252937 UNITED STATES DISTRICT COURT WESTERN DISTRICT OF NEW YORK IN RE: BAUSCH & LOMB, INC. SECURITIES LITIGATION THIS DOCUMENT RELATES TO ALL ACTIONS
X ) ) ) ) ) X
Master File No. 01 CVS 6190V (CJS) FIRST CONSOLIDATED CLASS ACTION COMPLAINT JURY TRIAL DEMANDED
Lead Plaintiffs Kenneth Slater, as Trustee for the Kendall Trust, and named plaintiffs
Arnold Mahler, Richard Mones, Kaled Ajez, Joe Hannon, and Ai-Yun Tang (collectively,
"Plaintiffs"), by and through their undersigned attorneys, bring this action on behalf of
themselves, individually, and on behalf of all purchasers of Bausch & Lomb Incorporated
(AB&L,@ ABausch & Lomb@ or the ACompany@) common stock between January 27, 2000 (the
date B&L announced its fourth quarter and fiscal year-end 1999 financial results), and August
24, 2000 (the date B&L announced a downward estimate of 2000 and 2001 revenues and
earnings) (Athe Class Period@). The allegations herein are based upon the investigation
conducted by and under the supervision of plaintiffs' counsel, which included without limitation:
(a) review and analysis of filings made by B&L with the Securities and Exchange Commission
("SEC"); (b) B&L's press releases; (c) securities analyst and press reports on B&L; and (d)
interviews or consultations with numerous individuals, including former employees of B&L who
are knowledgeable about the Company's business practices and about the industry and markets in
which B&L operates. Except as alleged herein, the underlying information relating to
defendants' misconduct and the particulars thereof are not available to plaintiffs and the public
and lie within the singular possession and control of defendants or other insiders of B&L.
1. Plaintiffs allege that during the Class Period, Bausch & Lomb, its chairman and
Chief Executive Officer, William Carpenter ("Carpenter"), Chief Financial Officer Steven C.
McCluski ("McCluski"), and President and Chief Operating Officer Carl E. Sassano ("Sassano")
made specific positive statements regarding the financial condition and growth of its
Pharmaceuticals division; the strength of the new contact lens products in its Vision Care
division, including demand for its brand name contact lenses, SofLens7 ("SofLens"),
SofLens667 ("SofLens66"), SofLens667-Toric ("SofLens66-Toric") and PureVisionJ
("PureVision"); and growth in its Surgical division, including refractive and cataract surgery
products. These statements led B&L's common stock price to escalate to $80.00 per share during
the Class Period. These statements, as well as specific guidance from B&L and Carpenter, also
induced securities analysts to forecast 2000 net earnings per share at no less than $3.20
throughout the Class Period.
2. These positive statements, however, were materially false and misleading in at
least the following manner:
(a) B&L had materially overstated its earnings in each of the quarters in the
Class Period -- i.e., the quarters ended December 25, 1999, March 25, 2000 and June 24,
2000 -- by failing to record rebates and/or discounts given to the B&L's largest
Pharmaceuticals customers as part of a price war with a competing pharmaceutical
company over Neomycin ear drops and other drugs. Retail pharmacy chains such as CVS
Corporation (ACVS/Pharmacy@ or ACVS@) and Rite Aid Corporation (ARite Aid@), as
well as pharmacy wholesalers such as McKesson Drug Company (AMcKesson@) and
3
Bergen Brunswig Corporation (ABergen@), are among those customers who received
these hidden rebates. The Company also concealed and affirmatively misled investors as
to the severity and adverse material impact of price competition with generic drug
companies throughout the Class Period by, inter alia, indicating its awareness of the price
competition and thereby giving the market the misleading and false impression that B&L
was accurately reporting the impact of such competition. Former employees of the
Pharmaceuticals division serve as the sources for these allegations. These former
employees had direct familiarity with discounts, rebates and returns issued to major
customers during the Class Period and/or familiarity with the Company=s financial
reporting of such discounts, rebates and returns;
(b) In December 1997, B&L acquired Chiron Vision Corporation ("Chiron")
and Storz Instrument Company ("Storz"), and merged them to create a new B&L Surgical
division. Due to manufacturing problems in B&L's Surgical division as well as the
failure to merge duplicative manufacturing operations of Chiron and Storz, B&L could
not meet demand for many of its mainstay Intraocular Lenses ("IOL's"), which are used in
cataract surgery, during the Class Period. Unbeknownst to the investing community and
concealed by defendants was the fact that many of B&L's most popular silicon IOL's had
been on back-order from the time of the merger and throughout the Class Period.
Although revenues within the Surgical division went up, this was largely due to sales of
the Technolas 217 Excimer Laser System (ATechnolas 217"), which are used in LASIK
surgery. Because each laser costs up to $500,000, selling only two or three lasers proved
to have a disproportionately strong impact on revenues. Since B&L reported revenue
4
from its Surgical division on a consolidated basis and did not break it out by product line,
B&L was thus able to conceal the downturn in its mainstay IOL business with the few
sales of Technolas lasers it was able to make. The sources for these allegations are
former employees of the Surgical division who are familiar with the surgical product
manufacturing processes and sales and B&L=s press releases and public statements at the
end of the Class Period;
(c) The Surgical division's computer system, the BAAN system ("BAAN")
which was inherited from the Chiron acquisition, failed to reliably perform routine tasks
such as processing orders for delivery of surgical products, correctly recording contract
prices for customers' larger orders, tracking order fulfillment, and invoicing purchasers on
orders shipped, ultimately proving to be unworkable. Because B&L could not accurately
track inventory or invoice customers, sales of the Surgical division's mainstay, refractive
products, were materially suffering. B&L never disclosed these operational problems and
their impact on revenues. The sources for these allegations are former employees of the
Surgical division who are familiar with the workings of the Surgical division as well as
that divisions computer system;
(d) B&L further wrongfully manipulated the financial results in the Surgical
division and made decisions regarding write-offs or write-downs on inventory and
equipment, not based on what was financially proper under applicable accounting rules
and standards, but instead based on what the opinion of Wall Street would be and how
write-offs or write-downs would effect B&L's stock price. For example:
5
i. B&L had approximately 200 Chiron machines (which were used to
extract cataracts from eyes) that did not work adequately and
should have been written off or written down. Each machine was
valued at a cost of approximately $15-20,000. These machines
were still carried on B&L's books at full value as of the end of the
Class Period;
ii. In December 1999, the Surgical division purchased $750,000
worth of blades used for Keratome surgery. Despite the fact that
the blades could not be used because they were not made to correct
specification, the blades were not written off or written down and
were still being carried on B&L's books until at least the end of the
Class Period.
The sources for these allegations are former employees of the Surgical division who are
familiar with the workings of the Surgical division as well as the inventory issues set
forth above;
(e) B&L misrepresented that disposable and extended wear contact lens
products would drive growth in 2000 and 2001 because defendants knew or recklessly
disregarded the fact that these products were (i) not attracting new customers, and (ii)
stealing business from existing B&L products. The contact lens brands included
SofLens, a daily disposable contact lens introduced in 1998; SofLens66, soft contact lens
worn on a daily basis and replaced every two weeks; SofLens66-Toric, two-week
replacement soft contact lens for people with astigmatism, introduced in May 1999; and
6
PureVision, extended wear (up to 30 days' continuous wear) contact lens introduced in
March 1999. The sources for these allegations are former employees from Vision Care
division and B&L=s own admissions, press releases and public statements.
3. Contrary to previous positive announcements and guidance to securities analysts,
B&L, on July 19, 2000, announced revenue declines for the quarter ended June 24, 2000. B&L's
common stock price fell from $78.8125 per share on July 18, 2000 to $61.75 per share on July
19, 2000. However, B&L was quick to blunt the effect of this negative news by assuring
investors, securities analysts and the public at large that this revenue decline was "short term"
and would not affect the balance of 2000 revenue and earnings. In a July 19, 2000 press release
in Business Wire, Carpenter stated,
On balance, we are satisfied with the results for the second quarter. Products associated with the key initiatives we have identified for long-term growth -- new contact lenses, refractive surgery and proprietary pharmaceuticals -- continued to perform well . . . . [W]e achieved our overall financial goals this quarter as a result of significant improvements in the profitability of our vision care and surgical businesses.
Relying on these assurances, analysts, even after the July 19, 2000 disclosures, continued
uniformly to forecast 2000 earnings at between $3.22 to $3.25 per share -- the same earnings
figures they issued following conference calls with B&L management in connection with the
announcement of the two prior quarters= financial results.
4. On August 24, 2000, only a month later, in a complete reversal of its prior
affirmative positive pronouncements, B&L announced that its problems were not, in fact, "short
term." Instead, B&L admitted that it had long-term fundamental problems in each of its three
divisions which would adversely affect not only the balance of 2000 but also all of 2001. Worse
7
still, the problems announced on August 24, 2000 could not -- and, indeed, did not -- emerge in
just four weeks. As alleged herein and given both the massive size and importance of the
negative disclosures as well as the temporal proximity of the negative disclosures to reassurances
given the investment community just weeks before, the Company and its management knew, or
should have known but for their reckless indifference to the truth, that these problems existed for
many months prior to the August 24th announcement.
5. For example, on August 24, 2000, the Company stated that the Pharmaceuticals
division was adversely impacted by generic drug competition, particularly with respect to its otic
(ear-related) drugs. (This announcement was particularly startling because B&L, just one month
before, had already disclosed the adverse impact of otic price competition as a "short term"
problem.) The Surgical division was unable to meet IOL demands. Moreover, new Vision Care
products, including SofLens, SofLens66, SofLens66-Toric and PureVision, were not generating
new customers. The August 24, 2000 announcement caused B&L's common stock price to
plunge from $55.75 per share on August 23, 2000 to $35.875 per share on August 24, 2000. In a
purported search for a "fall guy," Carpenter immediately terminated Sassano and eliminated his
position.
6. The disclosure of B&L's fundamental problems and purportedly "sudden"
deteriorating financial condition caused B&L's common stock price to lose 54% of its value -- or
an astounding $42.94 per share -- in less than four weeks. Investors who purchased B&L
common stock during the Class Period suffered hundreds of millions of dollars in losses due to
the non-disclosures and misrepresentations alleged herein. The August 24, 2000 announcement
also caused management to lose all credibility in the investment community, particularly among
8
analysts who relied on management's false statements during the Class Period. On August 24,
2000, Salomon Smith Barney ("Salomon"), Morgan Stanley Dean Witter ("Morgan Stanley"),
ING Barings L.L.C. ("ING Barings") and PaineWebber, Inc. ("Painewebber") all downgraded
B&L to a hold or neutral, articulating shock and extreme disappointment.
JURISDICTION AND VENUE
7. The Court has jurisdiction over the subject matter of this action pursuant to
Section 27 of the Securities Exchange Act of 1934 (the "Exchange Act"), 15 U.S.C. ' 78aa and
28 U.S.C. ' 1331.
8. The claims alleged herein arise under Sections 10(b) and 20(a) of the Exchange
Act, as amended, 15 U.S.C. '' 78j(b) and 78t(a), and Rule 10b-5 promulgated thereunder, 17
C.F.R.' 240.10b-5.
9. Venue is proper in this District pursuant to Section 27 of the Exchange Act, 15
U.S.C. ' 78aa and 28 U.S.C. ' 1391(b), because Bausch & Lomb maintains its principal place of
business in Rochester, New York, which is in this District; defendants conduct business in this
District; and many of the acts alleged herein, including the dissemination to the investing public
of the misleading statements at issue, substantially occurred in this District.
10. In connection with the acts, transactions and conducts alleged herein, defendants
used the means and instrumentalities of interstate commerce, including the United States mails,
interstate telephone communications and the facilities of national securities exchanges and
markets.
9
THE PARTIES
11. Lead Plaintiff Kenneth Slater, as Trustee for the Kendall Trust, purchased B&L
shares at the following prices during the Class Period, as set forth in plaintiff's Certification
previously filed with this Court:
Date Number of Shares Price
6/14/00 1000 $65.29
7/24/00 1000 $65.54
12. Plaintiff Arnold Mahler purchased B&L shares at the following prices during the
Class Period, as set forth in plaintiff's Certification previously filed with this Court:
Date Number of Shares Price
8/14/00 75 $59.00
13. Plaintiff Richard Mones purchased B&L shares at the following prices during the
Class Period, as set forth in plaintiff's Certification previously filed with this Court:
Date Number of Shares Price
3/28/00 100 $52.75
14. Plaintiff Kaled Ajez purchased B&L shares at the following prices during the
Class Period, as set forth in plaintiff's Certification previously filed with this Court:
Date Number of Shares Price
7/19/00 110 $61.50
15. Plaintiff Joe Hannon purchased B&L shares at the following prices during the
Class Period, as set forth in plaintiff's Certification previously filed with this Court:
10
Date Number of Shares Price
7/20/00 100 $61.125
16. Plaintiff Ai-Yun Tang purchased B&L shares at the following prices during the
Class Period, as set forth in plaintiff's Certification previously filed with this Court:
Date Number of Shares Price
4/11/00 200 $48.00
17. Defendant Bausch & Lomb maintains its principal executive offices at One
Bausch & Lomb Place, Rochester, New York. Bausch & Lomb is primarily engaged in
development, manufacture and marketing of healthcare products for the eye in the following
three business segments: Vision Care, Pharmaceuticals and Surgical.
18. Bausch & Lomb stock trades on the New York Stock Exchange ("NYSE"), an
open and efficient market. As of April 10, 2001, Bausch & Lomb had approximately 53.6
million shares outstanding.
19. Defendant William Carpenter (ACarpenter@ or the "Individual Defendant") was,
at all relevant times, Chairman of Bausch & Lomb=s Board of Directors and the Company=s
Chief Executive Officer. In fiscal years 1999 and 2000, defendant Carpenter received a total
compensation (including salary, bonus, other annual compensation, LTIP payouts and all other
compensation) of approximately $3,201,079 and $1,939,163, respectively. Carpenter signed
Bausch & Lomb=s Form 10-K for the fiscal year ended December 30, 2000. Defendant
Carpenter, as an officer and director of the Company, was a controlling person of the Company
within the meaning of Section 20 of the Exchange Act. By reason of his positions with the
Company, he was able to and did, directly or indirectly, in whole or in material part, control the
11
content of public statements issued by or on behalf of the Company. Specifically, during the
Class Period, Carpenter participated in year-end and quarterly conference calls with securities
analysts and institutional investors in which he discussed current and future financial results and
operations. Carpenter participated in and approved the issuance of such statements made
throughout the Class Period, including the materially false and misleading statements identified
herein.
20. Moreover, by reason of his positions with the Company, defendant Carpenter had
access to internal Company documents, reports and other information, including adverse non-
public information concerning the Company=s services, financial condition, and future
prospects. He also attended management and/or meetings of the board of directors. As an officer
of a publicly-held company, defendant Carpenter had a duty to promptly disseminate truthful and
accurate information with respect to Bausch & Lomb and to promptly correct any public
statements issued by or on behalf of the Company which had become false or misleading.
21. Defendant Steven C. McCluski ("McCluski" or the "Individual Defendant") was,
at all times relevant, the Chief Financial Officer of B&L. In fiscal years 1999 and 2000,
defendant McCluski received a total compensation (including salary, bonus, other annual
compensation, LTIP payouts and all other compensation) of approximately $967,088 and
$673,027, respectively. McCluski signed Bausch & Lomb=s Form 10-K for the fiscal year ended
December 30, 2000 as well as B&L's Forms 10-Q for the fiscal quarters ended March 25, 2000,
June 24, 2000 and September 23, 2000. As an officer of a publicly-held company, defendant
McCluski had a duty to promptly disseminate truthful and accurate information with respect to
12
Bausch & Lomb and to promptly correct any public statements issued by or on behalf of the
Company which had become false or misleading.
22. Defendant Carl E. Sassano ("Sassano" or the "Individual Defendant") was, at all
times relevant and until August, 24, 2000, the President and Chief Operating Officer of B&L. In
fiscal years 1999 and 2000, defendant Sassano received a total compensation (including salary,
bonus, other annual compensation, LTIP payouts and all other compensation) of approximately
$1,538,616 and $684,021, respectively. He was terminated following disclosure of the financial
problems described herein. As an officer of a publicly-held company, defendant Sassano had a
duty to promptly disseminate truthful and accurate information with respect to Bausch & Lomb
and to promptly correct any public statements issued by or on behalf of the Company which had
become false or misleading.
23. Defendants Carpenter, McCluski and Sassano are sometimes referred to herein
collectively as the "Individual Defendants."
24. 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 the Company's
public statements, as alleged herein, is the collective action of this narrowly defined group of
corporate insiders. Each of the Individual Defendants, by virtue of his executive and managerial
positions with, and/or directorship of, the Company, directly participated in the daily
management of the Company at the highest level, and was privy to confidential proprietary
information concerning the Company and its business and operations. The Individual
Defendants were involved or participated in drafting, producing, reviewing and/or disseminating
the false and misleading statements alleged herein.
13
25. The statements made by the Individual Defendants, as outlined below, were
materially false and misleading when made. The true financial and operating condition of the
Company, which was known or recklessly disregarded by the Individual Defendants, remained
concealed from the investing public throughout the Class Period. The Individual Defendants,
who were under a duty to disclose those facts, instead misrepresented or concealed them during
the relevant period herein. The Individual Defendants, as officers and/or directors and
controlling persons of a publicly-held company, had a duty to promptly disseminate accurate and
truthful information with respect to the Company's operations, finances, financial conditions, and
present and future business prospects, to correct any previously issued statement from any
source, and to disclose any trends that would materially affect earnings and the present and future
operating results of Bausch & Lomb, so that the market price of the Company's publicly traded
securities would be based upon truthful and accurate information. The Individual Defendants'
misrepresentations and omissions during the Class Period violated these duties and obligations.
Under rules and regulations promulgated by the SEC under the Exchange Act, including Item
303 of Regulation S-K, defendants also had a duty to report, among other things, all trends and
uncertainties that were reasonably likely to affect B&L's sales, revenue or income. Defendants'
wrongdoing during the Class Period, as alleged herein, also violated this specific requirement and
obligation.
26. During the Class Period, the Individual Defendants were privy to confidential and
proprietary information concerning Bausch & Lomb, its operations, finances, financial condition,
financial results, and present and future business prospects. Because of their possession of such
information, the Individual Defendants knew or recklessly disregarded that the misleading
14
statements and omissions complained of herein would adversely affect the integrity of the market
for the Company=s stock and would cause the price of the Company=s common stock to become
artificially inflated. Defendants acted knowingly or in such a reckless manner as to constitute a
fraud and deceit upon plaintiffs and the other members of the Class.
27. Each of the Individual Defendants is liable as a direct participant with respect to
the wrongs complained of herein. In addition, the Individual Defendants, by reason of their
status as directors and officers of B&L, were "controlling persons" within the meaning of Section
20(a) of the Exchange Act and had the power and influence to cause B&L to engage in the
unlawful conduct complained of herein. Because of their positions of control, Defendants were
able to and did, directly or indirectly, control the conduct of Bausch & Lomb's business, the
information contained in its filings with the SEC and public statements about its business and
financial results. Furthermore, the Individual Defendants were provided with copies of the
statements and documents alleged herein to be false and misleading prior to, and/or shortly after
their issuance, and had the ability and opportunity to prevent their issuance or to cause them to be
corrected.
28. Defendants are liable, jointly and severally, as direct participants in the wrongs
complained of herein and for participating in a fraudulent scheme and course of business that
operated as a fraud and deceit on purchasers of B&L stock during the Class Period.
ANALYSTS' AND INVESTORS' RELIANCE ON DEFENDANTS' STATEMENTS
29. At all times relevant to this complaint, Bausch & Lomb was followed by
securities analysts employed by brokerage houses and/or brokers/dealers, which issued reports
and made recommendations to their clients concerning B&L's securities. Among the securities
15
firms that followed the Company during the Class Period were Morgan Stanley, PaineWebber,
Donaldson Lufkin & Jenrette, Salomon Smith Barney, Goldman Sachs and ING Barings.
30. In writing their reports and making recommendations concerning investments in
the Company's stock, these securities analysts relied in substantial part upon information
provided by defendants.
31. The investment community relied and acted upon information communicated in
securities analysts' reports, as well as Company-published data, that presented the Company's
performance and prospects in a favorable light and recommended that investors purchase the
Company's stock. Defendants manipulated and inflated the market price of Bausch & Lomb
stock by falsely presenting to analysts the performance and prospects of the Company and by
failing to disclose true adverse information about the Company.
CLASS ACTION ALLEGATIONS
32. Plaintiffs bring this action as a class action pursuant to the Federal Rules of Civil
Procedure 23(a) and (b)(3) on behalf of a class consisting of all persons who purchased Bausch &
Lomb common stock during the period from January 27, 2000 through and including August 24,
2000 and who suffered damages thereby. Excluded are the defendants, members of the
Individual Defendants' families, any entity in which any defendant has a controlling interest or is
a parent or subsidiary of or is controlled by B&L, and the officers, directors, employees,
affiliates, legal representatives, heirs, predecessors, successors and assigns of any of the
defendants (the AClass@).
33. 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 plaintiffs at this time
16
and can only be ascertained through appropriate discovery, plaintiffs believe there are, at a
minimum, thousands of members of the Class who traded during the Class Period.
34. Common questions of law and fact exist as to all members of the Class and
predominate over any questions solely affecting individual members of the Class. Among the
questions of law and fact common to the Class are:
(a) whether the federal securities laws were violated by defendants= acts as
alleged herein;
(b) whether Bausch & Lomb issued false and misleading financial statements
during the Class Period;
(c) whether the Individual Defendant caused Bausch & Lomb to issue false
and misleading financial statements during the Class Period;
(d) whether defendants acted knowingly or recklessly in issuing false and
misleading financial statements;
(e) whether the market prices of Bausch & Lomb securities during the Class
Period were artificially inflated because of the defendants= conduct complained of
herein; and
(f) whether the members of the Class have sustained damages, and if so, what
is the proper measure of damages.
35. Plaintiffs' claims are typical of the claims of the members of the Class, as
plaintiffs and members of the Class sustained damages arising out of defendants= wrongful
conduct in violation of federal law as complained of herein.
17
36. Plaintiffs will fairly and adequately protect the interests of the members of the
Class and have retained counsel competent and experienced in class actions and securities
litigation. Plaintiffs have no interests antagonistic to, or in conflict with, those of the Class.
37. A class action is superior to other available methods for the fair and efficient
adjudication of the controversy since joinder of all members of the Class is impracticable.
Furthermore, because the damages suffered by the individual Class members may be relatively
small, the expense and burden of individual litigation make it impossible for the Class members
to individually redress the wrongs done to them. There will be no difficulty in the management
of this action as a class action.
APPLICABILITY OF PRESUMPTION OF RELIANCE: FRAUD-ON-THE-MARKET DOCTRINE
38. At all relevant times, the market for Bausch & Lomb common stock was an
efficient market for the following reasons, among others:
(a) B&L common stock met the requirements for listing and was listed and
actively traded on the NYSE, a highly efficient market;
(b) As a regulated issuer, B&L filed periodic public reports with the SEC and
the NYSE;
(c) As of April 10, 2001, Bausch & Lomb had approximately 53.6 million
shares outstanding. On average during the Class Period, approximately 576,000 shares of B&L
stock traded daily on the NYSE.
(d) B&L stock was followed by securities analysts employed by major
brokerage firms who wrote reports which were distributed to the sales force and certain
18
customers of their respective brokerage firms. Each of these reports was publicly available and
entered the public marketplace;
(e) B&L regularly issued press releases which were carried by national
newswires. Each of these releases was publicly available and entered the public marketplace;
and
(f) The market price of B&L shares responded quickly to the release of public
information during the Class Period.
39. As a result, the market for B&L securities promptly digested current information
with respect to B&L from all publicly-available sources and reflected such information in B&L's
stock price. Under these circumstances, all purchasers of B&L common stock during the Class
Period suffered similar injury through their purchase of stock at artificially inflated prices and a
presumption of reliance applies.
STATUTORY SAFE HARBOR
40. The statutory safe harbor provided for forward-looking statements under certain
circumstances does not apply to any of the allegedly false statements pleaded in this Complaint.
Further, none of the statements pleaded herein, to the extent they were forward-looking
statements, were identified as such when made. Nor was it stated that actual results "could differ
materially from those projected." Nor were they accompanied by meaningful cautionary
statements identifying important factors that could cause actual results to differ materially from
the statements made therein. Alternatively, to the extent that the statutory safe harbor applies to
any forward-looking statements made, it still does not apply to the extent that at the time each of
the forward-looking statements was made, the speaker knew the forward-looking statement was
19
false, and the forward-looking statement was authorized and/or approved by an executive officer
of the Company who knew that those statements were false when made.
41. In addition, the Consent Order, described at & & ___ herein, precludes B&L from
invoking the protections of the statutory safe harbor.
SUBSTANTIVE ALLEGATIONS
A. Background
42. Bausch & Lomb is primarily engaged in development, manufacture and marketing
of healthcare products for the eye in three business segments: Vision Care, Pharmaceuticals and
Surgical.
(a) The Vision Care division reported $1.029 billion revenue (or 58% of total
revenue) and $200.5 million in operating earnings (or 61% of total operating earnings) in
1999. Principal Vision Care products included SofLens, a daily disposable contact lens;
SofLens66, a soft contact lens worn on a daily basis and replaced every two weeks;
SofLens66-Toric, a two-week replacement soft contact lens for people with astigmatism;
and PureVision, an extended wear (up to 30 days' continuous wear) contact lens.
(b) The Pharmaceuticals division reported $293.9 million in revenue (or 17%
of total revenue) and $66.1 million in operating earnings (or 20% of total operating
earnings) in 1999. Principal products in the Pharmaceuticals division included Neomycin
for treatment of ear infections; Latemax, an ophthalmic steroid for treatment of
inflammation; and Ocuvite, a vitamin/mineral supplement recommended by eye care
professionals.
20
(c) The Surgical division reported $432.7 million in net sales (or 25% of total
net sales) and $64.1 million in operating earnings (or 19% of total operating earnings).
Principal products in the Surgical division included IOL's; the Technolas 217, a laser
technology approved for sale in the first quarter of 2000; and Delivery Systems used in
cataract surgery and a narrow-beam laser used in integrated microkeratome and excimer
laser procedures ("LASIK").
43. Prior to the start of the Class Period, B&L began to shift the Company's emphasis
from a primarily vision-care company to an integrated operating environment including its
pharmaceutical and surgical segments. B&L sought to take advantage of purportedly faster-
growing and more highly-margined pharmaceutical and surgical product markets.
44. As part of its attempt to increase the Company's surgical supply business, B&L
acquired Chiron for $298 million in cash and Storz for $380 million in cash, both at the end of
December 1997. Chiron was engaged in the business of researching, developing and
manufacturing products that improve results of cataract and refractive surgeries and enhance the
treatment of progressive eye diseases. Storz was a manufacturer of high-quality ophthalmic
surgical instruments, surgical and diagnostic equipment, IOL implants and ophthalmic
pharmaceuticals. In 1998, B&L undertook a program to integrate these two former businesses
into the Company's newly formed surgical segment. As part of the integration, the Company
reportedly shut down duplicative facilities and consolidated administrative functions.
45. During 1999, B&L also divested itself of three non-core businesses -- its sunglass
business, hearing aid business, and biomedical laboratory -- amassing $1 billion in cash proceeds
in the process. The company publicly stated that it intended to use the proceeds of the
21
divestitures to fund strategic acquisitions, increase spending on research and development of new
products, and buy back five million shares of the Company's stock. Then, in December 1999,
B&L announced that it was cutting 850 jobs, 7.1% of its workforce as part of the consolidation
and reorganization of its contact lens manufacturing processes.
46. Following the aforementioned reshuffling, B&L presented itself as a more
focused, financially sound organization offering a steady business base through the sale of high-
margin eye care products, plus upside opportunity through new product introduction and market
expansion in its surgical and pharmaceutical segments. Due to defendants' portrayal of the
ongoing success of this transition, the Company's share price increased from $60 at the
commencement of the Class Period, when defendants announced the Company's fourth quarter
results for the fiscal year 1999, to a Class Period high of $79 on July 17, 2000.
47. Defendant Carpenter imposed the present organizational structure in an attempt to
more fully leverage the opportunities and capabilities of its three segments, yielding greater
growth and profit potential. He joined the Company as President and Chief Operating Officer in
early 1996. A year later, Carpenter became Chief Executive Officer. In January of 1999,
Carpenter also adopted the helm as Chairman of the Board. Before and during the Class Period,
Carpenter embarked on a campaign to reshape the Company.
48. Carpenter succeeded William Waltrip as both Chairman and CEO, who, in turn,
temporarily succeeded Daniel Gill. Under Gill's leadership, B&L was involved in a highly
publicized securities fraud litigation, which ended when B&L entered into a consent decree with
the SEC. The consent decree provided that B&L would not violate the securities laws and SEC
rules and ordered B&L to pay a large settlement to private plaintiffs.
22
49. On November 17, 1997, the Company confirmed that it entered into an
administrative Consent Order with the SEC, which required that the Company cease and desist
from committing or causing any present or future violation of certain provisions of the Exchange
Act and the rules promulgated thereunder.
50. The consent order resolved an SEC investigation into the Company's accounting
practices with regard to treatment of its fourth quarter 1993 sales program which the Contact
Lens division had initiated as well as of B&L's sunglass sales in its Asia Pacific division in the
period from late 1992 through early 1994.
51. As the Company acknowledged in a prospectus supplement dated December 12,
1997, issued in connection with the sale of $200 million in notes:
In its 1996 Annual Report on Form 10-K, the Company discussed a continuing investigation by the Securities and Exchange Commission regarding the Company's accounting treatment of a fourth quarter 1993 sales program initiated by the Contact Lens Division and of sunglass sales in it Asia Pacific Division in the period from late 1992 through early 1994. On November 17, 1997, the Company confirmed that it had entered into an administrative Consent Order with the SEC, finally resolving the investigation. The Consent Order requires that the Company cease and desist from committing or causing any violation and any future violation of certain provisions of the Exchange Act and the rules promulgated thereunder. [emphasis added.]
52. As a result of the Consent Order, B&L's forward-looking statements, made during
the Class Period, are expressly excluded from safe harbor protection pursuant to Section 21E of
the Securities Exchange Act of 1934 because, as alleged below, they were made within three
years of the Consent Order prohibiting B&L from further violations of the Federal Securities
laws.
23
B. Undisclosed Adverse Financial Conditions At B&L During The Class Period
1. Pharmaceuticals Division
53. In 1998, B&L was one of two leading makers of Neomycin/Polymitin B/HC
("Neomycin"), a generic otic (ear) drug used to treat bacterial ear infections. B&L had
approximately 40% of the market share, and Schein Pharmaceuticals had most of the remaining
market.
54. In September 1998, the U.S. Food & Drug Administration ("FDA") took the
dramatic step of seizing drugs manufactured and distributed by a subsidiary of Schein
Pharmaceuticals Inc. ("Schein"), Steris Laboratories Inc. ("Steris"). The FDA action arose from
deficiencies noted in FDA inspections of Steris facilities and claims by the FDA that Steris failed
to sanitize equipment and prevent contamination. The immediate effect of the FDA action was
to cause Steris and Schein to exit from numerous drug markets, including the market for
Neomycin.
55. Faced with this unexpected and sudden monopoly in the Neomycin market, B&L
immediately more than quadrupled the price of Neomycin. Thus, for example, the average price
for wholesalers like McKesson and Bergen increased from approximately $3.00 to $13.43.
Pricing for retail pharmacy customers like CVS/Pharmacy and Rite Aid also quadrupled. As a
result of the increases, in the months immediately following the increase, Neomycin was 70% of
the Pharmaceutical division's revenue.
56. In 1999, B&L informed the market of Schein's exit from the otic drug market, and
warned that, although the Company would enjoy some benefits from the reduced competition,
prices would be expected to trend down to their earlier levels.
24
57. However, the Company's warning itself was misleading: by mid-1999, before the
warning, Falcon Pharmaceuticals ("Falcon"), an affiliate of Alcon Laboratories, entered the
generic pharmaceuticals market. Falcon seemed specifically intent on competing with B&L's
Pharmaceuticals business. Indeed, over ninety-percent of Falcon's product offerings competed
directly with B&L's Pharmaceuticals products. Falcon began to compete aggressively with B&L
in the sale of Neomycin.
58. In response to the competition in November 1999, B&L had no choice but to
lower the price of Neomycin back to its pre-September 1998 levels (i.e., approximately $3.00 and
$4.25 for the solution and suspension forms of the drug, respectively). Defendants, however,
wanted to fool investors and the market into thinking that B&L was still benefitting from
increased prices and did want the price decreases to affect B&L's financial results. Thus,
defendants embarked on a scheme to hide the price decreases and fraudulently prevent them from
affecting B&L's bottom line.
59. As the first part of defendants' scheme to conceal the price decreases and their
consequent negative impact, defendants maintained the wholesale price of Neomycin constant,
but began giving rebates to large pharmaceutical accounts and extended rebates to inventory
previously purchased by the distributors and held as inventory. This practice was referred to
within B&L Pharmaceuticals division as "price protection." In addition, B&L concealed the size
of the price reductions attributable to Neomycin by allocating the rebates not only to Neomycin
but to numerous other generic pharmaceutical products as well.
60. The magnitude of such rebates was well known to B&L senior management. The
President of North American Pharmaceuticals, David F. Jarosz, was a corporate officer in 1999
25
and 2000. Jarosz reported directly to defendants Carpenter and Sassano. Jarosz had to approve
each rebate granted to Pharmaceuticals customers and did so at weekly pricing meetings. Jarosz
held these meetings with Pharmaceuticals Vice President of Finance Ed Mullins (AMullins@) and
Pharmaceuticals Vice President of Marketing Susan Benton (ABenton@). Jarosz also oversaw
the preparation of Pharmaceuticals= quarterly financial statements.
61. In December 1999, Benton asked for, and received from her staff, an accurate
rebate provision figure for the last quarter of 1999. As part of the ongoing fraudulent scheme,
she arbitrarily reduced this figure by approximately $6 million. B&L used this arbitrary and
inaccurate rebate figure in calculating the division's revenue and income. The Company
overstated by this amount the reported revenue and income figures for the Fourth Quarter of
1999 and for the fiscal year 1999.
62. The Company also reduced the rebate provision for 1Q '00, provided by Benton's
staff, by approximately $6 million, thereby overstating net income for this period by the same
amount. Jarosz approved this reduction, over the written objection of at least one member of
Benton's staff.
63. In July, 2000, Jarosz, following a meeting with staff, once again chose to report
the false figure for the 2Q financials, and revenue and earnings were overstated by approximately
$6 million.
64. Sassano and Carpenter were aware of the rebates through Jarosz on, at least, a
quarterly basis. Additionally, Carpenter and Sassano were aware of the material benefit that
Neomycin's inflated pricing had to 1999 earnings. By November 1999 and continuing through
2000, the price war with Falcon had eliminated that benefit in its entirety.
26
65. In preparing the Company's fourth quarter earnings ended December 25, 1999 and
first and second quarters ended March 25 and June 24, 2000, respectively, B&L failed to include
rebate discounts and/or returns in the amount of approximately $6 million, materially overstating
net earnings figures reported in each of these quarters.
66. On August 24, 2000, when the Company announced substantially reduced
anticipated third and fourth quarter 2000 revenue and earnings, it did so because it included, for
the first time, these previously concealed rebates, returns and/or discounts, which had been
granted to Pharmaceuticals customers in the prior three quarters but which had, until then, gone
unreported.
67. Thus, defendants violated Generally Accepted Accounting Principles ("GAAP")
in that defendants failed to record rebate provisions related to its retail chain customers at the end
of each quarter, as calculated by B & L's finance department. In so doing, defendants violated
FASB Concept No. 1 because they improperly inflated reported revenues for each of those
particular quarters and thus the Company's financial reporting for those quarters did not reliably
represent what they purported to represent. FASB Concept No. 1, && 33, 41, 58-59.
68. Defendants also violated GAAP by not recording the rebate provisions on a
quarterly basis. "Costs and expenses ... should be charged to income in interim periods as
incurred, or be allocated among interim periods based on an estimate of time expired..." APB 28
& 15.
69. Moreover, defendants violated their own revenue recognition policies. As set
forth in B&L's 10-K for the fiscal year ended 12/25/99: "The company establishes liabilities for
27
estimated returns and allowances at the time of shipment. In addition, accruals for customer
discounts and rebates are recorded when revenues are recognized. [Emphasis added.]
2. Surgical Division
70. On or about December 31, 1997, B&L acquired both Chiron and Storz, and with
these acquisitions, B&L formed its Surgical division. Both Chiron and Storz manufactured IOL's
for refractive surgery and IOL sales and cataract surgery was the mainstay of the Surgical
division's business. Prior to the Class Period, B&L repeatedly proclaimed to the investing public
that the integration of Chiron and Storz was a complete success. For example, in its Report on
SEC Form 10-K for the year ended December 26, 1998, B&L stated:
During the year ending December 26, 1998, the company successfully integrated the newly acquired surgical business into its existing product lines and furthered its transition toward becoming a technology-based healthcare company for the eye. (Emphasis added.)
71. Contrary to B&L's statements prior to the Class Period that the integration and
consolidation of Chiron and Storz were a success, the consolidation of the two operations was, in
fact, a complete failure. The failure to integrate the two companies led to a cascade of effects
which negatively impacted B&L's Surgical division's operations and results into and throughout
the Class Period.
a. The BAAN Computer System
28
72. At the time of the acquisition, B&L decided to use Chiron's computer system,
called BAAN, for the entire division, for which Chiron had paid $15 million. The Surgical
division used that system from the time of the acquisition throughout the Class Period. The
deficiencies in the BAAN computer system led to a myriad of problems, continuing throughout
the Class Period, which made it impossible to conduct normal business functions effectively on a
day-to-day basis:
(a) Inability to process orders. The purpose of the system was to process an order from its first entry, through shipping and tracking to arrival at the customer. The BAAN system, however, could not accurately take or track orders. Surgical customers frequently order products in advance of specific, scheduled procedures, or they order on a time-sensitive, as-needed basis. As these orders were not shipped on time, and sometimes not at all, the inability to process orders properly and efficiently created serious customer relations problems. One former management level employee who worked in the materials department of the Surgical division noted that the computer system was "an absolute nightmare" because "they were losing orders right and left."
(b) Inability to properly invoice. The system was supposed to correctly
invoice customers for surgical products sold. The same former employee mentioned in
the preceding paragraph related the fact that, in many instances, the system would bill
customers for products which had not even been shipped, again creating friction in
customer relations.
(c) Inability to process pricing information. One corporate account specialist
for the Surgical division related that the BAAN system did not correctly process contract
prices for surgical customers of larger orders, which were often lower than the standard
prices. As a result, where, for example, a product normally priced at $15 per unit was
sold to a large customer with a contract price of $8 per unit, the BAAN system would
29
invoice the customer at $15 per unit. When the irate customer called, B&L would be
forced to issue a credit for the overcharge.
As a result of the computer system's inability to properly process orders, inability to properly
invoice and inability to properly process pricing information, B&L lost customers and sales in its
Surgical Division throughout the Class Period, which in turn, negatively impacted B&L's
revenues and earnings.
b. B&L Hid Problems In Its Mainstay IOL and Cataract Business With Sales of Its Technolas Laser
73. B&L's failed efforts in 1998 and 1999 to consolidate operations at Chiron and
Storz resulted in a reduction of capacity to manufacture IOL's which continued throughout the
Class Period and which was concealed from B&L investors throughout the Class Period. Thus,
one of the main problems with B&L's cataract business was that B&L was on back-order for the
most popular lenses customers were requesting -- the LI41 and LI61U -- a silicon lens that is
implanted in the eye. According to one former management level employee of the Surgical
division, B&L was on back-order for this product from the beginning of the merger until
November 2000. The lenses, Chiron products, were originally manufactured in California.
Shortly after the Chiron acquisition, B&L shifted the manufacturing to Clearwater, Florida.
Clearwater had previously been manufacturing PMMA lenses, an outdated technology, rather
than silicon lenses. The LI41 and LI61U products were on back-order prior to B&L shifting the
manufacturing to Florida, a situation frustrated further by the move. Because order fulfillment is
of the utmost importance to the medical device industry, the persistent back-order infuriated
customers of the lenses, further impacting sales in the Surgical division's mainstay business.
30
74. In fact, B&L cryptically acknowledged problems in meeting demand when it
admitted, on August 1, 2000, just a few weeks before the end of the Class Period, that it was
having problems all along in its manufacturing of IOL's since the acquisition. The Company was
quoted by the Rochester Business Journal as saying:
B&L has been consolidating the multiple IOL manufacturing facilities that were part of its Chiron Vision and Storz acquisition; however, the integration has limited its ability to shift production to respond to increased demand for silicone lenses.
In addition, B&L officials admitted in a Rochester Business Journal article dated October 20,
2000 that: "Troubles in the manufacturing of silicone Intraocular Lenses still exist. The wrinkles
will be ironed out within the next three to six months."
75. The fact that revenues in the Surgical division were able to rise at all was entirely
due to sales of the Technolas 217 lasers. B&L reported numbers for the Surgical division as a
whole, not for its different segments. The mainstay of the business of the Surgical division was
selling IOL's and the equipment used to do cataract surgery (called Phacoemulsification
commonly known as APhaco@). A piece of Phaco equipment only costs approximately $50,000;
the lens (IOL's) costs approximately $80. One Technolas laser, however, sold for as much as
$500,000. Thus, although sales of cataract surgical products, including IOL's, the core of the
Surgical division, Awere just falling apart@ according to a management level employee who had
worked for Storz and had continued working for B&L's surgical division after B&L purchased
Storz, the division was made to look as if it was making its numbers through sales of the
Technolas lasers, which masked the problems in the core business. Defendants, however, never
disclosed the product shift in B&L's Surgical division during the Class Period, nor the
31
fundamental change in the constituency of its earnings. This, in turn, misled investors as to the
results of B&L's operations and the success of its entire surgical products division.
76. Furthermore, the sales spike B&L enjoyed due to the Technolas was short-lived,
however. B&L lacked the proper back-up and support with service, spare parts and reliability to
maintain the systems. Once customers discovered that B&L could not effectively provide the
service to back-up the laser, then the laser sales dampened as well.
c. B&L Failed To Write-Off Useless or Non-Working Inventory
77. As one former management employee in B&L's Surgical division put it, decisions
regarding write-offs or write-downs on inventory and equipment were not made based on what
was financially proper under applicable accounting rules, but were instead based on what the
opinion of Wall Street would be and how write-offs or write-downs would affect B&L's stock
price. For example:
(1) B&L had approximately 200 Chiron machines (which were used to extract
cataracts from eyes) that did not work properly and should have been written off or
written down. Each machine was valued at a cost of approximately $15,000-20,000 and
thus the write-off should have been in the amount of approximately $3-4 million. The
merchandise was moved from California to the distribution center in St. Louis and was
still carried on B&L's books at full value as of the end of the Class Period.
(2) In December 1999, the Surgical division committed to purchasing
$750,000 worth of the blades used to slice the eye for Keratome surgery. The blades
arrived but could not be used because they were not made to correct specification. The
32
blades were still being carried at their full $750,000 purchase price on B&L's books until
at least the end of the Class Period.
78. Thus, B&L violated GAAP, in accounting for inventories by failing to take a
charge against earnings to account for the fact that the market value of such products had
deteriorated substantially below cost because, among other things, the products did not work
properly, if at all. Accounting Research Bulletin ("ARB") No. 43 provides, in pertinent part:
A departure from the cost basis of pricing the inventory is required when the utility of the goods is no longer as great as its cost. Where there is evidence that the utility of goods, in their disposal in the ordinary course of business, will be less than cost, whether due to physical deterioration, obsolescence, changes in price levels, or other causes, the difference should be recognized as a loss of the current period. This is generally accomplished by stating such goods at a lower level commonly designated as market. ARB 43, Chapt. 4, Statement 5. [Emphasis in original.]
79. GAAP provides that an estimated loss from a loss contingency "shall be accrued
by a charge to income" if: (i) information available prior to issuance of the financial statements
indicated that it is probable that an asset had been impaired or a liability had been incurred at the
date of the financial statements; and (ii) the amount of the loss can be reasonably estimated.
SFAS No. 5, at & 8. SFAS No. 5 also requires that financial statements disclose contingencies
when it is at least reasonably possible (e.g., a greater than slight chance) that a loss may have
been incurred. The disclosure shall indicate the nature of the contingency and shall give an
estimate of the possible loss, a range of loss or state that such an estimate cannot be made. The
SEC considers the disclosure of loss contingencies to be so important to an informed investment
decision that it promulgated Regulation S-X, which provides that disclosures in interim period
financial statements may be abbreviated and need not duplicate the disclosure contained in the
33
most recent audited financial statements, except that, Awhere material contingencies exist,
disclosure of such matters shall be provided even though a significant change since year end may
not have occurred.@ 17 C.F.R. ' 210.10-01.
80. The Company violated the GAAP requirement for the inclusion of a provision for
inventory losses as applied to interim financial statements, as indicated by APB Opinion No. 28,
& 17, Interim Financial Reporting:
The amounts of certain costs and expenses are frequently subjected to year-end adjustments even though they can be reasonably approximated at interim dates. To the extent possible such adjustments should be estimated and the estimated costs and expenses assigned to interim periods so that the interim periods bear a reasonable portion of the anticipated annual amount.
d. B&L Created False Projections Regarding The
Surgical Division's Expected Year-End 2000 Results
81. Numerous former employees of B&L interviewed by plaintiffs' counsel, including
a Surgical division accounting supervisor, a Surgical division materials director and a Surgical
division accountant who worked with the sales and marketing group, recounted how B&L's
Surgical division would, on numerous occasions, prepare forecasts for the Surgical division,
would send those forecasts to "Rochester" (B&L's corporate headquarters), and then would get
the directive from "Rochester" that the numbers were too low and to change the numbers to make
them meet previous forecasts. The personnel within the Surgical division would then arbitrarily
change the forecasts to show B&L making increased revenues and earnings, these new forecasts
would be sent to Rochester, and it would be these new forecasts which would serve as the basis
of making public statements about B&L's operations and prospects throughout the Class Period.
34
82. One revenue accounting supervisor for Surgical recounted how she would also
prepare daily sales reports which indicated actual sales versus forecasted sales and would e-mail
them daily to defendant Carpenter, as well as to Paul Lopez, Vice President of Commercial
Operations for the Americas and Asia Pacific region and to Hakan Edstrom, Corporate Vice
President and President of the Surgical division, among others. These daily sales reports
uniformly showed that the Surgical division was not doing as well as previously forecasted.
Thus, defendants were aware, or at the very least recklessly disregarded, that the guidance being
given to investors and the public was materially false and misleading.
83. Another former Surgical division internal accountant recounted that in April and
May 2000, the Surgical division's sales and marketing group, with the help of B&L's internal
accounting personnel, were preparing the revenue projections and financial forecast for the full
year 2000. At the time, there were approximately four months of results, and the group based its
projections on those figures. A report was prepared which indicated that Surgical would not hit
sales and profit targets for the year. The report first went to Paul Lopez, then to Hakan Edstrom,
and finally to Sassano. Following Edstrom's and Sassano's reviews and notwithstanding the lack
of underlying data to support the decision, Surgical was instructed to alter the projections to
forecast that B&L would meet its previous projections. These projections, created by fiat by
senior management of B&L, had no basis in fact, and, indeed were at odds with the lower
forecasts prepared by the day-to-day operating personnel in the Surgical division. In turn, these
intentionally inflated projections were used as a basis to make public statements about B&L's
operations and prospects throughout the Class Period.
35
3. Vision Care Division
84. In 1998, Johnson & Johnson ("J&J") had been the first company to introduce
disposable soft contact lenses. J&J's Acuvue lens maintained the dominant share of the
disposable contact lens market. B&L introduced both its one-day disposable contact lens,
SofLens, and monthly disposable contact lens, PureVision, in June 1998. On May 31, 1999,
B&L introduced a soft contact lens for people with astigmatism, SofLens66-Toric. By
September 30, 1999, 15,000 eye care professionals sold the SofLens products.
85. Bausch & Lomb introduced PureVision to the North American market in March
1999. By December 31, 1999, 7,500 eye care practitioners worldwide sold PureVision extended
wear. It was well known at B&L that physicians were skeptical about the ability to safely use
PureVision for more than seven days. This limited usage adversely impacted PureVision sales.
B&L had substantial sales data concerning SofLens, SofLens66, SofLens66-Toric and
PureVision products prior to the Class Period. This market data indicated that the new contact
lens products were not generating new customers but were merely cannibalizing existing
customers from the Company's other product lines. This adverse fact was known or recklessly
disregarded throughout the Class Period but not disclosed to B&L investors until August 24,
2000.
86. In a March 19, 1999 article in the Rochester Business Journal, B&L's marketing
contractor Forward Design stated that the first phase of PureVision marketing would be to
market the lenses to eye-care professionals.
87. On March 19, 1999, the Gannett News Service quoted Sassano as saying that
while B&L works to get "eye practitioners" on board with overnight wear, there would be no
36
PureVision ad campaign for the first several months after the product's launch. That same day,
on the CNBC program "Squawk Box," Sassano added that if doctors were to support overnight
wear, interest in PureVision would reach 70%.
88. In a March 20, 1999 article in the Bergen [New Jersey] Record, B&L stated that
the Company hoped to convert existing contact lens wearers and eyeglass wearers to extended
wear contacts. The Company also said that 20% of the contact lens market is extended wear
lenses, and the limit on that proportion is due to health concerns.
89. In order to differentiate PureVision from competing lenses, B&L at first marketed
the lenses as Acontinuous wear,@ instead of using the industry term Aextended wear.@ This
tactic caused the Food and Drug Administration to issue a warning letter on April 23, 1999
saying, inter alia, that the Acreation of a continuous wear category@ by B&L was
Ainappropriate,@ and rendered the lenses Amisbranded and adulterated.@ The letter also
demanded that B&L stop referencing European approval for 30-day wear of PureVision in U.S.
marketing because no similar FDA approval had been given.
90. In July 1999, the British medical journal Lancet published a study showing a high
risk of certain types of infections among people who wear contact lenses overnight. On July 19,
1999, B&L issued a press release responding at length to the article. In the release, B&L's VP of
Biological and Clinical Research, Brian Levy, said that the 1996 research published in the Lancet
overstates the risk of microbial keratitis associated with overnight wear of soft contacts.
Moreover, B&L further said that PureVision's new technology makes those results inapplicable
to PureVision. B&L claimed that "of the 70 million contact lens wearers around the world,
37
nearly 10 million wear hydrogel extended wear contact lenses overnight, and most of them do so
successfully" (quoting from Dr. Joseph T. Barr, a professor at Ohio State University).
91. SofLens sold well immediately following its introduction, but sales dropped
quickly and sales growth remained poor during the Class Period. PureVision did not do well,
even at its introduction. Its fit and feel to the wearer were different from other contacts, and
many wearers preferred the feel of J&J's Acuvue lenses. PureVision also received a mixed
reception from doctors who continued to be concerned with the safety of overnight wear. This,
coupled with increased competition from Acuvue, resulted in lagging PureVision sales. During
the Class Period when B&L claimed that PureVision and SofLens were experiencing double-
digit growth, these claims were contradicted by the data produced by the first-line management
of Contact Lens Sales.
92. Thus, an excess of contact lens inventory grew at B&L. The inventory situation
was exacerbated after B&L sold the Ray Ban division to Luxottica in 1999, when B&L
transferred many manufacturing employees from that division to the Goodman manufacturing
plant for contact lenses. At that time, B&L went to a 24/7 operation. However, the 24-hour
operation proved to be a mistake because, in late 1999, it was already clear that there were
insufficient sales to support round-the-clock production.
93. In particular, B&L had a tremendous amount of SofLens inventory on hand during
the Class Period. People working on SofLens manufacturing were openly questioned why B&L
continued to produce so many of the lenses when it was not selling well. B&L had several
different warehouses around Rochester where it stored this inventory, but most of the SofLens
inventory was sent to B&L=s distribution center in Lynchburg, Va.
38
94. The inventory problems also affected the PureVision line. Workers saw
PureVision lenses sitting in stock as early as late 1999 and January 2000, and they openly
discussed the failure of the line to meet expectations.
FALSE AND MISLEADING STATEMENTS A. January 2000 Positive B&L Statements Issued In Connection With
Announcements of Fiscal Year-End and Fourth Quarter of 1999 Financial Results
95. On or about January 27, 2000, the Company announced results for its fourth
quarter and year ended December 25, 1999. The Company reported that revenues increased 9%
from $428.5 million in the fourth quarter of 1998 to $466.6 million in the fourth quarter of 1999.
Earnings were $37.5 million for the fourth quarter of 1999 as compared with $17.2 million in
the same quarter in the prior year. Full year 1999 revenues from continuing businesses were
$1,756 million, an increase of 10% from the $1,597.5 million reported in 1998.
96. The Company reported revenue growth in both its Pharmaceuticals and Vision
Care divisions. The Company stated that revenues from Pharmaceuticals increased 12% over the
fourth quarter of the prior year -- from $67.1 million to $74.9 million -- benefitting from "strong
U.S. sales of proprietary ophthalmic pharmaceutical and non-ophthalmic multi-source products."
With respect to B&L's pharmaceutical business, Carpenter also stated that "the breadth and
depth of our portfolio allowed us to make strategic investments in new product development . . .
"
97. With respect to the Vision Care segment, the Company announced that revenues
increased 6% over the 1998 fourth quarter -- with sales of contact lenses up 11% driven by the
39
new replacement and disposable lenses: SofLen66-toric lenses, SofLens one-day lenses and
PureVision extended wear lenses.
98. In the January 27, 2000 release, Carpenter touted these results, stating that, "we
are very pleased with the solid results reported today." Vision Care was well positioned to
"deliver solid growth in the future with even stronger profitability." As to the Surgical division,
he stated that the surgical business is
well positioned to continue to deliver solid growth in the future, with even stronger profitability. Our surgical business delivered both robust growth and dramatically higher profits.
As we look ahead, Bausch & Lomb is uniquely positioned in the ophthalmic surgery market to benefit from the continued strong growth in worldwide demand for refractive surgery procedures. We also have opportunities to further leverage our global presence in the stable cataract and high potential retinal surgery markets for continued revenue growth and margin expansion. (Emphasis added.)
99. Carpenter concluded his comments by stating that "we expect to continue to post
solid revenue gains in the coming year and to leverage those gains at the bottom line." Following
the issuance of January 27, 2000 press release, B&L's common stock price climbed from $56.25
per share on January 26, 2000 to $60.50 per share on January 27, 2000.
100. The statements contained above were false and misleading when made for the
reasons stated above at && _______. Specifically, Defendants' statements were false and
misleading because defendants knew or recklessly disregarded that: (i) B&L's Pharmaceutical
division results were false in that they made inaccurate provisions for rebates given as part of an
undisclosed price war and thus the Company's 1999 revenues were false because the Company's
reported figures for the last quarter of 1999 improperly concealed those rebates; (2) the Surgical
division's performance was further hampered by the failure of the Chiron/Storz integration,
40
which, in turn, had led to an inability to manufacture sufficient IOL's during the Class Period
and the gross inadequacies of the BAAN computer system in processing, fulfilling and invoicing
orders; (3) the Surgical division's results were false in that they failed to properly write-down or
write-off inventory; (4) the Vision Care division's new products were not living up to
expectations and were merely cannibalizing existing customers from the Company's other
product lines; and (5) PureVision had not received the necessary support from doctors and was
losing market share to competing products, Soflens was not selling as well as the Company had
anticipated, neither product had succeeded in luring customers from either glasses or competing
lenses and B&L was merely selling these products to customers of the Company's other products,
thereby cutting in on the sales of those other products, and inventory from both lines was
building up.
101. B&L reiterated its positive statements in the announcement of year-end results to
securities analysts. Analysts such as Morgan Stanley were told by management on or about
January 28, 2000 that B&L's new Vision Care products such as SofLens66-Toric and PureVision
would drive sales in the second half of 2000. On January 28, 2000, a Morgan Stanley analyst
issued a report stating "strong trends across all business segments" and that SofLens and
PureVision would be "key drivers of growth in 2000."
102. The PaineWebber report dated January 28, 2000 reiterated management's
statements that Pharmaceuticals revenues were up 12% and that U.S. sales of ophthalmic and
non-ophthalmic products were "strong."
B. False and Misleading Statements in the 1999 Annual Report
41
103. The Company's 1999 Annual Report for the year ended December 25, 1999,
disseminated on or around April 4, 2000, stated that U.S. Pharmaceuticals revenue increased
37%, resulting from a significant increase in "generic otic [ear] products" due to a
competitor's exit from the market in late 1998. (emphasis supplied). The Annual Report also
noted that 1999 pharmaceuticals earnings benefitted dramatically from "favorable pricing" from
otic lines, allowing for significant research and development investment:
Segment earnings increased 35% from 1998, due in part to favorable pricing opportunities in the otics line. A substantial portion of the incremental margin realized from increased otic sales was reinvested in R&D, which increased by $14 or 65% and represented 12% of 1999 sales versus 9% in 1998.
104. The Annual Report also mentioned that as "the Company anticipated, new
competition in the generic otic market is resulting in prices for these products trending down to
their pre-1999 levels."
105. The statements contained in the preceding two paragraphs were false and
misleading when made for the reasons stated above in && ___. In particular, these statements
falsely induced investors to believe that B&L's reported net earnings accurately reflected the
decreased profits from otic products. In fact, B&L was in a price war beginning in November,
1999, which entirely removed the price advantage achieved when Schein Pharmaceuticals exited
the Neomycin and other markets. The Company's reported results did not reflect this price war
because the Company gave retroactive and hidden rebates and then arbitrarily reduced the rebate
provision, causing both revenues and earnings to be falsely reported.
106. The Letter to Shareholders, contained in the 1999 Annual Report and signed by
defendant Carpenter, also described how the introduction of new Vision Care products such as
42
SofLens66-Toric and PureVision would accelerate revenue growth, market share and profitability
in 2000 and beyond:
We are the global leaders in products for the contact lens wearer and intend to stay that way! We'll do this by continuing to introduce technologically differentiated products and by further expanding our geographic reach. Over the past few years, we have transformed our vision care offerings through the introduction of four new products: SofLens one day contact lens for daily wear; SofLens66 toric, our technologically advanced two-week disposable contact lens for people with astigmatism; PureVision, our breakthrough contact lens designed for continuous wear and approved for seven-day wear in the U.S. and 30-day wear in Europe.
Based on the successful expansion of these products, we have moved to reduce costs further and to consolidate our contact lens manufacturing into "centers of excellence." Together, we expect these factors to allow us to accelerate revenue growth, increase market share and improve the profitability of our vision care business in 2000 and beyond. [emphasis supplied]
107. The statements contained in the preceding paragraph were false and misleading
when made for the reasons stated above in && ___. In particular, PureVision and SofLens were
each underperforming expectations and not pulling customers away from either glasses or
competitors' products but only cannibalizing existing customers of B&L's other preexisting
product lines.
108. The 1999 Annual Report also contained a section titled "Outlook." This section
forecasted overall operating earnings growth by approximately 20% and contact lens revenue
growth in the double-digits, citing anticipated sales of SofLens, SofLens66-Toric and
PureVision:
43
In the vision care segment, revenue growth is expected to be in the upper single digits with lens care growing slightly and contact lenses growing in the low double digits. The contact lens business should benefit from higher sales from new and innovative products including SofLens one day disposable lenses; SofLens66 toric, a two-week disposable lens to correct astigmatism; PureVision, an extended wear lens; and a new two-week conventional disposable lens which the company plans to introduce during the first half of 2000. The new two-week disposable lens will be manufactured using the same low-cost process that is used for its one-day disposable product and is expected to allow the company to compete more effectively in the price/value driven segment of the contact lens market. The combination of increased sales of higher margin new products and cost reduction initiatives are expected to yield improved operating margins in this business. [emphasis supplied]
109. The statements contained in the preceding paragraph were false and misleading
when made for the reasons stated above in && ___. In particular, PureVision and SofLens were
each underperforming, and they were not attracting customers away from either glasses or
competitors' products but merely cannibalized existing customers of B&L's other preexisting
product lines.
110. The "Outlook" section of the 1999 Annual Report also forecasted double-digit
revenue growth in the Surgical division because of strong demand for refractive surgery
products:
In the surgical segment, revenues are expected to grow in the low double digits, driven primarily by continued strong growth in demand for products used in refractive surgery. Operating margins in this segment are expected to expand to nearly 20% over the next two years, driven by the continued integration of the two surgical businesses acquired in 1998, and a sales mix shift toward higher margin products. [emphasis supplied]
44
111. The statements contained in the preceding paragraph were false and misleading
when made for the reasons stated above in && ___. In particular, the integration of Storz and
Chiron was not successful and could not contribute to increased operating margins. In addition,
the statements of positive growth and 20% improved operating margins in 2000 and 2001 in the
Surgical segment set forth in the preceding paragraph were materially false and misleading
because B&L failed to disclose that B&L was unable to meet demands in 2000 for IOL's due to
known manufacturing limitations, which caused those lenses to be back-ordered throughout the
entire Class Period.
112. Finally, the "Outlook" section of the Annual Report stated that even with
increased price competition in the otic market, B&L forecasted single-digit revenue growth in the
Pharmaceuticals division:
In the pharmaceuticals segment, revenues are expected to grow in the mid-single digits in 2000. As the company anticipated, new competition in the generic otic market is resulting in prices for these products trending down to their pre-1999 levels. Consequently, 2000 sales comparisons will be off a larger-than-normal base. Operating margins are expected to be in the high teens in 2000 reflecting higher R&D spending and sales mix shifts. [emphasis supplied].
113. The statements contained in the preceding paragraph were false and misleading
when made for the reasons stated above in && ___. In particular, the statements falsely imply
that prices for Neomycin had not already fallen to their pre-1999 levels. They also imply that the
Company is accurately reporting the revenue and earnings figures for the pharmaceutical division
when, in fact, the Company had inaccurately reported its rebate provision and was therefore
reporting false earnings and revenue figures.
45
114. B&L's public statements induced securities analysts to relatively uniform earnings
projections for each of the fiscal 2000 quarters as follows:
Date
Analyst
1stQ
2nd Q
3rd Q
4th Q
2000E
1/28/00
PaineWebber (Charles Olsziewski)
$ .43
$ .74
$ .93
$1.10
$3.20
1/28/00
Morgan Stanley (Marc Goodman)
$ .40
$ .74
$ .97
$1.14
$3.25
1/28/00
Donaldson Lufkin & Jenrette (Ken Kulju)
$ .50
$ .70
$ .90
$1.11
$3.22
D. April 2000 Announcement of First Quarter Financial Results
115. On April 13, 2000, Bausch & Lomb announced its financial results for the quarter
ended March 25, 2000. The Company reported net earnings of $39.1 million or $0.68 per share
as compared with $22.4 million or $0.39 per share in the same quarter in the prior year.
Excluding the impact of certain patent litigation in the 2000 first quarter and the effects of certain
discontinued operations in the prior year=s first quarter, the Company reported that the net
earnings were $23.9 million or $0.42 per share, up 62% from the prior year. Defendant
Carpenter stated "we are very pleased with the results . . . our revenues and operating earnings
were in line with our expectations."
116. This press release also contained the following statements:
Excluding the impact of foreign currency rate changes, revenues increased 1%. Contact lens revenues were up 8%, driven by strong double-digit growth in sales of the company's lines of planned replacement and disposable lenses. Within this product category, results were led by growth of the company's premium contact lense
46
offerings, SofLens667 toric and PureVisionTM, and by continued strong growth of SofLens7 one day.
* * *
First-quarter revenues from the company's pharmaceuticals business were up 4% from the same period in 1999.
117. B&L management held a conference call with investors and securities analysts on
April 13, 2000 to elaborate on its first quarter financial results. Investors and analysts were given
a bullish report on B&L's operations. Contact lens revenue rose 8% as a result of a new contact
lens product:
Contact lens revenue rose 8%, paced by strong growth in sales of new planned replacement and extended wear lenses. Because these new offerings are achieving critical mass, U.S. lens revenue was up 3%, after being flat in the December quarter and off 7% in the September period. SofLens66-Torics are now available through more than 30,000 eye care professionals and PureVision lenses are in the hands of 9,000 practitioners worldwide. Pharmaceuticals were also said to have risen 9% as compared to the prior year.
118. However, the highlight of the conference call according to the PaineWebber
analyst was "management's bullish discussion of its rapidly growing refractive surgery business,
which currently represents no more than 10% of revenue but grew in excess of 70% year to year
the three month period."
119. Looking forward, Carpenter stated new Vision Care products sales would
"accelerate" and drive growth in the second half of the year:
As we look ahead for the rest of 2000, sales in the vision care segment should accelerate in the second half of the year, driven by the continued strong performance of our new planned replacement and disposable contact lens products, including our new two-week disposable lens, which is on target for launch this quarter. Additionally, we anticipate that the re-balancing of lens care trade
47
inventories will be completed by mid-year, and we expect to see a return to modest growth in lens care revenues in the second half.
120. The "moderate" growth in Pharmaceuticals division due to pricing competition in
otic products was also "as anticipated":
As we anticipated, growth in the pharmaceuticals segment has moderated from last year, when sales benefitted from short-term pricing opportunities we had for generic otic products.
121. The only statement about the performance of the Surgical division was that sale
of Technolas 217 exceeded expectations:
In our surgical segment, customer response to the U.S. launch of our Technolas7 217 laser has exceeded our expectations, and we now anticipate revenue growth in that segment to be a couple of percentage points higher than we had originally forecasted for 2000, and significantly higher for 2001.
122. Management's positive statements concerning its current and future financial
condition at the end of its first quarter 2000 induced analysts to sustain or increase the forecasted
B&L earnings as follows:
Date
Analyst
2nd Q
3rd Q
4th Q
2000E
4/13/00
Donaldson Lufkin & Jenrette (Ken Kulju)
$ .72
$ .96
$1.16
$3.93
4/14/00
PaineWebber (Charles Olsziewski)
$ .74
$ .97
$1.12
$3.25
6/6/00
Morgan Stanley (Marc Goodman)
$ .74
$ .99
$1.13
$3.28
123. The Company=s stock price rose in response to B&L's first quarter of 2000
announcement, closing at $56.56 later that same day.
48
124. The Company's statements made in connection with reporting its financial results
for its first quarter ended March 25, 2000 were materially false and misleading in failing to
disclose B&L's true condition as set forth in & & ____ and in the following respects:
(a) the reported earnings figure for the first quarter of 2000 set forth in & ___ were materially overstated by approximately $6 million because they failed to reflect discounts, rebates and/or returns issued to pharmaceuticals customers arising from price competition with generic pharmaceuticals drug companies, including Falcon;
(b) the statement that there was only Amoderate growth in pharmaceuticals@
due to short-term pricing opportunities which increased competition in the otic line set forth in & ___ was materially false and misleading because it falsely suggested that B&L had properly and fully recorded otic product=s adverse impact on pricing competition, which it had not done because it failed to disclose that aggressive generic competition had adversely impacted numerous other pharmaceuticals products by Falcon and others, and if the impact of that competition had been properly reported, it would have materially reduced pharmaceutical and corporate actual and forecasted quarterly earnings in 2000;
(c) the statements about sales in Vision Care from SofLens and PureVision
being strong and Aaccelerating@ revenue and earnings in 2000 as set forth in & & ___ were materially false and misleading because they failed to disclose that these products were not attracting new customers;
(d) the statements of even greater growth in the Surgical segment due to sales
of the Technolas 217 as set forth in & ___ were materially false and misleading because B&L failed to disclose that B&L was unable to meet demands in 2000 for IOL's due to known manufacturing limitations and that it lacked the necessary physician support to sustain Technolas 217 sales throughout 2000.
E. July 19, 2000 B&L Announces Second Quarter
Revenue Decline Due To "Short Term" Problems
49
125. On July 19, 2000, Bausch & Lomb announced its financial results for the quarter
ended June 24, 2000. Revenues from the Company=s continuing operations declined from
$453.3 million in the same quarter in the prior year to $452.9 million in the 2000-second quarter.
Net earnings declined from $173.4 million or $2.94 per share to $34.6 million or $.64 per share.
However, excluding $8.4 million of extraordinary charges in the quarter ($3.7 million from an
attempted acquisition and $4.7 million of charges from settlement of litigation), net earnings
from continuing operations increased 51% -- from $28.9 million or $.49 per share the second
quarter of 1999 to $40 million or $.74 per share. Nevertheless, the Company disclosed revenue
decline in two of its three major business segments: Vision Care revenue (representing more than
half of the Company's total revenue) decreased 2% from 1999; and Pharmaceuticals revenue
declined 12%. Revenue from the Company's Surgical segment rose 13% (as a result of double-
digit growth in sales of products used in refractive surgery) as compared to the prior years.
Defendant Carpenter was careful to stress that the Company was satisfied with its financial
performance because the revenues decline in the Vision Care and Pharmaceuticals was due to
"short term market issues" and that long term growth products actually performed well.
Carpenter stated:
On balance, we are satisfied with the results for the second quarter. Products associated with the key initiatives we have identified for long-term growth - new contact lenses, refractive surgery and proprietary pharmaceuticals - continued to perform well. Our revenues, however, were negatively affected by short-term market issues in our U.S. lens care and pharmaceuticals businesses. (Emphasis supplied.)
126. Indeed, Carpenter stressed that the Company had achieved its "financial goals" in
the quarter, resulting in the "significant improvements in the profitability of our vision care and
50
surgical businesses." Carpenter stressed that because of this improvement in profitability, he
remained "comfortable" with the "previous earnings guidance for our current business for the
second half of this year," which had been $1.10 earnings per share for 2000.
127. B&L management attributed the revenue shortfall in the second quarter, in part, to
price competition with respect to generic otic pharmaceuticals. Bausch & Lomb told a Morgan
Stanley analyst on or about July 20, 2000 that the 17% decline in Pharmaceuticals sales was due
to pricing competition with Falcon and that the collapse of pricing for the otic products occurred
"faster than expected" at the end of the second quarter:
Management expects that currency adjustments will continue to mask the improvements in pharma sales overseas for the rest of the year. The sales shortfall in the U.S. was in generic otic products. Alcon's generic subsidiary (Falcon) lowered price significantly on competing products at the end of the quarter. And wholesalers typically wait for discounting at the end of quarters before purchasing products. In 1999, pharma sales were $294 million with roughly $45-50 million from otic product sales. B&L took advantage of a competitor being out of the market and took pricing up significantly (roughly fourfold). With the pricing competition from Falcon, pricing has collapsed significantly, faster than expectations, back to levels only modestly higher than 1998 levels. (Emphasis supplied.)
128. The July 19, 2000 press release also included the following statements:
For the first half of 2000, revenues from continuing businesses were $859.7 million, an increase of 2% from the $843.2 million reported in 1999.
* * * Second-quarter 2000 revenues from the company's vision care business decreased 2%, with strong sales of the company's newer product offerings -- SofLens667 toric, SofLens7one day, PureVisionJ, and Bausch & Lomb7 Two Week -- largely offset by declines in older product offerings, particularly in certain markets in Asia. Combined lens care and vision accessories revenues were down 6%, driven by ongoing market dynamics in the U.S., where
51
the company's retail customers continue to reduce their inventory positions.
* * * Second-quarter revenues from the company's pharmaceuticals business were down 12% from the same period in 1999. Excluding the negative impact of foreign currency, revenues declined 8%. Sales in local currency were up 11% for the company's Dr. Mann Pharma subsidiary in Germany, and in the U.S., revenues from LotemaxT and AlrexT, the company's proprietary ophthalmic anti-inflammatory drops, were up sharply during the quarter. These gains were more than offset by results from the company's line of generic ear drops in the U.S., where prior year results were significantly augmented by price increases taken after a major competitor's exit from the market. Revenues from these products in the second quarter of 2000 were significantly lower than a year ago, reflecting pricing activity by new competitors that was more aggressive than the company had anticipated.
* * * Products associated with the key initiatives we have identified for long-term growth -- new contact lenses, refractive surgery and proprietary pharmaceuticals -- continued to perform well. Our revenues, however, were negatively affected by short-term market issues in our U.S. lens care and pharmaceuticals businesses. Despite these challenges, we achieved our overall financial goals this quarter as a result of significant improvements in the profitability of our vision care and surgical businesses.
129. B&L management told one Salomon Smith Barney's analyst, as reflected in its
July 20, 2000 report, that "pharma division price competition for otic products (ear drops from
generic) came on aggressively and faster than previously anticipated." (emphasis supplied).
The PaineWebber analyst Charles Olsziewski also reported on July 20, 2000 that otic drug prices
had "fallen more quickly than expected."
130. B&L's efforts to minimize the significance of the negative financial results
succeeded in large part. B&L's common stock price declined only 21% -- from $78.19 per share
52
on July 18, 2000 to $61.75 per share on July 19, 2000. As reported in Business Week on August
7, 2000:
Part of the reason for that steep slide [in B&L stock to $61.75 per share on July 20, 2000] was that many investors feel management misled them about the company's weak sales growth when it gave a glowing mid-quarter briefing to Wall Street. 'The company lost some credibility with the quarterly results,' says Lehman Brothers analyst David Gruber, who downgraded the stock on the earnings news. Carpenter insists the extent of the problems, which include weak sales in lens solutions, only became apparent late in the quarter. (emphasis supplied).
131. The aforementioned statements made by B&L in connection with its second
quarter financial results were materially false and misleading for the reasons set forth in
&& _____. Specifically:
(a) the reported earnings figures for the second quarter of 2000 set forth in & ___ were materially overstated by approximately $6 million because they failed to reflect discounts, rebates and/or returns issued to pharmaceuticals customers arising from price competition with generic pharmaceuticals drug companies including Falcon;
(b) the statement that increased competition in the otic line was a Ashort
term@ problem which came on Afaster than expected@ late in the second quarter, as set forth in & & ___, was materially false and misleading because the generic competition in otic products had been consistently aggressive since November 1999 and showed no sign of letting up or diminishing in the Ashort term@; it failed to disclose that generic competition had adversely impacted pricing on numerous other pharmaceuticals products, and if properly reported, it would have materially reduced pharmaceuticals and corporate quarterly earnings;
(c) the statement that there was only short term declines in Vision Care
revenue, as set forth in & & ___, was materially false and misleading because, in fact, Vision Care products posed a long term or fundamental problem of not attracting new customers;
(d) the statement that B&L is still able to meet earnings targets for 2000, as
set forth in & ___ , was materially false and misleading because B&L failed to disclose that B&L was unable to meet demands in 2000 for IOL's due to manufacturing limitations making the earnings target unlikely.
53
F. Investors Rely On B&L's False Claim of "Short Term" Problems
132. B&L securities analysts relied on management=s statement that the revenue
decline was due to short term issues which would not impact the balance of the year. Indeed,
based on management=s statements, the securities analysts covering B&L, even including those
who lowered their rating on B&L, reduced their 2000 earnings projection by only pennies, if at
all, as follows:
Analyst
Old 2000 EPS Estimate
(per share)
New 2000 EPS Estimate
(per share)
Bairch
$3.27
$3.25
PaineWebber
$3.25
$3.25 Salomon Smith Barney
$3.22
$3.22
Morgan Stanley
$3.28
$3.25 133. Further, some of the analysts incorporated defendants' representations as to the
"short term" nature of B&L's problems into the text of their reports. The PaineWebber analyst
stated that the market reaction to the July 20, 2000 announcement was "overdone" in light of
"short term" nature of the revenue shortfall:
While we thought that B&L's stock might trade off on the weak top-line performance and the potential for a delusive acquisition (particularly given its sharp runup in recent weeks), the loss of approximately $900 million in market capitalization is, in our opinion, overdone, especially since the reasons for the shortfall are not viewed as key long-term growth drivers. (emphasis supplied).
134. Indeed, the PaineWebber analyst continued to rate B&L ABuy@ with a 12-month
target price of $80.00 per share. By not altering its 2000 and 2001 earnings projections, the
Morgan Stanley analyst, while downgrading the stock from a Strong Buy to Outperform, noted
54
that management believes "many of the issues are temporary and should be worked through by
the end of the year." (emphasis supplied).
G. On August 24, 2000 Carpenter Admits To Fundamental, Not "Short Term," Problems and Terminates B&L President Sassano
135. On or about August 24, 2000, the Company announced a dramatic downward
revision of current earnings estimates: third quarter earnings would be $0.70 to $0.72 instead of
the $0.93 per share analysts had been led to anticipate; first-quarter earnings would be $0.83 to
$0.85 per share as opposed to the $1.06 per share analysts had been led to anticipate; and fiscal
year earnings would be in the range of $2.69 to $2.72 per share as opposed to the $3.15 analysts
had been led to anticipate just four weeks earlier. More significantly, however, the Company
reversed its claim that the revenue declines in Vision and Pharmaceuticals segments were "short
term" and for the first time admitted that product supply constraints in the Surgical division's IOL
business was negatively impacting results.
136. In trying to explain this reversal in its depiction of B&L's financial condition, the
Company said that the "extent and speed" of the Neomycin or otic drug price competition was
"unprecedented," and prices had been eroding in other multi-source drugs:
During the second quarter, Bausch & Lomb reported a decline in revenue growth due to the significant impact of aggressive pricing competition in generic otic (ear) products in the U.S. While the company had expected the entry of competition to lead to a gradual pricing decline in this product line, the extent and speed of the price reductions were unprecedented. More recently, prices have been similarly eroding in the company's other multi-source products in the U.S.
137. With the new vision products, PureVision, SofLens and SofLens66-Toric, which
investors believed would drive revenue in the second half of 2000, B&L "suddenly" discovered
55
they were cannibalizing existing customers and thus not expanding B&L's market shares.
Defendant Carpenter conceded new Vision Care products were drawing from wearers of existing
B&L contact lenses. Carpenter said flatly:
New Products, such as PureVisionJ continuous wear lenses, one-day lenses, and disposable specialty lenses such as SofLens66- toric have, so far have drawn more of their wearers from existing products rather than bringing new patients into the market, thus hastening the erosion of older categories without contributing new growth.
Such a fundamental fact regarding Vision Care product sales had to have been known by
Carpenter, at the very least, four weeks earlier when he characterized the slowdown in Vision
Care product sales as "temporary" and "not affecting the remaining two quarters of the year
2000."
138. As regards the Surgical division, B&L stated that due to issues arising out of the
integration of the Storz and Chiron acquisitions (which had happened in December 1997), it had
"suddenly" discovered that it was not able to manufacture sufficient numbers of high margin
silicon IOL's and that this was negatively impacting revenue in the Surgical division. B&L
stated:
Bausch & Lomb has been aggressively consolidating the multiple IOL manufacturing facilities that were part of its acquisition of the Chiron Vision and Storz companies in the U.S. and Europe. The rapid integration of manufacturing processes and product lines has limited the company's ability to shift production to respond to increased demand for silicone lenses. The company estimates it will take six to nine months before it can reliably meet demand and expand distribution to new accounts.
139. B&L's announcements on August 24, 2000 shocked analysts who clearly believed
they had been misled by management. In an interview on August 24, 2000, Goldman Sachs
56
securities analyst Larry Keusch said he was "stunned" by B&L's August 24, 2000 announcement
because it was such a reversal from management's prior statements:
I was actually quite floored [by August 24 announcement], because again, we had many conversations with the company [and] management over the last several weeks, and they essentially assured us that they felt that their new expectations were conservative. Again, the issues were temporary in nature. So to find that something now that appears to be very systematic throughout the company was troubling, and the magnitudes of the declines in the earnings expectations were just enormous. (emphasis supplied).
140. PaineWebber analyst Charles Olsziewski downgraded his recommendation of
B&L, noting management's reversal of statements made to investors:
We were quite surprised and extremely disappointed by the aforementioned revelations particularly in light of the fact that just four weeks ago we believed that the issues that had weighed on B&L's June-quarter results were temporary in nature. (emphasis supplied).
141. Further, evidencing the long term financial significance of the large undisclosed
problems at B&L, B&L's August 24, 2000 announcement also caused the Standard & Poor
("S&P") to lower its corporate credit, bank loan, and senior unsecured debt ratings on B&L to
triple-B-minus from triple-B. At the same time, S&P lowered its short term corporate credit and
commercial paper ratings on the Company from A-1 to A-2.
142. The most clear reflection of the extent to which investors believed they had been
misled by B&L was the impact of the August 24, 2000 announcement on B&L's common stock
price. B&L common stock prices declined 35.6% or $19.875 per share in a single day -- from
$55.75 per share on August 23, 2000 to $35.875 per share at the close on August 24, 2000.
57
143. Even the announcements on August 24, 2000 were materially misleading,
however. B&L's statement that there was a sudden "unprecedented" increase in the pricing of
otic drugs was false because the price for otic drugs had been consistent since November of
1999. The only "new" fact was that B&L was going to begin reporting the rebates, discounts and
returns granted to customers in the otic drug price war 10 months earlier.
ADDITIONAL SCIENTER ALLEGATIONS
144. From 1997 through the Class Period, B&L had a highly unusual bonus system.
Under this system, according to a press release issued by the Company on March 23, 2001,
bonuses for senior management, except the CEO and CFO, "were calculated based on the
achievement of a combination of factors including overall company performance, specific
business unit or product line performance, and individual objectives." Bonuses for the CEO and
CFO were "calculated based entirely on overall company performance."
145. Under B&L's bonus plan, officers did not receive their full bonus for the year in
which it was calculated immediately. Instead, the bonuses were paid into an account and vested
over time. The amount paid to the officer in a given year was a portion of a) the calculated bonus
for the prior year; and b) the accrued bonuses for prior years.
146. B&L calculated negative bonuses where performance lagged behind expectations
and subtracted the negative bonus from the bonuses an officer had earned in a prior year. Thus,
if an officer's calculated bonus was, for example, negative $400,000, that sum was subtracted
from the "cumulative bonus bank" or bonuses earned by the officer in prior years.
147. Each of the Individual Defendants was subject to this bonus system during the
Class Period.
58
148. On March 23, 2001, B&L announced the results of this bonus calculation system
for the year 2000:
FOR RELEASE FRIDAY, MARCH 23, 2001
ROCHESTER, N.Y. - - Bausch & Lomb (NYSE/B&L), in its Proxy Statement mailed today with its Annual Report to shareholders, demonstrates that its longstanding "pay-for-performance" compensation policy resulted in no earned bonuses for some top executives in 2000 including Chairman and CEO William M. Carpenter and Chief Financial Officer Stephen C. McCluski. Additionally, Carpenter, McCluski and three executive officers who are no longer with the company, forfeited a total of nearly $470,000 in bonus earnings from previous years from a cumulative bonus bank. There also will be no merit pay raises for them and other company officers in 2001.
* * *
Under Bausch & Lomb's pay-for-performance policy, annual incentive bonuses for management-level employees, except for Carpenter and McCluski, were calculated based on the achievement of a combination of factors including overall company performance, specific business unit or product line performance, and individual objectives. The incentive bonuses for Carpenter and McCluski, however, were calculated based entirely on overall company performance.
UNDISCLOSED ADVERSE INFORMATION
59
149. The market for B&L 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, B&L common stock traded at artificially inflated prices throughout the Class Period.
The artificial inflation continued until at least August 24, 2000, when defendants admitted that
problems assailing the Company across every one of its divisions would adversely affect B&L's
financial performance. Plaintiffs and other members of the Class purchased B&L stock relying
upon the integrity of the market price of B&L stock and market information relating to B&L, and
have been damaged thereby.
150. During the Class Period, defendants materially misled the investing public,
thereby inflating the price of B&L 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. Said 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, including, inter alia:
(a) B&L had materially overstated its earnings in each of the quarters in the
Class Period -- i.e., the quarters ended December 25, 1999, March 25, 2000 and June 24, 2000 --
by failing to record rebates and/or discounts given to the Company's customers as part of a price
war with a competing pharmaceutical company. B&L failed to record approximately $6 million
of these rebates/discounts, in each of the quarters in the Class Period, materially overstating net
earnings figures reported in each of those quarters. Had the true amount of Pharmaceuticals
returns, rebates and/or discounts been reported, they would have exceeded $14 million.
60
(b) The Company also concealed and affirmatively misled investors as to the
severity and adverse material impact of price competition with generic drug companies
throughout the Class Period by, inter alia, indicating its awareness of the price competition and
thereby giving the market the misleading and false impression that B&L was accurately reporting
the impact of such competition.
(c) Due to manufacturing problems in its Surgical division as well as the
failure to successfully merge duplicative manufacturing operations of Chiron and Storz, B&L
could not meet demand during the Class Period, for many of its mainstay IOL's, which are used
in cataract surgery. B&L further concealed that some of it most popular IOL's had been on back-
order from the time of the Chiron/Storz merger prior to the Class Period and throughout the
entire Class Period.
(d) Although the Surgical division's revenue increased, this was largely due to
sales of the Technolas laser, which is used in LASIK surgery. Because the Technolas laser sells
for as much as $500,000, B&L was able to conceal the downturn in its core IOL business with
just a few Technolas sales. B&L purposefully reported revenue in its Surgical division as a
whole, not for its different segments, so that it could conceal from investors and the market the
material downturn in its mainstay IOL business.
(e) The Surgical division's computer system, the BAAN system, which was
inherited from the Chiron acquisition, failed to reliably perform routine tasks such as processing
orders for delivery of surgical products, failed to correctly record contract prices for customers'
larger orders, failed to correctly track order fulfillment, and failed to correctly invoice purchasers
on orders shipped, and ultimately proved to be unworkable. Because B&L could not accurately
61
track inventory or invoice customers, sales of the surgical division's mainstay refractive products
were materially suffering.
(f) B&L was manipulating the financial results in the Surgical division and
making decisions regarding write-offs or write-downs on inventory and equipment, not based on
what was financially proper under applicable accounting rules, but instead based on what the
opinion of Wall Street would be and how write-offs or write-downs would effect B&L's stock
price. For example:
i. B&L had approximately 200 Chiron machines (which were used to
extract cataracts from eyes) that did not work adequately and should have been written off or
written down. Each machine was valued at a cost of approximately $15-20,000. These machines
were still carried on B&L's books at full value as of the end of the Class Period;
ii. In December 1999, the Surgical division purchased $750,000
worth of blades used for Keratome surgery. Despite the fact that the blades could not be used
because they were not made to correct specification, the blades were not written off or written
down and were still being carried on B&L's books until at least the end of the Class Period.
(g) B&L misrepresented that disposable and extended wear contact lens
products would drive growth in 2000 and 2001 because defendants knew or recklessly
disregarded that these products were not only not attracting new customers but instead were
stealing business from existing B&L products. The contact lens brands included SofLens, a daily
disposable contact lens introduced in 1998; SofLens66, a soft contact lens worn on a daily basis
and replaced every two weeks; SofLens66-Toric, a two-week replacement soft contact lens for
62
people with astigmatism, introduced in May 1999; and PureVision, an extended wear (up to 30
days' continuous wear) contact lens introduced in March 1999.
151. In addition, each of the 10-Q's and the 10-K filed by B&L during the Class Period
were further materially false and misleading in that defendants failed to disclose known trends
and uncertainties that had, and that defendants reasonably expected would have, a materially
unfavorable impact on sales, revenues and income from continuing operations, as required by
Item 303 of Regulation S-K.
152. Item 303 of Regulation S-K requires that the Management Discussion and
Analysis Section (AMD&A@) must include, among other things, a discussion of any material
changes in the registrant's results of operations with respect to the most recent fiscal year-to-date
period for which an income statement is provided. Instructions to Item 303 require that this
discussion identify any significant elements of the registrant's income or loss from continuing
operations that do not arise from or are not necessarily representative of the registrant's ongoing
business. Item 303(a)(2)(ii) to Regulation S-K requires the following discussion in the MD&A
of a company's publicly filed reports with the SEC:
Describe any known trends or uncertainties that have had or that the registrant reasonably expects will have a material favorable or unfavorable impact on net sales or revenues or income from continuing operations. If the registrant knows of events that will cause a material change in the relationship between costs and revenues (such as known future increases in costs of labor or materials or price increases or inventory adjustments), the change in relationship shall be disclosed.
Paragraph 3 of the Instructions to Item 303 states in relevant part:
The discussion and analysis shall focus specifically on material events and uncertainties known to management that would cause
63
reported financial information not to be necessarily indicative of future operating results or of future financial condition. This would include descriptions and amounts of (A) matters that would have an impact on future operations and have not had an impact in the past . . .
153. During the Class Period, defendants violated SEC disclosure rules. Defendants
failed to disclose the existence of known trends, events or uncertainties that they reasonably
expected would have a material, unfavorable impact on revenues or income, in violation of Item
303 of Regulation S-K under the federal securities laws (17 C.F.R. ' 229.303), and that failure to
disclose the information rendered the statements that were made during the Class Period
materially false and misleading.
154. Defendants were required to disclose, in the Company=s SEC filings, the
existence of the material facts described herein. The Company failed to make such disclosures.
Defendants knew, or were reckless in not knowing, the facts which indicated that all of the
Company's press releases, public statements, and filings with the SEC, which were disseminated
to the investing public during the Class Period, were materially false and misleading for the
reasons set forth herein. Had the true position of the Company been disclosed during the Class
period, the Company=s common stock would have traded at prices well below that which it did.
64
BAUSCH & LOMB'S MATERIALLY FALSE AND MISLEADING FINANCIAL STATEMENTS
155. At all relevant times during the Class Period, defendants represented that B & L=s
financial statements, when issued, were prepared in conformity with GAAP, which are
recognized by the accounting profession and the SEC as the uniform rules, conventions and
procedures necessary to define accepted accounting practice at a particular time. However, in
order to artificially inflate the price of B & L stock, defendants used improper accounting
practices in violation of GAAP and SEC reporting requirements to falsely inflate its balance
sheet and to falsely report income and expenses in the interim quarters and fiscal years during the
Class Period.
156. As set forth in SEC Rule 4-01(a) of SEC Regulation S-X, A[f]inancial statements
filed with the [SEC] which are not prepared in accordance with [GAAP] will be presumed to be
misleading or inaccurate.@ 17 C.F.R. ' 210.4-01(a)(1). Management is responsible for
preparing financial statements that conform with GAAP. As noted by the AICPA professional
standards:
financial statements are management=s responsibility . . . . [M]anagement is responsible for adopting sound accounting policies and for establishing and maintaining internal control that will, among other things, record, process, summarize, and report transactions (as well as events and conditions) consistent with management=s assertions embodied in the financial statements. The entity=s transactions and the related assets, liabilities and equity are within the direct knowledge and control of management . . . . Thus, the fair presentation of financial statements in conformity with Generally Accepted Accounting Principles is an implicit and integral part of management's responsibility.
157. As a result of accounting improprieties, particularly with respect to the
Company=s severely deficient internal controls, defendants caused B & L=s reported financial
65
results to violate, among other things, the following provisions of GAAP for which each
defendant is necessarily responsible:
(a) The principle that financial reporting should provide information that is
useful to present and potential investors and creditors and other users in making rational
investment, credit and similar decisions. (CON1, & 34);
(b) The principle that financial reporting should provide information about
how management of an enterprise has discharged its stewardship responsibility to owners
(stockholders) for the use of enterprise resources entrusted to it. To the extent that management
offers securities of the enterprise to the public, it voluntarily accepts wider responsibilities for
accountability to prospective investors and to the public in general. (CON1, & 50);
(c) The principle that financial reporting should provide information about an
enterprise's financial performance during a period. Investors and creditors often use information
about the past to help in assessing the prospects of an enterprise. Thus, although investment and
credit decisions reflect investors' expectations about future enterprise performance, those
expectations are commonly based at least partly on evaluations of past enterprise performance.
(CON1, & 42);
(d) The principle that financial reporting should be reliable in that it represents
what it purports to represent. The notion that information should be reliable as well as relevant is
central to accounting. (CON2, && 58-59);
(e) The principle of completeness, which means that nothing is left out of the
information that may be necessary to ensure that it validly represents underlying events and
conditions. (CON2, & 80);
66
(f) The principle that conservatism be used as a prudent reaction to
uncertainty to try to ensure that uncertainties and risks inherent in business situations are
adequately considered. The best way to avoid injury to investors is to try to ensure that what is
reported represents what it purports to represent. (CON2, && 95, 97); and
(g) The principle that contingencies that might result in gains are not reflected
in accounts since to do so might be to recognize revenue prior to its realization and that care
should be used to avoid misleading investors regarding the likelihood of realization of gain
contingencies. (SFAS No. 5, Accounting for Contingencies).
COUNT I Against All Defendants For Violation of Section 10(b) of the Exchange Act and Rule 10b-5 of the Securities and Exchange Commission
158. Plaintiffs repeat and reallege each and every allegation contained in the foregoing
paragraphs as if fully set forth herein.
159. This Count is asserted against all defendants and is based upon Section 10(b) of
the Exchange Act, 15 U.S.C. ' 78j(b), and Rule 10b-5 promulgated thereunder.
160. During the Class Period, defendants, singularly and in concert, directly 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 plaintiffs and the other members of the Class. Additionally, defendants,
singularly and in concert, made various deceptive and untrue statements of material facts and
omitted to state material facts in order to make the statements made, in light of the circumstances
under which they were made, not misleading to plaintiffs and the other members of the Class.
67
The purpose and effect of said scheme, plan, and unlawful course of conduct was, among other
things, to induce plaintiffs and the other members of the Class to purchase B&L common stock
during the Class Period at artificially inflated prices.
161. During the Class Period, defendants, pursuant to said scheme, plan, and unlawful
course of conduct, knowingly and recklessly issued, caused to be issued, participated in the
issuance of deceptive and materially false and misleading statements to the investing public as
particularized above.
162. Throughout the Class Period, B&L acted through the Individual Defendants,
whom it portrayed and represented to the financial press and public as its valid representatives.
The willfulness, motive, knowledge, and recklessness of the Individual Defendants are therefore
imputed to B&L, which is primarily liable for the Individual Defendants' securities law violations
while acting in their official capacities as Company representatives, or, in the alternative, which
is liable for the acts of the Individual Defendant under the doctrine of respondent superior.
163. As a result of the dissemination of the false and misleading statements set forth
above, the market price of B&L common stock was artificially inflated during the Class Period.
In ignorance of the false and misleading nature of the statements described above and the
deceptive and manipulative devices and contrivances employed by said defendants, plaintiffs and
the other members of the Class relied, to their detriment, on the integrity of the market price of
the stock in purchasing B&L common stock. Had plaintiffs and the other members of the Class
known the truth, they would not have purchased said shares or would not have purchased them at
the inflated prices that were paid.
68
164. Plaintiffs and the other members of the Class have suffered substantial damages as
a result of the wrongs herein alleged in an amount to be proved at trial.
165. By reason of the foregoing, defendants directly violated Section 10(b) of the
Exchange Act and Rule 10b-5 promulgated thereunder in that they: (a) employed devices,
schemes, and artifices to defraud; (b) made untrue statements of material facts or omitted to state
material facts in order to make the statements made, in light of the circumstances under which
they were made, not misleading; or (c) engaged in acts, practices, and a course of business which
operated as a fraud and deceit upon plaintiffs and the other members of the Class in connection
with their purchases of B&L common stock during the Class Period.
COUNT II
Against The Individual Defendant For Violation of Section 20(a) of the Exchange Act
166. Plaintiffs repeat and reallege each and every allegation contained in each of the
foregoing paragraphs as if set forth fully herein.
167. The Individual Defendants, by virtue of their positions, stock ownership and/or
specific acts described above, were, at the time of the wrongs alleged herein, controlling persons
within the meaning of Section 20(a) of the 1934 Act.
168. The Individual Defendants had the power and influence and exercised the same to
cause B&L to engage in the illegal conduct and practices complained of herein.
169. 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 plaintiffs and to the
other members of the Class for the substantial damages which they suffered in connection with
69
their purchases of B&L common stock during the Class Period.
PRAYER FOR RELIEF AND JURY DEMAND
WHEREFORE, plaintiffs, on their own behalf and on behalf of the Class, pray for
judgment as follows:
A. Declaring this action to be a proper class action and certifying plaintiffs as
class representatives under Rule 23 of the Federal Rules of Civil Procedure;
B. Awarding compensatory damages in favor of plaintiffs and the other members of
the Class against all defendants, jointly and severally, for the damages sustained as a result of the
wrongdoings of defendants, together with interest thereon;
C. Awarding plaintiffs the fees and expenses incurred in this action, including
reasonable allowance of fees for plaintiffs' attorneys and experts; and
E. Granting such other and further relief as the Court may deem just and proper.
70
JURY DEMAND
Plaintiffs demand a trial by jury of all issues so triable.
Dated: New York, New York December 17, 2001
WOLF HALDENSTEIN ADLER FREEMAN & HERZ LLP _____________________________ David A.P. Brower, Esq. Thomas H. Burt, Esq. 270 Madison Avenue New York, NY 10016 (212) 545-4600 Plaintiffs' Lead Counsel SCHOENGOLD & SPORN, P.C. Joel P. Laitman, Esq. 19 Fulton Street, Suite 406 New York, NY 10038 (212) 964-0046 MILBERG, WEISS, BERSHAD, HYNES & LERACH, LLP Joshua H. Vinik, Esq. One Pennsylvania Plaza, 49th Floor New York, New York 10119 (212) 594-5300 WECHSLER HARWOOD HALEBIAN & FEFFER LLP Frederick W. Gerkens, III, Esq. 488 Madison Avenue New York, NY 10022 (212) 935-7400 Plaintiffs' Executive Committee
Harvey & Mumford Brian Mumford, Esq. 20 Corporate Woods Boulevard Albany, NY 12211(518) 463-4491
71
Law Offices of Marc S. Henzel Marc S. Henzel, Esq. 273 Montgomery Avenue Suuite 202 Bala Cynwyd, PA 19004 (610) 660-8000 H. Todd Bullard, Esq., P.C. 30 West Broad Street Suite 200 Rochester, NY 14614 (716) 325-3010 Plaintiffs' Counsel