
USCA1 Opinion

	




                            United States Court of Appeals                                For the First Circuit                                 ____________________        No. 95-2240                             MORRIS I. GLASSMAN, et al.,                               Plaintiffs, Appellants,                                          v.                         COMPUTERVISION CORPORATION, et al.,                                Defendants, Appellees.                                 ____________________                     APPEAL FROM THE UNITED STATES DISTRICT COURT                          FOR THE DISTRICT OF MASSACHUSETTS                     [Hon. William G. Young, U.S. District Judge]                                             ___________________                                 ____________________                                        Before                                Lynch, Circuit Judge,                                       _____________                            Coffin, Senior Circuit Judge,                                    ____________________                              Cummings, Circuit Judge.*                                        _____________                                 ____________________            Peter J. Macdonald, with whom Jeffrey  B. Rudman, David E. Marder,            __________________            __________________  _______________        S.   Tara Miller, Hale and  Dorr, Bruce D. Angiolillo,  Nicholas Even,        ________________  ______________  ___________________   _____________        Elisabeth  Bassin, Simpson  Thacher &  Bartlett, Thomas  J. Dougherty,        _________________  ____________________________  ____________________        Dennis M. Kelleher, and Skadden, Arps, Slate, Meagher &  Flom, were on        __________________      _____________________________________        brief, for the defendants-appellees.            Thomas  G. Shapiro,  with  whom Michelle  Blauner,  Shapiro  Grace            __________________              _________________   ______________        Haber &  Urmy, Glen  DeValerio, Norman  Berman, Michael  Lange, Berman        _____________  _______________  ______________  ______________  ______        DeValerio  &  Pease,  Daniel   W.  Krasner,  Peter  C.   Harrar,  Wolf        ___________________   ____________________   __________________   ____                                    ____________________        *Of the Seventh Circuit, sitting by designation.        Haldenstein  Adler Freeman & Herz, L.L.P., I. Stephen Rabin, Joseph P.        _________________________________________  ________________  _________        Garland,   and Rabin  & Garland,  were on  brief, for  the plaintiffs-        _______        ________________        appellants.                                 ____________________                                    July 31, 1996                                 ____________________                      LYNCH, Circuit Judge.   Computervision Corporation,                      LYNCH, Circuit Judge.                             _____________            a Massachusetts  high  technology company,  made  an  initial            public  offering ("IPO")  of securities  on August  14, 1992.            Six  weeks  later,  on  September  29,  1992,  Computervision            announced  that its  revenues and  operating results  for the            third  quarter of  1992 would  be lower  than expected.   The            prices of Computervision's  stock and notes fell sharply.  On            the day after this announcement, the first  investor suit was            filed.   Computervision  and the  IPO underwriters  were sued            under Sections 11  and 12(2)  of the Securities  Act of  1933            (the  "Securities   Act").      The   investors   also   sued            Computervision's principal officers  and directors,  alleging            controlling  person   liability  under  Section  15   of  the            Securities Act.   Plaintiffs  asserted that  they represented            the class  of investors who  purchased common stock  or notes            between August 14, 1992 and September 29, 1992.  The district            court,  after   lengthy   pre-trial  proceedings   and   full            discovery,  both dismissed  the case  for failure to  state a            claim and denied  as futile plaintiffs'  motion for leave  to            file  a second amended  complaint.  See  In re Computervision                                                ___  ____________________            Corp. Sec.  Litig. ("Computervision  II"), 914 F.  Supp. 717,            __________________   __________________            719 (D. Mass. 1996).                      The  investors  appeal  from  the  denial of  their            motion for leave to amend, arguing that their proposed second            amended  complaint (the "Proposed Complaint") passed the Rule                                         -3-                                          3            12(b)(6)  threshold.     They  say  the  Proposed   Complaint            adequately alleged violations of  the securities laws in that            the   Prospectus1   for    the   IPO   contained   actionable            misrepresentations,"half-truths" or  omissions regarding: (1)            the  factors considered  in  determining the  prices for  the            offerings; (2) certain mid-quarter  information for the third            quarter of  1992; (3) the importance  of Computervision's low            backlog; (4)  the latest release of  Computervision's key new            software product,  CADDS  5, which  Computervision  said  was            commercially shipping  when (plaintiffs say) it  was not, and            the development and commercial prospects of CADDS 5.                      We affirm,  although our reasoning as  to the first            claim differs from that of the district court.                                          I.                                      Background                                      __________                      Computervision   is  a  leading  supplier  of  work            station-based  computer  aided  design  and   computer  aided            manufacturing  ("CAD/CAM") software  and related  services to            the  mechanical  design  automation  market.    Its  software            products  are utilized  in the  design  of complex  parts and            assemblies   for  the   automotive,   aerospace,  and   other            mechanical industries.   Its products enable  users to reduce                                            ____________________            1.  The  term "Prospectus" will  be used  throughout although            there were two prospectuses, one for stock and one for notes.            The  parties  treat  them   as  identical  for  all  material            purposes.                                          -4-                                          4            the    time   required   for   designing,   engineering   and            manufacturing a  product  before market  introduction.   This            "time-to-market" is  a key factor  in ensuring  profitability            and competitiveness.2                      The company  was organized  in 1972 under  the name            Prime  Computer, Inc.3  Until 1988, Prime was in the business            of  making  and selling  computer  systems.   In  1988, Prime            acquired  Computervision Corporation,  a leading  supplier of            CAD/CAM hardware and software products.  In 1989, the company            was  acquired  by DR  Holdings,  and shifted  its  focus from            computer  systems  to  the   CAD/CAM  market.    A  principal            shareholder of  DR Holdings, Shearson Holdings,4 provided the            company with a  $500 million bridge  loan in connection  with            the  acquisition.  That bridge loan was intended to be repaid            with the proceeds from a high-yield bond offering.   However,            that  offering  never  occurred  and  Computervision  instead                                            ____________________            2.  At the  time of the IPO, Computervision  had an installed            base  of 58,000  units,  predominantly in  North America  and            Europe.    In  1991,  international  revenues  accounted  for            approximately 66% of its total revenues.            3.  The company's name was changed to Computervision Corp. at            the time of the IPO at issue  here.  For clarity, we refer to            the company as "Computervision" throughout.            4.  Shearson  Holdings is  the  parent company  of a  co-lead            underwriter for the IPO,  Shearson Lehman Brothers, Inc.   In            addition  to Shearson  Holdings and  its  affiliate, Shearson            Lehman Brothers  Capital  Partners II,  L.P.,  the  principal            shareholders  of DR  Holdings  were J.H.  Whitney  & Co.  and            affiliates and  the Prudential Insurance  Company of  America            and affiliates.                                             -5-                                          5            refinanced  the bridge loan with  $500 million in  notes.  In            December  1991, interest  on the  notes was  itself converted            from cash  payments to  payments "in kind,"  i.e., additional                                                         ____            notes.                       The proceeds  from the  IPO were intended  to repay            half  the principal  amount,  of the  notes held  by Shearson            Holdings, with the rest  of the debt to Shearson  Holdings to            be converted to Computervision common stock or written off by            Shearson.   Both  Shearson  Holdings and  DR Holdings  signed            "lock-up"  agreements, promising  not  to sell  their  equity            positions  in  Computervision until  a  year  after the  IPO.            Plaintiffs  posit  that Computervision's  worsening financial            condition5 placed Shearson  Holdings' investment in  jeopardy            by  increasing  the  likelihood  that   Computervision  would            default on  its debt to  Shearson Holdings.   Allegedly,  the            solution  was to take the company public and use the proceeds            to repay a substantial  portion of the debt.   Plaintiffs say            that defendants believed that if Computervision was not taken            public  during  the  summer  of  1992,  the  opportunity  for            Shearson Holdings to recoup its investment would be lost.                                            ____________________            5.  In  the  three  and  a  half  years  prior  to  the  IPO,            Computervision  suffered close to  $1 billion in  losses.  In            1989, its net losses were $281 million; in 1990, $71 million;            in 1991, $461 million;  and for the first six months of 1992,            $143  million.    Computervision's CAD/CAM  revenues  for the            first  six  months   of  1992  decreased   by  5%  from   the            corresponding  period in  1991.   However, software  revenues            from  the CADDS  line  increased 10%  from the  corresponding            period in 1991.                                         -6-                                          6                      On   August  14,  1992,  Computervision  sold  $600            million  of securities in a registered IPO.  The offering was            composed of 25 million shares of  common stock at $12 a share            (for a total of $300 million); $125 million of 10-7/8% Senior            Notes  due   1997;  and   $175  million  of   11-3/8%  Senior            Subordinated Notes  due 1999.   The Computervision IPO  was a            firm-commitment  underwriting,  in  which   the  underwriters            purchased  the securities  from the  company and  assumed the            risk that the market  would not accept the securities  at the            price  set.   See Shaw  v. Digital  Equipment Corp.,  82 F.3d                          ___ ____     ________________________            1194,  1200 n.1 (1st  Cir. 1996).   Shearson Lehman Brothers,            Inc.,  Donaldson,  Lufkin  & Jenrette  Securities  Corp., The            First Boston Corp., and Hambrecht & Quist, Inc., were the co-            lead underwriters  for the domestic offering,  representing a            syndicate of over forty firms.                      On   September  29,  1992,   six  weeks  after  the            offering,  Computervision  announced  that  its  revenue  and            operating results  for the  third quarter  of  1992 would  be            below  expectations.  Within a day, the stock price fell 30%,            to  $6.25, and  the notes  were  trading at  approximately 8%            below face value.                       On  October 22, 1992, Computervision quantified its            results for the  third quarter, which ended  on September 27,            1992.   Computervision had suffered a net loss of roughly $88            million,  including  a   $25  million  non-recurring   charge                                         -7-                                          7            occasioned by  its decision to  lay off more than  11% of its            work force.                                         II.                    Description of Actions and Procedural History                    _____________________________________________                      On September 30, 1992, one day after Computervision            announced that its operating results for the third quarter of            1992 would be lower than expected, plaintiffs filed the first            of eighteen separate complaints.  In addition to claims under            Sections 11, 12(2) and  15 of the Securities Act,  plaintiffs            asserted  a  violation of  Section  10(b)  of the  Securities            Exchange Act of 1934 and negligent misrepresentation.                      The  eighteen actions  were  consolidated into  one            class  action  and  on  June  11,  1993,  plaintiffs  filed a            Corrected  Supplemental  Consolidated  Amended  Class  Action            Complaint  (the  "1993  Amended  Complaint").6   Among  other            things,    the  1993   Amended  Complaint  alleged  that  the            Prospectus:  (i)  distorted Computervision's  earning trends;            (ii) omitted disclosure of known uncertainties impacting upon            Computervision's operating results; (iii)  omitted disclosure            of the  increasing likelihood  that  Computervision would not            meet its internally projected  results for 1992; (iv) omitted                                            ____________________            6.  The 1993 Amended  Complaint formally withdrew any  claims            of  fraud under  section 10(b).   Nevertheless,  the district            court ruled that the complaint sounded in fraud and that Fed.            R.  Civ. P. 9(b)'s strict pleading standards applied.  See In                                                                   ___ __            re Computervision Corp. Sec. Litig. ("Computervision I"), 869            ___________________________________   ________________            F. Supp. 56, 63-64 (D. Mass. 1994).                                          -8-                                          8            disclosure   of   known   declines   in    the   demand   for            Computervision's  services  and  products;  and  (v)  omitted            disclosure of software development problems.                      On  November  23, 1993,  the  district court  heard            argument on defendants' motion to  dismiss.  While the motion            was  under advisement,  discovery commenced.   Discovery  was            extensive.   Plaintiffs reviewed more than  130,000 documents            and  deposed  over   twenty  witnesses.     Plaintiffs   have            represented that,  should the case be reinstated, it does not            require the reopening of discovery.                      On November 22, 1994, the district court issued its            decision,  dismissing  all  but   a  sliver  of  the  claims,            primarily on  the grounds  that  they failed  to satisfy  the            requirements  of  Fed. R.  Civ. P.  12(b)(6)  and 9(b).   See                                                                      ___            Computervision I, 869  F. Supp.  at 64.   The district  court            ________________            noted  that  the Prospectus  warned  investors  of the  risks            involved   and  that,   with   one  exception,   the  alleged            misrepresentations were  made in  a  context that  adequately            "bespoke  caution."  Id. at 60-61.   As to the omissions, the                                 ___            court noted  that these,  in large part,  referred either  to            information that was effectively disclosed, or to information            for which there was no duty to disclose.  Id. at 62-63.                                                      ___                      On January 20, 1995, plaintiffs served a motion for            leave to file a second amended complaint.   Defendants served            their  opposition to  that motion  on February  24,  1995 and                                         -9-                                          9            moved for  summary judgment on the  sole allegation surviving            the  district  court's  1994  decision.7   The  parties  then            entered  into a  Stipulation  of Dismissal,  dismissing, with            prejudice, the surviving  claim.  The  stipulation was to  be            effective  the day  after  the district  court  ruled on  the                                _____            motion for leave to amend.                        On May 1,  1995, plaintiffs moved for leave to file            the  Proposed  Complaint  at  issue here.    The  court heard            argument  on  September  13,  1995,  and  a  week  later,  on            September  20, denied  the motion  for leave  to amend.   The            basis for  the  denial was  futility,  in that  the  Proposed            Complaint failed to state a  claim pursuant to Rule 12(b)(6).            The  court  dismissed  the  case, entered  judgment  for  the            defendants, and promised a full opinion.                      Plaintiffs filed their notice of  appeal on October            20,  1995.  Subsequently, on  February 12, 1996, the district            court  issued   an  opinion  setting   forth  the   rationale            underlying its September 1995  order.  Computervision II, 914                                                   _________________            F.  Supp.  at  717-22.   The  one  claim that  had  given the            district court pause at oral argument was the allegation that            the Prospectus  had misrepresented  that the  securities were            "appropriately" priced. The district court nevertheless ruled                                            ____________________            7.  Pursuant to  the  parties' Rule  16.1(D) Joint  Statement            filed  December   28,  1994,  plaintiffs'   proposed  amended            complaint and  summary judgment  motions were served  but not            filed with the court.                                         -10-                                          10            that that claim  failed because: (a)  the Prospectus had  not            warranted  or insured the  appropriateness of the securities'            prices; and (b) the  claim was keyed to the  nondisclosure of            internal projections, which were not required to be disclosed            in any  event.  Id. at 719-20.  The district court ruled that                            ___            plaintiffs'  other  misrepresentation  claims,   relating  to            backlog and  CADDS  5,  failed because  they  were  based  on            unreasonable inferences drawn  by reading  statements in  the            Prospectus  out of  context.8   Id. at  719-22.   This appeal                                            ___            followed.                                         III.                                       Analysis                                       ________            A.  Standard of Review                __________________                      This appeal  lies from the district  court's denial            of  plaintiffs' motion  to  file an  amended complaint.   The            motion  was  denied  after   full  discovery  and  after  the            dismissal of an earlier complaint.  The  district court ruled            that amendment  would be futile.  The parties disagreed then,            as they do now,  over the proper standard for  analyzing this            motion  to amend.   See id. at  719.   Plaintiffs argued that                                ___ ___            leave  to  amend should  be  "freely  given when  justice  so            requires,"  Fed. R. Civ. P. 15(a).  Computervision II, 914 F.                                                _________________                                            ____________________            8.  Since   there   were  no   actionable   misstatements  or            omissions,    the    court    held   that    the    negligent            misrepresentation  claim against  the underwriters  failed as            well.  Computervision II, 914 F. Supp. at 722.                   _________________                                         -11-                                          11            Supp.  at  719.    Defendants  embraced  the  more  stringent            "substantial  and convincing evidence"  standard set forth in            Resolution  Trust Corp. v. Gold,  30 F.3d 251,  253 (1st Cir.            _______________________    ____            1994).  Computervision II, 914 F. Supp. at 719.  The district                    _________________            court did not decide the issue, finding the question academic            "as the  plaintiffs cannot maintain this  action under either            standard."  Computervision II, 914 F. Supp. at 719.                        _________________                      Denial of a motion to file an  amended complaint is            reviewed  for abuse  of discretion.   See Romani  v. Shearson                                                  ___ ______     ________            Lehman  Hutton, 929 F.2d 875, 880 (1st Cir. 1991);  Arazie v.            ______________                                      ______            Mullane,  2  F.3d  1456,  1464-65 (7th  Cir.  1993)  (noting,            _______            however, that the relevant pleading standards must be kept in            mind when  applying the abuse of discretion  standard).  Rule            15(a) provides that  "leave [to amend] shall  be freely given            when justice so  requires."   Unless there appears  to be  an            adequate reason for the denial of leave to amend (e.g., undue                                                              ____            delay,  bad faith,  dilatory  motive, futility  of amendment,            prejudice),  we  will not  affirm it.    Grant v.  News Group                                                     _____     __________            Boston, Inc., 55 F.3d 1, 5 (1st Cir. 1995).             ____________                      Here, there was no finding that plaintiffs acted in            bad  faith, or in an  effort to prolong  litigation.  Nor was            there a finding that defendants would have been prejudiced by                                         -12-                                          12            the amendment.9   See Ward Electronics  Serv., Inc. v.  First                              ___ _____________________________     _____            Commercial Bank, 819 F.2d 496, 496-97 (4th Cir. 1987).             _______________                      Rather, the dismissal rested on other grounds.  The            district  court's order  explicitly states:   "the  motion to            further amend the complaint is denied as futile."  "Futility"            means that the complaint,  as amended, would fail to  state a            claim  upon which  relief could  be granted.   See  3 Moore's                                                           ___    _______            Federal Practice   15.08[4], at 15-80 (2d ed. 1993); see also            ________________                                     ___ ____            Vargas  v. McNamara, 608  F.2d 15,  17 (1st  Cir. 1979).   In            ______     ________            reviewing for "futility," the district court applies the same            standard of legal  sufficiency as applies to a  Rule 12(b)(6)            motion.  3 Moore's, at   15.08[4], at 15-81.                       _______                      The  Gold  standard, which  requires  that proposed                           ____            amendments  have  substantial  merit   and  be  supported  by            substantial  and  convincing  evidence, is  inapplicable  for            several reasons.  To date, it has only been applied where the            motion  to  amend is  made after  a  defendant has  moved for                                       _____            summary judgment.   See e.g., Gold, 30 F.3d  at 253;  Torres-                                ___ ____  ____                    _______            Matos v. St. Lawrence  Garment Co., 901 F.2d 1144,  1146 (1st            _____    _________________________                                            ____________________            9.  It  is   unlikely   that  defendants   could  have   been            prejudiced.  Plaintiffs have represented that the allegations            of the Proposed Complaint do not require reopening discovery.            There is also no claim that defendants  would need additional            time  to change their trial strategy in light of the proposed            amendment.  Cf. Tiernan  v. Byth, Eastman, Dillon &  Co., 719                        ___ _______     ____________________________            F.2d 1,  4-5 (1st  Cir. 1983)  (finding prejudice  even where            additional discovery was not necessary; the additional claims            "may well  have affected  defendants' planned  trial strategy            and tactics" and  both defendants and the court  would likely            have "required additional time to prepare for trial").                                         -13-                                          13            Cir.  1990);  Cowen v.  Bank United  of  Texas, FSB,  1995 WL                          _____     ___________________________            38978, *9 (N.D.  Ill.), aff'd  70 F.3d 937  (7th Cir.  1995);                                    _____            Carey v. Beans, 500 F. Supp. 580, 582 (E.D. Pa. 1980), aff'd,            _____    _____                                         _____            659  F.2d  1065  (3d  Cir.  1981);  Artman  v.  International                                                ______      _____________            Harvester Co.,  355 F.  Supp. 476, 481  (W.D. Pa. 1972).   In            _____________            that  context, a plaintiff's motion to amend is an attempt to            alter  the shape  of  the case  in  order to  defeat  summary            judgment.                      Here  plaintiffs served the  motion to amend before                                                                   ______            defendants moved  for summary judgment.   Further, the claims            in the summary  judgment motion were dropped by  agreement of                                                             _________            the  parties and, as a result, no summary judgment motion was            pending  when the  district  court considered  the motion  to            amend.                      Nor  does Gold  apply by  analogy.   This is  not a                                ____            situation in which plaintiffs  seek amendment solely to avert            imminent defeat.  Cf. Cowen v. Bank  United of Texas, FSB, 70                              ___ _____    __________________________            F.3d 937,  944 (7th Cir. 1995).   Nor is this  a situation in            which  it  is rational  to presume  that defendants  would be            prejudiced by amendment.  Cf. Carey v. Beans, 500 F. Supp. at                                      ___ _____    _____            582 (calling prejudice to non-movant the "`touchstone for the            denial of the amendment'" (quoting Cornell & Co. v. OSHA, 573                                               _____________    ____            F.2d  820,  823 (8th  Cir.  1978)).   Although,  under  these            circumstances, plaintiffs  could be guilty of  undue delay or            prejudice to defendants might  exist, the district court made                                         -14-                                          14            no such finding.  Further, the district court did not rely on            Goldandits reasoningwas almostpurelya legalfutility analysis.            ____                      Thus,  we  look  at  whether  the  district   court            correctly  determined that  the Proposed Complaint  failed to            meet  the pleading standards of  Rule 12(b)(6).   There is no            practical difference, in terms of review, between a denial of            a motion to amend based on futility and the grant of a motion            to dismiss for failure  to state a claim.   See Motorcity  of                                                        ___ _____________            Jacksonville,  Ltd.  v.   Southeast Bank, 83  F.3d 1317, 1323            ___________________       ______________            (11th Cir. 1996); see  also Keweenaw Bay Indian  Community v.                              ___  ____ ______________________________            Michigan, 11 F.3d  1341, 1348 (6th Cir. 1993).   Review is de            ________                                                   __            novo.   See, e.g., Serabian v. Amoskeag Bank Shares, Inc., 24            ____    ___  ____  ________    __________________________            F.3d  357,  361  (1st  Cir.  1994)  (motions  to  dismiss are            reviewed de novo).                     __ ____            B.  Securities Law Claims                _____________________                      "Sections 11 and  12(2) are enforcement  mechanisms            for the  mandatory disclosure requirements  of the Securities            Act."  Shaw,  82 F.3d at 1201.   Section 11 imposes liability                   ____            on signers  of a registration statement  and on underwriters,            among  others, if  the registration  statement "contained  an            untrue statement of  a material  fact or omitted  to state  a            material fact  required to be stated therein  or necessary to            make the  statements therein  not misleading."   15  U.S.C.              77k(a).   Section 12(2) provides that  any person who "offers            or  sells"  a  security by  means  of  a  prospectus or  oral                                         -15-                                          15            communication that contains  a materially false statement  or            that  "omits to state a  material fact necessary  to make the            statements,  in the  light of  the circumstances  under which            they  were made,  not  misleading"  shall  be liable  to  any            "person  purchasing such  security from  him."   15 U.S.C.               77l(2).                      As  we said in Shaw,  there is a strong affirmative                                     ____            duty  of disclosure in the context of  a public offering.  83            F.3d at 1202.  The same may be even more emphatically true in            an  initial public  offering, where  the securities  have not            before been  publicly traded.   Cf. Marcel  Kahan, Securities                                            ___                __________            Laws and  the Social Costs  of "Inaccurate" Stock  Prices, 41            _________________________________________________________            Duke  L.J. 977,  1014-15  (1992).   But  the main  thrust  of            plaintiffs'  claims is  not based  on any  duty to  disclose.            Rather,  they  say  that  this is  primarily  an  affirmative            misrepresentation or half-truth case.                      The Proposed  Complaint centers on  the claim  that            Computervision affirmatively misrepresented that the offering            price  was set  after the  exercise of  due diligence  by the            underwriters, but  that in  fact the diligence  exercised was            deficient  in  that  the  most current  information  was  not            considered.    In  addition,  plaintiffs   contend  that  the            Prospectus  omitted certain  mid-quarter information  for the            third quarter of 1992 and contained material misstatements or                                         -16-                                          16            omissions regarding Computervision's backlog and the state of            its latest software product, CADDS 5.                       The district  court held that  the Prospectus would            not bear the characterizations  plaintiffs sought to place on            it, and  that the allegedly actionable "representations" were            no more than unreasonable  inferences drawn by plaintiffs and            unsupported by the surrounding  language.  Computervision II,                                                       _________________            914  F. Supp.  at 719.   Plaintiffs  argue that  the district            court erred and that  they should have been allowed  to amend            their complaint.                      Defendants  respond  by asserting  that plaintiffs'            pricing claims reduce to an argument that the securities were            mispriced  because  their  prices   fell  subsequent  to  the            offerings, and  that the omission of  mid-quarter information            claims  reduce   to  nothing  more  than   an  argument  that            Computervision   was  required   to  disclose   its  internal            forecasts.     Plaintiffs'   position,  defendants   say,  is            _________            untenable because the securities  laws impose no duty upon  a            company  to either  provide  a warranty  as  to price  or  to            disclose  internal  projections.    They also  say  that  the            alleged misstatements concerning backlog  and CADDS 5 are not            actionably misleading  when considered in the  context of the            Prospectus as a whole.             1.  Pricing/Due Diligence Claims                ____________________________                                         -17-                                          17                      The Computervision IPO  was unusual in one  respect            which has bearing on  plaintiffs' claims.  Computervision had            been owned by an entity, one of whose principal shareholders,            Shearson  Holdings, was  affiliated with  one of  the co-lead            underwriters,  Shearson Lehman  Brothers.   As a  result, the            Prospectus informed investors:                      Under the provisions of Schedule E to the                      By-laws  of  the National  Association of                      Securities  Dealers Inc. ("NASD"),   when                      NASD  members  such  as  Shearson  Lehman                      Brothers   Inc.,   participate   in   the                      distribution     of    an     affiliate's                      securities, the public offering price can                      be no  higher than that recommended  by a                      "qualified    independent    underwriter"                      meeting certain standards.            Hambrecht  & Quist (for  the stock) and  Donaldson Lufkin and            First Boston (for the  notes) assumed the obligations of  due            diligence  as   to  the  public  offering   prices,  and  the            Prospectus explicitly represented that they had done so.                      This   representation   in   the    Prospectus   is            significant in two respects.  First, the fact that one of the            lead underwriters was affiliated with a principal shareholder            of Computervision arguably gave  that underwriter a reason to            inflate  the offering  prices.   Second,  the Prospectus,  in            effect, explicitly  assured  the  members  of  the  investing            public that,  despite the link between  Shearson Holdings and            Shearson  Lehman  Brothers, they  had  no reason  to  fear an            inflated price.  The  Prospectus made a selling point  out of            the  fact  that independent  underwriters  had  performed due                                         -18-                                          18            diligence, set maximum prices,  and thus acted as gatekeepers            against  possible misdeeds by  Shearson Holdings and Shearson            Lehman  Brothers.     Cf.  John   C.  Coffee,  Re-Engineering                                  ___                      ______________            Corporate   Disclosure:  The   Coming  Debate   Over  Company            _____________________________________________________________            Registration, 52 Wash. & Lee L. Rev. 1143, 1168 (1995).            ____________                      (i) The Pricing Claims in the Proposed Complaint                             ____________________________________________                      The  Prospectus  described  the  process  by  which            Computervision and its underwriters arrived at prices for the            offering:                      Prior  to the  Share Offerings  there has                      been  no  public  market for  the  Common                      Stock.  The initial public offering price                      was determined by  negotiation among  the                      Company, the Representatives and the Lead                      Managers.  Among  the factors  considered                      in   determining  the   initial  offering                      price, in addition  to prevailing  market                      conditions, was  the Company's historical                      performance,  estimates  of the  business                      potential and earnings  prospects of  the                      Company   and   market   prices  of   and                      financial  and operating  data concerning                      comparable companies.                      These  representations  are  at the  heart  of  the            Proposed Complaint, which alleges  in paragraphs 3(a) and 45,            respectively:                      The  Stock  Prospectus was  misleading in                      stating   that   the   Stock   had   been                      appropriately  priced.  The  price of the                      Notes  was also  too high,  causing their                      yields  to  be  too   low.    The   Stock                                                    ___________                      Prospectus stated that among  the factors                      _________________________________________                      considered  in  determining  the  initial                      _________________________________________                      public offering price were  "estimates of                      _________________________________________                      the   business  potential   and  earnings                      _________________________________________                      prospects of the  Company."  By  the time                      _________________________________________                      of   the    Offerings,   however,   those                      _________________________________________                                         -19-                                          19                      estimates were no  longer valid.   As  of                      ________________________________                      the date of  the Offerings, the Company's                      revenues,   bookings,    visibility   and                      backlog were all substantially  below the                      plan   prepared  by   Computervision  and                      reviewed    by   the    underwriters   in                      connection with their  due diligence  and                      pricing  for  the  Offerings   (the  "IPO                      Plan"),  as well  as the  Company's other                      internal  plans  and forecasts  (emphasis                      added) (footnotes omitted).                      The Stock Prospectus represented that the                      initial  public  offering  price for  the                      Stock was based upon, among other things,                      "estimates of the business  potential and                      earnings prospects  of the Company . . ."                      The   Prospectuses   also   stated   that                      "qualified independent underwriters"  had                      recommended  the initial  public offering                      price  for the  Shares and the  yields on                      the   Notes.     Those   formal,  written                      recommendations  were  based  on  factors                      including  "estimates   of  the  business                      potential  of the  company"  and  on  the                      "economic,  market,  financial and  other                      conditions" as they existed on August 13,                      1992, the day  before the effective  date                      of  the  Offerings.     Contrary  to  the                      representations in  the Prospectuses, the                      price of the Shares and the yields on the                      Notes  did  not   properly  reflect   the                      business potential, earnings prospects or                      financial condition  of Computervision as                      of that date.10                                            ____________________            10.  Related allegations are found at paragraphs 46 and 84 of            the Proposed Complaint, respectively:                        As of  the date of the  Offerings, all of                      Computervision's  internal  planning  and                      forecasting  devices showed  that results                      during the first seven weeks of the Third                      Quarter  were   substantially  below  the                      budgets  set  in  the Company's  internal                      plans and the IPO Plan which  the Company                      had  presented to  the  Underwriters   in                      conjunction with their due  diligence and                      pricing of the Offerings.  In particular,                                         -20-                                          20                                            ____________________                      at   the   time    of   the    Offerings,                      Computervision's    U.S.    sales    were                      materially  below   sales  at  comparable                      points in the prior  five quarters.  Both                      U.S.   and   international   sales   were                      substantially below  the Company's plans.                      In  addition,  Computervision  had a  $40                      million   shortfall  in   visible  orders                      needed  to  reach  its quarterly  budget.                      The   Underwriters   failed  to   perform                      adequate      due       diligence      on                      Computervision's actual revenues,  sales,                      orders, bookings and  visibility for  the                      seven  weeks  during  the  Third  Quarter                      before the Offerings.   The  Underwriters                                              _________________                      were  required  to  but  did  not  obtain                      _________________________________________                      information   necessary  to   verify  the                      _________________________________________                      Company's  false   statements  that  such                      _________________________________________                      results  were "more  or  less where  they                      _________________________________________                      were expected to be."   To the extent the                      _________________________________________                      Underwriters  obtained  any   information                      _________________________________________                      from   the   Company   concerning   these                      _________________________________________                      results,   the   Stock  and   Notes  were                      _________________________________________                      mispriced  because  the initial  offering                      _________________________________________                      price   and  the   yields,  as   well  as                      _________________________________________                      Underwriters'  recommendations,  did  not                      _________________________________________                      take  into  account these  low  levels of                      _________________________________________                      sales   and   the   $40   million   order                      _________________________________________                      shortfall.  Therefore, the representation                      __________                      in the Stock prospectus that the offering                      price  was based  upon "estimates  of the                      business potential and earnings prospects                      of the Company" was false and misleading,                      as  were  the   representations  in   the                      Prospectuses        concerning        the                      recommendations    of    the    qualified                      independent     underwriters    (emphasis                      added).                      The   Underwriters   failed  to   perform                      adequate due diligence  on the  Company's                      actual    sales,    orders,     bookings,                      visibility  and  backlog  for  the  first                      seven  weeks of the  Third Quarter before                      the  Offerings.    The Underwriters  were                                         ______________________                      required to  but either failed  to obtain                      _________________________________________                      and review or  ignored information  about                      _________________________________________                      actual    sales,    orders,     bookings,                      _________________________________________                                         -21-                                          21            Different claims, which require different analyses, appear to            be asserted in these paragraphs.                      (ii)  District  Court's  Characterization   of  the                            _____________________________________________            Pricing Claims            ______________                      In  dismissing  the  action,  the   district  court            characterized plaintiffs' claim as  being that the prices set                                                               ______            for the  securities were  inappropriate.   Computervision II,                                                       _________________            914  F. Supp.  at 720.   The  district court  noted  that the            Prospectus   never   represented   that   the   prices   were            "appropriate" and  that if the Prospectus  language quoted in            paragraph 48 of the Proposed Complaint:                      constitutes  a  representation  that  the                      initial    price    was    'appropriate,'                      investors    would    effectively    have                      insurance against any  decline in  price,                      rendering their investments risk-free.            Id.  We  agree with the  district court's view  of any  claim            ___            plaintiffs make  that  the Prospectus  represented  that  the            price  itself  was  appropriate.    We  note,  however,  that            plaintiffs vigorously deny that such was, or is, their claim.                                            ____________________                      visibility   and  backlog   necessary  to                      _________________________________________                      verify the Company's statements that they                      _________________________________________                      were more or less on track.  As a result,                      __________________________                      the  Stock  and   Notes  were   mispriced                      because the initial offering price of the                      Stock and the yields on the Notes did not                      take into account these  adverse results,                      including the $40 million order shortfall                      (emphasis added).                                         -22-                                          22                      The  price set  for  an offering  of securities  is            essentially  a forecast.   Price  can  be characterized  as a            present  value calculation  of the  firm's future  streams of            earnings  or dividends.    See  In  re VeriFone  Sec.  Litig.                                       ___  _____________________________            ("VeriFone  I"), 784  F. Supp.  1471, 1479  (N.D. Cal.  1992)              ___________            ("securities prices  on national exchanges  reflect . . . the            expected  future cash  flows from  the security"),  aff'd, 11                                                                _____            F.3d 865 (9th Cir.  1993); Richard A. Brealey and  Stewart C.            Myers, Principles of Corporate Finance, 61-63 (4th ed. 1991);                   _______________________________            cf. Niagara Hudson Power  Corp. v. Leventritt, 340  U.S. 336,            ___ ___________________________    __________            339 & n.7  (1951) (approving the SEC's valuation  of warrants            in terms of current expectations of future events); Pommer v.                                                                ______            Medtest   Corp.,  961   F.2d   620,  623   (7th  Cir.   1992)            _______________            ("[p]robabilities determine the value  of stock"); Wielgos v.                                                               _______            Commonwealth Edison  Co., 892 F.2d  509, 514 (7th  Cir. 1989)            ________________________            (investors value securities  on the basis of how they believe            the firm will do in the future, and not on past performance).                      Since price is only a forecast of the firm's future            performance,  it  is  not   actionable  merely  because   the            forecast, in hindsight, does not turn out to be correct.  See                                                                      ___            In  re VeriFone Sec. Litig. ("VeriFone II"), 11 F.3d 865, 871            ___________________________   ___________            (9th Cir. 1993) (earnings  forecasts made on reasonable basis            not actionable); Wielgos,  892 F.2d at 518;  Marx v. Computer                             _______                     ____    ________            Sciences  Corp.,  507  F.2d  485,  489-90  (9th  Cir.  1974).            _______________            Forecasts are not guarantees of, or insurance policies for, a                                         -23-                                          23            firm's future performance, nor are they understood as such by            reasonable investors.  Kowal  v. MCI Communications Corp., 16                                   _____     ________________________            F.3d 1271,  1276 (D.C.  Cir. 1994);  Raab v.  General Physics                                                 ____     _______________            Corp., 4 F.3d 286, 290 (4th Cir. 1993).  Hence, to the extent            _____            plaintiffs' "price" claim  rests on either the  fact that the            initial offering  prices fell  shortly after the  offering or            the fact that Computervision's  third quarter earnings turned            out  to be worse than expected, it  fails.11  Cf. Pommer, 961                                                          ___ ______            F.2d at 623 ("[S]ecurities  laws approach matters from an  ex                                                                       __            ante perspective.").            ____                      (iii) Plaintiffs' Characterization  of the  Pricing                            _____________________________________________            Claims            ______                      Plaintiffs, however, argue that their attack is not            on  the appropriateness  of the  offering prices  themselves.            Instead,  they assert  that their  claim before  the district            court was that the Prospectus materially misrepresented that:                                            ____________________            11.  In addition, when the  Prospectus statements about price            are  read  in  context, they  appear  to  be  anything but  a            guarantee.   First,  the Prospectus  provided investors  with            _________            explicit and specific warnings as to factors that might cause            the prices of the securities to fall.  Second, the Prospectus            cautioned investors as to the possibility that no  market for            the  securities  would  develop  or be  sustained  after  the            offering.  These cautionary statements in the Prospectus are,            in  and  of  themselves,  reason   to  find  this  claim  not            actionable.  See Shaw,  82 F.3d at 1213 ("when  statements of                         ___ ____            `soft' information such as forecasts, estimates, opinions, or            projections  are accompanied  by cautionary  disclosures that            adequately  warn of  the possibility  that actual  results or            events may  turn out  differently, the `soft'  statements may            not be materially misleading"); In re Donald J.  Trump Casino                                            _____________________________            Sec. Litig., 7 F.3d 357, 371 (3d Cir. 1993)(same).                       ___________                                         -24-                                          24            (a)  certain  types of  information  were  considered by  the            underwriters  and Computervision in  determining   prices for            the offering, when, in fact,  the most current information of            those  types  was  not  considered (or,  if  considered,  was            ignored);  and  (b) the  underwriters  did  due diligence  in            estimating the prices, when they did not because they did not            consider the most current information.                      As a threshold  matter, the explicit statements  in                                                  ________            the Prospectus that certain  factors were considered and that            due  diligence was done are required by  law to be true as of                                                                    _____            the effective date  of the offering.  See 15  U.S.C.   77k(a)            ___________________________________   ___            (liability attaches for misstatements  in a prospectus at the            time such part  becomes effective);   see also  3A Harold  S.                                                  ___ ____            Bloomenthal, Securities and Federal  Corporate Law   8.23, at                         _____________________________________            8-102 (1993)  ("[T]he prospectus  for purposes of  section 11            speaks  as of  the  date the  registration statement  becomes            effective.").   Thus, plaintiffs  assert that, to  the extent            current  information up to the  date of the  offering was not            incorporated  into   the  prices,   the  statements  in   the            Prospectus presented  a  misleading half-truth  because  they            suggested that the underwriters  and Computervision took into            consideration  current  estimates of  business  potential and                           _______            earnings prospects.  Cf. Virginia Bankshares v. Sandberg, 501                                 ___ ___________________    ________            U.S.   1095,  1098   (1991)  (literally   accurate  statement            deceptive  because only a half-truth).   As a general matter,                                         -25-                                          25            we agree that such a theory, if sufficiently supported, could            make out a viable legal claim.                      It may  be asked whether  the alleged misstatements            are actionable, given that  they were made in the  context of            offering prices, which as noted, are essentially forecasts of            future earnings.   While forecasts are  not actionable merely            because they do not come true, they may be actionable to  the            extent they are not reasonably based on,  or are inconsistent            with, the facts at the time the forecast is made.  See Kowal,                                                               ___ _____            16 F.3d at 1278; cf. Virginia Bankshares, 501 U.S. at 1093-94                             ___ ___________________            (board of  directors' statement that merger  price was "fair"            was actionable  to the extent  it was  not based  on, or  was            inconsistent with, existing  and available facts);  Serabian,                                                                ________            24 F.3d at 361  ("predictions about the future that  prove to            be off the mark likewise are immunized unless plaintiffs meet            their  burden  of   demonstrating  intentional   deception");            Eisenberg v. Gagnon, 766 F.2d 770, 776  (3d Cir.) (prediction            _________    ______            violates securities  laws if  it is  made  without a  genuine            belief  or  reasonable basis),  cert.  denied,  474 U.S.  946                                            _____  ______            (1985); Billard v.  Rockwell Int'l Corp., 683 F.2d  51, 56-57                    _______     ____________________            (2d Cir. 1982) ("Although the  fairness of the offering price            is not a  valid basis for an action under  Sections 10(b) and            14(e) . . . , a  statement  that experts  have  examined  the            price  and  certified  it as  fair  may  well  be a  material                                         -26-                                          26            misrepresentation if those  experts have advised the  offeror            that the price is unfair.").                       The  types  of  data  which  the  plaintiffs allege            should have been considered are, in general terms, within the            realm  of data relevant to  the determination of  price.  The            alleged misstatement  as to factors that  were considered, as            of the effective  date of the  offering, lists the  following            factors:  (i)  the  company's  historical  performance;  (ii)            estimates of the business potential and earnings prospects of            the company; and  (iii) market prices  of, and financial  and            operating data concerning, comparable companies with publicly            traded  equity  securities.   This  list  of factors  is,  in            effect, a  laundry list of general factors  that would likely            be considered  in any  reasonable estimation  of price.   Cf.                                                                      ___            Lucian Arye Bebchuk and  Marcel Kahan, Fairness Opinions: How                                                   ______________________            Fair Are They And  What Can Be Done About It, 1989 Duke L. J.            ____________________________________________            27, 34-35 (1989) (listing  methods of estimating fair price);            cf. generally Ronald J.  Gilson and Reinier H. Kraakman,  The            ___ _________                                             ___            Mechanisms of Market  Efficiency, 70 Va.  L. Rev. 549  (1984)            ________________________________            (describing the  types of  information that  are incorporated            into securities  prices).   Therefore, if the  defendants did            not  actually  consider  current  information  in  the  broad            categories  of data  they claimed  to have  looked at,  it is            possible that plaintiffs would have a reasonable basis claim.                                         -27-                                          27                      The due diligence claim also comes down to one that            the  setting  of the  price  was  done  without a  reasonable            basis.12     The  statement   in  the  Prospectus   that  the            independent  underwriters  conducted  due  diligence  was  an            affirmative statement  that a reasonable investigation of the            ___________            company  was done  and  that, using  that and  other relevant            information,  a fair price was  estimated.  See  15 U.S.C.                                                           ___            77k(b)(3) (due diligence  defense under  Section 11  requires            "reasonable  investigation") &  77l(2)  (due diligence  under            Section  12  defined  as  "exercise  of  reasonable   care");            Software  Toolworks, 50 F.3d  at 621 (9th  Cir. 1994) (noting            ___________________            that the two articulations of due diligence are "similar," if            not identical).                       The law  on due  diligence is  sparse, but  for our            purposes it makes clear that certain inactions may constitute            a  failure to  perform due  diligence.   First, a  failure to            continue to investigate the company up to  the effective date                                                _________________________            of  the  offering  is  likely  to  be  a  failure  to  do due            _________________            diligence.   See  Software Toolworks,  50 F.3d  at 625  & n.2                         ___  __________________            (intra-quarterly information available  before the  effective            date  of offering  not taken  into account  by underwriters);            Escott  v.  BarChris Constr.  Corp.,  283 F.  Supp.  643, 690            ______      _______________________                                            ____________________            12.  Due diligence  is  equivalent to  non-negligence.    See                                                                      ___            Ernst & Ernst v. Hochfelder, 425 U.S. 185, 208 (1975);  In re            _____________    __________                             _____            Software  Toolworks Inc. Sec.  Litig., 50 F.3d  615, 621 (9th            _____________________________________            Cir. 1994), cert. denied, 116 S. Ct. 274 (1995).                         _____ ______                                         -28-                                          28            (S.D.N.Y.   1968)   (where   registration  statement   became            effective on May  16, 1961, attorney did not  make reasonable            investigation  where he  failed  to discover  that statements            made  in January had become  inaccurate by May);  see also 3A                                                              ___ ____            Bloomenthal, Securities and Federal Corporate Law,   8.23, at                         ____________________________________            8-102-03.  Second, it also may be  a failure of due diligence            to rely solely  on management representations as to the state            of the company where  those representations can reasonably be            verified.    See  Software   Toolworks,  50  F.3d  at  625-26                         ___  ____________________            (inadequate for underwriters to rely on company's  assurances            as to  its financial condition where  underwriters had access            to all available information); BarChris, 283 F. Supp. at 696-                                           ________            97 ("underwriters must make some reasonable attempt to verify            the  data   submitted  to  them").     Notwithstanding  these            generalities,  the specifics  of  plaintiffs' factual  claims            must be scrutinized.                      (iv) Rule 12(b)(6)                           _____________                      The  next and dispositive question is whether there            are sufficient factual allegations  as to plaintiffs'  theory            in the Proposed Complaint  for it to survive a  Rule 12(b)(6)            motion.  We are mindful that  the case comes to us after over            three years of litigation  and full discovery.  We  thus look            more  closely  at the  factual  allegations  to see  if  they            support  the legal conclusions pled.   As this  court said in                                         -29-                                          29            Resolution Trust Corp.  v. Driscoll,  985 F.2d  44 (1st  Cir.            ______________________     ________            1993):                      It is, of course,  true that at the start                      of complex  litigation  a party  may  not                      have  all the  facts, so  courts normally                      hesitate to dismiss under Fed. R. Civ. P.                      12(b)(6) at the outset.   At the start, a                      reasonable  basis  for   belief  and   an                      outline of what one might reasonably hope                      to prove may suffice to  permit discovery                      and   ward   off  premature   motions  to                      dismiss.    But  [plaintiff's]  complaint                      against  [defendant]  is deficient;  this                      litigation has persisted  for almost  two                      years;  and yet  even now  [plaintiff] is                      unable    to    explain   what    exactly                      [defendant]  did  that is  wrongful . . .                      [plaintiff  still  has  not  supplied]  a                      single, coherent, specific description of                      what   [defendant]   has  done   that  is                      wrongful.                          Id. at 48.   A complaint  must contain "factual  allegations,            ___            either  direct  or  inferential,  respecting   each  material            element necessary to  sustain recovery under some  actionable            legal theory."   Gooley v. Mobil Oil Corp., 851 F.2d 513, 515                             ______    _______________            (1st  Cir. 1988); see also Fleming v. Lind-Waldock & Co., 922                              ___ ____ _______    __________________            F.2d 20, 24  (1st Cir. 1990); cf. Dewey  v. University of New                                          ___ _____     _________________            Hampshire,  694 F.2d 1, 3 (1st Cir.  1982) ("it is not enough            _________            to  allege a  general scenario  which  could be  dominated by            unpleaded  facts"), cert.  denied, 461  U.S. 944  (1983); cf.                                _____  ______                         ___            also  Murphy v.  United States,  45 F.3d  520, 522  (1st Cir.            ____  ______     _____________            1995);  Coyne v. City of  Somerville, 972 F.2d  440, 444 (1st                    _____    ___________________            Cir. 1992);  Correa-Martinez v. Arrillaga-Belendez,  903 F.2d                         _______________    __________________                                         -30-                                          30            49,  52 (1st Cir. 1990).13   "In deciding a motion to dismiss            under Rule 12(b)(6), [we] must take all well-pleaded facts as            true,  but   [we]  need   not  credit  a   complaint's  `bald            assertions'  or legal  conclusions."  Shaw,  82 F.3d  at 1216                                                  ____            (citations omitted).                      Plaintiffs'  legal  theory  breaks  down  into  two            elements:  (i) that  defendants  explicitly  stated that  the            prices had been set after a reasonable  investigation and the            reasonable consideration  of  relevant facts;  and (ii)  that            such an investigation  was not  done and  the relevant  facts            were  not considered  (or were  ignored).14   But plaintiffs'            factual pleadings fail to convince us that they have stated a            claim that relevant information was not considered.                      a. Failure to Consider Data                          ________________________                      It  is  true that  a  failure  by the  underwriters            either  to verify a company's  statements as to its financial                                            ____________________            13.  Defendants argue  that the Proposed Complaint  sounds in            fraud and hence  we should apply Fed. R. Civ.  P. 9(b), which            requires that  claims of fraud be  pled with "particularity."            See  Shaw, 82  F.3d at  1223 (although  Section 11  and 12(2)            ___  ____            claims do  not require allegations of  scienter and reliance,            the  claims  may yet  sound in  fraud).   Since  the Proposed            Complaint  fails to  meet even  the  lower threshold  of Rule            12(b)(6) in the procedural  posture in which it comes  to us,            we do not decide whether Rule 9(b) is applicable.               14.  Facts or information may  be "required" to be considered            (e.g., if  a company  affirmatively represents that  such was             ____            considered)  but  do not  necessarily  have  to result  in  a            reduction or increase in the offering  price.  The investment            bankers  and/or company may well look  at the information and            reasonably  think that  it has  already been  anticipated and            incorporated into the price.                                         -31-                                          31            state or to consider new information up to the effective date            of  an offering would  almost certainly constitute  a lack of            due diligence.  See Software Toolworks,  50 F. 3d at 625-26 &                            ___ __________________            n.2. However,  it  is  plaintiffs'  responsibility  to  plead            factual   allegations,   not  hypotheticals,   sufficient  to            reasonably allow  the inference that the  defendants actually            did not consider the up-to-date data as of the offering date.             Cf.  Lefkowitz v. Smith Barney, Harris Upham & Co., 804 F.2d             ___  _________    ________________________________            154, 156  (1st  Cir. 1986)  (rejecting plaintiff's  suggested            inferences  as  insufficiently  grounded  in  fact).    Here,            plaintiffs provide none.                      Plaintiffs'  1993  Amended  Complaint  acknowledged            that  the "Stock  Offering Price was  twice lowered  from its            initial $19  per share price  [as of  May 1992] to  its final            price of $12 per  share" in August 1992.   Plaintiffs suggest            that  these  downward  adjustments  in  price  reflected  the            disappointing results for the second quarter of 1992, but not            the negative  information from the  first seven weeks  of the            third quarter of 1992.  However,  plaintiffs' claim that data            from the first seven  weeks of the third quarter  was ignored            both lacks factual support and is belied by context.                      Not  only did  Computervision and  the underwriters            lower the initially planned stock offering price by more than            30%, but the Prospectus abounds with warnings that the market            price might dip lower once trading commenced.  The Prospectus                                         -32-                                          32            explicitly  warned  that  an  investment  in  the  securities            involved  a  high degree  of  risk;  that Computervision  was            highly leveraged;  that it  operated in a  highly competitive            environment and that  its products might  not be accepted  by            customers; and that  there had been a  history of significant            losses  for at  least three  years.   As discussed,  price is            essentially  a forecast  of  future earnings.   Reducing  the            price  from $19 to $12 showed a reduced expectation of future                                            ___________________            earnings.   Plaintiffs give us  no basis from  which to infer            that this  reduction in  price factored in  the disappointing            second   quarter  results,   but  did  not   incorporate  the            information  from   the  first  seven  weeks   of  the  third            quarter.15    Additionally,  the cautionary  language  as  to            potential price  drops belies plaintiffs' claim  that certain            disappointing third quarter information was not considered.                                             ____________________            15.  Plaintiffs'  own Proposed Complaint  states that pricing            meetings were held up to August  13, 1992, the day before the            offering, and that the $12 price was established at a meeting            on that  day.   Similarly, the  price recommendations  of the            independent underwriters were not delivered  until August 13,            1992.                Plaintiffs, in  paragraphs 51 through 60  of the Proposed            Complaint,  purport  to  describe the  pricing  process  that            Computervision  and its  underwriters  went through.    These            paragraphs mention an IPO  Plan prepared by Computervision as            one of the pieces  of data considered by the  underwriters in            ___            their  due diligence  work.   The Proposed  Complaint alleges            that the IPO Plan did not fully reflect the information as to            the first seven weeks of the third quarter of 1992.  However,            we cannot  reasonably infer that the  alleged shortcomings of            the IPO  plan  (or other  company  forecasts) mean  that  the                                      _______            underwriters did not consider up-to-date information.            ____________                                         -33-                                          33                      Furthermore, the factual  context of the  offerings            provides  no support  for  the inference  plaintiffs seek  to            draw.   Here the offering  was conducted pursuant  to a firm-            commitment underwriting, in  which the underwriters  bore all            the initial risk that  the offering prices may have  been set            too  high.16    Further,  as  part  of  the   offering,  both            Shearson Holdings  and DR  Holdings agreed  to lock up  their            Computervision stock  holdings for  an entire year  after the            offerings,  thereby decreasing any  incentive they would have            had  to inflate the short-term stock price as of the offering            date.                      It  has  been  over  three years  since  the  first            complaint  in this  case was filed  and plaintiffs  have been            allowed  full   discovery.    In  this   procedural  setting,                                            ____________________            16.  Although one of  the lead underwriters, Shearson  Lehman                          ___            Brothers,  was  affiliated  with a  principal  shareholder of            Computervision,  the offering also  involved three other lead                                                         ________________            underwriters, Donaldson Lufkin, First Boston, and Hambrecht &            ____________            Quist  (who also  played the  roles of  qualified independent            underwriters).    Each  had both  monetary  and  reputational            capital at risk  in the  offerings.  Cf.  Brealey and  Myers,                                                 ___            Corporate Finance,  at 351.   Further, the  lead underwriters            _________________            represented a syndicate of over forty underwriters.  There is            not enough here  for us  to draw an  inference of  inadequate            diligence on the  part of the underwriters.   Cf.  Harold  S.                                                          ___            Bloomenthal,  Going  Public  Handbook,     3.04[4],  at  3-20                          _______________________            (1996)(underwriters look  for a  price that assures  that the            offering  will be  oversubscribed); James  D. Cox,  Robert W.            Hillman and Donald C. Langevoort, Securities Regulation, 236-                                              _____________________            37  (1991) (empirical  research  on IPOs  shows that  initial            offering  prices tend  to  be systematically  lower than  the            short-term aftermarket prices, arguably  because underwriters            want both insurance  against lawsuits and to ensure  that the            offering is oversubscribed).                                             -34-                                          34            plaintiffs'  bald and  factually unsupported  hypothesis that            the   underwriters  failed  to   obtain  and  use  up-to-date            information  is   not,  standing  alone,   sufficient.    Cf.                                                                      ___            Driscoll, 985 F.2d at 48 (dismissal proper where after almost            ________            two years  of litigation  plaintiffs' complaint contained  no            factual allegations to support its legal conclusions); Dewey,                                                                   _____            694 F.2d  at 3-4  (dismissal proper where  plaintiff, despite            having eight months to make original complaint more specific,            was not  able to  "fill in  the gaps" in  a "skeletal  set of            bland allegations");  Gooley,  851 F.2d at 515  (if, "despite                                  ______            multiple opportunities  to finetune  the  complaint, a  naked            conclusion,  unanchored in  any  meaningful  set  of  factual            averments" is  the asserted  basis for relief,  dismissal may            follow).                       In essence, all  the Proposed Complaint alleges  is            that,  by the  close of  trading on  September 30,  1992, the            prices  of Computervision's  securities  fell because  of  an            announcement on September 29 that third quarter earnings were            going to be lower than expected.  However, the assertion that            the  future fell below projections is not enough in itself to            render the projection actionable.  See Kowal, 16 F.3d at 1278                                               ___ _____            (failure  to  meet   performance  projections  "supports   no            inference" that  projection  lacked a  reasonable basis  when            made);  cf.   Virginia  Bankshares,  501   U.S.  at   1092-94                    ___   ____________________            (describing  the  type of  hard,  contemporaneous facts  that                                         -35-                                          35            could  show a  statement about  the adequacy  of price  to be            false).  A ruling to  the contrary would magnify the  risk of            nuisance litigation.17   The district court  was justified in            viewing the  Proposed Complaint's  pricing claims as  no more            than an attempt  to seek a warranty of the accuracy of price,            and  therefore as  insufficient.   Computervision II,  914 F.                                               _________________            Supp. at 720.  Rule 12(b)(6) may set a low  threshold, but it            is real.  Gooley, 851 F.2d at 514.                      ______            2.  Mid-Quarter Information                 _______________________                      Plaintiffs  assert that,  as of  week seven  of the            third   quarter  of   1992,  the   following  intra-quarterly            information was  known, and  should have been  disclosed: (i)            third  quarter domestic  bookings18  were only  about 24%  of                                                                  _______            Computervision's  internal  forecasts  for  those  weeks, and            _____________________________________            significantly below bookings at comparable points in the past            five quarters; (ii) Computervision's international sales were                                                                     ____            also short  of internal forecasts;  and (iii)  Computervision            _________________________________            had a shortfall of  $40 million in visible19 orders  from its                  _________________________                      ________            internal forecasts and IPO Plan.            _______________________________                                            ____________________            17.  This  risk would be heightened in the case of new-growth            high-technology  companies  that  have   especially  volatile            prices.  See, e.g., James Bohn and Stephen Choi, Fraud in the                     ___  ____                               ____________            New-Issues Market:  Empirical  Evidence on  Securities  Class            _____________________________________________________________            Actions, 144 U. Pa. L. Rev. 903, 908 (1996).             _______            18.  A "booking" represents the receipt of an order.             19.  "Visibility"  is a  measure of  the status  of potential            orders and  the  likelihood that  they  will be  turned  into            revenue producing sales.                                         -36-                                          36                      But  alleged  deviations  from internal  forecasts,            without  more, do  not  produce a  duty  to disclose  in  the            Prospectus.  We recognize that investors may find information            about  a  firm's internal  projections  and  forecasts to  be            important.  See  Frank H. Easterbrook and  Daniel R. Fischel,                        ___            The  Economic  Structure of  Corporate  Law  305 (1991);  cf.            ___________________________________________               ___            Virginia  Bankshares,  501  U.S.  at  1090-91  (statement  of            ____________________            opinion by a board of directors can be materially significant            because investors know that directors usually  have knowledge            and  expertise far  exceeding that  of the  normal investor).            Nonetheless,   the  federal  securities  laws  focus  on  the            mandatory  disclosure  of backward-looking  hard information,            not forecasts.   See Easterbrook and  Fischel, Corporate Law,                             ___                           _____________            at 305-06.   A firm has  the option to disclose  its internal            projections, but  is not  required  to do  so.20   See In  re                                                               ___ ______            Lyondell Petrochemical  Co. Sec. Litig., 984  F.2d 1050, 1052            _______________________________________            (9th Cir.  1993); In re Convergent  Technologies Sec. Litig.,                              __________________________________________            948 F.2d 507, 516  (9th Cir. 1991)  (as amended on denial  of            rehearing en banc); see also Arazie, 2 F.3d at 1468; Wielgos,                                ___ ____ ______                  _______            892  F.2d at  516.   "The federal  securities laws  impose no            obligation  upon   an  issuer  to   disclose  forward-looking            information such as internal projections, estimates of future                                            ____________________            20.  That  internal forecasts  are disclosed  to underwriters            does not make them any more susceptible to a duty to disclose            to the investing public.  See Lyondell, 984 F.2d at 1053.                                      ___ ________                                         -37-                                          37            performance, forecasts, budgets, and similar data."  Shaw, 82                                                                 ____            F.3d at 1209.                        Plaintiffs' nondisclosure claims fail  because they            base their allegations solely on discrepancies between actual            (but    undisclosed)    intra-quarterly    information    and            Computervision's  undisclosed  internal  projections.     Cf.                                                                      ___            VeriFone I, 784 F. Supp. at 1484 (in order to  assert a valid            __________            claim under the securities laws, plaintiffs must "establish a            link  between a  misleading statement  or implication  in the            prospectus and an  actual fact, not  a speculation about  the            future,  omitted from  the document").    The mere  fact that            intra-quarterly  results  lagged behind  internal projections            does not, without more, require disclosure.  See In re Worlds                                                         ___ ____________            of  Wonder Sec. Litig., 35  F.3d 1407, 1419  (9th Cir. 1994),            ______________________            cert. denied, 116 S. Ct. 185 (1995).            _____ ______                      Plaintiffs   try  to   buttress  their   claims  by            referring  to  SEC  Regulation  S-K, Item  303,  17  C.F.R.              229.303(a)(3)(ii)  which  requires  that  "known  trends  and            uncertainties" about  results of  operations be disclosed  in            the management's  discussion and analysis section  of certain            SEC filings.  This rule, however,  has to be read in light of            the  SEC's  instruction  to  this paragraph  which  expressly            states  that   forward-looking   information  need   not   be            disclosed.   17 C.F.R.   229.303(a),  Instruction 7; VeriFone                                                                 ________            II,  11 F.3d at 870; Lyondell, 984  F.2d at 1053.  Given this            __                   ________                                         -38-                                          38            context, the  phrase "known trends and  uncertainties" has to            be understood  as referring to those  trends discernible from            hard  information  alone.21     Here,  unlike  in  Shaw,  the                                                               ____            undisclosed  hard  information   pled  did  not   indicate  a            "substantial likelihood that the quarter would turn out to be            an  extreme   departure  from   publicly  known   trends  and            uncertainties."    82  F.3d  at  1194.    Thus,  the  alleged            nondisclosures  fell neither  within the  ambit of  17 C.F.R.              229.303(a) or Shaw.                              ____                      Indeed,  of the  three alleged  nondisclosures, the            only  one  that  plaintiffs  compare  to  hard  data  is  the            nondisclosure  as to  domestic bookings.    Plaintiffs assert            that  domestic bookings as of week seven of the third quarter            of 1992  were lower  than the  corresponding numbers  for the            prior  five  quarters.     But   the  Prospectus   explicitly            represented that Computervision suffered  cyclical variations            in  quarterly  results,  with  its first  and  third  quarter            results typically  being lower than  those of the  second and            fourth quarters.   Given  those fluctuations, the  meaningful            comparison of  Computervision's  third quarter  1992  booking            numbers is to those of the  third quarter of 1991.  See Capri                                                                ___ _____                                            ____________________            21.  The    SEC    itself   distinguishes    "forward-looking            information" from  "presently  known data  which will  impact            upon future operating results, such as known future increases            in  the  costs of  labor or  materials."   Instruction  7, 17            C.F.R.   229.303(a).                                           -39-                                          39            Optics Profit Sharing v. Digital Equip. Corp., 950 F.2d 5, 10            _____________________    ____________________            (1st Cir. 1991).  And that comparison is unavailing.22                      As we said in Shaw, "we reject any bright-line rule                                    ____            that  an issuer engaging in a public offering is obligated to            disclose  interim   operating  results  for  the  quarter  in            progress  whenever  it  perceives the  possibility  that  the            quarter's results  may disappoint  the market."   82 F.3d  at            1210.    We further  noted in  Shaw  that when  the allegedly                                           ____            undisclosed  information  (here  only  seven  weeks into  the            quarter   --  and   where   mid-quarter  results   were   not            particularly   predictive23)  is  more  remote  in  time  and            causation  from the  ultimate events  of which  it supposedly            forewarns, a nondisclosure  claim becomes  "indistinguishable            from  a  claim  that  the issuer  should  have  divulged  its            internal predictions about what would come of the undisclosed            information."   Id.   That  quarterly results  for  the third                            ___            quarter  of  1992 did  in  fact  turn out  to  be  lower than            expected  is not enough to  produce the inference  that as of            the offering date Computervision had hard mid-quarter results                                            ____________________            22.  The relevant numbers are  $2.5 million in domestic sales            bookings as  of week seven  of the third quarter  of 1992 and            $3.3 million for  the same period in 1991  -- a difference of            $800,000, or less than  1% of the budgeted revenues  for that            quarter.  This difference was immaterial as a matter of law.            23.  Indeed,  the Prospectus  specifically warns  that early-            quarter  results are  not  necessarily  predictive because  a            substantial portion  of both orders  and shipments  typically            occur in the last month of the quarter.                                         -40-                                          40            that would have predicted a material departure in the end-of-            quarter results.24            3.  Backlog                _______                      Plaintiffs  separately  allege that  the Prospectus            contained three material misstatements and omissions relating            to backlog.  One  paragraph of the Prospectus is  the subject            of these claims:                      Shipments  are  generally made  within 30                      _________________________________________                      days of receiving an  order.  In light of                      ___________________________                      the short time between order and shipment                      of  the  Company's products,  the Company                                                    ___________                      generally  has relatively  little backlog                      _________________________________________                      at any  given date, and the  Company does                      __________________           ____________                      not     believe    that     backlog    is                      _________________________________________                      representative of potential sales for any                      ______________                      future period (emphasis added).            Plaintiffs say that: (i)  Computervision was required to, but            failed to disclose the dollar  amount of backlog orders; (ii)            Computervision  misrepresented  that  backlog  data  was  not            significant   to  its  results;   and  (iii)  the  statement,            "shipments are generally made within 30 days  of receiving an                                            ____________________            24.  An issuer is not required to "disclose interim operating            results for the quarter  in progress whenever it  perceives a            possibility  that the  quarter's results  may  disappoint the            market . . . .    Reasonable    investors   understand   that            businesses  fluctuate,  and  that   past  success  is  not  a            guarantee of  more of the  same.  There  is always  some risk            that the quarter  in progress  at the time  of an  investment            will turn out for  the issuer to be worse  than anticipated."            Shaw, 82  F.3d at 1210.   It is  only when "the  issuer is in            ____            possession of [hard] nonpublic  information that the  quarter            in  progress will be an  extreme departure from  the range of            results  which  could  be   anticipated  based  on  currently            available  information"  that  disclosure  might  be required            under the securities laws.  Id.                                        ___                                         -41-                                          41            order,"  was false.  "Backlog"  is the dollar  amount, on any            given day, of orders  received for which product has  not yet            been shipped.   We address these  claims in turn and  find no            error in the district court's rejection of them.                      (i) Dollar Amounts of Backlog                          _________________________                      Item  101   of  Regulation  S-K  requires   that  a            prospectus  disclose "to  the  extent  material, . . .  [t]he                                  _________________________            dollar amount of backlog  orders believed to be firm, as of a            recent  date and  as of  a comparable  date in  the preceding            fiscal year."25   17 C.F.R.    229.101(c)(1)(viii)  (emphasis            added).  Information  is material when there is  a reasonable            likelihood  that a  reasonable  investor  would  consider  it            important.  See Shaw, 82  F.3d at 1219; Wielgos, 892  F.2d at                        ___ ____                    _______            517.    The Prospectus  disclosed  that  backlog levels  were            usually low.  But, plaintiffs argue that that  disclosure was            not enough.   They  argue that  the specific backlog  numbers                                                ________            were  material and hence required  to be disclosed.   This is            so, they say, because  backlog entering the third quarter  of            1992 was unusually low.  Plaintiffs support their argument by                     _________            comparing  the backlog  entering  the third  quarter of  1992                                            ____________________            25.  Computervision issued its securities pursuant to Form S-            1.  Item 11(a) of  the Instructions to Form S-1  requires the            prospectus to furnish the information required by Item 101 of            Regulation  S-K.    Liability  for failure  to  disclose  the            information required to  be stated by  Item 101 arises  under            Section 11 of the Securities Act.  See Shaw, 82 F.3d at 1204-                                               ___ ____            06  (describing the statutory scheme in the context of a Form            S-3 shelf offering).                                           -42-                                          42            ($26,875,000)   to   that   entering   the   second   quarter            ($39,897,000) -- a difference of approximately $13 million or            thirty-two percent.                      There  is a threshold flaw in plaintiffs' argument.            As   Item  101(c)(1)(viii)   itself  says,   the  appropriate            comparison  is  not  to   the  numbers  from  an  immediately            preceding quarter, but to those from a comparable date in the            preceding  fiscal  year.   17  C.F.R.    229.101(c)(1)(viii).            This   is  particularly  true   here,  where  the  Prospectus            specifically  stated that Computervision tended to experience            seasonal  declines  in  revenues   in  its  first  and  third            quarters.    See  Capri  Optics,    950  F.2d  at  10  (where                         ___  _____________            defendant's business was seasonal,  it was not meaningful for            plaintiffs to compare results for  the quarter in question to            those for the immediately preceding quarter).                      Even  if  quarter-to-next-quarter comparisons  were            appropriate,   Computervision's   failure  to   provide  more            specific  information is nonetheless not actionable.  Roughly            adjusting the numbers for seasonality, they show only a minor            drop  in initial  backlog  levels (as  fractions of  budgeted            quarterly revenues) between the  second and third quarters of            1992.26   This minor drop  of a  few percent is  not adequate                                            ____________________            26.  As the  defendants point  out, plaintiffs' numbers  have            meaning only if  they are  adjusted for  seasonality.   While            initial  backlog levels for the second  and third quarters of            1992   were   $39,897,000   and  $26,875,000,   respectively,            Computervision's  budgeted revenues  for those  quarters were                                         -43-                                          43            to support the  claim that the  difference in backlog  levels                                            __________            between quarters  was  material and  hence required  specific            backlog numbers to be disclosed.   Where a variable, although            material, is of only minor predictive value, disclosure of  a            rough estimate of that variable's  value can obviate the need            for more specific disclosure.  Cf. Shaw, 82 F.3d at 1211 n.21                                           ___ ____            (disclosure of a "soft" projection may, in some cases, render            the  "hard" information underlying  the projection immaterial            as a matter of fact or of law).  Indeed, disclosure of only a            rough  estimate  may  keep  investors  from  attaching  undue            importance to minor shifts in the variable's value and avoids            the  risk of  "burying  the [investors]  in  an avalanche  of            trivial information."   San  Leandro Emergency  Medical Group                                    _____________________________________            Profit Sharing Plan v.  Philip Morris Cos., 75 F.3d  801, 810            ___________________     __________________                                            ____________________            $159,500,000  and  $121,000,000,   respectively.    When  the            initial  backlog levels for the two quarters are looked at as            fractions of  the budgeted  revenues for those  quarters, the            result is  25% for the second quarter and 22.2% for the third            quarter -- a difference of less than 3%.                 The district court, in Computervision II, noted that the                                        _________________            Proposed Complaint calculated initial  backlog levels for the            second and third quarters  of 1992 as a percentage  of actual                                                                   ______            revenues  (for  the second  quarter) and  forecasted revenues            ________                                  ___________________            (for  the  third  quarter),  respectively,  and  found  a  9%            difference between the two percentages.  914 F. Supp. at 721.            The district  court ruled  that this  9% differential was  an            insufficient basis  to support plaintiffs'  claim.  Id.   Not                                                                ___            knowing the  degree to  which Computervision's  forecasts may            have been systematically biased vis-a-vis actual results, and            not  having  been  provided  with  this  information  by  the            parties,  we  are reluctant  to  endorse  the plaintiffs'  9%            number.    Cf. Wielgos,  892  F.2d at  515  (defendant's cost                       ___ _______            estimates were systematically biased).  Nevertheless, we note            that our conclusion would not be different whether we used 3%            or 9%.                                               -44-                                          44            (2d  Cir. 1996)  (quoting TSC  Industries, Inc.  v. Northway,                                      _____________________     _________            Inc.,  426 U.S. 438, 448 (1976)); Convergent, 948 F.2d at 516            ____                              __________            (same).      In   sum,   plaintiffs  have   no   claim   that            Computervision's general statement  that backlog was  usually            low,  without  the  disclosure   of  specific  numbers,   was            materially  misleading  as  of  the  effective  date  of  the            offering.  Cf.  Backman v.  Polaroid Corp., 910  F.2d 10,  16                       ___  _______     ______________            (1st Cir.  1990) (en  banc) ("Disclosing that  Polavision was            being  sold below  cost  was not  [materially] misleading  by            reason  of not saying how much below."); Worlds of Wonder, 35                                                     ________________            F.3d at 1419.                      (ii) Immateriality of Backlog                           ________________________                      Plaintiffs  argue that  the Prospectus,  in stating            that  "the   Company  does   not  believe  that   backlog  is            representative of potential sales  for any future period," in            effect falsely suggested that  backlog was not significant to            Computervision's results.  Plaintiffs misread the Prospectus.                      The statement  in the Prospectus does  not say that            information  on  backlog  is  insignificant   or  immaterial.            Instead, it says that such information should not be taken as            representative.  The  statement cautions investors that  they            should not  take  backlog levels  as  necessarily  predicting            results for future periods.   In addition, there is  at least            one other statement on  the very same page of  the Prospectus                                         -45-                                          45            that warns investors that  data available early in  a quarter            (i.e., opening backlog) is not necessarily a strong predictor             ____            of quarterly results because:                      a  substantial  portion of  the Company's                      orders and shipments  typically occur  in                      the   last   month   of   each   quarter.                      Therefore  . .  .  unexpected  delays  or                      actions . . . could result in significant                      quarterly  fluctuations in  the Company's                      operating results.            Hence, when read in context,  Computervision's statement that            backlog was not representative of sales was plainly a warning            that  investors should  not  draw too  many conclusions  from            backlog  figures, and not a statement that backlog itself was            immaterial or insignificant.                      (iii) Shipments Within Thirty Days                            ____________________________                      Plaintiffs' final  argument on backlog is  that the            district  court  erred  in  concluding   that  the  statement            "shipments are generally made within thirty days of receiving            an order" was not materially false or misleading.  Plaintiffs            point  to a backlog aging  analysis from the  seventh week of            the  third quarter of 1992,  which indicates that  39% of the            backlog balance, at that time, was to be shipped in more than            thirty  days.  The first  problem with the  argument is that,            although plaintiffs attack  the word  "generally," they  base            their  claim solely on data  from one portion  of one quarter            and fail to allege anything meaningful about Computervision's            general practice.  Second, even if one portion of one quarter                                         -46-                                          46            could  be  taken   as  representative,  plaintiffs'   factual            allegations  would  not  support  a  misrepresentation claim.            Plaintiffs  allege that  approximately  sixty-one percent  of            orders were shipped out in less than thirty days, six percent            were shipped  in between thirty  and sixty days,  and thirty-            three  percent   were  shipped  in  more   than  sixty  days.            Computervision's statement said that shipments were generally            made  within thirty days of receiving an order, not that they            were always  made within thirty days.  That sixty-one percent            of orders in one  portion of one quarter were  shipped within            thirty days  is perfectly consistent with  the statement that            orders were generally shipped within  thirty days.  There was            no material misrepresentation.            4.  CADDS 5                _______                      Plaintiffs' final allegations  focus on  statements            concerning  CADDS  5,  Computervision's  then-newest  CAD/CAM            software  product  and  the  centerpiece of  the  firm's  new            business strategy.   Plaintiffs  allege  that the  Prospectus            made  two sets  of material  misstatements or  omissions with            respect to  CADDS 5: (i) the  Prospectus misrepresented that,            as  of June 1992, CADDS  5 was a  "successful product," being            shipped  in "volume,"  i.e., to  thousands of  customers; and                                   ____            (ii) the Prospectus materially overstated CADDS 5's potential            for  success  when,  in  fact,  the  product  was beset  with                                         -47-                                          47            problems.  As with the backlog claims, we affirm the district            court's rejection of the CADDS 5 claims.                      (i) Successful Product Shipping in Volume                          _____________________________________                      Plaintiffs'  Proposed  Complaint  alleged that  the            "Prospectus[] misrepresented  CADDS 5 as a successful product            commercially  shipping in  volume."   The Proposed  Complaint            then  defined  "`[v]olume  commercial  shipments'"  as  those            "involving several thousand customers."   The language in the            Prospectus,  however,   neither  refers  to  CADDS   5  as  a            "successful product shipping in  volume," nor to shipments to            "several  thousand customers;" those  descriptions are wholly            the plaintiffs'  own.  The  plain language of  the Prospectus            speaks for itself:                      Beta testing  of  CADDS 5  (release  2.0)                      commenced  in March  1992 with 24  of the                                                _______                      Company's  largest  CADDS  customers  and                                                 _________                      early  introduction  sales  commenced  in                      April  1992.    Commercial  shipments  of                      CADDS 5 (release 2.0)  began in June 1992                      and as of June  28, 1992, Release 2.0 had                          _____________________________________                      been  shipped  to 32  customers (emphasis                      _______________________________                      added).            Far from  alluding to thousands of  customers, the Prospectus            specified the  number of  customers to  whom the product  had            _________            been shipped  -- 24 in the  beta testing stage and  32 in the            commercial shipping stage.   Plaintiffs' assertion that  this            precise statement can be interpreted as implying that CADDS 5            was  being shipped, or was ready to be shipped, to thousands,            is baseless.                                         -48-                                          48                      Further, the Prospectus  was replete with  language            cautioning  investors that  the  market in  general (i.e.,  a                                                                 ____            large  volume of customers) had  not accepted CADDS  5 as yet            and that the  product might need  further enhancements.   For            example,  the Prospectus stated  that although Computervision            hoped to replace its "declining hardware revenues and margins            with sales  of higher margin CAD/CAM  software products . . .            [n]o  assurance  can  be  given  that  the  Company  will  be            _____________________________________________________________            successful in achieving this objective" (emphasis added).  In            ______________________________________            addition, the Prospectus warned that "customer acceptance  of                                                  _______________________            CADDS  5  is  critical"  to continued  customer  purchase  of            ______________________            Computervision's  existing software  product, CADDS  4X, that            the  "delayed release  of CADDS 5  (Release 2.0)  resulted in                  _______________________________________________________            customers delaying product purchases" and that:            ____________________________________                      the CAD/CAM industry is  characterized by                      rapidly changing  technology and frequent                                                       ________                      new  product  introductions  and  product                      _________________________________________                      enhancements .  . . [and] [t]here  can be                      ____________              _______________                      no  assurance  that   the  Company   will                      _____________                      continue to be successful in identifying,                      developing and marketing new  products or                      enhancing  its   existing  products . . .                      [or]  that new  customers will  change to                            ___________________________________                      the Company's  new products even  if they                      _________________________________________                      are  judged  to  be   superior  (emphasis                      ______________________________                      added).                        Computervision's statement that it had commercially            shipped  CADDS 5 software to  32 customers must  be viewed in            the context of the Prospectus' numerous cautionary statements            that CADDS  5 might  never be  accepted by  the market.   See                                                                      ___                                         -49-                                          49            Shaw,  82  F.3d  at  1213  (if  a  statement  is  couched  in            ____            cautionary   language  that  disclaims   the  drawing   of  a            particular  inference,   a  claim  that   the  statement  was            materially  misleading may  fail as  a matter  of law).   The            context confirms  that any possible misleading inference that            might be  drawn from  Computervision's statement  is properly            deemed immaterial as a matter of law.                      (ii) Misleading Optimistic Statements                           ________________________________                      Plaintiffs' final claim  is that certain optimistic            statements in  the Prospectus regarding  the development  and            commercial prospects of CADDS 5 were materially misleading in            light of  Computervision's alleged nondisclosure  of problems            the  product was  facing.  See,  e.g., Hanon  v. Dataproducts                                       ___   ____  _____     ____________            Corp., 976 F.2d 497, 502 (9th Cir. 1992).            _____                      A  duty  to  disclose  technical  or  developmental            problems  with  a product  may  arise where  a  company makes            strongly optimistic or concrete statements about that product            that  are in  stark contrast  to its  internal reports.   Cf.                                                                      ___            Serabian, 24 F.3d at  363-65 (sustaining Section 10(b) claims            ________            where there  was a  "contrast between what  company officials            were  hearing  internally  . . .  and what  the  company  was            telling the public at the same time" (emphasis in original)).                               ________________            But,  in this  case,  the statements  about  CADDS 5  in  the            Prospectus  were  not  so  optimistic  as  to  be  materially            misleading about the existence of developmental or commercial                                         -50-                                          50            difficulties with CADDS 5.   To the contrary,  the Prospectus            frequently  alludes to the  uncertainties associated with the            release of a new product.     The  key statements  identified            by the  plaintiffs are  that Computervision expected  CADDS 5            "to broaden the  number of customers in  existing accounts as            well  as attract  new  customers,"  and that  "Computervision            believes  that CADDS 4X and CADDS 5  are likely to be used in            tandem by major accounts in  the foreseeable future."   These            statements, whether  read in isolation  or in the  context of            Computervision's numerous warnings that  CADDS 5 might not be            accepted   by   the    market   and   might    need   further            enhancements,27  suggest,  at most,  the  hope  that CADDS  5            will eventually gain acceptance  in the market.  Such  a hope            is not  unusual for a company  releasing a new product.   Cf.                                                                      ___            VeriFone I,  784 F. Supp.  at 1484 ("securities  laws presume            __________            that  skilled  investors  are  aware  that   a  corporation's            performance with a new product . . . is unlikely to replicate            past successes").   Computervision's statements did  not rise            to  the level of optimism  or certainty that  would make them            materially misleading in the absence of disclosure of initial            developmental problems the product was  facing.  Cf. Shaw, 82                                                             ___ ____                                            ____________________            27.  The Prospectus also states that "a significant delay" in            the   availability  of   CADDS  5   would   adversely  affect            Computervision  and that many of Computervision's competitors            "have  greater financial  and operating  resources" and  that            "there  can be no assurance that competitors will not produce            equivalent or superior products."                                          -51-                                          51            F.3d   at  1219   n.33  (cautiously   optimistic  statements,            expressing  at  most a  hope for  a  positive future,  do not            trigger  a duty  to  update); San  Leandro,  75 F.3d  at  811                                          ____________            (subdued generally optimistic statements  constituted nothing            more than puffery and were not actionable); In re Time Warner                                                        _________________            Inc.  Sec. Litig., 9 F.3d 259, 267 (2d Cir. 1993) (statements            _________________            at issue  lacked "definite positive projections"  of the sort            that would  require later  correction), cert. denied,  114 S.                                                    _____ ______            Ct. 1397 (1994).   Further, the statements here are  markedly            less enthusiastic than the  statements that other courts have            found  actionable.  See In re Apple Computer Sec. Litig., 886                                ___ ________________________________            F.2d 1109, 1118-19 (9th Cir. 1989) (company executives stated            that new  computer product would be  "phenomenally successful            the first year  out of  the chute" and  would make  company's            "growth before this look small"), cert. denied, 496  U.S. 943                                              _____ ______            (1990); Hanon,  976 F.2d  at 501-02 (company's  press release                    _____            stated  that new  product had  received "strong  interest and            high acclaim from users  and analysts alike" and its  special            features were  "rapidly making  [it] .  . .  one of the  most            popular  in [the  company's] line").   Computervision's  mild            statements of hope, couched  in strongly cautionary language,            cannot be said to have become materially misleading.                                         IV.                                      Conclusion                                      __________                      The decision of the district court is affirmed.                                                              ________                                         -52-                                          52
