UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF FLORIDA
TAMPA DIVISION
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:
: CASE NO. 99-171-CIV-T-26A
ROBERT ROSEN, :
:
Plaintiff, :
:
v. : CLASS ACTION COMPLAINT
:
VISION TWENTY-ONE, INC., THEODORE :
N. GILLETTE, and RICHARD T. WELCH, :
:
Defendants. : Jury Trial Demanded
:
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Plaintiff individually and on behalf of all others
similarly situated, alleges as follows upon information and
belief, except as to those allegations concerning Plaintiff, which
are alleged upon personal knowledge. Plaintiff's information and
belief is based, inter alia, on the investigation made by and
through his attorneys, which investigation included, without
limitation, a review and analysis of various articles about, and
public filings of, Vision Twenty-One, Inc. ("Vision Twenty-One" or
the "Company").
NATURE OF THE CASE
1. This is a class action on behalf of all persons,
other than Defendants and their affiliates, who purchased Vision
Twenty-One common stock during the period December 5, 1997,
through November 5, 1998, inclusive (the "Class Period"), and who
sustained damage. During the Class Period, Defendants issued a
series of materially false and misleading public statements about
its earnings, revenues expenses, accounting system, and the
integration of its numerous acquisitions. These statements
artificially inflated the market price of the Company's common
stock during the Class Period, thereby damaging Plaintiff and
members of the Class who purchased the Company's stock.
2. On November 5, 1998, Vision Twenty-One shocked the
financial markets when it reported a $0.03 per share loss for the
third quarter of 1998, and admitted, among other things, that:
a. revenues for the first and second quarters
were overstated and operating expenses were
under-reported;
b. it was not equipped to integrate the many
companies and business units it had acquired
during the Class Period and, as a result,
would take a charge in the fourth quarter of
1998;
c. its business units had not been operating on
the same accounting system, which resulted in
incorrect financial information; and
d. it was forced to make adjustments to its
third quarter financials resulting in a
charge of $700,000, or just under $0.05 per
share, for accounting irregularities in the
first and second quarters.
3. These disclosures immediately drove down the price
of Vision Twenty-One shares so that it had fallen by more than 60%
since the start of the Class Period.
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JURISDICTION AND VENUE
4. Plaintiff brings this action pursuant to Sections
10(b) and 20(a) of the Securities Exchange Act of 1934 (the
"Exchange Act"), 15 U.S.C. §§78j(b), and 78t(a), and Rule 10b-5
promulgated thereunder, 17 C.F.R. §240.10b-5, and the common law.
5. This Court has jurisdiction over the subject
matter of this action pursuant to Section 27 of the Exchange Act,
15 U.S.C. §78aa, 28 U.S.C. §1331, and the doctrine of supplemental
jurisdiction, codified in 28 U.S.C. §1367.
6. Venue is proper in this District pursuant to
Section 27 of the Exchange Act, 15 U.S.C. 15 U.S.C. §78aa. Many
of the acts and transactions giving rise to the violations of law
complained of herein, including the preparation and dissemination
to the investing public of false and misleading information,
occurred in this District. Further, Defendant Vision Twenty-One
has its principal place of business in this District.
7. In connection with the acts, conduct and other
wrongs complained of herein, the Defendants, directly or
indirectly, used the means and instrumentalities of interstate
commerce, including the United States mails and interstate
telephone communications, and the facilities of a national
securities exchange.
THE PARTIES
8. Plaintiff Robert Rosen purchased 600 shares of the
common stock of Vision Twenty-One on May 12, 1998, at $8. See
Certification of Robert Rosen attached as Exhibit A hereto.
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9. Defendant Vision Twenty-One, headquartered in
Largo, Florida, provides management and administrative services to
local area delivery systems ("LADS") established by the Company.
LADS are designed to provide for integrated networks of vision
care, including optometrists, ophthalmologists, and retail optical
centers. According to the Company's most recent public filings,
there are approximately 15 million shares of Vision Twenty-One
common stock outstanding. Vision Twenty-One stock is actively
traded on the NASDAQ under trading symbol, EYES.
10. The following Defendants are referred to herein as
the "Individual Defendants":
a. Theodore N. Gillette was Chairman of the
Board, Chief Executive Officer, President and
Director during the Class Period.
b. Richard T. Welch was Chief Financial Officer,
Treasurer and Director during the Class
Period. As Chief Financial Officer he signed
various public filings cited in this
Complaint.
11. Because of their Board membership and/or executive
and managerial positions with the Company, each Individual
Defendant had access to the adverse non-public information about
the Company's finances through access to internal corporate
documents, communications with other corporate officers or
employees, attendance at Company management and/or Board of
Directors meetings and committees thereof and/or through reports
and other information provided to them.
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12. Defendants had a duty: a) to disseminate
accurate and truthful information in a timely fashion with respect
to the Company's operations or to cause and direct that such
information be disseminated; and b) to correct or update in a
timely fashion any previously disseminated information that had
become misleading by a change in circumstances. As a result of
their failure to do so, the value of Vision Twenty-One's common
stock was artificially inflated during the Class Period, causing
injury to Plaintiff and the Class.
13. Defendants participated in and intentionally or
recklessly pursued the unlawful conduct alleged herein in order to
implement Vision Twenty-One's aggressive acquisition program paid
for by the issuance of new Vision Twenty-One stock, to protect
their own salaries and privileges, and to maintain the value of
their Vision Twenty-One stock. Each of the Individual Defendants
therefore had the motive to commit and participate in the fraud.
14. Each Individual Defendant also had the
opportunity to commit and participate in the fraud since they
controlled the drafting and dissemination of information provided
to the investing public such as press releases, corporate reports,
filings with the Securities and Exchange Commission ("SEC"), and
communications with securities analysts.
CLASS ACTION ALLEGATIONS
15. Plaintiff brings this action as a class action
pursuant to Rules 23(a) and 23(b)(3) of the Federal Rules of Civil
Procedure on behalf of a class (the "Class") consisting of all
persons who purchased the common stock of Vision Twenty-One during
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the period December 5, 1997, through November 5, 1998, inclusive
("the "Class Period"). Excluded from the Class are the Defendants,
the officers and directors of Vision Twenty-One, members of the
immediate family of the Individual Defendants, any entity in which
any Defendant has a controlling interest, and the legal
affiliates, representatives, heirs, controlling persons,
successors, and predecessors in interest or assigns of any such
excluded party.
16. Because over 15 million shares of the Company's
common stock were outstanding by the end of the Class Period and
because the Company's common stock was actively traded on the
NASDAQ National Market System during the Class Period, the
members of the class are so numerous that joinder of all members
is impracticable. While the exact number of Class members can
only be determined by discovery, Plaintiff believes that the Class
numbers over one thousand and that they are geographically
dispersed.
17. Plaintiff's claims are typical of the claims of
the members of the Class because Plaintiff and all of the Class
members sustained damages arising out of Defendants' wrongful
conduct complained of herein.
18. Plaintiff will fairly and adequately protect the
interests of the Class members and has retained counsel who are
experienced and competent in class and securities litigation.
Plaintiff has no interest which is in conflict with the Class he
seeks to represent.
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19. A class action is superior to all other available
methods for fair and efficient adjudication of this
controversy since joinder of all members is impracticable.
Furthermore, since the damages suffered by individual members of
the Class will be relatively small, the expense of individual
litigation makes it impossible for the members of the Class to
individually redress the wrongs. There will be no difficulty in
the management of this action as a class action.
20. Questions of law or fact common to the members of
the Class predominate over any questions which may affect only
individual members. Among the predominating 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 the Company's publicly disseminated
releases and statements during the Class
Period omitted and/or misrepresented material
facts and whether Defendants breached any
duty to convey material facts or to correct
or update material facts previously
disseminated;
c. whether Defendants participated in and
pursued the common course of conduct
complained of;
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d. whether Defendants acted willfully,
recklessly or negligently in omitting and/or
misrepresenting material facts;
e. whether the market prices of Vision Twenty-
One common stock during the Class Period were
artificially inflated due to the material
omissions and/or misrepresentations com-
plained of herein; and
f. whether the members of the Class have
sustained damages and, if so, what is the
appropriate measure of damages.
FACTUAL ALLEGATIONS
A. BACKGROUND
21. Vision Twenty-One began operations in 1984,
providing management services to optometrists. The Company
currently provides its eye care services in 27 states through
thousands of affiliated providers, under dozens of the Company's
managed care contracts and fee-for-service plans, covering over
five million patients.
22. The Company currently operates optical
dispensaries, ambulatory surgery centers, and refractive surgery
centers organized primarily in Local Area Delivery Systems,
("LADS"), providing eye care services. The Company has approx-
imately 5,800 affiliated eye care professionals and contractual
relationships with approximately 6,200 other eye care profes-
sionals.
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23. Beginning in 1996 and continuing through 1998, the
Company acquired numerous vision care businesses. The Company
paid for such acquisitions through the issuance of new shares of
Vision 21, supplemented by borrowing to pay the acquirees. These
transactions included the following acquisitions prior to, and
during, the Class Period:
Acquisition Amount of Shares
(1) Various 1997 Acquisitions 1,480,122 shares
(2) Block Vision (completed 12/5/97) 458,365 shares
219,633 shares held in
escrow as contingent
consideration
(3) LaserSight (completed 12/31/97) 820,085 shares
(4) Other 1998 Acquisitions 917,185 shares
(5) EyeCare One Corp. and Vision,
Insurance Plan of America, Inc. 1,109,806 shares
24. Vision Twenty-One also sold 2,100,000 shares at
$10.00 to the public in its initial public offering of August 18,
1997.
25. The Company's success would be, in part, dependent
upon its ability to negotiate managed care contracts with Health
Maintenance Organizations ("HMO's"), health insurance companies,
and other third-party payors. The Company's contracts with such
third-party payors typically provided that Vision Twenty-One would
arrange and pay for eye care services that were needed by the
payor's members in exchange for a fixed amount per patient per
month, or a percentage of the premiums paid on behalf of the
9
patient, without regard to the volume of services that the patient
required.
26. To maximize its benefit from managed care and
third-party providers, the Company had to contain its costs of
services while increasing the number of patients enrolled in the
Company's LADS.
27. In the fall of 1997, the Company attempted to add
patients and contain costs in one transaction. On October 31,
1997, the Company acquired all of the outstanding stock of Block
Vision, Inc. Block Vision, Inc., had two separate divisions:
Managed Care and the Buying Group. By acquiring Block Vision,
Inc., the Company touted the fact that it was adding to its
managed care enrollment, while adding a billing and collection
support service to suppliers of optical products, like the
Company's LADS. The acquisition of Block Vision, Inc., was funded
by the secondary offering of 2,300,000 shares of Vision Twenty-One
common stock at $9.50 per share on November 20, 1997. The Company
ultimately paid over $25 million in cash and over 600,000 shares
of Vision Twenty-One common stock to the privately-held Block
Vision, Inc. shareholders. The Managed Care division was merged
into Vision 21, and Michael Block (the founder of Block Vision,
Inc.) was appointed an Executive Vice President of Vision Twenty-
One to run the Managed Care division and President of the
subsidiary to run the Block Vision Buying Group.
28. The Vision Twenty-One acquisition of Block Vision
was reported in Vision Monday, an important industry journal, on
November 10, 1997. Touting the acquisition, Gillette stated:
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We expect Block Vision to benefit Vision
Twenty-One's Local Area Delivery Systems
(LADS) and to create new LADS for future
growth and development. We have been
building delivery systems, putting practices
together in a more deliberate fashion. But
the next stage of development in managed
vision care is actual equity integration of
practices, so we've moved beyond loose
networks. Block has built tremendous systems
to manage vision-care programs for its
providers and patients. [It's] also stayed
particularly focused on HMO customers and so
have we. There are tremendous synergies
between our groups.
Similarly, Michael Block added:
Our businesses are a good fit. Vision
Twenty-One has a lot of contracts in certain
states, particularly Florida and Arizona.
We've got a national network and the systems
to manage the business. And our sales team
is great and will target new accounts.
In short, even prior to the completion of the acquisition,
defendant Gillette and Vision Twenty-One were priming the market
to value highly the newly integrated Vision 21, stressing the
benefits of the combined companies.
B. CLASS PERIOD STATEMENTS
29. On December 5, 1997, Vision Twenty-One announced
that it had completed its largest single acquisition, Block
Vision, for $37.5 million. In a press release the Company stated:
Michael Block, Block Vision's founder, will
remain president.... Vision Twenty-One said
the acquisition provides the opportunity to
develop 28 now local area delivery systems,
which will continue to be a primary focus for
the company.
Defendant Gillette emphasized the "synergies" of the merger.
Defendant Gillette stated:
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We are pleased to have Block Vision as part
of Vision Twenty-One. This acquisition
provides us with the opportunity to grow
existing LADS and to create new LADS in
exciting new markets. Certain cost
effectiveness to be gained, increased
business, combined experience and expertise,
and cross selling opportunities to the new
organization made this all attractive
combination.
(Emphasis added.)
30. The statements made by defendants Gillette and
Block on December 5, 1997, were materially false and misleading
when made. Both Gillette and Block knew, or recklessly dis-
regarded the fact that, Block Vision's Buying Group is a pur-
chasing agent for independent practices, while Vision Twenty-One
is a network of affiliated practices and retail stores. As such,
there were no true synergies between the Block Vision's Buying
Group and the principal business of Vision 21. Indeed, the Buying
Group was never integrated into Visions Twenty-One's LADS, in
direct contrast to what defendants represented would occur through
the acquisition.
31. In the Company's March 12, 1998, earnings release
for results of the fourth quarter of 1997, defendant Gillette,
touted the results and prospects for Vision Twenty-One following
its ongoing flurry of acquisitions:
We are pleased to announce a record quarter.
In addition to our strong operating results,
we continue to implement our strategy of
building our LADS, gaining additional market
share, and integrating our acquisitions in
these areas as well as in the development of
new LADS in contiguous markets. We are
extremely proud of the effort by the entire
Vision Twenty-One team and our affiliated eye
care professionals. Our operating perfor-
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mance is evidence that our concept is working
very well. This is demonstrated by the 340%
increase in EBITDA to $2.1 million on a
sequential quarter basis. We will take
advantage of our positive momentum and
continue to make select accretive acqui-
sitions with the goal of continued
integration of our LADS.
32. On March 31, 1998, Vision Twenty-One filed its
Form 10-K for the year ended December 31, 1997, with the SEC. The
Form 10-K repeated the results noted in the press release, and was
signed by defendants Gillette and Welch.
33. The foregoing glowing statements about the
company's integration of its acquisitions were false and
misleading because:
a. it was not equipped to integrate the many
companies and business units it had acquired
during the Class Period and, as a result,
would ultimately need to take a charge for
problems with integrating so many new
businesses;
b. its business units had not been operating on
the same accounting system, which resulted in
incorrect financial information; and
c. there were no true synergies between the
Block Vision Buying Group and the LADs.
34. On May 8, 1998, the Company announced excellent
quarterly results for its first quarter of 1998, ending March 31,
1998. In the announcement Defendant Gillette stated:
We are pleased to announce another record
quarter continuing our sequential quarterly
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growth. Our top line increased 79% over the
$27.0 million reported in the fourth quarter
of 1997 while our EBITDA of $4.4 million,
before merger costs, more than doubled our
fourth quarter EBITDA of $2.1 million. These
results continue to demonstrate that our
operating model is working well. We are
committed to continuing the integration of
our LADS, capturing additional profitable
market share, and making select accretive
acquisitions in targeted LADS.
35. The Company's Form 10Q for the quarter ending
March 31, 1998, issued on May 14, 1998, reported the following
impressive growth figures for key operating results:
Three-Month Periods Ended
March 31,
1997 1998
Revenues 11,014,971 47,952,192
Operating Expenses: 10,998,076 45,390,347
Income from operations 16,892 2,561,845
Net income (loss) $ (237,703) $ 789,671
Net income (loss) per
share $ (0.04) $ 0.06
36. These statements about Vision Twenty-One's first
quarter 1998 results were false and misleading because the Company
failed to disclose:
a. that the Company's costs were under-reported
while its revenues were inflated;
b. that the Company's financials could not be
relied upon since the Company was attempting
to install a new Company-wide accounting
system; and
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c. that the Company was experiencing
difficulties in successfully integrating its
acquisitions.
37. On July 1, 1998, Wheat First Union issued an
analyst report emphasizing that it expected excellent growth for
Vision Twenty-One, relying upon information disseminated by Vision
Twenty-One's management;
Reaffirm confidence in Q2 EPS outlook. With
the second quarter coming to a close, we are
reaffirming our estimate at $0.12 per share
for Q2 and at $0.56 per share for 1998. With
Vision Twenty-one having recently expanded
its credit facility to $100 million, we look
for the company to close its recently
announced acquisitions (twelve eye care
practices yielding $16 million in practice
revenues); events that will contribute to the
consolidated Q2 results.
38. On July 14, 1998, Wheat First Union issued another
bullish analyst's report on Vision 21, directly citing positive
statements by defendant Gillette:
... Ted Gillette, Chairman and CEO, reaffirmed
his confidence in the company's operating model
and the tremendous opportunities available to
EYES in the marketplace. Specifically, EYES
reinforced the leverage opportunities imbedded
in the LADS model; its ability to drive managed
care business, to create referral volume for
higher acuity (and higher margin) segments of
the delivery model, and to drive economies of
scale for support functions.
39. On August 6, 1998, the Company announced over the
Business Wire record revenue and earnings:
Vision Twenty-One, Inc. . . announced record
revenues and earnings for the second quarter
ended June 30, 1998. Revenues were $51.4
million in the second quarter as compared to
$12.7 million in the prior year quarter. Net
income for the second quarter was $1,682,000
15
or $0.12 per diluted share as compared to a
net loss of $(420,000) or $(0.06) per diluted
share for the same quarter a year ago.
Defendant Gillette added:
Our second quarter results reflect the
success of our disciplined consolidation
strategy and consistent comparable revenue
growth. Both our top line and bottom line
improved significantly over the second
quarter of last year. On a sequential basis
our EBITDA increased 20% over the first
quarter of this year to $5.3 million.
40. Following the August 6 earnings announcement, the
Company issued its Form 10Q for the quarter ending June 30, 1998,
on August 14, 1998. Vision Twenty-One reported the following
exceptional growth:
Three-Month Periods Ended
June 30,
1997 1998
Revenues $12,706,769 $51,429,980
Operating Expenses: $12,787,052 $47,697,460
Income (loss) from operations $ (80,283) $ 3,732,520
Net income (loss) $ (420,085) $ 1,682,016
Net income (loss) per
common share $ (0.06) $ 0.12
41. These Company statements about its 1998 second
quarter's results were materially false and misleading and omitted
material information in that the Defendants failed to disclose:
a. its problems with a company-wide accounting
system conversion, which resulted in falsely
inflated revenue and earnings while
understating reported costs;
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b. it was not equipped to integrate the many
companies and business units it had acquired
during the Class Period and, as a result,
would need to take a charge as a result of
its numerous acquisitions;
c. its business units had not been operating
under a unified accounting system, which
resulted in incorrect financial information;
and
d. that the Company was already considering the
sale of one of its newly-acquired entities,
Block Vision Buying Group.
42. On August 7, 1998, Wheat First Union's securities
analyst filed a report following Vision Twenty-One's earnings
announcement, again touting the Company's results:
Vision Twenty-One Reports Strong Quarter.
Vision Twenty-One reported EPS at $0.12, in
line with our estimate. Revenue jumped
roughly 405% from the year-ago period to
$51.4 million, representing both acquired
growth and double-digit internal growth, with
comparable clinic revenue increasing 14% and
managed care growing internally 36%. EBITDA,
at $5.9 million, grew almost 20%
sequentially, with a strong contribution from
acquired properties and a further reduction
in SG&A as a percentage of sales (to 7.4% of
sales versus 8.6% in Q1) helping to boost
results.
43. On September 21, 1998, Vision Twenty-one touted
its plan to acquire American Surgisite for $4.1 million and
673,965 shares. In that announcement, Defendant Gillette extolled
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the Company's ability to successfully integrate its numerous
acquisitions:
... Upon completion of all of our pending
acquisitions we expect to have a total of 186
eye care professional clinic locations, 16
ambulatory surgery centers and 6 refractive
surgery centers under management. We
continue to demonstrate our industry
leadership by successfully integrating all
levels of eye care into local delivery
systems.
This statement was materially false and misleading and omitted
material information since the Company:
a. had business units which were not using an
integrated accounting system, which resulted
in incorrect financial information; and
b. was not successfully integrating the many
companies and business units it had acquired
during the Class Period and, as a result,
would need to take a charge for acquisition-
related activities.
44. On November 6, 1998, the Company surprised the
securities market by issuing a press release which disclosed a
loss for its third fiscal quarter. The company also finally
admitted in this release the problems with its accounting system
which had rendered previously-issued quarterly results false:
Theodore Gillette, Chairman, President and
CEO of Vision Twenty-One, addressed the
financial performance of the Company for the
quarter: "Although our total revenue met
expectations, we are very disappointed with
the profit reported for the quarter. Delays
in the implementation of our new accounting
management information systems resulted in
current period accounting adjustments and
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unforeseen margin contractions in our LADS
operations. Installation of our new
accounting information systems was completed
last week in all clinics and will be
implemented in every business unit by year
end, replacing various accounting systems
previously utilized at each location. This
system is designed to provide management with
timely access to financial and operational
data occurring in all of these business
units."
45. The market's reaction was immediate and severe to
these shocking disclosures. The Company's stock plunged from $7
1/8 per share to $4. The Company's shares had traded at over $11
at the beginning of the Class Period, a total drop during the
Class Period of over 60%.
Post-Class Period Revelations
46. On November 9, 1998, Wheat First Union's Research
Bulletin issued its analyst's report, expressing shock at these
reported negative results now disclosed by Vision 21:
Key Points
* EYES significantly underperforms Q3,
$0.05 versus our $0.16 estimate.
* Majority of shortfall due to operating
results.
* Accounting adjustments further reduce
quarter by $700,000.
* * *
For the Q3 '98 Vision Twenty-One reported EPS
of $0.05 (excluding one-time items in the
quarter), well below our $0.16 estimate and
compared to $0.05 in the year-ago period.
* * *
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Operating profitability in the patient care
operations appears to have been well below
recent quarters for several reasons:
(1) A change in mix toward lower-margin
retail optical sales (now representing 54% of
patient care revenue versus recent results of
35%-40%), negatively impacted earnings by
$500,000 or just over $0.03 per share. We
see this mix change as a sustainable trend
that should compress EYES operating margins
to the 12% level going forward. (2)
Increased vacation time and other practice
productivity issues reduced procedure volume
in the quarter, costing EYES roughly $400,000
or just under $0.03 per share. We see this
as a particularly disappointing result
suggesting, in part, either less-than-
efficient operational oversight or an
unresponsive physician community. We see
neither trend as positive. (3) Finally,
during the course of installing a new
enterprise-wide accounting system, management
recognized that Q1 and Q2 had been over-
reported in terms of revenue (primarily
related to contractual discounts on managed
care contracts) and under-reported in terms
of several operating expenses in the clinic
operations. To ensure that the year-to-date
results accurately reflected the actual data,
EYES made a number of adjustments to the
third-quarter P&L, which had the effect of
further reducing operating profit by $700K or
just under $0.05 per share, after tax.
Vision's Q3 result failed to meet our
expectations on a operating basis, a result
that was aggravated by the accounting
adjustments.
47. On November 16, 1998, the Company's 3rd quarter
10Q for the quarter ending September 30, 1998, under "Recent
Developments" further clarified the Company's previously
unreported problems:
As recently announced, after experiencing
delays the Company completed the installation
of its new state of the art accounting
management information systems in all of its
clinic locations in early November which is
designed to provide management with timely
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access to financial and operational data.
The Company expects to complete the
implementation of the new systems in the
remainder of its business units in January
1999. The delays in implementing the new
information systems resulted in unexpected
changes in estimates leading to management
agreement accounting adjustments as well as
unforeseen margin contractions in the
Company's LADS operations. With respect to
the margin contractions, the Company's
acquisitions of a significant number of
retail optical locations and primary eye care
locations in those LADS the Company does not
have affiliations with large retail optical
companies, has resulted in a larger mix of
retail optical and primary eye care business.
Since those businesses tend to have lower
margins, the Company experienced a decrease
in its overall profit margins.
48. On November 23, 1998, "Vision Monday" reported
what defendants had known all along: the Block Vision Buying
Group had never been integrated with the Company's other
divisions, nor could it have been integrated. It was admitted to
Vision Monday that Block Vision Buying Group was a purchasing
vehicle for independent practices, while Vision Twenty-One is a
network of affiliated practices and retail stores, and, as such,
Block Vision was not "synergistic" with Vision 21.
49. Defendant Gillette also revealed for the first
time that Michael Block had resigned from Vision Twenty-One in
October 1998, and that the sale of the Block Vision Buying Group
had been "under consideration for some time." Moreover, Gillette
disclosed for the first time that "the main attraction of Block
Vision was its managed-care business."
50. During the Class Period, defendants had failed to
disclose the following key facts relating to Vision 21, rendering
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the total mix of its statements during the Class Period false and
misleading:
a. revenues for the first and second quarters
were overstated and operating expenses were
under-reported;
b. it would be forced to make adjustments to its
financials for the accounting irregularities
in the first and second quarters;
c. its business units had not been operating on
the same accounting system, which resulted in
incorrect financial information;
d. Vision Twenty-One's financial statements
disseminated during the Class Period were
materially misleading and issued in violation
of Generally Accepted Accounting Principles
("GAAP"). Vision Twenty-One's financial
statements did not adhere to, and
consequently were in violation of FASB's
Statement of Financial Accounting Concepts
Nos. 1 and 2;
e. it was not equipped to integrate the many
companies and business units it had acquired
during the Class Period and, as a result,
would need to take a charge related to its
acquisitions;
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f. the Block Vision Buying Group had never been
integrated with the Company's other
divisions;
g. Michael Block, founder of Block Vision, was
Planning to leave Vision 21; and
h. Vision Twenty-One was planning to sell the
Block Vision Buying Group.
Fraud-on-the-Market
51. Plaintiff will rely, in part, upon the presumption
of reliance established by the fraud-on-the-market doctrine. The
market for the Vision Twenty-One common stock purchased and sold
by the Class, as described herein, was at all times an efficient
Market for the following reasons, among others:
a. Vision Twenty-One is traded on NASDAQ;
b. as a regulated issuer, Vision Twenty-One
filed periodic public reports with the SEC;
c. Vision Twenty-One's common stock volume was
substantial during the Class Period;
d. Vision Twenty-One was followed by various
analysts employed by major brokerage firms
who wrote reports which were distributed to
the sales force and certain customers of
their respective brokerage firms and which
were available to the investing public on
automated data retrieval services; and
23
e. the market price of Vision Twenty-One's
common stock reacted promptly as new
information entered the market.
Statutory Safe Harbor
52. The statutory safe harbor provided for forward-
looking statements under certain circumstances does not apply to
any of the allegedly false forward-looking statements pleaded
herein. The safe harbor does not apply to false financial
statements. Also, forward-looking statements pleaded herein were
not identified as "forward-looking statements" when made. Nor did
meaningful cautionary statements identifying important factors
that could cause actual results to differ materially from those in
the forward-looking statements accompany those forward-looking
statements.
COUNT I
FOR VIOLATION OF SECTION 10(b) OF THE EXCHANGE ACT
AND RULE 10b-5 PROMULGATED THEREUNDER AGAINST ALL
53. Plaintiff incorporates by reference and realleges
all paragraphs previously alleged herein, and asserts these claims
against all Defendants.
54. During the Class Period, Defendants, individually
and in concert, engaged in a plan, scheme and course of conduct,
pursuant to which they knowingly and/or recklessly engaged in
acts, transactions, practices, and courses of business which
operated as a fraud upon Plaintiff and other members of the Class.
Defendants issued statements which materially misrepresented or
omitted material facts regarding Vision Twenty-One throughout the
24
Class Period. Defendants made various untrue statements of
material fact and omitted to state material facts necessary in
order to make the statements made, in light of the circumstances
under which they were made, not misleading, to Plaintiff and other
Class members as set forth above. The purpose and effect of this
scheme was to induce Plaintiff and the members of the Class to
purchase the Company's common stock during the Class Period at
artificially inflated prices.
55. By reason of the foregoing, the Defendants
knowingly or recklessly 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 necessary 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 that operated as a fraud or deceit
upon Plaintiff and other members of the Class
in connection with their purchases of the
Company's common stock during the Class
Period.
56. Each of the Defendants participated in and joined
the alleged scheme and course of conduct specified above and each
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is liable primarily for the aforesaid wrongful acts and statements
specified above.
57. Defendants were motivated to make the enumerated
false statements and omit material information necessary to make
the statements not misleading as part of their plan to acquire
business units for stock.
58. As a result of the foregoing, the market price of
the Company's common stock was artificially inflated during the
Class Period. In ignorance of the false and misleading nature of
the representations described above, Plaintiff and other members
of the Class relied, to their damage, on the misstatements or on
the integrity of the market both as to price and as to whether to
purchase these securities. Plaintiff and the other members of the
Class would not have purchased Vision Twenty-One stock at the
market prices they paid, or at all, if they had been aware that
the market prices had been artificially inflated by the
Defendants' false and misleading statements and omissions. At the
time of the purchase of Vision Twenty-One common stock by
Plaintiff and the other members of the Class, the true value of
said common stock was substantially less than the market prices
paid.
59. The price of the Company's common stock declined
materially upon the public disclosure of the facts that had been
misrepresented or concealed as alleged in this Complaint.
Plaintiff and other members of the Class have suffered substantial
damages as a result.
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COUNT II
FOR VIOLATION OF SECTION 20(a) OF THE EXCHANGE
ACT AGAINST THE INDIVIDUAL DEFENDANTS
60. Plaintiff incorporates by reference and realleges
all paragraphs previously alleged herein.
61. The Individual Defendants are liable under
Section 20(a) of the Exchange Act as control persons since, by
virtue of their executive positions, and/or their positions as
members of Vision Twenty-One's Board of Directors, and/or stock
ownership, their knowledge of and involvement in the Company's
business, their power and ability to make public statements on
behalf of the Company to shareholders, potential investors and the
media, they had the power and ability to control the actions of
the Company. The Individual Defendants are thus liable to
Plaintiff and the Class for the acts and omissions of Vision
Twenty-One as set forth herein.
WHEREFORE, Plaintiff, on its own behalf and on behalf
of the Class, prays for judgment as follows:
(a) Declaring this action to be a class action
pursuant to Rules 23(a) and 23(b)(3) of the
Federal Rules of Civil Procedure on behalf of
the Class defined herein;
(b) Awarding Plaintiff and the members of the
Class damages in an amount which may be
proven at trial, together with interest
thereon;
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(c) Awarding Plaintiff and the members of the
Class, pre-judgment and post-judgment
interest, as well as reasonable attorneys'
and experts' witness fees and other costs;
and
(d) Awarding such other and further relief as
this Court may deem just and proper.
DEMAND FOR JURY TRIAL
Plaintiff demands a trial by jury on all issues so
triable.
Dated: January 27, 1999.
/s/
___________________________
Michael C. Addison
Attorney at Law
Florida Bar No. 145579
P. 0. Box 2175
Tampa, FL 336601-2175
Tel. (813) 223-2000
Fax: (813) 228-6000
Local Counsel for Plaintiff
and
Sherrie R. Savett
Lawrence Deutsch
Jacob A. Goldberg
BERGER & MONTAGUE, P.C.
1622 Locust Street
Philadelphia, PA 19103
(215) 875-3062
and
Michael J. Pucillo
BURT & PUCILLO, LLP
222 Lakeview Avenue, Suite 300
West Palm Beach, FL 33401
(561) 835-0322
ATTORNEYS FOR PLAINTIFF
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Source: Scanned paper copy of court-stamped document