united states district court central district of...
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UNITED STATES DISTRICT COURTCENTRAL DISTRICT OF CALIFORNIA
_________________________________________
ROBERT LECHTER, Individually and On Behalfof All Others Similarly Situated,
Plaintiffs,
vs.
VANS, INC., ANDREW J. GREENEBAUM, andGARY SCHOENFELD,
Defendants.
_________________________________________
)))))))))))))
CIVIL ACTION NO. ________
CLASS ACTION COMPLAINTFOR VIOLATIONS OF FEDERAL SECURITIES LAWS
JURY TRIAL DEMANDED
Plaintiff, Robert Lechter (“Plaintiff”), individually and on behalf of all other persons
similarly situated, by Plaintiff’s undersigned attorneys, for Plaintiff’s complaint against defendants,
alleges the following based upon personal knowledge as to Plaintiff and Plaintiff’s own acts, and
information and belief as to all other matters, based upon, inter alia, the investigation conducted by
and through Plaintiff’s attorneys, which included, among other things, a review of the defendants’
public documents, conference calls and announcements made by defendants, United States Securities
and Exchange Commission (“SEC”) filings, wire and press releases published by and regarding
Vans, Inc. (“Vans” or the “Company”), and information readily obtainable on the Internet. Plaintiff
believes that substantial evidentiary support will exist for the allegations set forth herein after a
reasonable opportunity for discovery.
NATURE OF THE ACTION
1. This is a federal Class Action brought by the Plaintiff on behalf of himself and a Class
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consisting of all other persons who purchased the common stock of Vans, Inc. (NASDAQ: VANS),
between March 24, 1999 and May 23, 2002, inclusive (the “Class Period”), seeking to recover
damages caused by Defendants’ violations of federal securities laws and pursue remedies under the
Securities Exchange Act of 1934 (the “Exchange Act”).
JURISDICTION AND VENUE
2. The claims asserted herein arise under and pursuant to Sections 10(b) and 20(a) of
the Exchange Act, (15 U.S.C. §§ 78j(b) and 78t(a)), and Rule 10b-5 promulgated thereunder (17
C.F.R. §240.10b-5).
3. This Court has jurisdiction over the subject matter of this action pursuant to §27 of
the Exchange Act (15 U.S.C. §78aa) and 28 U.S.C. § 1331.
4. Venue is proper in this Judicial District pursuant to §27 of the Exchange Act, 15
U.S.C. § 78aa and 28 U.S.C. § 1391(b). Many of the acts and transactions alleged herein, including
the preparation and dissemination of materially false and misleading information, occurred in
substantial part in this District.
5. In connection with the acts, conduct and other wrongs alleged in this complaint,
defendants, directly or indirectly, used the means and instrumentalities of interstate commerce,
including but not limited to, the United States mails, interstate telephone communications and the
facilities of the national securities exchange.
THE PARTIES
6. Plaintiff,________, purchased the common stock of Vans, as set forth in the
accompanying certification attached hereto and incorporated herein by reference, and has suffered
damages as a result of the wrongful acts of defendants as alleged herein.
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7. Defendant Vans is a corporation organized and existing under the laws of Delaware
with its principal place of business located at 15700 Shoemaker Avenue, Santa Fe Springs,
California 90670-5515.
8. Defendant Gary Schoenfeld (“Schoenfeld”) was, at all relevant times during the Class
Period, the Company’s Chief Executive Officer and President.
9. Defendant Andrew J. Greenebaum (“Greenebaum”) was, at all relevant times during
the Class Period, the Company’s Chief Financial Officer and Senior Vice President.
10. Defendants Schoenfeld and Greenebaum are collectively referred to hereafter as the
“Individual Defendants.” During the Class Period, each of the Individual Defendants, as senior
executive officers and/or directors of Vans, were privy to non-public information concerning its
business, finances, products, markets and present and future business prospects via access to internal
corporate documents, conversations and connections with other corporate officers and employees,
attendance at management and Board of Directors meetings and committees thereof and via reports
and other information provided to them in connection therewith. Because of their possession of such
information, the Individual Defendants knew or recklessly disregarded the fact that adverse facts
specified herein had not been disclosed to, and were being concealed from, the investing public.
11. Each of the Individual Defendants are liable as a direct participant with respect to a
fraudulent scheme and course of business that operated as a fraud or deceit on purchasers of Vans
common stock by disseminating materially false and misleading statements and/or concealing
material adverse facts. The scheme deceived the investing public regarding the Company’s business,
operations, management, and the intrinsic value of Vans common stock and caused Plaintiff and
other members of the Class to purchase Vans common stock at artificially inflated prices.
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12. In addition, the Individual Defendants, by reason of their status as senior executive
officers and directors were each a “controlling person” within the meaning of Section 20 of the
Exchange Act and had the power and influence to cause the Company to engage in the unlawful
conduct complained of herein. Because of their position of control, the Individual Defendants were
able to and did, directly or indirectly, control the content of various SEC filings, press releases, and
other public statements pertaining to the Company during the Class Period.
13. The Individual Defendants, because of their positions with Vans were provided with
copies of Vans’ reports and press releases alleged herein to be misleading, prior to or shortly after
their issuance and had both the ability and opportunity to prevent their issuance or cause them to be
corrected. The Individual Defendants had the opportunity to commit the fraudulent acts alleged
herein. Accordingly, each of the Individual Defendants is responsible for the accuracy of the public
reports and releases detailed herein and is therefore primarily liable for the representations contained
therein.
14. The Individual Defendants are liable, jointly and severally, as direct participants in
and co-conspirators of, the wrongs complained of herein.
CLASS ACTION ALLEGATIONS
15. Plaintiff brings this action as a federal class action pursuant to Federal Rules of Civil
Procedure 23(a) and (b)(3) on behalf of a class (the “Class”), consisting of all those who purchased
the common stock of Vans between March 24, 1999 and May 23, 2002, inclusive, (the “Class
Period”) and who were damaged thereby. Excluded from the Class are defendants, the officers and
directors of the Company, members of their immediate families and their legal representatives, heirs,
successors or assigns and any entity in which defendants have or had a controlling interest.
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16. The members of the Class are so numerous that joinder of all members is
impracticable. Throughout the Class Period, Vans’ common stock was actively traded on the
NASDAQ Stock Exchange (“NASDAQ”). 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 or thousands of members in the proposed Class.
17. Plaintiff’s claims are typical of the claims of the members of the Class, because
plaintiffs and all of the Class members sustained damages arising out of defendants’ wrongful
conduct complained of herein.
18. Plaintiff will fairly and adequately protect the interests of the Class members and has
retained counsel who are experienced and competent in class actions and securities litigation.
19. A class action is superior to all other available methods for the fair and efficient
adjudication of this controversy, since joinder of all members is impracticable. Furthermore, as the
damages suffered by individual members of the Class may be relatively small, the expense and
burden of individual litigation make it impossible for the members of the Class to individually
redress the wrongs done to them. There will be no difficulty in the management of this action as a
class action.
20. Questions of law and fact common to the members of the Class predominate over any
questions that may affect only individual members, in that defendants have acted on grounds
generally applicable to the entire Class. Among the questions of law and fact common to the Class
are:
(a) Whether the federal securities laws were violated by Defendants’ acts as
alleged herein;
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(b) Whether the Company’s publicly disseminated press releases and statements
during the Class Period omitted and/or misrepresented material facts;
(c) Whether defendants breached any duty to convey material facts or to correct
material acts previously disseminated;
(d) Whether the defendants acted willfully, with knowledge or recklessly, in
omitting and/or misrepresenting material facts; and
(e) Whether the members of the Class have sustained damages and, if so, what is
the appropriate measure of damages.
SUBSTANTIVE ALLEGATIONS
Background
21. Vans is a global sports-and-lifestyle company that merchandises, designs, sources
and distributes VANS-branded active-casual and performance footwear, apparel and accessories for
Core Sports, including skateboarding, snowboarding, surfing, wakeboarding, BMX riding and
motocross.
Materially False and Misleading Statements Made During the Class Period
22. The Class Period commences on March 24, 1999. At that time, the Company
announced financial results for the third fiscal quarter and nine months ended February 27, 1999.
Net sales for the quarter increased 4.6% to $45.5 million, compared to $43.5 million for the third
quarter of fiscal 1998. Net income was $ 635,000 versus net income of $ 2.3 million in the same
period last year, and diluted earnings per share was $0.05 versus diluted earnings per share of $0.17
in the third quarter of fiscal 1998. Net sales for the nine months increased 10.5% to $ 156.6 million,
compared to $141.7 million for the corresponding nine months of fiscal 1998. Net income was $7.9
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million, versus net income of $9.2 million in the same period last year, and diluted earnings per share
was $0.58 versus diluted earnings per share of $0.66 in the first nine months of fiscal 1998.
23. Commenting on these results, defendant Schoenfeld stated:
"While the business as a whole is admittedly short of our expectations12 months ago, we are encouraged by early indications of someimprovement in the footwear industry, coupled with several importantaccomplishments of our own over the past few months. Specificallyin the third quarter, we achieved double-digit comp store salesincreases which represents the 17th consecutive quarter of compgains, we posted double digit growth in our international business,and significantly reduced our domestic inventory. Additionalhighlights included the announcement of a strategic partnership withThe Mills Corporation (NYSE : MLS) to finance three morelarge-scale skate parks, signing of a three-year agreement to licenseour Switch step-in boot binding technology to Nike (NYSE : NKE),formation of a joint venture with Pacific Sunwear of California Inc.(NASDAQ : PSUN) to produce and distribute VANS apparel,opening of our regional office in Europe, and completion of the $ 5million stock buy back program." . . . "For the first time in more than18 months, we are confident that the Company will post positivegains in this next quarter, both at retail and wholesale in the U.S. andinternationally and believe this trend will continue into fiscal 2000.(a)From an expense standpoint, we still have some significant projectsto complete in the fourth quarter including our transition in Europefrom third party distributors to a regional operation with local salesagents; the launch of our first three VANS Triple Crown stores alongwith two additional stores in Europe; and the introduction ofe-commerce on our web site, www.vans.com. Yet as we look aheadto fiscal 2000, we believe that the various initiatives we haveundertaken will largely be in place and that we should bewell-positioned for significant increases in sales as well as expandingmargins.". . . "While withstanding the challenges of the footwearindustry over the past two years, Vans has maintained its vision ofbecoming a leading lifestyle company and expanding beyond aone-dimensional wholesale footwear business. We have invested inour people, our brand and our distribution channels both in the U.S.and abroad, while simultaneously creating important and uniquestrategic initiatives to further enhance our future prospects for bothtop line and bottom line performance."
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24. On April 13, 1999, Vans filed its quarterly report with the SEC on Form 10-Q. The
Company’s Form 10-Q was signed by defendant Schoenfeld and reaffirmed the Company’s
previously announced financial results.
25. On July 19, 1999, Vans announced financial results for the fourth quarter and fiscal
year ended May 31, 1999. Net sales for the current quarter increased 47.9% to $48.5 million,
compared to $32.8 million for the fourth quarter of fiscal 1998. Net income was $819,000, versus
a net loss of $ 11.8 million in the same period last year, which reflected a one-time restructuring
charge and write-down of domestic inventory of $ 11.9 million, after tax, in such period. Diluted
earnings per share was $ 0.06 versus a loss of $ 0.89 per share in the fourth quarter of fiscal 1998.
26. Commenting on these results, defendant Schoenfeld stated:
Our solid results for the quarter were fueled in particular bysignificant growth in Europe and Japan as well as continued strengthin our retail business. We achieved positive gains in all channels,posting double digit increases in both our domestic wholesale andretail business and a triple digit increase in our international business.Coming off a difficult last 18-24 months in the overall footwearenvironment, we are very pleased with our sales and earnings resultsand reduced inventory levels, which coupled with the strongsell-throughs we are currently experiencing bodes well for us as wehead into back to school and begin our new fiscal year."
27. On August 30, 1999, Vans filed its annual report with the SEC on Form 10-K405.
The Company’s Form 10-K405 was signed by defendant Schoenfeld and reaffirmed the Company’s
previously announced financial results.
28. On September 22, 1999, Vans announced record financial results for the first fiscal
quarter ended August 28, 1999. Net sales for the quarter increased 25.5% to $82.2 million,
compared to $65.5 million for the first quarter of fiscal 1999. Net income rose to $5.9 million,
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versus net income of $4.7 million in the same period last year, and diluted earnings per share
increased to $0.42 versus diluted earnings per share of $0.35 in the first quarter of fiscal 1999.
29. Commenting on these results defendant Schoenfeld stated:
"We are very pleased with our sales and earnings results for the firstquarter and our sell-throughs in the marketplace were very strong asare booking trends for the Spring. Our strong performance gives usconfidence that the strategic initiatives we have enacted over the last12 to 18 months are successfully translating into heightened brandawareness as well as increased sales and profits. Additional highlightsduring the quarter included the first shipment of VANS apparel toPacific Sunwear stores from our joint venture, Van Pac, LLC, theopening of our second skatepark in Bakersfield, California, and theprofitable launch of e-commerce on our website."
30. On October 12, 1999, Vans filed its quarterly report with the SEC on Form 10-Q.
The Company’s Form 10-Q was signed by defendant Schoenfeld and reaffirmed the Company’s
previously announced financial results.
31. On December 16, 1999, Vans announced financial results for the second fiscal quarter
and six months ended November 27, 1999. Net sales for the quarter increased 26.9% to $57.8
million, compared to $45.6 million for the second quarter of fiscal 1999. Net income was $2.7
million, versus net income of $2.5 million in the same period last year, and diluted earnings per share
was $0.19 versus diluted earnings per share of $0.19 in the second quarter of fiscal 1999. Net sales
for the six months increased 26.0% to $140.0 million, compared to $111.1 million for the
corresponding six months of fiscal 1999. Net income rose to $8.6 million, versus net income of $7.3
million in the same period last year, and diluted earnings per share increased to $0.60 versus diluted
earnings per share of $0.53 in the first six months of fiscal 1999.
32. Commenting on these results, defendant Schoenfeld stated:
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"We are pleased to report our second quarter and first half of fiscal2000 sales and earnings results, and as evidenced by our backlog forthe third quarter which is up more than 30% both in the U.S. andinternationally, we are entering the new millennium and the secondhalf of our fiscal year on track for significant growth in sales andearnings."
33. On January 11, 2000, Vans filed its quarterly report with the SEC on Form 10-Q. The
Company’s Form 10-Q was signed by defendant Schoenfeld and reaffirmed its previously announced
financial results.
34. On March 22, 2000, Vans announced financial results for the third fiscal quarter and
nine months ended February 26, 2000. Net sales for the quarter increased 48.9% to $67.8 million,
compared to $45.5 million for the third quarter of fiscal 1999. Net income increased to $1.7 million
versus net income of $635,000 in the same period last year, and diluted earnings per share more than
doubled to $0.12 versus diluted earnings per share of $0.05 in the third quarter of fiscal 1999. Net
sales for the nine months increased 32.7% to $207.7 million, compared to $156.6 million for the
corresponding nine months of fiscal 1999. Net income was $10.3 million, versus net income of $7.9
million in the same period last year, and diluted earnings per share was $0.72 versus diluted earnings
per share of $0.58 in the first nine months of fiscal 1999.
35. Commenting on these results, defendant Schoenfeld stated:
“We are extremely pleased with our nearly 50% increase in sales andthe more than doubling of earnings for the third quarter. These resultsdemonstrate the continued strong growth of the VANS brand, as wellas our ability to leverage our infrastructure."
***
"We are very encouraged by the strong performance of our U.S.wholesale business which was up more than 40% versus last year.The robust growth in our international business, fueled predominantly
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by sales increases in France and Germany, along with earlier springdeliveries, underscores the increasing strength of the VANS brandworldwide, and our retail business remains strong, led by continuedsolid comp gains."
***
"During a challenging period of significant structural change in thefootwear industry over the last three years, we have worked hard tobuild a strong platform on which to grow our business into the futureand create shareholder value. We have successfully developedproprietary properties such as the VANS TRIPLE CROWNSERIES(R) and the VANS skate parks, formed strategic partnershipswith a host of market leaders including Pacific Sunwear (NASDAQ:PSUN) and Sony PlayStation(R), and attracted some of the best talentin the industry. We are on track for completing a very solid year andwith worldwide bookings for back-to-school up more than 20%, welook forward to maintaining substantial sales and earnings growth aswe head into fiscal 2001."
36. On April 22, 2000, Vans filed its quarterly report with the SEC on Form 10-Q. The
Company’s Form 10-Q was signed by defendant Schoenfeld and reaffirmed the Company’s
previously announced financial results.
37. On July 25, 2000, Vans announced financial results for the fourth fiscal quarter and
fiscal year ended May 31, 2000. Net sales for the quarter increased 35.5% to $65.8 million,
compared to $48.5 million for the fourth quarter of fiscal 1999. Net income increased 116.5% to
$1.8 million versus net income of $819,000 in the same period last year, and diluted earnings per
share doubled to $0.12 versus diluted earnings per share of $0.06 in the fourth quarter of fiscal 1999.
Net sales for the fiscal year increased 33.3% to $273.5 million, compared to $205.1 million for fiscal
year 1999. Net income was $12.1 million, up 38.5%, versus net income of $8.7 million in the same
period last year, and diluted earnings per share was $0.84 versus diluted earnings per share of $0.64
in fiscal 1999.
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38. Commenting on theses results, defendant Schoenfeld stated:
"Fiscal 2000 was a banner year for Vans on a number of differentlevels and sets the stage for what we believe will be another strongyear in fiscal 2001," said Gary H. Schoenfeld, Vans' President andChief Executive Officer. "From a financial standpoint, we grew ouroverall sales by 33%, achieved retail comp store gains of 8.2%, withan increase in net income of 38% for the year. Our fourth quarter wassimilarly strong, as we doubled our earnings on a 35% increase insales. These results underscore the continued strong growth of theVANS brand, as well as our ability to leverage our infrastructure."
. . . "Beyond our financial achievements, we had a number ofimportant strategic initiatives which were successfully undertakenthis past year including: the initial roll-out of VANS skate parks, therespective launch of apparel and sunglasses with Pacific Sunwear andSunglass Hut, our first foray into the video game market through ourlicense agreement with Sony Playstation(TM), the acquisition of HighCascade Snowboard Camp(TM), the premier summer snowboardcamp located on the glacier of Mt. Hood, the profitable launch ofe-commerce on Vans.com, and the addition of Motorola, Ford andGillette as sponsors of the VANS Triple Crown(TM) Series whichhas now been expanded to 21 top events with a TV reach in excess of200 million homes worldwide."
39. On August 29, 2000, Vans filed its annual report with the SEC on Form 10-K. The
Company’s Form 10-K was signed by defendant Schoenfeld and reaffirmed the Company’s
previously announced financial results.
40. On September 21, 2000, Vans announced record financial results for the first fiscal
quarter ended August 26, 2000. Net sales for the quarter increased 21.4% to $100.6 million,
compared to $82.9 million for the first quarter of fiscal 2000. Net income rose 28.0% to $7.6
million, versus net income of $5.9 million in the same period last year, and diluted earnings per share
increased 23.8% to $0.52, versus diluted earnings per share of $0.42 in the first quarter of fiscal
2000.
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41. Commenting on these results, defendant Schoenfeld stated:
"Vans' first $100 million quarter is a great testament to the sports andlifestyle positioning of our brand and an exciting accomplishment forour team," said Gary H. Schoenfeld, President and Chief ExecutiveOfficer of Vans. "More importantly, we continue to translate thesesales gains into strong earnings growth. Comp store sales increasedto 15.3% during the key six week back-to-school period through mid-September and Holiday and early Spring bookings are up more than20%."
42. On October 10, 2000, Vans filed its annual report with the SEC on Form 10-Q. The
Company’s Form 10-Q was signed by defendant Schoenfeld and reaffirmed the Company’s
previously announced financial results.
43. On December 18, 2000, Vans announced record financial results for the second
quarter of fiscal 2001 ended November 25, 2000. Net sales for the quarter increased 24.6% to $73.2
million versus$58.8 million last year with net income up 10.5% to $2.9 million versus $2.7 million
and diluted earnings per share of $0.20 versus$0.19, in line with consensus estimates. For the first
six months of fiscal 2001, sales increased 22.7% to $173.9 million versus $141.7 million last year
and net income increased 22.6% to $10.5 million versus $8.6 million with an 18.3% increase in
diluted earnings per share to $0.71 compared to $0.60.
44. Commenting on these results, defendant Schoenfeld stated:
"We continue to be pleased with the performance and strengtheningof the VANS brand on a global basis," said Gary H. Schoenfeld,President and Chief Executive Officer of Vans. "Highlights duringthe quarter included particularly strong performance in our retailstores, very positive response to the direction and execution of bothour Women's and Outdoor categories, the successful opening of oursixth VANS skatepark in Houston, Texas, and being named FootwearNews Company of the Year."
. . . "From a financial perspective, the 18% decline in the euro
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compared to the second quarter last year significantly masked the truestrength of our business. On a constant dollar basis, the Company'ssales for the quarter would have been approximately $74.6 million,up 27%, with a similar growth rate in earnings per share toapproximately $0.24 compared to $0.19 last year."
45. On January 9, 2001, Vans filed its annual report with the SEC on Form 10-Q. The
Company’s Form 10-Q was signed by defendant Schoenfeld and reaffirmed the Company’s
previously announced financial results.
46. On March 21, 2001, Vans announced record financial results for the third quarter of
fiscal 2001 ended February 24, 2001. Net sales for the quarter increased 21.1% to $83.3 million
versus$68.8 million last year and net income increased 50.3% to $2.6 million versus $1.7 million,
with a 41.7% increase in diluted earnings per share of $0.17 versus $0.12. For the first nine months
of fiscal 2001, sales increased 22.2% to $257.2 million versus $210.5 million last year and net
income increased 27.2% to $13.1 million versus $10.3 million, with a 20.8% increase in diluted
earnings per share to $0.87 compared to $0.72.
47. Commenting on these results, defendant Schoenfeld stated:
"Our accomplishments over this past quarter are another strongindication of the progress our Company has made on a number ofdifferent levels. Each strategic move has helped to further Vans'position as a leading sports and lifestyle brand for the youth market."
"From a financial perspective, we were able to translate a 21% salesgain into a 42% increase in earnings per share[.]". . . "On the productfront, our efforts were recognized last month with the Design inExcellence Award from Footwear+ and will be further demonstratedby the upcoming launch of signature shoes for Core Sports(TM) iconsGeoff Rowley, Jeremy McGrath and Corey Nastazio. Our uniquemarketing and brand building initiatives continue to pay off as theVans-produced film "Dogtown and Z-Boys" received both theAudience Choice Award and the Best Director Award for adocumentary at the Sundance Film Festival. Finally, we recently
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announced network and cable television partnerships with NBCSports and Fox Sports Net for the Vans Triple Crown(TM) Series,underscoring the increasing popularity of Core Sports(TM) and Vans'recognition as the leader in the Core Sports industry."
48. On April 10, 2001, Vans filed its annual report with the SEC on Form 10-Q. The
Company’s Form 10-Q was signed by defendant Schoenfeld and reaffirmed the Company’s
previously announced financial results.
49. On April 27, 2001, Vans announced that it has filed a registration statement with the
SEC for the offer and sale of 2,500,000 shares of the Company's common stock. The underwriters
would have the option to purchase up to an additional 375,000 shares to cover over-allotments. The
Company intended to use the net proceeds from its sale of shares for the repayment of bank debt,
payment of expenditures and working capital related to the addition of new retail stores and skate
parks, and working capital.
50. In conjunction with this press release, Vans filed a registration statement with the
SEC on Form S-3 on April 27, 2001. The Company’s Form S-3 was signed by the Individual
Defendants and reaffirmed the Company’s previously announced financial results.
51. On May 23, 2001, Vans announced the commencement of a public offering of
2,800,000 shares of the Company's common stock at $23.15 per share, which represented an increase
of 300,000 shares above the initial filing. All of the shares are being offered by the Company. The
Company had granted the underwriters an option to purchase up to 420,000 shares to cover
over-allotments. The common stock was being offered under Vans' registration statement that was
declared effective on May 23, 2001 by the SEC. The offering is expected to close on May 30, 2001.
52. On July 24, 2001, Vans announced record financial results for the fourth quarter and
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fiscal year ended May 31, 2001. Net sales for the fourth quarter increased 27.5% to $85.2 million
versus $66.8 million last year and net income increased 52.2% to $2.7 million versus $1.8 million.
For fiscal 2001, total sales increased 23.0% to $341.2 million versus $277.3 million and net income
before the cumulative effect of the accounting change discussed below increased 27.7% to $15.4
million versus $12.1 million.
53. For the fourth quarter, total U.S. sales, including sales through Vans’ U.S. retail
stores, increased 33.0% to $62.2 million, versus $46.8 million for the same period a year ago. U.S.
wholesale sales increased 41.8% to $38.0 million, versus $26.8 million a year ago. Sales through
the Company’s U.S. retail stores increased 21.1% to $24.3 million in the fourth quarter of fiscal
2001, from $20.0 million for the same period a year ago. Comparable store sales for the fourth
quarter were up 9.2% versus the same period last year, the twenty-sixth consecutive quarter of such
increase. Total international sales rose 14.8% to $23.0 million compared to $20.0 million a year ago.
Gross margins for the quarter increased 130 basis points to 44.0% vs. 42.7% reflecting better first
margins, improved inventory management and increased retail store and skate park channel mix.
Inventory was $52.8 million at May 31, 2001, a 5.4% increase over the prior year. The Company
ended the fiscal year with $59.7 million in cash and $2.3 million in long-term debt.
54. Commenting on these results defendant Schoenfeld stated:
“Our fourth quarter performance was a strong finish to fiscal 2001,marking another great year of better than 20% growth in sales andprofits[.]” . . . “Over the past 12 months, we have significantlyimproved our product, expanded our retail presence, further enhancedour management team, added to our proprietary brand buildinginitiatives and substantially increased our liquidity.”
***
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. . . “Our financial highlights for the year included: a 23% increasein total sales led by domestic wholesale up 29% and same store salesup almost 13%; a 28% gain in net income; and roughly $60 millionin cash on the balance sheet with a well-controlled 5% increase ininventory. On the product and merchandising front we madeconsiderable progress in both our men’s and women’s footwear, andfrom a retail perspective, we opened a net seven new stores and threeVANS large-scale skateparks to end the fiscal year with 134 storesand seven skate park locations, respectively.”
***“Our ability to expand fourth quarter sales by more than 27%,increase same store sales by more than 9% and grow net income bymore than 52% is a testament to the ongoing strength of the VANSbrand and our popularity among today’s youth market. Additionally,we were very pleased to achieve these results while managing to aless than $3.0 million increase in inventory.” For the first quarter offiscal 2002, ending August 25, 2001, the Company expects total salesto increase approximately 15% to 20% versus the correspondingperiod a year ago, and it continues to believe it will meet the FirstCall consensus diluted earnings per share estimate of $0.59 for thefirst quarter and $1.20 for the full fiscal year. . . . “Our Company’scontinued achievements financially and in the marketplacedemonstrate the increasing breadth of our business and the uniqueleadership position of our brand. We are mindful of the currentuncertain retail and economic environment, yet we remain focused oncapitalizing on the opportunities we have created and adding to ourgrowth in sales, earnings and shareholder value.”
55. On August 29, 2001, Vans filed its annual report with the SEC on Form 10-K405.
The Company’s Form 10-K405 was signed by the Individual Defendants and reaffirmed the
Company’s previously announced financial results.
56. On September 25, 2001, Vans announced record financial results for the first fiscal
quarter ended September 1, 2001. Net sales for the quarter increased 17.4% to $118.0 million,
compared to $100.6 million for the first quarter of fiscal 2001. Net income rose 60.4% to $11.3
million, versus net income of $7.1 million in the same period last year, and diluted earnings per share
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increased 27.1% to $0.61, versus diluted earnings per share of $0.48 in the first quarter of fiscal 2001
57. Commenting on these results, defendant Schoenfeld stated:
"While the tragedy of September 11 has adversely affected ourbusiness over the past two weeks and our outlook for the secondquarter, we are very pleased to report our first quarter which reflectsthe biggest and most profitable quarter in our company's history[.]". . . "First quarter sales of $118 million exceeded the Company's totalrevenues for the year five years ago and net income of$11.3 millionalmost matched the full year's income of $12.1 million in fiscal 2000demonstrating the continued success of our brand strategy and strongconnection with the youth market."
58. On October 16, 2001, Vans filed its quarterly report with the SEC on Form 10-Q.
The Company’s Form 10-Q was signed by the Individual Defendants and reaffirmed the Company’s
previously announced financial results.
59. On December 19, 2001, Vans announced financial results for the second quarter of
fiscal 2002 ended December 1, 2001. Net sales for the quarter were $68.3 million versus $74.5
million last year with net income of $0.5 million versus $3.2 million and diluted earnings per share
of $0.03 versus $0.21, in line with consensus estimates. For the first six months of fiscal 2002, sales
were $186.4 million versus $175.1 million last year, net income was$11.9 million, versus $10.7
million, and diluted earnings per share was $0.64 compared to $0.72.
60. Commenting on these results, defendant Schoenfeld stated:
"While we were able to achieve our revised earnings projections forthe quarter, the business climate remains challenging in thenear-term[.]". . . "As a result of the very different retail environmentof the past three months, we expect our results for the next twoquarters to lag behind last year. Looking ahead to June and thebeginning of fiscal 2003, we are optimistic about our prospects andthe ability to regain our previous momentum."
***
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. . . "The slowdown in consumer spending has adversely affected ourretail and wholesale businesses. Having achieved twenty-sevenconsecutive quarters of comp store gains, we had a decline of almost9% in the second quarter with our 95 California-based storesexperiencing double-digit decreases in contrast to a positivemid-single digit increase for the rest of our stores. Our at-oncebusiness with the larger, family footwear chains was also particularlysoft with the biggest bright spot being a better than 50% growth inour business with core skate and surf shops. Our internationalbusiness was generally in line with what we had previously indicated,with particular strength in England and Japan offsetting sales belowplan in Canada and South America."
61. On January 15, 2002, Vans filed its quarterly report with the SEC on Form 10-Q. The
Company’s Form 10-Q was signed by the Individual Defendants and reaffirmed the Company’s
previously announced financial results.
62. On March 20, 2002, Vans announced financial results for the third quarter of fiscal
2002 ended March 2, 2002. Net sales for the quarter were $82.2 million versus $80.9 million last
year with net income of $483,000 versus $2.0 million and diluted earnings per share of $0.03 versus
$0.13, in line with consensus estimates. For the first nine months of fiscal 2002, sales were $268.5
million versus $256.0 million last year, net income was $12.3 million, versus $12.3 million, and
diluted earnings per share was $0.67 compared to $0.82.
63. Commenting on these results, defendant Schoenfeld stated:
"With sales and net income roughly flat for the first nine months ofthe year, our business remains challenging in the near term[.]" . . ."Wholesale bookings are behind last year, with particularly difficultcomparisons in our women's business, and our retail comps havecontinued to run negative since September 11th, further impacting ourmargins and profits."
***
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"There are some important bright spots in our business including thecontinued growth of our men's footwear in the independent skateshops, as well as in the key lifestyle specialty accounts. The growthof our apparel joint venture with Pacific Sunwear is also acceleratingand our balance sheet remains strong as we continue to tighten ourinventory and have approximately$45 million in cash."
***
"While remaining opportunistic toward other facets of our business,our short term priorities are focused in three major areas: footwearand apparel design and development, retail merchandising andexpense management. We believe we have built a great brand and arefocused on the tasks at hand as we look to re-establish our sales andearnings momentum in fiscal '03."
64. On April 16, 2002, Vans filed its quarterly report with the SEC on Form 10-Q. The
Company’s Form 10-Q was signed by the Individual Defendants and reaffirmed the Company’s
previously announced financial results.
65. The statements referenced above in ¶¶ 22-64 were each materially false and
misleading because they failed to disclose and misrepresented the following material adverse facts
which were known to defendants or recklessly disregarded by them: (1) that the Company improperly
recognized revenue in violation of Generally Accepted Accounting Principals (“GAAP”); (2) that
Company accomplished its illegal revenue recognition scheme by sending products to third-party
distributors and holding the products there until a buyer could be found; (3) that the defendants
entered into this scheme because defendants knew that its skate parks were losing cash and its sales
were falling flat; and (4) as a result of the defendants’ illegal scheme, the Company’s financial
results and net income were materially overstated at all relevant times.
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THE TRUTH BEGINS TO EMERGE
66. On May 23, 2002, Vans announced preliminary results for the fourth quarter and
fiscal year ending May 31, 2002, revisions to its guidance for fiscal 2003, plans to close its
Bakersfield, California skate park and take an impairment charge with respect to its Denver,
Colorado skate park, and a write-down of certain slow-moving inventory. Vans stated that, based
on current trends, the Company now expects to report net sales in the range of $60.0 million to $61.0
million for the fourth quarter ending May 31, 2002, versus $85.2 million for the corresponding
period in the previous year. For the quarter, the Company expects domestic wholesale sales to be
approximately $17.0 million, retail sales to be approximately $23.5 million, with same-store sales
down roughly 8%, and international sales to be approximately $19.5 million. In addition, the
Company now expects to report a diluted earnings per share loss of approximately ($0.20) for the
fourth quarter, excluding the after-tax charges and one-time expenses discussed below, compared
to earnings per share of $0.16 for the same period last year. The Company expects to incur after-tax
charges and one-time expenses of approximately $8.6 million, or ($0.48) per diluted share, in the
fourth quarter, of which roughly $7.7 million is non-cash. Of the total after-tax charges and one-time
expenses, $1.2 million is associated with the planned closure of the Bakersfield skate park, $2.3
million is associated with the write-down of fixed assets at the Denver skate park, $2.7 million is
related to operations in Latin America, severance payments and certain other assets, and $2.4 million
is related to the write-down of slow-moving inventory. Including the charge and one-time expenses,
the Company expects to report a diluted earnings per share loss of approximately ($0.68) for the
fourth quarter.
67. The market reacted swiftly to the news with shares of Vans falling 19.87% or $2.53
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per share to close at $10.20 per share on May 24, 2002.
VANS’ VIOLATION OF GAAP RULES
68. GAAP states that “revenue should not be recognized until it is realized or realizable
and earned.” FASB Concepts Statement No. 5, ¶83. The conditions for the recognition of revenue
are met when “persuasive evidence of an arrangement exists, delivery has occurred or services have
been rendered, the seller’s price is fixed or determinable, collectibility of the sales price is reasonably
assured and when the entity has substantially performed the obligations which entitle it to the
benefits represented by the revenue.” Here, Vans improperly recognized revenue when revenue from
such transactions was not realizable and earned, which is in violation of GAAP.
69. Given these accounting irregularities, the Company announced financial results
that were in violation of GAAP, the Company’s own announced revenue recognition policies, and
the following principles:
(a) The principle that “interim financial reporting should be based upon the same
accounting principles and practices used to prepare annual financial statements” was
violated (APB No. 28, ¶10);
(b) The principle that “financial reporting should provide information that is useful to
present to potential investors and creditors and other users in making rational
investment, credit, and similar decisions” was violated (FASB Statement of Concepts
No. 1, ¶34);
(c) The principle that “financial reporting should provide information about the
economic resources of an enterprise, the claims to those resources, and effects of
transactions, events, and circumstances that change resources and claims to those
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resources” was violated (FASB Statement of Concepts No. 1, ¶40);
(d) The principle that “financial reporting should provide information about an
enterprise’s financial performance during a period” was violated (FASB Statement
of Concepts No. 1, ¶42);
(e) The principle that “completeness, meaning that nothing is left out of the information
that may be necessary to insure that it validly represents underlying events and
conditions” was violated (FASB Statement of Concepts No. 2, ¶79);
(f) The principle that “financial reporting should be reliable in that it represents what it
purports to represent” was violated (FASB Statement of Concepts No. 2, ¶¶58-59);
and
(g) The principle that “conservatism be used as a prudent reaction to uncertainty to try
to ensure that uncertainties and risks inherent in business situations are adequately
considered” was violated. (FASB Statement of Concepts No. 2, ¶95).
70. The adverse information concealed by defendants during the Class Period and
detailed above was in violation of Item 303 of Regulation S-K under the federal securities law (17
C.F.R. 229.303).
UNDISCLOSED ADVERSE FACTS
71. The market for Vans’ common stock was open, well-developed and efficient at all
relevant times. As a result of these materially false and misleading statements and failures to
disclose, Vans’ common stock traded at artificially inflated prices during the Class Period. Plaintiff
and other members of the Class purchased or otherwise acquired Vans common stock relying upon
the integrity of the market price of Vans’ common stock and market information relating to Vans,
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and have been damaged thereby.
72. During the Class Period, defendants materially misled the investing public, thereby
inflating the price of Vans’ common stock, by publicly issuing false and misleading statements and
omitting to disclose material facts necessary to make defendants’ statements, as set forth herein, not
false and misleading. Said statements and omissions were materially false and misleading in that
they failed to disclose material adverse information and misrepresented the truth about the Company,
its business and operations, as alleged herein.
73. At all relevant times, the material misrepresentations and omissions particularized
in this Complaint directly or proximately caused or were a substantial contributing cause of the
damages sustained by plaintiff and other members of the Class. As described herein, during the
Class Period, defendants made or caused to be made a series of materially false or misleading
statements about Vans’ business, prospects and operations. These material misstatements and
omissions had the cause and effect of creating in the market an unrealistically positive assessment
of Vans and its business, prospects and operations, thus causing the Company’s common stock to
be overvalued and artificially inflated at all relevant times. Defendants’ materially false and
misleading statements during the Class Period resulted in plaintiff and other members of the Class
purchasing the Company’s common stock at artificially inflated prices, thus causing the damages
complained of herein.
ADDITIONAL SCIENTER ALLEGATIONS
74. As alleged herein, defendants acted with scienter in that defendants knew that the
public documents and statements issued or disseminated in the name of the Company were
materially false and misleading; knew that such statements or documents would be issued or
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disseminated to the investing public; and knowingly and substantially participated or acquiesced in
the issuance or dissemination of such statements or documents as primary violations of the federal
securities laws. As set forth elsewhere herein in detail, defendants, by virtue of their receipt of
information reflecting the true facts regarding Vans, their control over, and/or receipt and/or
modification of Vans’ allegedly materially misleading misstatements and/or their associations with
the Company which made them privy to confidential proprietary information concerning Vans,
participated in the fraudulent scheme alleged herein.
75. Defendants knew and/or recklessly disregarded the falsity and misleading nature of
the information which they caused to be disseminated to the investing public. The ongoing
fraudulent scheme described in this complaint could not have been perpetrated over a substantial
period of time, as has occurred, without the knowledge and complicity of the personnel at the highest
level of the Company, including the Individual Defendants.
76. Additionally, during the Class Period, defendants were motivated to inflate the
Company’s financial performance so that defendants could accomplish a $64 million secondary
offering, which occurred on or about May 23, 2001.
APPLICABILITY OF PRESUMPTION OF RELIANCE: FRAUD-ON-THE MARKET DOCTRINE
77. At all relevant times, the market for Vans’ common stock was an efficient market for
the following reasons, among others:
(a) Vans’ stock met the requirements for listing, and was listed and actively traded
on the NASDAQ, a highly efficient and automated market;
(b) As a regulated issuer, Vans filed periodic public reports with the SEC and the
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NASDAQ;
(c) Vans regularly communicated with public investors via established market
communication mechanisms, including through regular disseminations of press releases on the
national circuits of major newswire services and through other wide-ranging public disclosures, such
as communications with the financial press and other similar reporting services; and
(d) Vans was followed by several securities analysts employed by major brokerage
firms who wrote reports which were distributed to the sales force and certain customers of their
respective brokerage firms. Each of these reports was publicly available and entered the public
marketplace.
78. As a result of the foregoing, the market for Vans’ common stock promptly digested
current information regarding Vans from all publicly available sources and reflected such
information in Vans’ stock price. Under these circumstances, all purchasers of Vans’ common stock
during the Class Period suffered similar injury through their purchase of Vans’ common stock at
artificially inflated prices and a presumption of reliance applies.
NO SAFE HARBOR
79. The statutory safe harbor provided for forward-looking statements under certain
circumstances does not apply to any of the allegedly false statements pleaded in this complaint.
Many of the specific statements pleaded herein were not identified as “forward-looking statements”
when made. To the extent there were any forward-looking statements, there were no meaningful
cautionary statements identifying important factors that could cause actual results to differ materially
from those in the purportedly forward-looking statements. Alternatively, to the extent that the
statutory safe harbor does apply to any forward-looking statements pleaded herein, defendants are
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liable for those false forward-looking statements because at the time each of those forward-looking
statements was made, the particular speaker knew that the particular forward-looking statement was
false, and/or the forward-looking statement was authorized and/or approved by an executive officer
of Vans who knew that those statements were false when made.
COUNT IViolation of Section 10(b) of the Exchange Act And Rule 10b-5
Promulgated Thereunder Against All Defendants
80. Plaintiff repeats and reiterates the allegations set forth above as though fully set forth
herein. This claim is asserted against all defendants.
81. During the Class Period, defendant Vans and the Individual Defendants, and each of
them, carried out a plan, scheme and course of conduct which was intended to and, throughout the
Class Period, did: a) deceive the investing public, including plaintiff and other Class members, as
alleged herein; b) artificially inflate and maintain the market price of Vans’ common stock; and c)
cause plaintiff and other members of the Class to purchase Vans’ common stock at artificially
inflated prices. In furtherance of this unlawful scheme, plan and course of conduct, defendants Vans
and the Individual Defendants, and each of them, took the actions set forth herein.
82. These defendants: a) employed devices, schemes, and artifices to defraud; b) made
untrue statements of material fact and/or omitted to state material facts necessary to make the
statements not misleading; and c) engaged in acts, practices, and a course of business which operated
as a fraud and deceit upon the purchasers of the Company's common stock in an effort to maintain
artificially high market prices for Vans’ common stock in violation of Section 10(b) of the Exchange
Act and Rule 10b-5. These defendants are sued either as primary participants in the wrongful and
illegal conduct charged herein. The Individual Defendants are also sued as controlling persons of
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Vans, as alleged below.
83. In addition to the duties of full disclosure imposed on defendants as a result of their
making of affirmative statements and reports, or participation in the making of affirmative
statements and reports to the investing public, they each had a duty to promptly disseminate truthful
information that would be material to investors in compliance with the integrated disclosure
provisions of the SEC as embodied in SEC Regulation S-X (17 C.F.R. § 210.01 et seq.) and S-K (17
C.F.R. § 229.10 et seq.) and other SEC regulations, including accurate and truthful information with
respect to the Company's operations, financial condition and performance so that the market prices
of the Company's common stock would be based on truthful, complete and accurate information.
84. Vans and the Individual Defendants, individually and in concert, directly and
indirectly, by the use, means or instrumentalities of interstate commerce and/or of the mails, engaged
and participated in a continuous course of conduct to conceal adverse material information about the
business, business practices, performance, operations and future prospects of Vans as specified
herein.
85. These defendants employed devices, schemes and artifices to defraud, while in
possession of material adverse non-public information and engaged in acts, practices, and a course
of conduct as alleged herein in an effort to assure investors of Vans’ value and performance and
continued substantial growth, which included the making of, or the participation in the making of,
untrue statements of material facts and omitting to state material facts necessary in order to make the
statements made about Vans and its business operations and future prospects in the light of the
circumstances under which they were made, not misleading, as set forth more particularly herein,
and engaged in transactions, practices and a course of business which operated as a fraud and deceit
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upon the purchasers of Vans’ common stock during the Class Period.
86. Each of the Individual Defendants' primary liability, and controlling person liability,
arises from the following facts: a) each of the Individual Defendants was a high-level executive
and/or director at the Company during the Class Period; b) each of the Individual Defendants, by
virtue of his responsibilities and activities as a senior executive officer and/or director of the
Company, was privy to and participated in the creation, development and reporting of the Company's
internal budgets, plans, projections and/or reports; c) the Individual Defendants enjoyed significant
personal contact and familiarity with each other and were advised of and had access to other
members of the Company's management team, internal reports, and other data and information about
the Company's financial condition and performance at all relevant times; and d) the Individual
Defendants were aware of the Company's dissemination of information to the investing public which
they knew or recklessly disregarded was materially false and misleading.
87. These 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 such facts were available to them. Such defendants'
material misrepresentations and/or omissions were done knowingly or recklessly and for the purpose
and effect of concealing Vans’ operating condition, business practices and future business prospects
from the investing public and supporting the artificially inflated price of its common stock. As
demonstrated by defendants' overstatements and misstatements of the Company's financial condition
and performance throughout the Class Period, the Individual Defendants, if they did not have actual
knowledge of the misrepresentations and omissions alleged, were reckless in failing to obtain such
knowledge by deliberately refraining from taking those steps necessary to discover whether those
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statements were false or misleading.
88. As a result of the dissemination of the materially false and misleading information
and failure to disclose material facts, as set forth above, the market price of Vans’ common stock
was artificially inflated during the Class Period. In ignorance of the fact that market prices of Vans’
common stock were artificially inflated, and relying directly or indirectly on the false and misleading
statements made by defendants, or upon the integrity of the market in which the common stock
trades, and/or on the absence of material adverse information that was known to or recklessly
disregarded by defendants but not disclosed in public statements by defendants during the Class
Period, plaintiff and the other members of the Class acquired Vans common stock during the Class
Period at artificially high prices and were damaged thereby.
89. At the time of said misrepresentations and omissions, plaintiff and other members of
the Class were ignorant of their falsity, and believed them to be true. Had plaintiff and the other
members of the Class and the marketplace known of the true performance, business practices, future
prospects and intrinsic value of Vans, which were not disclosed by defendants, plaintiff and other
members of the Class would not have purchased or otherwise acquired their Vans common stock
during the Class Period, or, if they had acquired such common stock during the Class Period, they
would not have done so at the artificially inflated prices which they paid.
90. By virtue of the foregoing, Vans and the Individual Defendants have each violated
Section 10(b) of the Exchange Act, and Rule 10b-5 promulgated thereunder.
91. As a direct and proximate result of defendants’ wrongful conduct, plaintiff and the
other members of the Class suffered damages in connection with their respective purchases and
sales of the Company's common stock during the Class Period.
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SECOND CLAIMViolation Of Section 20(a) Of
The Exchange Act Against The Individual Defendants
92. Plaintiff repeats and reiterates the allegations as set forth above as if set forth fully
herein. This claim is asserted against the Individual Defendants.
93. Each of the Individual Defendants acted as a controlling person of Vans within the
meaning of Section 20(a) of the Exchange Act as alleged herein. By virtue of their high-level
positions with the Company, participation in and/or awareness of the Company's operations and/or
intimate knowledge of the Company's actual performance, the Individual Defendants had the power
to influence and control and did influence and control, directly or indirectly, the decision-making of
the Company, including the content and dissemination of the various statements which plaintiff
contends are false and misleading. Each of the Individual Defendants was provided with or had
unlimited access to copies of the Company's reports, press releases, public filings and other
statements alleged by plaintiff to be misleading prior to and/or shortly after these statements were
issued and had the ability to prevent the issuance of the statements or cause the statements to be
corrected.
94. In addition, each of the Individual Defendants had direct involvement in the day-to-
day operations of the Company and, therefore, is presumed to have had the power to control or
influence the particular transactions giving rise to the securities violations as alleged herein, and
exercised the same.
95. As set forth above, Vans and the Individual Defendants each violated Section 10(b)
and Rule 10b-5 by their acts and omissions as alleged in this Complaint. By virtue of their
controlling positions, the Individual Defendants are liable pursuant to Section 20(a) of the Exchange
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Act. As a direct and proximate result of defendants' wrongful conduct, plaintiff and other members
of the Class suffered damages in connection with their purchases of the Company's common stock
during the Class Period.
WHEREFORE, plaintiff prays for relief and judgment, as follows:
(a) Determining that this action is a proper class action, designating plaintiff as Lead
Plaintiff and certifying plaintiff as a class representative under Rule 23 of the Federal Rules of Civil
Procedure and plaintiff’s counsel as Lead Counsel;
(b) Awarding compensatory damages in favor of plaintiff and the other Class
members against all defendants, jointly and severally, for all damages sustained as a result of
defendants’ wrongdoing, in an amount to be proven at trial, including interest thereon;
(c) Awarding plaintiff and the Class their reasonable costs and expenses incurred in
this action, including counsel fees and expert fees; and
(d) Such other and further relief as the Court may deem just and proper.
JURY TRIAL DEMANDED
Plaintiff hereby demands a trial by jury.
Dated: February 2, 2004 CAULEY GELLER BOWMAN &RUDMAN, LLPSamuel H. Rudman, EsquireDavid A. Rosenfeld, Esquire200 Broadhollow Road, Suite 406Melville, NY 11747(631) 367-7100
Attorneys for Plaintiff
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