NIGHT BOX 1LED

JUN 08 ic°

o: JUNKE T)O I 1L DFL I MIA

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF FLORIDA

--------------------------------------------x NATHAN S. DAVIS, DONALD J. MAHALL II, : Case No.

and JOHN DONLEY, individually and on behalf of all others similarly situated, : 98-0334-clv-MIDDLEBR00Ks

Plaintiffs, : MAGISTRATE JUDGE BROWN

- against - AMENDED

CLASS ACTION COMPLAINT

FOR VIOLATIONS OF FEDERAL

SECURITIES LAW

PRECISION RESPONSE CORPORATION, MARK J. GORDON, PAUL M. O'HARA, DAVID L. EPSTEIN, JAMES F. MURRAY, RICHARD D. MONDRE, BERNARD J. KOSAR, JR., CHRISTIAN MUSTAD, NEIL A. NATKOW, GOLDMAN SACHS & CO., DAIN BOS WORTH INC., MERRILL LYNCH & CO., and FURMAN SELZ LLC,

Plaintiffs Demand Defendants. Trial by Jury

----x

Plaintiffs, by their attorneys, for their Amended Class Action Complaint (the

"Complaint"), allege the following upon personal knowledge as to themselves and to their own

acts, and upon information and belief based upon the investigation of plaintiffs' attorneys as to all

other matters. The investigation of counsel includes the review and analysis of public statements,

publicly-filed documents of Precision Response Corporation ("Precision Response" or the

"Company"), press releases, news articles, and interviews with former employees.

NATURE OF THE ACTION

1. This is a securities class action on behalf of purchasers of common stock of

Precision Response on or traceable to a secondary public offering (the "Offering") by Precision

Response of 4,740,000 shares of common stock, which Offering was made pursuant to a

registration statement and prospectus made effective on January 29, 1997 (the "Registration

Statement" and "Prospectus") through July 9, 1997, inclusive (the "Class Period"). The Offering

was for $35 1/8 per share for total proceeds from the Offering of $166,492,500.

2. The Registration Statement, of which the Prospectus was a part, pursuant to

which Class Members purchased Precision Response stock, contained materially false and

misleading information about Precision Response and failed to state facts necessary to make the

statements that were made not false and misleading, in violation of Section 11 of the Securities

Act of 1933.

3. The Prospectus was materially false and misleading because it painted a rosy

picture of Precision Response's past results and future prospects although those past results had

already eroded and the Company was on notice that its near term financial prospects were

virtually certain to deteriorate due to cost cutting at its dominant customer, AT&T, which

accounted for 71.6% of the Company's revenues.

4. Precision Response's Offering price of $35 1/8 per share was more than 146

times earnings for the 12 months prior to September 30, 1996. Despite the fact that Precision

Response's 1997 fiscal year had ended 29 days before the Offering took place, the Company did

not include even preliminary fiscal year or fourth quarter 1997 financial results in the Prospectus.

Had these results been disclosed, the material downturn in the Company's growth rate would have

been revealed.

2

5. Furthermore, the Prospectus made no disclosure of the impact on Precision

Response of a cost cutting program and price renegotiation initiated prior to the Offering by

AT&T. That cost cutting program and price renegotiation is virtually certain to have caused

Precision Response into across-the-board price cuts in the fourth quarter of 1996, before the

Offering, in the first quarter of 1997, during the Offering, and causing revenues in the second

quarter 1997, which began less than two months after the Offering's February 4, 1997 settlement

date, to decline for the first time in the Company's history.

6. When these adverse facts were ultimately revealed, Precision Response stock

which been sold to an unsuspecting public at $35 1/8 per share in the Offering, closed at $10 per

share on July 10, 1997. The stock has not recovered, and recently sold for less than $7 per share

on June 2, 1998.

JURISDICTION AND VENUE

7. This action arises under Sections 11 and 15 of the Securities Act of 1933 (the

"Securities Act"), 15 U.S.C. §§ 77k and 77o.

8. This Court has jurisdiction over the subject matter of this action pursuant to

Section 22 of the Securities Act, 15 U.S.C. § 77v; and Sections 1331 and 1337(a) of the Judicial

Code, 28 U.S.C. §§ 1331 and 1337(a).

9. Venue is proper in this District under Section 22 of the Securities Act. The

wrongs alleged in this Complaint occurred, in substantial part, in this District, including the offer

and sale of securities and the preparation and dissemination to the investing public of false and

misleading information, including a Registration Statement of which a Prospectus was a part and

3

pursuant to which securities were offered. In addition, at all relevant times, defendant Precision

Response had its offices in and conducted business in this District.

10. In connection with the acts, conduct, and other wrongs complained of herein,

defendants, directly and indirectly, used the means and instrumentalities of interstate commerce

and the United States mails and the facilities of the national securities markets.

THE PARTIES

PLAINTIFFS

11. Plaintiff Nathan S. Davis purchased 100 shares of Precision Response stock

on the Offering and was damaged as a result thereof.

12. Plaintiff Donald J. Mayhall II purchased 800 shares of Precision Response

stock on the Offering and was damaged as a result thereof.

13. Plaintiff John Donley purchased 500 shares of Precision Response stock on the

Offering and was damaged as a result thereof.

DEFENDANTS

14. Precision Response is a Florida corporation with its headquarters and principal

place of business located at 1505 N.W. 167th Street, Miami, Florida 33169.

15. Defendant Mark J. Gordon was, at all times relevant hereto, Chairman of the

Board and Chief Executive Officer of Precision Response. He signed the Registration Statement

on behalf of the Company and in his capacities as Chairman of the Board and Chief Executive

Officer.

4

16. Defendant Paul M. O'Hara was, at all times relevant hereto, Senior Vice

President-Finance, and Chief Financial Officer of Precision Response. He signed the Registration

Statement.

17. Defendant David L. Epstein was, at all times relevant hereto, President, and

a Director of Precision Response. He signed the Registration Statement.

18. Defendant James F. Murray was, at all times relevant hereto, Chief Operating

Officer, and a Director of Precision Response. He signed the Registration Statement.

19. Defendant Richard D. Mondre was, at all times relevant hereto, Executive

Vice President, General Counsel, Secretary, and a Director of Precision Response. He signed the

Registration Statement.

20. Defendant Bernard J. Kosar, Jr. was, at all times relevant hereto, Senior Vice

President-Client Relations, and a Director of Precision Response. He signed the Registration

Statement.

21. Defendant Christian Mustad was, at all times relevant hereto, a Director of

Precision Response. He signed the Registration Statement.

22. Defendant Neil A. Natkow was, at all times relevant hereto, a Director of

Precision Response. He signed the Registration Statement.

23. Defendants Gordon, Epstein, and Mondre are collectively referred to herein

as the "Individual Defendants."

24. Defendant Goldman Sachs & Co. ("Goldman Sachs") is a corporation with its

principal place of business in New York, New York. Goldman Sachs was a lead underwriter of

the Offering and an "underwriter" of the Offering within the meaning of the Securities Act.

Defendant Goldman Sachs is a full service broker-dealer engaged in securities brokerage, trading,

5

investment banking, asset management, and related financial services to both retail and

institutional customers.

25. Defendants Dain Bosworth Inc. ("Dain Bosworth") is a corporation with its

principal place of business in Minneapolis, Minnesota. Dain Bosworth was a lead underwriter of

the Offering and an "underwriter" of the Offering within the meaning of the Securities Act.

Defendant Dain Bosworth is a full service broker-dealer engaged in securities brokerage, trading,

investment banking, asset management, and related financial services to both retail and

institutional customers.

26. Defendant Merrill Lynch & Co. ("Merrill Lynch") is a corporation with its

principal place of business in New York, New York. Merrill Lynch was a lead underwriter of

the Offering and an "underwriter" of the Offering within the meaning of the Securities Act.

Defendant Merrill Lynch is a full service broker-dealer engaged in securities brokerage, trading,

investment banking, asset management, and related financial services to both retail and

institutional customers.

27. Defendant Furman Selz LLC ("Furman Selz") is a corporation with its

principal place of business in New York, New York. Defendant Furman was a lead underwriter

of the Offering and an "underwriter" of the Offering within the meaning of the Securities Act.

Defendant Furman Selz is a full service broker-dealer engaged in securities brokerage, trading,

investment banking, asset management, and related financial services to both retail and

institutional customers.

28. Defendants Goldman Sachs, Dain Bosworth, Merrill Lynch, and Furman Selz

are collectively referred to herein as the "Underwriter Defendants."

El

PLAINTIFFS' CLASS ALLEGATIONS

29. Plaintiffs bring this action on their own behalf and as a class action pursuant

to Rules 23(a) and 23(b)(3) of the Federal Rules of Civil Procedure on behalf of a class (the

"Class") consisting of those individuals and entities who purchased Precision Response stock on

the January 29, 1997 Offering or otherwise acquired shares traceable to the Prospectus up to and

including July 9, 1997, and were damaged thereby. Excluded from the Class are defendants

herein, their affiliates and other officers or directors of Precision Response or its affiliates, any

entity in which any defendant had a controlling interest, any member of the immediate families

of any defendant, and the heirs, successors or assigns of any such excluded party.

30. Because 4,740,000 shares were issued pursuant to the Offering, the members

of the Class are so numerous that joinder of all members is impracticable. While the exact

number of members of the Class can only be determined by appropriate discovery, plaintiffs

believe that Class members number in the hundreds or thousands.

31. Plaintiffs' claims are typical of the claims of the other members of the Class.

Plaintiffs and all other members of the Class sustained damages as a result of defendants'

wrongful conduct complained of herein.

32. Plaintiffs will fairly and adequately protect the interests of the members of the

Class and have retained counsel competent and experienced in class and securities litigation.

33. A class action is superior to other available methods for the fair and efficient

adjudication of this controversy. Because the damages suffered by individual Class members may

be relatively small, the expense and burden of individual litigation make it virtually impossible for

Class members individually to seek redress for the wrongful conduct alleged herein.

7

34. Common questions of law and fact exist as to all members of the Class and

predominate over any questions solely affecting individual members of the Class. Among the

questions of law and fact common to the Class are:

(a) whether the Registration Statement and Prospectus contained false and

misleading information;

(b) whether Section 11 of the Securities Act was violated by defendants' acts as

alleged herein;

(c) whether the Individual Defendants are "control persons" within the meaning

of Section 15 of the Securities Act; and

(d) whether the members of the Class have sustained damages and, if so, the

appropriate measure thereof.

35. Plaintiffs know of no difficulty that will be encountered in the management of

this litigation that would preclude its maintenance as a class action.

36. The names and addresses of the purchasers of the stock in the Offering and

during the Class Period are available from Precision Response's transfer agent. Notice can be

provided to such record owners via first class mail using techniques and a form of notice similar

to those customarily used in class actions.

FACTS

THE COMPANY'S BusINEss

37. Precision Response is a full-service provider of telephone-based marketing and

customer service solutions on an outsourced basis to large corporations. Most of the Company's

teleservicing activities involve responding to inbound calls from its clients' customers. Precision

Response, as of the date of the Offering, operated approximately 3,200 workstations in eight call

centers capable of handling 46 million calls per month. Typically, the Company's customer

service representatives are dedicated to a specific Precision Response client. Most of the

Company's teleservicing activities involve inbound (customer-initiated) calls to "800" area code

telephone numbers. In almost all cases, outbound (Precision Response-initiated) calls are made

to existing customers of a Precision Response client or to respond to customer-initiated inquiries.

For the first nine months of 1996, approximately 75.5% of the Company's teleservicing revenues

were from inbound calls.

38. Precision Response has a contract with each of its customers.

Contracts typically encompass all aspects of the Company's relationship with the client, with all charges set forth in one document. The Company's teleservicing charges are primarily based on a fixed hourly fee for dedicated service.

(Prospectus at 31 (emphasis added).)

39. Precision Response recognizes the majority of its revenue by charging an

hourly fee for answering the telephone so that, given the Company's requirement that each

customer have a contract, revenues are steady and predictable.

Revenue Recognition

The Company recognizes revenues as services are performed. The Company's teleservicing charges are usually based either on a fixed hourly fee for dedicated service or on a transaction (i.e., number of calls completed) basis for shared environments. Charges for database marketing and management services are based on an hourly rate or on the volume of information stored.

(Prospectus at F-9.)

THE COMPANY HAD GROWN RAPIDLY

40. For the quarter ended December 31, 1995, the Company had revenues of

$9,766,000, an operating margin of nearly 5.9%, and pro forma net income of $269,000, or $ .02

per share.

41. For the quarter ended March 31, 1996, the Company reported revenues of

$11,626,000, an operating margin of 7.7%, and pro forma net income of $442,000, or $.03 per

share. Revenues increased $1,860,000, or more than 19% from the previous quarter. Operating

margin increased nearly 31 % from the previous quarter Pro forma net income increased

$173,000, more than 64% from the previous quarter.

42. For the quarter ended June 30, 1996, the Company reported revenues of

$21,958,203, an operating margin of 11%, and pro forma net income of $1,298,878, or $.08 per

share. Revenues increased $10,332,203, or approximately 89% from the previous quarter.

Operating margin increased nearly 42.9% from the previous quarter Pro forma net income

increased $856,878, or approximately 194% from the previous quarter.

43. For the quarter ended September 30, 1996, the Company reported revenues

of $29,984,793, an operating margin of 11.5%, and pro forma net income of $2,060,001, or $. 11

per share. Revenues increased $8,026,590, or approximately 37% from the previous quarter.

Operating margin increased 4.5% from the previous quarter. Pro forma net income increased

$657,999, or nearly 32% from the previous quarter.

44. For the nine months ended September 30, 1996, the average quarterly

revenue growth rate was 69%, the average quarterly operating margin growth was 14.9%, and

pro forma net income growth was nearly 222%. These growth rates were included in the

Prospectus.

10

THE OFFERING

45. On or about December 26, 1996, the Company filed its Form S-i Registration

Statement for the Offering with the Securities and Exchange Commission (the "SEC")

46. On or about January 3, 1997, the Company filed an amendment to the Form

S-i Registration Statement for the Offering with the SEC.

47. The Registration Statement of which the Prospectus was a part was made

effective on January 29, 1997. The Offering was for 4,740,000 shares at $35 1/8 per share.

Total proceeds from the Offering were approximately $166,492,500.

THE OFFERING PRICE WAS

DEPENDENT UPON RAPID GROWTH

48. The Offering price of $35 1/8 per share was more than 146 times earnings for

the 12 months prior to September 30, 1996. In other words, the Company was priced for its

rapid growth in revenues and earnings, not for its profitability.

49. The Prospectus emphasized the Company's history of rapid growth, although

adding a boilerplate warning about the unknown.

The Company has experienced rapid growth over the last year and in particular since the second quarter of 1996. This rapid growth may be expected to place a strain on the Company's operational and administrative resources. The Company's ability to manage and respond to this growth will be critical to its success. The Company anticipates continued growth to be driven primarily by industry trends towards outsourcing of telephone-based customer service and marketing operations and increased sales by the Company to new and existing markets. Future growth will depend on a number of factors, including the effective and timely initiation and development of client relationship, opening new call centers (including call centers located outside Florida), and recruitment, motivation, and retention of qualified personnel. Sustaining growth will also require the continuing enhancement of operational and

ii

financial systems and will require additional management, operational and financial resources. There can be no assurance that the Company will be able to manage its expanding operations effectively or that it will be able to maintain or accelerate its growth.

(Prospectus at 8.)

50. The Prospectus emphasized the Company's continued rapid growth.

The telephone-based marketing and customer service industry has experienced substantial growth over the past ten years. Telephone-based direct marketing expenditures increased from an estimated $34 billion in 1984 to an estimated $81 billion in 1995. The Company believes that only a small percentage of those 1995 expenditures was for outsourced services. The Company expects that large companies increasingly will outsource telephone-based customer service and marketing activities in order to focus internal resources on their core competencies and to improve the quality and cost-effectiveness of their customer service and marketing efforts by using the expertise and specialized capability of larger scale teleservices providers. The Company also believes that organizations with superior customer service and sophisticated, advanced technology, such as [Precision Response], will particularly benefit from this outsourcing trend.

(Prospectus at 3.)

51. This emphasis on growth was the theme of Management's Discussion and

Analysis of Financial Condition and Results of Operations.

[Precision Response] was incorporated in 1982 as a fulfillment company. In order to better serve the customer service and marketing needs of its clients, the Company expanded its services to include database marketing and management in 1984, and began offering teleservices in 1988. Over the next five years, [Precision Response] 's teleservices activities grew dramatically, primarily as a result of the Company's work with The Upjohn Company and its national marketing program for its Rogaine product.

***

12

In 1994, The Upjohn Company effected a change in its marketing strategy for the Rogaine product and elected not to extend its program with the Company. However, the Company continued to expand services to existing clients and to attract new clients. For clients other than The Upjohn Company, the Company's total revenues grew from $11.6 million for 1993 to $30.2 million for 1995 and to $63.6 million for the first nine months of 1996.

(Prospectus at 18.)

52. The emphasis on growth was reiterated in Management's Discussion and

Analysis of Financial Condition and Results of Operations:

NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 1995

Revenues. Revenues increased $43.2 million, or 211.1%, to $63.6 million for the nine months ended September 30, 1996 from $20.4 million for the comparable period of 1995.

Pro Forma Net Income. Pro forma net income increased 569.1% to $3.8 million, or 6.0% of revenues, for the nine months ended September 30, 1996 compared to pro forma net income of $568,000, or 2.8% of revenues, for the comparable period of 1995.

1995 COMPARED TO 1994

Revenues. Revenues increased $15.2 million, or 101.4%, to $30.2 million for 1995 from $15.0 million for 1994.

Pro Forma Net Income. Pro forma net income increased to 837,000, or 2.8% of revenues, for 1995 compared to a pro forma net loss of $286,000, or 1.9% of revenues, for 1994.

(Prospectus at 18-21.)

53. The emphasis on growth was repeated throughout the Prospectus.

13

[Precision Response] 's revenues for 1995 increased 101.4% to $30.2 million from 15.0 million for 1994, while its pro forma net income for 1995 increased to $0.8 million from a loss of $0.3 million for 1994. For the first nine months of 1996, revenues increased 211.1% to $63.6 million from $20.4 million for the comparable period of 1995, while pro forma net income increased 569. 1 % to $3.8 million from $0.6 million for the comparable period of 1995. [Precision Response]'s operating margin for the first nine months of 1996 was 10.9% of revenues compared to 6.1 % of revenues for the comparable period of 1995. The Company currently operates approximately 3,200 workstations in eight telephone call centers capable of handling up to 46 million calls per month. The Company anticipates that it will open two additional call centers of approximately 500 workstations each during the first quarter of 1997.

(Prospectus at 25.)

THE PROSPECTUS DID NOT DISCLOSE THAT GROWTH HAD SLOWED BEFORE THE OFFERING

54. With its stock priced at more than 146 times earnings, the Company was

valued for its future prospects that were dependent on continued rapid growth, and not valued for

its present performance. Financial results that revealed a slowing in that growth were of material

importance to investors.

55. The Prospectus made no disclosure of financial results for the fourth quarter

ending December 31, 1996, despite the fact that the quarter had ended 29 days prior to the

Offering. The Prospectus only contained year-end audited financial results for 1993, 1994, and

1995, and unaudited financial results for the nine months ended September 30, 1996.

56. On February 19, 1997, the Company announced its fourth quarter results for

the three months ended December 31, 1996. The Company reported revenues of only

$34,083,000, an operating margin of 13.7%, and pro forma net income of $2,718,000, or $0.14

14

per share. The Prospectus was false and misleading because the undisclosed financial results for

the last quarter of 1996, demonstrated that:

(a) revenue growth had slowed to a crawl having increased only $4,098,207, or

less than 14% from the previous quarter as opposed to the average quarterly revenue growth of

69% for the first three quarters of 1996;

(b) operating margin was only 13.7% as opposed to the operating margin of 14.9%

for the first three quarters of 1996; and,

(c) pro forma net income had only increased $657,999, or less than 32%, as

opposed to the average quarterly pro forma net income growth of nearly 222% for the first three

quarters of 1996.

57. Thus, revenue growth, operating margin, and pro forma net income growth

were only a fraction of what they had been for the other quarters of 1996. This slowing of the

Company's rate of growth was not disclosed in the Prospectus.

58. The results were even worse than reported because the Company's business

tends to be better in the fourth quarter than in the first and third quarters, because of direct

marketing programs which are typically slower in the post holiday and summer months.

(Prospectus at 10.)

AT&T WAS THE ENGINE THAT DROVE

PRECISION RESPONSE'S GROWTH

59. The Prospectus not only touted the Company's rapid growth, it also revealed

the engine of that growth. Although, as of December 1, 1996, the Company had approximately

40 customers, "several divisions of AT&T" were the source of almost three-fourths of the

Company's revenue in the first nine months of 1996, an increase from 42.1% in 1995.

15

The Company's largest client in 1995 and the first nine months of 1996 was AT&T. The Company conducts business with several divisions of AT&T, which the Company considers to be separate clients. AT&T's various divisions, in the aggregate, accounted for approximately 42.1% and 71.6% of the Company's total revenues during 1995 and the first three quarters of 1996, respectively.

(Prospectus at 8.)

60. No client, other than AT&T, accounted for more than 10% of Precision

Response's revenues.

Revenues generated by various divisions of AT&T, the Company's largest client, accounted for 42. 1 % of revenues for 1995 and 71.6% of revenues for the nine months ended September 30, 1996

no other client other than AT&T accounted for more than 10% or more total revenues for the nine months ended September 30, 1996.

(Prospectus at 30.)

61. Although almost three-fourths of Precision Response's revenues were derived

from "several divisions of AT&T," the Company did not annex any of those contracts to the

Registration Statement, so that the precise terms, including prices and termination provisions,

were not disclosed. Plaintiffs assert, based upon the need to lease real estate, buy computer

equipment, and hire, train, and manage dedicated personnel to provide dedicated service to

AT&T, that the undisclosed termination provisions required substantial notice.

THE PROSPECTUS FAILED TO DISCLOSE THAT GROWTH

WAS VIRTUALLY CERTAIN TO CONTINUE SLOWING

62. As of the effective date of the Registration Statement, defendants knew it was

virtually certain that AT&T's cost cutting policies would negatively impact the Company's

revenues and profits. For example, in January 1996, the president of AT&T publicly announced

that AT&T would embark upon stringent cost cutting procedures, a statement that was repeated

16

in different forums thereafter. AT&T had already at least contacted Precision Response prior to

the effective date of the Registration Statement to discuss possible cost cutting measures which

would negatively impact Precision Response. It was common knowledge among employees of

Precision Response that AT&T was and would be cutting back, whether through price reductions

or termination or curtailment of services.

63. As reported in the Prospectus, "large teleservicing programs," a euphemism

for AT&T, had negotiated price decreases which had hurt Precision Response's financial

performance in fiscal 1996 by causing the Company to lower its prices thereby raising its cost of

services.

As a percentage of revenues, cost of services increased to 64.5% for the nine months ended September 30, 1996 from 61.8% for the comparable period of 1995. The increase in cost of services as a percentage of revenues was attributable primarily to volume pricing for large teleservicing programs, and was partially offset by a special client project in the first nine months of 1996 that generated higher margins than the Company's overall business.

(Prospectus at 20 (emphasis added).)

64. Not disclosed in the Prospectus was that AT&T was continuing to demand

additional price reductions before and during the fourth quarter 1996. As disclosed after the

Offering, in the Company's Form 10-K for the year ending December 31, 1996, filed with the

SEC on or about March 31, 1997, ("10-K"), the Company reported that the cost of services

continued to rise because of price reductions negotiated by AT&T:

The increase in costs of services, as a percentage of revenues, from 70.2% in 1995 to 73.1 % for 1996 was primarily attributable to volume pricing for certain large teleservicing programs partially offset by certain information services projects for clients which generated higher margins than the Company's overall business.

(10-K at 19.)

17

65. AT&T continued to demand price reductions throughout Precision Response's

first and second quarters of 1997. On September 24, 1997, the Company announced a

restructuring over the PRNEWSWIRE. In the announcement, the Company admitted that the

"restructuring is in response to inefficiencies resulting from the addition of capacity and

infrastructure to accommodate a contract for its largest client [AT&T] that has been delayed

indefinitely and to an across-the-board price reduction imposed by this client."

66. The AT&T cost cutting program had caused, for the first time, Precision

Response's revenues in second quarter 1997 to decrease $2.052 million to $35.963 million from

$38.015 million in first quarter 1997. As analysts had projected Precision Response to earn $0.18

per share in the 1997 second fiscal quarter, revenue should have been even higher --

approximately $39.36 million, and the decrease was much higher -- approximately $3.4 million.

67. Given the continuing increases in the Company's cost of revenue in the first

three quarters of 1996 and in the fourth quarter of 1996, given the predictable and contracted for

nature of the Company's revenues, given the magnitude of the reduction in second quarter 1997

revenues, and given the substantial contract termination provisions, AT&T had been renegotiating

its prices with Precision Response before and during the Offering. Nowhere in the Prospectus,

however, were AT&T's pricing pressures or renegotiations or terminations disclosed . In short,

it was not disclosed that the Company's engine of growth had stalled.

68. Before the market opened on July 10, 1997, Precision Response issued a press

release over the PRNEWSWIRE in which it announced that as a result of "a request by AT&T .

to help address corporate cost reduction needs," the Company expected to report second quarter

1997 results "significantly below market expectations." From a closing price of $15 per share on

July 9, 1997, Precision Response lost one-third of its value dropping to close at $10 per share,

after reaching a low of $7.6250 per share.

69. The price of Precision Response is presently around $6 11/16 per share.

AS AND FOR A FIRST CLAIM FOR RELIEF

(Against All Defendants Section 11, Securities Act)

70. Plaintiffs incorporate by reference the allegations of paragraphs 1 through 69

as though fully set forth herein.

71. The Registration Statement was materially false and misleading, contained

untrue statements of material facts, omitted to state other facts necessary to make the statements

therein not misleading, and failed to disclose adequately material facts, because it did not contain

financial results for the fourth quarter of fiscal 1997, despite the fact that such results were a

historical fact as of the Offering date and revealed a slowing of the Company's growth, and failed

to disclose the existence of a cost cutting program that had been initiated prior to the Offering by

AT&T, its chief source of revenue, which was virtually certain to have a material negative impact

on revenue.

72. Plaintiffs and the other members of the Class who acquired the stock that were

the subject of the Registration Statement did not know of the omissions or misleading statements

in the Registration Statement when such stock was acquired.

73. Defendants Gordon, O'Hara, Epstein, Murray, Mondre, Kosar, Mustad, and

Natkow each signed the Registration Statement.

74. The Underwriter Defendants are underwriters with respect to the stock sold

in the Offering within the meaning of the Securities Act.

19

(

(

75. Plaintiffs and the other members of the Class acquired Precision Response

stock issued pursuant or traceable to the Registration Statement.

76. By reason of the foregoing, pursuant to Section 11 of the Securities Act,

defendants are liable to plaintiffs and the other members of the Class for the difference between

the price paid for the stock and either the current value of the stock if currently held by plaintiffs

or any other Class member or the price at which the stock was disposed of in the market if

disposed of before the commencement of this action.

77. This action was brought within one year of the date within which discovery of

the violations of Section 11 of the Securities Act could reasonably have been made, and within

three years of the date of the violations.

AS AND FOR A SECOND CLAIM FOR RELIEF

(Against The Individual Defendants Section 15, Securities Act)

78. Plaintiffs incorporate by reference the allegations of paragraphs I through 77

as though fully set forth herein.

79. This claim is asserted against the Individual Defendants each of whom was an

officer of Precision Response. The Individual Defendants directly or indirectly controlled

Precision Response through positions of power and responsibility at Precision Response. Prior

to the Offering, defendant Gordon beneficially owned 45.8% of the Company's stock, defendant

Epstein 30.6%, and defendant Mondre 25.1%. The Individual Defendants therefore had the

ability to exercise power and control over Precision Resource, and did exercise such power and

control.

20

r C

80. Following completion of the Offering, defendants Gordon, Epstein, and

Mondre, the Company's Chief Executive Officer, President, and General Counsel, respectively,

will beneficially own 33.9%, 22.1%, and 19.8% respectively, of the outstanding common stock.

As a result, defendants Gordon, Epstein, and Mondre will be able to elect the entire Board of

Directors of the Company and to control the outcome of all other matters requiring action by its

shareholders. (Prospectus at 11 and 45.)

81. The Individual Defendants are, therefore, controlliig persons within the

meaning of Section 15 of the Securities Act and are liable jointly and severally with, and to the

same extent as, Precision Response for Precision Response's violations of Section 11 of the

Securities Act.

PRAYER FOR RELIEF

WHEREFORE, plaintiffs, on behalf of themselves and all other members of the

Class, prays for judgment as follows:

(a) Declaring this action to be a proper plaintiff class action maintainable pursuant to

Rules 23(a) and 23(b)(3) of the Federal Rules of Civil Procedure and declaring plaintiffs to be

proper representatives of the Class;

(b) Awarding plaintiffs and the other members of the Class money damages, in an amount

to be determined at trial;

(c) Awarding plaintiffs and the other members of the Class their costs and expenses in this

litigation, including reasonable attorneys' fees and experts' fees and other costs and

disbursements; and

21

a r C

(d) Awarding plaintiffs and the other members of the Class such other and further relief

as may be just and proper under the circumstances. DEMAND FOR TRIAL BY JURY

Pursuant to Rule 38(b) of the Federal Rules of Civil Procedure, plaintiffs hereby

demand a trial by jury.

Date: West Palm Beach, FL June 5, 1998

LAW OFFICE OF LEO W. DESMOND

By:

Leo W. Desmond Florida Bar No. 0041920 2161 Palm Beach Lake Blvd. Suite 204 West Palm Beach, FL 33409 Telephone: (561) 712-8000 Facsimile: (561) 712-8002

RABIN & PECKEL LLP I. Stephen Rabin Marvin L. Frank Brian P. Murray 275 Madison Avenue New York, NY 10016 Telephone: (212) 682-1818 Facsimile: (212) 682-1892

Attorneys for Plaintiffs and the Class

22

C C

CERTIFICATE OF SERVICE

I HEREBY CERTIFY that a true and correct copy of the foregoing Amended Class Action

Complaint For Violations Of Federal Securities Law was forwarded via Federal Express on this 5 1

day of June, 1998, to Eugene E. Steams, Esquire, STEARNS WEAVER MILLER WEISSLER

ALHADEFF & SITTERSON, P.A., Museum Tower Suite 2200, 150 West Flagler Street, Miami,

Florida 33130, attorneys for Defendants Precision Response Corporation, Mark J. Gordon, Paul M.

O'Hara, David L. Epstein, James F. Murray, Richard D. Mondre, Bernard J. Kosar, Jr., Christian

Mustad and Neil A. Natkow and Hilarie Bass, Esquire, GREENBERG TRALJRIG HOFFMAN

LIPOFF ROSEN & QUENTEL, P.A., 1221 Bnckell Avenue, Miami, Florida 33131 and Janice

MacAvoy, Esquire, FRIED, FRANK, HARRIS, SHRIVER & JACOBSON, One New York Plaza,

New York, New York 10004, attorneys for Defendants Furman Selz, LLC, Merrill Lynch & Co.,

Goldman Sachs & Co. and Dain Bosworth.

By: L 2 '77;~ 8r~ Leo W. Desmond