,000
Robert Stuckelman Director 09/21/95-09/29/95 90,000
Russell Walker Director 09/28/95 913
- - - -
TOTAL 138,255
21. On October 11, 1995, apparently without the knowledge that
the agreement with Merck capped Compumed's earnings upside potential,
Montgomery securities rated Compumed 17 a "buy." On that day Compumed's
shares rose almost $3 per share from a closing price of $14.375 on October
10, 1995 to close at $17.125 on October 11th on extraordinarily large
volume.
22. It was not until October 17, 1995, when Compumed filed the
Merck\Compumed Agreement with the SEC, that the public learned that the
agreement, which had been signed September 22, 1995, would cap payments at
$3 million in 1999 and $4 million in 2000. As a result of the disclosure
of the cap, Compumed's stock dropped from $14.125 per share to close at
$8.25 per share, after reaching an intrading low of $7.
23. One analyst was quoted on the Bloomberg Business News
-----------------------
service as stating that the "cap hadn't been expected . . . everybody is
saying the company has mislead us and the company has lied to us."
24. Throughout the Class Period, the truth regarding the
Compumed\Merck Agreement was concealed from plaintiff and the investing
public.
25. During the Class Period, issued and disseminated various
documents and statements to the investing public, as set forth above, which
failed to disclose the terms of the Compumed\Merck Agreement and which had
the effect of artificially inflating the market prices of Compumed's
securities. The individual defendant, by reason of his position as a
primary executive officer of Compumed had actual knowledge of the omission
set forth above and intended thereby to deceive plaintiff and the other
members of the Class, or, in the alternative, acted with reckless disregard
for the truth when they failed to disclose the true facts.
26. were under a duty to disclose the material adverse
non-public information in light of the fact that persons within the Company
were trading on inside information and in light of the fact that undertook
such duty when they made any statements at all regarding the Merck\Compumed
Agreement.
27. The individual defendant manifested a conscious and
continuous intent to distort the truth and otherwise mislead the plaintiff
and the other members of the Class in order to artificially support and
maintain the market price of Compumed's securities.
28. During the Class Period, Compumed made affirmative
statements and failed to disclose material information concerning Compumed.
Under the circumstances, Compumed and the individual defendant had the
affirmative duty to speak fully and truthfully and disclose all material
information within its possession on the subject. Defendant's disclosures
were false when made and known to be such by virtue of, inter alia,
- - - - - -
omissions from its public statements.
29. As a result of the materially false and misleading
information and of the failures to disclose material facts, as set forth
above, the market price of Compumed's securities were artificially inflated
during the Class Period. In ignorance of the falsity of the reports and
statements described above, plaintiff and the other members of the Class
relied, to their detriment, on the reports and statements described above
and/or on the integrity of the market prices of Compumed's securities
prevailing during the Class Period, in purchasing Compumed's securities in
the open market.
30. As a result of the wrongful conduct alleged herein,
plaintiff and the other members of the Class have suffered damages in an
amount to be proved at trial.
31. By virtue of the foregoing, have violated Section 10(b) of
the Exchange Act and Rule 10b-5 promulgated thereunder.
32. The individual defendant, by reason of his management
position was, during the time he held said positions at Compumed, a
"controlling" person within the meaning of Section 20 of the Exchange Act
and had the power and influence
D. Awarding plaintiff and the other members of the
Class such other and further relief as may be necessary.
Dated: October 19, 1995 BRIAN BARRY
LAW OFFICES OF BRIAN BARRY
NADEEM FARUQI
FARUQI & FARUQI, LLP
ROBERT C. SUSSER
ROBERT C. SUSSER, P.C.
BY: /s/ Brian Barry
--------------------------
Brian Barry
Attorneys for Plaintiff
<PAGE>
DEMAND FOR JURY TRIAL
- - - - - - - - - - -
PLEASE TAKE NOTICE that pursuant to Rule 38(b) of the
Federal Rules of Civil Procedure, plaintiff hereby demands a
trial by jury of all issues triable by a jury.
Dated: October 19, 1995 BRIAN BARRY
LAW OFFICES OF BRIAN BARRY
NADEEM FARUQI
FARUQI & FARUQI, LLP
ROBERT C. SUSSER
ROBERT C. SUSSER, P.C.
BY: /s/ Brian Barry
--------------------------
Brian Barry
Attorneys for Plaintiff
Exhibit 99.4
MARC M. SELTZER (State Bar No. 54534)
CHRISTINE A. SNYDER (State Bar No. 56118)
EARL P. WILLENS (State Bar No. 030329)
CORINBLIT & SELTZER
A Professional Corporation
3700 Wilshire Boulevard, Suite 820
Los Angeles, California 90010-3085
Telephone: (213) 380-4200
RICHARD B. DANNENBERG
WILLIAM J. BAN
LOWEY DANNENBERG BEMPORAD
& SELINGER, P.C.
747 Third Avenue
New York, N.Y. 10017-2877
Telephone: (212) 759-1504
Attorneys for Plaintiff
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
WESTERN DIVISION
DANA BRUNO, ) CASE NO. 95-7051 DT (JGX)
)
Plaintiff, ) CLASS ACTION
) ----- ------
vs. )
) COMPLAINT FOR VIOLATIONS
COMPUMED, INC.; ROD N. RAYNOVICH; ) OF THE FEDERAL SECURITIES
DEVERE B. POLLUM; ROBERT G. ) LAWS
FUNARI; HOWARD L. MARK and )
ROBERT STUCKELMAN, )
) JURY TRIAL DEMANDED
Defendants. ) -------------------
)
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _)
Plaintiff, by his undersigned attorneys, for his Complaint
against defendants, alleges upon personal knowledge as to himself and his
own acts, and upon information and belief as to all other matters, as
follows:
JURISDICTION AND VENUE
----------------------
1. This Court has jurisdiction over the subject matter of this
action pursuant to section 27 of the Securities Exchange Act of 1934 (the
"Exchange Act"), 15 U.S.C. SS 78aa, and 28 U.S.C. SS 1331 and 1337(a).
2. The claims asserted herein arise under sections 10(b) and 20(a)
of the Exchange Act, 15 U.S.C. SS 78j(b) and 78t(a), and rule 10b-5, 17
C.F.R. SS 240.10b-5, promulgated thereunder by the Securities and Exchange
Commission (the "SEC").
3. Venue is proper in this District pursuant to section 27 of the
Exchange Act and 28 U.S.C. SS 1391(b). The principal executive offices of
defendant CompuMed, Inc., ("CompuMed" or the "Company") are located in this
district, the defendants transact business in this district, and many of
the acts and transactions constituting the violations of the law alleged
herein, including the preparation, issuance and dissemination of materially
false and misleading statements to the investing public, occurred in this
district.
4. In connection with the acts, conduct and other wrongs alleged
herein, defendants, directly and indirectly, used the means and
instrumentalities of interstate commerce, including the United States mails
and interstate telephone communications.
NATURE OF THE ACTION
--------------------
5. This is a class action brought under the federal securities laws
on behalf of all persons and entities, other than defendants and certain
others, who purchased the common stock of CompuMed between August 31, 1995,
and October 17, 1995, inclusive (the "Class Period"). During the Class
Period, the defendants issued, and caused or permitted CompuMed and certain
of its directors and officers to issue public statements regarding
CompuMed, and a certain licensing agreement being entered into between
CompuMed and Merck & Co. ("Merck") whereby CompuMed would receive a
licensing fee and royalties from Merck for all OsteoGram (R) tests
performed over a period of five years (the "Agreement"). Significantly,
specific information concerning the terms of the Agreement was not
disclosed to the investing public until October 17, 1995, when CompuMed
issued a press release and filed a report with the SEC on Form 8-K which
disclosed the terms of the Agreement. As disclosed on October 17, 1995,
the terms of the Agreement provided for a cap on royalties to be received
by CompuMed for licensing its product to Merck and limiting CompuMed's
revenues from royalties for licensing the product to approximately $20
million over the five year life of the Agreement. The investment community
was shocked by the disclosure of the royalty cap and the limitation on
revenues obtainable by CompuMed under the Agreement and market reaction to
the news was dramatic. On October 18, 1995, the market price of CompuMed
common stock plunged $7 3/4 per share, or 48%, to close at $8 1/4 per
share, on reported volume of 5,189,900 shares. During the period between
the August 31, 1995 announcement that CompuMed and Merck had entered into
the Agreement and the disclosure of the royalty cap terms on October 17,
1995, certain of the defendants herein, officers and directors of the
Company sold, in the aggregate, more than 117,000 shares of their CompuMed
common stock at prices artificially inflated by the incomplete and
materially misleading news of the Agreement, reaping proceeds of at least
$1,300,000 for themselves before the facts concerning the terms of the
Agreement were disclosed to the investing public.
THE PARTIES
-----------
PLAINTIFF
----------
6. On October 16, 1995, plaintiff Dana Bruno purchased 1000 shares
of the common stock of CompuMed on the open market at a price of $14 3/4
per share. Plaintiff was damaged by defendants' wrongful acts as alleged
herein.
DEFENDANTS
----------
7. Defendant CompuMed is a Delaware corporation that maintains its
principal executive offices at 1230 Rosecrans Avenue, Manhattan Beach,
California.
8. (a) CompuMed assembles, sells, distributes and services
electrocardiogram ("CCG") computer analysis equipment; distributes and
processes diagnostic tests for osteoporosis and sells related medical
supplies as well as provides on-line computer service to process CCG
information for approximately 1600 healthcare providers located throughout
the United States. CompuMed also owns the rights to Detoxahol, a
developmental stage pharmaceutical product intended to facilitate the rapid
lowering of blood alcohol levels.
(b) CompuMed is a public company registered with the SEC
pursuant to section 12 of the Exchange Act, and CompuMed common stock is
traded over-the-counter on the Nasdaq system in an efficient and well-
developed market. As of January 20, 1995, CompuMed had approximately
5,142,493 outstanding shares of common stock, which were held by
approximately 7,800 record owners representing many more thousands of
beneficial owners.
9. Defendant Rod N. Raynovich ("Raynovich") is and has been the
President and Chief Executive Officer of CompuMed during the Class Period.
10. Defendant DeVere B. Pollum ("Pollum") was CompuMed's Vice
President and Chief Financial Officer during the Class Period. As set
forth at Paragraph 16 below, he sold a substantial amount of his holdings
of CompuMed common stock during the Class Period while in possession of
material inside information and benefited himself thereby.
11. Defendant Robert G. Funari ("Funari") was a member of the Board
of Directors of CompuMed during the Class Period. As set forth at
Paragraph 16 below, he sold a substantial amount of his holdings of
CompuMed common stock during the Class Period while in possession of
material inside information and benefited himself thereby.
12. Defendant Howard L. Mark ("Mark") was a member of the Board of
Directors of CompuMed during the Class Period. As set forth at Paragraph
16 below, he sold a substantial amount of his holdings of CompuMed common
stock during the Class Period while in possession of material inside
information and benefited himself thereby.
13. Defendant Robert Stuckelman ("Stuckelman") was Chairman of
CompuMed's Board of Directors during the Class Period. As set forth at
Paragraph 16 below, he sold a substantial amount of his holdings of
CompuMed common stock during the Class Period while in possession of
material inside information and benefited himself thereby.
14. As officers and directors of a publicly-owned company, the
defendants named in Paragraphs 9 through 13 below (the "Individual
Defendants") had a duty to promptly disseminate accurate and truthful
information with respect to CompuMed's business, operations, and financial
condition and to promptly correct any public statements issued by CompuMed
which had become materially false or misleading and to refrain from trading
in CompuMed common stock while in possession of material inside
information.
15. Because of their positions of control and authority as officers
and directors, and their aggregate ownership of CompuMed common stock, the
Individual Defendants were able to and did control the contents of the
various reports, press releases and statements which CompuMed disseminated
in the marketplace concerning the business, operations and prospects of the
Company and were able to and did control their own trading in CompuMed
common stock on the basis of their possession of material inside
information. The Individual Defendants are therefore "controlling persons"
of CompuMed within the meaning of section 20(a) of the Exchange Act. In
this capacity, the Individual Defendants participated in, and conspired to
effect, rendered substantial assistance in and/or consciously or recklessly
pursued the unlawful conduct herein alleged that artificially inflated the
market price of CompuMed common stock while certain of the Individual
defendants, as alleged in Paragraph 16 hereof, engaged in insider trading
while in possession of material facts not known to the investing public.
16. Notwithstanding their duty to disclose the true material facts
which were finally revealed to the investing public on October 17, 1995,
the following defendants sold or beneficially disposed of more than 117,000
shares of CompuMed common stock during the Class Period at prices
artificially inflated by their fraud thereby unjustly enriching themselves
as follows:
No. of
Defendant Date Shares Price Proceeds
--------- ---- ----- ----- --------
Robert Funari 9/28/95 19,542 $11.52 $225,123.00
DeVere B. Pollum 9/08/95 1,500 9.88 14,820.00
9/12/95 3,500 9.63 33,705.00
Robert Stuckelman 9/21/95 20,000 10.38 207,600.00
9/22/95 10,000 11.50 115,000.00
9/22/95 20,000 12.25 245,000.00
9/29/95 20,000 10.75 215,000.00
Howard L. Mark 9/25/95 10,000 12.75 127,500.00
9/25/95 12,800 12.63 161,664.00
_______ _____________
Total 117,342 $1,345,412.00
PLAINTIFFS' CLASS ALLEGATIONS
-----------------------------
17. Plaintiff brings this action as a class action pursuant to Rule
23(a) and (b)(3) of the Federal Rules of Civil procedure on behalf of a
class consisting of all persons and entitles who purchased the common stock
of CompuMed between August 31, 1995 and October 17, 1995, inclusive, and
were damaged thereby (the "Class"). Excluded from the Class are CompuMed,
its officers and directors and any of its subsidiaries and affiliates, as
well as the Individual Defendants and any member of their respective
immediate families or their respective heirs, successors or assigns.
18. The members of the Class are so numerous and geographically
dispersed that joinder of all class members is impracticable. More than
13,300,000 shares of CompuMed common stock were reported to be publicly
traded over the counter on the Nasdaq System during the Class Period.
Based on this volume of trading, plaintiff believes that the members of the
Class number in the thousands.
19. Plaintiff's claims are typical of the claims of the members of
the Class in that plaintiff is a member of the Class he seeks to represent
and was adversely affected by the wrongful conduct of defendants complained
of herein.
20. Plaintiff will fairly and adequately protect the interests of the
members of the Class. Plaintiff is committed to the vigorous prosecution
of this action and has retained competent counsel experienced in class
action and securities litigation. Plaintiff has no interest adverse or
antagonistic to those of the other members of the Class.
21. There are questions of law and fact common to the Class which
predominate over any questions solely affecting individual members. Among
the common questions of law and fact are:
(1) whether the federal securities laws were violated be
defendants' acts, as alleged herein;
(2) whether defendants participated in and pursued the common
course of wrongful conduct complained of herein;
(3) whether documents, releases and statements issued by the
defendants, omitted and/or misrepresented material facts concerning the
OsteoGram Royalty Agreement and future prospects of CompuMed;
(4) whether defendants' misrepresentations as alleged herein
constituted a "fraud on the market" in CompuMed common stock during the
Class Period;
(5) whether the defendants acted willfully or recklessly in
omitting to state and/or misrepresenting material facts or in aiding and
abetting the making of such misstatements;
(6) whether the market price of CompuMed common stock during the
Class Period was artificially inflated due to the nondisclosures and/or
misrepresentations complained of herein; and
(7) whether the members of the Class have sustained damages,
and, if so, the proper measure thereof.
22. A class action is superior to other available methods for the
fair and efficient adjudication of this controversy. As the damages
suffered by individual Class members may be relatively small, the expense
and burden of individual litigation make it impracticable for the Class
members to seek relief individually for the wrongs they have sustained.
23. Plaintiff envisions no difficulty in the management of this case
as a class action.
24. The names and addresses of the record owners of CompuMed who
purchased, or otherwise acquired, CompuMed securities during the Class
Period are available from CompuMed's transfer agent. Notice can be
provided to such record owners via first class mail using techniques and a
form of notice similar to those employed in other class actions arising
under the federal securities laws.
DEFENDANTS' WRONGFUL COURSE OF CONDUCT
---------------------------------------
DEFENDANTS' PUBLIC STATEMENTS DURING THE CLASS PERIOD
-----------------------------------------------------
25. On August 31, 1995, defendants caused CompuMed to issue a press
release which stated in part as follows:
Under the agreement, Merck will obtain the
worldwide, exclusive rights to the OsteoGram (R)
from CompuMed (NASDAQ Small Cap; CMPD), a Manhattan
Beach, Calif., firm. In return, CompuMed will receive
a licensing fee and royalties on all OsteoGram (R)
tests performed over a period of five years. Specific
financial terms of the agreement were not disclosed.
"The OsteoGram (R) offers physicians a valuable
alternative to improving the access to bone mass
measurement," said Robert Glaser, senior vice president,
Merck U.S. Human Health.
The OsteoGram (R) is a test that measures bone
mass using standard x-ray equipment and relies on
radiographic absorptiometry (RA) technology. RA
technology is one of several technologies that can help
physicians detect low bone mass. The OsteoGram (R) is
now available to physicians in the United States.
Under the agreement with CompuMed, Merck will
manage the OsteoGram(R) Analysis Center, which performs
computer analyses done as part of the OsteoGram(R) test.
Merck will operate this center on a nonprofit basis that
will be kept entirely separate from the business of
Merck. The center will be operated through Merck's Bone
Measurement Institute, a nonprofit institute
established by Merck (see separate news release on the
Institute).
"RA technology is a safe, valuable, inexpensive option
for measuring bone mass, particularly for the thousands
of physicians who already have standard x-ray equipment
in their offices," said Rod Raynovich, CompuMed
President.
The agreement complements previous Merck agreements
with other manufacturers in the area of bone densitometry.
The closing of the agreement is contingent upon the
satisfaction of certain conditions by Sept. 22, 1995.
Merck & Co., Inc. is a leading research-driven
pharmaceutical products company. Merck discovers,
develops, manufactures and markets a broad range of
innovative products to improve human and animal health.
CompuMed is focused on providing solutions to
important medical problems through the use of computer
technology. In addition to the OsteoGram (R), the
company is focused on telemedicine services for
cardiology and currently provides on-line computer
interpretation of medical tests, such as
electrocardiograms (ECGs), to physicians and healthcare
providers.
26. On September 27, 1995, defendants caused CompuMed to issue
another press release concerning the OsteoGram Royalty Agreement and
reported that the Agreement had been completed:
Headline: CompuMed and Merck complete OsteoGram
marketing deal; Merck acquires worldwide marketing
rights to CompuMed's bone density test
Dateline: Manhattan Beach, California
Body: Sept. 27, 1995 -- CompuMed, Inc. (Nasdaq
Small Cap: CMPD) today announced the completion of its
agreement granting Merck & Co. Inc. (NYSE: MRK)
exclusive worldwide rights to operate and market
CompuMed's OsteoGram (R) bone density testing service.
Under terms of the agreement, Merck will pay CompuMed a
licensing fee and royalties on all OsteoGram (R) tests
performed for the next five years. Merck will also
work to develop OsteoGram (R) product improvements.
CompuMed is focused on providing solutions to important
medical problems through the use of computer
technology. In addition to the OsteoGram (R), CompuMed
is focused on telemedicine services for cardiology and
currently provides on-line computer interpretation of
medical tests, such as electrocardiograms (ECGs), to
physicians and healthcare providers.
27. Following the issuance of the August 31, 1995 and September 27,
1995 press releases, the market price of CompuMed's common stock rose from
the $9 1/2 per share range to trade as high as $19 1/8 per share on October
13, 1995.
28. On October 17, 1995, CompuMed stunned the investment community by
issuing a press release and filing a report to Form 8-K with the SEC which
disclosed the terms of the OsteoGram Royalty Agreement, including its cap
on royalty payments. As reported in the Company's press release:
COMPUMED ANNOUNCES TERMS OF MERCK LICENSE
Manhattan Beach, CA, October 17, 1995 -- CompuMed, Inc.
(Nasdaq Small Cap: CMPD) is filing a Form 8-K with the
U.S. Securities & Exchange Commission (SEC) containing
its technology license agreement with Merck & Co., Inc.
(NYSE: MRK) as an exhibit. Under that agreement, Merck
was granted a perpetual, exclusive license of
CompuMed's OsteoGram (R) technology and was assigned
CompuMed's software copyright and OsteoGram (R) trade
name. CompuMed retained the right to make major
enhancements to the technology and to use or license
such enhancements, subject to providing Merck with
first opportunities to license or acquire them from
CompuMed on terms to be negotiated.
The OsteoGram technology is used to mesure bone mineral
density, which might be considered by a physician in
reaching a diagnosis of osteoporosis. Merck was
recently granted U.S. Food and Drug Administration
(FDA) clearance to market Fosamax (R), a drug that can
be used for the treatment of osteoporosis in post
menopausal women.
Under the license agreement for the first-generation
OsteoGram(R), Merck will pay CompuMed royalties for
each revenue-producing test using the OsteoGram (R)
technology during the years 1996 through 2000. The
royalties will escalate from $2 to $4 per test over
that period. These royalty payments have no maximum
amount during 1996 through 1998, but they are subject
to a maximum in 1999 equal to the lesser of 10 percent
of Merck's total collected revenues or $3 millon and a
maximum in 2000 equal to the lesser of 10 percent of
Merck's total collected revenues or $4 million. There
are no minimum royalties under the agreement.
* * *
29. Market reaction to the disclosure of the Agreement's terms was
swift and adverse. The price of CompuMed common stock plunged more than
48% from its closing price on October 16, 1995 of $16 per share to reach a
low of $7 per share on October 17, 1995, before closing at $8 1/4 per share
on reported trading volume of 5,189,900 shares. The artificial inflation
in market value on CompuMed common stock during the Class Period caused
damages aggregating many millions of dollars to plaintiff and the other
members of the Class.
THE FALSE AND MISLEADING STATEMENTS
-----------------------------------
30. Defendants' statements throughout the Class Period were
materially false and misleading or were made materially false and
misleading by defendants' omission to state material facts necessary to
make those statements not misleading. These false and misleading
statements of material facts made to the investment community, and the
material facts which defendants failed or omitted to disclose included,
inter alia:
(a) That the terms of the OsteoGram Royalty Agreement included a
cap on royalties to CompuMed which would limit the amount of revenues
received by the Company over the five year life of the Agreement;
(b) That the public market for CompuMed common stock had
materially overvalued the OsteoGram Royalty Agreement announced on August
31, 1995 and that certain of the individual defendants, as alleged herein,
were taking advantage of their superior inside information as to the
nondisclosed adverse material facts concerning the terms of the Agreement
and the limitation on revenues likely to be obtained by CompuMed as a
result thereof by selling substantial amounts of their holdings of CompuMed
common stock.
FIRST CLAIM FOR RELIEF
----------------------
(AGAINST ALL DEFENDANTS FOR VIOLATION OF SECTIONS 10(B)
AND 20(A) OF THE EXCHANGE ACT AND RULE 10B-5
PROMULGATED THEREUNDER)
31. Plaintiff repeats and realleges paragraphs 1 through 30, supra,
_____
as it set forth fully herein.
32. During the Class Period, defendants, pursuant to a plan, scheme
and unlawful course of conduct, knowingly or recklessly issued, caused to
be issued, and participated in the issuance of materially false and
misleading statements to the investing public which were contained in or
omitted from various documents, including press releases, and various other
statements as particularized herein. By reason of the foregoing,
defendants, directly and indirectly, violated and/or aided and abetted
violations of section 10(b) of the Exchange Act and rule 10b-5 promulgated
thereunder in that they (a) employed devices, schemes and artifices to
defraud, (b) made untrue statements of material facts or omitted to state
material facts necessary in order to make the statements made, in light of
all the circumstances under which they were made, not misleading, or (c)
engaged in acts, practices and a course of business which operated as a
fraud and deceit upon plaintiff and other members of the Class in
connection with their purchases of CompuMed common stock during the Class
Period.
33. The aforementioned statements by defendants were deceptive and
materially false and misleading when made. These statements and reports
were designed to and did create the false impression that CompuMed's
prospects for the future were substantially brighter than they were due to
the existence of the undisclosed royalty cap terms included in the
OsteoGram Royalty Agreement.
34. In the alternative, even if any of the statements made by
defendants as alleged herein, during the Class Period, were literally true
on the date they were made, defendants breached their duty to plaintiff and
the Class by failing to supplement or otherwise correct the statements when
subsequent events rendered those prior statements materially misleading.
Throughout the Class Period, the positive statements made by defendants
affected the marketplace and the trading price of CompuMed common stock.
35. Defendants acted knowingly or recklessly in issuing the
materially false and misleading statements and the materially incomplete
statements set forth herein, and intended to deceive plaintiff and the
members of the Class, or, in the alternative, acted with reckless disregard
for the truth when they failed or refused to ascertain and disclose the
true facts to plaintiff and the other members of the Class at the time when
certain of the defendants sold their shares of CompuMed common stock while
in possession of material information concerning the value of that stock
and the potential revenue obtainable from the OsteoGram Royalty Agreement
which was not disclosed to the investing public.
36. Plaintiff and the Class, relying on the materially false and
misleading statements described herein, which defendants made, issued or
caused to be disseminated, or relying upon the integrity of the market,
purchased shares of CompuMed common stock at prices artificially inflated
by defendants', wrongful conduct. Had plaintiff and the other members of
the Class known all of the true facts concerning the terms of the OsteoGram
Royalty Agreement, as known to defendants, they would not have purchased
said shares or would not have purchased them at the inflated prices that
were paid. At the time of the purchases by plaintiff and the Class, the
true value of CompuMed common stock was substantially lower than the prices
paid by plaintiff and the other members of the Class.
37. By reason of the foregoing, defendants, directly and indirectly,
by use of the instrumentalities of interstate commerce, the mails and the
facilities of the national securities exchanges, employed devices, schemes
and artifices to defraud, and engaged in acts, transactions and a course of
business which operated as a fraud and deceipt upon plaintiff and the other
members of the Class who purchased shares of CompuMed common stock during
the Class Period, and a fraud on the market in CompuMed common stock, in
violation of section 10(b) of the Exchange Act and rule 10b-5 promulgated
thereunder.
38. The Individual Defendants, by virtue of their offices,
directorships and/or substantial stock ownership had the power and
influence, and exercised same, to cause CompuMed to engage in the illegal
conduct and practices complained of herein. As a result, at the time of
the wrongs alleged herein, each of the Individual Defendants was a
controlling person of CompuMed within the meaning of section 20(a) of the
Exchange Act.
39. As a direct and prominent result of the defendants' aforesaid
wrongful conduct, plaintiff and the members of the Class have been damaged
in an amount to be proved at trial.
WHEREFORE, plaintiff on his own behalf and on behalf of the Class
prays for judgment to be entered against the defendants, jointly and
severally, as follows:
A. Declaring this action to be a proper class action under Rule 23
of the Federal Rules of Civil Procedure and designating plaintiff and his
counsel as the representatives of the Class;
B. Awarding plaintiff and all members of the Class damages suffered
as a result of the wrongs complained of herein, together with prejudgment
interest at the maximum rate allowable by law;
C. Awarding plaintiff his costs and expenses incurred in this
action, including reasonable attorneys', accountants', and experts' fees
and expenses; and
D. Awarding plaintiff and the Class such other and further relief as
the Court deems just and proper.
MARC M. SELTZER
CHRISTINA A. SNYDER
EARL P. WILLENS
CORINBLIT & SELTZER
A Professional Corporation
RICHARD B. DANNENBERG
WILLIAM J. BAN
LOWEY DANNENBERG BEMPORAD
& SELINGER, P.C.
By /s/ Marc M. Seltzer
____________________________
Marc M. Seltzer
Attorneys for Plaintiff
DEMAND FOR JURY TRIAL
_____________________
Plaintiff hereby demands a trial by jury.
MARC M. SELTZER
CHRISTINA A. SNYDER
EARL P. WILLENS
CORINBLIT & SELTZER
A Professional Corporation
RICHARD B. DANNENBERG
WILLIAM J. BAN
LOWEY DANNENBERG BEMPORAD
& SELINGER, P.C.
By /s/ Marc M. Seltzer
_____________________________
Marc M. Seltzer
Attorneys for Plaintiff
Exhibit 99.5
1230 Rosecrans Avenue, Suite 1000
Manhattan Beach, CA 90266
Tel: (310) 643-5106 Fax: (310) 536-6128
FOR IMMEDIATE RELEASE: Contact: Rod N. Raynovich
--------------------- President and Chief Executive Officer
CompuMed, Inc.
(310) 643-5106 ext. 119
Noonan/Russo Communications, Inc.
(212) 696-4455
Jonathan Fassberg (investor) ext. 248
Rich Tammero (media) ext. 222
e-mail: [email protected]
COMPUMED ANNOUNCES SECURITIES CLASS ACTION
LAWSUITS HAVE BEEN FILED AGAINST COMPANY
Manhattan Beach, CA, October 20, 1995 -- CompuMed, Inc. (Nasdaq Small Cap:
CMPD) today announced that three securities class action lawsuits have been
filed against it in the last two days.
The complaints were filed in the United States District Court for the
Central District of California on behalf of persons who purchased
CompuMed's Common Stock from August 31, 1995 through October 17, 1995. The
complaints allege violations of federal securities laws by CompuMed and
certain officers and directors. The complaints generally relate to the
disclosure of certain caps on the royalties received by CompuMed under the
terms of a license agreement between CompuMed and Merck & Co., Inc. (NYSE:
MRK), pursuant to which CompuMed has licensed its proprietary technology in
the Osteogram (R), a test which assists physicians in detecting
osteoporosis.
Upon its initial assessment of the matter, CompuMed has determined to
defend itself vigorously against these actions.
CompuMed, based in Manhattan Beach, California, is focused on providing
solutions to important medical problems through the use of computer
technology. In addition to the Osteogram (R), CompuMed is focused on
telemedicine services for cardiology and currently provides on-line
computer interpretation of medical tests, such as electrocardiograms (ECGs)
to physicians and healthcare providers.
####
This release is available on the Internet at http://www.noonanrusso.com.
