Case 3:03-cv Document 94-1 Filed 06/13/2005 Page 1 of 76 UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF TEXAS DALLAS DIVISION

Transcription

1 Case 3:03-cv Document 94-1 Filed 06/13/2005 Page 1 of 76 UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF TEXAS DALLAS DIVISION In re CARREKER CORPORATION CIVIL ACTION NO. 3:03-CV-0250-M SECURITIES LITIGATION Consolidated with Actions Nos. 3:03- CV-0347-D; 3:03-CV-00384; 3:03-CV ; 3:03-CV-0410-D; 3:03-CV ; 3:03-CV-489; 3:03-CV-0528-P; 3:03-CV-0540-P; 3:03-CV-0563-N; 3:03-CV-0569-N; 3:03-CV-0638; 3:03- CV-0673-H AMENDED CONSOLIDATED CLASS ACTION COMPLAINT TABLE OF CONTENTS

2 Case 3:03-cv Document 94-1 Filed 06/13/2005 Page 2 of 76 I. INTRODUCTION AND OVERVIEW II. JURISDICTION AND VENUE III. THE PARTIES IV. SUBSTANTIVE ALLEGATIONS A. FACTUAL BACKGROUND The Applicable Generally Accepted Accounting Principle Carreker Admits That It Violated GAAP Through The Restatement of Its Financial Statements Dating Back To FY Defendants Knowingly or Recklessly Prematurely Recognized Revenue From Licenses That Were Not Functional in Violation of SOP Defendants Knowingly or Recklessly Recognized Implementation Services Revenue Before The Services Were Performed in Violation of SOP Defendants Knowingly or Recklessly Recognized Revenue from Contracts That Were Not Executed until after the Quarter Had Already Closed Defendants and the Carreker Family s Stock Sales While Carreker s Stock Price Was Artificially Inflated as a Result of the False Financial Statements (a) The November 2000 Secondary Offering (b) (c) (d) Defendants Open-Market Stock Sales While Carreker s Stock Price Was Artificially Inflated as a Result of the False Financial Statements Denny Carreker s Family s Stock Sales While Carreker s Stock Price Was Artificially Inflated as a Result of the False Financial Statements Carreker s Senior Vice President of Investor Relations Has Been Indicted for Insider Trading B. PRE-CLASS PERIOD FALSE AND MISLEADING STATEMENTS i-

3 Case 3:03-cv Document 94-1 Filed 06/13/2005 Page 3 of False First Quarter of FY1998 Financial Results False Second Quarter of FY1998 Financial Results False Third Quarter of FY1998 Financial Results False Fourth Quarter and FY1998 Financial Results False First Quarter of FY1999 Financial Results C. FALSE AND MISLEADING STATEMENTS DURING THE CLASS PERIOD False Second Quarter of FY1999 Financial Results False Third Quarter of FY1999 Financial Results False Fourth Quarter and FY1999 Financial Results False First Quarter of FY2000 Financial Results False Second Quarter of FY2000 Financial Results False Secondary Offering Prospectus False Third Quarter of FY2000 Financial Results False Fourth Quarter and FY2000 Financial Results False First Quarter of FY2001 Financial Results False Second Quarter of FY2001 Financial Results False Third Quarter of FY2001 Financial Results False Fourth Quarter and FY2001 Financial Results False and Misleading Statements Made During Second Quarter of FY2002 Investors Conference Call V. THE TRUTH EMERGES VI. APPLICABILITY OF THE FRAUD-ON-THE-MARKET DOCTRINE VII. INAPPLICABILITY OF STATUTORY SAFE HARBOR ii-

4 Case 3:03-cv Document 94-1 Filed 06/13/2005 Page 4 of 76 VIII. UNDISCLOSED ADVERSE INFORMATION IX. ADDITIONAL SCIENTER ALLEGATIONS X. CLASS ACTION ALLEGATIONS COUNT I: COUNT II: COUNT III: Against the Individual Defendants and Carreker for Violation of Section 10(b) of the Securities Exchange Act and Rule 10b Against the Individual Defendants for Violation of Section 20(a) of the Securities Exchange Act Violation of Section 20A of the Securities Exchange Act Against Defendants Denny Carreker and Antinori JURY DEMAND Lead Plaintiffs Reed Gustow and Heather C. Winett, husband and wife, by their attorneys allege the following facts, except as to allegations about themselves or their counsel, based upon -iii-

5 Case 3:03-cv Document 94-1 Filed 06/13/2005 Page 5 of 76 counsel s investigation, which included: analysis of publicly-available news articles and reports, public filings with the Securities and Exchange Commission ( SEC ), press releases, interviews of former employees of defendant Carreker Corporation ( Carreker or the Company ), and consultation with a financial markets expert, and review of other matters of public record. I. INTRODUCTION AND OVERVIEW 1. This is a securities fraud action brought under Section 10(b), 20(a) and 20A of the Securities Exchange Act of 1934 (the Exchange Act ), 15 U.S.C. 78j, 78t(a), 78t-1, and the rules and regulations promulgated thereunder by the SEC, including Rule 10b-5, 17 C.F.R b Carreker sells customized payments-related software, principally to banks. Carreker s software products, however, require customization before the software will function according to the individual needs of the customer. This means that the software must first be installed and then implemented over time so that the software is functional. When purchasing software requiring significant customization, most banks pay Carreker to perform the customizing by purchasing software installation and implementation services as part of the software arrangement. 3. Because Carreker sold customized software (as opposed to off-the-shelf and readyto-use software), special accounting rules dictated when Carreker could recognize revenue on its financial statements from the sales of software contracts. The applicable accounting principle, Statement of Position ( SOP ) 97-2, also governs when and in what amounts revenue from software implementation services are recognized. 4. Under SOP 97-2, where an arrangement to deliver software whether alone or with other products or services, such as implementation services, requires significant modification or customization of software, the entire arrangement must be accounted for as a single contract, and the seller must use the percentage of completion method when recognizing revenue generated from the contract. [SOP ] Where implementation services are essential to the -1-

6 Case 3:03-cv Document 94-1 Filed 06/13/2005 Page 6 of 76 functionality of the software, both the sale of software license and implementation services must be accounted under the percentage-of-completion method. [SOP ] In addition, SOP 97-2 requires that when a software company uses contracts requiring signatures by the seller and the customer, both signatures must appear as evidence of an arrangement before the seller the software company may recognize revenue. [SOP ] 5. Carreker reported consistent record revenue and earnings growth for the First Quarter of fiscal year ( FY ) 1998 to the Fourth Quarter of FY2000, as the Company appeared to meet or exceed the consensus estimates of Wall Street analysts. 6. To meet these estimates, however, and to report an upward growth trend, Carreker prematurely and improperly recognized revenue from its software contracts on its publicly-filed financial statements. During every quarter after Carreker s initial public offering on May 20, 1998 through the Second Quarter of FY2002, Carreker prematurely recognized revenue from:! Software contracts that required Carreker to provide implementation services essential to the software s functionality, in violation of Generally Accepted Accounting Principles ( GAAP );! implementation services that had not yet been performed, in violation of GAAP; and! software contracts that had not been fully executed by both Carreker and its customer, in violation of GAAP. 7. As a result, Carreker s financial statements filed with the SEC were materially false and misleading from the First Quarter of FY1998 through the Second Quarter of FY2002. Carreker artificially inflated revenue by approximately 8% and earnings per share by more than 114% for FY1998. Carreker also inflated revenue by approximately 13% for FY2001, and understated a net loss by more than 33%. 8. Carreker s artificial inflation of revenue and earnings over this long period of time -2-

7 Case 3:03-cv Document 94-1 Filed 06/13/2005 Page 7 of 76 was not innocent or an accident. Several former Carreker employees have reported that defendant John Denny Carreker, Jr., the Company s CEO, Chairman and largest shareholder, directed several Company officers and employees to prematurely recognize revenue to enable Carreker to meet or exceed analysts estimates and report a consistent trend of growth. Numerous Carreker employees were witnesses to Carreker s calculated premature revenue practices, as detailed below. 9. After Carreker had artificially inflated its stock price through the premature recognition of software revenue, the insiders cashed out. In November 2000, Denny Carreker and Ronald Antinori, Carreker s former Vice Chairman, Chief Technology Officer and second largest shareholder, conducted a secondary offering of over 2 million shares of the Company s stock. The secondary offering enabled Denny Carreker and Ronald Antinori to sell large blocks of their Carreker stock at an all time high price $17 per share attained through Carreker s systemic and sustained recognition of revenue that had not yet been earned. 10. As set forth below and in the attached declaration of plaintiffs expert, Denny Carreker and Ronald Antinori would have been unable to sell their shares at a secondary offering price of $17 per share had Carreker not falsely reported a consistent and upward trend of revenue and earnings growth in the quarters preceding the secondary offering. 11. Denny Carreker reaped approximately $25.7 million, and Ronald Antinori approximately $15.7 million from the secondary offering. Both unloaded over 34% of their total Carreker shares in the secondary offering. 12. Within less than 9 months after the secondary offering, Carreker s stock price began to decline to its old lows when the Company even after continued premature revenue recognition was unable to make up for losses caused by lower demand for its consulting services in On September 17, 2002, Carreker s Audit Committee received a letter from Carreker employees detailing Denny Carreker s misappropriation of funds, fraudulent recognition of revenues -3-

8 Case 3:03-cv Document 94-1 Filed 06/13/2005 Page 8 of 76 and insider trading. The letter spurred an internal investigation of Carreker s revenue recognition practices. 14. On December 10, 2002, Carreker disclosed the existence of this internal investigation to the marketplace and warned that none of its financial statements could be relied upon. Carreker also revealed that it would likely have to restate its financial statements for prior periods by definition an admission that its prior financial statements were materially misstated. Carreker s stock dropped to $3.98 on news of the December 10, 2002 revelation, a decline of 22.6% from the previous day s closing price of $ On April 30, 2003, Carreker filed its Form 10-K containing its financial results for FY1998, FY1999, FY2000, and FY2001. In its FY2002 Form 10-K, Carreker admitted to premature recognition of revenue from software licensing contracts and software implementation services. 16. This action seeks to pursue remedies under the Exchange Act on behalf of a class of investors who purchased shares of Carreker common stock during the period July 30, 1999 through December 10, 2002, inclusive (the Class Period ). II. JURISDICTION AND VENUE 17. This Court has jurisdiction over the subject matter of this action pursuant to Section 27 of the Exchange Act, 15 U.S.C. 78aa. 18. Venue is proper in this Judicial District pursuant to Section 27 of the Exchange Act and 28 U.S.C. 1391(b). Carreker maintains its principal executive offices in this District and many of the acts giving rise to the violations of law complained of herein, including the preparation and dissemination to the investing public of false and misleading information, occurred in this District. 19. In connection with the acts, conduct and other wrongs alleged in this Complaint, the defendants, directly or indirectly, used the means and instrumentalities of interstate commerce, including the mails, telephone communications and the facilities of national securities exchanges. -4-

9 Case 3:03-cv Document 94-1 Filed 06/13/2005 Page 9 of 76 III. THE PARTIES 20. Lead Plaintiffs Reed Gustow and Heather C. Winett, husband and wife, purchased shares of Carreker common stock during the Class Period and held the stock at the time the fraud was revealed on December 10, Lead Plaintiffs have thereby been damaged. Reed Gustow and Heather C. Winett were appointed Lead Plaintiffs in this action by Court Order dated August 14, A certification demonstrating all of their transactions in Carreker common stock during the Class Period is attached hereto as Exhibit Defendant Carreker Corp. f/k/a Carreker-Antinori, Inc. is a Delaware corporation with its principal place of business located at 4055 Valley View Lane, Dallas, Texas Defendant John Denny Carreker, Jr. ( Denny Carreker ) is the co-founder of Carreker and, at all times relevant to this action, served as Chief Executive Officer and Chairman of the Board of Directors of Carreker. Denny Carreker signed the registration statement and prospectus filed in connection with the November 3, 2000 secondary stock offering as well as all of the materially false and misleading quarterly and annual financial reports filed with the SEC during the Class Period. 23. Defendant Ronald Antinori ( Antinori ) is the co-founder of Carreker and served as Chief Technology Officer of Carreker from January 1997 until January 31, 1999 and as Vice Chairman of Carreker s Board of Directors from January 1997 until July 17, Antinori signed the materially false and misleading 10-K reports for FY1998 and FY Defendant Terry L. Gage ( Gage ), at all times relevant to this action, served as Chief Financial Officer and Treasurer of Carreker. In or around June 2003, Gage resigned from the Company. Gage signed the registration statements filed in connection with the November 3, 2000 secondary stock offering as well as all of the materially false and misleading quarterly and annual financial reports filed with the SEC during the Class Period. -5-

10 Case 3:03-cv Document 94-1 Filed 06/13/2005 Page 10 of 76 IV. SUBSTANTIVE ALLEGATIONS A. FACTUAL BACKGROUND 25. Carreker provides payments-related software and consulting solutions to financial institutions and financial services providers. Many of Carreker s software products require significant customization before the software can function. When purchasing software that requires significant customization, most banks pay Carreker to perform the customizing by purchasing software installation and implementation services as part of the software arrangement. [FY2002 Form 10-K.] 1. The Applicable Generally Accepted Accounting Principle 26. American Institute of Certified Public Accountants ( AICPA ) Statement of Position ( SOP ) 97-2 governs when and in what amounts revenue from sales of software licenses may be recognized. Under SOP 97-2, where an arrangement to deliver software, whether alone or with other products or services, such as implementation services, requires significant production, modification, or customization of software, the entire arrangement must be accounted for as a single contract, and the software vendor must apply the percentage-of-completion method to both the license and services components when recognizing revenue generated from the contract. [SOP ] 27. SOP 97-2 also governs when and in what amounts revenue from software implementation services are recognized. Under SOP 97-2, where implementation services are essential to the functionality of the software, both the license and implementation services elements of bundled software transactions must be accounted for under the percentage-ofcompletion method. [SOP ] 28. When a software company uses contracts requiring signatures by the software company and its customer, SOP 97-2 provides that both signatures the software vendor s and the -6-

11 Case 3:03-cv Document 94-1 Filed 06/13/2005 Page 11 of 76 customer s are required as evidence of an arrangement before the software company may recognize revenue. [SOP ] 2. Carreker Admits That It Violated GAAP Through The Restatement of Its Financial Statements Dating Back To FY In its FY2002 Form 10-K and Third Quarter of FY2002 Form 10-Q Carreker, respectively, restated its financial results for FY1998, FY1999, FY2000 and FY2001 and the First and Second Quarters of FY2002. The Company provided the following explanation for the restatement: [I]n certain instances, revenue had been recorded on contracts in one accounting period where customer signature and delivery of software had been completed, but where the contract may not have been fully executed by the Company in that accounting period. The Company determined that revisions to certain prior financial statements were necessary to ensure that all agreements for which revenue was recognized in an accounting period were executed by both parties no later than the end of the accounting period in which the revenue was being recognized. * * * The Company had originally concluded under the criteria of SOP 97-2 that services were not essential to the functionality of the software, requiring recognition of software license revenue at the time of delivery of the software. However, as a result of this review, the Company has now decided that when implementation fees are received for specific types of transactions in which the Company is licensing software and performing certain implementation services, these services are more properly considered essential to the functionality of the other elements of the arrangement. Therefore, the related license revenue and implementation revenue should have been recognized as the services were performed using the percentage of completion method rather than upon delivery of the software. The impact of these revisions on total revenue was to defer the timing of revenue recognition for transactions that combine both a software license and implementation services. * * * Thus, through the restatement, Carreker admitted that: (1) from FY1998 to the Second Quarter of FY2002, the Company prematurely recognized revenue from software licensing contracts that were not fully-executed in the period in which the software was delivered rather than in the period in which the contracts were fully-executed as required by GAAP; and (2) from FY1998 to the Second Quarter of FY2002, the Company misstated its revenues from software license and implementation -7-

12 Case 3:03-cv Document 94-1 Filed 06/13/2005 Page 12 of 76 services by prematurely recognizing revenue from software for which implementation services were essential to functionality in the period the software was delivered in violation of GAAP, rather than recognizing the license revenue and implementation revenue as the implementation services were performed using the percentage of completion method. The FY2002 Form 10-K specifically stated, the related license revenue and implementation revenue should have been recognized as the services were performed using the percentage of completion method rather than upon delivery of the software. The FY2002 Form 10-K was signed by Denny Carreker and Gage and the restatement therein constitutes an admission by each defendant that the Forms 10-K they had signed in prior years contained materially false financial statements. [FY2002 Form 10-K at note 3; Third Quarter of FY2002 Form 10-Q at note 3]. 30. By restating its financial results for FY1998 through FY2001, Carreker admitted that the financial statements were materially false and misleading because GAAP provides that only previously issued financial statements which are misstated are to be retroactively restated. [APB Opinion No. 20, APB Opinion No. 9 and the AICPA s Statement on Auditing Standards ( SAS ) No. 53.] Similarly, financial statements filed with the SEC that are not prepared in conformity with GAAP are presumed to be misleading and inaccurate. [Regulation S-X, 17 C.F.R (a)(1).] 31. The impact of the restatement on reported revenue and earnings for FY 1998 through FY 2001 is as follows: FY1998 FY1999 FY2000 FY2001 Reported Restated Reported Restated Reported Restated Reported Restated -8-

13 Case 3:03-cv Document 94-1 Filed 06/13/2005 Page 13 of 76 (In thousands except for e.p.s.) REVENUES Consulting Fees Software Licensing Fees Software Maintenance Fees Software Implementation Hardware Total Revenues $26,328 16,327 5,031 6, ,017 $26,478 12,428 5,031 6, ,494 $49,725 13,727 6,985 5, ,820 $ 49,725 13,906 6,985 5, ,732 $71,715 18,030 11,223 9,298 n/a 110,266 $71,715 17,765 11,223 9,245 n/a 109,948 $42,842 40,291 29,347 19,210 n/a 131,690 $42,342 25,153 25,908 20,723 n/a 114,126 NET INCOME EARNINGS PER SHARE 5,172 $0.30 2,471 $0.14 7,894 $0.42 7,815 $ ,594 $ ,592 $0.67 (35,605) ($1.63) (53,376) ($2.44) Carreker did not disclose the quarterly impact of the restatement for the quarters during FY1998, FY1999, and FY2000. [FY1998, FY1999, FY2000, FY2001, and FY2002 Forms 10-K.] 32. The restated software implementation fee revenue figures do not reflect all necessary adjustments. Carreker admitted in its explanation of the restatement that it improperly booked revenue from implementation service fees upon delivery of the software rather than as the services were performed. In addition, as discussed in Part IV-A-4 below, Carreker engaged in this practice at the latest in However, comparison of the restated software implementation revenue figures with the reported figures shows that no adjustment was made to the reported figures for FY1998 and FY1999 while a mere $53,000 downward adjustment was made to implementation revenue reported for FY 2000 and a $1.5 million upward adjustment was made in FY Had Carreker properly restated revenue from implementation services, total revenue, net income and earnings per share correspondingly would have been further negatively impacted in at least certain periods. 33. Through its improper accounting practices, Carreker converted a 33% decline in earnings per share in FY1998 into a 43% increase. By virtue of its accounting manipulations, Carreker also was able to report that sales of its software grew 45% in FY1998 when in reality sales increased only 11%. Carreker was also able to report that software license revenue grew 123% in FY2001 when in fact it had only grown 42% over the prior year period. Similarly, the premature revenue recognition scheme permitted Carreker to report a 343% decline in earnings per share in -9-

14 Case 3:03-cv Document 94-1 Filed 06/13/2005 Page 14 of 76 FY2001 when in reality earnings per share declined 464%. Thus, through the improper revenue recognition practices, Carreker distorted the sales growth picture for its software business as well as the revenue and earnings growth picture for its entire operations. 34. As concluded by Scott D. Hakala, Ph.D., CFA, a financial markets expert and Director of CBIZ Valuation Group, LLC ( Dr. Hakala ) who plaintiffs engaged to opine on certain subjects in this case including the materiality of the restatement: Recognition of software licensing fee revenue and software implementation fee revenue before that revenue was earned in violation of generally accepted accounting principles (SOP 97-2) is material to investors and... led to a substantial distortion of the trends and valuation of [Carreker] throughout the period from May 20, 1998 through December 10, Dr. Hakala also opined that Carreker s premature recognition of revenue led to a roller coaster type of stock price chart because, as is often the case, this type of improper accounting led to substantial overstatements of revenue and earnings in certain quarters and years while in other quarters and years the reported numbers were less than they would have been had revenue actually earned in that period not already been improperly reported in an earlier period. Dr. Hakala concluded that revelation of the extent of the problems and the true state of Carreker s financial condition, particularly in the second half of 2002, led to a significant loss in value for the shareholders of Carreker. [May 31, 2005 Declaration of Scott D. Hakala at 7, which is attached hereto as Exhibit 2.] 35. Based on regression analyses of Carreker s share price s response to key Company events, Dr. Hakala concludes that if Carreker had properly stated its financial condition, the value of Carreker s common stock would have been materially reduced throughout the period from May 20, 1998 through December 10, According to Dr. Hakala, the share price of Carreker was particularly inflated in FY1998 and early FY1999 as a result of the material overstatement of software license fees and earnings as evidenced by the restatement. [May 31, 2005 Declaration of -10-

15 Case 3:03-cv Document 94-1 Filed 06/13/2005 Page 15 of 76 Scott D. Hakala at 8, which is attached hereto as Exhibit 2.] 36. Dr. Hakala further concludes that in FY2001 revenue and earnings were materially inflated as a result of Carreker s premature recognition of revenue, as indicated by the restatement. Correspondingly, in 2002, Carreker s shares declined and investors suffered losses as a result of the Company being unable to report revenue that had already been improperly reported in earlier periods. More particularly, Dr. Hakala found that Carreker s inability to maintain the inflated revenues and earnings in 2001 led to significant share price declines of: (i) 12.18% associated with the Second Quarter of FY2002 earnings announcement on September 13, 2002; (ii) 29.41% associated with the revised earnings guidance for the Third Quarter of FY2002 on November 14, 2002; (iii) and 24.22% associated with the announcement of a need to restate prior reported revenue and earnings on December 10, Dr. Hakala summarized that the true state of Carreker s business was revealed at the end of the proposed Class Period and led to substantial declines in its relative share price of 57.29% between September 12 and December 10, [and] [f]urthermore, losses in values occurred over the following 90 days after the end of the proposed Class Period. [May 31, 2005 Declaration of Scott D. Hakala at 10, which is attached hereto as Exhibit 2.] 3. Defendants Knowingly or Recklessly Prematurely Recognized Revenue From Licenses That Were Not Functional in Violation of SOP Carreker violated GAAP (SOP 97-2) by recording revenue from software license contracts that required significant production, modification, or customization of software and for which implementation services were necessary to the software s functionality in the fiscal quarter of delivery rather than under the percentage of completion method as the implementation services -11-

16 Case 3:03-cv Document 94-1 Filed 06/13/2005 Page 16 of 76 were performed (the Acceleration of Software License Revenue Practice ). This practice resulted in Carreker s premature recognition of revenue from software licenses. As a consequence, defendants made material misrepresentations concerning Carreker s revenues and earnings in various public documents. In its FY2002 Form 10-K and Third Quarter of FY2002 Form 10-Q, Carreker admitted that the Acceleration of Recognition of Software License Revenue Practice resulted in the Company prematurely recognizing substantial percentages of revenue during the Class Period. [The foregoing allegations are based on SOP and Carreker s explanation of the restatement set forth in the FY K at note 3 and Third Quarter of FY Q at note 3.] 38. Defendant Gage, Carreker s CFO, knew license and implementation revenue was being recognized improperly. Gage advised Denny Carreker of this on several occasions. Denny Carreker, however, insisted that revenue be booked at the earliest possible time, even though it meant violating applicable accounting rules. At one point after June 1998 but before August 2000, a heated discussion took place between Gage and Denny Carreker after Gage insisted that revenue be recorded properly in accordance with applicable accounting rules. Gage ultimately agreed to record revenue improperly as Denny Carreker had demanded. [The foregoing allegations are based upon information provided to counsel for lead plaintiffs in September 2003 by Carreker s Investor Relations Coordinator and Executive Assistant to defendant Gage from June 1998 to August 2000 ( Source 3 ). Source 3 s desk was located approximately five feet from Terry Gage s office and approximately equally as close to Denny Carreker s office. As Investor Relations Coordinator and Executive Assistant to the CFO, Source 3 interacted with Carreker s accounting department and gathered documents reviewed by Carreker s outside auditor, Ernst & Young, as part of its audits and quarterly reviews.] 39. Every quarter-end from 1999 to at least early 2001, Carreker executives including -12-

17 Case 3:03-cv Document 94-1 Filed 06/13/2005 Page 17 of 76 but not limited to Gage, Jack Davis (Executive Vice President and Managing Director of Technology), Royce Brown (Executive Vice President, Vice Chairman of the Office of the President, and Managing Director of Payment Systems), Wyn Lewis (Executive Vice President of the Revenue Enhancement Division), and Subhash Mukerji (Sales Supervisor) would gather in Denny Carreker s office at the Company s Dallas offices where they would scheme about how to increase the Company s reported revenues so the Company could meet or exceed analysts estimates and report growth. At these meetings, Denny Carreker exerted significant pressure on the executives to generate revenue to enable the Company to bridge the gap between actual revenue and Wall Street analysts estimates. [The foregoing allegations are based upon information provided to counsel for lead plaintiffs by a former Senior Principal, or installation manager, responsible for the installation of Carreker software from 1999 to the Fall of 2002 ( Source 1 ) who has personal knowledge of the information.] 40. It was common knowledge at the Company that Denny Carreker recognized revenue and cooked the books to get the stock price up. [The foregoing allegations are based upon information provided to counsel for lead plaintiffs by a former Senior Consultant at Carreker from prior to the IPO to November 2001 who executed revenue enhancement projects for banks and advised banks how to make back-office operations more efficient ( Source 4 ).] 41. According to Source 3, at each quarter-end and fiscal year-end from at least June 1998 to at least August 2000, Denny Carreker and Gage often had significant disagreements with the Company s independent auditors, Ernst & Young ( E&Y ) regarding Carreker s recognition of revenue. In fact, according to Source 3, sometime between June 1998 and August 2000, E&Y refused to approve one of the Company s 10-Q reports due to a dispute over revenue recognition. However, Denny Carreker threatened to terminate the relationship if E&Y did not approve the 10-Q report. Faced with Denny Carreker s threat, E&Y ultimately agreed to approve the 10-Q report. -13-

18 Case 3:03-cv Document 94-1 Filed 06/13/2005 Page 18 of 76 [The forgoing allegations are based on information provided to counsel for lead plaintiffs in September 2003 by Source 3 who overheard the threat.] 42. Source 3 also provided that while employed by Carreker, a colleague who worked in Carreker s accounting department would tell Source 3 virtually every quarter that earnings estimates would not be met. However, to Source 3 s and the colleague s surprise, earnings estimates were always met or exceeded. Based on her knowledge of the Company s results of operations, Source 3 s accounting department colleague did not know how the Company could possibly have met its earnings estimates. 43. From early 1998 to at least 2000, Carreker commonly shipped blank CDs or the wrong software altogether in order to report the delivery of software and book the revenue from the sale of the license. Only when Carreker s team arrived to perform the installation services did the Company s customer receive the actual software it purchased. [The forgoing allegations are based on information provided to counsel for lead plaintiffs by: (i) Source 1 who has personal knowledge of the information; and (ii) a former employee who worked as a Project Manager from 1995 to 1999 and as a consultant from 1999 to 2003 ( Source 6 ) who has personal knowledge because Source 6's job duties as a Project Manager required Source 6 to ship software to customers even though the software was not ready.] 44. Source 6 was aware that back-dating of contracts and claiming revenue during a reporting period for contracts that were not signed during the reporting period were occurring at the Company. These practices were common and, they did it all the time, according to Source According to Source 6, Carreker s improper revenue recognition practices were ongoing within the Company when Source 6 joined Carreker in According to Source 6, there were significant pressures within the Company to meet financial targets and to ship software at the end of the quarter without the appropriate documentation. Carreker often shipped inferior product, -14-

19 Case 3:03-cv Document 94-1 Filed 06/13/2005 Page 19 of 76 and sometimes empty boxes and boxes containing only descriptive literature, so that revenue could be recognized, according to Source 6. Source 6 knew of this because Source 6 was one of the individuals responsible for shipping the software. The request to ship the software before they were ready occurred most frequently on the last one or two days of the quarter, according to Source 6. The people who reported to Denny Carreker knew of the improper practices because they were the individuals who would give the orders to ship the software, according to Source 6. According to Source 6, Carreker would hold the end of the month open for up to a week in order to get things in. Source 6 was told to ship the software even if the Company had not yet received the contract. Source 6 said that primarily Source 6's boss, Jack Davis, was the person telling Source 6 to follow these improper practices. Sometimes Source 6 was told to ship empty boxes, boxes containing only descriptive literature and not software, and, oftentimes, software known to have read errors so that shipments could go out and the revenue could be recognized during the then-current reporting period. Source 6 had knowledge of this because Source 6 was one of the individuals responsible for shipping the software. According to Source 6, the revenue enhancement area, check link contracts, Antinori software products, and Genesis were areas within Carreker where improper accounting practices were most frequently employed. Denny Carreker was aware of Carreker s improper revenue recognition practices and was giving the orders to his subordinates to make the numbers, according to Source 6. Carreker s improper revenue recognition practices were employed to make the numbers, to make things look better than they were, according to Source 6. Knowledge of these improper practices was company-wide, according to Source According to Source 6, shipping records, which were all handled through FedEx, could be compared with dates on certain software contracts to show that the software was shipped prior to the execution of the contract so that software revenue could be recognized as the software was shipped. Source 6 also stated that some of the demands by management to ship software early -15-

20 Case 3:03-cv Document 94-1 Filed 06/13/2005 Page 20 of 76 were made by , but the majority of the demands were made verbally. 47. Similarly, according to a former Carreker employee who was a Staff Accountant from 1999 to 2001 and whose duties included performing billing and preparing subsidiary financial statements and who worked on accounts receivables ( Source 7 ), Carreker sometimes billed customers for software sales before the software was shipped. Source 7 knows this because, at the direction of Source 7 s superiors (including but not limited to controllers), Source 7 sometimes prepared and sent invoices to customers even though the software was still at Carreker s office. Source 7 actually saw the corresponding software in Carreker s office when the invoices were sent. According to Source 7, when the invoices were generated and sent to customers, revenue and accounts receivable were recorded by Carreker. 4. Defendants Knowingly or Recklessly Recognized Implementation Services Revenue Before The Services Were Performed in Violation of SOP Carreker violated GAAP (SOP 97-2) by recording revenue from implementation services that were necessary to the functionality of the software before the implementation services were performed (the Acceleration of Implementation Revenue Practice ). This practice resulted in Carreker s premature recognition of revenue from implementation services. As a consequence, defendants made material misrepresentations concerning Carreker s revenues and earnings in various public documents. In its FY2002 Form 10-K and Third Quarter of FY2002 Form 10-Q, Carreker admitted that the Acceleration of Recognition of Implementation Revenue Practice resulted in the Company prematurely recognizing substantial percentages of revenue during the class period. [The foregoing allegations are based on SOP , and Carreker s explanation of the restatement set forth in the FY2002 Form 10-K at note 3 and Third Quarter of FY2002 Form 10-Q at note 3.] 49. Source 1 maintained a schedule that tracked the percentage of installation work -16-

21 Case 3:03-cv Document 94-1 Filed 06/13/2005 Page 21 of 76 completed by the installation manager s team at the end of each month. The Company would consider the revenue earned and correspondingly recognize as revenue the same percentage of the installation fee as the percentage of the installation work that was reported as having been completed. At the quarter-end meetings, Denny Carreker directed Jack Davis to pressure Source 1 to report that a higher percentage of installation services were performed than actually were performed. Also, at quarter-ends from 1999 to early 2001, Managing Principal, Paul Carrubba, at the direction of Jack Davis, would instruct Source 1 to report that a higher percentage of installation services was performed than actually was performed. Carreker controller, Judy Grooters, at the direction of defendant Gage, would also sometimes instruct Source 1 to report that a higher percentage of installation services was performed than actually was performed. On certain occasions Davis and Carrubba instructed Source 1 to report a specific amount of services had been performed so as to allow the Company to meet analysts revenue estimates. Employees commonly referred to this practice as the end-of-quarter revenue hunt. Source 1 explained that when the installation services for which the revenue had already been recognized were actually performed, the installation team was instructed to bill the time spent performing the services to maintenance which was a fixed price arrangement purchased with a software license. In many cases the accounts had already been closed because the installation had been complete. [The forgoing allegations are based on information provided to counsel for lead plaintiffs by Source 1 who has personal knowledge of the information.] 50. Carreker would commonly bill customers and recognize revenue from implementation of software before any implementation services were actually performed. One example of a contract for which the Company prematurely recognized revenue from implementation services was the National City Bank engagement in or around May 2001 for which Carreker billed the bank more than $1 million for implementation services and booked the revenue before even -17-

22 Case 3:03-cv Document 94-1 Filed 06/13/2005 Page 22 of 76 beginning the implementation process. Indeed, it was generally known throughout the Company that implementation revenue was recognized before implementation services were performed. A former employee indicated that this practice was common at Carreker, and that in order for us to make numbers, we had to creatively claim income. [The foregoing allegation is based on information provided to counsel for lead plaintiffs by a former Carreker employee who was responsible for implementation of Carreker software from January 1998 to the Fall of 2001 ( Source 2 ) and who has personal knowledge of the information.] 51. Similarly, Source 7, the Staff Accountant whose duties included performing billing, was aware from Source 7 s involvement in the billing process that Carreker improperly recognized revenue from National City Bank and First Union before the implementation of their software was complete. According to Source 7, it was not unusual for Carreker to send invoices for implementation services before implementation services were performed. Source 7 knows this because project managers tracked the progress of implementation progress on tracking forms, and Source 7 was often told by superiors in the billing department to send invoices before the tracking forms were available. Source 7 said tracking forms were unavailable because implementation had not yet begun. Source 7 said that when invoices were generated and sent to customers, revenue and accounts receivable were recorded by Carreker. [The foregoing allegation is based on information provided to counsel for lead plaintiffs by Source 7 who has personal knowledge of the information.] 52. Source 7 also attended a breakfast meeting in 2000 with Denny Carreker and numerous other personnel from the billing department. At this meeting, Source 7 and several other employees voiced concerns regarding, among other things, implementation services being billed before the implementation services were performed. Denny Carreker, however, took no action to remedy the employees concerns. [The foregoing allegation is based on information provided to counsel for lead plaintiffs by Source 7 who has personal knowledge of the information.] -18-

23 Case 3:03-cv Document 94-1 Filed 06/13/2005 Page 23 of According to Source 1, the implementation team would hold kickoff meetings at the purchaser bank during which no actual implementation services were performed. Nevertheless, following the kickoff meeting, the Company would often recognize 25% of the implementation revenue from the job. [The foregoing allegations are based on information provided to counsel for lead plaintiffs by Source 1 who has personal knowledge of the information.] 54. According to a September 17, 2002 letter sent by the Committee of Concerned Carreker Employees ( CCCE ) to the Audit Committee of Carreker s Board of Directors and to the SEC, Denny Carreker and Gage knowingly recognized implementation services revenue before the services were performed in violation of SOP 97-2: Mr. Carreker and his CFO, Terry Gage, have fraudulently recognized revenue from company business and contracts which they know violates GAAP rules and improperly inflates corporate profits and corporate stock values with the intent to mislead investors. This has been conducted in many forms - backdating contracts; claiming revenue from contracts not yet signed by the client in the reporting period claimed, and the premature announcement of signed business when no such contract has been signed by the client through premature press releases; intentionally overestimating the percent of completion/installation of software contracts in order to recognize revenue; overstating consulting fees when the client disputes the value of consulting services received or the completion of these services. Some of the contracts include First Star, Chase Bank, First Virginia (revenue enhancement), Key Bank (software installation), Fleet Boston (risk management), and Mellon Bank (software). Through Bob Olson (EVP for Marketing) and Denny Carreker, employees have been encouraged or intimidated (through loss of employment) to lie and misrepresent to auditors the true status of these contracts as they relate to GAAP interpretation and application. Many employees have informed the Company s audit committee of these illegal acts apparently resulting in no action or investigation because of the lack of independence maintained there. (Emphasis added). [Sep. 17, 2002 letter from the CCCE to the Audit Committee of Carreker s Board of Directors, which is reproduced in its entirety at 121 below and attached hereto as Exhibit 3.] 5. Defendants Knowingly or Recklessly Recognized Revenue from Contracts That Were Not Executed until after the Quarter Had Already Closed 55. Carreker violated GAAP (SOP 97-2) by recording revenue in fiscal quarters from software contracts that were not fully-executed and for which evidence of an arrangement did -19-

24 Case 3:03-cv Document 94-1 Filed 06/13/2005 Page 24 of 76 not exist until a subsequent quarter (the Extended Quarters Practice ). This practice resulted in Carreker s premature recognition of revenue. As a consequence, defendants made material misrepresentations concerning Carreker s revenues and earnings in various public documents. In its FY2002 Form 10-K and Third Quarter of FY2002 Form 10-Q, Carreker admitted that the Extended Quarters Practice resulted in the Company prematurely recognizing substantial percentages of revenue during the Class Period. [The foregoing allegations are based on SOP and Carreker s explanation of the restatement set forth in the FY2002 Form 10-K at note 3 and Third Quarter of FY2002 Form 10-Q at note 3.] 56. At the end of each quarter Carreker would often offer banks exceptionally generous deals in order to meet analysts estimates. On many occasions the contracts would come back undated from customers after the reporting period had already closed so as to allow Carreker to insert dates that preceded the end of quarter deadline. [The foregoing allegations are based on information provided to counsel for lead plaintiffs by Source 1 who has personal knowledge of the information.] A few examples of such contracts include but are not limited to: (i) a contract memorializing the sale of software and implementation services to Trustmark Bank for $280,000 that according to its heading was created on November 1, 1999 but was backdated to October 29, 1999 by Paul Carrubba and Trustmark Bank s Chief Information Officer, Jim Outlaw, in order to allow Carreker to recognize the revenue in the Third Quarter of FY1999 which ended on October 31, 1999; and (ii) a contract memorializing the sale of a software license as well as installation and implementation services to Toronto Dominion Bank for $382,500 that according to the filename printed on the bottom margin of the document was created on May 1, 2001 but was backdated to April 30, 2001 by Carreker Executive Vice President Michael Hansen and Michael P. Blassing, Vice President at The Toronto-Dominion Bank, in order to allow Carreker to recognize the revenue in the First Quarter of FY 2001 which ended on April 30, [The foregoing allegations are based on -20-

25 Case 3:03-cv Document 94-1 Filed 06/13/2005 Page 25 of 76 the contracts themselves, which are attached hereto as Exhibits 4 and 5, and information provided by Source 1.] 57. According to a former Senior Consultant who was employed by Carreker from 1996 through late 2001 who was involved in revenue enhancement projects for banks and in improving operational efficiencies for banks ( Source 4 ), Royce Brown, Executive Vice President, Vice Chairman of the Office of the President, and Managing Director of Payment Systems for Carreker told Source 4 about Carreker s improper revenue recognition practices. Source 4 heard from other employees that these improper revenue recognition practices included the back-dating of contracts and reporting revenue from contracts that were not signed during the reporting quarter. In fact, according to Source 4, it was commonly known at the Company that Denny Carreker was recognizing revenue and cooking the books to get the price for the stock up. According to Source 4, it was also common knowledge that if Carreker employees mentioned that they had a client that was getting close to signing a contract, Denny Carreker would say go ahead and book it, (i.e., recognize the revenue) regardless of whether the contract had actually been signed. According to Source 4, Denny Carreker was notorious for going in-person to clients and saying something to the effect of okay, you owe us x number of dollars in April,... we need to make our March revenue goals, if you will pay us a discounted price, we will take that now. According to Source 4, it was common knowledge within Carreker that toward the end of the quarter Denny Carreker would often approach clients and offer them discounted contracts if they would pay for the contracts during the current quarter. According to Source 4, the revenue from these contracts would be immediately recognized, even though the services required by such contracts would not be completed until future quarters. According to Source 4, this practice angered one of Carreker s largest clients, Wells Fargo, and particularly Webb Edwards, a high-level executive at Wells Fargo. According to Source 4, Carreker s foregoing revenue recognition practices were crooked and in violation of GAAP. -21-

26 Case 3:03-cv Document 94-1 Filed 06/13/2005 Page 26 of 76 [The foregoing allegations are based on information obtained from Source 4 who has personal knowledge of the information.] 58. According to Source 4, at a board meeting held in late 2000 or early 2001, Director Richard R. Lee, Jr. and Denny Carreker had a heated argument about Carreker s practice of recognizing revenue from contracts that were not executed by quarter-end, during which Richard Lee admonished Denny Carreker for allowing the improper accounting practice to continue. As stated to Source 4 by Royce Brown, at this board meeting Lee essentially advised Denny Carreker that the Company could not continue to employ the improper revenue recognition practices that it had been utilizing. Despite Lee s protestations, the improper revenue practices continued. [The forgoing allegations are based on information provided to counsel for lead plaintiffs by Source 4 who was informed of the argument by former Executive Vice President, Vice Chairman of the Office of the President, and Managing Director of Payment Systems, Royce Brown.] 59. Contracts were often backdated by 30 to 45 days to the previous quarter so that Carreker could increase revenue in that already-closed quarter. [The foregoing allegation is based on information obtained by counsel for lead plaintiffs from a former Carreker employee who stated that they had personal knowledge of the contract backdating, as the former employee did deals involving the backdated contracts.] 60. According to Source 7 (the former Staff Accountant), Carreker sometimes generated invoices and correspondingly recognized software revenue before executed contracts were received from customers. The only support Carreker had for these invoices was a spreadsheet prepared by other Carreker employees outlining the terms of the purported contract. Source 7 prepared and sent the invoices to customers and saw that Carreker had not yet obtained a signed contract from the customer. According to Source 7, the missing contracts would usually be received after the invoices were sent to customers. The dates on the contracts often post-dated the dates of the invoices. [The -22-

27 Case 3:03-cv Document 94-1 Filed 06/13/2005 Page 27 of 76 forgoing allegations are based on information provided to counsel for lead plaintiffs by Source 7 who had personal knowledge in that Source 7 generated invoices, witnessed that there were no underlying contracts, and witnessed that dates of subsequently received contracts often post-dated the corresponding invoices.] 61. Source 7 voiced a concern about improper billing practices in a letter to Denny Carreker in 1999, which stated that billing sometimes took place without the existence of an underlying contract. Neither Denny nor anyone else at Carreker did anything to resolve Source 7 s concern. Terry Gage replied to Source 7 instructing that these types of concerns should be directed to him rather than Denny Carreker in the future. Further, according to Source 7, at the breakfast meeting in 2000 with Denny Carreker and numerous other personnel from the billing department referenced in 52 above, Source 7 and other employees voiced concerns concerning, among other things, invoices and software revenue being generated before contracts were received from customers. Denny Carreker took no subsequent action to remedy their concerns. [The foregoing allegation is based on information provided to counsel for lead plaintiffs by Source 7 who has personal knowledge of the information.] 62. Once again, according to the September 17, 2002 letter sent by the CCCE to the Audit Committee of Carreker s Board of Directors and to the SEC, Denny Carreker and Gage knowingly recognized revenue from contracts that were not executed until after the quarter had already closed in violation of SOP 97-2 and knew about the backdating of contracts: Mr. Carreker and his CFO, Terry Gage, have fraudulently recognized revenue from company business and contracts which they know violates GAAP rules and improperly inflates corporate profits and corporate stock values with the intent to mislead investors. This has been conducted in many forms - backdating contracts; claiming revenue from contracts not yet signed by the client in the reporting period claimed, and the premature announcement of signed business when no such contract has been signed by the client through premature press releases; intentionally overestimating the percent of completion/installation of software contracts in order to recognize revenue; overstating consulting fees when the client -23-

28 Case 3:03-cv Document 94-1 Filed 06/13/2005 Page 28 of 76 disputes the value of consulting services received or the completion of these services. Some of the contracts include First Star, Chase Bank, First Virginia (revenue enhancement), Key Bank (software installation), Fleet Boston (risk management), and Mellon Bank (software). Through Bob Olson (EVP for Marketing) and Denny Carreker, employees have been encouraged or intimidated (through loss of employment) to lie and misrepresent to auditors the true status of these contracts as they relate to GAAP interpretation and application. Many employees have informed the Company s audit committee of these illegal acts apparently resulting in no action or investigation because of the lack of independence maintained there. (Emphasis added). [Sep. 17, 2002 letter from the CCCE to the Audit Committee of Carreker s Board of Directors, which is reproduced in its entirety at 121 below and attached hereto as Exhibit 3.] 63. According to a memo dated February 24, 2003 from the CCCE to counsel for a plaintiff whose class action was subsequently consolidated into this case, several directors, including Ronald Antinori, were aware of the fraudulent revenue recognition practices orchestrated by Denny Carreker but took no action to prevent the continuation of the false statements and GAAP violations: Several Directors were notified on many occasions by numerous employees of the fraudulent revenue recognition violation by Denny Carreker but refused to investigate or act to prevent future violations by Denny Carreker and his senior management. Specifically, James Fischer and Ron Antinori of the Board both were notified by employees in 1999 of several particular instances but refused to investigate. Simply put, board members refused to carryout their fiduciary responsibility to shareholders by ensuring accurate and complete reporting of the Company s revenues because either they were actively conspiring with Denny Carreker to fraudulently report revenues or were too concerned for their own board seat and interests to raise the issue with the entire Board of Directors. There has been a long history of conflict of interest among board member s private interests with Denny Carreker and his family and their respective positions on the board, which has had a diminutive effect on corporate governance within the Company. th The September 17 letter address many of these conflicts. (Emphasis added). [Feb. 24, 2003 CCCE memo, which is reproduced in its entirety at 122 below.] 6. Defendants and the Carreker Family s Stock Sales While Carreker s Stock Price Was Artificially Inflated as a Result of the False Financial Statements (a) The November 2000 Secondary Offering 64. In early 2000, when Carreker s stock price approached $10 per share, many -24-

29 Case 3:03-cv Document 94-1 Filed 06/13/2005 Page 29 of 76 employees wanted to sell their shares. Denny Carreker insisted that the Company conduct a secondary stock offering so, among other things, he could sell stock while simultaneously establishing a blackout period to prevent other employees from selling shares, which he believed would help sustain Carreker s inflated stock price. Gage advised Denny Carreker not to conduct the secondary offering because the Company was not in need of cash. [The forgoing allegations are based on information provided to counsel for lead plaintiffs in September 2003 by Source 3.] 65. In the quarter prior to the secondary offering in November 2000, Paul Carrubba directed Source 1 to report that more installation services had been completed because Denny Carreker was demanding that the Company meet analyst expectations so that the stock would not decline and derail the secondary offering. [The forgoing allegations are based on information provided to counsel for lead plaintiffs by Source 1 who has personal knowledge of the information.] 66. By registration statement and prospectus filed with the SEC on November 3, 2000, Carreker issued and sold 2 million shares of its common stock to the public at $17 per share for proceeds of approximately $32 million. At the time of the secondary offering, the stock price was trading at all-time highs. Capitalizing on the artificially inflated stock price, certain Carreker directors and executive officers collectively sold 2.5 million previously restricted shares to the public at $17 per share and, as a result of the underwriting banks exercise of an over-allotment option, the directors and executive officers sold an additional 675,000 shares to the public on November 14, 2000 at $22.38, for total proceeds of more than $55 million. Thus, the selling stockholders received $55 million through the offering while the Company received $32 million from the offering. 67. Denny Carreker sold 1,508,750 shares of Carreker common stock in the secondary -25-

30 Case 3:03-cv Document 94-1 Filed 06/13/2005 Page 30 of 76 offering, or approximately 34.3% of his holdings, capturing proceeds of more than $25.7 million: 1 Shares Owned Prior to Offering 4,395,271 Shares Sold 1,508,750 Estimated Proceeds $25,709,718 Shares Owned After Offering 2,886,521 Percent Sold 34.3% Antinori sold 919,375 shares of common stock, or 34.4% of his holdings, capturing proceeds of approximately $15.7 million: 2 Shares Owned Prior to Offering 2,669,646 Shares Sold 919,375 Estimated Proceeds $15,680,999 Shares Owned After Offering 1,750,271 Percent Sold 34.4% [The foregoing allegations are based on information obtained by counsel for lead plaintiffs from Carreker s Prospectus filed with the SEC on November 3, 2000 and from the Carreker defendants motion to dismiss the Consolidated Class Action Complaint.] 1 The 1,508,750 shares sold by Denny Carreker in the secondary offering included 236,250 shares sold on November 14, 2000 at $22.38 as a result of the underwriter exercising its over-allotment option. 2 The 919,375 shares sold by Denny Carreker in the secondary offering included 146,250 shares sold on November 14, 2000 at $22.38 as a result of the underwriter exercising its over-allotment option. -26-

31 Case 3:03-cv Document 94-1 Filed 06/13/2005 Page 31 of As demonstrated by the chart below, in early 2000, when Denny Carreker decided to have a secondary offering, Carreker s stock price had finally returned to levels it had not traded at since immediately after the Company s initial public offering despite the reporting of consistent record revenues and earnings. In fact, the secondary offering occurred when the price of the stock was trading at all-time highs on the heels of Carreker s announcement that it had met or exceeded Wall Street analyst estimates for ten consecutive quarters. Within less than nine months from the secondary offering, the stock price had returned to its old lows, as the Company even after improperly recognizing software license and implementation services revenue that had not yet been earned could not make up for the shortfall caused by a steep decline in demand for its consulting services in [2001 Form 10-K.] 69. Dr. Hakala has concluded that, among other things, based on regression analyses of Carreker s share price s response to key Company events, had Carreker properly accounted for the -27-

32 Case 3:03-cv Document 94-1 Filed 06/13/2005 Page 32 of 76 software licensing fees and implementation services fees prior to the secondary offering, the offering price would have been significantly lower: [H]ad the state of the financial condition of Carreker been corrected the amount of shareholders equity would have been reduced a significant amount and the secondary offering price would have been substantially reduced. Dr. Hakala further recognized that the share price of Carreker suspiciously peaked around the time of the secondary offering. [May 31, 2005 Declaration of Scott D. Hakala at 9, which is attached hereto as Exhibit 2.] (b) Defendants Open-Market Stock Sales While Carreker s Stock Price Was Artificially Inflated as a Result of the False Financial Statements 70. The Individual Defendants also sold shares of Carreker stock in the open-market while knowingly issuing false and misleading financial statements: Date Shares Sold Price Proceeds Denny Carreker 5/27/99 6/7/99-6/8/99 9/7/01 9/17/01-9/21/01 5,000 10,000 2,777 5,554 23,331 $8.63 $ $9.50 $7.40 $ $7.35 $43,125 $92,187 $20,549 $40,544 $196,405 Ronald Antinori 1/27/00-1/31/00 6/5/00 9/14/00 130,000 10,000 70, ,000 $ $9.25 $12.00 $17.02 $1,202,125 $120,000 $1,191,400 $2,513,525 Terry Gage 12/15/98 1/31/01 129,000 6, ,949 $4.75 $25.69 $612,750 $178,505 $791,255 [The foregoing allegations are based on information obtained by counsel for lead plaintiffs from Thomson Financial] (c) Denny Carreker s Family s Stock Sales While Carreker s Stock Price Was Artificially Inflated as a Result of the False Financial Statements 71. Denny Carreker s brother, James D. Carreker, who served on Carreker s Board of Directors throughout the Class Period, and two sons, John D. Carreker III, who was an officer of Carreker throughout the Class Period, and Brenton E. Carreker, who was employed by Carreker -28-

33 Case 3:03-cv Document 94-1 Filed 06/13/2005 Page 33 of 76 throughout the Class Period, also profited handsomely by selling Carreker stock at artificially inflated levels, as shown below: Date Shares Sold Price Proceeds James D. Carreker 2/18/00-2/24/00 2/28/00-3/6/00 3/7/00-3/13/00 3/17/00-3/24/00 3/27/00-3/30/00 42,500 94,000 66,500 10,500 51, ,500 $12 - $13.25 $12 - $13.13 $12 - $13.98 $ $12 $ $13 $513,125 $1,150,600 $879,350 $122,990 $643,200 $3,309,265 John D. Carreker III 5/27/99 6/7/99-6/8/99 1/16/01 5,000 10,000 15,000 30,000 $8.63 $9.13 -$9.50 $ $38.94 $43,125 $92,187 $583,968 $719,280 Brenton E. Carreker 1/3/01 1/16/01 10,000 2,884 12,884 $31.03 $36.88 $310,250 $106,347 $416,597 In the aggregate, Denny Carreker s sons and brother sold approximately $4.5 million worth of Carreker stock while the shares traded at artificially inflated prices as a results of the fraud orchestrated by Denny Carreker. [The foregoing allegations are based on information obtained by counsel for lead plaintiffs from Thomson Financial] (d) Carreker s Senior Vice President of Investor Relations Has Been Indicted for Insider Trading 72. On December 4, 2001, the SEC filed a civil suit against Carreker s Senior Vice President of Investor Relations, George Matus, and his brother, Peter Matus, and alleged that George Matus had advance knowledge of Carreker s negative First Quarter of FY2001 earnings news and participated in both the drafting of the press release announcing the negative news and the decision as to when to release the news. Rather than maintain the confidentiality of the news and abstain from trading in Carreker stock, however, George Matus conveyed the confidential negative information to his brother and transferred $50,000 to him in order to trade in Carreker securities and profit from the non-public information. Under their plan, Peter Matus then used the funds to -29-

34 Case 3:03-cv Document 94-1 Filed 06/13/2005 Page 34 of 76 purchase 750 Carreker put options, effectively betting that the price of Carreker shares would decline once the negative news was made public. When Peter Matus sold the options a week later, the price had declined more than 40%, netting the brothers a profit of $209,940. On June 24, 2002, a final judgment was entered in the SEC s case that ordered George and Peter Matus jointly and severally to disgorge $209,940 in illegal trading profits plus $9,941 prejudgment interest on that amount and assessed the maximum civil penalty under the Insider Trading Sanctions Act of $629,820 against each defendant. Subsequently, on February 24, 2004, George and Peter Matus, were indicted by a federal grand jury and charged with insider trading and securities fraud. [SEC Litigation Release 18596, Feb. 25, 2004.] B. PRE-CLASS PERIOD FALSE AND MISLEADING STATEMENTS 1. False First Quarter of FY1998 Financial Results 73. On June 3, 1998, Carreker issued a press release reporting revenues of $10.3 million in the first quarter of 1998, a 36% increase over the year ago period. Net income was reported to have risen to $360,000, or $0.03 per share, compared to $146,000, $0.01 per share, in the first quarter of The Company also reported that revenue from software licenses increased 149.5% from $1.3 million to $3.1 million, and revenue from software maintenance and implementation fees increased 3.7% from $1.8 million to $1.9 million. According to defendant Gage: We started the year strongly, hitting or exceeding all of our financial and operational goals, and specifically expanding software sales. The net proceeds from our May IPO significantly improved our balance sheet and provided us with the financial foundation to execute our long-term growth strategy. Carreker s false First Quarter of FY1998 financial results were published in its Form 10-Q signed by Denny Carreker and Gage and filed with the SEC on July 2, As a practice, Denny Carreker, Gage, and Antinori, among others, would review Carreker s earnings press releases before they were issued to the market. [The foregoing allegation -30-

35 Case 3:03-cv Document 94-1 Filed 06/13/2005 Page 35 of 76 is based on information provided by Source 3.] 75. The First Quarter of FY1998 earnings press release and Form 10-Q were false and misleading for the reasons stated in 83 below. 2. False Second Quarter of FY1998 Financial Results 76. On August 27, 1998, Carreker issued a press release reporting purportedly record Second Quarter of FY1998 financial results. The Company reported that revenue increased 25.7% to $13.7 million, compared with revenue of $10.9 million in the second quarter of 1997, and that net income was $1.7 million, or $0.10 per share, compared to $1.2 million, or $0.09 per share, in the prior year quarter. Carreker also reported that revenue from software licenses increased 226.7% to $3.8 million from $1.2 million, and revenue from software maintenance and implementation fees increased 52.8% to $3.1 million from $2.0 million. Carreker s false Second Quarter of FY1998 financial figures were included in Carreker s Form 10-Q signed by Denny Carreker and Gage and filed with the SEC on September 14, The Second Quarter of FY1998 earnings press release and Form 10-Q were false and misleading for the reasons stated in 83 below. 3. False Third Quarter of FY1998 Financial Results 78. On November 24, 1998, Carreker issued a press release reporting record Third Quarter of FY1998 financial results. The Company also reported that revenue increased 28% to $13.9 million, compared with revenue of $10.8 million in the Third Quarter of FY1997, and that net income increased 108.2% in the quarter to $1.7 million, or $.10 per share, compared to $809,000, or $.06 per share, in the prior year quarter. Carreker Further reported that revenue from software licenses increased 21.7% to $3.6 million from $3 million and revenue from software implementation fees increased 107.1% to $1.9 million from $936,000. Earnings for the Third Quarter of FY1998 met the average analysts estimate. Carreker s false Third Quarter of FY1998 financial figures were -31-

36 Case 3:03-cv Document 94-1 Filed 06/13/2005 Page 36 of 76 included in its Form 10-Q signed by Denny Carreker and Gage and filed with the SEC on December 15, The Third Quarter of FY1998 earnings press release and Form 10-Q were false and misleading for the reasons stated in 83 below. 80. On December 22, 1998, BancBoston Robertson Stephens issued a report recommending that investors buy Carreker common stock because the Company can conservatively grow revenues and earnings at 25% or more per annum over the foreseeable future. BancBoston Robertson Stephens report was based on Carreker s false and misleading reported financial results. Carreker common stock closed at $5.44 on December 22, 1998, up more than 14% from the closing price of $4.75 on the prior day. 81. In January 1999, Carreker acquired Genisys Operations, Inc. in exchange for 1.24 million shares of Carreker common stock. The acquisition using artificially inflated stock enabled Carreker to add to its product line and increase sales. 4. False Fourth Quarter and FY1998 Financial Results 82. On March 22, 1999, Carreker issued a press release announcing record Fourth Quarter and FY1998 financial results. The Company reported that revenues for the Fourth Quarter of FY1998 increased 28.7% to $15.2 million compared to $11.8 million for the same period in FY1997, and that net income for the Fourth Quarter doubled to $1.4 million, or $.08 per share, compared to net income of $763,000, or $.05 per share, in FY1997. For FY1998, the Company reported that revenues increased 28.6% to $55.0 million from $42.8 million in FY1997, and net income increased 72.1% to $5.2 million, or $0.30 per share, from $3.0 million, or $0.21 per share, in FY1997. The Company highlighted that in FY1998 revenues from software licenses increased to $16.3 million, compared to $11.2 million in FY1997, and that revenues from software -32-

37 Case 3:03-cv Document 94-1 Filed 06/13/2005 Page 37 of 76 implementation fees increased to $6.6 million, compared to $4.1 million in FY1997. Denny Carreker commented on the seemingly impressive results, stating in pertinent part that, [w]e are confident in our business model and in our ability to continue delivering this type of consistent and profitable growth. Carreker s false Fourth Quarter and FY1998 financial figures were included in its Form 10-K signed by, among others, Denny Carreker, Antinori and Gage and filed with the SEC on April 28, In the Form 10-K, Carreker also made the following false and misleading statements concerning its accounting methodology: (1) when significant production, modification or customization of software was required, it accounted for revenue from software licenses on a percentage of completion basis; and (2) it recognized revenue from implementation service fees as the services were performed. 83. The Fourth Quarter and FY1998 press release and Form 10-K were false and misleading because: (A) As described in detail in Part IV-A-3 above, Carreker recorded revenue from software license contracts that required significant production, modification, or customization and for which implementation services were necessary to the software s functionality in the fiscal quarter of delivery rather than as the implementations services were performed in violation of GAAP. This practice resulted in Carreker s premature recognition of revenue from software licenses. In its FY2002 Form 10-K, Carreker admitted that this practice resulted in the Company prematurely recognizing substantial percentages of software license revenue which in turn led to significant overstatements of total revenue, net income and earnings during the class period; (B) As described in detail in Part IV-A-4 above, Carreker recorded revenue from implementation services that were necessary to the functionality of software before the services were performed in violation of GAAP. This practice resulted in Carreker s premature recognition of revenue from implementation services. In its FY2002 Form 10-K, Carreker admitted that this -33-

38 Case 3:03-cv Document 94-1 Filed 06/13/2005 Page 38 of 76 practice resulted in the Company prematurely recognizing implementation service revenue which in turn led to significant overstatements of total revenue, net income and earnings during the class period; (C) As described in detail in Part IV-A-5 above, Carreker recorded in fiscal quarters revenue from software contracts that were not fully-executed and for which evidence of an arrangement did not exist until a subsequent quarter, in violation of GAAP. This practice resulted in Carreker s premature recognition of revenue from software licenses and implementation services. In its FY2002 Form 10-K, Carreker admitted that this practice resulted in the Company prematurely recognizing software license and implementation service revenue which in turn led to significant overstatements of total revenue, net income and earnings during the class period; (D) Based on the restated figures published in Carreker s FY2002 Form 10-K, the Company s total revenue and revenue from software licenses for FY1998 were overstated by more than 8% and 31%, respectively; (E) Based on the restated figures published in Carreker s FY2002 Form 10-K, the Company s net income and earnings per share for FY1998 were overstated by more than 109% and 114%, respectively; (F) Carreker was not experiencing the level of sales and earnings growth it touted to investors. Carreker touted that earnings grew 43% in FY1998, however, based on the restated results published in Carreker s FY2002 Form 10-K, earnings declined 33% in FY1998 from FY1997. Carreker also touted that software license revenue and total revenue grew 45% and 29%, respectively. However, based on the restated results published in Carreker s FY2002 Form 10-K, software license revenue and total revenue grew only 11% and 18%, respectively, in FY1998 from FY Carreker restated its FY1998 financial results in its FY K. Carreker s -34-

39 Case 3:03-cv Document 94-1 Filed 06/13/2005 Page 39 of 76 FY1998 financial results were overstated as follows: (In thousands except for earnings per share) REVENUES Consulting Fees Software Licensing Fees Software Maintenance Fees Software Implementation Fees Hardware Total Revenues Reported $ 26,328 16,327 5,031 6, ,017 As Restated $ 26,478 12,428 5,031 6, ,494 Net Change $ 150 (3,899) 0 0 (774) (4,523) Over/Under -0.57% 31.37% 0.00% 0.00% n/a 8.22% NET INCOME EARNINGS PER SHARE 5,172 $0.30 2,471 $0.14 (2,701) ($0.16) % % As part of the restatement of all of its financial statements dating back to FY1998, Carreker adjusted the method it used to account for out-of-pocket reimbursements. [FY2002 Form 10-K.] Inasmuch as out-of-pocket reimbursements are unrelated to the revenue improprieties alleged herein and the inclusion of revenue newly classified as such distorts the comparison of the figures reported to investors in FY1998 against restated total revenues, the newly classified revenue has been excluded from this comparison. 5. False First Quarter of FY1999 Financial Results 85. On May 18, 1999, Carreker issued a press release announcing record First Quarter of FY1999 financial results. The Company reported that revenues for the First Quarter increased 32.5% to $14.5 million, compared to revenues of $10.9 million for the same period in The Company touted that, for the third consecutive quarter, it more than doubled net income, resulting in $963,000, or $.05 per share compared to $383,000, or $.03 per share, in FY1998. Carreker further reported that revenues from software licenses decreased to $3.1 million, compared to $3.5 million in the First Quarter of FY1998, and revenue from software implementation fees increased to $1.4 million, compared to $1.0 million in the First Quarter of FY1998. Earnings for the First Quarter of FY1999 met the average analysts estimate. Carreker s false financial figures were reported in its First Quarter of FY1999 Form 10-Q signed by Denny Carreker and Gage and -35-

40 Case 3:03-cv Document 94-1 Filed 06/13/2005 Page 40 of 76 filed with the SEC on June 14, The First Quarter of 1999 earnings press release and Form 10-Q were false and misleading for the reasons stated in 92 below. C. FALSE AND MISLEADING STATEMENTS DURING THE CLASS PERIOD 1. False Second Quarter of FY1999 Financial Results 87. On August 17, 1999, Carreker announced its Second Quarter of FY1999 financial results, which it falsely asserted was the 6th Consecutive Record Quarter. The Company reported record quarterly revenue of $18.9 million, up 32.0% from $14.3 million in the prior year. The Company further reported that net income increased 33.4% to $2.3 million, or $.12 per share, compared to net income of $1.7 million, or $.10 per share, in FY1998. Carreker s false Second Quarter of FY1999 financial figures were included in its Form 10-Q signed by Denny Carreker and Gage and filed with the SEC on September 14, The Second Quarter of FY1999 earnings press release and Form 10-Q were false and misleading for the reasons stated in 92 below. 2. False Third Quarter of FY1999 Financial Results 89. On November 30, 1999, Carreker announced its financial results for the Third Quarter of FY1999, which it falsely asserted was the 7th Consecutive Record Quarter. The Company reported that revenue for the third quarter had increased 43.4% to a record $20.9 million, compared to revenue of $14.5 million for the same period in FY1998. Carreker further reported that net income increased 21.7% to $2 million, or $.11 per share, compared to net income of $1.7 million, or $.09 per share, in FY1998. Carreker s false Third Quarter of FY1999 financial figures were included in its Form 10-Q signed by Denny Carreker and Gage and filed with the SEC on December 15, The Third Quarter of FY1999 earnings press release and Form 10-Q were false and -36-

41 Case 3:03-cv Document 94-1 Filed 06/13/2005 Page 41 of 76 misleading for the reasons stated in 92 below. 3. False Fourth Quarter and FY1999 Financial Results 91. On March 7, 2000, Carreker announced its false Fourth Quarter and FY1999 financial results. The Company falsely asserted that the Fourth Quarter constituted the 8th Consecutive Record Quarter. The Company reported that revenue for the Fourth Quarter increased 41.8% to a record 21.6 million compared to revenue of $15.2 million in the Fourth Quarter of FY1998. Carreker further reported that net income increased 85.8% to a record $2.6 million, or $0.14 per share, compared to net income of $1.4 million, or $.07 per share, in FY1998. Carreker touted that earnings per share grew 100%. With regard to its FY1999 financial results, the Company touted that revenue rose 37.8% to a record $75.8 million, compared with revenue of $55 million for FY1998, and that net income increased 52.6% to a record $7.9 million, or $0.42 per share, compared to $5.2 million, or $0.30 per share, for FY1998. Carreker s false Fourth Quarter and FY1999 financial figures were included in its Form 10-K signed by, among others, Denny Carreker, Antinori and Gage and filed with the SEC on May 1, In the Form 10-K, Carreker also made the following false and misleading statements concerning its accounting methodology: (1) when significant production, modification or customization of software was required, it accounted for revenue from software licenses on a percentage of completion basis; and (2) it recognized revenue from implementation service fees as the services were performed. 92. The Fourth Quarter and FY1999 earnings press release and Form 10-K were false and misleading because: (A) As described in detail in Part IV-A-3 above, Carreker recorded revenue from software license contracts that required significant production, modification, or customization and for which implementation services were necessary to the software s functionality in the fiscal quarter of delivery rather than as the implementations services were performed in violation of -37-

42 Case 3:03-cv Document 94-1 Filed 06/13/2005 Page 42 of 76 GAAP. This practice resulted in Carreker s premature recognition of revenue from software licenses. In its FY2002 Form 10-K, Carreker admitted that this practice resulted in the Company prematurely recognizing substantial percentages of software license revenue which in turn led to significant overstatements of total revenue, net income and earnings during the class period; (B) As described in detail in Part IV-A-4 above, Carreker recorded revenue from implementation services that were necessary to the functionality of software before the services were performed in violation of GAAP. This practice resulted in Carreker s premature recognition of revenue from implementation services. In its FY2002 Form 10-K, Carreker admitted that this practice resulted in the Company prematurely recognizing implementation service revenue which in turn led to significant overstatements of total revenue, net income and earnings during the class period; (C) As described in detail in Part IV-A-5 above, Carreker recorded in fiscal quarters revenue from software contracts that were not fully-executed and for which evidence of an arrangement did not exist until a subsequent quarter, in violation of GAAP. This practice resulted in Carreker s premature recognition of revenue from software licenses and implementation services. In its FY2002 Form 10-K, Carreker admitted that this practice resulted in the Company prematurely recognizing software license and implementation service revenue which in turn led to significant overstatements of total revenue, net income and earnings during the class period; (D) Based on the restated figures published in Carreker s FY2002 Form 10-K, the Company s net income and earnings per share for FY1999 were overstated by more than 1% and 2.44%, respectively; and (E) Based on the restated figures published in Carreker s FY2002 Form 10-K, the Company was not experiencing the consecutive level of record earnings and revenue growth it touted to investors. -38-

43 Case 3:03-cv Document 94-1 Filed 06/13/2005 Page 43 of Carreker restated its FY1999 financial results in its FY2002 Form 10-K. Carreker s FY1999 financial results were overstated as follows: (In thousands except for earnings per share) REVENUES Consulting Fees Software Licensing Fees Software Maintenance Fees Software Implementation Fees Hardware Total Revenues Reported $ 49,725 13,727 6,985 5, ,820 As Restated $ 49,725 13,906 6,985 5, ,732 Net Change $ (267) (88) Over/Under 0.00% -1.29% 0.00% 0.00% n/a 0.001% NET INCOME EARNINGS PER SHARE 7,894 $0.42 7,815 $0.41 (79) ($0.01) 1.01% 2.44% As part of the restatement of all of its financial statements dating back to FY1998, Carreker adjusted the method it used to account for out-of-pocket reimbursements. [FY2002 Form 10-K.] Inasmuch as out-of-pocket reimbursements are unrelated to the revenue improprieties alleged herein and the inclusion of revenue newly classified as such distorts the comparison of the figures reported to investors in FY1999 against restated total revenues, the newly classified revenue has been excluded from this comparison. 4. False First Quarter of FY2000 Financial Results 94. On May 25, 2000, Carreker announced its financial results for the First Quarter of FY2000, which it falsely asserted mark[ed] the ninth consecutive quarter of record financial results. The Company reported that revenue for the First Quarter of FY2000 increased a record 52.3% to $22.1 million compared to revenue of $14.5 million for the same period in FY1999, and that net income increased 53.5% to a record $1.5 million, or $0.08 per share, compared to net income of $1.0 million, or $.05 per share, in FY1999. Carreker further reported that earnings per share climbed 60% in the first quarter, and quarter-on-quarter software license revenue grew 48%. Earnings for the first quarter of 2000 exceeded the average analysts estimate by $.01. According to Denny Carreker: -39-

44 Case 3:03-cv Document 94-1 Filed 06/13/2005 Page 44 of 76 We are extremely pleased to deliver once again record results to our stockholders. The powerful combination of revenue and net income growth resulted in watershed first quarter performance, and leaves us well positioned to continue our profitable growth in fiscal We are also excited to have been recently named by Business Week Magazine as the 75th best "Hot Growth Company" out of 10,000 publicly traded corporations. Carreker s false First Quarter of FY2000 financial figures were included in its Form 10-Q signed by Denny Carreker and Gage and filed with the SEC on June 14, The First Quarter of FY2000 earnings press release and Form 10-Q were false and misleading for the reasons stated in 105 below. 5. False Second Quarter of FY2000 Financial Results 96. On September 12, 2000, Carreker announced its financial results for the Second Quarter of FY2000 in a press release entitled, Carreker Corporation Announces Record Results; Revenues Increase 52%, Profits Rise 51%, EPS Climbs 50%. The Company falsely touted that, [f]or the 10th consecutive quarter, Carreker Corporation, a leading provider of integrated consulting and software solutions, announced today significantly stronger earnings during the Second Quarter of 2000 when compared to the same period in Carreker reported that revenue for the Second Quarter of FY2000 increased a record 52% to $28.7 million compared to revenue of $18.9 million for the same period in FY1999. The Company further reported that net income increased to a record $3.4 million, or $0.18 per share, compared to net income of $2.3 million or, $0.12 per share, in FY1999. The Company touted that earnings per share exceeded analysts estimates by $.03 to $.04. According to Denny Carreker: Revenues, profits and earnings per share for the second quarter of 2000 were the highest in Carreker's history. We are pleased to have delivered record financial results to our shareholders and to have met or exceeded analysts' expectations for 10 consecutive quarters.... Carreker s false Second Quarter of FY2000 financial figures were included in its Form 10-Q signed by Denny Carreker and Gage and filed with the SEC on September 14,

45 Case 3:03-cv Document 94-1 Filed 06/13/2005 Page 45 of The Second Quarter of FY2000 press release and Form 10-Q were false and misleading for the reasons stated in 105 below. 98. On September 13, 2000, Robertson Stephens issued a report maintaining the firm s buy rating on Carreker common stock: Carreker reported strong second quarter results yesterday, with earnings-pershare and revenue well ahead of our estimates. In light of the most recent results, we are raising our 2000 and 2001 revenue estimates. We recommend aggressive purchase of the shares as the company is clearly demonstrating accelerating revenue and earnings-per-share growth, in our opinion. Robertson Stephens report was based on Carreker s false and misleading reported financial results. After Robertson Stephens reiteration of a buy rating, Carreker common stock closed at $16.94 per share, which was an increase of nearly 20% over the closing price on the previous day of $ False Secondary Offering Prospectus 99. On November 3, 2000, Carreker filed with the SEC its prospectus for the secondary stock offering which was signed by Denny Carreker and Gage and incorporated by reference the FY1999 Form 10-K and the Forms 10-Q for the First and Second Quarters of FY2000. The prospectus was false and misleading for the reasons provided in 92 above and 105 below. 7. False Third Quarter of FY2000 Financial Results 100. On December 5, 2000, Carreker announced purportedly record financial results for the Third Quarter of FY2000. The Company asserted that the Third Quarter marked the 11th consecutive quarter that Carreker has reported increased quarter-over-quarter revenues and earnings. The Company reported that revenue for the Third Quarter increased to $28.8 million compared to revenue of $20.9 million for the same period in FY1999, and that net income increased to $3.7 million, or $0.19 per share, compared to net income of $2.0 million, or $0.11 per share, in FY1999. Carreker further reported that earnings per share increased 73%, and revenue from software licenses grew 112% in the third quarter. Moreover, the Company reported that earnings -41-

46 Case 3:03-cv Document 94-1 Filed 06/13/2005 Page 46 of 76 per share exceeded analysts consensus estimates by $0.02. The press release also contained the following false and misleading statements: We are extremely pleased to deliver once again record results to our stockholders while meeting or exceeding analysts' expectations for 11 consecutive quarters, said J.D. Denny Carreker, Chairman and Chief Executive Officer.... * * * The Forbes Magazine list of the 200 Best Small Companies in America ranked Carreker at No. 50. This represents a jump of 80 places for Carreker, which ranked No. 130 in According to Forbes, several tough criteria are used to calculate a company's ranking, including five-year sales growth of at least 5% and four consecutive quarters of net income surpassing $1 million. The companies that made this year's list averaged a five-year return on equity of 18.7%, a 12-month sales growth of 44.4% and 12-month EPS growth of 76.9%. Carreker was able to achieve a top 50 ranking through superior performance in each category. As the magazine says, Those that make the final cut are truly gritty survivors. Carreker s false Third Quarter of FY2000 financial figures were included in its Form 10-Q signed by Denny Carreker and Gage and filed with the SEC on December 13, In the Form 10-Q, Carreker also made the following false and misleading statements concerning its accounting methodology: (1) when significant production, modification or customization of software was required, it accounted for revenue from software licenses on a percentage of completion basis; and (2) it recognized revenue from implementation service fees as the services were performed The Third Quarter of FY2000 earnings press release and Form 10-Q were false and misleading for the reasons stated in 105 below Following Carreker s announcement of its purportedly strong Third Quarter of FY2000 financial results, Chase Hambrecht & Quist, Inc. issued an investment report on December 6, 2000, rating Carreker stock a Buy. More specifically, the report stated, Given the co. s outstanding performance, its diverse growth opportunities, and the 30+% year-on-year bottom line growth rate that we are projecting for CANI over the next two years, we believe CANI should trade at 35x our 2001 EPS estimate of $0.88 or to roughly $32. Reiterate BUY. On December 7, 2000, Carreker stock closed at $29.19 per share, an increase of almost 22% over the closing price on -42-

47 Case 3:03-cv Document 94-1 Filed 06/13/2005 Page 47 of 76 December 5, 2000 of $ Chase Hambrecht & Quist s report was based on Carreker s false and misleading reported financial results. 8. False Fourth Quarter and FY2000 Financial Results 103. On February 22, 2001, Carreker issued a press release reaffirming its guidance for the Fourth Quarter and FY2000. The Company estimated that Fourth Quarter revenue would be approximately $30.5 million and earnings per share would be approximately $0.22. The Company also estimated that FY2000 revenues would be approximately $110 million and earnings per share would be approximately $0.66. Revenue and earnings per share estimates of approximately $145 million and $0.88, respectively, were given for FY2001. The Company s common stock closed at $16.75 per share on February 22, 2001, an increase of more than 11% over the closing price of $15 on the prior day. The press release affirming Carreker s Fourth Quarter and FY2000 financial results were false and misleading for the reasons stated in 105 below On March 13, 2001, Carreker announced its purported record financial results for the Fourth Quarter and FY2000. The Company touted that, [f]or the 12th consecutive quarter, Carreker... announced today significantly stronger earnings during the fourth quarter when compared to the same period in fiscal Carreker reported that revenue increased 43% to $30.8 million from $21.6 million for the same period in FY1999, and that net income increased to $5.0 million, or $0.22 per diluted share, compared to net income of $2.6 million, or $0.14 per diluted share, in FY1999. Carreker further reported that earnings per share grew 57%. For FY2000, revenue increased 45% to $110.3 million, net income increased 72% to $13.6 million, and earnings per share grew 60% to $0.67. Earnings for the Fourth Quarter of FY2000 met the average analysts estimate, and earnings for FY2000 exceeded the average analysts estimate by $.01. The press release also contained a misleading statement concerning the Company s inclusion in several stock indexes as well as its inclusion on Forbes list of Best Small Companies : -43-

48 Case 3:03-cv Document 94-1 Filed 06/13/2005 Page 48 of 76 Increased market recognition and visibility. Carreker was added to the Standard & Poor Small Cap 600 Index, the Russell 2000 Index and the Russell 3000 Index, raising the company's visibility in the professional investment community and providing the opportunity to expand the company's shareholder base. Additionally, Forbes Magazine placed Carreker at No. 50 on its list of Best Small Companies, while BusinessWeek placed the company at No. 75 on its list of Hot Growth Companies. Carreker s false Fourth Quarter and FY2000 financial figures were included in its Form 10-K signed by, among others, Denny Carreker and Gage and filed with the SEC on April 30, In the Form 10-K, Carreker also made the following false and misleading statements concerning its accounting methodology: (1) when significant production, modification or customization of software was required, it accounted for revenue from software licenses on a percentage of completion basis; and (2) it recognized revenue from implementation service fees as the services were performed The Fourth Quarter and FY2000 earnings press release and Form 10-K were false and misleading because: (A) As described in detail in Part IV-A-3 above, Carreker recorded revenue from software license contracts that required significant production, modification, or customization and for which implementation services were necessary to the software s functionality in the fiscal quarter of delivery rather than as the implementations services were performed in violation of GAAP. This practice resulted in Carreker s premature recognition of revenue from software licenses. In its FY2002 Form 10-K, Carreker admitted that this practice resulted in the Company prematurely recognizing substantial percentages of software license revenue which in turn led to significant overstatements of total revenue, net income and earnings during the class period; (B) As described in detail in Part IV-A-4 above, Carreker recorded revenue from implementation services that were necessary to the functionality of software before the services were performed in violation of GAAP. This practice resulted in Carreker s premature recognition of revenue from implementation services. In its FY2002 Form 10-K, Carreker admitted that this -44-

49 Case 3:03-cv Document 94-1 Filed 06/13/2005 Page 49 of 76 practice resulted in the Company prematurely recognizing implementation service revenue which in turn led to significant overstatements of total revenue, net income and earnings during the class period; (C) As described in detail in Part IV-A-5 above, Carreker recorded in fiscal quarters revenue from software contracts that were not fully-executed and for which evidence of an arrangement did not exist until a subsequent quarter, in violation of GAAP. This practice resulted in Carreker s premature recognition of revenue from software licenses and implementation services. In its FY2002 Form 10-K, Carreker admitted that this practice resulted in the Company prematurely recognizing software license and implementation service revenue which in turn led to significant overstatements of total revenue, net income and earnings during the class period; (D) Based on the restated figures published in Carreker s FY K, the Company was not experiencing the consecutive level of record earnings and revenue growth it touted to investors; (E) Carreker s inclusion in the Forbes list of the 200 Best Small Companies in America, the Business Week list of Hot Growth Companies, and the Russell 2000, Russell 3000 and Standard & Poor s Small Cap 600 Indices was only achieved through the fraudulent revenue recognition practices alleged herein Carreker restated its FY2000 financial results in its FY2002 Form 10-K. Carreker s FY2000 financial results were overstated as follows: -45-

50 Case 3:03-cv Document 94-1 Filed 06/13/2005 Page 50 of 76 (In thousands except for earnings per share) REVENUES Consulting Fees Software Licensing Fees Software Maintenance Fees Software Implementation Fees Total Revenues Reported $ 71,715 18,030 11,223 9, ,266 As Restated $ 71,715 17,765 11,223 9, ,948 Net Change $ 0 (265) 0 (53) (318) Over/Under 0.00% 1.49% 0.00% 0.57% 0.003% NET INCOME EARNINGS PER SHARE 13,594 $ ,592 $0.67 (2) % 0.00% As part of the restatement of all of its financial statements dating back to FY1998, Carreker adjusted the method it used to account for out-of-pocket reimbursements. [FY2002 Form 10-K.] Inasmuch as out-of-pocket reimbursements are unrelated to the revenue improprieties alleged herein and the inclusion of revenue newly classified as such distorts the comparison of the figures reported to investors in FY2000 against restated total revenues, the newly classified revenue has been excluded from this comparison. 9. False First Quarter of FY2001 Financial Results 107. On May 22, 2001, Carreker issued a press release stating that it expected revenues for FY2001 to meet prior guidance of $145 million, and that earnings per share would be $0.88. The Company also stated that it expected revenues of approximately $25 million and earnings per share of $0.06 in the First Quarter of FY On June 6, 2001, Carreker issued a press release announcing its First Quarter of FY2001 financial results. The Company reported that revenues were $25.4 million and net income was $1.3 million, or $0.06 per share. According to Denny Carreker: For purposes of guidance for fiscal year 2001, we remain confident in our organic, previously stated, fiscal 2001 revenue guidance of approximately $145 million and earnings per share of approximately $0.88. With the closing of the Check Solutions acquisition, we are adjusting our fiscal 2001 revenue guidance to $175 million and earnings per share to $0.95 excluding goodwill amortization and one-time, mergerrelated charges. This will result in approximately 59 percent revenue growth and approximately 44 percent earnings per share growth over fiscal For purposes of guidance for fiscal year 2002, we anticipate revenues of -46-

51 Case 3:03-cv Document 94-1 Filed 06/13/2005 Page 51 of 76 approximately $245 million and earnings per share of approximately $1.33. This translates to revenue growth of 40 percent and earnings per share growth of 40 percent over revised forecasted fiscal 2001 levels. Carreker s false First Quarter of FY2001 financial figures were included in its Form 10-Q signed by Denny Carreker and Gage and filed with the SEC on June 12, In the Form 10-Q, Carreker also made the following false and misleading statements concerning its accounting methodology: (1) when significant production, modification or customization of software was required, it accounted for revenue from software licenses on a percentage of completion basis; and (2) it recognized revenue from implementation service fees as the services were performed. After Carreker reported its First Quarter of FY2001 financial results and guided investors that fiscal-year earnings and revenue will exceed expectations, shares of the Company s common stock leapt 34% on June 7, 2001, closing at $ The First Quarter of FY2001 press release and Form 10-Q were false and misleading for the reasons stated in 118 below. 10. False Second Quarter of FY2001 Financial Results 110. On August 7, 2001, Carreker issued a press release announcing that it was reducing revenue and earnings guidance for the Second Quarter of FY2001. The Company stated that it expected revenue for the Second Quarter to be below its prior guidance of $38 million by approximately 12 to 13%. The Company also stated that it expected earnings per share for the Second Quarter to be approximately $0.00 to $0.01 per share On August 27, 2001, The American Banker reported that Carreker was changing its accounting policies after profits disappointed investors: Though in the past the company based its guidance on software sales it expected to close in a given quarter, it now will recognize deals only after they have closed and the company is receiving cash. This will spread out revenue recognition over several quarters, instead of when the deal closes, "based on a signature when the client agrees to terms," Mr. Carreker said. This will improve "visibility" -- the -47-

52 Case 3:03-cv Document 94-1 Filed 06/13/2005 Page 52 of 76 guidance the company gives analysts about anticipated results, he said. The company is also "pulling the bar down" and being "ultraconservative" on future revenues, he said. Denny Carreker s assertion that the Company was waiting until a deal closed based on a signature to recognize revenue from software licenses was false and misleading. Carreker commonly recognized revenue from software license contracts that were not fully-executed, and therefore not closed, until after the end of the reporting period (see Part IV-A-5 above). In addition, the statement that Carreker is being ultraconservative on future revenues was false based on the Company s restatement which shows that: (a) Carreker inflated FY2001 total revenues by 13.3%; (b) Carreker inflated revenues from software licenses in FY2001 by more than 60%; and (c) Carreker understated both its FY2001 net loss and earnings per share by more than 33% On September 20, 2001, Carreker issued a press release announcing its Second Quarter of FY2001 financial results. The Company reported Second Quarter revenue of $33.9 million, and net losses of $11.6 million. Carreker s false Second Quarter of FY2001 financial figures were included in its Form 10-Q signed by Denny Carreker and Gage and filed with the SEC on September 14, In the Form 10-Q, Carreker also made the following false and misleading statements concerning its accounting methodology: (1) when significant production, modification or customization of software was required, it accounted for revenue from software licenses on a percentage of completion basis; and (2) it recognized revenue from implementation service fees as the services were performed The Second Quarter of FY2001 earnings press release and Form 10-Q were false and misleading for the reasons stated in 118 below. 11. False Third Quarter of FY2001 Financial Results 114. On December 4, 2001, Carreker issued a press release announcing its financial results -48-

53 Case 3:03-cv Document 94-1 Filed 06/13/2005 Page 53 of 76 for the Third Quarter of FY2001. The Company reported revenue of $29.7 million and a net loss of ($26.4) million, or ($1.21) per share. Carreker s false Third Quarter of FY2001 financial figures were included in its Form 10-Q signed by Denny Carreker and Gage and filed with the SEC on December 14, In the Form 10-Q, Carreker also made the following false and misleading statements concerning its accounting methodology: (1) when significant production, modification or customization of software was required, it accounted for revenue from software licenses on a percentage of completion basis; and (2) it recognized revenue from implementation service fees as the services were performed The Third Quarter of FY2001 earnings press release and Form 10-Q were false and misleading for the reasons stated in 118 below. 12. False Fourth Quarter and FY2001 Financial Results 116. On February 14, 2002, Carreker raised its revenue and earnings guidance for the Fourth Quarter of FY2001. The Company said it expected revenue for the Fourth Quarter to be above its prior guidance of $38 million by approximately 10%. The Company also stated that it expected earnings per share for the Fourth Quarter to be approximately $0.01 to $0.03. After Carreker increased its Fourth Quarter revenue and earnings guidance, shares of the Company s common stock jumped 18% to close at $5.93 on February 15, On March 12, 2002, Carreker issued a press release announcing its Fourth Quarter and FY2001 financial results. The Company reported revenue of $42.8 million and net income of $1.1 million, or $0.05 per share, for the fourth quarter. For FY2001, the Company reported that revenues were $131.7 million with a net loss of ($35.6) million, or ($1.63) per share. Carreker s false Fourth Quarter and FY2001 financial figures were included in its Form 10-K signed by, among others, Denny Carreker and Gage and filed with the SEC on April 15, In the Form 10-K, Carreker also made the following false and misleading statements concerning its accounting -49-

54 Case 3:03-cv Document 94-1 Filed 06/13/2005 Page 54 of 76 methodology: (1) when significant production, modification or customization of software was required, it accounted for revenue from software licenses on a percentage of completion basis; and (2) it recognized revenue from implementation service fees as the services were performed. Following Carreker s release of its false Fourth Quarter and FY2001 financial results, the price of Carreker common stock rose more than 10% closing at $ The Fourth Quarter and FY2001 earnings press release and Form 10-K were false and misleading because: (A) As described in detail in Part IV-A-3 above, Carreker recorded revenue from software license contracts that required significant production, modification, or customization and for which implementation services were necessary to the software s functionality in the fiscal quarter of delivery rather than as the implementations services were performed in violation of GAAP. This practice resulted in Carreker s premature recognition of revenue from software licenses. In its FY2002 Form 10-K, Carreker admitted that this practice resulted in the Company prematurely recognizing substantial percentages of software license revenue which in turn led to significant overstatements of total revenue, net income and earnings during the class period; (B) As described in detail in Part IV-A-4 above, Carreker recorded revenue from implementation services that were necessary to the functionality of software before the services were performed in violation of GAAP. This practice resulted in Carreker s premature recognition of revenue from implementation services. In its FY2002 Form 10-K, Carreker admitted that this practice resulted in the Company prematurely recognizing implementation service revenue which in turn led to significant overstatements of total revenue, net income and earnings during the class period; (C) As described in detail in Part IV-A-5 above, Carreker recorded in fiscal quarters revenue from software contracts that were not fully-executed and for which evidence -50-

55 Case 3:03-cv Document 94-1 Filed 06/13/2005 Page 55 of 76 of an arrangement did not exist until a subsequent quarter, in violation of GAAP. This practice resulted in Carreker s premature recognition of revenue from software licenses and implementation services. In its FY2002 Form 10-K, Carreker admitted that this practice resulted in the Company prematurely recognizing software license and implementation service revenue which in turn led to significant overstatements of total revenue, net income and earnings during the class period; (D) Based on the restated figures published in Carreker s FY2002 Form 10-K, the Company s total revenue and revenue from software licenses for FY2001 were overstated by more than 13.3% and 60%, respectively; (E) Based on the restated figures published in Carreker s FY2002 Form 10-K, the Company s net income and earnings per share for FY2001 were overstated by more than 33%; (F) Carreker was not experiencing the level of sales and earnings growth it touted to investors. Carreker reported that earnings declined 343% in FY2001, however, based on the restated results published in Carreker s FY2002 Form 10-K, earnings declined 464% in FY2001. Carreker touted that software license revenue grew 123%. However, based on the restated results published in Carreker s FY2002 Form 10-K, software license revenue grew only 42% in FY Carreker restated its FY2001 financial results in its FY2002 Form 10-K. Carreker s FY2001 financial results were overstated as follows: (In thousands except for earnings per share) REVENUES Consulting Fees Software Licensing Fees Software Maintenance Fees Software Implementation Fees Total Revenues Reported $ 42,842 40,291 29,347 19, ,690 As Restated $ 42,342 25,153 25,908 20, ,126 Net Change $ (500) (15,138) (3,439) 1,513 (17,564) Over/Under 1.18% 60.18% 13.27% -7.30% 13.34% NET LOSS EARNINGS PER SHARE (35,605) ($1.63) (53,376) ($2.44) (17,771) ($0.81) 33.29% 33.20% As part of the restatement of all of its financial statements dating back to FY1998, Carreker adjusted -51-

56 Case 3:03-cv Document 94-1 Filed 06/13/2005 Page 56 of 76 the method it used to account for out-of-pocket reimbursements. [2002 Form 10-K.] Inasmuch as out-of-pocket reimbursements are unrelated to the revenue improprieties alleged herein and the inclusion of revenue newly classified as such distorts the comparison of the figures reported to investors in FY2001 against restated total revenues, the newly classified revenue has been excluded from this comparison. 13. False and Misleading Statements Made During Second Quarter of FY2002 Investors Conference Call 120. During an analyst conference call held on September 12, 2002 following the Company s announcement of its false second quarter financial figures, Denny Carreker stated: th Let me open by confirming what you read in our September 4 news release. We want you to hold us to the highest standards of corporate governance and accountability. We intend to be as clear as possible in our accounting and our reporting to you, and we continue to be committed to embracing best practices in the conduct of our business. Denny Carreker s statement was false and misleading because Carreker was not committed to embracing best practices in the conduct of its business as demonstrated by Carreker s fraudulent revenue recognition practices alleged herein. V. THE TRUTH EMERGES 121. On or about September 17, 2002, the Committee of Concerned Carreker Employees ( CCCE ) sent a letter to the Audit Committee of Carreker s Board of Directors (i.e., Donald L. House, James L. Fischer, Richard R. Lee, and Ronald G. Steinhart) and sent a copy to the SEC Fort Worth Office and the SEC s Complaint Center in Washington, D.C. The letter states as follows: The Committee of Concerned Carreker Employees represents employees who share substantial concerns over the management of Carreker Corporation and the oversight function of its Board of Directors, particularly, its Audit Committee. The purpose of this letter is to maintain a record of Carreker s mismanagement, failure to comply with SEC disclosure requirements, illegal and fraudulent conduct of its CEO and other officers of the Company, and the Board of Director s knowledge and complicity with these actions. -52-

57 Case 3:03-cv Document 94-1 Filed 06/13/2005 Page 57 of 76 Over the past several years, these matters have been brought to the attention of several individual board members (both past and presently serving on the Board) and collectively to the Board as a whole. Through inaction, either by failing or refusing to investigate or otherwise exercise your fiduciary responsibilities to carry out informed oversight of the Company s management, you as Board members are complicit, and in some matters actively participated, in the reprehensible conduct described below. This Committee has sought advice of counsel on their obligations to disclose these violations of law to the SEC and the Department of Justice in light of recent legislation by Congress. We have been advised that the Sarbanes-Oxley Act protects disclosure by employees in order to ensure accountability of the company s management and board of directors. Indeed, we have been told that disclosure is an obligation in order to avoid complicit conduct. This letter records the disclosure of these illegal acts and once again strongly encourages you to act affirmatively in the discharge of your fiduciary responsibilities to the Company s employees and outside shareholders even though you have failed to do so in the past. With some amusement but mostly amassment at your audacity, we believe that the announcement of the formation of a Corporate Governance Committee as disclosed by the Company s press release dated September 4, 2002 is mere window dressing in order for the board and CEO of Carreker Corp. to invoke the Enron Directors and CEO defense of uninformed ignorance. Regardless of your proactive strategy, the board of directors of Carreker are responsible for investigating and eliminating the abuses and illegal conduct of the Company s CEO. Unfortunately, we believe it highly unlikely that you are able to carry out your responsibilities to shareholders given the current configuration of Carreker s board in light of the fact that the board lacks independence from management (Denny Carreker) in all decisions and oversight concerning nomination of directors, appointments to board committees, integrity of accounting and revenue recognition, and management compensation. Indeed, there apparently exists substantial conflicts of interest on the board with numerous board members preventing any independent action by the board. This certainly becomes apparent by the long time appointment of Denny Carreker s brother to the Board (James D. Carreker) who headed the audit committee beginning 1997, and who continues to carry much influence over the audit committee s oversight of the company s management and methods of recognizing revenue. Further conflict of interest are found by the long term appointments to the board of Donald L. House (also Chairman of the Audit Committee) and David K. Sias, both who have been undisclosed paid consultant of the Company during their years as board members. Finally, for over 20 years, Richard R. Lee (appointed to the Board in 1984 by Denny Carreker) has also acted as an undisclosed paid consultant and advisor to the CEO and his family being actively involved in their estate management, trustee on various trusts holding substantial shares of Carreker stock, and investment advisor to Denny Carreker responsible for the management of his Carreker Corporation and other stock holdings. Nepotism is actively invoked by the -53-

58 Case 3:03-cv Document 94-1 Filed 06/13/2005 Page 58 of 76 CEO through the appointment of his sons (John Carreker, EVP International, and Brent Carreker, Managing Principle) to key management positions and the employment of relatives in part time positions. Several of these relatives to the CEO collect pay checks bi-monthly from the Company while failing to keep any office hours of attendance or otherwise perform work for the Company as required by all other employees. The Board of Directors have passively condoned this conduct and failed to properly report such conflicts of interest and nepotism to the SEC as required. The Company s CEO has consistently treated the Company as his own piggy bank at the expense of its employees and shareholders. The following is but a sample of those illegal acts through failure to disclose or fraudulent conduct and abuse of power carried out by Denny Carreker: Misappropriation of Funds (a) weekly, Denny Carreker receives thousands of Company dollars in cash from Roxanne, a corporate accounting bookkeeper for the Company and personal secretary to Denny Carreker. These payments of cash represent compensation to Mr. Carreker and he has never disclosed it to regulators as salary or other compensation even though required to do so. Mr. Carreker required many employees to reduce their salaries in 2001 and 2002 because of declining corporate revenues in order to reduce operating expenses. He even disclosed in the Company Proxy Report the reduction of his salary when in fact he was receiving these undisclosed cash payments; (b) also, Mr. Carreker has taken his wife and other family members on lavish trips to many parts of Europe and Asia under the pretense of business, charging the entire expense off to the Company as corporate business travel, including air fare, meals and hotel expenses, for his wife Connie, when in fact, no business was conducted or remotely contemplated for the benefit of the Company. Villas in France and a private yacht are just some of the non-business excesses used by Mr. Carreker and his wife at Company expense. Further, the Company has repeatedly paid thousands of dollars for Denny Carreker s furniture, interior decorator consulting fees, and craft worker s fees performing reconstruction work at his home in Highland Park at the demand and direction of his wife, Connie. Again, this was not disclosed as compensation to Mr. Carreker as required; (c) Mr. Carreker has required the Company pay thousands of dollars for his private club membership fees with the University Club and the Petroleum Club, but fails to disclose this to regulators, even though he uses these memberships for personal entertainment. Fraudulent Recognition of Company Revenues Mr. Carreker and his CFO, Terry Gage, have fraudulently recognized revenue from company business and contracts which they know violates GAAP rules and improperly inflates corporate profits and corporate stock values with the intent to mislead investors. This has been conducted in many forms - backdating contracts; claiming revenue from contracts not yet signed by the client in the reporting period claimed, and the premature announcement of signed business when no such contract has been signed by the client through premature press releases; intentionally overestimating the percent of completion/installation of software -54-

59 Case 3:03-cv Document 94-1 Filed 06/13/2005 Page 59 of 76 contracts in order to recognize revenue; overstating consulting fees when the client disputes the value of consulting services received or the completion of these services. Some of the contracts include First Star, Chase Bank, First Virginia (revenue enhancement), Key Bank (software installation), Fleet Boston (risk management), and Mellon Bank (software). Through Bob Olson (EVP for Marketing) and Denny Carreker, employees have been encouraged or intimidated (through loss of employment) to lie and misrepresent to auditors the true status of these contracts as they relate to GAAP interpretation and application. Many employees have informed the Company s audit committee of these illegal acts apparently resulting in no action or investigation because of the lack of independence maintained there. Undisclosed Loans and Club Memberships Denny Carreker has granted several loans to employees without first seeking approval from the Board s compensation committee. They include a $50,000 loan to Bob Olson (EVP) and several Country Club membership fees paid by the Company for Mr. Olson, Brent Carreker, and John Carreker. These loans and club memberships were not reported as compensation for these employees. Insider Trading Mr. Carreker s son Brent has openly bragged to company employees of his profits from insider trading of Carreker stock. Also, Connie Carreker, the CEO s wife, frequently shares and uses (herself) insider information with friends in her investment club involving Carreker stock. Again, she has openly bragged to employees of her gains. In fact, the impetus for George Matus (SVP - Investor Relations) to violate insider trading laws was the apparent ease and unaccountability with which Mr. Carreker s family violates securities law. Finally, John Carreker has established off-shore bank accounts in the Grand Camen Islands to evade detection from the SEC of utilizing insider information of the Company to illegally trade Carreker stock. It is of further interest to employees of the Company that Mr. Carreker has announced that he will certify the completeness and accuracy of the financial disclosure filings and materials made available to the investing public as required of all public company CEO s through recent legislation. Certainly by doing so, Mr. Carreker is once again violating securities law, but with one additional caveat - that is that the Board of Directors, particularly the Audit Committee, is complicit with Mr. Carreker in misleading and violating SEC regulations. (Emphasis added). [Sep. 17, 2002 letter from the CCCE to the Audit Committee of Carreker s Board of Directors, which is attached hereto as Exhibit 3.] 122. According to a memo dated February 24, 2003 from the CCCE to counsel for a plaintiff whose class action was subsequently consolidated into this case, the September 17, 2002 letter to the Audit Committee precipitated the internal investigation of Carreker s improper revenue -55-

60 Case 3:03-cv Document 94-1 Filed 06/13/2005 Page 60 of 76 recognition practices which led to the restatement of the Company s financial statements dating back 4½ years to its initial public offering. The memo specifically provides: Past and present employees of Carreker Corporation have formed CCCE for purposes of setting the record straight as to the mismanagement, theft, fraud and misrepresentation with the intent to deceive its shareholders actively carried out by Carreker Corporation s CEO, Denny Carreker and other senior management employees, including the Board of Directors complicity with such illegal activity. The information being provided to you may assist the shareholders of Carreker who have been damaged during the past five years from mismanagement and failure to properly report revenues. The letter attached to this fax was mailed to each member of the Carreker Corporation s Board of Directors Audit Committee shortly after Denny Carreker issued a company press release on September 4, 2002, proudly proclaiming his establishment of a new governance committee to assist the Board of Directors in maintaining appropriate corporate governance and reporting practices. Also, Denny Carreker fraudulently announced that he and the CFO, Terry Gage, would certify the accuracy and completeness of all materials available by the Company for th shareholders, investors and the public. The September 4 press release was designed by Denny Carreker to deceive and mislead investors and the public since he and the Board of Directors knew that any certification would be false. The financial reporting of revenue since 1998 for the company has been inaccurate and in fact, there has been an ongoing conspiracy by Denny Carreker, the CFO and the Board of Directors to mislead and deceive the investing public as to the accuracy of revenues as reported. This fraudulent conspiracy goes beyond cooking the books to other acts of thefts, embezzlement, insider trading and fraud as further described in the attached letter. th CCCF s September 17 letter caused the Board of Directors to resend th [sic] Denny Carreker s September 4 revenue certification pronouncement and initiate its own investigations into violations of the Company s revenue recognition and reporting obligations by management. Had this not occurred, Denny Carreker would have wilfully lied to the public again. The Board of Directors hired Akin & Gump to perform a cursory investigation intended to limit liability and distance the Board members from Denny Carreker s conspiracy. Curiously enough, Carreker s Board did not retain the Company s primary lead law firm, Locke, Liddell & Sapp, to investigate. The reason for this was Maury Purnell, a senior partner and namesake of the Liddell firm, was appointed as Corporate Secretary from 1998 until his resignation in 2002, and was fully aware and took an active part in the misrepresentations by Denny Carreker, including failure to properly comply with reporting obligations of SEC Rules. The Board announced the results of its investigation in January 2003, declaring the Company would restate its revenue beginning as far back as 1998, but found no illegal or fraudulent conduct on the part of Denny Carreker and the company s management. Nothing could be further from the truth. The Company s attorneys from Akin & Gump performed the most -56-

61 Case 3:03-cv Document 94-1 Filed 06/13/2005 Page 61 of 76 superficial investigation - many employees contacted by them refused to discuss with them Mr. Carreker s conspiracy over fear of Denny Carreker s threats to sue them for breach of the Company s Non-Disclosure Agreement (for which each employee is compelled to sign [as] a precondition to employment). Not surprisingly, the SEC is conducting an active investigation into Carreker s fraudulent conduct through its Ft. Worth office - agent David Peavler has been assigned to the case. Several Directors were notified on many occasions by numerous employees of the fraudulent revenue recognition violation by Denny Carreker but refused to investigate or act to prevent future violations by Denny Carreker and his senior management. Specifically, James Fischer and Ron Antinori of the Board both were notified by employees in 1999 of several particular instances but refused to investigate. Simply put, board members refused to carryout their fiduciary responsibility to shareholders by ensuring accurate and complete reporting of the Company s revenues because either they were actively conspiring with Denny Carreker to fraudulently report revenues or were too concerned for their own board seat and interests to raise the issue with the entire Board of Directors. There has been a long history of conflict of interest among board member s private interests with Denny Carreker and his family and their respective positions on the board, which has had a diminutive effect on corporate governance within the Company. th The September 17 letter address many of these conflicts. CCCE is forwarding this information to you for the benefit of Carreker shareholders and employees who have been damaged by Denny Carreker s mismanagement of the Company. No person of CCCE has or will participate in the lawsuit for damages or stands to gain monetarily from these suits. If you would like to contact us for further facts and detailed information concerning these illegal actions by Carreker, go online to and find message board for CANIE (Carreker Corporation). Write a message saying CE please contact (your firm s first name) and (the last four numbers of your extension phone number). I will call you back and ask for your extension. (Emphasis added). [Feb. 24, 2003 CCCE memo.] 123. On December 10, 2002, Carreker shocked investors by disclosing in a Form 8-K filed with the SEC that a Special Committee of independent Board members established by Carreker s Board of Directors was reviewing all of its previously reported financial results, principally focusing on the timing of its recognition of revenues during prior periods. The Company further disclosed that the review had uncovered timing issues that could cause some revenues to be shifted to the subsequent sequential quarter. The Company cautioned investors that it believed it may be required -57-

62 Case 3:03-cv Document 94-1 Filed 06/13/2005 Page 62 of 76 to restate its financial statements for prior periods and that its historical financial statements for prior periods should not be relied upon. Finally, Carreker announced that it was postponing its earnings release for the Third Quarter of FY2002. In response to this revelation, the price of Carreker common stock plunged to $3.98 on December 10, 2002, a decline of 22.6% from the closing price of $5.08 on the previous day On December 17, 2002, Carreker filed an 8-K report with the SEC disclosing that the Company received notice that the SEC had commenced an informal inquiry into Carreker s revenue recognition practices On December 24, 2002, Carreker issued a press release announcing it received notification from NASDAQ that its stock was subject to being delisted as a result of the delay in filing its Third Quarter of FY2002 Form 10-Q On January 28, 2003, Carreker announced that its Special Committee had completed its investigation, and that, the Company would be restating its historical financials, primarily to revise its accounting for licenses and certain service revenues, which will tend to spread the related revenue over multiple periods, affecting both historical and future contracts. Carreker expects to restate its financial results beginning with its 1998 fiscal year, and will present its financial results for the third and fourth quarters of fiscal 2002, as well as for future periods, on this basis On February 24, 2003, Carreker announced that the Nasdaq Listing Qualifications Panel granted an exception for Carreker s securities to continue to trade on The Nasdaq National Market. The exception required Carreker to file its Third Quarter of FY2002 Form 10-Q and FY2002 Form 10-K, and all other necessary restatements on or before April 30, In the long-delayed Third Quarter of FY2002 Form 10-Q filed on April 30, 2003, the Company restated its financial results for each of the quarters of FY2001 as well as the First and Second Quarters of FY2002. In addition, in its Form 10-K for FY2002, which was also filed on -58-

63 Case 3:03-cv Document 94-1 Filed 06/13/2005 Page 63 of 76 April 30, 2003, Carreker restated its financial results for FY1998, FY1999, FY2000, and FY2001. In the FY K, Carreker admitted that it had prematurely recognized revenue from software licensing contracts in the period in which the software was delivered rather than the period in which the contracts were fully-executed. The Company further admitted in the FY K that throughout the Class Period, it had misstated its revenues by prematurely recognizing revenues in the period of delivery, rather than recognizing the license revenue and implementation revenue as the implementation services were performed using the percentage of completion method. The FY K specifically stated, the related license revenue and implementation revenue should have been recognized as the services were performed using the percentage of completion method rather than upon delivery of the software. VI. APPLICABILITY OF THE FRAUD-ON-THE-MARKET DOCTRINE 129. Plaintiffs will rely, in part, upon the presumption of reliance established by the fraudon-the-market doctrine, in that, among other things: (A) Defendants made public misrepresentations and/or failed to disclose material facts during the Class Period; (B) (C) The omissions and misrepresentations were material; Carreker common stock traded in an efficient market at all relevant times in that: (i) the market rapidly reacted to and reflected all public information in the share price, including but not limited to information regarding the financial condition of Carreker; (2) Carreker s trading volume and public float (shares available for ownership by the general public) was sufficient to attract investor interest and analyst coverage [May 31, 2005 Declaration of Scott D. Hakala, Ph.D., CFA at 6, which is attached hereto as Exhibit 2.]; (D) The misrepresentations alleged would tend to induce a reasonable investor -59-

64 Case 3:03-cv Document 94-1 Filed 06/13/2005 Page 64 of 76 to misjudge the value of Carreker common stock; and (E) Lead Plaintiffs and the other members of the Class purchased Carreker common stock between the time the defendants failed to disclose or misrepresented material facts and the time the true facts were disclosed, without knowledge of the omitted or misrepresented facts Based upon the foregoing, Lead Plaintiffs and other members of the Class are entitled to a presumption of reliance upon the integrity of the market for, at least, the purpose of class certification, as well as for the ultimate proof of their claims on the merits. Lead Plaintiffs will also rely, in part, upon the presumption of reliance related to a material omission The names and addresses of the record owners of the shares of Carreker common stock purchased during the Class Period are available from Carreker and/or its transfer agent(s). Notice can be provided to purchasers of Carreker common stock by a combination of published notice and first class mail using techniques and forms of notice similar to those customarily used in class actions arising under the federal securities laws. VII. INAPPLICABILITY OF STATUTORY SAFE HARBOR 132. The statutory safe harbor provided for forward-looking statements under certain circumstances does not apply to any of the allegedly false and misleading statements pleaded in this Complaint. None of the allegedly false and misleading statements pleaded herein was a forward looking statement nor were any statements identified as forward-looking statements when made. To the extent that there were any forward-looking statements, there were no meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those in the purportedly forward-looking statements. Alternatively, to the extent that the statutory safe harbor does apply to any forward-looking statements pleaded herein, defendants are liable for those false forward-looking statements because at the time each of those forward-looking statements was made, the speaker knew that the forward-looking statement was false and/or the forward- -60-

65 Case 3:03-cv Document 94-1 Filed 06/13/2005 Page 65 of 76 looking statement was authorized and/or approved by an executive officer of Carreker who knew that those statements were false when made. VIII. UNDISCLOSED ADVERSE INFORMATION 133. The market for Carreker common stock was open, well-developed and efficient at all relevant times. As a result of these materially false and misleading statements and failures to disclose, Carreker common stock traded at artificially inflated prices during the Class Period. The artificial inflation continued until the time Carreker admitted that it was prematurely recognizing revenues and these admissions were communicated to, and/or digested by, the securities markets. Lead Plaintiffs and other members of the Class purchased or otherwise acquired Carreker common stock relying upon the integrity of the market price of Carreker common stock and market information relating to Carreker, and have suffered damages During the Class Period, defendants materially misled the investing public, thereby inflating the price of Carreker common stock, by publicly issuing false and misleading statements and omitting to disclose material facts necessary to make defendants statements, as set forth herein, not false and misleading. These statements and omissions were materially false and misleading in that they failed to disclose material adverse information and misrepresented the truth about the Company, its business and operations At all relevant times, the material misrepresentations and omissions particularized in this Complaint directly or proximately caused or were a substantial contributing cause of the damages sustained by Lead Plaintiffs and other members of the Class. As described herein, during the Class Period, defendants made or caused to be made a series of materially false or misleading statements about Carreker s business, prospects and operations. These material misstatements and omissions had the effect of creating in the market an unrealistically positive assessment of Carreker and its business, prospects and operations, thus causing the Company's common stock to be -61-

66 Case 3:03-cv Document 94-1 Filed 06/13/2005 Page 66 of 76 overvalued and artificially inflated at all relevant times. Defendants materially false and misleading statements during the Class Period resulted in Lead Plaintiffs and other members of the Class purchasing the Company s common stock at artificially inflated prices. After the market learned that the statements were false and misleading the value of Carreker common stock dropped significantly, causing the damages complained of herein. IX. ADDITIONAL SCIENTER ALLEGATIONS 136. As alleged herein, defendants acted with scienter in that defendants knew or recklessly disregarded that the public documents and statements, issued or disseminated by or in the name of the Company were materially false and misleading; knew that such statements or documents would be issued or disseminated to the investing public; and knowingly and substantially participated or acquiesced in the issuance or dissemination of such statements or documents as primary violators of the federal securities laws. As set forth elsewhere herein in detail, defendants, by virtue of their receipt of information reflecting the true facts regarding Carreker and its business practices, their control over and/or receipt of Carreker s public misleading statements and/or their associations with the Company which made them privy to confidential proprietary information concerning Carreker, were active and culpable participants in the fraudulent scheme alleged herein. Defendants knew and/or recklessly disregarded the falsity and misleading nature of the information which they caused to be disseminated to the investing public. The ongoing fraudulent scheme described in this complaint could not have been perpetrated over a substantial period of time, as has occurred, without the knowledge and complicity of the personnel at the highest level of the Company, including the Individual Defendants Examples of defendants knowledge, reckless disregard of facts, and/or complicity in the fraudulent scheme alleged herein are found at Parts IV-A-3 to IV-A-5 above. The fact that Carreker has restated its financial statements for 18 consecutive periods in itself is strong evidence -62-

67 Case 3:03-cv Document 94-1 Filed 06/13/2005 Page 67 of 76 of fraudulent intent The Individual Defendants were motivated to engage in this aforesaid scheme to inflate the price of Carreker common stock in order to: (A) allow the Individual Defendants to reap substantial profits through the sale of approximately 2.8 million shares of Carreker stock at artificially inflated prices for proceeds of approximately $45 million. Individually, Denny Carreker sold more than 1.5 million shares netting proceeds of approximately $26 million; Antinori sold more than 1.1 million shares for proceeds of approximately $18.2 million; and Gage sold approximately 136,000 shares, or 77% of his holdings, capturing proceeds of $800,000. In November 2000 when Carreker s stock was trading at all-time highs, Denny Carreker sold 1,508,750 shares, or 34.3% of his holdings, as part of the secondary offering, capturing proceeds of more than $25.7 million. Similarly, Antinori sold 919,375 shares, or 34.4% of his holdings, as part of the secondary stock offering, reaping proceeds of approximately $15.7 million. The sales occurred in suspicious amounts at suspicious times and were calculated to maximize profits (i.e. as part of the secondary offering which was conducted when Carreker s stock price traded at all-time highs shortly before the stock substantially revisited prior lows as result of weaker 2001 financial results). Moreover, Denny Carreker s brother and two sons netted proceeds in excess of $4.4 million through open market sales while Carreker s common stock was artificially inflated; (B) allow the Company to increase its product portfolio and boost revenues and net income by acquiring Genisys Operation Inc. in January, 1999, using its inflated stock as currency; (C) enable the Company to increase its product portfolio and boost revenues and net income by acquiring Check Solutions Co. in June, 2001, using cash obtained through the sale of stock at artificially inflated prices in the secondary offering; and -63-

68 Case 3:03-cv Document 94-1 Filed 06/13/2005 Page 68 of 76 (D) to assure banks that the Company was a viable company and that it would be able to perform the required maintenance, customer support, and upgrades it software required prior to making large investments in software systems, banks scrutinized the financial performance of prospective software vendors to ensure that the company would be in existence to provide adequate servicing and support. X. CLASS ACTION ALLEGATIONS 139. Lead Plaintiffs bring this action as a class action pursuant to Federal Rules of Civil Procedure 23(a) and 23(b)(3) on behalf of a class of all persons who purchased Carreker common stock during the period from July 30, 1999 through December 10, 2002 inclusive, and who were damaged thereby. Excluded from the Class are: the defendants named herein; members of the immediate families of the Individual Defendants; any parent, subsidiary, affiliate, officer, or director of Defendant Carreker; any entity in which any excluded person has a controlling interest; and the legal representatives, heirs, successors and assigns of any excluded person The members of the Class are so numerous that joinder of all members is impracticable. While the exact number of Class members is unknown to Lead Plaintiffs at the present time and can only be ascertained from books and records maintained by Carreker and/or its agent(s), Lead Plaintiffs believe that there are, at a minimum, hundreds of members of the Class located throughout the United States. Throughout the Class Period, Carreker had approximately 20 million shares of common stock outstanding, which were actively traded on the Nasdaq National Market System in an efficient market Lead Plaintiffs will fairly and adequately represent and protect the interests of the members of the Class. Lead Plaintiffs have retained counsel who are competent to conduct and experienced in class action and securities litigation. Lead Plaintiffs intend to prosecute this action vigorously. Lead Plaintiffs are members of the Class and do not have interests antagonistic to or -64-

69 Case 3:03-cv Document 94-1 Filed 06/13/2005 Page 69 of 76 in conflict with the other members of the Class Lead Plaintiffs claims are typical of the claims of the members of the Class. Lead Plaintiffs and all members of the Class purchased Carreker common stock during the Class Period at artificially inflated prices and have sustained damages arising out of the same wrongful course of conduct 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 federal securities laws were violated by defendants acts and omissions as alleged herein; (B) Whether defendants participated in and pursued the common course of conduct and fraudulent scheme complained of herein; (C) Whether the documents, reports, filings, releases and statements disseminated to the investing public during the Class Period misrepresented material facts about the business, performance, and prospects of Carreker; (D) Whether defendants acted knowingly or recklessly in misrepresenting material facts; (E) Whether the market price of Carreker common stock during the Class Period was artificially inflated due to the misrepresentations complained of herein; and (F) Whether Lead Plaintiffs and the other members of the Class have sustained damages and, if so, the appropriate measure thereof A class action is superior to other available methods for the fair and efficient adjudication of this controversy since, among other things, joinder of all members of the Class is impracticable. Furthermore, as the damages suffered by individual Class members may be relatively -65-

70 Case 3:03-cv Document 94-1 Filed 06/13/2005 Page 70 of 76 small, the expense and burden of individual litigation make it virtually impossible for many Class members individually to seek redress for the wrongful conduct alleged. Lead Plaintiffs do not foresee any difficulty in the management of this litigation that would preclude its conduct as a class action. COUNT I Against the Individual Defendants and Carreker for Violation of Section 10(b) of the Securities Exchange Act and Rule 10b Lead Plaintiffs repeat and reallege each and every allegation contained in the preceding paragraphs as if fully set forth in full herein This Count is asserted against the Individual Defendants and Carreker and is based upon Section 10(b) of the Securities Exchange Act, 15 U.S.C. 78j(b), and Rule 10b-5 promulgated thereunder by the SEC During the Class Period, defendants, singly and in concert, directly or indirectly, engaged in a common plan, scheme, and unlawful course of conduct pursuant to which they knowingly or recklessly engaged in acts, transactions, practices, and courses of business which operated as a fraud and deceit upon Lead Plaintiffs and the other members of the Class, and made various deceptive and untrue statements of material facts and omitted to state material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading to Lead Plaintiffs and the other members of the Class. The purpose and effect of the scheme, plan, and unlawful course of conduct was, among other things, to induce Lead Plaintiffs and the other members of the Class to purchase Carreker common stock during the Class Period at artificially inflated prices During the Class Period, defendants, pursuant to such scheme, plan, and unlawful course of conduct, knowingly and recklessly issued, caused to be issued and participated in the -66-

71 Case 3:03-cv Document 94-1 Filed 06/13/2005 Page 71 of 76 preparation and issuance of deceptive and materially false and misleading statements to the investing public which were contained in or omitted from various documents and other statements, as particularized above Defendants each knew the facts set forth herein and intended to deceive Lead Plaintiffs and the other members of the Class, or in the alternative, acted with reckless disregard for the truth when they failed to ascertain and disclose or cause the disclosure of the true facts to Lead Plaintiffs and the other members of the Class The facts alleged herein compel a strong inference that defendants made materially false and misleading statements to the investing public with scienter, in that the defendants knew that the public statements issued or disseminated in the name of the Company were materially false and misleading; knew or recklessly disregarded that such statements would be issued or disseminated to the investing public; and knowingly and substantially participated or acquiesced in the issuance or dissemination of such statements as primary violations of the federal securities laws As a result of the dissemination of the false and misleading statements set forth above, the market price of Carreker common stock was artificially inflated during the Class Period. In ignorance of the false and misleading nature of the representations described above and the deceptive and manipulative devices and contrivances employed by defendants, Lead Plaintiffs and the other members of the Class relied to their detriment on the integrity of the market price of the securities in purchasing Carreker common stock. Had Lead Plaintiffs and the other members of the Class known of the materially adverse information misrepresented or not disclosed by defendants, they would not have purchased Carreker common stock at the artificially inflated prices that they did As a result of the inflation of the prices of Carreker common stock during the Class Period caused by defendants material misrepresentations and omissions, Lead Plaintiffs and the -67-

72 Case 3:03-cv Document 94-1 Filed 06/13/2005 Page 72 of 76 other members of the Class have suffered substantial damages as a result of the wrongs alleged By reason of the foregoing, defendants violated the Exchange Act and Rule 10b-5 promulgated thereunder in that they: (A) (B) employed devices, schemes, and artifices to defraud; made untrue statements of material facts or omitted to state material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; and/or (C) engaged in acts, practices, and a course of business which operated as a fraud and deceit and a scheme to defraud upon Lead Plaintiffs and the other members of the Class in connection with their purchases of Carreker common stock during the Class Period In addition to the duties of full disclosure imposed on defendants as a result of their making of affirmative statements and reports, or participation in the making of such statements and reports to the investing public, defendants had a duty to promptly disseminate truthful information that would be material to investors in compliance with the integrated disclosure provisions of the SEC as embodied in SEC Regulation S-X (17 C.F.R et. seq.), Regulation S-K (17 C.F.R et. seq.) and other SEC regulations, including accurate and truthful information with respect to the Company s operations, financial condition and earnings so that the market price of the Company s common stock would be based on truthful, complete and accurate information. COUNT II Against the Individual Defendants for Violation of Section 20(a) of the Securities Exchange Act 155. Lead Plaintiffs repeat and reallege each and every allegation contained in the preceding paragraphs as if set forth fully herein The Individual Defendants, by virtue of their offices and specific acts described above, were, at the time of the wrongs alleged herein, controlling persons of Carreker and all of its -68-

73 Case 3:03-cv Document 94-1 Filed 06/13/2005 Page 73 of 76 responsible employees within the meaning of Section 20(a) of the Securities Exchange Act The Individual Defendants had the power and influence and exercised the same to cause Carreker s employees to engage in the improper conduct and practices complained of herein, and declined to exercise their authority to prevent Carreker and its employees from engaging in the improper conduct and practices complained of herein By reason of the conduct alleged in Count I of the Complaint, the Individual Defendants are liable for the aforesaid wrongful conduct, and are liable to Lead Plaintiffs and to the other members of the Class for the substantial damages which they suffered in connection with their purchases of Carreker common stock during the Class Period. COUNT III Violation of Section 20A of the Securities Exchange Act Against Defendants Denny Carreker and Antinori 159. Lead Plaintiffs repeat and reallege each and every allegation contained above. This claim is asserted against Defendants Denny Carreker and Ronald Antinori Defendants Denny Carreker and Antinori, by virtue of their positions as Carreker Officers and Directors, had access to, and were in possession of, material non-public information about Carreker at the time they sold more than 47% and 67% of their holdings, respectively, for combined proceeds of more than $56.7 million during the Class Period By virtue of their participation in the scheme to defraud investors described herein and their sales of stock while in possession of material non-public information about Carreker, Defendants Denny Carreker and Antinori violated 10(b) of the Securities Exchange Act and applicable rules and regulations thereunder Defendant Denny Carreker s sale of 1,272,500 shares, or 29% of his holdings, at $17 per share for proceeds of more than $20.4 million on November 3, 2000 and his sale of 236,250 shares at $22.38 per share for proceeds of approximately $5.3 million on November 14, 2000 were -69-

74 Case 3:03-cv Document 94-1 Filed 06/13/2005 Page 74 of 76 made contemporaneously with plaintiff Heather Winett s purchase of 1,500 shares of Carreker stock on November 13, Defendant Antinori s sale of 773,125 shares, or 29% of his holdings, at $17 per share for proceeds of more than $12.4 million on November 3, 2000 and his sale of 146,250 shares at $22.38 per share for proceeds of approximately $3.3 million on November 14, 2000 were made contemporaneously with plaintiff Heather Winett s purchase of 1,500 shares of Carreker stock on November 13, Lead Plaintiffs and all other members of the Class who purchased shares of Carreker stock contemporaneously with sales of Carreker stock by Defendants Denny Carreker and Antinori: (a) have suffered substantial damages in that, in reliance on the integrity of the market, they paid artificially inflated prices for Carreker stock as a result of the violations of 10(b) and Rule 10b-5 herein; and (b) would not have purchased Carreker common stock at the prices they paid, or at all, if they had been aware that the market prices had been artificially and falsely inflated by defendants misleading statements and concealment of material facts. At the time of the purchases by Lead Plaintiff Heather Winett and Class Members, the fair market value of Carreker common stock was substantially less than the price paid for the shares. JURY DEMAND Lead Plaintiffs demand a trial by jury on all issues. WHEREFORE, Lead Plaintiffs pray for relief and judgment as follows: (A) Determining that this action is a proper class action, certifying Lead Plaintiffs as class representatives under Rule 23 of the Federal Rules of Civil Procedure, and Lead Counsel as class counsel; (B) Awarding compensatory damages in favor of Lead Plaintiffs and the other members of the Class against all defendants, jointly and severally, for all damages sustained as a -70-

75 Case 3:03-cv Document 94-1 Filed 06/13/2005 Page 75 of 76 result of defendants wrongdoing of defendants, in an amount to be proven at trial, together with interest thereon; (C) Awarding Lead Plaintiffs and the Class their costs and expenses incurred in this action including reasonable allowance of fees for Lead Counsel and experts, and reimbursement of Lead Plaintiffs expenses; and (D) Granting such other and further relief as the Court may deem just and proper. DATED: May 31, 2005 Respectfully submitted, Sherrie R. Savett Arthur Stock Casey M. Preston Jon J. Lambiras BERGER & MONTAGUE, P.C Locust Street Philadelphia, PA Telephone: (215) Fax: (215) Lead Counsel for Lead Plaintiffs Reed Gustow and Heather C. Winett and the Class /s/ Kenneth S. Marks Kenneth S. Marks SUSMAN GODFREY, L.L.P Louisiana, Suite 5100 Houston, TX Telephone: (713) Fax: (713) Liaison Counsel #626668v1<Imanage> -AMENDED CONSOLIDATED CLASS ACTION -71-COMPLAINT

76 Case 3:03-cv Document 94-1 Filed 06/13/2005 Page 76 of 76 CERTIFICATE OF SERVICE st I hereby certify that on this 31 day of May, 2005, true and correct copies of the foregoing Amended Consolidated Class Action Complaint and the Appendix thereto were sent via U.S. mail to the parties below: Herbert J. Sue ERNST & YOUNG LLP 5 Times Square New York, NY (212) Bruce M. Cormier ERNST & YOUNG LLP 1225 Connecticut Avenue, N.W. Washington, D.C (202) William B. Dawson Karen L. Hirschman Todd A. Murray VINSON & ELKINS LLP 3700 Trammell Crow Center 2001 Ross Avenue Dallas, TX (214) Mary L. O Connor AKIN GUMP STRAUSS HAUER & FELD, LLP 1700 Pacific Avenue, Suite 4100 Dallas, TX (214) Paul R. Bessette Michael J. Biles Jesse Z. Weiss AKIN GUMP STRAUSS HAUER & FELD, LLP 300 W. Sixth Street, Suite 2100 Austin, TX (512) Attorneys for Defendants Carreker Corporation, John Denny Carreker, Jr., Ronald Antinori and Terry L. Gage Attorneys for Ernst & Young LLP Kenneth S. Marks #626668v1<Imanage> -AMENDED CONSOLIDATED CLASS ACTION -72-COMPLAINT

77 UNITED STATES DISTRICT COURT FOR THE NORM ][ERN DISTRICT OF TEXA S DALLAS DIVISIO N In re CARREKER CORPORATION CIVIL ACTION NO. 3 :03-CV-0250-M SECURITIES LITIGATION Consolidated with Actions Nos. 3 :03- CV-0347-D ; 3 :03-CV-00384; 3 :03-CV ; 3 :03-CV-0410-D ; 3 :03-CV ; 3 :03-CV-489 ; 3 :03-CV-0528-P ; 3 :03-CV-0540-P; 3:03-CV-0563-N ; 3 :03-CV-0569-N ; 3:03-CV-0638 ; 3 :03- CV APPENDIX TO AMENDED CONSOLIDATED C LASS ACTION COMPLAIN T Exhibit 1 CertificationDernonstratingLead Plaintiffs' Transactions in Carreker Common Stock During the Class Period Exhibit 2 Declaration of Dr. Scott D. Hakala, Ph.D, CFA Exhibit 3 Letter from. the Committee of Concerned Carreker Employees to the Audit Committee of Carreker's Board of Director s Exhibit 4 Contract Memorializing the Sale of Software and Implementation Services to Trustmark Ban k Exhibit 5 Contract Memorializing the Sale of a Software License as Well as Installation and Implementation Services to Toronto Dominion Bank

78 Exhibit I Certification Demonstrating Lead Plaintiffs' Transactions in Carreker Common Stock During the Class Period

79 CARREKER CORPORATION CERTIFICATION PURSUANT TO THE FEDERAL SECURITIES LAW S Heather C. Win.ett and Reed Gustow ("Plaintiffs), duly swear and say, as to the claims asserted under the federal securities laws, that : 1. We have reviewed the complaint prepared by Berger & Montague, P,C. and filed against Carreker Corporation and certain of its officers and directors, we approve of its contents, and we authorize Berger & Montague, P.C. to represent us in this action. 2. We did not purchase the security that is the subject of this action at the direction of our counsel or in order to participate in this private action. 3. We are willing to serve as representative plaintiffs on behalf of the class, including providing testimony at deposition and trial, if necessary. 4. Our transactions inth.e securities of Carreker Corporation between and including May 20, 1998 through December 10, 2002 (the "Class Period") are as follows : SHARES DATE OF PRICE PER PURCHASED 1LURCF ASE SHARE Heather C. Winett /13/00 $20.00 Reed Custow /01/00 $ We have not sought to serve as class representatives in any other action filed under the United States federal securities laws in the past three (3) years preceding the date on which, this certification is signed. 6. We have not andwill not accept any payment for serving as representative plaintiffs on behalf of the class beyond our pro rata share of any recovery, or as ordered or approved by the court, including any award for reasonable costs and expenses (including lostwages) directly relating to the representation of the class.

80 I declare under penalty of perjury under the laws ofthe United States that the foregoing is true and correct. Executed this 0- day of April, 2003, at Philadelphia, Pennsylvania. By : H ather C. Winett 6d8 Fulton Street Philadelphia, PA BY: -- U Reed Gustow 608 Fulton Street Philadelphia, PA 19147

81 Exhibit 2 Declaration of Dr. Scott D. Hakala, Ph. D, CFA

82 UNITED STATES DISTRICT COURT NORTHERN D.lSTRJCT OF TEXAS DALLAS DIVISION IN RE CARREKER CORPORATION SECURITIES LITIGATION CIVIL ACTION NO.3 :03 -CAI-0250-M DECLARATION OF SCOTT D. RAKALA, PI.D, CFA 1. Background and Qualifications of the Expert 1. I am a director of CBIZ Valuation Group, LLC, a national business valuation and consulting firm that operates as a wholly owned subsidiary of Century Business Services, Inc., a publicly traded business services firm (NASDAQ : CBIZ), CBIZ Valuation Group is one of the largest business valuation and consulting firms in the United States wit h offices in Dallas, Chicago, Atlanta and Princeton (Nevi Jersey). CB17. Valuation Group employs approximately 80 individuals providing business valuation services to public and private companies received a Doctor of Philosophy degree in Economics and a Bachelor's degree in Economics from the University of Minnesota. I have earned the professional designation of Chartered Financial Analyst, awarded by the Association for Investment Management and Research. I have taught courses on asset pricing and market efficiency at the doctorate (Ph.D.) level in a Ph.D. granting institution. In addition, I have served as Declaration of Scof! D Hakaha, Ph,D., CPA I

83 a consultant and expert witness on numerous occasions regarding economic issues similar to those in this litigation. I have been found qualified to testify on issues of materiality, event studies, inflation per share and loss causation in securities litigation matters on a number of occasions, including testifying (over the objections of the defendants) in In re Clarent Securities Litigation in February 2005 before Judge Charles Breyer in the Northern District of California.' A detailed summary of my qualifications, including prior testimony and articles, is provided on the curriculum vitae attached hereto as Exhibit A. 3. The specific allegations in this case are very similar to allegations in In re, Computer Associates Securities Litigation in the Eastern District of New York. I was an expert assisting counsel for the plaintiffs in assessing materiality, inflation and damages in the Computer Associates class action securities litigation. Computer Associates was alleged to have engaged in improper accounting for software and related services revenues in violation of generally accepted accounting principles in a manner similar to Carreker (violations of SOP 97-2). t also have more recently assisted Mr. Kenneth Feinberg and the United States government in developing a plan of allocation for a restitution fund for purchasers of Computer Associates shares between January 20, 1998, and May 14, Thus, I am very familiar with the issues of materiality and share price effects of the allegations set forth in this case. 1 In the past year, I have also been found qualified over objections of opposing parties in In Re Raytheon Securities Litigation, District of Massachusetts, May 1 8, 2004, hearing ; In re 1 ceiera.co!n Securities Litigation, District of Massachusetts, Memorandum issued on September 30, In In re Broadeom Securities Litigation, Central District of California, the court relied on my declaration in granting class certification and the opposing counsel recently (this year) acknowledged my qualifications as to assessing materiality, event studies and inflation per share in a reply brief, although contesting the admissibiety of aggregate damages estimates at trial. Declaration of Scott B. Hakala, Pit. D., CPA 2

84 4. Plaintiffs are being charged fees for my services in this engagement based on my hourly billing rate of $450 per hour. I have received assistance from other staff employed by CBIZ Valuation Group. fl. Information Considere d S. My opinions are based on my professional experience, as well as a thorough review of a substantial amount of available materials, including : (a) 'I lie Consolidated. Class Action Complaint ("Complaint' ) in this matter ; (b) Securities filings of Carreker Corporation (`<Carrekef') with the Securities and Exchange Commission (SEC) from May 20, 1998, through December 31, 2003 ; (c) Published news articles and press releases and other public news regardin g Carreker from May 1, 1998 through December 10, 2003, found on Factiva an d Bloomberg, L.P. ;' (d) Publicly available financial information and public trading price information on Carreker, market indices and similar public compan ies as found on Bloomberg. L.P. ; and (e) Various academic texts and published articles as cited in the text. 2 Bloomberg is a subscriber based on-line resource that contains news summaries and press releases relating to financial securities (such as mutual funds, stocks and bonds) and financial markets. Factiva (previously Dow Jones News Retrieval) is a searchable on-line database that contains news from press releases, securities filings, periodicals, journals, reporting services (Dow Jones, Associates Press and Reuters) and newspapers with a focus on financial news. Declaration of Scott D. Hakala, A.D., CPA 3

85 [IL Summary of the Analyses and Conclusions 6. I found that the market for Carreker's common shares was efficient in that (as illustrated in Exhibit B) t_he. market rapidly reacted to and reflected all public information in the share price during the period from May 20, 1998 through December 10, 2002 At all times, Carreker's trading volume4 and public float (shares available for ownership by the general public) was sufficient to attract investor interest and analyst coverage.' The event study (summarized in Exhibit B) found that the financial condition of Carreker was of primary concern to investors and led to statistically significant increases and decreases in the relative value of Carreker's share price throughout the period from May 20, 1998 through December 10, Thus, it is possible to develop a consistent model of damages that may be used to estimate aggregate damages and to allocate damages across individuals filing proofs of claim. ' i considered the efficient market factors outlined in Cammer v. Bioorn, 71 1 F. Supp (D.N.J. 1989) (See, also, the Order issued on September 30, 2004, in In re Xcolera.com) and found that: Carreker's trading volume, turnover and float. were sufficient to allow for active monitoring and trading of its shares ; Carreker was adequately covered by analysts and news reports ; Carreker's SEC filings were timely during the proposed Class Period; Carreker was registered for trading on a public exchange (NASDAQ National Market) and able to register shares for trading ; and the event study illustrated an immediate reaction to material news that significantly altered the mix of information. 4 The daily trading volume in dollars from May 20, 1995 to December 10, 2032, was $3,536, The daily trading volume in dollars from the secondary offering on November 3, 2000 to December 10, 2002, was $6,269, This represented a significant rate of daily turnover of 1% to 3% over various time periods of the shares in the public float (shares held by non-affiliate and listed for public trading). In my experience with smaller capitalization stocks and in advising companies considering going public, an actively traded stock should have on average $100,000 in average daily volume on NASDAQ and a turnover rate of.5% per week (.1% per day) to be considered actively traded. The aggregate market value of Carreker's shares held by non-affiliates was $61,307,162 as of March 25, 1999, $128,650,240 as of March 31, 2000, $343,542,306 as of March 31, 2001, S1174,064,535 as ofapril 5, 2002, and $160,656,532 as of July 31, 2002, according to various Form 10-Ks filed by Carreker. Ordinarily, a public float of at least 2 million shares and market value of the float of $20 million is sufficient to attract market maker interest and adequate coverage for an efficient market after an initial public offering. Declaration of Seutt D. Hakala, Ph.D., CPA 4

86 7. Recognition of software licensing fee revenue and software implementation fe e revenue before that revenue was earned in violation of generally accepted accounting principles (SOP 97-2) is material to investors and (as demonstrated in Exhibit fl) led to a substantial distortion of the trends and valuation of the subject company throughout the period from May 20, 1998 through December 10, This led to a "roller coaster" type of stock price chart whereby the shares of Carreker were substantially inflate d during certain periods of time and less inflated in value at other periods of time, as shown by the chart in Exhibit C.6 Eventually, revelation of the extent of the problems and the true state of Carreker's financial condition, particularly in. the second half of 2002, led to a significant loss in value for the shareholders of Carreker, 8. I. also concluded that the misstatements in Carreker's financial reports were material to investors.' Had Carreker properly stated its financial condition, my preliminary event study analysis in Exhibit B finds that its share price would have been materially reduced throughout the period from May 20, 1998 though December 10, 2002, The share price of Carreker was particularly inflated in 1998 and early 1999 as result of the premature recognition of software license fees in the fiscal year ended January 31, In that period of time, Carreker has indicated in published restatements that it overstated revenues by 8.22% and overstated its earnings and earnings per share b y Premature revenue recognition will lead to a roller coaster type of pattern for the stock price and inflation per share over an extended period of time. This type of improper accounting will often lead to substantial overstatements of revenue and earnings in certain quarters and years, while in other quarters and years revenues and earnings might be less than would have occurred had the company not prematurely recognized revenues in prior quarters. This was observed with respect to the improper accounting found with respect to Computer Associates in the second half of the 1990s through 2001 and is similar in,, this case. 1 See, for example, the SEC Staff Accounting Bulletin : No Maleriali ', Amending 17 CFR. Part 211, dated August 12, 1999, Declaration of Scot I). UIakaM, Ph.D., CPA 5

87 109.31% and %. These amounts are considered substantial in valuation practice and by any rule of thumb threshold for materiality! Had the overstatement of revenues and earnings been revealed,, the share price of Carreker would have been substantially reduced, as occurred on December 10, 2002, as shown in Exhibit B. 9. W itlh respect to the secondary offering on November 3, 2000, the share price of Carreker suspiciously peaked around the time of the secondary offering. As demonstrated in Exhibit B, had the state of the financial condition of Carreker been corrected the amount of shareholders equity would have been reduced a significant amount and the secondary offering price would have been substantially reduced as a result of the lower shareholders' equity, the loss of credibility and the significant reduction of earnings in prior periods. As shown in Exhibit C, the decline in Carreker's share price between the secondary offering on November 3, 2000, and December 10, 2002 cannot be explained by market or industry forces or by alternative causes, The cumulative abnormal loss (the portion of the loss not explained by market and industry forces) realized by investors that purchased shares in the secondary offering as of December 10, 2002, was 68.72% (even giving credit for the offering discount). Thus, significant losses are evident and cannot be explained away by alternative causes. 10. Similarly, the revenues and earnings in the, year ended January 31, 2002, wer e materially inflated by 13.34% and 33.29%, respectively, as indicated by the restatement s ultimately provided by Carreker.9 As shown in Exhibit B, the failure of Carreker t o $ Ibid. Ibid. Declara tion of Scot D, fakala, Ph.D., CFA 6

88 continue to maintain the inflated revenues and ear ings in 2001 led to significant share price declines of, 12.18% associated with the second quarter 2002 earnings announcement on September 13, 2002; 29.41% associated with the revised guidance for third quarter 2002 on November 14, 2002 ; and 24.22% associated with the announcement of a need to restate prior revenues and earnings on December 10, In this sense, the, true state of Carreker's business was revealed at the end of the proposed Class Period and led to substantial declines in its relative share price of 57.29% between September 12 and December 10, Furthermore, losses in value occurred over the following 90 days after the end of the proposed Class Period. 11. Exhibit C illustrates the extent of the decline in Carre er's value relative to a Composite Index (composed of an industry and market index weighted based on the event study) and an Industry Index. During the period from May 20, 1998 through December 10, 2002, Carreker's share price was consistently greater than the price predicted by either the Composite Index or the Industry Index for Carreker."o IV, Further Discussio n 12. The event study summarized in Exhibit B is based on regression analyses of the returns generated by Carreker's shares on a daily basis from May 20, 1998 through December 10, 2003." The event study provided is preliminary. However, it doe s o The prediction is made by starting with the Carreker's share price 90 days after December 10, 2002, and working backwards in time adjusting for changes in each of the respective indices. There are two primary event study methods, the cumulative abnormal return method and the integrate d Dec1 rration of Scott D. Hakala, Ph.D., CFA 7

89 indicate that Carreker's share price moved significantly in response to the key events in this case. 13. The market model po rtion of the analysis is based on a market index, the Russel l 3000 Index (RAY) and an industry index (SUBINDEX) created based on an equallyweighted geometric index from the returns of Electronic Data Systems Corporation (EDS), CIBER Inc. (CBR), DST Systems, Inc. (DST), Computer Horizons Corp. (CHRZ), Unisys Corporation (CMS), and The Reynolds and Reynolds Company (REY). This combination (the "Composite Index") provided the best fit in explaining the market and industry components of Carreker's returns over the study period. Collectively, the index could explain 5.17% of the daily variance in Carreker's stock price returns during the entire study period. 14. The regressions summarized in Exhibit B were based on the daily returns i n natural log transformation format, The event coefficients printed out in Exhibit B are transformed into percentage terms for ease of reference. The t-statistics reported for the industry and market indices are from the regression outputs. The market and industry indices are significant at greater than the 99% confidence level. The t-statistics reported for the various event dates are based on the standard errors reported from the regression results in the regression. A t-statistic with an absolute value greater than 1.00 is method (also known as the intervention analysis or event parameter method). The integrated approach is more reliable and powerful than the cumulative abnormal return method, See, for example, Marais and Schipper, "Chapter I7A: Event Study Methods: Detecting and Measuring the Security Price Efects of Disclosures and Interventions," Litigation Services Handbook: The Role of the Financial Expert, 2005 Cumulative Supplement. The integrated event study approach, especially with a large number of events controlled for in the analysis, is performed over the period of interest and of ter. includes (as controls) the period one year prior to the Class Period and one year after to Class Period, In this case, the study period begins with the initial public offering and concludes one year after the end of the proposed Cass Period. Declaration of Scott 1_ Hakata, Ph.D., CPA 8

90 considered meaningful (more probably than not that an event occurred ), 1.65 is considered weakly significant, 1.96 is considered significant (in the standard sense), 2.33 is considered highly significant and 3.00 is considered extremely significant (an outlier). 1 5, Exhibit B demonstrates the substantial, immediate reaction to the earnings news associated with the earnings announcements in the last three months at the end of th e proposed Class Period, adjusting for the market and industry indices- 16. This is a preliminary event study analysis without the benefit of discovery. I may perform additional analyses and review discovery. I, therefore, may amend and supplement my conclusions based on subsequent analyses and discovery. I declare under penalty of perjury under the laws of the State of Texas and the United States that the foregoing is true and correct, If called as a witness I could and would competently testify thereto. Executed this 31st day of May, 2005, at Dallas, Texas. X66LL)94~ Scott D. Hakala, Ph.D., CFA Declaration of Scod D. 'akala, Ph.D., CFA 9

91 Exhibit 3 Letter from the Committee of Concerned Carreke r Employees to the Audit Committee of Carreker's Board of Directors

92 Com zteo of C of tern l rreker En.pyees Septombcr 11, 20 Donald Ė., Lou se Chairman of + uiitcena ftw C/O Ockham T htn c 3715 Nora ide Pkwy N.W. Atlanta, Get $ Janie L. Fucker Director - Audit Committee 7170 Ken f weod Dr. Dufla, TX ehtard IL LeZ Jr. creator-- ar dk C,mmtftao 5445 fi rth l o Lu_ Da[taa, TX Ronald Ow. Steinhar t Director - Audit +f!aunt e 7719 Map1ecro Ntap DnUaa, TX Dear GrAOviuew The Committee of Cc ed Car eker E ploy saprown s e p[o' g who sham a h 9antin& CGUM to over the YdMag+ cnt of Carraker Corpare i p.d the oversight ffltctiou of its Board of Threetor.paartic thu4y its Audit C rurnl e. The pnrp of this latter 18 to maintain a record of Carter` s W nanagement, fadlurc to ennnpty with SEC thaomosuro require e, i egst sad frauamient raindact of its CEO and other o icon of the Cages, sad the Bch of Direaorlis knowledge and complicity with these actions. Over the past.everai ytrst th e m tier have been brought to the amnthn i of several indi idua1 hoard emtbor (both past awl presently i4erv on the Board) find takentk i to the 'Kowa as a whole. Through _fnsie,tan either by fuung or re iug to rove tipte or otherwise exercise your fiduciary re ptrnsiblttttes s carry Out inflamed emersight of the Comporny a management, you as Loard members are tompieit, vitd iii sa ete,natters actively partkipp.te&, t reprehensible conduct dowrib below.

93 This Committee, h you h ad '[ge of counsel on their obligations to disclose tiwse violations of law t to the SEC, and the Department of Justice; I light of resent le slation by ceng., We ha b advised t W tho Sarbanes-Oxicy Act pro* is disc1ri ure by employees 1 order to cure sceountabtllty of the enm 's management and board of a iteda a. Indeed, we have boon told ftf d d osuro is, an obl1 ation In order to ntd cot piteit conduct This l er record the d3orktsare of Ilse illegal R and once n ais strongly enaenrag you to act rns,at vely In the d bare of yotir E.duciury x,eponsibl es to the Company's emptoyaon and euttide sharehnldea even though you have 11ited to do o In the past With some amusement but mostly 'Amass t at your audacity, we halleve that the anatollne ement of the ormidiwt Of. A srperat Governance Cate" 44 disclosed by the Compot a pass release dated September di 2002 is mere window dressing in order for the board and CM of Cancer Corp to invoke the " <. rcn i]ir sr i ra anal CEO defense" of uninformed ignorance.. Re rd le of Your *1praaedv. stratq&, the board of to tus' of Carreker are r$s nsthlo for Myesti tii n g and eliminating the sbnse and UC ss1 conduct of the C rnpany'a CEO. Jnl'olrtunotely, believe it higm,y unlikely that yeo are able to 4artT out your mpokigibtu3ttes t sha oheide given the aurrc confturattion of CarrokcrIs hoard to light, of tc teca t'. the heard tacks ladopend re from management (Denny CarrtWw) in all &cis ow5 and ovooight concerning nomhietkiu o direct rs appoi tmonts to board mmitt, integrity of accounting and rev ue recognition, and mansg;~ment eummn ssatie y 7ndeod, t vre apparently its suht{a tt l conflicts of inter t. on the board with "' nct-ln irrvaa4 Yizoj tborn pr& -catlng an"y " XiNAtpanccicrEi i Inn" by the h ird. `T"hh certainly becomes upporeitt by the long lima ap ainimoi t of Denny Carreker's 'brother to the Board (J is D. C`arrcker) who beaded the audit committee beginning 197, and Who Continu to cam much tnfuenee over the audit ccnundit&s oversight of the ceutpanyls nsig e t and methods of recognizing revenue. 'u er t onflict of bttreroxt are found by the long term appointments to the beard of Donald ILA House (also Chairman of h Auk CanOdte ) and David Suss, bath who -hk+e been undisclosed paid consultant o the Company during th sir y x rn as board cumbers, Finalfyf for aver 20 yearap Ridtord L Lee (apointed to the Board in 1994 Cry Dourly Carr her) lute Also acted as an isetased paid c ar ul#.nt and advisor to the CEO and his family being 8ctLvely Involved in their estate m.anagem t, t q#teo an various trusts heading substantial s area of C rreksr stock and investment advisor to Donny C rr er responsible for the munage nt a t Ida Carr lzr Corporation and *ther stock holding, Nopotbt'm Is actively tavo cedi by the, CEO t roug the appahtment of his sons (Jahn Carr+eker EW Int rn(iouui ; and Iteent Currekar, Mannging Principle) to key manapment positions and the employ a of refers in. part time-positions, Several of these telatlves to the CEO collect pay cheeks b~mant ly fmm the Company while falling to k any office bovxrg of at danec or otherwise porforn work for the Company as required by all other omptoyecs. The Beard of Directors have Va s Vely condoned this conduct and

94 Exhibit 3 Letter from the C ommittee of Concerned Carreker Employees to the Audit Committee of Carreker's Board of Directors

95 Lames i of Co ennned Carreker Eupkay s - epto nhcr 17, 2+ Donald i. Rouse irmau of Au4it jox it CID Oc am Teehnakgp %7U; N th ide Pi N.W. Atiogt GA 30,427 rtes L. Fischer Director - Auk Committee I V70 Kendallwt)ad Dr.,atlas, TX 7524 i rd R. Lee Jr. Th to'- /audit Commtttw 5445 Cazum lewd Li. Da h s TX 75=5 Ronald C. SwInha -t Director - Audit Ce mitten '7719 Maplerro t T'. Dallas, TX Dear Geatt[ aan; The Committee tkf C ar oe ed Carreket twployeas spc.4mt$ em key g who share xobst ntiaj ea eern over the manago font of Carrokor Cur sus a a*.d the o might function of its Board of Ti etorf.partieularly,fte Audit Corn rn tteo lbk purpwo of thi5 lottcr is to maintain a record of Corrcker e x P.nagewent faliu n to comply with. SEC disclosure req i re nts rat d frauil k # onduet of its CEO and other ut1icer~ of e Company, and tlf Boa A- of Dir erla knowledge and eti npu y wig, Most: a At o, Over t ho past everat y r, these Matters have been brought to # a n sn of sa- crab itdivideal board tm (both past and pre t1ry SerAft 0 the-board) nt.d es eel oly to the Th rjrij as.e wkole. Through LILa-d-On-, either %9kk9 or raft sing invoptipto or of rwise exere +e ) O1r fiduciary r"p1r asibill to carry out informed oversight of the Gompooy management, you as Boars inemheni are fie pfici, and in same rauttera actively par atd, the reprvhonel a conduct dpsctib, below.

96 This C'*mmittoe has sought advise of e n nl on Choir obligattous to z cianc th o veolatlans Of Liw two the EC 11"d the Dep rtm zt of s%atloo in light of r' t legislation Cengr. We have been advised that t ht, arbanes-oxley Act pro is disciu by employees h. order to r accountab ilit y of o cnr"paoy's manager c tt and board of dare or:&. it teed, we have boon told that dis l ure is an obligation In e er to avoid complicit conduct, Thh liar record t e d1sc ware tot" then lil a[ acts and erneo again strongly ane ag you to act a uiaticwy in the dhichorge ofyour fiduciary ponsihl( ca to the Company's emnpl ccs ooxd toftwe Kharehul,,c even though you h4v 1Itk c to do so Its t he port With some amusement but rn*stly 'ants.,sit at your ovdad ty, we believe that the anotouncoment of the faemswuo of. a Crporatp Gave al ce Comm tom" o dioo oscd by the Company's pros release dated September 4, 2002 b mere wirndow c rettsing in order for the board and CRC) of Carer Corp. to L,va the "Etron ter ns ' and CEO "t e" of uninformed,osranoo, Vxgardloa of your '" roa ve', the beard of direv ' of Carr er are resuahlc for inv ti t ig And eeimhiat g the abuses and U legal conduct of the Company's CFO. Cufortmattely,wo 9bek leve It kigi1y mt h ly th you are able to earn out your l pousibw e to ibarc o$cm' given the aurr a configuration of Cer cer s board to 13 at of the f'trt that the bomb Wks independeasm from managerneat Jenny C 'rc x) to all d lefens.and oversight concerning nomix'.atitrn 4reetors appoit,t nts to board VOMMjtkes Integrity of accowi hug and revenue recognition, and nsgrwmnt cooa ftioi* Tndcoi3, there spa tr sntly c ists subsiarithil Conflicts of ii ros. on the ou d with awuaerriri 1rvx&% 1 Astomberi prrwatw of "9%kd,*rc-cUni aeflaszt" by the heard. I% h,certainly becomes appprent by the long lima appal ffiu It of Dent Cnra'ckor',p tot ior to the Board (Jn'nea D, carreker) who beaded the credit eamtnittee beginning and who continues to cater much JafWrbce over the audit co s utttae's vcrmight of the company's maasg at and method i of recognizing revenue. Further conflict of,tech s found by the long term appo# t arts to the board of Donald L. Home (ohs C l as of t ho Audit Comnttteo) a nd Daum. K. Sias, both who -have been nudlictosed paid n uraac or tmo Company dining t heir years as board members. Fin idly, for over 20 yam, Rl and,., ec (eppointoi to the ward In 19M key Denny Ca r) has also acted as an andhi osed paid co a nt and advisor to the CW and his fames Wag actively t olvod in mfr estate Aaye cnt, i tee an vartn is tru Ieakifng substantial shares at Carr eke r stack and in tnica t advisor to Denny Canker ponalble for the management of his Cor i er Corporation and other stock lamhigs. 1 epm sm is actively ia'voked by the CEO laugh the oopoiu ut of Ks :sans (John Carreker,.'P In to ate al ; and lircut Cnr, a car, Managing 'PE ciplc to key management posftio and t bb vmployn ut of relatives In part time-position%, Several of these reietlves to the CEO collect pay cbec t ba- iontbiy from the Company while foiling to keep aq cities hour of attendance or of eewise perform work for the Company as rsgn~re4'by all other cinptnyccc. The tarsi of"1 {i eetors have pamlet y condoned this conduct and

97 fnirhed tt properly ropaar aunt ftkcts of Interest and nepothm to the SEC us roq 4 d. The Company's CEO has eo ittenily hooted the Company an bio own "piggy I rn 1 ' at the tx enoo of ernpiny s uted iaroiaderll The fofiowhv% is but a sample of those Illegal nets through future to disci or frrudu vet ear d' t unit oboe of power carried out by Denny Carr er: Mi ppr i4on of 'hosts ~» {a) weekly, & I y Carreker rt es' th tond of [':nmptany dof rg h ersi from Roxanne, a ca purate counting boek'{ per for the Company and personal a+ to y to Denny Carreker. Tee pay nemts of s uha represent tamp flsottun to Mr. Cam and he has never dhh xod it to regutnto rs as suia or other cr po n*htn even though required to do so. Mr. Carrmkcr required nutty pioyaes to reduce their salaries in 2001 and 2082 bee we. of deefimng corporate rovenac in order to ret ee ffip othig emwnrm ' oven dhekuot in the mpany xy Report e roduotion of.h Aulrn when In 1Ot be was rwelving pets vodlselogw sash pymeet (Ii) el o r. r roker hay taken his w'fe and other family members on lavish trigs to many pe of Europe and Axis unifier the flreten e. of businm arging the enter pg a off to the Company u corporate t o finon trnvet, Including air fare, menh aid hotel pens for 3 w1fc Connie eo in fact no bizottax was a r du d. or Rattly e4mtcmpw0d for the b om of t Company, V1tiua France and priv+ yacht are oat some of the oan-hnnin aro use used by Mr. C# er and his Wife At Company a ponce, Further, time Company has rep ally paid thauean4s of dollars for Denny.t.s rrcher a ik rpituaev Wori H' dccor5tor cowiulting f and Graff wont`s fees p onnh mg constmation work at his borne in Highland Park at the demand and direction of his wife, Connie. Again, t le was not sdis+ iosed us co tpensation to Mr, C'axrcktr,as 'sec uirvd ; (e Mr. carrel er has required the Company, pay thorn ids of dotba for his prie to club membership fees. with the Untiveraity Club and O 'etroieu Club but falls to diseloo4 this to golalorm even thought be uses theme rnembershi'pa for person entertainment. Erod-Owl n a aus art - - Mr. Car kerr and ids CFO, Teary Goge, have udulently reeognlzed revenue from company business and c o l ds which oy know Zvi,)fits GAAr rules and rspa e snit cor orate prom and corporate Ouck value with the Went to 1asd i rv ton. This has been eouducted in runny foms -» bac thug contmtt claiming mim ue from of ntracte not yet s ed by the elrt in the rapmqiag period r.k h nod. id *ho Cranust.iI a arrtxsouaarar ~us# AF'` nig"m hw i2w.n when tin Suth contract ba been idgnmtl y. the client through p nature press rete s; I ttcrtt6nna1jy overceti atihg fhe Percent of of 90++am contneb in order to re iulze revenue ; oirumtating consulting fees when the client spates the value at" consulting aorrvtt received or the camupletkan of thorn wvlres. Some of the contra include First Star, Clare: Bank, First Virgimin (eve.ue suhrnae ent), Key Sank.< u twsro

98 fnstanton) FW BOA= (ri* m age nt) and Mef n t'c (Mowxro) Through ft b O ou (EVP for ' ettug) and Dounjr Carraker., employees have been tueoa ra o or intimid#w (through lass of loy cn1 to Ito and,masirvpr t to auditors the, erase status of these eontrc as they rotate to GAP llttrpretat n and applichti b.. Manny em l resji have 3nfonn d the Company's audis oom i t of these 1' at act* it, ar nt y r6ulting in no action or m v guflon beesw a of the I k of h dope"ence maintained there. U1 + Loa4 i g Chip MipbIL - Denny rroker- has gr+ x iuvoro1 1 ra l + wi a t first seethtg approval from the Board' s rape *eau n committee. They Wade -A $50, loan to Bob O15utit (EVP) and several Cwmtl7 C: ub memborskip s paid by the Ca m or Mr, O bon, Bit Caber,. and John m1 '- These limns and 1nb Yi"4ier;6AV -werount ro rr: as pcnsntmm for them ax ploycee. L gor.'' r ins. Mr. Et rr kor'n sea Brant iis6 openly b g to eo pan ' emp loyees of Bait profits from inaider tmding of Ca rreker atoeh o$ Connie Carraknr, the CEO's wife frequenfly shares ai a (horam1 } Inkbdr infor aton'5t Moods In hur Wvedm utt club halving Carrektr stock A pain, she 1 openly bre ed to exup1ey of her gagtts. In eet, the i e rp for G, eon htr (S - Investor Relu unm) to violate imolde r tradi laws Wa' the apparent ease and una 'um ability with kh Mr. C kerls family vlolatw scuriti taw heady, Jot Carne r hay establish offshore bank sexaultm in the Grand cmcn bands to de doteeflou from the SEC of utilizing insider itt iwtttia. of die Cnntpany to Illegal trade Cer '1 S ic. Tt Is of furtaor interest to employees of t1w Company that Mr. Cur ker has *nnouaced that ho will certify the completeness and accuracy of the fiuttn l disel store fiiinp and1.ma nia made evs' ble to the love sting public as required of all public, company cloa thy4wga recent 1e 1on. ztainly by doh so, Mr. Game r is once api x+loiottin s urifles law but with one Additional caw at - that is that. Board of 1) thus, particularly the Audit Cwnmittco, is comp at with Mr. Cuter in ' is a htg and viulatin SEC regulations., Sired : t eofc eermd C"arreker gramptoyees Mr. Harold R. LOW Jr. ec. 9EC cmwint rater "curly and ltehenge C misiittn 450 Pita St, N.W, Enforcement Division Waste can, D C. Burnett Plaza, Wte 130lO 2OS4J #0l Cherry St., Unit 19 Fort worth, T 7610Z

99 Vllgqx

100 Exhibit A Scott D. I akala, Ph.D., CFA Employment History Jan 1998, March 1998 to Present CBIZ Valuation Group, Inc. (formerly Business Valuation Services), Dallas, Texa s Director/Principal. As a financial economist and financial analyst, Dr. Hakala brings to the firm extensive practical knowledge of finance, economics and statistics. His expertise includes : corporate finance, restructuring and cost of capital ; the valuation of securities and business interests (transactions, mergers, acquisitions, fairness opinions); the valuation of intangible assets (patents, trademarks) ; analysis of publicly traded securities (insider trading studies, trading analyses, event analyses, materiality, damages in securities litigation) ; economic loss analyses (commercial litigation) ; wage and compensation determination (reasonable compensation studies, Lost personal income, wrongful termination) ; transfer pricing ; derivative securities (options pricing and valuation) ; and antitrust and industry structure, strategic pricing, marketing and cost allocation analyses. Jan March 1998 Laser BioTfterapy, Inc., Dallas, Texas Interim President. Dr. Hakala served as the Chief Executive Officer of Laser BioTherapy, inc. His decision-making authority involving issues of marketing, employment, negotiating with investors, pricing, product planning, financial planning and all other corporate decisions Dept, of Economics, Southern Methodist University, Dallas, Texas Assistant Professor. Dr. Hakala taught graduate and undergraduate courses in macroeconomics, monetarylfinancial economics, financial institution regulation and international financial management. He supervised dissertations on international money, commodity options and forward markets, and foreign exchange rates. His research interests included monetary policy, the causes of fluctuations in employment and output, capital stock estimation, aggregate production theory, foreign currency movements (futures, options and forward contracts), inflation, interest rate movements and the term structure of interest rates, asset pricing and consumption. ' Dept, of Economics, University of Minnesota, Minneapolis, Minnesot a Lecturer. Dr. Hakala designed course materials and taught large classes in macroeconomics and international economics. He served on hiring committees and evaluated other instructors. Formal Educatio n Doctor of Philosophy, Economics University of Minnesota, Minneapolis, Minnesota Graduate School Fellowship (Graduateldissertation advisor Edward Prescott was awarded the Nobel Prize in Economics in 2004.) Bachelor of Arts, Economics Minor in Business Administration and Pre-Law Emphasis University of Minnesota, Duluth, Minnesot a Graduated Summa Cum Laud e Whiteside Scholarship, full tuition and expense s Scott D, Hakala, Ph.D., CFA Page 1

101 Honors and Awards Distinguished Instructor, Department of Economics, University of Minnesota, Earhart Foundation Award, Department of Economics,, University of Minnesota, 1985 Graduate School Fellowship, 1983 and Cecil H. Meyers Outstanding Economics Student Award, 1982 Perfect Scores on Quantitative Analysis and Verbal Analysis sections of Graduate Record Examination (GRE), Alice Touhy Tweed Award, High School Valedictorian, Lee Krough Award (outstanding character), American Legion's Minnesota Boy's State, 1978, elected Lt. Governor and invited to represent state at other event s Centrum Award, 1979 (for outstanding character and contributions ) Professional Association s CFA Charter, The Institute of Chartered Financial Analysts, CFA designation completed all tests and requirements for a b Member, American Economic Association Member, American Finance Associatio n Publication s "Estimating and Applying Economic Value Added," Chapter 13E - Financial Valuation : Business Interests Update, Publisher: Warren, Gorham & Lamon t Businesses and "Valuation for Smaller Capitalization Companies' (with Dr. Mukesh Ba)aj), Chapter 12A - Financial Valuation: Businesses and Business Interests Update. Publisher: Warren, Gorham & Lamont, "Analysis and Valuation of Distressed Equity Securities" (with Mr. M. Travis Keath), Chapter 13F - Financial Valuation: Businesses and Business Interests Update. Publisher: Warren, Gorham & Lamont.. "Analysis and Valuation of Distressed Equity Securities" (with Mr. M. Travis Keath), Valuation Strategies, September/October 1999, pp Publisher : Warren, Gorham & Lamont. Contributing author in The Art of MBA Integration: A Guide to Merging Resources, Processes and Responsibilities. October Publisher: McGraw-Hill. Contributed on valuation of tangible and intangible assets (patents, trade secrets, customers, goodwill, employment agreements, non-competes, etc.), allocation of purchase price issues, accounting treatment of acquisitions, international valuation and transfer pricing and general valuation and due diligence issues. Assisted editor in commenting on and editing first half of text. Provided live and taped interviews pertaining to economic issues for television, including lengthy interviews for CNN (July 1990), WFAA-TV (July 1990 ; July 1991 ; March 1992), and radio (Internet radio on November 9, 1999, discussing Microsoft anti-trust issues). ScottD. Hakata, Ph.D., CFA Page 2

102 Lectures Presented Dr. Hakala is a frequent public speaker on valuation, economics, ethics, and monetary policy- Examptes include : "Valuation of Options for Litigation Purposes" -Nevi York University CLE Presentation-October 2000 a "Valuation Issues-Family Limited Partnerships" - Professional Financial Service, LP's Family Limited Partnership Alert and Update ; Dallas/Fort Worth - February 2000 "PPOs for Sale : the Valuation of Managed Care Entities" - Caesars Palace ; Las Vegas, Nevada - September m 'Equilibria in Continuous-Time Models of Money" - refereed paper presented to the Sixth World Congress of the Econometric Society ; Barcelona, Spain - August "The Use and Holding of Currency" - Feature Presentation - Western Economic Association Meeting ; San Diego, California - July 1990 "Values and Economics" -Dal as Philosophical Forum ; Da as, Texas - March 'Ethics and the Role of Government" - ARCO Oil and Gas Research Center ; Piano, Texas - October 1989 "Continuous-Time Models of Money: Policy Implications' - paper presented to the Division of Research and Statistics of the Board of Governors of the Federal Reserve ; Washington, DC - January Expert Witness/Litigation Suppor t Dr. Hakala has undertaken various assignments involving litigation support and has testified as an expert witness. He has been qualified as an expert and has testified in both U.S. District Court and in U.S. Tax Court. The following is a list of testimony on record: David Graben and Frank Strickler v. Western Reserve Life Assurance Company of Ohio; lnterseeurities, Inc. and Timothy Hutton ; State District Court, 271$' Judicial District, Wise County, Texas ; deposition testimony March 29, 2005 ; trial testimony May 18, 2405; testified as to economic losses and prudent investment management involving the management of investment portfolios for two retired individuals. Wechsler & Co., Inc. v. Commissioner of Internal Revenue, United States Tax Court (Docket No ); trial testimony March 24, 2005 ; prepared a written report and rebuttal report as testimony in a matter involving the determination of the reasonable compensation of a Chief Executive Officer of a broker-dealer specializing in trading convertible debt securities as a dealer and on its own account. Stephen T. Davis, Individually and as Owner of Lone Star Phones v. Dobson Cellular Systems Inc. d/b/a CellularOne and Dobson Communications Corporation and Kelly Lane ; In the United States District Court for the Northern District of Texas, Dallas Division (Case No CV-0465 B); deposition testimony February 25, 2005 ; testified as to lost income associated with allegations of a breach of contract and wrongful termination of a dealership agreement. in re ; RE Corporation Securities Litigation ; In the United States District Court, District of Connecticut (Master File No. 3:0t3CV705(CFD))); deposition testimony February 23, 2005; testified as to materiality, inflation per share and aggregate damages in a class action securities case involving allegations of inadequate and misleading disclosures relating to a secondary offering of tracking shares. Scott D. Hakela, Ph,D., CFA Page 3

103 Alpine International Corp. v. Texas Health Resources; State District Court, 101 Judicial District, Dallas County, Texas; deposition testimony February 21, 2005 ; testified as to lost profits associated with a breach of a non-solicitation provision in a contract. Michael Gloster and Victoria Gloster, t/a Gloster Marketing v. Relios, Inc., H. William Pollack, flf, and Carolyn Pollack ; In the United States District Court, Eastern District of Pennsylvania (Cause No. 02-CV- 7140); deposition testimony February 11, 2005 ; testified as to issues of valuation and profits involving claims of trademark and copyright infringement. in re: Clarent Corporation Securities Litigation; In the United States District Court, Northern District of California, San Francisco Division (Master File No. C CRB(JCS)) ; deposition testimony January 11, 2005 ; trial testimony January 31 and February 9, 2005 ; testified as to materiality, inflation per share and aggregate damages in a class action securities case involving allegations of accounting fraud against former officers of the company and the accounting firm for its audit. In re : DOE, Inc. Securities Litigation; In the United States District Court, Western District of Pennsylvania (Master File No ) ; deposition testimony November 23, 2004 ; testified as to materiality, inflation per share and aggregate damages in a class action securities case. In re: Worldcom, Inc, ERISA Securities Litigation ; In the United States District Court, Southern District of New York (Master File No. 02 Civ (DLC)) ; deposition testimony November 15, 2004 ; testified as to discounts related to block size and information effects associated with the possible sale of shares of Worldcom and MCI tracking stock in the first half of the Adele Brody, et at., on behalf of themselves and all others similarly situated, vs. Peter S. Hellman, et al.; District Court, City and County of Denver, State of Colorado ; deposition testimony September 3, 2004, and May 27, 2005 ; hearing testimony November 30, 2004 ; testified as to the ability to measure damages to a class of shareholders via a plan of allocation. in re. Broadcom Corp. Securities Litigation,, In the United States District Court, Central District of California, Southern Division (No. SACV GL T (MLGx)); deposition testimony August 27 and 29, September 10, December 1 and 2, 2004, and January 21, 2005 ; testimony during tearing April 21 and May 25, 2005; testified as to materiality, valuation of customer contracts, valuation, inflation per share and aggregate damages in a securities class action and damages in a related private action. Burt L. Schmidt, Individually and d/b/a Diamond S Trucking vs. Navistar Financial Corporation; State District Court, Hamilton County, Texas ; deposition testimony July 28, 2004 ; trial testimony August 30, 2004; testified in rebuttal as to claims of lost profits associated with the repossession of tractor trucks by the defendant in Basic Management Inc, et al., vs. United States of America, et at. ; In the United States District Court, District of Nevada (No. CV-S RCJ-(RJJ)); deposition testimony July 22 and 23, 2004 ; testified in rebuttal as to appropriate assumptions and methods (including discount rates and appreciation rates) for a real estate development company in Nevada. In re. JTS Corporation, Suzanne L. Decker, Trustee, vs. Roger W. Johnson, et a!. ; In the United States Bankruptcy Court, Northern District of California, (No MM ; A.P. No ); deposition testimony July 15, 2004; trial testimony April 11, 2005 ; testified in rebuttal to trustee's expert as to economic losses to creditors and reasonable value associated with certain business decisions. Randy S. Myers, Individually and on Behalf of all others Similarly Situated, vs. Progressive Concepts, inc. d/b/a Hawk Electronics; 352nd Judicial District, Tarrant County, Texas (Cause No ) ; deposition testimony July 2, 2004 ; testified as to the appropriate measure of dam ages involving allegations of improper billing involving cell phone services. Scott D. Hakala, Ph.D., CFA Page 4

104 OnSite Technology LLC vs. Duratherm, Inc. at al. ; In the United States District Court for the Southern District of Texas (Civil Action No. H ) ; trial testimony June 10, 2004 ; testified as to lost profits and reasonable royalties as a result of allegations of patent infringement. A TS Telecommunications Systems, Inc. and ATS Liquidating, Inc. /kla Advanced Telecommunications Systems, Inc., by and through its Pion Agent H. Malcolm Lovett, Jr. vs. Philip R. Lacerte and Four LC Trust vs. Stan M. Gorman, Sr., and B. Scott Pool; 113 1' Judicial District, Harris County, Texas (Cause No ) ; deposition testimony May 25, 2004 ; testified as to reasonable and customary terms and consideration for the provision of performance guarantees, reasonable start-up and operating expenses, and issues of fraud and breach of fiduciary duty. ISG State Operations, Inc. vs. National Heritage Insurance Company, Inc. ; 250th Judicial District, Travis County, Texas (Cause No ) ; deposition testimony May 11, 2004 ; trial testimony April 25, 2005 ; testified as to appropriate measures for calculation lost profits in a breach of contract claim involving data processing. Xperex Corporation, at al. vs. Viasystems Technologies Corp., LLC; Court of Chancery, New Castle County, State of Delaware (Civil No NC); deposition testimony April 23, 2004 ; testified as to the valuation of intangible assets and business related to allegations of fraudulent conveyance and breach of fiduciary duty to creditors. Richard Marcoux, on behalf of himself and all others similarly situated. v. Billy D. Prim, Andrew J. Fiiipowski, et al. ; County of Forsyth, State of North Carolina (No. 04 CvS 920); deposition testimony April 12, 2004; testified as to errors in a fairness opinion issued in a proposed acquisition of a public company. Houston Saba, L.P. vs. Nick Hernandez and Boyd Page Inc. d/bfa Boyd Page & Associates ; 280th Judicial District, Harris County, Texas (Cause No ) ; deposition testimony March 31, 2004 ; testified as lost profits associated with disruption of a restaurant due to street repairs and construction. m Avtoland of New Jersey, inc., at al, v. Commissioner of Internal Revenue; U.S. Tax Court (Docket number ) ; testified in trial February 19, 2004 ; testified as to issues related to the reasonable compensation of executives in the auto retail business. Soils Control International, Inc. vs. Martin Marietta Magnesia Specialties, L.L.C. and Midwest Industrial Supply, Inc; United States Court, District of Massachusetts (Civil Action No. A-03-CA-531 H) ; deposition testimony January 30, 20x4; testified as to lost profits in a dispute relating to allegations of deceptive trade practices. In re Raytheon Company Securities Litigation ; United States Court, District of Massachusetts (Civil Action No (PBS)); deposition testimony January 27, 2004 ; testimony in hearings May 3 and 7, 2004; testified as to materiality, causation, inflation per share and aggregate damages. In re : AT&T Corp Securities Litigation; United States District Court of New Jersey (MDL No, 1399, Civil Action No (GEB)); Consolidation Class Action on Behalf of the Purchasers of AT&T Wireless Tracking Stock Shares between April 27 and May 1, 2000 ; deposition testimony January 16, 2004 ; testified as to materiality, causation, inflation per share and aggregate damages. m Robert Rodgers vs. Johnson Health Tech. Co., Ltd., Epix, Inc, dlb/a Vision Fitness, et al..; United States District Court for the Western District of Texas, Austin Division (Civil Action No. A 02 CA 731 SS) ; deposition testimony January 7, 2004 ; testified as to reasonable royalties and damages for alleged patent infringement. Scott C. Hakala, Ph.D., CFA Page 5

105 In re. Xcelera.Com Securities Litigation. ; United States District Court, District of Massachusetts, Boston, Massachusetts (Civil Action No. 00- CV-11649(RU12)) ; hearing testimony November 20 and 21, 2003 ; testified as to materiality, reliance and market efficiency in a hearing on class certification. C. F. Jordan, L.P. v. Argosy Gaming Company, Laneco Construction Systems, and Louisiana Glass, AAA Arbitration (Case Number ); deposition testimony November 18, 2003 ; testified in rebuttal to allegations of lost income from hotel construction and remediation activities. ELIZABETH M. KURECKA, individually and as Representative of the estate of Edward Kurecka, Deceased, MICHAEL KURECKA, TIM KURECKA, and MELANIE KURECKA POWELL v. DAVID H. AMMONS, M.D., GARY R. GODSIN, M.D., and MICHAEL PETTIBON, M. 7.; 342 d Judicial District, Tarrant County, Texas ; deposition testimony September 2003 ; testified as to the loss of income to the survivors in a wrongful death case. Betsy Gross v. David Halbert and AdvancePCS ; 352ntl Judicial District, Tarrant County, Texas (Cause No ) ; deposition testimony August 26, 2003 ; testified at trial November 10 and 11, 2004 ; testified as to the valuation of executive stock options. Michael Aldridge, individually and on Behalf of All Other Similarly Situated, vs. A. T. Cross Corporation ; Bradford R, Boss; Russell A. Boss,- et at; United States District Court, District of Rhode Island (C.A, No (ML)); deposition testimony August 19, 2003 ; testified as to materiality, causation and damages in a securities class action. in Re Broadcom Corp. Securities Litigation; United States District Court, Central District of California, Southern Division (Master File No. SACV GLT (ex)); deposition testimony July 29 and 30, 2003; testified as to the market efficiency of the trading of Broadcom shares and aggregate damages calculations relating to class certification. J. Bryan Pickens vs. John T. Pickens, J. Michael liner, Michael K, Pickens, C. Robed Milner, Jr., Pickens Financial Group, L.L.C., Pickens Resource Corp and Pickens, Ltd. ; 298th Judicial District, Dallas County, Texas (Cause No ); deposition testimony July 11, 2003 ; testified as to the overall financial performance of certain companies and the fairness (or benefits to the plaintiff) of certain transactions involving the defendant companies and affiliated trusts. In re Arthur Franklin Tyler, Jr., Debtor, Arthur Franklin Tyler, Jr., V. Tyweli Manufacturing Corporation,, U.S. Bankruptcy Court, Northern District of Texas, Dallas Division (Case No, SAF-13 ; Adversary No ) ; trial testimony July 1, 2003 ; testified as to net asset value under various assumptions in an involuntary shareholder foreclosurefshareholder oppression dispute. FFP Partners, L. P. v. Jack J. Ceccarelli, Restructure Petroleum Marketing Services, Inc. f/k/a E-Z Serve Petroleum Marketing Company and Environmental Corporation of America, Inc.; American Arbitration Association (Case No. 71-Y ): hearing testimony May 19, 2003 ; testified as to the value of gas-only operations related to allegations of breach of contract, breach of fiduciary duty and theft of business opportunities. a RadioShack Corporation, and TE Electronics, L.P. vs. Fried, Frank, Harris, Shriver & Jacobson and Harvey Pitt; United States District Court, Northern District of Texas, Ft. Worth Division (Civil Action No. 4:02-CV-0639-TV) ; deposition testimony May 9, 2003; testified as to causation and damages as a result of allegations of legal malpractice. Printwrap, Inc. v. Printwrap Sales, Inc. and Maxine Ammon ; 134th Judicial District, Dallas County, Texas (Cause No G); deposition testimony May 6, 2003 ; testified as to the valuation and economic losses of a purchase of a specialty printing business as a result of allegations of material misrepresentations on the part of the seller. Scott D. Hakala, Ph.D., CFA Page 6

106 In re Theragenics Corp. Securities Litigation; United States District Court, Northern District of Georgia, Atlanta Division (Civil Action No. 1 ;99-CV-141-T*T); deposition testimony April 2, 2003, and August 14, 2003; testified as to materiality, causation, inflation per share and damages as a result of allegations of securities fraud (violations of the Securities Exchange Act of 1934, Rule 10b-5). Teleplus, Inc., v. Avantel, S.A. ; United States District Court, Western District of Texas, San Antonio Division (Civil No. SA-98-CA-0849 FB) ; deposition testimony March 26, 2003 ; trial testimony September 26, 26 and 29, 2003; testified as to the valuation of a reseller and marketer of long-distance telephone services (primarily for domestic and international service in Mexico). Russell Grigsby vs. ProTrader Group Management, L.L.C,, et al.; American Arbitration Association (Cause No ) ; deposition testimony March 7, 2003 ; arbitration hearing testimony October 17 and November 3, 2003 ; testified in a fraud and shareholder oppression case as to the fair value of a brokerage firm with specialization in day trading. Donald P. Williams vs. Peter O. Holliday, Iii, MD, and Open MRl of Decatur, Circuit Court of Morgan County, Alabama (Case Number: CV ); testified at trial March 4, 2003 ; testified as to the value of loan guarantees and the value of a business operating an MRI in a shareholder oppression lawsuit. Menard, inc. v. Commissioner of Internal Revenue ; U.S. Tax Court; testified in trial February 27, 2003 ; testified as to the compensation of executives in comparable and guideline companies and the proper valuation of incentive compensation benefits. Richard Strauss, Sovereign Texas Homes, ltd., et a!. vs. Wallace Sanders & Company, et al.; 191st Judicial District, Dallas County, Texas (Cause No J) ; deposition testimony February 14 and 20, 2003; testified as to materiality, causation, and damages as a result of allegations of improper accounting, Paul Dzera, Philip J, Gund and Stephen Marotta v. Zolfo Cooper, L.L.C. ; American Arbitration Association (Arbitration no, 18Y ), Newark, New Jersey ; hearing testimony February 11, 2003; testified as to measures of economic loss associated with claims brought by defendant. In re V/S!ONAMERICA, INC. SECURITIES LITIGATION; United States District Court, Middle District of Tennessee, Nashville Division (Master File No ) ; deposition testimony December 12, 2002 ; testified as to materiality, causation, inflation per share and damages as a result of allegations of securities fraud involving accounting misstatements (violations of the Securities Exchange Act of 1934, Rule 10b-5)- In re National Golf Properties, Inc. Shareholder,Litigation; (Masseo Investment Partners, Ltd., Anne Marie Rouleau, Thomas Feiman, IRA and Robert Lewis, On Behalf of Themselves and All Others Similarly Situated, vs. James M. Stanich, et al.; Superior Court of the State of California, County of Los Angeles (Lead Case No. BC268215); deposition testimony November 22, 2002 ; testified as to fairness and problems with a fairness opinion involving a proposed acquisition of the public REIT, including process, disclosure and allocations of proceeds problems. Ralph R. Unstead, Jr., On behalf of Himself and All Other Similarly Situated, v. lnfelect Communications, Inc,, et al. ; U.S. District Court for the Northern District of Texas, Dallas Division (No CV-2604-M) ; deposition testimony October 31, 2002 ; testified as to materiality, causation and damages in a class action securities case. Physicians Resource Group, Inc. and EyeCorp, Inc,,, vs. Dr. David Meyer, et a!., ; U.S. Bankruptcy Court, Northern District of Texas, Dallas Division ; deposition testimony October 22, 2002 ; trial testimony February 7, 2002; testified as to issues of solvency and reasonably equivalent damages as a result of certain transactions between the defendants and the plaintiffs prior to bankruptcy. Scott D. Hakala, Ph.D., CFA Page 7

107 Maximicer, L.L.C., vs. PepsiCo, Inc. ; U.S. District Court for the Eastern District of Texas, Marshall Division (No CV-132(tjw)) ; deposition testimony October 21, 2002 ; trial testimony December 10, 2002; testified as to damages arising from claims of commercial defamation and other causes. HALCYON INVESTMENTS INC., flkla B.A.S.S.,Inc., at al.. vs B.A.S.S., LLC, f1wa LIVEWELL ACQUISITION,LLC, B.A.S.S. (IP)., at al. ; AAA Arbitration (File No. 30 E ); deposition testimony October 10, 2002; testified as to due diligence, disclosures and economic damages estimates involving an agreement to sell a business between the parties (subject to confidentiality agreement). Jerry Krim, at al, v. pcorder.corn, Inc., at at, ; U.S. District Court for the Western District of Texas, Austin Division (Master File No. A:00-CA-77&-SS); hearing testimony September 20, 2002; testified in a class certification hearing on the trading of shares and source of shares purchased by proposed lead plaintiffs. APA EXCELSIOR Ill L.P., APA EXCELSIOR III OFFSHORE, L.P.,APA/FOSTIN PENNSYLVANIA VENTURE CAPITAL FUND, CIN VENTURE NOMINEES LIMITED, STUARTA. EPSTEIN and DAVID EPSTEIN, v. PREMIERE TECHNOLOGIES, INC.,BOLAND T. JONES, PATRICK G.JONES, GEORGE W, BAKER, SR., and RAYMOND H. PIRTLE, JR; U.S. District Court for the Northern District of Georgia (Civil Action No. 1 :99-CV-1377-JOF); deposition testimony September 4, 2002 ; testified as to the materiality of certain representations and damages in a securities case. Microtune, L_ F. v. Broadcom Corporation ; U.S. District Court for the Eastern District of Texas, Sherman Division (Civil Action No. 4:01-CV-023); deposition testimony August 29, 2002 ; testified as to the reasonable royalty in a patent infringement case. John F. Havens, On Behalf of Himself and All Others Similarly Situated, vs. James L. Pate, at al.; and Howard Lasker, On Behalf of Himself and All Others Similarly Situated, vs. James L. Pate, at al., 295`, Judicial Dstrict, Harris County, Texas (Cause No ); deposition testimony July 15, 2002 ; hearing testimony July 18, 2002; testified as to the materiality of certain information omitted from a proxy to Pennzoil-Quaker State shareholders, issues with respect to the fairness opinion analysis by Pennzoil's financial advisor, the determination of fairness and issues with respect to mergers and acquisitions. Lawrence D. Poliner, M.D. v. Texas Health Systems, at at. ; U.S. District Court, Northern District of Texas, Dallas Division (Civil Action No. 3:OOCV1007-P), deposition testimony May 20, 2002 ; testified as to certain anti-competitive issues involving a specialist medical practice. In re: Chartwell Health Care, Inc.; John H. Litzlar, Chapter 7 Trustee, vs. Irving D. Boyes, at a1. ; U.S. Bankruptcy Court, Northern District of Texas, Dallas Division (Case No SA -7) ; deposition testimony April 25, 2002 ; testified as to solvency and economic losses of a nursing home operator. Leonard Saals,Jr. v. The Estate of William Lee Hatch, Jr., Deceased, at al.; In the Probate Court Number One, Travis County, Texas (Cause No A); deposition testimony March 22, 2002 ; testified as to the measurement of lost future earning capacity, case settled before issuance of deposition transcript. Leland Stenovich, et a!., vs. Spencer F. Eccles, et al.; Third Judicial District Court, Salt Lake County, State of Utah (Class Action, Case No, ) ; deposition testimony February 5 and 6, 2002 ; testified as to standards of practice, fairness and adequacy of consideration in a class action lawsuit relating to the acquisition of First Security Corporation by Wells Fargo. in re Computer Associates Class Action Securities Litigation ; U.S. District Court for the Eastern District of New York (Master File No. 98-CV-4839) ; deposition testimony January 23 and 24, 2002 ; testified as to materiality, causation and damages in a securities fraud lawsuit. Scott D_ Hakala, Ph.D., CFA Page 8

108 Pamela Graham Reeves vs. VIJ, Inc. d/b/a National Utilities Co.INUCO and Greer Industries, Inc.; U.S. District Court for the Northern District of Texas-Fort Worth Division (Case No. 400=CV-1671-BE) ; trial testimony January 9, 2002 ; testified as to market wages, current job market and likelihood of employment for an individual alleged to have been wrongfully terminated. Patricia E. Vincent and James R. Vincent v. Bank of America Texas, N.A..; In the 68' Judicial District Court, Dallas County, Texas (Cause No. DV ) ; testimony in hearing in December 2000 and trial testimony December 18, 2001 ; testified as to the proper calculation of interest on a home mortgage and common standards and practices for calculating mortgage interest Joan C. Howard and Charles A. Anderson, on behalf of themselves and all others similarly situated. v. Everex Systems, Inc., and Steven L.W. Hui, et al.. ; U.S. District Court for the Northern District of California (Case No, C CAL), deposition testimony November 19 and 20 and December 17, 2001 ; testified as to materiality, causation and damages in a securities fraud lawsuit. Reinsurance International Services Company, L.L.C. v. Lambert Feochurch Group Limited, et at.,, In the 98t' Judicial District Court, Travis County Texas (Civil Action No, ) ; deposition testimony September 20, 2001 ; testified as to lost profits and lost business value experienced by a reinsurance broker relating to allegations of misrepresentations and breach of duty,. Robert Alpert, James Ventures, L.P., Markus Investments, Inc, and James Investments, Inc. vs. Innovative Valve Technologies, Inc., et al.,, U.S. District Court for the Southern District of Texas, Houston Division (Civil Action No ), deposition testimony September 19, 2001 ; testified as to materiality, causation and damages in a securities fraud lawsuit. Premier Lifestyles International Corporation vs. Electronic Clearing House, Inc.; XpresscheX, inc., et al.; Superior Court for the State of California, County of Los Angeles (Case No. BC230691); deposition testimony September 17 and 27, 2001 ; trial testimony November 27 and 28, 2001 ; testified as to lost business opportunities and damages arising from various causes of action. In re Phycor Corporation Securities Litigation; U.S. District Court for the Middle District of Tennessee, Nashville Division (Civil Action No ) ; deposition testimony August 9 and November 6, 2001 ; testified as to materiality, causation and damages in a securities class action lawsuit. Ben Higbee and Bridgestone Healthcare Management, Inc. vs, Bridgestone Healthcare Management, lne,,,..and David E, Sones; 101&s Judicial District, Dallas County, Texas (Cause No, ) ; deposition testimony June 21, 2001 ; testified as to preliminary findings as to fairness of certain transactions involving a workers' compensation and rehabilitation business. Auto Wax Co., Inc. v. Mark V Products, Inc,..; U.S. District Court for the Northern District of Texas, Dallas Division (Civil Action No CV 0982-T) ; deposition testimony April 25, 2001; trial testimony June 29, 2001 ; testified as t the reasonable royalty and lost profits in a patent infringement and trademark infringement case. Robe rt K. Bell, et ai, v. Fore Systems, Inc., et al.. ; U.S, District Court for the Western District of Pennsylvania, (Civil Action No, ) ; deposition testimony February 1, 2 and 14, 2001, as to the materiality of various alleged accounting misrepresentations and as to damages in a class action shareholder lawsuit. Scott Cunningham and Elizabeth Cunningham v. Gutierrez, Mitchell & Coimenero, L.L.P., et al. ; 201' Judicial District, Travis County, Texas (Cause No. GNO-00849) ; deposition testimony January 12, 2001 ; trial testimony March 7, 2001 ; testified as to the economic loss and value to the owners of a temporary services business. Scott 0. Hakala: Ph.D., CFA Page 9

109 EIll.l x:l

110 COMPANY Carreker Regression analysis - May to December Exhibit B Preliminary Event Study Market & Indus R ressions CoefFigin t CenteredR`2 6.1'79/n Percent of Variance explained by regressio n SEE 5.78 / Standard error of residual (portion of movement unexplained by regression) Constant 0.02% RAY 63.99% 4.20 Russel 3000 inde x SUBINDEX 25.89% 2.66 Equal weight geometric ind ex consisting of EDS, FCER, DST, CHRZ_, UIS, AND RE Y Market, Event and Industry Re ressions Centered R"*2 35,62%141 Percent of Variance explained by regressio n SEE 5 02 % Standard error of residual (po rtion of movement unexplained by regression) Constant RAY 54.89% 3.83 Russet 3000 index SUBINDEX 29.26%, 3.22 Equal weight geometric index consisting of EDS, CBR, DST, CHRZ, UlS, AND RE Y Carreker-Antinod no, reported net income of $360,000 (3 cents per share) on revenue of $10. 3 million for the first quarter ended April 30, compared with net income of $146,000 ( 1 cent) on revenue of $7.5 million during the same period a year ago. (The / %; 2.36 Dallas Morning New s ) R. Stephens Starts Carreker-Antinori at buy with a target price of $16 :00 per share (Dow Jones News Service) ; Harnbrecht & Quist Starts Canneker-Antinori at buy (Dow Jones News Service) ; Lehaman Brothers started Carreker-Antinori at buy with a 12-month % 0.48 target price of $14.50 per sh are ( Bloomberg) Ca rreker inc. reported that Fleet Bank branches dramatically reduced average cash by /1998 usi ng its Cashl'orecas'ter products. (Bloomberg Carreker-Antinori, Inc, announced today that BOK Financial Corp has signed a contrac t to implement the Carreker-Antinori enterprise-wide solution Business Valuation % 1.80 Improvement Process ( B-VIP) for the bank's affiliates (Business Wire ) Carreker-Antinori, Inc. announced the release of Analysis Advantage (TM), a software package that rounds out the company 's successful Liquidity Management product suite / %, (Business Wire ) Barclays Bank is realizing savings from Internal Redevelopment Program utilizin g 6 08/17/1998 Carreker- Antinori Software ( Business Wire ) Carreker-Antnori Inc. named Robert Olson as executive vice president and chie f 7 08/ % administrative officer. ( Reuters News ) - mt THOMAS M CLIFFORD, shareholder of Carreker registered 19,260 shares ( Federa l /1998 Filings Newswire s Carreker-Antinori announced financial resu ts for the 1998 second fiscal quarter ended July 31, Revenue increased 25.7% to $13.7 million, compared with revenue of $10.9 million in the second fiscal quarter of Net income in the quarter was $1. 7 million or $0.10 per diluted share, compared to $1.2 million or $0.09 per diluted share, i n the prior year quarter. (Business Wire ) ; Lehman Brothers increase d Carreker-Antinori's 1998 earnings per share es ti mates to $0.34 from $0.32 (Reuters / % News) Rising demand for automatic teller machines and electronic fund transfers amid bank consolidation provide a springboard for growth for Carreker-Antinori Inc. (Reuters News 10 09/11/ % 6,38 09, 10,1998) ; ! % RI CHARD R LEE JR, Director, purchased 2,000 shares ( Federal Eilinq s Newswires) Iof11

111 COMPANY Carreker Regression analysis - May 21, 1998 to December 10, 2003 Exhibit B Preliminary Event Study The Fiserv Pittsburgh unit of Fiserv Inc, and Carreker have reached a cooperative marketing agreement that provides increased market reach for both businesses and / % 0.69 im proved product availabiiity far their clients, ( Bloombe SUSHASH MUKERJ[. Vice President and TOM VLEISIDES, Shareholder, purchased respectively 5,000 shares at $5.25 and 1,290 shares at $4.94 ( Federal Filing s 13 10/29/ % Ne w swire s ) Ca rreker-antinori Inc. announced that U.S. banks can realize financial improvements to their bottom lines by reducing cash, a principal non-earnings asset to banks, through the use of the Carreker-Antirtori CashTracker(TM) and CashForecaster (TM) cash reduction /1998 solutions. ( Business Wire ) Carreker-Antinori announced financial results for the 1998 third fiscal quarter ende d October 31, Revenue increased 28% to $13. 9 million, compared with revenue o f $10.8 million in the third fiscal quarter of Net income increased 108.2% in the quarter to $1.7 million or $.10 per diluted share, compared to $809,000 or $.06 per 15 11/ % 1,45 diluted share in the prior year quarter. ( PR Newswire ; Carreker-Antinori Announces New Trac2Fraud and Trac2ECP Product Suites. Trac2Fraud is a comprehensive suite of software solutions designed to detect and report potentially fraudulent check activity. Trac2ECP is an integrated suite of products designed to deliver ECP functionality. Both are delivered on an integrated client-serve r / % platform. ( Business Wire) RICHARD R LEE JR, Director, purchased 3,000 shares at $4.63 ( Federal Filing s % Newswires) Alltel Corp. agreed to market Carreker-Antino ri Inc.'s banking software systems. (Dow %, Jones News Serv(sce ) FISCHER JAMES, Director, and TERRY L GAGE, Chief Executive Officer, purchase d respective ly 4,000 shares at $11.00 and 23,500 shares at $ (Federal Filing s ( % 1.76 Newswires) Carreker-Antinori Inc. agreed to provide its Yield Management services in two majo r /1998-0,51% contracts with undisclosed banks. (Dow Jones News Service) Carreker-Antinori InC, was rated "buy in new coverage by analyst Steven S. Birer at 21 12/22/ W1/ Boston Robertson Stephens. The 12-month target price is $12.50 der share ( Bloornber~) Carreker announced the retirement of its Chief Technology Officer, Ron Antinori as of January 31, 1999, Mr. Antinori had agreed in contract to remain with the Company through this date, and will now continue further as both a consultant and Vice Chairma n 22 12/ % of the Board. ( Bloomberg } Garreker- Antinori Inc. agreed to buy Genisys Operation Inc., which provides track and trace software solutions, for 1.24 million shares of Carreker stock. (Reuters News ) ; Carreker announced that they have expanded their best practices business unit within the company's payments Systems core competency and that the compan y / t3aF'!o _~_ 0.60 has hired industry expert lay Mahaffey to manage the expansion. (Bloomberg ) Bisys Group Inc.'s Bisys Document Solutions unit signed an agreement to market cas h tracking and fraud reduction software produced by Carreker -Antinori Inc. to Bisys ' 24 02/01/ % community bank customers. (IJow Janes Nevrs Service ) Carreker -Antinori reported pro forma net income of $5.5 million, or 34 cents a dilute d share, on revenues of $52.4 million, for the year ended Janua ry 31, 1999, In fiscal 1997, the company earned $3.1 million, or 23 cents a diluted share on a pro forma basis, on 25 03/ %'lo 1.61 revenues of $40.5 million. (Dow Jones Business News ) Carreker-Antinori, Inc. announced the release of two new additions to its Risk Management suite of products : FraudLink-KITB(TM ), a software solution developed to analyze and detect potential check kiting activity, and FraudLink -PC(TM), a frau d detection system designed specifi cally for community and mid-sized banks. (P R Newswire) ; Pegasystems Inc. and Carreker-Antinori announced the signing of a letter o f intent under which the companies expect to integrate their technology and service practices to create best-practices next generation solutions for the financial services % industry. ( PR New swire ) Carreker-Antinori was able to re-engineer Bank of Oklahoma operations, resulting i n new revenues and reduced operating costs for the bank, by comb ining new technologies 27 04/23/ % 1.47 and best practices. (Business Shire)

112 COMPANY Carreke r Recression analysis - May 21, 1998 to December 10, 2003 Exhibit B Preliminary Event Study Hambert and Quist raised their 1999 revenue estimates on Carreker to $67.6 million from $65 million due to expected revenue growth in the consulting business. (Analyst % 0.82 Re port) Carreker-Antinari Inc., Affiliated Computer Services Inc. and Eastman Kodak Co, have formed an alliance to provide Internet access to digitized images of microfilm check s (Reuters News )1 Carreker-Antinori announced financial results for the firs t quarter of fiscal Revenues for the first quarter of fiscal 1999 increased 32.5% t o $14.5 million compared to revenues of $10,9 million for the same period in fiscal For the third consecutive quarter, the Company more than doubled net income, resulting in $963,000 or $.b5 per diluted share compared to net income of $383,000, or $.03 pe r /1999 1,1,78% 2.57 diluted share in fiscal (Business Wire ) Carreker announced the appointment of Jer ry Michael Snow as Senior Vice Presiden t and Managing Principal of the company 's Software development and Documentatio n division, In this position, he will manage and direct the development of Carreker-Antinori software products, as well as build upon the company 's technology base to deliver best % 0,26 of class software to customers. ( Bloomberg) JOHN ill CARREKER, officer, sold respectively 10,000 shares at $ and 5, / % shares at $8.63 ( Federal Filing s Newswires ] Carreker-Antinori, Inc. announces an agreement to provide ReserveL ink(r) software to M&i Data Services, Milwaukee, Wis., a leading financial ser vices processor. (P R % Newswire) ~6.07% 2.97 JACK DAVIS, Officer, sold 7,406 shares at $9.00 ( Federal Pilings Newswires ) Carreker-Antinori Inc. formed the Office of the President, a management team which wil l include the company's policy committee members and named Royce Brown and Wy n Lewis vice-chairmen. Brown is executive vice president, payment systems division, an d Lewis is executive vice president, revenue enhancement division. (Dow Jones New s Service ) ; Carreker-Antinori, inc. announced record second quarter 1999 revenue of $ 18.9 million, up 32% from prior 2Q98, Yield Management revenue of $6.2 million, a 100.7% increase over 2Q98 and Accelerated growth in new Enterprise IT Services business, which grew to $2.2 mi llion, representing 11.6% of total 2099 revenue / % -177 (P R N ewswire ) Carreker- Antinori, Inc. announced that its board of directors has authorized th e repurchase of shares of its common stock in the open market, with an aggregat e 35 10/15/ % purct ase price of up to $1.D million. ( Easiness Wire } BRENTON S CARREKER purchased 10,000 shares at $5.91. JOHN D CARREKER JR, Officer, Director and Beneficial Owner, RICHARD R LEE JR, Director, and SUBHAS H MUKPRJ1, officer, purchased respectively 17,500 shares at $ , 5,000 shares at 36 10/18/ % 1.48 $ and 6, 040 shares at $5.78. ( Federal Filings Newswires } Carreker Inc. was downgraded to "neutral" from near-term "buy"' by analyst Donal d 37 11/ % Cunningham at Gilmour & Associates. ( Bloomberg ) Carreker Inc announced revenue for the third quarter of fiscal 1999 increased 43.4% to $20.9 million compared to revenue of $14.5 million for the same period in fiscal Gross profit increased 36.6% to $11.2 million, or 53.6% of revenue in the third quarter of fiscal 1999, compared to $8.2 million, or 56.2% of revenue in the third quarter of Net income increased 21.7 /% to $2 million or $1 1 per diluted share compared to ne t 38 12/ % 0,25 income of $1. 7 million or $. 09 per rtiluted share in fiscal Bloomberg Robertson Stephens raised 1999 revenue estimate on Carreker to $75.8 million fro m $70.4 million to reflect the company potential to generate growth from its softwar e business and Backlog. However, They lowered EPS estimate to $0.40 from $0,42 due to 39 12/02/ % the lower oeprating margin, (Analyst Report) Carreker-Antinor, Inc. announced two contracts, each for approximately $4 million, fo r the company's Enterprise IT Services (FITS), which help 40 01/26/ %i financial institutions maxim ize the operational advantages of consolidation, (Bloorr berg ) 3of11

113 COMPANY Carreker Regression analysis - May 21, 1998 to December 10, 2003 Exhibit B Preliminary Event Study Carreker announced that U.S. Bancorp, the nation's 12th largest bank holding company, has contracted with the.company to integrate new software and technology into th e bank's branch operations to augment its customer service systems and improve interna l 41 01/27/ % efficiencies. (Blcornberg } Carreker-Antinori, inc. announced three new Yield Management contracts. The new contracts are with a top 20 U.S. bank, a top 25 international bank, and a tier three U.S. bank, All of the clients expect the Carreker engagements to strongly impact their bottom line, generating a significant amount of new revenue each year beginning mid-yea r (PR Newswire ); BILL LONG, Director, registered 10,000 share s % 1.43 {Federal Filings Newswares} ; % RONA LD R ANTE NORI registered 126,000 shares (Federal Filings Newswires ) RONALD R ANTINORI, Director and Beneficial Owner, sold 130,000 at $ (Federal Filings Newswires); LARRY J PECK, Director, purchased 3,000 shares at $9, U/% 0.14 (Federal Filings Newswires ) Carreker-Antinori, Inc. announced record fourth fiscal quarter and twelve-month financia l results. Revenue for the fourth quarter of fiscal 1999 increased 41.8% to $21.6 million compared to revenue of $15.2 million for the same period in fiscal 1998, Gross profit increased 37.1 % to $12.1 million, or 55.9% of revenue in the fourth quarter of fiscal 1999, compared to $8.8 million, or 57.8% of revenue in the fourth quarter of (PR Newswire ); Hambercht and Quist raised 2000 EPS estimates to $0.56 from / % $0.52 to reflect the positive outlook and the strong quarter. (Analyst Report ] NCR Corp, and Carreker-Antinori Inc. formed an alliance to provide the banking industr y with a service that will enable the electronic presentment and exchange of chec k images. (Dow Jones News Service) ; Robertson Stephens raised 2000 revenu e estimates to $100 million from $93.3 million and EPS to $0.57 from $0.52 because of 46 _ / the signing of new clients and expanding existing relationships. (Analyst report ) Carreker Corp. agreed to offer closely held Accurate Software's Accurate Bankrec Corporate account-reconciliation product under a strategic alliance. (Dow Jones New s 47 03/27/ % 2.35 Se vice ) JAMES D CARREKER, Director, sold respectively 188,000 shares at $ and % ,500 shares at $ ,25 (Federal Filings Newswires ) Carreker-Antinori, Inc. announced the latest in a series of new Revenue Enhancement management contracts demonstrating the company's on-going leadership in valu e enhancement for all levels of the banking industry. The new engagements with three U.S. banks, each with approximately $10 billion in total assets, represent a continue d expansion into the regional banking market. Carreker's Revenue Enhancement services offer banks the opportunity to generate significant new recurring revenue quickly, beginning as soon as three to six months following approval and implementation of it s 49 04/28120( % 0.75 recommendations. (Bloomberg ] Carreker Corporation announced its plans to acquire X-Port Software Enterprises o f / /c Toronto, Canada. APR Newswire ) Carreker Inc, announced revenue for the first quarter of fiscal 2000 increased 52.3% to $22.1 million compared to revenue of $14.5 million for the same period in fiscal 1999, Net income increased 53.5% to $1.5 million or $0.08 per diluted share compared to ne t income of $1,0 million or $.05 per diluted share in fiscal (Bloombereg ); Robertson Stephens increased 2000 EPS estimate on Carrekerto $0.58 from $0.57 and 2001 EPS estimate on Carreker to $0.75 from $0.72. (Bloomberg); Chase H&Q raised 2000 revenue and EPS respectively from $98 3 million and $0.57 to $104 million and $ For 2001, they increased revenue and EPS from $121 million and $0.74 to $128.8 million to $076 due to the existence of market opportunity and new e-financia l / % 0.59 products. (Analyst report) Carreker Inc. can now offer its clients a complete line of electronic cash processin g technology and services with completion of the acquisition of X-Port Softwar e 52 06/08/ % Enterprises of Toronto, C anada. (Bloomberg ) Carreker Inc. announced that its Revenue Enhancement Division is growing rapidly an d 'X, 0.88 will continue to experience robust growth through (Bloomberg) Carreker Corp. received a contract from an undisclosed European insurer to launch a 54 09! % 0.43 new wea lth management project (Dow!ones News Service ) 4of11

114 COMPANY Carreker Req ession analysis - May 21, 1998 to December 10, Exhibit B Preliminary Event Study Carreker announced stgniflcantly stronger earnings during the second quarter of 2000 when compared to the same period in Revenue for the second quarter of fiscal 2000 increased 51.9% to $28.7 mi[iion compared to revenue of $18.9 million for the same period in fiscal Net income increased to $3.4 million, or $0.18 per diluted share, compared to net income of $2.3 million or $0,12 per diluted share in fiscal (PR Newswire ); Robertson Stephens raised 2000 and 2001 EPS es timate on Carreker respective ly to $0,65 from $0.58 and to $ 0.87 from $0.75. (Bloomberg); Chase H&Q raised their estimates for 2000 from $104.9 million and $ 0.58 to $108 million and $0.64. For 2001, they are moving from $128.8 million and $0.74 to $ / % 3.72 million and $0,86. (Anal yst report) Carreker Corporation and Central Carolina Sank, a subsid ia ry of National Commerce Bancorporation of Memphis, Tennessee signed Bank Value Improvement Process / % 0.50 (BVIP) contract. (PR Newswire ) % 0.36 RONALD R ANTINORI, Director, registered 70,000 shares (Federal Filings Newswires) Carreker Corp was rated new "buy" with a 12-month target price of $26.00 per share b y ) '% 1.50 analyst Angeline Billon at Johnston, Lemon & Co. ( Bloomberg) Carreker Corp. filed to sail two million shares of common stock, according to a filing wit h the Securities and Exchange Commission. The company also registered two millio n shares, plus 600,000 shares to cover any overailotments, on behalf of certai n shareholders. Carreker will not receive any proceeds from the sale of shares by th e % shareholders. (Federal Filings Newswires ) Carreker Corporation announced that Michael D. Hansen has joined the company as % 1.24 Executive Vice President and Managing director of esolutions. (PR Newswire) RONALD RANTINOR, Benefi cial Owner, sold 70,000 at $17.02 and Lar ry J Peck, 61 10/12/ ir Director, sold 3,000 shares at $17.00 (Federal Filings Newswires) Carreker Corporation has entered into an agreement to deliver to a top five U.S / financial institution Its internet-enabled erm(tm) solution. (PR Newswire ) 63 11/ % 0.59 Carreker's offerin of 4.5 mullen common shares was priced at $17.00,(bloomber Carreker Corp. was rated new "buy" in new coverage by analyst Terrence Tierney a t U 19% 0,04 U.S. Bancorp Piper Jaffray. The target price is $31 per share. (Bloombers ) GEORGE NOGA, Officer, sold 4,000 shares at $ (Federal Filings 65 11/ / Newswires) Carreker Corp. beat analysts third quarter estimates of 17 cents a share and reported license revenue grew 112.2%, while diluted ea rnings per share increased 72.7%. (Dow Jones News Service ); Robertson Stephens raised 2000 and 2001 EPS estimate on Carreker Inc. to $0.66 from $0.65 and to $0.88 from $0.86 respectively. (Bloomberg ) ; 11S Bancorp raised their 2001 and 2002 IMPS estimate on Carreker repectively from and $0.86 to $0.21 and $0.88. (Analyst Report) ; Chase H&Q raised their 2000 revenue and EPS estimate on Carreker repectively from $108 million and $0.64 to $109.9 million and $0.66, for 2001, they are moving from $138.2 millio n 66 12/06/ % 1.91 and $0. 86 to $142.2 million and $0.88 (Analyst Report) ; Carreker and Gartner Group initiated a "Bank-To-Business " study. The study is designed to aid the sponsoring organizations in understanding and quantifying the extent o f 67 12/08/ % customers' demands for e-commerce enabling technologies. (Analyst report) Carreker Corporation expanded its global reach by announcing a fraud preventio n contract of more than $1 million with one of the four largest banks in Australia. (P R /2000 0,52%, 0.10 Newswire ) Carreker Corporation options will trade on the February expiration cycle. Position an d % 1.56 exercise limits have been set at 22,500 contracts. ( Bloomberg) Standard & Poor's will add Carreker Corp. to the SmallCap 600 Index (Dow Jones Nevis / % 1.51 Service ) Carreker Corporation a leading p rovider of e-finance enabling solutions to the financial industry, announced that Hibernia National Bank has contracted with the company to integrate new software and technology into the bank 's branch and check operations to '/ enhance customer service and impro ve internal efficiencies. ( PR Newswire ) 5of11

115 COMPANY Carreker Regression analysis - May to December 10, 2003 Exhibit B Preliminary Event Study US Bancorp raised 12-month price target to $36 from $31 based on potentia l[ growth 72 01/ 'r.65% 1.47 oppo rt une, (Analyst Re port) Carreker Corporation announced further expansion in the global market with a ne w Revenue Enhancement contract for a top tier inte rnational bank with assets of more than $100 billion (PR Newswire ) ; Robertson Stephens said Carreker Corp will not be as affected as other companies in case spending happenned to decrease in the financia l industry. They argue that Carreker is suffcientiy differenciated to be well insulated from such spending deferrals. As a result, they believe Carreker should achieve a $27 pric e /2001-5,66% over the n ext 12-month. (Analyst Report) Carreker Corp. reaffirmed its guidance for the fourth quarter ended Jan. 31, 2001, with earnings per share estimates of about 22 cents on revenue estimates of about $ / % 2.42 million. (Dow Jones News Service) Carreker Corp earned $0.22 a share in its fiscal fourth quarter. That's exactly what th e Street was looking for and it's up from the earnings of $0.14 a share in the year ag o quarter. Revenues, though, a little light. The reading was up 43 percent, The Street wa s looking for about $37 million but they got $30.8 million and net income was up /141200'! x% 273_p ercentto a X4. 95 million. (GNBC/EOow Jones Business Videa) Carreker Corporation may signe a Revenue Enhancement consulting services contract %: with a major international bank. ( P R Newswire ) Carreker Corporation and ARGO Data Resource Corporation have agreed on a strategi c alliance partnersh ip to deliver a seamless bank branch truncation product to the 77 03/ % 0.83 marketplace. ( PR Newswire Carreker Corp. signed an agreement with Xchange Inc. to serve as the exclusive provider of Xchange EnAct customer relationship management software to the bankin g % industry. (Dow Jones News Service ) Robert Hail, a leader in customer relationship management, has left the Boston sales/service software outfit Xchange Inc. to become president of Carreker Corp,'s 79 04/ % revenue enhancement division. (American Banker) Carreker inc. was rated new "buy" in new coverage by analyst Vincent A Colicchio at 80 04/25/ %%% Sou thwest Secur ities, Inc. The 12-month target price is $27.00 per share. (Bloomberg) Carreker Corporation announced that Ronald G. Steinhart, a leader in the Dallas financial community for more than 37 years, has been appointed to the company 's Board 81 04/30/ % 0.91 of Dfectors, ( PR Newswire ) Carreker Corp was downgraded to long-term "attractive" from "Buy" by Robertson Stephens analyst Andrew Jeffrey because of limited expected expansion in the next % months (Bloomberg ) Carreker Corp. agreed to pay $1095 million for payment processing company Chec k Solutions Co and forecast lower-than-expected first-quarter earnings, citing soft spending by customers. (Reuters News ) ; Carreker Corp was downgraded t o 83 05/23/ % ]nng term "buy frvrn " buy" by analyst Adam H Holt at J.P. Morgan. (Bloomberg ) Can'eker Corporation announced that James R. Erwin, a 30-year veteran of the bankin g industry and a former Bank of America executive, has been appointed to the company's / % -0,06 Board of Directors, (Business Wire ) For the first quarter, Carreker reported revenues rose to $25.4 million from $221 million, while net income fell to $1.3 million from $1. 5 million, Ea rnings per diluted share fell to six cents, in line with revised estimates, from last year's eight cents per share. (Reuters News ) ; Robertson Stephens analyst Andrew Jeffrey out his earnings view o n Carreker Corp. : one day after the software maker reported a drop in first - quarte r earnings but revised upward its guidance for the full year. (Reuters News ), Carreker Corporation was rated new "buy" by analyst Brett Manderfeid at U.S. Bancorp Pipe r / % 5.80.!affray. ( Bloomberg ) Carreker Corporation and Fiserv announced an agreement enabling Fise.rv to delive r eight of Carreker 's proven technology solutions to its financia l institution clients using Fiserv 's core p rocessing services PR!Newswire 06 11,2001 ) George matus, Vice president, has filed form 144 to sell 2,500 shares of carreker Corp / % of11

116 COMPANY Carreker Rearession analysis - May to December Exhibit B Preliminary Event Study Carreker expects second-quarter revenues to be down 12 to 13 percent from Its prior estimate of $38 million, issued in June. Carreker sees earnings of zero to I cent per share before unusual items related to its recent acquisition of Check Solutions. (Reuters News ); Carreker Corp. was downgraded to "accumulate" from " buy" by analyst Vincent 88 08/ % A. Colicc hio at SANS Securities, Inc. (Bloomberg) Robertson Stephens cut 2001 revenue and EPS estimate on Carreker to $124 million and $0.15 from $160 million and $0.74. The 2002 estimates for revenue and EPS are % now $160.9 million and $0.43 from $219.8 million and $1.23. (Analyst Report} George Matus, Vice president, sold 2,900 shares of carreker Corp at $ % 0.90 (Bloomberg ) Carreker announced further expansion of its fraud prevention technology in the Souther n Pacific region through a contract with Australia and New Zealand Banking Group Umite d (ANZ). with total assets of $172 billion (AUD), is one of the worlds 100 largest banks, / % (Bloomberg) Carreker Corp., having missed earnings expectations for a third straight quarter, wil l 92 08/ % change the way it reports on sales of software for banks (American Banker) Carreker Corp's Check Solutions will provide proven software and advanced technology % 1.19 to Sy rn cor, Canada leading financial transaction outsourcer. ( Bloomber c ) Carreker Corporation reported second quarter revenue of $33,9 million, and net losses of $11,6 million, On a pro forma basis after giving effect to the recent acquisition of Check Solutions, not income for the quarter ended July 31, 2001 was $680,000 or $ , ,20% 2.12 per diluted share, exceeding prior guidance by $0.02. ( PR Newswire O 9-20 Z001) Carreker Corp. said a Delaware court issued a preliminary injunction against the company in response to a request by Pegasystems Inc. Pegasystems filed a complaint against Carreker seeking to enjoin and restrain Carreker from developing and marketin g 95 10/04/ % Exception Management products. (Bloomberg ) JOHN D and Connie Carreker have filed form 144 to sell 24,993 shares of carreker / % corp. (Bloomberg ) % James R Erwin, Director, sold 10,000 shares at $ (Bloomberg ) Carreker Corporation provided an update on the recent injunction and announced an 98 10/22/ % expense reduction initiative.(dow Jones News ) Carreker Corp. settled a lawsuit brought by Pegasystems I nc., and its shares shot up /2001 : 0.02%v near y 3 2 percent- (Reuters News ) Through a new strategic agreement, Carreker Corporation will link its performanc e measurement technology with PROMODEL Corporation's simulation and analytica l technology to provide the financial services industry with a powerful tool to improv e infrastructure capacity planning, service quality measurement and operational efficiency. (PR Newswire ); John D Carreker JR, Chief Executive officer of Carreke r / % 2.27 Corp. sold 8,331 shares at $ (Bloomberg ) Carreker Corporation reported third quarter revenue of $29.7 million and a net loss of $26.4 million or $1.21 per diluted share, On a pro forma basis, the net loss for the third quarter ended October 31, 2001 was $3.9 million or $0.18 per diluted share. For the nine months ended October 31, 2001, revenues were $88.9 million with a net loss of $36.7 million or $1.68 per diluted share. On a pro forma basis, the net loss for the nine months ended October 31, 2001 was $2.0 million or $0.09 per diluted share. (PR Newswire ) : Carreker Corp. was raised to "buy" from "neutral" by US Bancorp Pipper /05/ % 0.40 /affray with a 12-month target price of $8.00 per share. (Bloomb e_~ The Securities and Exchange Commission filed an insider trading case against a senior officer of Carreker Corporation and his brother. Named as defendants were George P. Matus, a senior vice president of Carreker and his brother, Peter T, Matus, a licensed stockbroker. According to the Commission's Complaint, the Matus brothers obtained $209,940 in illegal trading profits by trading on inside information concerning Carreker's May 22, 2001, announcement that the company would miss its first-quarter earnings /06/ %: 0.06 estimate. (SEC News Digest) 7of11

117 COMPANY Carreker Regression analysis - May to December Exhibit B Preliminary Event Study Carreker Corp announced that Michael D. Hansen has been named President and Chief Operating Officer, reporting to J. 0. Carreker. Chairman and Chief Executive Officer % 0.49 Hansen was al so elected to the Board of Directors. (Bloomberg) Carreker Corp. officer George S. Noga purchased 40,000 shares in January, accordin g to a Form 4 released by the Securities and Exchange Commission. ( Dow Jones Corporate Filings Alert ), Subhash Mukerji, an officer of Carreker Corp / % 1.40 IJOUght 21,200 shares at $ ( Bloomberg) _ Carreker Corp. expects to report fourth quarter revenue and earnings per share above its previous guidance, citing revenue carried over from legal issues in the third qua rter. (Dow Jones News Service ) ; Blake A Williams, a Vice President of Carreke r /15/ % 3.48 Corp sold 6,413 shares at $ Blacmberg ) Carreker Corporation announced the success of a two-year effort to scale its premie r solutions for the use of large community and small regional financial institutions. In each of its key lines of business, these institutions are now using Carreker solutions to realiz e proportionately the same significant earnings improvements as the original large clients / % 2.52 (PR Newswire ) Carreker Corp.'s fourth quarter results include about $5.4 million of revenue and 1 5 cents of earnings per share that was carried over from the third quarter and recognized in the fourth following resolution of a legal issue. ( Dow Jones News Service ) ; Robertson Stephens raised Carreker 12-month target price to $10 from $5 to reflect / % 2.12 increased confidence in the co rn pn 's bus iness outlook. (Analyst report) Carreker Corporation approximately sold 1,282,000 common shares to institutional investors in a Private Investment Public Equity ("PIPE") transaction. The common stock was sold at a price of $7.83 per share resulting in net proceeds to the Company of approximately $9.3 million in new equity capital after fees and expenses. (PR Newswire % 0, ) Carreker Corp said first-quarter revenues and earnings will be higher than expected, citing better-than-anticipated sales at one of its units and the award of technology contracts. (Reuters News) ; Carreker pre-announced positive 1Q2002 results with EPS o f $0.06 on revenues of approximately $35 million compared to Robertson Stephen s / `% 1.72 estim ates for EPS of $ 0.03 on $32.2 million. (Analyst Report Robertson Stephens ) The New York, New Mexico, Colorado, and Wyoming Bankers Associations ' recentl y joined the American Bankers Association in its exclusive endorsement of three Carreke r Corporation technology solutions designed to help banks fight exposure to fraudulen t deposit and check activities as well as reduce cash inventories and reserv e % 1.18 requirements. ( FAR Newswire Q5,22.20(32) Carreker Corporation reports revenues for the first quarter fiscal year 2002 ended April 30 of $37. 9 million, a 33% increase over revenues for the first quarter fiscal year 2001 of $28.5 million. First quarter fiscal year 2002 net income was $3.7 million, or $0.16 pe r diluted share (PR Newswire (1 2); USBancorp raised CY 2002 revenue and EP S estimate to $157 million and $0 48 from $146 million and $0.42, due to a quicke r recovery in the revenue enhancement business and a 2.7 million revenue bump for a / /0 120 change in accounting related to reimbursable expenses. (Analyst Report) Robertson Stephens raised 2002 revenue and EPS estimates to $158.1 million and $0.45 compared to prior estimates of $ mil li on and $0.47. For 2003, They raised revenue and EPS to $ million and $0. 77 from prior estimates of $177.8 million an d /07/ A 1.43 $0.80 to reflect in creasin1consulting and management revenues. (Analyst Report) Carreker released Carreker Online Risk Expert (CORE) Workflow Manager, the Company's automated risk-decisioning software for banks, which was co-developed and /25/2002 implemented with Fleet Bank. ( Bloomberg) Superregional West Coast bank has acquired the Carreker suite of check image archiv e and delivery applications to deploy in building its own check image archive. (PR /26/2002 8,93% of11

118 COMPANY Carreker Repression analysis - Mav to December 10, 2003 Exhibit B Preliminary Event Study Carreker Corporation reports revenues of $39.1 million for the second quarter ende d July 31, 2002, an 8% increase over revenues of $36.1 million in the prior year period. (Business Wire ) ; Carreker Corp. shares dropped Friday after the maker of banking software warned that continuing soft demand will cut into revenue.(associated Press Newswires ) ; US Bancorp cut 2002 and 2003 EPS estimate to $0.45 and $0.63 respectively from $0.48 and $0.70 They also reduced the 12-month price target to $ / % from $14.(Analyst Report) u-bash Mukerji, a shareholder of Carreker Corp bought 8,000 shares at $6.40. (B (oomberg 09, ) ; James D. Carreker, a Director of Carreker bought 20, shares at $5.77 (Bl oomberg ) Carreker Corporation announced that the three large Australian-based banks using th e services of Cash Services Australia (CSA) have become equity owners in CSA, Westpac Banking Corporation, Commonwealth Bank of Australia, and Australia and New Zealand Banking Group Limited each assumed ownership of 25 percent of the company, wit h / % 2.74 Carreker retaining 25 percent. (Business Wire ) CarrekerCorporation announced the release and genera l availability of FraudLin k ACHeCK(TM), which protects financial institutions and their customers from the growin g threat of fraudulent electronic debits to checking accounts via the automate d / clearinghouse (ACH) network. (Business Wire ) Carreker Corp, would post lower third-quarter earnings because of a slowdown in bank spending on technology. They had also cut expenses and reduced its work force by 5 percent this month. (Reuters News ) ; Carreker Corporation reports that it s results for the third quarter, ended October 31, 2002 will be lower than prior guidance due primarily to delays in bank technology spending. Revenue for the quarter is now expected to be $35.5 million as opposed to a prior guidance range of $36 to $38 million / % -6,94 (Business Wire 1 1, ) US Bancorp out 2002 and 2003 lops estimate from $0.45 and $0.63 respectively to $036 and $0.45. They also reduced the 12-month price target from $13 to $7.(Analyst /18/ % 0.57 Report) Allied Irish Banks, p.l.c., Ireland 's leading financial institution, has selected Carreker' s FraudLink(TM) solutions to detect and prevent fraudulent check activity. (Business Wire /22/ % { 2) Trustrnark National Bank a $7.2 billion financial services organization operating i n Mississippi and Tennessee, has expanded its imaging capabilities with Carreker 's imag e /25/ % 1.25 archive solutions. (Business Wire ) Carreker Corp. is reviewing its financial statements and may file a restatement related t o / 'io the timing of some revenue recognition. ( Reuters News) Carreker Corporation has sold Carreker 's Exceptions Express (TM) back office solutio n to intelligent Processing Solutions Ltd. (ipsl). The contract will generate $2.1 millio n /12/2002 9,48% 1.81 over the next 18 months. (Business Wire ) Carreker announced that due to the delayed filing of its Form 10-Q, it has receive d notification from The Nasdaq Stock Market that its securities are subject to deflating / '/n -024 ( Blocm b erq) Carreicer Corporation and Metavante Corporation, the financial technology subsidiary o f Marshall & Ilsley Corporation announced an agreement under which Carreker wil l license its Integrated Cash Operations Moduies (TM) (icom) software to /07/ % Metavante Business Wire) Carreker Corp was downgraded to "market perform" from "outperform" by analyst Brett Manderfeld at U.S. Bancorp Piper Jeffrey. The 12-month target price is $4.50 per share ! ( Bloomberg) Carreker Corp.'s special committee investigating its revenue recognition procedure s found issues surrounding when certain contracts were dated and became effective, which will lead the company to restate its financial statements. (Dow Jones News /28/ "/,% 5.21 Milberg Weiss Bershad Hynes and Lerach LLP filed a securities class action lawsuit in the United States District Court for the Northern District of Texas on behalf of persons /10/2003 4,89 1/: wh o acquired the securities of Carreker Corp, May 20, 1998 through December 7 0, 2fl02 9of11

119 COMPANY Carreker Repression anaivsis - Mav 21, 1998 to December 10, Exhibit B Preliminary Event Study Carreker Corporation announced today that the Nasdaq Listing Qualifications Panel ha s granted an exception for Carreker 's securities to continue to trade on The Nasdaq National Market. The exception requires Carreker to file its fiscal 2002 third quarter For m 10-0, annual report on Form 10-K, and all other necessa ry restatements on or before / April 30, 2003, which fire Company expects to do. (Business Wire ) Federman & Sherwood filed a securities class action lawsuit in the United States Distric t Court for the Northern District of Texas on behalf of persons who acquired the securitie s of Carreker Corp. May 20, 1998 th rough December 10, 2002 (PR Newswir e ) ; Carreker Corporation announced that Nancy Langer, former president of Metavante Corporation 's Electronic Payment and Presentment division, has joined th e company as executive vice president of Global Payments Consulting (GPC), a newl y structured unit that brings together all of the Company 's consulting services in one / !3% 1.51 p ayments-focused group. (Business Wire ) Carreker Corporation announced that St.George Bank Ltd in Australia has purchased / Carreker's E nact ( TM} solution ( Business Wire ) Carreker Corporation announced that Wells Fargo has acquired the Carreker suite of /22! % image prorrssing archive a nd capture applicstions (BUS!NESS WIRE ) Carreker Corporation and Giesecke & Devrient GmbH (G&D) announced a strategic alliance to strengthen both companies ' market positions and product offerings in the field of cash automation and inventory management. (Associated Press Newswires / % ) Carreker Corp. and Majesco Software Inc. formed a new company, Carretek LLC, that will provide business processing outsourcing and offshore information technology t o / % 4.08 financial institutions and their processors. (Dow Jones News Service) The Stochastic Oscillator, a momentum indicator that shows the location of the current close relative to the stock's recent trading range, has generated "buy" signal fo r /29/2003 Carreker. (Bloornberg) Carreker Corporation reports revenues of $28.3 million for the first quarter ended April 30, 2003, compared with $28.5 million in the fourth quarter fiscal 2002 and $43,7 million / in the first quarter of fiscal (Business Wire ) Carreker Corp. is facing two new shareholder lawsuits in connection with earnings restatements it issued following an internal investigation into accounting discrepancies, A0% according to the company's quarter! report. ( Dow Jones Corporate Filings Alert) Carreker Corp. said its Chief Financial Officer Terry L. Gage resigned, according to an 8- K filed with the Securities and Exchange Commission. (Dow Jones Corporate Filings % Alert) Carreker Corporation a leading provider of technology and consulting solutions for the financial industry, announced the release of Image Inspector(TM) software, the first /24/2003 app licati on in its Quality Assurance suite for check image quality. (Business Wire) Carreker Corp. announced that London-based Lloyds 1S8 plc, a leading UK financial services group, has selected Carreker 's Integrated Cash Operations Module (icom(tm)) cash inventory management solution for i ts Automated Teller Machine (ATM) network o f /26/ / IBioombera 06.25,2003) /2003 Carreker Corporation reports revenues of $36.2 million for the second qua rter ended July 31, 2003, compared with $28. 3 million in the first quarter fiscal 2003 and $ !% 5.73 million in the second quarter of fiscal 2t 12. (Business Wire ) Carreker Corp. and Wells Fargo will partner to develop ExchgLink(tM) software fo r sending and receiving check images, which Carreker will then market to financia l / institutions and archive providers. ( Bloomberg ) Carreker Corp announced that Lisa Peterson has been hired as the company' s /02/ % 1.23 executive vice president and chief fina ncial officer. (Business Wire ) Carreker Corp. was rated new "buy" in new coverage by Craig-Hallum Capital Grou p / '112.35% per share ( Bloombe cg) Robert M Olson JR, Offi cer, sold 30,000 shares of Carreker Corp. ( Bloomberg /03/ ) 10of11