IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
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FRANK GABLE, on Behalf of Himself and :
All Persons Similarly Situated, : CLASS ACTION COMPLAINT
: [filed May 28, 1999]
Plaintiff, :
:
vs. : CIVIL ACTION NO. [99-CV-01244]
:
HORIZON PHARMACIES, INC., RICK D. : JURY TRIAL DEMANDED
MCCORD, SY S. SHAHID, JOHN N. STOGNER, :
and CHARLIE K. HERR, :
:
Defendants. :
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Plaintiff Frank Gable, individually and on behalf of all
others similarly situated, by his attorneys, alleges the
following upon information and belief based upon the
investigation of his counsel, which included, among other things,
a review of various public filings by the corporate defendant
with the Securities and Exchange Commission ("SEC") and various
articles (except for those allegations which pertain to
plaintiff, which allegations are based upon personal knowledge):
NATURE OF THE ACTION
1. Plaintiff brings this action as a class action on
behalf of himself and all other persons or entities who purchased
the common stock of HORIZON Pharmacies, Inc. ("HORIZON" or the
"Company") during the period between August 14, 1998 and March 3,
1999, inclusive (the "Class Period"), to recover damages caused
to the class by defendants' violations of the federal securities
laws.
2. Defendants HORIZON, Rick D. McCord, Sy S. Shahid, John
N. Stogner and Charlie K. Herr, violated the securities laws by
engaging in a conspiracy and course of conduct pursuant to which
they made a series of materially false and misleading statements
and omissions concerning the business and financial operations of
HORIZON with the intent and having the effect of substantially
inflating the trading price of HORIZON common stock throughout
the Class Period.
3. Prior to the Class, HORIZON began an aggressive
campaign to expand though acquisition of existing pharmacies.
With each pharmacy acquired, HORIZON issued a press release which
stated, inter alia, that HORIZON would use its superior
technology to allow centralized, bulk purchasing for all
pharmacies in the HORIZON chain. HORIZON claimed that this would
allow them to achieve excellent economies of scale and thereby
maximize the profitability of each pharmacy and the Company.
4. Defendants purportedly utilized a sophisticated
computer system for inventory control with a network node in each
pharmacy in order to keep pace with its expanding chain of
pharmacies. This system was represented as key to HORIZON's
strategy.
5. Throughout the Class Period, defendants knew yet failed
to disclose and materially misrepresented that this computer
system, inter alia, had serious deficiencies with its
prescription pricing communications technology and that its
system was not updating prices properly. As prescription prices
rose daily, HORIZON was unable to properly charge customers.
6. Because HORIZON had inadequate internal controls over
the computer system that in press releases HORIZON had touted as
the cornerstone of its strategy for success, gross margins were
penalized, negatively affecting the Company's gross profits and
earnings and requiring the Company at the end of the Class Period
to belatedly take charges of approximately $2 million for its
incorrect pricing of pharmaceuticals. Moreover, throughout the
Class Period defendants touted the Company's purportedly
increasing revenues, earnings, and ability to maximize profits
from efficiencies in the very technologies that HORIZON had
allowed to fail.
7. By concealing the deficiencies in its computer system
from investors while touting its strengths, the Defendants were
able to use shares of HORIZON common stock like cash to buy other
pharmacies at artificially inflated prices for millions of
dollars.
8. During the Class Period HORIZON common stock traded at
a high of $12 per share on December 24, 1998. As soon as the
truth about the Company's billing problems and its negative
financial results were disclosed on March 3, 1999, HORIZON common
stock plummeted approximately 31%, from $8.25 to $5.68, on over
10 times daily volume throughout the Class Period.
9. The Individual Defendants, as well as other executive
officers of the Company enhanced their positions with HORIZON by
using the inflated price of the shares of HORIZON common stock as
cash throughout the Class Period to buy individual pharmacies.
JURISDICTION AND VENUE
10. This action arises under Sections 10(b) and 20(a) of
the Securities Exchange Act of 1934 (the "Exchange Act"), 15
U.S.C. §§ 78j(b) and 78t, and the rules and regulations
promulgated thereunder, including SEC Rule 10b-5, 17 C.F.R.
240.10b-5. Jurisdiction is based upon Section 27 of the Exchange
Act, 15 U.S.C. §78aa, 28 U.S.C. §1331.
11. Venue is proper in this District pursuant to Section 27
of the Exchange Act, and 28 U.S.C. §1391(b). Many of the acts
complained of, including the dissemination to the investing
public of materially false and misleading statements, occurred in
substantial part in this District. In addition, defendants'
principal place of business is in this District.
12. In connection with the acts and conduct complained of,
defendants, directly or indirectly, used the means and
instrumentalities of interstate commerce, including the mails,
interstate telephone communications, and the facilities of a
national securities exchange.
THE PARTIES
13. Plaintiff, Frank Gable purchased 2500 shares of HORIZON
common stock during the Class Period as reflected in the annexed
certification and was damaged thereby.
14. Defendant HORIZON is a corporation formed and existing
under the laws of the State of Delaware. Its principal place of
business is located at 531 West Main, Denison, Texas 75020.
15. Defendant Rick D. McCord ("McCord") is Chairman of the
Board of Directors, President and Chief Executive Officer of the
Company. Defendant McCord's 1997 annual compensation from the
Company was $94,362 and included stock option grants to purchase
86,742 shares at an exercise price of $4.00. In 1998, McCord
owned 429,352 shares of HORIZON, or 9.33% of the Company.
16. Defendant Sy S. Shahid ("Shahid") was at all relevant
times an officer of the Company. Shahid is Executive Vice
President, Secretary and a Director of HORIZON. Defendant
Shahid's 1997 annual compensation from the Company was $88,526
and included stock option grants to purchase 79,247 shares at an
exercise price of $4.00. In 1998, Shahid owned 209,748 shares of
HORIZON, or 4.57% of the Company.
17. Defendant John N. Stogner ("Stogner") was at all
relevant times, Chief Financial Officer ("CFO"), Treasurer and
Principal Financial and Accounting Officer of the Company and a
Director thereof. Defendant Stogner's 1997 annual compensation
from the Company included stock option grants to purchase 30,000
shares at an exercise price of $8.25.
18. Defendant Charlie K. Herr ("Herr") was at all relevant
times a Director of HORIZON and Southern Regional Manager for the
Company. Defendant Herr's 1997 annual compensation from the
Company included stock option grants to purchase 71,508 shares at
an exercise price of $4.00. In 1998, Herr owned 398,647 shares
of HORIZON, or 8.69% of the Company.
19. The individuals mentioned in paragraphs 14-18, above,
may hereinafter be collectively referred to as the "Individual
Defendants."
20. As directors or senior officers of the Company, the
Individual Defendants were controlling persons of HORIZON within
the meaning of Section 20(a) of the Exchange Act. By reason of
their positions in the Company, the Individual Defendants had
access to material inside information about HORIZON, and were
able to and did, directly or indirectly, in whole or in material
part, control the content of various reports and filings with the
SEC and public statements issued by HORIZON. The Individual
Defendants participated in, and approved the issuance of, such
reports and statements at or about the time of their issuance.
Accordingly, each of the Individual Defendants had a substantial
financial interest in maintaining the Company's growth, earnings
and the market price of HORIZON's common stock.
21. HORIZON and the Individual Defendants had a duty to
disseminate promptly truthful and accurate information with
respect to HORIZON's operations, financial condition, business
and risks being undertaken, and to correct promptly any public
statements issued by HORIZON which had become false or misleading
to ensure, inter alia, that the market price of HORIZON
securities would be based on truthful and accurate information.
22. Notwithstanding their duty, the defendants participated
in the alleged wrongdoing, in part, in order to: continue and
prolong the illusion of HORIZON's financial growth; overstate
HORIZON'S publicly reported business and technological ability;
and conceal the adverse facts concerning HORIZON's operations,
financial condition, and business.
23. Defendants made the material misrepresentations and
misleading statements and/or omitted to state material facts
necessary to make the statements made not materially misleading,
so that they could, among other things, artificially inflate
HORIZON's common stock and use it as an artificially inflated
currency to acquire other businesses to protect their executive
and/or directorship positions and their compensations.
24. All of the defendants are liable, jointly and
severally, as direct participants in the wrongs complained of
herein. Liability of each arises from the fact that each has
engaged in all or part of the unlawful acts, plans, schemes,
transactions, and artifices to defraud complained of herein.
CLASS ACTION ALLEGATIONS
25. Plaintiff brings this action as a class action pursuant
to Federal Rules of Civil Procedure 23(a) and 23(b)(3) on behalf
of all persons who purchased shares of HORIZON common stock
during the Class Period between August 14, 1998 and March 3,
1999, inclusive. Excluded from the Class are the defendants
herein, members of their immediate families who were damaged
thereby, and any subsidiary, affiliate, or control person of any
such person or entity.
26. The members of the Class are so numerous that the
joinder of all members is impracticable. While the exact number
of class members is unknown to plaintiffs at this time and can
only be ascertained through appropriate discovery, there are more
than 5.5 million shares of HORIZON common stock outstanding held
by thousands of shareholders. The holders of these shares are
believed to be geographically dispersed throughout the United
States. HORIZON common stock is listed and actively traded on
the American Exchange.
27. Plaintiff's claims are typical of the claims of the
Class, as plaintiff and all members of the Class purchased shares
of HORIZON common stock during the Class Period and sustained
damages arising out of defendants' conduct in violation of
federal law as complained of herein.
28. Plaintiff will fairly and adequately protect the
interests of the members of the Class, and has retained counsel
competent and experienced in class action and securities
litigation.
29. A class action is superior to other available methods
for the fair and efficient adjudication of this controversy.
Since the damages suffered by individual class members may be
relatively small, the expense and burden of individual litigation
make it virtually impossible for the class members to seek
redress for the wrongful conduct alleged. Plaintiff knows of no
difficulty that will be encountered in the management of this
litigation that would preclude its maintenance as a class action.
30. Common questions of law and fact exist as to all
members of the Class and predominate over any questions affecting
solely individual members of the Class. Among the questions of
law and fact common to the Class are:
a. whether defendants violated Sections 10(b)
and 20(a) of the Exchange Act, including SEC
Rule 10b-5 promulgated thereunder;
b. whether defendants participated in and
pursued the concerted action or common course
of conduct complained of herein;
c. whether documents, filings, releases and
statements disseminated to the SEC and the
investing public, during the Class Period,
omitted and/or misrepresented material facts
about the business and financial condition of
the Company;
d. whether the market price of HORIZON common
stock, during the Class Period, was
artificially inflated due to the
nondisclosure and/or misrepresentations
complained of herein;
e. whether defendants acted knowingly,
willfully, recklessly, or with gross
negligence in omitting to state and/or
misrepresenting material facts; and
f. whether the members of the Class have
sustained damages and, if so, what is the
proper measure of such damages.
SUBSTANTIVE ALLEGATIONS
31. HORIZON owns and operates a chain of retail pharmacies
and related businesses located principally in the south central
United States. During the Class Period, HORIZON describes its
business on its company web page as follows:
The company began operating in February 1994 for the
purpose of acquiring and consolidating under the
HORIZON Pharmacies, Inc. name on high volume, free-
standing full-service retail pharmacies primarily
located in communities having populations fewer than
50,000 persons. The Company believes that its success
is primarily due to its philosophy of retaining the
individual, time-proven customer service
characteristics of the stores it acquires, while
enabling such stores to offer complete and
competitively priced inventories to their small town
customers through enhanced technology and the
consolidation and management of such stores as a
chain.1
This information was never retracted during the Class Period and
therefore remained "live" and impacted the price of HORIZON
throughout the Class Period.
32. Defendant McCord explained the HORIZON strategy at the
Company website in a section titled "Letter from the President":
The Company's business strategy is: (1) to expand by
continuing to acquire small chains and independent
pharmacies primarily in communities having populations
of fewer than 50,000 persons; (2) to improve
profitability of each store in its chain; and (3) to
expand home health care and other non-pharmaceutical
sales and services to certain of its other stores. In
implementing its business strategy, the Company intends
to maintain competitive pricing and a high level of
customer service and convenience, continue to control
cost and take advantage of the available economics of
scale, improve the stores' use of technology and focus
on management of certain retail pharmacies in its
existing market areas to increase sales volumes of
existing stores in that market, while managing the
overhead expense for those operations in a cost-
effective manner.
33. In its Form 10-QSB as filed with the SEC dated August
14, 1998, the Company stated that the primary source of its
revenue came from the sale of prescription drugs. Prescription
sales were 73.9% of net revenues for fiscal 1998 compared to
75.6% in 1997 and 80.0% in 1996. During 1998, HORIZON filled
approximately 1,664,050 prescriptions. Further in its Form 10-
QSB, HORIZON has reiterated its aggressive plan for expansion
through acquisition of individual pharmacies.
34. On September 30, 1998, HORIZON announced in a press
release over the PRNewswire that it had acquired Jackson Medical
Supply, a home medical equipment company, for a combination of
cash and HORIZON common stock. In connection with this press
release, defendant McCord stated:
The Company will continue to acquire home medical
equipment companies to increase margins and improve
overall company profitability.
35. With each acquisition, HORIZON published a press
release. In the October 29, 1998 release entitled "Chain Drug
Review Ranks HORIZON Pharmacies, Inc. in the Top 100 Drug Chains
By Dollar Volume and Top 100 Drug Chains by Store Count Lists,"
HORIZON repeated its acquisition strategy: the Company buys a
pharmacy for a combination of HORIZON shares and cash, then
revamps the pharmacy's purchasing methods by installing HORIZON's
computer system, which tracks purchasing and stocking needs for
the various pharmacies though a central clearinghouse. HORIZON
expressly stated it was able to leverage economics of scale and
efficiencies in the use of advanced technologies to eke out
greatly higher profits per pharmacy.
36. In the October 30, 1998 release entitled "HORIZON
Pharmacies, Inc. Acquires Retail Pharmacy With Sales of $5.4
Million Annually and Announces Plans to Relocate Corporate
Offices to Denison, Texas" the Company further stated that
"HORIZON Pharmacies, Inc. is and will continue to be a merger and
acquisition company of independent neighborhood pharmacies and
small chains. HORIZON believes that its success is primarily due
to this philosophy of retaining the individual, time-proven
customer service characteristics of the stores it acquires, while
enabling such stores to offer complete and competitively priced
inventories to their small town customers through enhanced
technology and the consolidation and management of such stores as
a chain."
37. On November 3, 1998, HORIZON issued a press release
over the PRNewswire to announce that it had acquired R & R
Professional Pharmacy, Inc., a retail pharmacy in New Mexico, for
a combination of cash, assumed debt and HORIZON common stock. In
that release, the Company repeated its technical prowess and
defendant McCord stated "[t]his acquisition strengthens our
presence in New Mexico. The concentration of retail pharmacies in
existing regions will improve our operating efficiencies and
economies of scale."
38. On November 10, 1998, HORIZON issued a press release
over the PRNewswire to announce that it had acquired Holland's
Drug Store, an independent chain of two retail pharmacies, for a
combination of cash, assumed debt and HORIZON common stock.
Defendant McCord stated "[t]his is HORIZON's third retail
pharmacy located in the state of Illinois. This acquisition
follows our strategic plan of the concentration of stores in
existing regions and districts to improve operating
efficiencies."
39. In its form 10-QSB filed with the SEC November 16,
1998, in the section titled "DEPENDENCE ON ACQUISITIONS FOR
GROWTH," HORIZON opined on its aggressive push to acquire new
pharmacies:
The Company has grown rapidly in recent periods and
intends to continue to pursue an aggressive growth
strategy. The Company's growth strategy depends upon
its ability to continue to acquire, consolidate and
operate existing free-standing pharmacies and related
businesses on a profitable basis. The Company
continually reviews acquisition proposals and is
currently engaged in discussions with third parties
with respect to possible acquisitions. The Company
will compete for acquisition candidates with buyers who
have greater financial and other resources, and may be
able to pay higher acquisition prices, than the
Company. To the extent the Company is unable to
acquire suitable retail pharmacies, or to integrate
such acquisitions successfully, its ability to expand
its business would be reduced significantly.
40. On January 13, 1999, HORIZON issued on the PRNewswire
and announced that it had acquired Sav-Mor Drugs, Inc., an
independent pharmacy, for a combination of cash, assumed debt and
HORIZON common stock. Defendant McCord stated: "[t]his is
HORIZON's second retail pharmacy in the state of Arizona. This
acquisition strengthens our presence in Arizona. The
concentration of retail pharmacies in existing regions will
improve our operating efficiencies and economics of scale."
Further, the Company rehashed its strategy:
HORIZON Pharmacies, Inc. acquires and consolidates high
volume, free-standing full-service retail pharmacies
primarily located in communities having populations of
fewer than 50,000 people. HORIZON believes that its
success is primarily due to its philosophy of retaining
the individual, time-proven customer service
characteristics of the stores it acquires, while
enabling such stores to offer complete and
competitively priced inventories to their small town
customers through enhanced technology and consolidation
and management of such stores as a chain.
This last paragraph was included in substance in all press
releases from the Company during the Class Period.
41. On January 22, 1999, HORIZON issued a press release
over the PRNewswire and announced that it had acquired Brennan
Pharmacy Downtown for a combination of cash, assumed debt and
HORIZON common stock. Defendant McCord again stressed the
economies of scale gained from this acquisition and the Company
crowed about the technical edge it gave to the acquired pharmacy
with its computerized inventory ordering and tracking system.
42. On February 2, 1999, HORIZON issued a press release to
announce that it had acquired The Prescription Center, a retail
pharmacy, for a combination of cash, debt and HORIZON common
stock. Defendant McCord said "[w]e will continue with an
aggressive acquisition schedule in 1999." The Company also
congratulated itself on its technical ability: "HORIZON believes
that its success is primarily due to its philosophy of retaining
the individual, time-proven customer service characteristics of
the stores it acquires, while enabling such stores to offer
complete and competitively priced inventories to their small town
customers through enhanced technology and consolidation and
management of such stores as a chain."
43. On February 4, 1999, HORIZON issued a press release
over the PRNewswire to announce that it acquired Stroncek Eagle
Drug, Inc. For a combination of cash, debt and HORIZON common
stock. The Company again intoned its mantra of successful
application of technology to acquired pharmacies:
HORIZON Pharmacies, Inc. acquires and consolidates high
volume, free-standing full-service retail pharmacies
primarily located in communities having populations of
fewer than 50,000 people. HORIZON believes that its
success is primarily due to its philosophy of retaining
the individual, time-proven customer service
characteristics of the stores it acquires, while
enabling such stores to offer complete and
competitively priced inventories to their small town
customers through enhanced technology and consolidation
and management of such stores as a chain.
44. Before the market knew the true effect that the lax
financial controls would have on the Company's financial
condition and while HORIZON common stock was still trading at
inflated levels, the Company was able to use the inflated share
price of its stock as cash to purchase at least 10 pharmacies.
Investors would not have paid this inflated price for HORIZON
shares if the true ability of HORIZON to handle its growth was
known.
45. In fiscal 1998 HORIZON acquired 21 pharmacies and at
December 31, 1998, they owned 45 pharmacies and related
businesses. Such an aggressive strategy of take-overs mounted
huge debt on the corporate balance sheet. It was crucial to
HORIZON to be able to continue to use Company shares to fund
acquisitions. Each press release bragged about the technological
acumen of HORIZON, when in fact the opposite was true.
46. The Company was unable to handle the technology that it
boasted about in its press releases. The computer system that
HORIZON used to order stock and track inventory pricing was
unreliable. It did not perform as represented, in that it did
not update various prices of pharmaceuticals sold by the various
HORIZON Pharmacies. It was this very computer system that
HORIZON touted as the cornerstone of its success. The Company
based the control of its expanding family of pharmacies on a
computer system that it did not take adequate steps, procedures
and precautions to secure and verify.
47. On March 3, 1999 the Company admitted what it had known
for months. In its press release titled AHORIZON Pharmacies,
Inc. Cites Technology Problems as Causing Potential Loss for
1998" released over the PRNewswire, the Company stated:
[D]ue to unexpected complications with its daily
prescription pricing communications technology, the
Company failed to receive updated average wholesale
prices during significant portions of the second half
of 1998 and the first quarter of 1999. With this
failure to receive updated pricing, third party and
cash customers were not charged the updated retail
prices; however, the Company's prescription costs were
increased daily, resulting in a reduction in overall
gross margins. Consequently, the Company believes that
this disparity in passing along price increases to
customers could result in a possible loss in the fourth
quarter of 1998, the year ended December 31, 1998 and
the first quarter of 1999, unless the Company is
successful in making satisfactory rebate arrangements
with its suppliers. Even is such arrangements are
made, if they are not made by March 30, 1999, a loss
will likely be recognized for the last quarter of
19998, the year ended 1998 and the first quarter of
fiscal 1999. Fourth quarter and year-end results will
be released no later than April 15th to allow for
potential remedial action to become effective.
48. The market reacted swiftly to the news upon the opening
bell on March 4 and HORIZON common stock dove from $8.25 to
$5.68, a drop of over 31% on over 10 times average daily volume.
49. In its Form 10-K Annual Report as filed with SEC on
April 15, 1999, HORIZON admitted "we sustained a substantial loss
in 1998 as a result of the malfunction of our computerized
pricing system which failed to receive and/or integrated average
wholesale price updates electronically transmitted from our
primary supplier." This supplier represented approximately 70% of
the Company's inventory. Such mispricing had a serious impact on
HORIZON's finances, resulting in the announced "substantial
loss."
50. While the problem with the computer went undisclosed by
the Company for over 6 months, apparently the solution came
within hours after the Company announced the problem. In its
press release titled "HORIZON Pharmacies, Inc. Corrects
Technology Problems" release over the PRNewswire the morning of
March 4, 1999:
HORIZON Pharmacies, Inc. (Amex:HZP - news) announced
today that complications with its daily prescription
pricing communications technology has been resolved.
The Company has switched to National Data Corporation
and is receiving automatic nightly prescription price
updates directly to the pharmacy computer systems in
each location. If the Company is unsuccessful in
making satisfactory rebate arrangements with its
suppliers, the failure to receive updated average
wholesale prices could result in a loss of $1.0 to $2.5
million dollars.
51. In stark contrast to all of defendants' previous
statements, they now admitted that the computer system it had so
heavily touted and relied upon had been faulty for over 6 months
and that it had negatively and substantially affected the
Company's ability to sell pharmaceuticals at a profit and that it
had caused the Company to report the possibility of a $2.5
million loss.
52. Defendants' statements during the Class Period were
materially false and misleading when made because defendants knew
and failed to disclose that by virtue of the easily discoverable
computer glitches HORIZON was unable to make a reasonable
estimate of its collectible revenues and expenses.
53. Each of defendants' statements touting HORIZON's
advanced technology was also misleading because defendants knew
or were reckless in failing to know that the Company could not
support its computer system and that adequate internal controls
were not present to allow defendants to make such statements.
Indeed, the Company adopted the computer system in order to
facilitate purchasing centrally for all pharmacies thus reaping
economies of scale, but as was later disclosed, that very system
impeded the Company's ability to do business and had a disastrous
effect on the Company's revenues, earnings, and operating
results.
54. Defendant's statements were false when made because the
Company's "internal controls" had been inadequate and that the
defendants knew or should have known, or recklessly did not know,
about the problems with the computer system when they made false
and misleading statements of material fact in press releases and
SEC disclosure statements, in order to assure investors of
continued inflated earnings.
COUNT 1
Against all Defendants under Sections 10(b) and 20(a)
of the Exchange Act and Rule 10b-5 of the
Securities and Exchange Commission
55. Plaintiff repeats and realleges each and every allegation
contained in the foregoing paragraphs as if set for the word for
word herein.
56. Throughout the Class Period, defendants, in pursuit of
their scheme and continuous course of conduct to inflate the market
price of HORIZON common stock, knowingly or recklessly made
materially misleading statements, or failed to disclose material
facts necessary to make the statements made, in light of the
circumstances under which they were made, not misleading.
57. During the Class Period, the defendants, and each of
them, carried out a plan, scheme and course of conduct which was
intended to and, throughout the Class Period, did: (i) deceive the
investing public, including plaintiff and other Class members, as
alleged herein; (ii) artificially inflate and maintain the market
price of HORIZON common stock, and (iii) cause plaintiff and other
members of the Class to purchase HORIZON common stock at inflated
prices. In furtherance of this unlawful scheme, plan and course of
conduct, defendants, and each of them, took the actions set forth
herein.
58. Defendants (a) employed devices, schemes and artifices to
defraud; (b) made untrue statements of material fact and/or omitted
to state material facts necessary to make the statements made not
misleading; and (c) engaged in acts, practices and a course of
business which operated as a fraud and deceit upon the purchasers
of the Company's stock in an effort to maintain artificially high
market prices for HORIZON common stock in violation of Section
10(b) of the Exchange Act and Rule 10b-5. All defendants are sued
either as primary participants in the wrongful and illegal conduct
charged herein or as controlling persons as alleged below.
59. In addition to the duties of full disclosure imposed on
defendants as a result of their making affirmative statements and
reports, or participation in the making of affirmative statements
and reports to the investing public, the Individual Defendants had
a duty to disseminate promptly truthful information that would be
material to investors in compliance with the integrated disclosure
provisions of the SEC as embodied in SEC Regulation S-X(17 C.F.R.
§229.10 et seq.) and other SEC regulations, including accurate and
truthful information with respect to the Company's operations and
performance so that the market prices of the Company's publicly
traded securities would be based on truthful, complete and accurate
information.
60. HORIZON and the Individual Defendants, individually and
in concert, directly and indirectly, by the use of means and
instrumentalities of interstate commerce and/or of the mails,
engaged and participated in a continuous course of conduct to
conceal adverse material information about the Company's business,
operations and future outlook as specified herein. HORIZON and the
Individual Defendants employed devices, schemes and artifices to
defraud, while in possession of material adverse non-public
information, and engaged in acts, practices and a course of conduct
as alleged herein, in an effort to assure investors of HORIZON's
management, value and performance and continued substantial growth,
which included the making of, or the participation in the making
of, untrue statements of material facts and omitting to state
material facts necessary in order to make the statements made about
the Company's operations in the light of the circumstances under
which they were made, not misleading, as set forth more
particularly herein, and engaged in transactions, practices and a
course of business which operated as a fraud and deceit upon the
purchasers of HORIZON common stock during the Class Period.
61. The Individual Defendants' primary liability and
controlling person liability arise from the following facts: (i)
the Individual Defendants were high-level executives and/or
directors at the Company during the Class Period; (ii) the
Individual Defendants, by virtue of their responsibilities and
activities as senior officers of the Company, were privy to and
participated in the drafting, reviewing and/or approving the
misleading statements, releases, reports and other public
representations of and about HORIZON, and/or signed the company's
public filings with the SEC, which public filings contained the
allegedly materially misleading statements; (iii) the Individual
Defendants knew or had access to the material adverse non-public
information about HORIZON's business, operations, and future
outlook, which were not disclosed; and (iv) the Individual
Defendants were aware of the Company's dissemination of information
tot he investing public which they knew or recklessly disregarded
was materially false and misleading.
62. The defendants had actual knowledge of the
misrepresentations and omissions of material facts set forth
herein, or acted with reckless disregard for the truth in that they
failed to ascertain and to disclose such facts even though such
facts were available to them. Such defendants' material
misrepresentations and/or omissions were done knowingly or
recklessly and for the purpose and effect of concealing HORIZON's
operations and business affairs form the investing public and
supporting the artificially inflated price of its stock. as
demonstrated by defendants' statements throughout the Class Period,
if they did not have actual knowledge of the misrepresentations and
omissions alleged, defendants were reckless in failing to obtain
such knowledge by deliberately refraining from taking those steps
necessary to discover whether those statements were false or
misleading.
63. As a result of the dissemination of the materially false
and misleading information and failure to disclose material facts,
as set forth above, the market price of HORIZON common stock was
artificially inflated during the Class Period. In ignorance of the
fact that the market price of HORIZON's publicly-traded common
stock was artificially inflated, and relying directly or indirectly
on the false and misleading statements made by defendants, or upon
the integrity of the market in which the securities trade, and the
truth of any representations made to appropriate agencies as to the
investing public, at the times at which any statement were made,
and/or on the absence of material adverse information that was
known to or recklessly disregarded by defendants but not disclosed
in public statements by defendants during the Class Period,
plaintiff and the other members of the Class purchased HORIZON
common stock during the Class Period at artificially high prices
and were damaged thereby.
64. Had plaintiff and the other members of the Class and the
marketplace known of the true nature of the operations of the
Company and the noncompliance with federal law, which were not
disclosed by defendants, plaintiff and the other members of the
Class would not have purchased or otherwise acquired their HORIZON
common stock during the Class period, or, if they had acquired such
common stock during the Class Period, they would not have done so
at the artificially inflated prices which they paid.
65. By virtue of the foregoing, defendants have violated
Section 10(b) of the Exchange Act, and Rule 10b-5 promulgated
thereunder.
66. As a direct and proximate result of defendants' wrongful
conduct, plaintiff and the other members of the Class suffered
damages in connection with their purchases of the Company's common
stock during the Class Period.
SECOND COUNT
Violation of Section 20(a) Of The Exchange Act
Against The Individual Defendants
67. Plaintiff repeats and realleges each and every allegation
contained in the above paragraphs, as if fully set forth herein.
This claim is asserted against the Individual Defendants.
68. The Individual Defendants acted as controlling persons of
HORIZON within the meaning of Section 20(a) of the Exchange Act as
alleged herein. By virtue of their executive positions, Board
membership and stock ownership, as alleged above, the Individual
Defendants had the power to influence and control and did influence
and control, directly or indirectly, the decision-making of the
Company, including the content and dissemination of the various
statements which plaintiff contends are false and misleading. The
Individual Defendants were provided with or had unlimited access to
copies of the Company's internal reports, press releases, public
filings and other statements alleged by plaintiff to be misleading
prior to and/or shortly after these statements were issued and had
the ability to prevent the issuance of the statements or cause the
statements to be corrected. HORIZON controlled the Individual
Defendants and all of its employees.
69. In particular, the Individual Defendants had direct
involvement in the day-to-day operations of the Company and
therefore, are presumed to have had the power to control or
influence the particular transactions giving rise to the securities
violations as alleged herein, and exercised the same.
70. As set forth above, HORIZON violated Section 10(b) and
Rule 10b-5 by its acts and omissions as alleged in this Complaint.
By virtue of their positions as controlling persons of HORIZON, the
Individual Defendants are liable pursuant to Section 10(a) of the
Exchange Act. As a direct and proximate result of defendants'
wrongful conduct, plaintiff and the other members of the Class
suffered damages in connection with their purchases of the
Company's common stock during the Class Period.
WHEREFORE, plaintiff prays for the following relief:
(a) An order determining that this action is a proper Class
action, designating plaintiff as class representative and Lead
Plaintiff and his counsel as Lead counsel;
(b) A judgment awarding plaintiff and the members of the
Class compensatory damages, including rescissionary damages, where
applicable, plus interest thereon;
(c) Such other and further relief as the Court deems proper
and just.
A JURY TRIAL IS DEMANDED.
Dated: May 28, 1999
DAY, EDWARDS, FEDERMAN,
PROPESTER & CHRISTENSEN, P.C.
______________________________
WILLIAM B. FEDERMAN
Texas Bar No. 00794935
2900 Oklahoma Tower
210 Park Avenue
Oklahoma City, OK 73102
Telephone: 405/239-2121
Fax: 405/236-1012
FINKELSTEIN & KRINSK
JEFFREY R. KRINSK
501 W. Broadway, Suite 1250
San Diego, CA 92101
Telephone: 619/238-1333
Fax: 619/238-5425
LAW OFFICES OF STEVEN E. CAULEY,P.A.
STEVEN E. CAULEY
SCOTT E. POYNTER
GINA M. COTHERN
Cypress Plaza, Suite 218
2200 N. Rodney Parham Road
Little Rock, AR 72212
Telephone: 501/312-8500
Fax: 501/312/8505
Attorneys for Plaintiff
1 Here, as elsewhere, emphasis is added unless stated otherwise.
Source: Emailed file from Day, Edwards, Federman, Propester & Christensen, P.C.