', ~. i41~ J1'J 1 Karl L. Capps, individually, ristee, UNITED STATES DISTRICT COURT Plaintiff, EASTERN DISTRICT OF LOUISIANA VS. CASE NO. Torch Offshore, Inc., UBS Warburg LLC, CIBC World Markets Corp., Howard Weil, DIVISION " a Division of Legg Mason Wood Walker, Inc., Lyle G. Stockstill, Lana J. Hingle Stockstill, Eric N. Smith, William J. SECT F MAG 3 Blackwell, Curtis Lemons, John Reynolds and Ken Wallace, Defendants O2O582 CLASS ACTION COMPLAINT Plaintiff, by his undersigned attorneys, for his class action complaint against Defendants, alleges upon information and belief, except as to those allegations which pertain to the Plaintiff and his counsel (which are based upon personal knowledge), as follows : NATURE OF THE ACTION 1. This is a class action on behalf of all purchasers of the common stock of Defendant Torc h Offshore, Inc. ("Torch" or the "Company") from June 7, 2001, through and including Augus t 1, 2001 (the "Class Period"), pursuant to a Registration Statement and Prospectus declared effective on June 7, 2001 (the "Registration Statement and Prospectus"), for an initial publi c offering (the "IPO or "Offering") of 5,000,000 shares of Torch common stock, at a price of $16.00 per share. The Registration Statement and Prospectus contained materia l misrepresentations in violation of Sections I 1 and 15 of the Securities Act of 1933 as se t forth in detail below. The claims herein are asserted against Torch, the directors and/or officers of Torch who signed the Registration Statement, and the co-lead underwriters of th e 1
Offering. 2. Plaintiff and the other members of the Class suffered substantial losses on their purchase of Torch stock. All stock purchased during the Class Period was issued as pa rt of, and directly traceable to, the Offering and the Registration Statement and Prospectus. JURISDICTION AND VENUE 3. This Court has jurisdiction over this action pursuant to Section 22 of the Securities Act o f 1933 (the "Securities Act"), 15 U.S.C. 77v, and 28 U.S.C. 1331 and 1337. The claims asserted in this complaint arise under and pursuant to Sections 11 and 15 of the Securitie s Act, 15 U.S.C. 77k and 77o. 4. Venue is proper in this District pursuant to Section 22 of the Securities Act and 28 U.S.C. 1391(b). Torch is headquartered in this District, and a substantial part of the events o r omissions giving rise to the claims complained of herein occurred in this District. THE PARTIE S 5. Plaintiff Karl L. Capps ("Plaintiff") purchased Torch common stock during the Class Perio d individually and as Trustee for the benefit of Kristiana Leigh Capps and Shinn Moshin, a s set forth in detail in his Certification of Named Plaintiff attached hereto, all of which stoc k was issued as part of, and directly traceable to, the IPO and pursuant to the Registratio n Statement and Prospectus. 6. Defendant Torch is a corporation organized under the laws of Delaware, with its principa l place of business located at 401 Whitney Avenue Street, Suite 400, Gretna, Louisiana 70056. 7. Defendant Lyle G. Stockstill ("Lyle Stockstill") is, and was at all times relevant to thi s Complaint, the Chief Executive Officer of Torch and the Chairman of the Company' s Board 2
of Directors. Lyle Stockstill signed the Registration Statement. 8. Defendant Lana J. Hingle Stockstill ("Lana Stockstill") is, and was at all times relevant to this Complaint, employed by the Company as its Senior Vice President -- Administration, and was a member of the Company's Board of Directors. Lana Stockstill signed the Registration Statement. 9. Defendant Eric N. Smith ("Smith") is, and was at all times relevant to this Complaint, employed by the Company as the Company's Executive Vice President. Smith signed the Registration Statement. 10. Defendant William J. Blackwell ("Blackwell") is, and was at all times relevant to thi s Complaint, employed by the Company as the Company's Chief Financial Officer. Blackwel l signed the Registration Statement. 11. Defendant Curtis Lemons ("Lemons") is, and was at all times relevant to this Complaint, a member of the Company's Board of Directors. Lemons signed the Registration Statement. 12. Defendant John Reynolds ("Reynolds") is, and was at all times relevant to this Complaint, a member of the Company's Board of Directors. Reynolds signed the Registration Statement. 13. Defendant Ken Wallace ("Wallace") is, and was at all times relevant to this Complaint, a member of the Company's Board of Directors. Wallace signed the Registration Statement. 14. Defendants Lyle Stockstill, Lana Stockstill, Smith, Blackwell, Lemons, Reynolds an d Wallace are sometimes collectively referred to in this Complaint as the "Individua l Defendants. " 15. Defendant UBS Warburg LLC ("UBS" ) is an investment banking and securities brokerag e firm. UBS was a co-lead underwriter of the IPO. Plaintiff' s Class Action Complaint 3
16. Defendant CIBC World Markets Corp. ("CIBC") is an investment banking and securitie s brokerage firm. CIBC was a co-lead underwriter of the IPO. 17. Defendant Howard Well, a Division of Legg Mason Wood Walker, Inc. ("Legg Mason"), i s an investment banking and securities brokerage firm. Legg Mason was a co-lead underwriter of the IPO. 18. Defendants UBS, CIBC and Legg Mason are sometimes collectively referred to in thi s Complaint as the "Co-Lead Underwriter Defendants." All of the shares of Torch common stock sold in the IPO were purchased by the Co-Lead Underwriter Defendants, a s representatives of themselves and other underwriters, pursuant to a firm commitmen t underwriting, and then resold to the investing public. CLASS ACTION ALLEGATION S 19. Plaintiff brings this action as a class action pursuant to Rule 23 of the Federal Rules of Civi l Procedure, individually and on behalf of a class consisting of all purchasers of the commo n stock of the Company from June 7, 2001, through and including August 1, 2001 (the "Clas s Period"), exclusive of Defendants, all officers and directors of any of the Defendants or thei r subsidiaries, members of Defendants' immediate families, any entity in which any Defendan t has a controlling interest, and the legal representatives, heirs, successors, or assigns of any such excluded person, including all of the underwriters in the IPO when acting in suc h capacity (hereinafter, the "Class" ) Plaintiffs Class Action Complaint 4
20. The members of the Class are so numerous that joinder of all members of the Class i s impractical. As described below, 5,000,000 shares of Torch common stock were sold to th e public in the IPO. During the Class Period, shares of Torch stock were actively traded on th e NASDAQ National Market System under the symbol "TORC." While the exact number of the Class Members is unknown to Plaintiff at this time and can only be ascertained through appropriate discovery, Plaintiff reasonably believes that there are thousands of members of the Class located throughout the United States. 21. Plaintiff's claims are typical of the claims of the other members of the Class, because th e damages suffered by Plaintiff and all other Class Members arise from and were caused by th e same misrepresentations and omissions made by or chargeable to Defendants as alleged herein. Plaintiff does not have interests antagonistic to, or in conflict with, the Class. 22. Common questions of law and fact exist as to all members of the Class and predominate ove r any questions affecting solely individual members of the Class. Among the questions of la w and fact common to the Class are : a. whether the federal securities laws were violated by Defendants' acts as alleged herein ; b. whether the Defendants misrepresented and/or failed to disclose material facts in the Registration Statement and Prospectus, as described below ; c. whether the Individual Defendants are "controlling persons" of Torch within the meaning of Section 15 of the Securities Act ; d. whether the members of the Class have sustained damages, and, if so, the proper measure of such damages. 23. Plaintiff will fairly and adequately protect the interests of the other members of the Class, and Plaintiff has retained counsel competent and experienced in class and securities litigatio n 5
to further ensure such protection and intend to prosecute this action vigorously. 24. A class action is superior to other available methods for the fair and efficient adjudication o f this controversy. The Class is so numerous and geographically dispersed that it would b e impracticable for each member of the Class to bring a separate action or to be joined in a n individual action. The individual damages of any member of the Class may be relativel y small when measured against the potential costs of bringing this action, and thus make th e expense and burden of this litigation unjustifiable for individual actions. In this class action, the Court can determine the rights of all members of the Class with judicial economy. 25. There will be no difficulty in the management of this litigation which would preclude it s maintenance as a class action. The names and addresses of the record owners of the shares of the Company's common stock purchased during the Class Period are available from th e Company's transfer agent. Notice can be provided to such record owners and all Class Members by a combination of published notice and first-class mail using techniques and a form of notice similar to those customarily used in class actions arising under the federa l securities laws. SUBSTANTIVE ALLEGATION S 26. Torch provides sub-sea construction services in connection with the infield development o f offshore oil and natural gas reservoirs, including installing and maintaining small diamete r flowlines and related infrastructure associated with the development of offshore oil an d natural gas reserves on the Continental Shelf of the Gulf of Mexico. Torch purports to b e one of the leading installers of pipelines in water depths of less than 200 feet in the Gulf o f Mexico. The majority of the Company's services are performed to facilitate the productio n 6
of natural gas. Torch's customers are major energy companies as well as independent oil an d natural gas operators. 27. At the time of the IPO, the primary factor which materially affected the demand for the Company's services was the price levels of natural gas and oil. The price levels of natural gas and oil were primary determinants of offshore exploration and development activity, because as oil and natural gas prices increase or remain at favorable levels, Torch' s customers generally increase their capital budgets for offshore exploration and development, including the increase of budgets for the construction of subsea infrastructure for the deliver y of oil and natural gas to production facilities or trunk lines - Torch' s primary business. 28. Defendants made the following statements in the Registration Statement and Prospectus concerning the price of natural gas and oil in the period preceding the IPO, and the effect of those prices upon the Company 's business : a. "The price levels of oil and natural gas are the primary determinants of offshore exploration and development activity. From two year lows in February 1999 to June 6, 2001, NYMEX closing current oil contract prices have increased by approximately 126% and NYMEX closing current natural gas contract prices have increased by approximately 133%. As oil and natural gas prices increase or remain at favorable levels, our customers generally increase their capital budgets for additional offshore exploration and development. " b. "In the near term, we expect the demand for our services on the Shelf will be maintained or will increase as a result of improved natural gas market fundamentals." c. "Given the current oil and natural gas demand and price environment, we believe exploration and production companies may be preparing to increase their capital budgets for offshore projects, especially in the Gulf of Mexico and the South Atlantic Basin." d. "[O]il and natural gas price improvements which began in 1999 prompted limited increases in exploration and development expenditure levels in the year 2000 and the first part of 2001, resulting in recent increases in the demand for our se rvices. Although operators were initially hesitant to significantly raise their overall Plaintiffs Class Action Complain t 7
expenditure levels, this increase in activity has facilitated higher utilization of our fleet and increases in prices for our services, resulting in improved revenues and increased margins. We believe that our future financial and operating results will continue to be highly dependent on overall market conditions in the oil and natural gas industry. We anticipate that the Gulf of Mexico offshore construction industry in general and our position in particular will benefit from improved industry fundamentals. e. "Oil and natural gas producers are only now beginning to increase their capital budgets for infield marine services following the recovery in oil and natural gas prices that commenced in the spring of 1999.... Domestic natural gas supply and production capacity have declined due to the depletion of reservoirs and the reduction in drilling activity during the recent period of low oil and natural gas prices in 1998 and 1999, leading to a limited supply of natural gas. This imbalance between supply and demand has led to recent increases in natural gas prices. If higher natural gas price and volume demands are sustained, we expect significant drilling activity to continue on the Shelf, where, according to the Minerals Management Service, over 70% of the hydrocarbons produced since 1990 have been natural gas." 29. Defendants' statements set forth in paragraph 28 above were materially false and misleadin g because Defendants failed to disclose that : a. In the period preceding the IPO, the price of natural gas had been materially decreasing. For example, the NYMEX closing current natural gas contract prices had been materially decreasing from a price of approximately $10.02 per thousand cubic feet in late December 2000 to a price of approximately $3.88 per thousand cubic feet on June 7, 2001 - a decrease of approximately 60% as of the date of the IPO. b. In the period preceding the IPO, energy inventories had grown to levels that threatened the market for exploration and development of energy upon which Torch depended for its business success. For example, as of June 6, 2001, U.S. gasoline inventories were at their highest level since July 1999. c. In the period preceding the IPO, there had been significant delays in the completion of shallow water drilling projects. FIRST CLAIM FOR RELIEF (Against All Defendants Under Section 11 of the Securities Act) 30. Plaintiff incorporates by reference all preceding paragraphs as if set forth fully herein. 31. This Count is asserted by Plaintiff against all Defendants under and pursuant to Section 11 of Plaintiffs Class Action Complain t 8
the Securities Act, 15 U.S.C. 77k, on behalf of all purchasers of Torch common stoc k during the Class Period. 32. As set forth above, the Registration Statement and Prospectus contained untrue statements o f material fact or omitted to state information required to be stated therein or necessary t o make the statements contained in the Registration Statement and Prospectus not misleading, all in violation of Section 1 1 of the Securities Act, 15 U.S.C. 77k. 33. The Defendants are liable to Plaintiff and the other members of the Class for the mate rial misrepresentations and omissions contained in the Prospectus and Registration Statement under Section 11 of the Securities Act, 15 U.S.C. 77k. 34. Pursuant to 15 U.S.C. 77k, Defendant Torch is strictly liable for all such misrepresentation s and omissions in the Registration Statement and Prospectus. The Co-Lead Underwriter Defendants are liable for such misrepresentations and omissions as underwriters of the IPO. The Individual Defendants are liable for such misrepresentations and omissions a s signatories to the Registration Statement for the IPO and/or membership on the Board of Directors of Torch. 35. As a direct and proximate result of the conduct of Defendants in violation of Section 11 o f the Securities Act, the price for Torch shares was artificially inflated in the IPO and in the after-market during the Class Period. Plaintiff and the other members of the Class purchase d their Torch shares without knowledge of the misrepresentations or omissions alleged herein, and have suffered substantial damages. 36. Plaintiff and all members of the Class purchased Torch shares of common stock which wer e issued pursuant to and directly traceable to the Registration Statement and Prospectus. 9
37. This action has been brought within one year of the violations of Section 11 of the Secu rities Act and within one year of the date that any such violations could or should have been discovered through reasonable diligence. SECOND CLAIM FOR RELIE F (Against The Individual Defendants Under Section 15 of the Securities Act ) 38. Plaintiff incorporates by reference all preceding paragraphs as if set forth fully herein. 39. In addition to the liability of the Individual Defendants as signatories of the Registratio n Statement, as set forth above, by reason of their positions as senior management an d directors, these Defendants had the power to control, and did control, Torch, and thes e Defendants are therefore liable jointly and severally with Torch for the violation of Sectio n 11 of the Securities Act, 15 U.S.C. 77k, under Section 15 of the Securities Act, 15 U.S.C. 770. Plaintiff hereby demands a trial by jury. JURY TRIAL DEMANDED WHEREFORE, Plaintiff herein demands judgment : (a) Declaring this action to be a proper class action under Fed. R. Civ. P. 23 ; (b) Awarding plaintiff and the class rescission and/or money damages (includin g pre-judgment interest) against each Defendant, jointly and severally ; (c) Awarding equitable relief, including but not limited to attaching, impounding, imposing a constructive trust upon or otherwise restricting Defendants' assets so as to assure tha t Plaintiff and the Class have an effective remedy ; (d) Awarding Plaintiff and the Class their costs and expenses, including, withou t 10
limitation, reasonable attorneys', accountants' and experts' fees ; and (e) Granting such other and further relief as the Court may deem just and proper. PLAINTIFF, KARL L. CAPPS BY : W. Paul Wilkins (LA. BAR NO. 19830) LEBLANC & WADDELL LL C 5353 Essen Lane, Suite 420 Baton Rouge, Louisiana 70809 Phone : (225) 768-7222 Fax : (225) 768-799 9 Andrew M. Schatz (CT Bar No. 00603) Jeffrey S. Nobel (CT Bar No. 04855) Wayne T. Boulton (CT Bar No. 20648) SCHATZ & NOBEL, P.C. 330 Main Street Hartford, Connecticut 06106 Phone: (860) 493-629 2 Fax : (860) 493-6290 Plaintiffs Class Action Complaint 11