UNITED STATES DISTRICT COURT WESTERN DISTRICT OF NEW YORK ; ' r-n U.S, Dic7: ARNOLD MAHLER, On Behalf Of ) Civil Action No. Himself and All Others Similarly Situated, ) ) CLASS ACTION COMPLAINT Plaintiff, vs. BAUSCH & LOMB, INC. AND WILLIAM) JURY TRIAL DEMANDED CARPENTER, \ I qc L.) Defendants. Plaintiff, individually and on behalf of all other persons similarly situated, by his undersigned counsel, for his complaint, alleges upon personal knowledge as to himself and his own acts, and upon information and belief as to all other matters, based upon, inter alia, the investigation made by and through his attorneys, as follows: 1. Plaintiff brings this action as a class action on behalf of himself and all other persons who purchased the common stock of Bausch & Lomb, Inc. ("Bausch & Lomb" or "B&L" or the "Company") on the open market during the period April 13, 2000 through and including August 24, 2000 (the "Class Period") to recover damages caused by defendants' violations of the federal securities laws. During the Class Period, defendants issued to the investing public false and misleading financial statements and press releases concerning Bausch & Lomb's publicly reported business prospects, revenue and net income. JURISDICTION AND VENUE 2. The claims alleged herein arise under Section 10(b) and 20(a) of the Securities Exchange Act of 1934 (the "Exchange Act"), 15 U.S.C. 78j(b) and 78t, and Rule 10b-5, 17
C.F.R. 240.10b-5, promulgated thereunder. 3. The jurisdiction of this Court is based on Section 27 of the Exchange Act, 15 U.S.C. 78aa and 28 U.S.C. 1331 (federal question jurisdiction). 4. Venue is proper in this District pursuant to Section 27 of the Exchange Act and 28 U.S.C. 1391(b) since Bausch Sz. Lomb has its principal place of business in this District in Rochester, New York and many of the acts alleged herein, including the dissemination of the misleading statements at issue to the investing public, occurred in substantial part in this District. 5. In connection with the acts, transactions and conduct 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. THE PARTIES 6. Plaintiff, a resident of California, purchased shares of Bausch & Lomb on the New York Stock Exchange, an open and efficient market, during the Class Period as set forth in the annexed certification. 7. 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 three business segments of vision care, pharmaceuticals and surgical. Bausch & Lomb stock trades on the New York Stock Exchange, an open and efficient market. As of April 10, 2001, Bausch & Lomb had approximately 53.6 million shares outstanding. 8. Defendant William Carpenter ("Carpenter" or the "Individual Defendant") is and 2
was at all relevant times Chairman of Bausch & Lomb's Board of Directors and the Company's Chief Executive Officer. Carpenter signed Bausch & Lomb's Form 10-K for the fiscal year ended December 30, 2000. Defendant Carpenter, as 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 content of public statements issued by or on behalf of the Company. Carpenter participated in and approved the issuance of such statements made throughout the Class Period, including the materially false and misleading statements identified herein. 9. By reason of his positions with the Company, defendant Carpenter had access to internal Company documents, reports and other information, including the adverse non-public information concerning the Company's services, financial condition, and future prospects, and attended management and/or board of directors meetings. As a result of the foregoing, he was responsible for the truthfulness and accuracy of the Company's public reports and releases described herein. 10. Defendant Carpenter, as an officer of a publicly-held company, 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. 11. Bausch & Lomb and Carpenter (collectively "defendants") knew or recklessly disregarded that the misleading 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 3
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 plaintiff and the other members of the Class. 12. Defendants are liable, jointly and severally, as direct participants in and coconspirators of, the wrongs complained of herein. CLASS ACTION ALLEGATIONS 13. Plaintiff brings this action as a class action pursuant to 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 April 13, 2000 through and including August 24, 2000 (the "Class Period") and who suffered damages thereby. Excluded are the defendants, members of the Individual Defendant's families, any entity in which any defendant has a controlling interest or is a parent or subsidiary of or is controlled by the Company, and the officers, directors, employees, affiliates, legal representatives, heirs, predecessors, successor and assigns of any of the defendants (the "Class"). 14. 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 Plaintiff at this time and can only be ascertained through appropriate discovery, Plaintiff believes there are, at a minimum, thousands of members of the Class who traded during the Class Period. 15. 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: 4
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. 16. Plaintiff's claims are typical of the claims of the members of the Class as plaintiff and members of the Class sustained damages arising out of defendants' wrongful conduct in violation of federal law as complained of herein. 17. Plaintiff will fairly and adequately protect the interests of the members of the Class and has retained counsel competent and experienced in class actions and securities litigation. Plaintiff has no interests antagonistic to or in conflict with those of the Class. 18. 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 5
individually to redress the wrongs done to them. There will be no difficulty in the management of this action as a class action. 19. Plaintiff will rely, in part, upon the presumption of reliance established by the fraud-on-the-market doctrine in that: a) defendants made public misrepresentations or failed to disclose material facts during the Class Period; b) the omissions and misrepresentations were material; c) the securities of the Company traded in an efficient market; d) the misrepresentations and omissions alleged would tend to induce a reasonable investor to misjudge the value of the Company's securities; and e) plaintiff and members of the Class purchased their stock between the time the defendants failed to disclose or misrepresented material facts and the time the true facts were disclosed, without knowledge of the omitted or misrepresented facts. 20. Based upon the following, plaintiff and members of the Class are entitled to the presumption of reliance upon the integrity of the market. DEFENDANTS' MATERIAL MISSTATEMENTS AND OMISSIONS STATUTORY SAFE HARBOR 21. 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 in this Complaint to the extent that said forward-looking statements were not identified as a "forward-looking statement" when made or to the extent that meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those in the 6
forward-looking statements did not accompany those forward-looking statements. Alternatively, to the extent that the statutory safe harbor does apply to any forward-looking statements because at the time each of those forward-looking statements was made, the speaker knew the forwardlooking statement was 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. SUBSTANTIVE ALLEGATIONS April 13, 2000 Announcement of First Quarter Results 22. On April 13, 2000, Bausch & Lomb announced its financial results for the quarter ended March 25, 2000. Revenues from continuing operations increased 4% from $389.8 million in the year ago quarter to $406.9 million in the current quarter. Net earnings also increased from $22.4 million or $.39 per share in 1999 Q1 to $39.1 million or $.68 per share in the current quarter. 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, net earnings were $23.9 million or $.42 per share, up 62% from the prior year. 23. While the Company also noted that revenues in its vision care segment were flat from 1999, Carpenter is quoted as stating: "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.. " 24. The Company's stock price rose in response to this announcement, closing at $56.5625 later that same day. July 19, 2000 Announcement of Second Quarter Results S 1Netfiles \Bausch LonlIACIpapeOLomplaInt wpc1 7
25. 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 did disclose 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; pharmaceutical revenue declined 12%; while 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, B&L's Chairman and Chief Executive Officer, was careful to stress that the Company was satisfied with its financial performance because 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 longterm growth - new contact lenses, refractive surgery and proprietary pharmaceuticals - continued to perform will. Our revenues, however, were negatively affected by short-term market issues in our U.S. lens care and pharmaceutical businesses. 26. Indeed, Carpenter stressed that the Company had achieved its "financial goals" in the quarter resulting in the "significant improvements in the profitability of our union care and S \NuFtles \Bau.ch Lamb \Ctp.apersncompla. wrd 8
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. The market reacted negatively to this announcement, focusing on the earnings decline in vision care and pharmaceutical. B&L's common stock price declined 21% -- from $78.1875 per share on July 18, 2000 to $61.75 per share on July 19, 2000. 27. The market, including securities analysts, relied on management's statements that the revenue decline would not materially impact the Company's earnings. Based on management's statements, the securities analysts covering B&L, even including these who lowered their rating on B&L, reduced their 2000 earnings projection by only pennies, if at all, as follows: Old 2000 New 2000 (Per EPS (Per EPS Estimate share) share) Analyst Estimate Bairch $3.27 $3.25 Paine Webber $3.25 $3.25 Salomon Smith Barney $3.22 $3.22 Morgan Stanley Dean Witter $3.28 $3.25 Old 2001 (per New 2000 (Per Analyst EPS Estimate share) EPS Estimate share) Bairch 9 $4.00 $4.00 Paine Webber $3.95 $3.95 Salomon Smith Barney $3.95 $3.95 Morgan Stanley Dean Witter $3.95 $3.85 S \N.H. \Bausch Lomb1Ctpap.-skoorapla.nt.9,1
28. Further, some of the analysts incorporated the "short term" nature of B&L's problems into the text of their reports. The Paine Webber analyst stated 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) 29. Indeed, the Paine Webber analyst continued to rate B&L Buy with a 12-month target price of $80.00 per share. The Morgan Stanley analyst, while downgrading the stock from a Strong Buy to Outperform, noted in not dramatically altering its 2000 and 2001 earnings projections that management believes "many of the issues are temporary as should be worked through by the end of the year.'' Bausch & Lomb Announces A More Accurate Description Of The Company's True Financial Condition 30. On or about August 24, 2000, the Company announced the dramatic downward revision of current earnings estimates: third quarter earnings would be $.70 to $.72 instead of the $.93 per share analysts had been led to anticipate; first-quarter earnings would be $.83 to $.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. The Company attributed this decline to fundamental problems in each of its major business segments. In the vision care sector, which constituted more than 50% of the Company's total revenue, the Company announced that its market share S INetF1 les Baus h LombCtpaptrOwmplamt wpd 10
was barely growing, with dropouts equaling new users with B&L's new extended wear and one day lenses, taking business away from its existing products rather than attracting customers who detest wearing glasses. In the pharmaceuticals sector, aggressive generic competition had pressured B&L to cut prices on ear drops and eye care products. In addition, B&L's manufacturing facilities were having trouble meeting the demand for silicon lenses implanted in cataract surgery. This announcement had a devastating impact on B&L's common stock price, which closed at $35.875 per share on August 24, 2000. COUNT 1 Against All Defendants For Violation ofsgeact ion 10(b) of the Exchange Act and Rule 10b-5 of the Securities and Exchange Commission 31. Plaintiff repeats and realleges each and every allegation contained in the foregoing paragraphs as if fully set forth herein. 32. 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. 33. 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 plaintiff and the other members of the Class, and made various deceptive and untrue statements of material facts and omitted to state material in order to make the statements made, in light of the circumstances under which they were made, not misleading to plaintiff and the other members of the Class. The purpose and effect of said scheme, plan, and unlawful course of conduct was, among other things, to induce plaintiff and the other members of 5 WetFtles \Bau5ch LornbCtpapersluonpldmt 5515.1 11
the Class to purchase B&L & Lomb common stock during the Class Period at artificially inflated prices. 34. 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, the preparation and issuance of deceptive and materially false and misleading statements to the investing public as particularized above. 35. Throughout the Class Period, B&L & Lomb acted through the Individual Defendant, whom it portrayed and represented to the financial press and public as its valid representative. The willfulness, motive, knowledge, and recklessness of the Individual Defendant are therefore imputed to B&L & Lomb, which is primarily liable for the securities law violations while acting in his 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. 36. As a result of the dissemination of the false and misleading statements set forth above, the market price of B&L & Lomb 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, plaintiff 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 & Lomb common stock. Had plaintiff 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. S \NetFilm Bau,th Lornh1Ctpapers,ornplaml wpa 12