<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) December 18, 1997
-------------------------------
Physicians Resource Group, Inc.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 1-13778 76-0456864
-------- ------- ----------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
Three Lincoln Centre, Suite 1540, 5430 LBJ Freeway, Dallas, TX 75240
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (972) 982-8200
--------------------------
<PAGE> 2
ITEM 5. OTHER EVENTS.
On December 18, 1997, a class action lawsuit was filed against
Physicians Resource Group, Inc., in the United States District Court for the
Northern District of Texas on behalf of all purchasers of Physicians Resource
Group, Inc. common stock between June 17, 1997 and November 19, 1997,
inclusive. A copy of the complaint is attached hereto as Exhibit 99.1 and
incorporated herein by reference.
ITEM 7. EXHIBITS.
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
99.1 - Complaint - Class Action, Howard Longman, on behalf of himself and all
others similarly situated, plaintiff, against Physicians Resource Group, Inc.
and Emmett E. Moore, defendant, filed December 18, 1997, in the U.S.
District Court, Northern District of Texas.
- ----------
(1) - Filed herewith.
</TABLE>
<PAGE> 3
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PHYSICIANS RESOURCE GROUP, INC.
Date: December 22, 1997 By: /s/ RICHARD A. GILLELAND
----------------------------------
Richard A. Gilleland
President and Chief
Executive Officer
<PAGE> 4
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
99.1 - Complaint - Class Action, Howard Longman, on behalf of himself and all
others similarly situated, plaintiff, against Physicians Resource Group, Inc.
and Emmett E. Moore, defendant, filed December 18, 1997, in the U.S.
District Court, Northern District of Texas.
- ----------
(1) - Filed herewith.
</TABLE>
<PAGE> 1
EXHIBIT 99.1
IN THE UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
HOWARD LONGMAN, On Behalf (
Of Himself And All Others (
Similarly Situated, (
(
Plaintiff, ( CIVIL ACTION NO.
(
- against - ( 3-97CV3102-P
(
PHYSICIANS RESOURCE GROUP, INC. (
and EMMETT E. MOORE. ( JURY TRIAL DEMANDED
(
Defendants. (
COMPLAINT - CLASS ACTION
Plaintiff, individually and on behalf of all others similarly
situated, by his attorneys, alleges the following upon information and belief
(except for those allegations which pertain to the individual plaintiff and his
attorneys, which allegations are based on personal knowledge). Plaintiff's
information and belief is based, inter alia, on the investigation conducted by
his attorneys, including, among other things, a review of the public filings of
Physicians Resource Group, Inc. ("PRG" or the "Company") with the Securities and
Exchange Commission ("SEC"), news articles and press releases pertaining to the
Company, and other publicly available information.
PAGE 1
US DISTRICT COURT
NORTHERN DISTRICT OF TEXAS
FILED
DEC 18, 1997
NANCY DOHERTY, CLERK
By /s/ TSS
-----------------------
Deputy
<PAGE> 2
JURISDICTION AND VENUE
1. This Court has jurisdiction of this action under Section 27 of
the Securities Exchange Act of 1934 (the "Exchange Act"), 15 U.S.C. Section
78aa, and 28 U.S.C. Section 1331.
2. The claims herein arise under Section 10(b) of the Exchange
Act, as amended, 15 U.S.C. Section 78j(b), and Rule 10b-5 promulgated
thereunder by the SEC, 17 C.F.R. Section 240.10b-5.
3. Venue is proper in this District because PRG maintains offices
within this District, Mr. Moore lives in this District and the acts giving rise
to the violations of law complained of in this complaint occurred in this
District.
4. In connection with the conduct complained of herein, the
defendants, directly or indirectly, used means and instrumentalities of
interstate commerce, including the mails and interstate telephone
communications and the facilities of the New York Stock Exchange, a national
securities exchange.
NATURE OF THE ACTION
5. This is a securities class action on behalf of all persons,
other than defendants and affiliated persons as described below (the "Class"),
who purchased the common stock of PRG between June 17, 1997 and November 19,
1997, inclusive (the "Class Period").
6. PRG is a single-specialty provider of management services to
ophthalmic and optometry practices (the "Practices"). As of March 21, 1997, PRG
provided management services to 151 practices with 414 ophthalmologists and 223
optometrists at 357 locations in 25 states.
COMPLAINT-CLASS ACTION E-2
<PAGE> 3
7. This action arises out of a scheme by defendants to
misrepresent and conceal the adverse truth as to the success and financial
condition of PRG and thereby inflate artificially the price of PRG common
stock. Defendants concealed and failed to disclose until the end of the class
period, the fact that PRG would have to take substantial material charges
and/or writedowns in connection with practices acquired from EquiMed, Inc.
("EquiMed"). Defendants concealed and failed to disclose these and other
related material facts even though they knew, no later than the beginning of
the class period, (i) the underlying facts which would necessitate such
charges and/or writedowns; (ii) that the value of the practices that PRG had
acquired from EquiMed were materially overstated on PRG's financial statements,
causing PRG's financial statements as a whole to be materially overstated and
necessitating huge charges and writedowns (no less than $27.8 million) and
(iii) that PRG's stated accounting policies and GAAP required such charges and
writedowns immediately, and in no event later than June 30, 1997. Because
defendants had chosen to speak on the issue of the EquiMed acquisitions and
their future effect on PRG's financial performance and PRG's claims against
EquiMed, they were under a continuing duty throughout the class period to
disclose immediately all relevant facts, including those mentioned above and
elsewhere in this Complaint. Throughout the class period, Defendants had actual
knowledge of the negative, underlying material facts indicating that the value
of the EquiMed practices was materially overstated on PRG's books and would
have to be written down, but consciously failed to disclose same and, in the
case of the June 30, 1997 financial statements, continued to affirmatively and
knowingly overstate materially the value of the company's assets and its
financial condition. Thus, defendants acted with scienter. They were motivated
to do so in part to enable the Company to market itself to third parties as a
lucrative
COMPLAINT-CLASS ACTION PAGE 3
<PAGE> 4
acquisition candidate and enrich themselves and their principals, thus
providing further evidence of scienter.
8. Prior to the beginning of the Class Period, and continuing
throughout the Class Period, PRG adopted a strategy of growth through
acquisition of practices. By using this strategy, PRG was able to give the
appearance that it was a rapidly growing company that would be a lucrative
acquisition candidate to an outside party. Defendants knew that they could not
continue their growth through acquisition strategy for much longer and the only
way for them to reap substantial monetary benefits would be if PRG were
acquired by an outside party.
9. In order to continue to give the market the appearance that it
was a rapidly growing company, PRG acquired the eye care division practices of
EquiMed in November of 1996. This acquisition was one of the largest that PRG
had ever undertaken and PRG represented to the market that the acquisition
would have substantial accretive effects on PRG's revenues and earnings.
10. After acquiring these practices from EquiMed, but prior to the
beginning of the class period, PRG discovered that the practices it had
purchased were worth substantially less than what EquiMed had represented them
to be, that many of the practices purchased from EquiMed would have to be
closed, that as a result substantial charges and/or writedowns would be
necessary and that the problem was of such a magnitude as to warrant ceasing
payments to EquiMed.
11. Faced with the realization that if the market were to discover
that the EquiMed acquisition was not going to be substantially accretive to
PRG's revenues and earnings and that PRG would be required to take material
charges to and writedown, the value of the
COMPLAINT-CLASS ACTION PAGE 4
<PAGE> 5
EquiMed practices, defendants engaged in a scheme whereby they would keep the
market from learning the true financial condition of PRG and the value of
the EquiMed practices. Defendants knew that if the market were to learn that
the value of the EquiMed practices were substantially less than what PRG had
represented in November of 1996 and thereafter, PRG's stock price would fall
and it would no longer be considered a rapidly growing company and its
viability as a potential acquisition candidate would end. Any such revelation
would have been in direct conflict with defendants' public announcement during
the class period (September 4, 1997) to the effect that PRG had engaged
investment bankers to study a possible sale of the Company. Indeed, Defendants'
announcement to that effect was itself actionable fraud in light of defendants'
knowledge that the charges and writedowns in question should have been, or at
the least soon would have to be, taken.
12. No later than June 17, 1997, defendants knew that PRG would
have to take substantial writedowns to the value of many of the practices it
had purchased from EquiMed. But rather than disclosing that PRG would have to
take charges related to the EquiMed acquisition, defendants in effect disclosed
little more than the fact that PRG and EquiMed were involved in an arbitration.
13. In furtherance of defendants' scheme to defraud investors,
defendants were successful in preventing the market from learning, until
November 19, 1997, the true extent of the charges that PRG would have to take
in connection with its EquiMed acquisition. On November 13, 1997 PRG reported
for the first time that it would record charges in the third quarter, but
neither the amount nor the order of magnitude of the charges was disclosed. It
was not until November 19, 1997 that defendants finally revealed the amount of
the charges that would be
COMPLAINT-CLASS ACTION PAGE 5
<PAGE> 6
taken. Such charges should have been taken no later than June 30, 1997, and the
necessity for same should have been disclosed no later than June 17, 1997.
Defendants knew that the effect of disclosure of the charges would be that the
market would no longer consider PRG to be a viable acquisition candidate. This
is evidenced by the fact that also on November 19, 1997, PRG disclosed that it
was no longer pursuing a sale of the Company. The knowledge that disclosure of
the writedown, or even the likely need for a writedown, would kill any chance
of a sale of the company, motivated Defendants to conceal the adverse facts
referred to herein. By the time the market was able to piece together the full
story from these disclosures, PRG shares had tumbled 30%.
THE PARTIES
14. Plaintiff Howard Longman purchased 1,000 shares of PRG common
stock on September 9, 1997, at a price of $10 1/2 per share and was damaged
thereby.
15. PRG is a Delaware corporation with its principal offices
located at Three Lincoln Centre, 5430 LBJ Freeway, Suite 1540, Dallas, Texas
75240. PRG, which began operations and had its initial public offering in 1995,
is a single-specialty provider of management services to ophthalmic and
optometric practices (the "Practices"). As of March 21, 1997, PRG provided
management services to 151 practices with 414 ophthalmologists and 223
optometrists at 357 locations in 25 states.
16. Defendant Emmett Moore ("Moore" or the "individual defendant")
was Chairman of the Board and Chief Executive Officer of PRG from September 17,
1995, and a director from April 20, 1995, until his termination without cause
which was announced on or
COMPLAINT-CLASS ACTION PAGE 6
<PAGE> 7
about November 19, 1997. On or about February 21, 1997, defendant Moore entered
into a three year employment agreement with PRG whereby he would receive a
salary of $315,000 per annum in addition to a bonus of $50,000 and a grant of
100,000 stock options for the purchase of PRG stock. As of the end of fiscal
year 1996, defendant Moore had approximately 700,000 stock options for the
purchase of PRG stock. According to the Company's proxy statement for 1997,
defendant Moore owned 390,000 shares of PRG stock.
CLASS ACTION ALLEGATIONS
17. Plaintiff brings this action as a class action pursuant to
Federal Rules of Civil Procedure 23(a) and 23(b)(3) on behalf of a class (the
"Class") of all persons who purchased PRG common stock between June 17, 1997
and November 19, 1997, inclusive (the "Class Period"), and who were damaged
thereby. Excluded from the Class are the defendants herein, any subsidiaries or
affiliates of PRG, members of the defendants' immediate families, the officers
and directors of PRG during the Class Period, and each of their heirs,
successors and assigns.
18. 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 the present time and can only be ascertained from books and
records maintained by PRG and/or its agent(s), plaintiff believes that there
are, at a minimum, hundreds, if not thousands, of members of the Class located
throughout the United States, including Texas. As of March 21, 1997, there were
30,146,748 shares of PRG common stock outstanding. Throughout the Class Period,
PRG's common stock was actively traded on the New York Stock Exchange.
COMPLAINT-CLASS ACTION PAGE 7
<PAGE> 8
19. Plaintiff Will fairly and adequately represent and protect the
interests of the members of the Class. Plaintiff has retained competent
counsel experienced in class and securities litigation and intends to prosecute
this action vigorously. Plaintiff is a member of the Class and does not have
interests antagonistic to, or in conflict with, the other members of the Class.
20. Plaintiff's claims are typical of the claims of the members of
the Class. Plaintiff and all members of the Class acquired PRG common stock
during the Class Period at artificially inflated prices and have sustained
damages arising out of the same wrongful course of conduct.
21. Common questions of law and fact exist as to all members of
the Class and predominate over any questions solely affecting individual
members of the Class. Among the questions of law and fact common to the Class
are:
(a) Whether the federal securities laws were violated by
defendants' acts and omissions as alleged herein;
(b) Whether defendants participated in and pursued the common
course of conduct and fraudulent scheme complained of herein;
(c) Whether the documents, reports, financial statements, filings,
releases and statements disseminated to the investing public, including
purchasers of PRG common stock during the Class Period, omitted and/or
misrepresented material facts about the business, performance, and financial
condition of PRG;
(d) Whether defendants acted knowingly and/or recklessly in
omitting to state and/or misrepresenting material facts;
COMPLAINT-CLASS ACTION PAGE 8
<PAGE> 9
(e) Whether the market price of PRG's common stock during the Class
Period was artificially inflated due to the nondisclosures and/or
misrepresentations complained of herein; and
(f) Whether plaintiff and the other members of the Class have
sustained damages and, if so, the appropriate measure thereof.
22. A class action is superior to other available methods for the
fair and efficient adjudication of this controversy since, among other things,
joinder of all members of the Class is impracticable. Furthermore, as the
damages suffered by individual Class members may be relatively small, the
expense and burden of individual litigation make it virtually impossible for
many Class members individually to seek redress for the wrongful conduct
alleged. Plaintiff does not foresee any difficulty in the management of this
litigation that would preclude its maintenance as a class action.
23. The names and addresses of the record owners of the shares of
PRG's common stock acquired during the Class Period are available from PRG
and/or its transfer agent(s). Notice can be provided to purchasers of PRG's
common stock by a combination of published notice and first class mail using
techniques and forms of notice similar to those customarily used in class
actions arising under the federal securities laws.
24. Plaintiff will rely, in part, upon the presumption of reliance
established by the fraud-on-the-market doctrine in that, among other things:
(a) defendants made public misrepresentations or failed to
disclose material facts during the Class Period;
(b) the omissions and misrepresentations were material;
COMPLAINT-CLASS ACTION PAGE 9
<PAGE> 10
(c) the common stock of the Company traded in an open, active and
efficient market;
(d) the misrepresentations, as well as the omissions, alleged
would tend to induce a reasonable investor to misjudge the value of the
Company's common stock; and
(e) plaintiff and the other members of the Class acquired PRG's
common stock between the time defendants failed to disclose or misrepresented
material facts and the time the true facts were disclosed, without knowledge of
the omitted and/or misrepresented facts.
25. Based upon the foregoing, plaintiff and the other members of
the Class are entitled to a presumption of reliance upon the integrity of the
market for, at least, the purpose of class certification, as well as for
ultimate proof of the claims on their merits. Plaintiff will also rely, in
part, upon the presumption of reliance established by the omission of material
facts.
FACTUAL BACKGROUND AND SUBSTANTIVE ALLEGATIONS
PRG HAS GROWN ALMOST EXCLUSIVELY THROUGH
ACQUISITIONS, INCLUDING THE EQUIMED ACQUISITION
26. In or about the beginning of 1995, PRG adopted a strategy of
growth through acquisition of physician practices. For example, during 1996,
the Company made a substantial number of acquisitions. These acquisitions
included both the assets of individual practices as well as several large
physician practice management companies. Through these acquisitions PRG was
able to give the appearance of a rapidly growing company with robust revenues
and earnings. Investors were led to believe that PRG would continue to grow
through acquisitions. Defendants' motive for engaging in their growth through
acquisition strategy was,
COMPLAINT-CLASS ACTION PAGE 10
<PAGE> 11
inter alia, to use PRG's rapid growth to make the Company appear to be an
attractive acquisition candidate. If PRG were acquired, defendant Moore would
reap substantial monetary benefits because of his ownership of PRG common stock
and stock options.
27. Consistent with this strategy, on October 7, 1996, PRG
announced to the public that it had signed definitive agreements to acquire its
two largest competitors, the eye care division of EquiMed, a publicly held
multi-specialty physician practice management company and American Ophthalmic
Incorporated ("AOI"), a privately held physician management practice company
devoted solely to eye care. In making the announcement of the acquisitions,
defendants touted what these acquisitions would mean to PRG's future results.
PRG said that:
"Physicians Resource Group's annual revenue run rate will increase to
approximately, with these acquisitions, $378 million, from a
pre-acquisition rate of $248 million. In addition, with the
acquisitions, PRG will provide management services to 136 practices,
and will have 586 professionals and 44 ambulatory surgery centers,
making it the nation's largest single-specialty physician
practice management company.
"These acquisitions are strategically, geographically and financially
very important to the future of PRG," said Emmett E. Moore, Physicians
Resource Group chairman, president and CEO. "American Ophthalmic makes
us the market leader in Central and South Florida, fills out the
Central Texas corridor in Austin and San Antonio to complement PRG's
strength in Houston and Dallas, bolsters our strong positions in Las
Vegas and Southern California and offers us market entries in Alabama
and North Carolina. EquiMed brings us significant new entries into
Louisiana and New York and their practices in Northern California,
Ohio, Pennsylvania, Illinois and Iowa complement PRG's existing
practices in and around these markets. Both of these acquisitions
bring us significant operational infrastructure and will enhance PRG's
competitive position."
These specific, positive statements, among perhaps other of defendants'
statements, gave rise to an affirmative duty to disclose promptly any
subsequent negative or contradictory information, and a duty to correct if, as
and when the prior statement becomes misleading or inaccurate.
COMPLAINT-CLASS ACTION PAGE 11
<PAGE> 12
28. On November 14, 1996, according to PR Newswire, PRG reported
its results for the quarter ending September 30, 1996. In reporting its
results, PRG also announced the closing of its EquiMed acquisition along with
some of the essential terms of the purchase agreement:
PRG also announced the closing, on November 5, 1996, of the
acquisition of the eye care division of EquiMed, Inc (Nasdaq: EQMD).
The purchase price for the acquisition, which was originally announced
by PRG on October 7, 1996, was approximately $54 million and was paid
in cash. The purchase price may be increased if EquiMed delivers
additional acquisitions to PRG by the end of the first quarter of
1997.
29. In the November 14, 1996, PR Newswire release, defendant Moore
discussed PRG's growth through acquisition strategy:
This past quarter was a very significant one for PRG. We made 17
acquisitions and met competitive pressures head-on with the
acquisition of Cincinnati Eye Institute, Houston Eye Associates and a
number of practices in the Tampa, Florida area. We benefitted greatly
from pooling certain of these transactions. After quarter end, we
---------------------
announced the acquisition of our two biggest competitors, American
------------------------------------------------------------------
Ophthalmic Inc. (AOI) and the eye care division of EquiMed. These
------------------------------------------------------------------
acquisitions are strategically, geographically and financially
------------------------------------------------------------------
important to PRG's future. Our management team has been and will
--------------------------
continue to be focused on closing these acquisitions and integrating
their operations over the next few months. We believe that even though
these efforts will cause a delay in the execution of acquisitions
otherwise anticipated in the fourth quarter, the Company will be
better positioned for the future. (Emphasis added).
30. On January 9, 1997, PRG announced that it had completed the
acquisition of the assets of eight (8) separate eye care practices since the
beginning of December 1997.
31. In or about March, 1997, PRG filed its Form 10-K Annual
Report to Shareholders for the year ending December 31, 1996. In the section
entitled "DEVELOPMENT AND OPERATIONS" "Acquisition Criteria," defendants
discussed PRG's growth through acquisition strategy:
COMPLAINT-CLASS ACTION PAGE 12
<PAGE> 13
PRG's acquisition strategy is directed at acquiring the assets of, and
providing management services to, ophthalmic and optometric practices
that are financially and operationally strong and either strategically
complement other Practices or represent an entrance into new markets.
Acquisition candidates must demonstrate potential for revenue growth
or continued profitability. PRG also evaluates qualitative issues such
as the medical professionals' training licensure and experience, the
medical professionals' reputations in the local and national
marketplace, Medicare and Medicaid compliance, billing practices and
operating history
LITIGATION WITH EQUIMED OVER THE
NOVEMBER 1996 PURCHASES OF EQUIMED'S PRACTICES
32. At no time after the acquisition of the eye care division of
EquiMed and before November 13, 1997, did PRG ever disclose that it would have
to take charges because it believed that EquiMed had overstated the value of
the practices EquiMed had sold to PRG. It was not until November 19, 1997, that
defendants disclosed the amount of the charges.
33. On May 21, 1997 EquiMed announced via PR Newswire that: "it
has filed a claim before the American Arbitration Association in Philadelphia,
Pennsylvania to enforce certain terms of its October 1996 Asset Purchase
Agreement ("Agreement") with Physicians Resource Group, Inc. (NYSE: PRG) and
PRG Georgia, Inc. (Collectively "PRG") and to recover EquiMed's claim for
damages in excess of $30,000,000 for breach of the Agreement and related
conduct." The release stated further:
Pursuant to the Agreement, in November 1996 EquiMed sold substantially
all of the assets of its Ophthalmology Division to PRG for $54,000,000
in cash, plus assumption of approximately $14.5 million in debt. In
addition to the consideration received in November 1996, EquiMed
agreed to assist PRG in the acquisition of third party ophthalmology
practices from November 1996 through April 1997. EquiMed was entitled
to receive payment from PRG on May 15, 1997 representing the fees
earned on the third party ophthalmology practice acquisitions. PRG
---
failed to make the May 15, 1997 payment and advised EquiMed that it
-------------------------------------------------------------------
does not intend to do so. Based on the acquisitions consummated for
-------------------------
which EquiMed is entitled to compensation in accordance with the
Agreement, as well as those that EquiMed believes also should have
been consummated for which EquiMed is
COMPLAINT-CLASS ACTION PAGE 13
<PAGE> 14
entitled to compensation in accordance with the Agreement, EquiMed
estimates the amount due on May 15 from PRG to be in excess of
$30,000,000. EquiMed also seeks unspecified damages related to PRG's
refusal to provide EquiMed's auditors with access to financial records
of the Ophthalmology Division, which has caused delays in the
completion of EquiMed's annual audit and securities filings. (Emphasis
added).
34. On June 17, 1997, PRG first announced, via PR Newswire, that
------------
it had asserted in the arbitration counterclaims against EquiMed in connection
with PRG's purchase of practices from EquiMed:
[PRG] has filed counterclaims against EquiMed.... in the action between
PRG and EquiMed pending before the American Arbitration Association in
Philadelphia, Pennsylvania. In the action, EquiMed asserted claims
against PRG seeking damages in excess of thirty million dollars
($30,000,000) and other claims seeking unspecified damages. PRG has
denied EquiMed's claims and intends to vigorously defend itself against
those claims. PRG's counterclaims include, among others, breach of
----------------------------------------------------
representations and warranties, fraud and conversion. PRG seeks variou
-----------------------------------------------------
forms of relief, including, compensatory damages in excess of forty
five million dollars ($45,000,000) and punitive damages.... We are
aggressively pursuing our counterclaim against EquiMed and are
confident in our ability to prevail (Emphasis added).
(The "June 17 Announcement").
35. Having chosen to speak regarding the EquiMed relationship, the
arbitration, PRG's counterclaim and its confidence regarding that claim, PRG
had a continuing duty to disclose all material information regarding the
EquiMed acquisition, the value of the practices acquired from EquiMed, the
arbitration proceeding and PRG's counterclaim. When PRG made its counterclaims,
and when it made the June 17 announcement, defendants well knew the underlying
negative facts which told them that the practices which PRG had acquired from
EquiMed were overvalued on PRG's books and would have to be written down. Yet
the June 17 announcement made no mention whatsoever of these fact. Defendants
knew no later than June
COMPLAINT-CLASS ACTION PAGE 14
<PAGE> 15
17, 1997, that the assets acquired directly from EquiMed in November, 1996 were
overvalued and that a writedown would be required. As of at least June 17,
1997, PRG was under an obligation to disclose to the investing market that PRG
disputed the value of the assets it acquired in November 1996 and that it would
be forced to make accounting adjustments to those values and allow for charges
PRG would have to take in connection with that acquisition.
36. On or about August 13, 1997, PRG filed its Form 10-Q for its
second quarter ending June 30, 1997. That filing repeated the earlier
statements to the effect that PRG had asserted a counterclaim against EquiMed
for damages in excess of $45,000,000. However, in that 1O-Q as in the June 17
Announcement, defendants failed to disclose that PRG would be forced to make
accounting adjustments to account for the fact that PRG would have to take
charges in connection with its November 1996 purchase of practices from
EquiMed.
37. PRG's failure to disclose that it would be forced to take
charges in connection with its November 1996 purchase of practices from EquiMed
was a violation of the Company's stated accounting policies and procedures.
38. Footnote 1 to PRG's June 30, 1997, Form 10-Q stated:
The interim consolidated financial statements ... included herein have
been prepared by the Company pursuant to the rules and regulations of
the Securities and Exchange Commission. Although the Company believes
that the disclosures are adequate to make the information presented
not misleading, certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant
to such rules and regulations. It is suggested that these financial
------------------------------------
statements be read in conjunction with the financial statements and
-------------------------------------------------------------------
notes included in the Company's Annual Report on Form 10-K for the
-------------------------------------------------------------------
year ended December 31, 1996. In the opinion of management, the
-----------------------------
accompanying unaudited interim financial statements contain all
adjustments, consisting only of those of a normal recurring nature,
necessary to present fairly the Company's results of operations and
cash flows for the periods presented .... (Emphasis added).
COMPLAINT-CLASS ACTION PAGE 15
<PAGE> 16
39. Note 2 entitled "Summary Of Significant Accounting Policies"
to the financial statements in the December 31, 1996, Form 10-K stated under
the section entitled "Intangible Assets:"
The Company reviews the carrying value of the long lived and goodwill
---------------------------------------------------------------------
assets at least quarterly on a entity by entity basis to determine if
---------------------------------------------------------------------
facts and circumstances exist which would suggest that the intangible
---------------------------------------------------------------------
assets may be impaired or that the amortization period needs to be
----------------------
modified.... If an impairment is indicated, then an adjustment will be
made to reduce the carrying amount of the intangible assets to their
fair value. (Emphasis added).
Thus, defendants reaffirmed at June 30, 1997, that at least quarterly, they
re-evaluate impairment. They did not, however disclose the then existing
impairment in the carrying value of the practices purchased from EquiMed;
impairment which Defendants knew, from the same facts supporting their
counterclaim and offset against EquiMed, was necessary.
40. The quoted policy in the previous paragraph is in conformity
with Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting
For The Impairment Of Long-Lived Assets And For Long-Lived Assets To Be
Disposed Of."
41. Under SFAS No. 121, PRG was required to review the carrying
value of Long-Lived Assets under certain circumstances. Under PRG's internal
accounting policies it was required to review the EquiMed assets "at least
quarterly" and as such were in a position to know, and did know, or were
severely reckless in not knowing, that the EquiMed assets were impaired as of
the end of each Quarter of 1997 beginning, at the latest, with the quarter ended
June 30, 1997. Defendants knew, certainly no later than June 1997, when PRG
filed its counterclaim in the EquiMed arbitration, that EquiMed assets were
impaired and not as represented. In order to assert and determine the amount of
the counterclaim, PRG had to know and believe that the
COMPLAINT-CLASS ACTION PAGE 16
<PAGE> 17
carrying values of the practices that were the subject of the counterclaim
were substantially less than as represented. PRG failed to disclose that it
believed that the carrying values of the practices were less than what EquiMed
had represented them to be. In addition, under PRG's Accounting Policies, PRG
"reviews the carrying values of the long-lived and goodwill assets at least
quarterly...." If such review had been conducted in connection with the June 30,
1997, Form 10-Q, adjustments should have been made at that time and the
charges taken in the third quarter of 1997 should have been taken at that time
(June 30, 1997). Because the charges taken in the third quarter of 1997
should have been taken no later than the second quarter of 1997, PRG's second
quarter financial statements were materially overstated by the amount of the
charges taken in the third quarter with respect to the practices acquired from
EquiMed.
42. PRG did not disclose that PRG would have to take charges
related to its EquiMed acquisition because if PRG had disclosed this
information the market would have learned that PRG was not a rapidly growing
company and therefore not a lucrative takeover candidate and individual
defendant Moore's position with the Company would have been in jeopardy and the
value of his substantial stock and stock options would decrease.
43. In furtherance of their scheme to use PRG's growth through
acquisition strategy to make the Company appear to be a lucrative takeover
candidate, defendants issued a press release on September 4, 1997, stating that
PRG had hired Goldman, Sachs & Co. and Smith Barney Inc. to study a possible
sale of the Company. In response to this announcement, PRG's common stock rose
rapidly in the weeks following the announcement.
COMPLAINT-CLASS ACTION PAGE 17
<PAGE> 18
DISCLOSURE OF THE TRUTH
44. On November 19, 1997, PRG announced, via the PR Newswire, that
it would post a third quarter loss of $18.4 million, or 62 cents per share,
compared with net income of $3.5 million or 13 cents a share a year earlier.
The third quarter results also included pretax charges of $27.8 million from
future practice closings and $4 million to establish reserves on accounts
receivable. Without these charges the Company's operating income would have
been $0.11 per share. Additionally, the Company announced the termination by
PRG of its Chairman and Chief Executive officer defendant Moore.
45. Also on November 19, 1997, PRG announced that it was not
pursuing a sale or strategic merger and that PRG would not continue expanding
through acquisitions.
46. On or about November 19, 1997, and as reported in the November
20, 1997 edition of The Wall Street Journal, PRG admitted that the charges that
-----------------------
PRG was taking stemmed from practices it acquired from EquiMed, Inc. in
November of 1996 and that EquiMed had overstated the value of the practices.
Defendants obviously knew this when PRG filed its counterclaim against EquiMed
in June, 1997. In its filings in the EquiMed arbitration, PRG claimed it was
entitled to an offset with respect to monies owed to EquiMed. As such,
defendants knew, no later than June 17, 1997 that EquiMed assets were
overvalued and impaired, and that PRG would have to take a substantial related
change against the value of those assets.
47. PRG's belated disclosure that the assets it acquired from
EquiMed in November, 1996 were overstated and impaired were clearly material.
PRG's stock price fell by approximately 30% during the six trading days from
November 13 to November 20. At the end of the class period, the stock was worth
a little over half of its class period high.
COMPLAINT-CLASS ACTION PAGE 18
<PAGE> 19
COUNT I
AGAINST ALL DEFENDANTS FOR VIOLATION
OF SECTION 10(b) OF THE 1934 ACT AND RULE 10b-5
48. Plaintiff repeats and realleges each and every allegation
contained in each of the foregoing paragraphs as if fully set forth in full
herein.
49. This Count is asserted against defendants and is based upon
Section 10(b) of the Exchange Act, 15 U.S.C. Section 78j(b), and Rule 10b-5
promulgated thereunder by the SEC.
50. During the Class Period, defendants, directly or indirectly,
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 facts necessary 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
to induce plaintiff and the other members of the Class to purchase PRG common
stock during the Class Period at artificially inflated prices.
51. 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 preparation and issuance of deceptive and
materially false and misleading statements to the investing public which were
contained in or omitted from various documents and other statements, as
particularized above.
52. Throughout the Class Period, defendants each knew the facts
set forth herein and misrepresented them and omitted disclosing them, thereby
deceiving plaintiff and the
COMPLAINT-CLASS ACTION PAGE 19
<PAGE> 20
other members of the Class. In the alternative, defendants acted with reckless
disregard for the truth when they failed to disclose or cause the disclosure of
the true facts and information to plaintiff and the other members of the Class
despite having the true information.
53. As a result of the dissemination of the false and misleading
statements set forth above, the market price of PRG common stock was
artificially inflated during the Class Period. In ignorance of the false and
misleading nature of the representations 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 PRG common stock. Had plaintiff
and the other members of the Class known of the materially adverse information
misrepresented or not disclosed by defendants, they would not have purchased
PRG common stock at all or at the artificially inflated prices that they did.
54. As a result of the inflation of the prices of PRG common stock
during the Class Period caused by defendants' material misrepresentations and
omissions, plaintiff and the other members of the Class have suffered
substantial damages as a result of the wrongs alleged.
55. By reason of the foregoing, defendants, directly or
indirectly, violated the 1934 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; and/or
COMPLAINT-CLASS ACTION PAGE 20
<PAGE> 21
(c) engaged in acts, practices, and courses of business which
operated as a fraud and deceit and a scheme to defraud upon plaintiff and the
other members of the Class in connection with their purchases of PRG common
stock during the Class Period.
COUNT II
AGAINST THE INDIVIDUAL DEFENDANT
FOR VIOLATION OF SECTION 20(a) OF THE 1934 ACT
56. Plaintiff repeats and realleges each and every allegation
contained in each of the paragraphs set forth above as if set forth fully
herein.
57. The individual defendant was and acted as controlling persons
of PRG within the meaning of Section 20(a) of the Exchange Act as alleged
herein. By virtue of his high-level position with the Company, participation in
and/or awareness of the Company's operations and/or intimate knowledge of the
Company's actual performance, the individual defendant 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 defendant was provided with or had unlimited access to copies of the
Company's 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.
58. In addition, the individual defendant had direct involvement
in the day-to-day operations of the Company and, therefore, is presumed to have
had the power to control or
COMPLAINT-CLASS ACTION PAGE 21
<PAGE> 22
influence the particular transactions giving rise to the securities violations
as alleged herein, and exercised the same.
59. As set forth above, PRG and the individual defendant violated
Section 10(b) and Rule 10b-5 by their acts and omissions as alleged in this
Complaint. By virtue of his controlling positions, the individual defendant is
liable pursuant to Section 20(a) of the Exchange Act. As a direct and proximate
result of defendants' wrongful conduct, plaintiff and other members of the
Class suffered damages in connection with their purchases of the Company's
securities during the Class Period.
JURY DEMAND
Plaintiff demands a trial by jury on all issues.
WHEREFORE, plaintiff, on his own behalf and on behalf of the Class,
prays for judgment as follows:
(1) declaring this action to be a proper class action and
certifying plaintiff as the representative of the Class under Rule 23 of the
Federal Rules of Civil Procedure;
(2) awarding compensatory damages in favor of plaintiff and the
other members of the Class against all defendants for the damages sustained as
a result of the wrongdoing of defendants, together with interest thereon;
(3) awarding plaintiff and the Class their costs and expenses
incurred in this action, including reasonable allowance of fees for plaintiffs
attorneys, and experts, and reimbursement of plaintiffs expenses; and
COMPLAINT-CLASS ACTION PAGE 22
<PAGE> 23
(4) granting such other and further relief as the Court may deem
just and proper.
Dated: December 18, 1997
Dallas, Texas
KILGORE & KILGORE
By: /s/ ROGER F. CLAXTON
-----------------------
Roger F. Claxton
Bar Code No. 04329000
Robert J. Hill
Bar Card No.09652100
700 McKinney Place
3131 McKinney Avenue-LB-103
(214) 969-9099
Of Counsel:
FARUQI & FARUQI, LLP
Nadeem Faruqi
415 Madison Avenue
New York, New York 10017
(212) 986-1074
COMPLAINT-CLASS ACTION PAGE 23
<PAGE> 24
CERTIFICATION OF PLAINTIFF HOWARD LONGMAN
PURSUANT TO FEDERAL SECURITIES LAWS
HOWARD LONGMAN ("Plaintiff") declares, as to the claims asserted under
the federal securities laws, that:
1. Plaintiff has reviewed the complaint and authorized its
filing.
2. Plaintiff did not purchase the security that is the subject of
this action at the direction of plaintiff's counsel or in order to participate
in this private action.
3. Plaintiff is willing to serve as a representative party on
behalf of the class, including providing testimony at deposition and trial, if
necessary.
4. Plaintiff's transaction in the security that is the subject of
this action during the Class Period is as follows:
Security Transaction Date
- -------- ----------- ----
Common stock Purchased 1000 shares 09/12/97/97
at $10 1/2
5. During the three years prior to the date of this Certificate,
Plaintiff has sought to serve or served as a representative party for a class
in the following actions filed under the federal securities laws: NONE.
6. The Plaintiff will not accept any payment for serving as a
representative party on behalf of the class beyond the Plaintiff's pro rata
share of any recovery, except such reasonable costs and expenses (including
lost wages) directly relating to the representation of
<PAGE> 25
the class as ordered or approved by the court.
I declare under penalty of perjury that the foregoing is true and
correct.
December 17, 1997
/s/ HOWARD LONGMAN
------------------------
Howard Longman
