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UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF FLORIDA
SILVIO PIETROLUONGO, on Behalf of Himself and All r c Others Similarly Situated, : 90 — 8
Plaintiff,
no
GOLDEN BEAR GOLF INC.; JACK W. NICKLAUS; RICHARD P. BELLINGER; JACK P. BATES; STEPHEN S. WINSLETT; and JOHN BOYD,
Defendants.
- HURLEY CIVIL ACTIONFK J. LYNCH, JR.
UNITED STATES MAGISTRATE JUDGE
JURY TRIAL DEMANDED
CLASS ACTION COMPLAINT
Plaintiff, by and through his undersigned counsel, and
for his Complaint against Defendants, makes the following
allegations upon information and belief (except as to the allega-
tions specifically pertaining to the named plaintiff and his
counsel) , based upon the facts alleged below, which are predicated
upon, inter alia, a review of relevant filings made with the
Securities and Exchange Commission ("SEC") , press releases, news
and analyst reports, and an investigation undertaken by plaintiff's
counsel. Plaintiff believes that further substantial evidentiary
0
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support for the allegations set forth below will be shown to exist
after a reasonable opportunity for discovery.
NATURE OF THE ACTION
1. This is a class action on behalf of a class (the
"Class") consisting of all persons other than defendants who
purchased the common stock of Golden Bear Golf Inc. ("Golden Bear"
or the "Company") from August 1, 1996 through July 24, 1998,
inclusive (the "Class Period") . Golden Bear common shares are
listed on the NASDAQ National Market System and trade under the
symbol "JACK."
2. Throughout the Class Period, defendants overstated,
inter alia, the Company's revenues, net profits, and earnings per
share. As a result of defendants' actions, the price of Golden
Bear common stock was artificially inflated at all relevant times
during the Class Period.
JURISDICTION AND VENUE
3. The claims asserted herein arise under and pursuant
to Sections 10(b) and 20(a) of the Securities Exchange Act of 1934
(the "Exchange Act") [15 U.S.C. §§ 78j (b) and 78t (a) and Rule
10b-5 promulgated thereunder by the SEC [17 C.F.R. § 240.10b-51
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4. This Court has jurisdiction over the claims asserted
in this Complaint pursuant to § 27 of the Exchange Act as amended
[15 U.S.C. § 78aaJ, 28 U.S.C. H 1331 and 1337.
5. Venue is properly laid in this judicial district
pursuant to § 27 of the Exchange Act. Certain acts and conduct
complained of herein, including the dissemination of materially
false and misleading information to the investing public, occurred
in the Southern District of Florida. Golden Bear maintains its
corporate headquarters and principal place of business in this
District and did so at all relevant times.
6. In connection with the acts and conduct alleged in
this Complaint, defendants, directly or indirectly, used the means
and instrumentalities of interstate commerce, including, but not
limited to, the mails, interstate telephone communications and the
facilities of the NASDAQ National Market System, a national
securities exchange.
PARTIES
7. Plaintiff Silvio Pietroluongo ("plaintiff")
purchased the common stock of Golden Bear, as described in the
certification attached hereto, and has suffered damages as a result
of the wrongful acts of defendants as alleged herein.
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8. Defendant Golden Bear purports to be a diversified,
international brand name golf products and services company engaged
in the development, marketing, and management of golf-related
businesses including the licensing, ownership, and operation of
golf practice and instruction facilities, the operation of golf
instructional schools, and the licensing, distribution and sale of
golf-related consumer products. In addition, the Company's wholly
owned subsidiary, Paragon Construction International ("Paragon")
provides comprehensive project management and golf course
construction services to resort, residential, and commercial golf
developments around the world. Golden Bear maintains its principal
executive offices at 11780 U.S. Highway One, Palm Beach, Florida.
9. Defendant Jack W. Nicklaus ("Nicklaus") is and was
Chairman of the Board of Golden Bear at all relevant times during
the Class Period. Nicklaus was a signatory to Golden Bear's Form
S-i Registration Statement and the Company's Form 10-Ks for fiscal
1996 and fiscal 1997.
10. Defendant Richard P. Bellinger ("Bellinger") is and
was President, Chief Executive Officer, and a director of Golden
Bear at all relevant times during the Class Period. Bellinger was
a signatory to Golden Bear's Form S-i Registration Statement and
the Company's Form 10-Ks for fiscal 1996 and fiscal 1997. In
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addition, Bellinger was a signatory to all of Golden Bear's Form
10-Qs filed during the Class Period.
11. Defendant Jack P. Bates ("Bates") was Chief
Financial Officer, Secretary, and a Senior Vice President of Golden
Bear up until his resignation on or about October 22, 1997. Bates
was a signatory to Golden Bear's Form S-i Registration Statement
and the Company's Form 10-K for fiscal 1996. In addition, Bates
was a signatory to the Company's Form 10-Qs for the second and
third quarters of fiscal 1996 and the first two quarters of fiscal
1997.
12. Defendant Stephen S. Winslett ("Winslett") is Chief
Financial Officer and a Senior Vice President of Golden Bear and
has held those positions since October 22, 1997. Winslett was a
signatory to the Company's Form 10-K for fiscal 1997. In addition,
Winslett was a signatory to the Company's Form 10-Qs filed for the
third quarter of fiscal 1997 and the first quarter of fiscal 1998.
13. Defendant John Boyd was President of Paragon from
the beginning of 1997 through April 1998.
14. Collectively, defendants Nicklaus, Bellinger, Bates,
Winslett, and Boyd will be referred to herein as the "Individual
Defendants." The Individual Defendants participated in, conspired
to effect, and/or consciously or recklessly pursued the wrongdoing
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complained of herein so that they could artificially inflate and
maintain the market price of Golden Bear common stock during the
Class Period. Plaintiff and other members of the Class purchased
such common stock at artificially inflated prices and have suffered
damages.
15. During the Class Period, the Individual Defendants
each occupied positions in the Company that made them privy to
material, adverse non-public information. Because of their senior-
level positions with Golden Bear and/or Paragon and/or positions on
the board of directors of the Company, they each had access to such
internal information. The Individual Defendants knew or were
reckless in failing to uncover the adverse facts specified herein.
16. All of the Individual Defendants were control
persons of Golden Bear within the meaning of Section 20(a) of the
Exchange Act by reason of their own involvement in the daily
business of Golden Bear and/or their positions on Golden Bear's
Board of Directors, and/or as senior executives of Golden Bear.
The Individual Defendants, at the time they held positions with
Golden Bear, were able to, and did, exercise substantial control
over the operations of Golden Bear, including control of the
materially false and misleading statements, omissions and course of
conduct complained of herein.
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17. It is appropriate to treat the Individual Defendants
as a group for pleading purposes and to presume that the false and
misleading information conveyed in Golden Bear's public filings,
press releases, interviews and other publications as alleged herein
are the collective actions of the narrowly defined group of
Individual Defendants identified above.
18. As officers, directors and/or controlling persons of
a publicly held company and under the federal securities laws, the
Individual Defendants had a duty (a) to disseminate promptly
complete, accurate and truthful information with respect to Golden
Bear; (b) to correct any previously issued statements from any
source that had become materially misleading or untrue; and (c) to
disclose any trends that would materially affect earnings and the
present and future operating results of Golden Bear, so that the
market price of Golden Bear's publicly traded securities would be
based upon truthful and accurate information. The Individual
Defendants failed to adequately discharge these duties.
PLAINTIFF'S CLASS ACTION ALLEGATIONS
19. Plaintiff brings this lawsuit pursuant to Rule 23(a)
and (b) (3) of the Federal Rules of Civil Procedure, on behalf of
herself and on behalf of a class of persons who purchased shares of
Golden Bear common stock from August 1, 1996 through July 24, 1998,
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inclusive. Excluded from the Class are defendants herein, members
of the immediate family of each of the defendants, any person,
firm, trust, corporation, officer, director or other individual or
entity in which any defendant has a controlling interest or which
is related to or affiliated with any of the defendants, and the
legal representatives, agents, affiliates, heirs, successors-in-
interest or assigns of any such excluded party.
20. This action is properly maintainable as a class
action for the following reasons:
a. The Class of investors for whose benefit this
action is brought is so numerous that joinder of all Class members
is impracticable. As of May 8, 1998, Golden Bear had approximately
2.745 million shares of common stock outstanding. Members of the
Class reside throughout the United States.
b. There are questions of law and fact which are
common to members of the Class and which predominate over any
questions affecting only individual members. The common questions
include, inter alia, the following:
(1) Whether the defendants' acts as alleged
herein violated the federal securities laws;
(2) Whether defendants participated in and
pursued the common course of conduct complained of herein;
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(3) Whether documents, press releases and
other statements disseminated to the investing public and Golden
Bear's shareholders during the Class Period misrepresented material
facts about the business, management, revenues, transactions,
markets, financial condition, risk and business prospects of Golden
Bear;
(4) Whether the market price of Golden Bear
common stock during the Class Period was artificially inflated due
to the material misrepresentations and failure to correct the
material misrepresentations complained of herein; and
(5) To what extent the members of the Class
have sustained damages and the proper measure of damages.
C. The claims of plaintiff are typical of the
claims of other members of the Class and plaintiff has no interests
that are adverse or antagonistic to the interests of the Class.
d. Plaintiff is committed to the vigorous
prosecution of this action and has retained competent counsel
experienced in litigation of this nature. Accordingly, plaintiff
is an adequate representative of the Class and will fairly and
adequately protect the interests of the Class.
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e. Plaintiff anticipates that there will not be
any difficulty in the management of this litigation as a class
action.
21. For the reasons stated herein, a class action is
superior to other available methods for the fair and efficient
adjudication of this action and the claims asserted herein.
Because of the size of the individual class members' claims, few,
if any, class members could afford to seek legal redress
individually for the wrongs complained of herein.
APPLICABILITY OF PRESUMPTION OF RELIANCE: FRAUD - ON-THE-MARKET DOCTRINE
22. At all relevant times, the market for Golden Bear
common stock was an efficient market for the following reasons,
among others:
a. Golden Bear common stock met the requirements
for listing and was listed and actively traded on NASDAQ, a highly
efficient and automated market;
b. As a regulated issuer, Golden Bear filed
periodic public reports with the SEC and the National Association
of Securities Dealers ("NASD") ; and
C. Golden Bear regularly communicated with the
investing public through the dissemination of various reports,
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participated in meetings and conferences with investors and
securities analysts and through other customary means of
communicating such as use of major newswire services for the
dissemination of press releases and providing information and
interviews about the Company to the business media.
23. As a result, the market for Golden Bear securities
promptly digested current information regarding Golden Bear from
all publicly available sources and reflected such information in
Golden Bear's stock price. Under these circumstances, all
purchasers of Golden Bear shares during the Class Period suffered
similar injury through their purchase of shares at artificially
inflated prices and a presumption of reliance applies.
SUBSTANTIVE ALLEGATIONS
24. On or about June 7, 1996, Golden Bear filed a Form
S-i Registration Statement and Prospectus (collectively, the
"Prospectus") with the SEC for the sale of 1.8 million shares of
Golden Bear common stock in an initial public offering. The
Prospectus was amended several times and became effective on or
about July 31, 1996.
25. On Page 10 of the Prospectus, Golden Bear touted the
importance of its senior management:
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The Company's success is dependent on the active participation of the Company's principal executive officers and the Company's ability to continue to attract and retain highly capable management personnel. (emphasis added).
26. Golden Bear's statement concerning its senior
management was materially false or misleading as defendants failed
to disclose that the Company's senior management lacked sufficient
internal controls to monitor the Company's performance.
27. On Page 24 of the Prospectus, the Company discussed
the operations of Paragon as follows:
The Company's golf course construction, shaping and consulting services revenues increased to $19.2 million in 1995 from $2.2 million in 1993. This increase was primarily attributable to the increased number of, and amount of work performed under, construction and renovation projects, the increased demand for golf course development and construction throughout Southeast Asia and increased construction and renovation projects in the United States. The Company believes that domestic and international demand for new and renovated golf courses will provide continuing growth opportunities.
28. The Company's statements concerning Paragon's
operations were materially false or misleading as defendants knew
or recklessly disregarded that the Company lacked sufficient
internal management controls to adequately monitor Paragon's
performance.
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29. On or about August 1, 1996, pursuant to its
materially false or misleading Prospectus, Golden Bear sold
approximately 2.16 million shares of common stock, priced at $16.00
per share, generating over $34.5 million in its initial public
offering (the VIp011) . Golden Bear common stock began trading on
the Nasdaq National Market System, closing at $18.50 per share on
August 1, 1996.
30. On or about October 31, 1996, Golden Bear issued a
press release announcing its financial results for the third
quarter of fiscal 1996. The Company reported revenues of $9.9
million, up from $9.4 million in revenues for the third quarter of
1995. Earnings per share for the quarter were reported as $0.06
per share.
31. Golden Bear's October 31, 1996 press release was
materially false or misleading as defendants knew or recklessly
disregarded the following undisclosed information:
a. that Golden Bear lacked sufficient internal
management controls to monitor the financial performance and
results of Paragon;
b. that Paragon was understating expenses,
including construction and shaping costs;
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C. that Paragon was overstating revenues; and
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d. that, as a result of Paragon's overstatement of
revenue and understatement of expenses, Golden Bear's revenues, net
profit, and earnings per share were materially overstated.
32. On or about February 28, 1997, Golden Bear issued a
press release announcing its financial results for the fourth
quarter and full year ended December 31, 1996. Fourth quarter
revenues were reported as $10.9 million, up from $7.9 million in
the fourth quarter of 1995. Year-end revenues were reported as
$33.5 million, up from $28.8 million for 1995. Defendant Bellinger
commented:
Growth in all three divisions led to our strong revenue performance . . . . Paragon Golf Construction completed a successful restructuring, and is competing effectively on new project awards . . . . (emphasis added)
33. Golden Bear's February 28, 1997 press release was
materially false or misleading as defendants knew or recklessly
disregarded the following undisclosed information:
a. that Golden Bear lacked sufficient internal
management controls to monitor the financial performance and
results of Paragon;
b. that Paragon was substantially understating
expenses, including construction and shaping costs;
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C. that Paragon was overstating revenues; and
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d. that, as a result of Paragon's false financial
statements, Golden Bear's revenues, net profit, and earnings per
share were materially overstated.
34. On or about March 31, 1997, Golden Bear filed its
1996 annual report on Form 10-K with the SEC. The annual report
repeated the financial results announced in the Company's February
28, 1997 press release. Thus, the 1996 annual report was
materially false or misleading for the reasons set forth in
paragraph 33.
35. On or about April 10, 1997, in an article reported
in Dow Jones Online News, Golden Bear reported that first-quarter
results would be hurt by delays and senior management changes. The
Company stated that it would take a charge of $570,000 in the first
quarter to cover severance costs as a result of personnel changes.
Golden Bear announced that it had hired defendant Boyd as the
President of Paragon. The Company added that Paragon had a lower
volume of business in the first quarter, but said it has
implemented improved processes and controls.
36. Contrary to the Company's assurances, Golden Bear's
internal management controls were still unable to adequately
monitor the financial performance of Paragon. Thus, Golden Bear's
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statement that it had "implemented improved processes and controls"
was materially false or misleading.
37. On or about April 30, 1997, Golden Bear issued a
press release announcing its results for the first quarter of
fiscal 1997. The Company reported revenues of $6.8 million, up
from $4.3 million for the first quarter of 1996. Golden Bear again
stressed the improvements at Paragon:
The restructuring of Paragon, which began in the fourth quarter of 1996, continued into the first quarter of 1997. This decision led to a lower volume of active business in the first quarter, but has resulted in improved processes and controls. (emphasis added)
38. Golden Bear's April 30, 1997 press release was
materially false and misleading as defendants knew or recklessly
disregarded the following undisclosed information:
a. that Golden Bear lacked sufficient internal
management controls to monitor the financial performance and
results of Paragon;
b. that Paragon was substantially understating
expenses, including construction and shaping costs;
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C. that Paragon was overstating revenues; and
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d. that, as a result of Paragon's false financial
statements, Golden Bear's revenues, net profit, and earnings per
share were materially overstated.
39. On or about June 18, 1997, in an article published
in the Daily Business Review (Miami, Florida), in referring to the
recent changes at Paragon, the Company stated that "future
profitability and growth is assured by the executive and
organizational changes that have already been implemented." This
statement was materially false or misleading as defendants knew or
recklessly disregarded that Golden Bear still lacked adequate
management controls to monitor the financial performance of
Paragon. Moreover, defendants knew or recklessly disregarded that,
as a result of inaccurate financial reporting at Paragon, Golden
Bear's revenues, earnings per share, and net profit were materially
overstated.
40. On or about July 31, 1997, Golden Bear issued a
press release announcing its financial results for the second
quarter of fiscal 1997. Revenues for the second quarter were
reported as $22.3 million, representing a 164% increase over
revenue reported for the same period in 1996. The Company reported
that revenues for Paragon increased 153% over revenues from 1996.
Golden Bear added that Paragon, "continued to win substantial
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project awards . . . bringing total awards through June 30, 1997 to
more than $90 million."
41. Golden Bear's July 31, 1997 press release was
materially false or misleading as defendants knew or recklessly
disregarded the following undisclosed information:
a. that Golden Bear lacked sufficient internal
management controls to monitor the financial performance and
results of Paragon;
b. that Paragon was substantially understating
expenses, including construction and shaping costs;
C. that Paragon was overstating revenues; and
d. that, as a result of Paragon's false financial
statements, Golden Bear's revenues, net profit, and earnings per
share were materially overstated.
42. On or about October 7, 1997, Golden Bear announced
the completion of a definitive credit agreement with SunTrust Bank
for a $10 million revolving credit facility. Defendants were
motivated, in part, to misrepresent the Company's financial
condition in an effort to secure this line of credit.
43. On or about October 30, 1997, Golden Bear issued a
press release announcing its financial results for the third
quarter of 1997. The Company reported revenues of $17.7 million,
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up 79% from revenues of $9.9 million reported for the third quarter
of 1996. Net earnings for the quarter were $364,000, or $0.07 per
share, up from the $268,000 reportedly earned in the third quarter
of 1996. Golden Bear reported that Paragon's revenues increased
50% over the third quarter of 1996. Defendant Bellinger commented,
"Paragon . . . continued to win substantial project awards, and is
currently developing nearly 30 projects around the world."
44. Golden Bear's October 30, 1997 press release was
materially false or misleading as defendants knew or recklessly
disregarded the following undisclosed information:
a. that Golden Bear lacked sufficient internal
management controls to monitor the financial performance and
results of Paragon;
b. that Paragon was substantially understating
expenses, including construction and shaping costs;
C. that Paragon was overstating revenues; and
d. that, as a result of Paragon's falsified
financial statements, Golden Bear's revenues, net profit, and
earnings per share were materially overstated.
45. On or about February 27, 1998, Golden Bear issued a
press release announcing its financial results for the fourth
quarter and fiscal year ended December 31, 1997. Revenues for the
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fourth quarter were reported as $21.0 million, up 93% from revenues
in the fourth quarter of 1996. Paragon's revenues reportedly
increased 133% from the corresponding quarter in 1996.
46. For fiscal year 1997, the Company reported
consolidated revenues of $67.7 million, a 102% increase over 1996
revenues. The net loss for the year was reported as $2.9 million,
or $0.53 per share, an improvement over the net loss of $0.57 per
share recorded for fiscal 1996. Defendant Bellinger was quoted in
the press release:
Paragon . . . generated record revenues and profits this year. We are very pleased with the results of our restructuring of Paragon, which is poised for substantial growth in 1998
47. Golden Bear's February 27, 1998 press release was
materially false or misleading as defendants knew or recklessly
disregarded the following undisclosed information:
a. that Golden Bear lacked sufficient internal
management controls to monitor the financial performance and
results of Paragon;
b. that Paragon was substantially understating
expenses, including construction and shaping costs;
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C. that Paragon was overstating revenues; and
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d. that, as a result of Paragon's false financial
statements, Golden Bear's revenues, net profit, and earnings per
share were materially overstated.
48. On or about March 31, 1998, Golden Bear filed its
annual report on Form 10-K with the SEC. The annual report
repeated the financial results announced in the Company's February
27, 1998 press release. In addition, the annual report stated:
The level of construction service [provided by Paragon] during the fourth quarter of 1996 and the first quarter of 1997 was limited based on management's decision to curtail such activities pending the implementation of new systems and the integration of new staff. The Company believes that the improved processes and controls that have been put into place will facilitate the future growth of its Construction Division. During 1997, the Company continued to receive significant new project awards, bringing Paragon's total backlog as of December 31, 1997 to over $170 million, compared to a backlog of less than $10 million at December 31, 1996.
49. The financial results reported and the above
statements in Golden Bear's 1997 annual report were materially
false or misleading as defendants knew or recklessly disregarded
the following undisclosed information:
a. that Golden Bear lacked sufficient internal
management controls to monitor the financial performance and
results of Paragon;
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b. that Paragon was substantially understating
expenses, including construction and shaping costs;
C. that Paragon was overstating revenues; and
d. that, as a result of Paragon's false financial
statements, Golden Bear's revenues, net profit, and earnings per
share were materially overstated.
50. On or about April 23, 1998, Golden Bear issued a
press release announcing its financial results for the first
quarter of fiscal 1998. The Company reported revenues of $22.5
million, "more than triple the $6.8 million in revenues recorded
for the first quarter of fiscal 1997." Paragon reported revenues
of $16.0 million, compared to revenues of only $1.3 million in the
year ago quarter.
51. Golden Bear's reported first quarter financial
results were materially false or misleading as defendants knew or
recklessly disregarded the following undisclosed information:
a. that Golden Bear lacked sufficient internal
management controls to monitor the financial performance and
results of Paragon;
b. that Paragon was substantially understating
expenses, including construction and shaping costs;
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C. that Paragon was overstating revenues; and
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d. that, as a result of Paragon's false financial
statements, Golden Bear's revenues, net profit, and earnings per
share were materially overstated.
52. On or about May 8, 1998, in an article published in
The Palm Beach Post, Golden Bear announced that defendant Boyd had
left his position as President of Paragon a month earlier.
According to the Company, three other unnamed executives also
departed. In connection with these departures, Golden Bear
announced that the Company had initiated an internal review of
Paragon. Defendant Bellinger commented, "We've been able to
identity the potential for potential losses . . . . but we don't
know that to be fact."
53. Golden Bear's comments in the May 8, 1998 article
were materially false or misleading as defendants failed to
disclose that Paragon's financial results were substantially
overstated, which would require Golden Bear to restate earnings for
all of fiscal 1997 and part of fiscal 1998.
54. On or about July 14, 1998, an article published in
the Daily Business Review reported that Golden Bear may have to
reduce net profits for 1997 and part of 1998 due to Paragon's
understatement of certain expenses. According to the article,
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Paragon spent at least $10 to $15 million more on expenses than
what it initially reported.
55. The Company's statements reported in the July 14,
1998 article were materially false or misleading as such statements
failed to disclose the full extent of Paragon's false financial
reporting. In addition to the understatement of certain expenses,
Paragon had materially overstated revenues, thereby rendering the
construction unit's financial results completely false and
unreliable.
56. In response to the Company's partial disclosure of
Paragon's problems, the price of Golden Bear common stock began to
decline as rumors concerning the amount of the restatement began to
surface. From May 8, 1998 to July 27, 1998, the common stock price
of Golden Bear fell from $8.50 per share to $4.00 per share.
57. On or about July 27, 1998, Golden Bear issued a
press release announcing the completion of its internal review of
construction projects at Paragon. As a result of the
investigation, the Company reported that it would restate its loss
for fiscal 1997 as $24.7 million, or $4.49 per share. Previously,
the Company had reported a net loss of only $2.9 million, or $0.53
per share. Trading in the Company's common stock was halted prior
to the announcement.
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58. In addition, Golden Bear announced that it expects
to recognize losses for the six months ended June 30, 1998 of up to
$17 million attributable to ongoing Paragon construction projects.
The Company stated that previously filed financial statements for
the periods ended December 31, 1997 and March 31, 1998 should not
be relied upon.
59. Golden Bear further disclosed that the Company had
found clear and compelling evidence that the former management of
Paragon deliberately falsified records, misrepresented the status
of construction projects, and made false statements about Paragon's
revenues, costs, and profits.
60. Golden Bear reported that the restatement of results
for 1997 reflects recognition of losses at Paragon primarily due to
the previous understatement of construction and shaping costs by
former Paragon management. For the 1997 period, an operating loss
at Paragon of $16.1 million will be recorded compared to the
operating income of $3.9 million as originally reported.
61. At all relevant times during the Class Period, each
of the defendants either knew, or in the exercise of reasonable
care should have known, that the Company's revenues and earnings
were materially overstated due to Paragon's falsified financial
results.
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ADDITIONAL SCIENTER ALLEGATIONS
62. As alleged herein defendants acted with scienter in
that the Individual Defendants either knew or recklessly
disregarded that the public documents and statements issued or
disseminated in the name of Golden Bear were materially false and
misleading; knew that such statements or documents would be issued
or disseminated to the investing public; and knowingly or
recklessly permitted the issuance or dissemination of false
financial statements to the investing public. In so doing, each
defendant acted as a primary violator 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 Golden Bear, their control over, and/or receipt and/or
modification of Golden Bear's allegedly materially misleading
misstatements and/or their associations with Golden Bear which made
them privy to confidential proprietary information concerning
Golden Bear, participated in or recklessly permitted the fraudulent
scheme alleged herein.
63. Defendants participated in the fraudulent scheme
alleged herein in order to, inter alia, (1) sell 2.16 million
shares of Golden Bear common stock in the IPO at an artificially
inflated price, thereby generating over $34.5 million in cash
26-
Case 9:98-cv-08520-DTKH Document 1 Entered on FLSD Docket 07/31/1998 Page 27 of 40
proceeds; and (ii) secure a revolving credit line with SunTrust
Bank for $10 million.
64. The undisclosed adverse information concealed by
defendants during the Class Period is the type of information
which, because of SEC regulations, rules of the national stock
exchanges and customary business practice, is expected by investors
and securities analysts to be disclosed to the investing public.
This information is known by corporate officials and their legal
and financial advisors to be the type of information which is
expected to be and must be disclosed. For example:
a. Under Item 303 of Regulation S-K, promulgated
by the SEC under the Exchange Act, there is a duty to disclose in
periodic reports filed with the SEC "known trends or any known
demands, commitments, events or uncertainties" that are reasonably
likely to have a material impact on a company's sales revenues,
income or liquidity, or cause previously reported financial
information not to be indicative of future operating results. 17
C.F.R. § 229.303(a) (l)-3(3) and Instruction 3. In addition to the
periodic reports required under the Exchange Act, management of a
public company has a duty promptly "to make full and prompt
announcements of material facts regarding the company's financial
condition." SEC Release No. 34-8995, 3 Fed. Sec. L. Rep. (CCH)
27-
Case 9:98-cv-08520-DTKH Document 1 Entered on FLSD Docket 07/31/1998 Page 28 of 40
¶ 23,120A, at 17,095, 17 C.F.R. § 241.8995 (October 15, 1970). The
SEC regulates companies "that can reasonably be expected to reach
investors and the trading markets, whoever the intended primary
audience." SEC Release No. 33-6504, 3 Fed. Sec. L. Rep. (CCH)
¶ 23,120, at 17,095-3, 17 C.F.R. § 241.20560 (January 13, 1984).
The SEC has emphasized that 11 [i]nvestors have legitimate
expectations that public companies are making, and will continue to
make, prompt disclosure of significant corporate developments."
SEC Release No. 18271, [1981-1982 Transfer Binder] Fed. Sec. L.
Rep. (CCH) ¶ 83,049, at 84,618 (November 19, 1981)
65. The market for Golden Bear common stock was open,
well-developed and efficient at all relevant times. As a result of
the materially false and misleading statements and failures to
disclose the full truth about Golden Bear, its business and future
prospects, Golden Bear common stock traded at artificially inflated
prices throughout the Class Period. Plaintiff and other members of
the Class purchased or otherwise acquired Golden Bear common stock
relying upon the integrity of the market price of Golden Bear
common stock and market information relating to Golden Bear or, in
the alternative, upon defendants' materially false and misleading
statements, and in ignorance of the adverse, material undisclosed
:
Case 9:98-cv-08520-DTKH Document 1 Entered on FLSD Docket 07/31/1998 Page 29 of 40
information and false financial statements known to defendants and
have been damaged thereby.
cour I
[Violations of Section 10(b) of the Exchange Act and Rule lOb-5 Promulgated Thereunder Against Golden Bear
and the Individual Defendants]
66. Plaintiff repeats and realleges the allegations set
forth above as though fully set forth herein.
67. This count is brought by plaintiff pursuant to
Section 10(b) of the Exchange Act and Rule 10b-5 promulgated
thereunder by the SEC against Golden Bear and the Individual
Defendants.
68. The defendants (a) employed devices, schemes, and
artifices to defraud; (b) made untrue statements of material fact
and/or omitted to state material facts necessary to make the
statements not misleading; and (c) engaged in acts, practices, and
a course of business which operated as a fraud and deceit upon the
purchasers of Golden Bear's stock in an effort to maintain
artificially high market prices for Golden Bear's securities in
violation of Section 10(b) of the Exchange Act and Rule 10b-5.
Golden Bear and the Individual Defendants are sued either as
primary participants in the wrongful and illegal conduct charged
herein or as controlling persons as alleged below.
29-
Case 9:98-cv-08520-DTKH Document 1 Entered on FLSD Docket 07/31/1998 Page 30 of 40
69. In addition to the duties of full disclosure imposed
on the Individual Defendants, by their status as controlling
persons of Golden Bear, as a result of their affirmative statements
and reports, or participation in the making of affirmative
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.
Sections 210.01 et seq.) and S-K (17 C.F.R. Sections 229.10 et
seq.) and other SEC regulations, including accurate and truthful
information with respect to Golden Bear's operations, financial
condition and earnings so that the market price of Golden Bear's
common stock would be based on truthful, complete and accurate
information.
70. Golden Bear and the Individual Defendants,
individually and in concert, directly and indirectly, by the use of
means or instrumentalities of interstate commerce and/or of the
mails, engaged and participated in a continuous course of conduct
to conceal adverse material information about the business,
operations and future prospects of Golden Bear as specified herein.
The defendants employed devices, schemes and artifices to defraud,
while in possession of material adverse non-public information and
30-
Case 9:98-cv-08520-DTKH Document 1 Entered on FLSD Docket 07/31/1998 Page 31 of 40
engaged in acts, practices, and a course of conduct as alleged
herein in an effort to assure investors of Golden Bear's value and
performance and continued substantial growth, which included the
making of, or the participation in the making of, untrue statements
of material facts and omitting to state material facts necessary in
order to make the statements made about Golden Bear and its
business operations and future prospects in the light of the
circumstances under which they were made, not misleading, as set
forth more particularly herein, and engaged in transactions,
practices and a course of business which operated as a fraud and
deceit upon the purchasers of Golden Bear common stock during the
Class Period.
71. The primary liability, and controlling person
liability of the defendants named in this count, arises from the
following facts: (i) each of the Individual Defendants was a
high-level executive and/or director at Golden Bear during the
Class Period and was a member of Golden Bear's management team;
(ii) each of the Individual Defendants, by virtue of his
responsibilities and activities as a senior officer and/or director
of Golden Bear, was aware of the true financial condition of
Paragon; (iii) each of the Individual Defendants enjoyed
significant personal contact and familiarity with the other
31-
Case 9:98-cv-08520-DTKH Document 1 Entered on FLSD Docket 07/31/1998 Page 32 of 40
defendants and was advised of and had access to other members of
Golden Bear's management team, internal reports and other data and
information about Golden Bear's finances, operations, policies and
practices at all relevant times; and (iv) each of the defendants
was aware of Golden Bear's dissemination of information to the
investing public which they knew or recklessly disregarded was
materially false and misleading.
72. The Individual Defendants had actual knowledge of
the misrepresentations and omissions of material facts set forth
herein, or acted with reckless disregard for the truth in that they
failed to ascertain and to disclose such facts, even though such
facts were available to them. Such defendants' material
misrepresentations and/or omissions were done knowingly or
recklessly and for the purpose and effect of concealing Golden
Bear's operating condition and future business prospects from the
investing public and supporting the artificially inflated price of
its stock. As demonstrated by said defendants' overstatements and
misstatements of Golden Bear's business, operations and future
earnings prospects throughout the Class Period, said defendants, if
they did not have actual knowledge of the misrepresentations and
omissions alleged, were reckless in failing to obtain such
knowledge by deliberately refraining from taking those steps
32-
Case 9:98-cv-08520-DTKH Document 1 Entered on FLSD Docket 07/31/1998 Page 33 of 40
necessary to discover whether those statements were false or
misleading.
73. As a result of the dissemination of the materially
false and misleading information and failure to disclose material
facts by all defendants, as set forth above, the market price of
Golden Bear common stock was artificially inflated during the Class
Period. In ignorance of the fact that market prices of Golden
Bear's publicly-traded common stock was artificially inflated, and
relying directly or indirectly on the false and misleading
statements made by defendants, or upon the integrity of the market
in which the securities trade, and the truth of any representations
made to appropriate agencies as to the investing public, at the
times at which any statements were made, and/or on the absence of
material adverse information that was known to or recklessly
disregarded by defendants but not disclosed in public statements by
defendants during the Class Period, plaintiff and the other members
of the Class acquired Golden Bear's common stock during the Class
Period at artificially high prices and were damaged thereby.
74. At the time of said misrepresentations and
omissions, plaintiff and other members of the Class were ignorant
of their falsity, and believed them to be true. Had plaintiff and
the other members of the Class and the marketplace known of the
33-
Case 9:98-cv-08520-DTKH Document 1 Entered on FLSD Docket 07/31/1998 Page 34 of 40
true financial condition and business prospects of Golden Bear,
which were not disclosed by defendants, plaintiff and other members
of the Class would not have purchased or otherwise acquired their
Golden Bear securities during the Class Period, or, if they had
acquired such securities during the Class Period, they would not
have done so at the artificially inflated prices which they paid.
75. By virtue of the foregoing, Golden Bear and the
Individual Defendants have violated Section 10(b) of the Exchange
Act, and Rule 10b-5 promulgated thereunder.
76. As a direct and proximate result of the wrongful
conduct of the defendants named in this count, plaintiff and the
other members of the Class suffered damages in connection with
their purchases of Golden Bear's securities during the Class
Period.
COUNT II
(Violation of Section 20(a) of the Exchange Act Against the Individual Defendants]
77. Plaintiff repeats and realleges the allegations set
forth above as if set forth fully herein. This claim is asserted
by plaintiff against the Individual Defendants.
78. The Individual Defendants acted as controlling
persons of Golden Bear within the meaning of Section 20(a) of the
34-
Case 9:98-cv-08520-DTKH Document 1 Entered on FLSD Docket 07/31/1998 Page 35 of 40
Exchange Act as alleged herein. By virtue of their high-level
positions, substantial stock holdings, participation in and/or
awareness of the Company's operations and/or intimate knowledge of
the Company's internal financial condition, business practices,
products and the actual progress of its development and marketing
efforts, these defendants had the power to influence and control
and did influence and control, directly or indirectly, the
decision-making of Golden Bear, including the content and
dissemination of the various statements which plaintiff contends
are false and misleading. Each of the Individual Defendants was
provided with or had unlimited access to copies of Golden Bear's
internal reports, press releases, public filings and other
statements alleged by plaintiff to be misleading prior to and/or
shortly after these statements were issued and had the ability to
prevent the issuance of the statements or cause the statements to
be corrected.
79. In particular, each of the Individual Defendants had
direct involvement in or intimate knowledge of the day-to-day
operations of Golden Bear and therefore, is presumed to have had
the power to control or influence the particular transactions
giving rise to the securities violations as alleged herein, and
exercised the same.
35-
Case 9:98-cv-08520-DTKH Document 1 Entered on FLSD Docket 07/31/1998 Page 36 of 40
80. As set forth above, the Individual Defendants each
violated Section 10(b) and Rule 10b-5 by their acts and omissions
as alleged in this Complaint. By virtue of their positions as
controlling persons, these defendants are liable pursuant to
Section 20(a) of the Exchange Act.
81. As a direct and proximate result of the wrongful
conduct of these defendants, plaintiff and other members of the
Class suffered damages in connection with their purchases of the
Company's securities during the Class Period.
PRAYER FOR RELIEF
WHEREFORE, plaintiff, on behalf of himself and the Class,
prays for judgment as follows:
A. declaring this action to be a plaintiff class
action properly maintained pursuant to Rule 23
of the Federal Rules of Civil Procedure;
B. awarding plaintiff and other members of the Class
damages together with interest thereon;
C. awarding plaintiff and other members of the Class
their costs and expenses of this litigation,
including reasonable attorneys' fees, accountants'
fees and experts' fees and other costs and dis-
bursements; and
Case 9:98-cv-08520-DTKH Document 1 Entered on FLSD Docket 07/31/1998 Page 37 of 40
D. awarding plaintiff and other members of the Class
such other and further relief as may be just and
proper under the circumstances.
JURY TRIAL DEMANDED
Plaintiff hereby demands a trial by jury.
Dated: July 28, 1998
BURT & PUCILLO, LLP
BY: Uhr-01Qa-A~1 N chae . Pucillo FBN: 261033 Wendy Zoberman FBN: 434670 Esperanté Bldg., Suite 300 East 222 Lakeview Avenue West Palm Beach, Florida 33401 Phone: (561) 835-9400 Fax: (561) 835-0322
OF COUNSEL:
SCHIFFRIN CRAIG & BARROWAY, LLP Andrew L. Barroway Gregory M. Castaldo Three Bala Plaza East Suite 400 Bala Cynwyd, PA 19004 Phone: (610) 667-7706 Fax: (610) 667-7056
Attorneys for plaintiff
37-
Case 9:98-cv-08520-DTKH Document 1 Entered on FLSD Docket 07/31/1998 Page 38 of 40
CERTIICATCN OF NAMED PLAIr:F' PTISUAN' TO FEDERAL SECURITIES LAWS
S:Lv:o P:ETRCLUCNGO '?ainciff') declares, as to : - e clrr.s
asser:o under :he federal securties laws, that:
Pla..n:if has reviewed the CcrnDla:nt ar.a auhcrized its
2. Plaintiff did not purchase t.he security chat is the
subject of this action at the direction of Plaintiff's counsel or
in order to carticicate in any private aczion.
3. Plaintiff is willing to ser'ie as a representative party
cn behalf of the class, including providing testimony at depositicn
and trial, if necessary.
4. Plaintiff's transaction in the security that is the
subject of this action during the Class Period is as follows:
Price Securtv Tranacticn Date Per Share
Common Stack Purchased 30 shares 0810119 in the off erinc
S. During the three years prior to the date of this
Certificatiofl, Plaintiff has souic cc see or se:-.red as a
representative party for a class in the following actions filed
under the federal securities laws: N/A
6. Plaint-'f will not accept any payment for sefing as a
rresentar.ive par-y on behalf of the class beyond the Plainciffs
crc raca share of any recovery, ecect such reascnale costs and
exenses :ncud:ng lost wages) ai reccly relatinc to the
9Presentaton of the class as ordered or sprcved by : -.z Court
Case 9:98-cv-08520-DTKH Document 1 Entered on FLSD Docket 07/31/1998 Page 39 of 40
I uiide er.Jry cf pcjury t-t t .s
cc:. ecc day
rLv:0 ?-CLuc'cu
COUNTY OF RESIDENCE OF FIRST LISTED MD fj'i( BJCH
NOTE. INLAND TRACT OF LAND INVOLVED
NEW YORK
/ L-ict
V. NATURE OF SUIT (PLACE AN "X" IN ONE BOX ONLY)
A CONTRACT I A TORTS
9 110 Insurance
9 120 Marine
9 130 Miller Act
0 140 Negotiable Instrument
9 150 Recovery of Overpayment & Enforcement of Judgment
'l 151 Medicare Act 152 Recovery or Defaulted
Student Loans Enci Veterans
0
153 Recovery of Overpayrner - 1
of Veteran s Benefits
O 160 Stockholders Suits 9 190 Ctnei Contract :• 195 Conliact Product Lability
A REAL PROPERTY
9 210 -ano Condemnation 0 220 Foreclosure
9 230 Rest Lease & Ejectment 0 240 Torts to Land 0 245 Tort Product Liability -1290 5lI Other Real Property
PERSONAL INJURY D 310 Airplane 0 315 Airplane Product
Liability
0 320 Assault. Libel & Slander
0 330 Federal Employers Liabillt1,
0 340 Marine
O 345 Marine Product Liability
0 350 Motor Vehicle O 355 Motor Vehicle
Proauct Liabrirty
0 360 Other Personal lnjuO
A CIVIL RIGHTS
0 441 Voting
0 442 Employment
0 443 Housing,, Accommodations
o 444 Welfare 0 440 Other Civil Rights
PERSONAL INJURY 0 362 Personal Injury -
Med Malpractice
0 365 Personal Inj ury -
Product Liability
O 368 Asbestos Personal I n jury Product Liability
PERSONAL PROPERTY 9 370 Other F'aud 0 371 Truth in LeriOrng 0340 Other Personal
Property Carnage
O 385 Property Damage Product ,.ability
PRISONER PETITIONS
BC 510 Motions :c Vacate Sentence
HABEAS CORPUS: 8 0 530 General AD 535 Death Penalty BO 540 Mandamus & Other
DC 550 Civil Rights
80 555 Prison Condition
JS 44 Case 9:98-cv-08520-DTKH Document 1 Entered on FLSD Docket 07/31/1998 Page 40 of 40 (Rev. 12/96) CIVIL COVER SHEET The JS-44 civil cover sheet and the information contained herein neither replace nor supplement the filing and service of pleadings or other papers as required by law except as provided by local rules of court. This form, approved by the Judicial Conference of the United States in September 1974, is required icr the use of the Clerk of Court for the purpose of initiating the civil docket sheet (SEE INSTRUCTIONS ON THE ER OF THE
1. (a) PLAINTIFFS DEFENDANTS 9 2 OLDEN BEAR GOLF, INC.,JACK W SICK US,
gk RX
SILVIO PIETROLUONGO, on behalf of RICHARD P. BWI,.',]R TdD ES; himself and all others similarly STEPHEN S. situated
(b) CCUNT'Y OF RESIDENCE OF FIRST LISTED PLAINTIFF _______________________
(EXCEPT IN U.S. PLAINTIFF
qkC`Ijj,"` 9~5-~Zlo —
(c) ATTORNEYS FIRM NAME ADDRESS. AND TELEPHONE NUMBER)
lichael J. Pucillo, Esq., Burt & Pucillo, LLP, 222 Lakeview Ave., #300, West Palm Beach, FL
Andrew Barroway, Esq., Schiffrin, Craig & Barroway, LLP, Three Bala Plaza East, #400, Bala Cynwyd, PA 19004, 610/667-7706 -
d) CIRCLE COUNTY WHERE ACTION AROSE: DADE, MONROE, BROWARD, MARTIN, ST. LuCIE. INDIAN RIVER. 0KEEcH0BEE HIGHLANDS
III. CITIZENSHIP OF PRINCIPAL PARTIES (PLACE AN •X IN ONE BOX FOR PLAINTIFF
(For Diversity Cases Only) AND ONE BOX FOR DEFENDANT)
PTF DEF PTF DEF Citizen of This State C l 0 1 Incorporated or Principal Place 0 4 0
of Business In This State
Citizen of Another State C 2 02 Incorporated and Principal Place 0 5 135 of Business in Another State
Citizen or Subject of a 3 0 3 Foreign Nation 0 6 0 6
BASIS OF JURISDICTION (PLACE AN kIN ONE BOX ONLYI
1 U.S Government It 3 Federal Question Plaintiff (U.S. Government Not a Party)
9 2 U S Government 0 4 Diversity Defendant (Indicate Citizenship of Parties
in Item III)
IV. ORIGIN (PLACE AN "X" IN ONE BOX ONLY) Transferred from
i Original 0 2 Removed from o 3 Remanded from 0 4 Reinstated or 0 s another district
Proceeding State Court Appellate Court Reopened (specify) O 6 Muitidistrict
Litigation
- Appeal to District Judge fnxn
Judgment
FORFEITURE/PENALTY A BANKRUPTCY
B0 610 Agriculture 0 422 Appeal 28 USC 158 80 620 Other Food & Drug BC 625 Drug Related Seizure 0 423 Withdrawal
of Property 21 USC 881 I 28 USC 157 BO 630 Liquor Laws BC $40 A R & Truck A PROPERTY RIGHTS
BC 650 Airline Pegs
80 660 Occupational 0 820 Copyrights
Safety/Health 1 0 830 Patent 9 340 Trademark
6 0 690 Other
A LABOR B SOCIAL SECURITY
9 710 nail Lao: StarrOardy 9 861 H1A t3Yhtf Act 9 862 Black Lung 1923i
9 720 Labor Mo' Relations 0 863 D1WCD1WiN i405Igmi
9 864 SS1D Title XVI
0 730 Labor'Mo'Tt Reoorlrrrc 9 865 9S1 1405lglI & Disclosure Act
9 740 Railway Labor Act FEDERAL TAX SUITS
0 790 Other Labor Litigation AC 870 Taxes IU S Plaintiff
AD 791 EmpI Per nc or Defendant)
*0 871 IRS - Third Party Security Act USC 7609
_A OTHER STATUTES
0 400 Stale Reapportionment
O 410 Antitrust 0 430 Banks and Banking
BO 450 Commerce/iCC Pales/etc 0 480 Deportation
0 470 Racketeer influenced and Corrupt Organlzarlons
0 810 Selecltve Service Ea $50
Euctrance
O 875 Customer Challenge 12 USC 3410
9 891 Agricultural Acts
9 892 Economic Stabilization Act 0 893 Environmental Matters
C $94 Energy Allocation Act C 895 Freedom of
information Act
0 900 Appeal of Pee Determination Under Equal Access to Justice
o 950 Constttutionairty of State Statutes
0890 Other Statutory Actions A OR B
VI. CAUSE OF ACTION (CITE THE US CIVIL STATUTE UNDER WHICH YOU ARE FILING AND WRITE BRIEF STATEMENT OF CAUSE DO NOT CITE JURISDICTIONAL STATUTES UNLESS DIVERSITY)
Sections 10(b) and 20(a) of Securities Exchange Act of 1934 ENGTH [15 U.S.C. Sections 78j(b) and 78t(a)} and Rule lOb-5 a Utays estimated (for both sides to try entire case)
VII. REQUESTED IN CHECK IF THIS IS A CLASS ACTION DEMAND $ CHECK YES only if demanded in complaint:
COMPLAINT: UNDER FR C P 23 JURY DEMAND: Xq ' NO
,1111. RELATED CASE(S) IF ANY
DATE
JUDGE
OF
DOCKET NUMBER
July 28, 1998 Michael Jucillo, Esq.
FOR OFFICE USE ONLY
PECEn A VICI