in re: syncor international corporation securities...
TRANSCRIPT
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1 MILBERG W—E-ISS BERSHADHYNES & LERACH LLP
2 WILLIAM S. LERACH (68581) ORIGINALEDWARD P. DIETRICH (176118)3 ANDREW J. BROWN (160562) t j)
TRICIA L. McCORMICK (199239)- a 1°K v1/41414.41..j //et4 401 B Street, Suite 1700San Diego, CA 92101
5 Telephone: 619/231-1058 , - -6 otarr
. ,619/231-7423 (fax)
6 '; EVAY / 9Lead Counsel for Plaintiffs 2003
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be471-11.
9 UNITED STATES DISTRICT COURT
10 CENTRAL DISTRICT OF CALIFORNIA
11 WESTERN DIVISION
12RICHARD BOWE, On Behalf of Master File No.
13 Himself and All Others Similarly C-02-8560-LGB(RCx)Situated,
14
CLASS ACTION Plaintiff,
15 CONSOLIDATED AMENDEDvs. CLASS ACTION COMPLAINT FOR
16 VIOLATION OF THE FEDERALSYNCOR INTERNATIONAL SECURITIES LAWS
17 CORPORATION, MONTY FU, MOSESFU, ROBERT G. FUNARI, DAVID L.
18 WARD, JACK L. COFFEY, SHEILA H.COOP, GEORGE S. OKI, HENRY M.
19 WAGNER, JR., M.D., DR. GAIL R.WILENSKY, MICHAEL L. LACH,
20 JOHN S. BAUMAN, AND MICHAELE. MIKITY,
21Defendants.
22 In re SYNCOR INTERNATIONAL
23 CORP. SECURITIES LITIGATION
24This Document Relates To:
25ALL ACTIONS.
26 DEMAND FOR JURY TRIAL
27
28
ENTERED ON ICMS 0. -. ,.,,t
, SAY 2 0 2003 51CV
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1 INTRODUCTION
2 1. This is an action on behalf of purchasers of Syncor International
3 Corporation ("Syncor" or the "Company") publicly traded securities during the period
4 from March 9, 1998 to November 5, 2002 (the "Class Period") alleging violations of
5 the federal securities laws. Syncor provides high technology health care services
6 concentrating on nuclear pharmacy services, medical imaging, niche manufacturing
7 and radiotherapy.
8 2. Defendants' positive but false statements concerning Syncor's
9 international operations, such as "Syncor's greatest growth after 2001 is expected to
10 come from international operations," "our investments in medical imaging and
11 expansion into the international marketplace will provide a significant contribution
12 to improved operating income in 1999," "overseas markets are going to be a source
13 of growth for us over the course of the next several years "and "[b]y the end of 2001,
14 Syncor plans to have operations in 20 countries and has committed to grow its
15 overseas sales from $10 million to $100 million by 2003," artificially inflated the
16 price of Syncor stock. Defendants took advantage of this inflation by selling 1.2
17 million Syncor shares for illegal insider trading proceeds of over $31 million.
18 However, defendants' statements issued during the Class Period were false because
19 as set forth in detail in 111 1-29, defendants knew that (a) Syncor Taiwan paid referral
20 fees to physicians in violation of the Foreign Corrupt Practices Act and charged the
21 expense to marketing; (b) in order to obtain and retain business with hospitals for the
22 provision of unit dosage radiopharmaceuticals, Syncor Taiwan, entered into "side
23 agreements" to pay physicians illegal commissions on the defendant's sales of
24 radiopharmaceuticals; (c) beginning in 1998, Syncor Taiwan also paid improper fees
25 to doctors at hospitals owned by Taiwan authorities for referrals of patients to
26 medical imaging centers owned and operated by Syncor Taiwan; (d) Syncor de
27 Mexico entered into "over-invoicing" arrangements with doctors; (e) Syncor de
28 Mexico had a general practice of providing "support" — locally referred to as "apoyo"
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1 — to doctors; and (f) once Syncor's illegal practices were revealed it would be forced
2 to cease them, adversely affecting sales and earnings and exposing the company to
3 criminal and regulatory investigations.
4 3. On November 6, 2002, before the markets opened, the Company issued
5 a press release announcing an investigation into payments to customers. The press
6 release stated in part:
7 Syncor International Corporation (Nasdaq: SCOR) announced that a
8 committee of outside directors, together with special outside counsel,
9 has been investigating the propriety of certain payments made by
10 overseas subsidiaries to customers in several foreign countries,
11 including Taiwan and China. To date, the investigation indicates that
12 some of the payments made to state-owned and private healthcare
13 facilities may have violated foreign and U.S. law, including the Foreign
14 Corrupt Practices Act. The investigation will cover Syncor's other
15 overseas operations as well.
16
17 Representatives of Syncor have met with the Securities and Exchange
18 Commission and the U.S. Department of Justice to discuss the matter.
19 Syncor intends to cooperate fully with the authorities.
20
21 The Company also said that Mr. Monty Fu, Chairman of Syncor, and his
22 brother, Mr. Moses Fu, Director, Asia Region — Syncor Overseas LTD.,
23 have gone on paid leave pending completion of an investigation into
24 their involvement in the payments. Monty Fu has also agreed to
25 suspend his participation as a company director pending completion of
26 the investigation. The Board of Directors has elected Mr. Bernard
27 Puckett, a current director and Chair of the special committee
28 investigating the payments, as lead director of the Board.
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IMIIMMIMIMMINnn
1 * * *
2 The payments were brought to Syncor's attention by Cardinal Health,
3 Inc. (NYSE: CAH), which learned of them in the course of its ongoing
4 post-signing due diligence relating to the previously announced planned
5 merger of the two companies. Syncor is working closely with Cardinal
6 Health regarding the matter.
7
8 The Company announced that in order to provide additional time to
9 complete the investigation of its overseas operations and make any
10 appropriate disclosures to stockholders, it has postponed until Friday,
11 December 6, 2002, its special meeting of stockholders to vote on the
12 pending merger with Cardinal Health. The meeting had originally been
13 scheduled for November 19th. The exact time and place of the special
14 meeting will be included in an amended notice of meeting and
15 supplemental proxy materials that will be mailed to stockholders as soon
16 as they are available.
17 4. Trading in Syncor stock was immediately halted after this
18 announcement. When trading resumed, the stock dropped below $27.40 per share,
19 from $35.92 the prior day. On November 7, 2002, as the news more fully reached the
20 market, the stock dropped even further to $22.93.
21 JURISDICTION AND VENUE
22 5. The claims asserted arise under §§10(b) and 20(a) of the Securities
23 Exchange Act of 1934 ("1934 Act") and Rule 10b-5 promulgated thereunder.
24 Jurisdiction is conferred by §27 of the 1934 Act. Venue is proper pursuant to §27 of
25 the 1934 Act as defendant Syncor and/or the Individual Defendants conduct business
26 in and the wrongful conduct took place in this District.
27
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1 THE PARTIES
2 6. On February 28, 2003, this Court granted Milton Arbitrage Partners,
3 L.L.C.'s motion to be appointed Lead Plaintiff.
4 7. Plaintiff West Virginia Laborers Pension Trust Fund purchased Syncor
5 publicly traded securities as detailed in the attached Certification and was damaged
6 thereby.
7 8. Defendant Syncor provides high technology health care services
8 concentrating on nuclear pharmacy services, medical imaging, niche manufacturing
9 and radiotherapy. Syncor operates a national network of over 130 nuclear pharmacies
10 (with 19 pharmacies overseas) that provides custom compounding of radioactive
11 isotopes and injectable pharmaceuticals, which it delivers in unit dose form to over
12 7,000 hospitals and clinics in 48 states for use in medical imaging procedures. On an
13 annual basis, it compounds and dispenses over 7 million unit doses of about 60
14 different radiopharmaceutical products, including Cardiolite. As an adjunct to its
15 distribution business, the Company provides support services, including record
16 keeping required for regulatory purposes; technology consulting; other distribution
17 services using its radioactive sealed sources; medical reference sources; and nuclear
18 pharmacy equipment and accessories. Syncor trades in an efficient market on the
19 NASDAQ Market System.
20 9. (a) Defendant Robert G. Funari ("Funari") was Chief Executive
21 Officer and a director of Syncor. During the Class Period, Funari sold 236,888 shares
22 of his Syncor stock for illegal insider trading proceeds of $5,858,758 million.
23 (b) Defendant Monty Fu was Chairman of Syncor. Monty Fu has
24 been placed on leave during Syncor's investigation into the illegal payment scheme.
25 During the Class Period, Funari sold 173,500 shares of his Syncor stock for illegal
26 insider trading proceeds of $3,959,475 million.
27
28
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1 (c) Defendant Moses Fu was director-Asia Region of Syncor. Moses
2 Fu has been placed on leave during Syncor's investigation into the illegal payment
3 scheme.
4 (d) Defendant David L. Ward ("Ward") has been Executive Vice
5 President since March 1999 and during the Class Period, Ward sold 99,343 shares of
6 his Syncor stock for insider trading proceeds of $3,281,114.
7 (e) Defendant Jack L. Coffey ("Coffey") has been Senior Vice
8 President, Quality and Regulatory since April 1989 and during the Class Period,
9 Coffey sold 117,400 shares of his Syncor stock for insider trading proceeds of
10 $2,668,516.
11 (f) Defendant Sheila H. Coop ("Coop") has been Senior Vice
12 President, Human Resources and Communications since November 1992 and during
13 the Class Period, Coop sold 113,618 shares of her Syncor stock for insider trading
14 proceeds of $2,759,603.
15 (g) Defendant George S. Old ("Oki") has been Director since May 17,
16 1985 and during the Class Period, Old sold 34,896 shares of his Syncor stock for
17 insider trading proceeds of $849,740.
18 (h) Defendant Henry M. Wagner, Jr., M.D. ("Wagner") has been
19 Director since August 3, 1992 and during the Class Period, Wagner sold 88,290
20 shares of his Syncor stock for insider trading proceeds of $2,679,972.
21 (i) Defendant Dr. Gail R. Wilensky ("Wilensky") has been Director
22 since July 12, 1993 and during the Class Period, Wilensky sold 45,874 shares of her
23 Syncor stock for insider trading proceeds of $1,077,043.
24 (j) Defendant Michael L. Lach ("Lach") has been Senior Vice
25 President and Chief Information Officer for Syncor since December 1999 and during
26 the Class Period, Lach sold 28,232 shares of his Syncor stock for insider trading
27 proceeds of $967,486.
28
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1 (k) Defendant John S. Bauman ("Bauman") has been Senior Vice
2 President and General Counsel since June 1999 and has served as Secretary since
3 January 2001 and during the Class Period, Bauman sold 57,970 shares of his Syncor
4 stock for insider trading proceeds of $1,457,529.
5 (1) Defendant Michael E. Mikity ("Mikity") was a Vice President,
6 Treasurer and Chief Financial Officer for Syncor during the Class Period and during
7 the Class Period, Mikity sold 191,000 shares of his Syncor stock for insider trading
8 proceeds of $5,552,915
9 10. Defendants Funari, Monty Fu, Moses Fu, Ward, Coffey, Coop, Oh,
10 Wagner, Wilensky, Lach, Bauman and Mikity are the "Individual Defendants." They
11 are liable for the false statements pleaded inT132, 34, 36, 38, 40, 42, 44, 46, 48, 51,
12 53, 55, 58, 65, 67, 69, 73, 76, 81, 85, 89, 91, 93, 99, 101, 103, 105, 107, 109, and 110
13 as those statements were "group-published" information.
14 FACTS RAISING A STRONG INFERENCE OF THE
15REQUIRED STATE OF MIND
Knowledge16
1711. Syncor worked on a formal budgeting cycle, which required all
18 international operations to submit a proposed budget for the following year in
19 September. Every single Syncor site, including Taiwan, used Pillar budgeting
20 software, beginning in 1996, to supply budgets to the corporate headquarters. A
21 former Syncor employee with extensive knowledge of the Company's international
22 operations explained that the "corporate office" would download the previous year's
actual costs into the Pillar software, and send the actual results to the individual2324 international operations to use as a starting point for preparing the following-year's
25 budget. The individual operations would then submit the respective budgets for
26 review. The former employee recalled that the budgets were originally submitted to
27 a manager in the Finance Department, but that the budgets had to be ultimately
28 accepted by Funari and Monty Fu.
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1 12. The budgets for the international operations were then"rolled up" into
2 a collective corporate budget for the following year. The former employee explained
3 that "Monty approved the budget for Taiwan because Taiwan reported to Monty."
4 Indeed, the former employee characterized Monty Fu's role as "unique" in that he
5 served as the Chairman of the Board of Directors, yet he also served in a "regional
6 management" role over Taiwan, taking "an active role in Taiwan."
7 13. The former employee explained "regional" managers met periodically
8 to "share successes" and to review groups' production versus the budget. These
9 meetings were supposed to be held each month, but really only took place every two
10 to three months. The meetings took place in Monty Fu's office in the Woodland Hills
11 Headquarters. Jay Simon (representing Latin America), Monty Fu (representing
12 Taiwan), Sara Jane Davis (representing Australia, New Zealand, Hong Kong,
13 Philippines) and Peter Foti (representing Europe) attended these meetings. A former
14 employee familiar with the meetings recalled that because Simon lived and worked
15 out of his home in Scottsdale, AZ and Foti lived and worked out of his home in
16 Boston, MA, the meetings often involved teleconferencing Foti and Simon. In such
17 situations, only Davis and Monty Fu would be in Monty Fu's office, with Simon and
18 Foti connected via telephone.
19 14. The former employee with extensive knowledge of the Company's
20 international operations questioned Monty Fu at an International Staff Meeting at
21 Syncor's corporate headquarters in Woodland Hills regarding the marketing budget
22 for Syncor Taiwan sometime between 1995 and 1998 about the fact that Syncor
23 Taiwan had a larger marketing budget/expense than other international operations.
24 Monty Fu said that Syncor Taiwan had paid referral payments to physicians and
25 accounted for the expense under marketing/promotions.
26 15. Specifically, the former employee recalled that Monty Fu "was not one
27 for spending money on marketing." As a result, each international market generally
28 had a marketing budget of 2-3% of total sales for the given market. During one
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1 International Staff Meeting, the former employee noticed Syncor Taiwan showed a
2 marketing expense of approximately 5% of its total sales. The former employee
3 asked Monty Fu whether Syncor Taiwan was doing something special in marketing.
4 Monty Fu informed the former employee that Syncor Taiwan had paid out referral
5 fees to physicians and charged the expense to marketing/promotions.
6 16. According to the complaint filed by the Securities and Exchange
7 Commission (Securities and Exchange Commission v. Syncor International
8 Corporation, No. 1:02CV02421 (D.C. Dec. 10, 2002) (hereinafter "SEC complaint")),
9 throughout the time it has been in business, Syncor Taiwan has paid improper
10 commissions to doctors who controlled the purchasing decisions for the nuclear
11 medicine departments of certain hospitals, including some hospitals owned by Taiwan
12 authorities, for the purpose of obtaining or retaining business with those hospitals.
13 These improper commissions (typically between 10% and 20% of sales) totaled at
14 least $400,000 from the inception of Syncor Taiwan through September 2002.
15 17. According to the criminal information (United States of America v.
16 Syncor Taiwan, Inc., No. CR 02-1244-SVW, Plea Agreement For Defendant Syncor
17 Taiwan, Inc. (C.D. Cal. Dec. 9, 2002) (hereinafter "criminal infoimation")), defendant
18 Syncor Taiwan entered into agreements with certain of these hospitals in Taiwan for
19 the provision of radiopharmaceuticals. The practice of entering into such agreements
20 was authorized by the Chairman of the Board of defendant Syncor Taiwan on behalf
21 of the defendant.
22 18. According to the criminal information, before entering into the
23 agreements with defendant Syncor Taiwan, the hospitals had a choice between
24 purchasing certain radiopharmaceuticals in bulk form or unit dosage form. Although
25 defendant Syncor Taiwan was the sole provider in Taiwan of certain
26 radiopharmaceuticals in unit dosage forms, there were other manufacturers and
27 suppliers in Taiwan of these radiopharmaceuticals in bulk form. Unit dosage sales
28 were preferred by defendant Syncor Taiwan as they provided the Company with a
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1 greater profit. In order to obtain and retain business with these hospitals for the
2 provision of unit dosage radiopharmaceuticals, defendant Syncor Taiwan, acting
3 through its officers and agents, entered into "side agreements" with physicians
4 employed by the hospitals — usually with the department heads of the hospitals'
5 nuclear medicine departments — whereby these physicians would receive commissions
6 on the defendant's sales of these radiopharmaceuticals (hereinafter referred to as the
7 "commission payments"). The commission payments were generally 10%, but could
8 be as high as 20%, of the gross sales generated by the contracts. The responsible
9 officers of defendant Syncor Taiwan understood that the hospitals would not have
10 entered into or maintained their business with the defendant if such commission
11 payments had not been made.
12 19. According to the criminal information, the General Manager of
13 defendant Syncor Taiwan periodically hand delivered the commission payments, in
14 cash, in sealed envelopes.
15 20. According to the criminal information, from in or about January 1, 1997
16 through on or about November 6, 2002, defendant Syncor Taiwan made commission
17 payments totaling approximately $344,110 to physicians in four of these hospitals in
18 Taiwan, as follows:
19 Date Amount of Commission Payments20 1997 $7,88721 1998 $61,477
22 1999 $47,698
23 2000 $94,56024 2001 $74,437
01/01/02-11/06/02 $58,051 25
26 21. According to the SEC complaint, beginning in 1998, Syncor Taiwan also
27 paid improper fees to certain doctors at hospitals owned by Taiwan authorities for
28 referrals of patients to medical imaging centers owned and operated by Syncor
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1 Taiwan. These referral fees typically were based on a percentage (between 3% and
2 5%) of the service fees payable to each medical imaging center from the patients
3 referred, and typically took the form of a cash payment that was hand-delivered to the
4 referring doctor by a bookkeeper at the center after fluids had been wire-transferred
5 to the center for that purpose. According to the SEC complaint, during the relevant
6 period, these improper referral fees to doctors at hospitals owned by Taiwan
7 authorities totaled at least $113,000. The payment of these referral fees was known
8 to and approved by Syncor's founder and chairman of the board, among others at both
9 Syncor and Syncor Taiwan.
10 22. According to the criminal information, after a patient incurred a
11 servicing cost at one of defendant Syncor Taiwan's imaging centers, defendant Syncor
12 Taiwan's officers would transfer or cause to be transferred a referral payment by wire
13 from defendant Syncor Taiwan's bank account to the bank account of one of its
14 imaging centers. The bank accounts of the imaging centers were under the control
15 of defendant Syncor Taiwan's bookkeepers at each imaging center. The bookkeepers
16 withdrew cash from the accounts, which was then delivered to the physicians. The
17 responsible officers of defendant Syncor Taiwan understood that the physicians
18 would have referred the patients to imaging centers not owned by defendant Syncor
19 Taiwan if such referral payments had not been made.
20 23. According to the criminal information, defendant Syncor Taiwan
21 recorded the commission payments and the referral payments on its books and records
22 as "promotional and advertising expenses." The General Manager and Deputy
23 General Manager of defendant Syncor Taiwan regularly prepared and submitted to
24 its parent company, Syncor, budgets with a line item for promotional and advertising
25 expenses based primarily on the amount of such expenditures in the prior quarter or
26 year. Defendant Syncor Taiwan routinely sent these budgets by electronic mail to
27 Syncor's principal place of business in Woodland Hills, California.
28
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1 24. According to the criminal information, the Chairman of the Board of
2 defendant Syncor Taiwan, while in the United States, authorized the practice of
3 paying the commission and referral payments to the employees of the hospitals. The
4 Chairman of the Board of defendant Syncor Taiwan, while in the United States, also
5 approved and caused to be approved the budgets for promotion and advertising
6 expense of defendant Syncor Taiwan, which included the amounts defendant Syncor
7 Taiwan intended to pay to the officials of the hospitals in the following quarter or
8 year. The Chairman of the Board sent and caused to be sent approval of the proposed
9 budgets by telephone and electronic mail from Woodland Hills, California, to Taipei,
10 Taiwan.
11 25. According to the SEC complaint, in at least two cases, moreover, Syncor
12 de Mexico entered into "over-invoicing" arrangements with doctors. Pursuant to
13 these arrangements, Syncor de Mexico would inflate an invoice and bill the doctor's
14 hospital for a more expensive product than Syncor actually delivered. After the
15 hospital paid the amount reflected on the inflated invoice, Syncor de Mexico would
16 pay to the doctor the difference between the actual price and the inflated price, less
17 Syncor de Mexico's tax liability on the sale.
18 26. According to the SEC complaint, all of the foregoing types of payments
19 were known to and approved by the general manager and others at Syncor de Mexico.
20 Many of the payments were hand-delivered to the doctors by Syncor de Mexico sale
21 representatives after the funds were wired to the sales representatives' bank accounts.
22 Some of the payments were improperly recorded as business expenses in the books
23 and records of Syncor de Mexico.
24 27. According to the SEC complaint, in addition to the above-described
25 payments, Syncor de Mexico had a general practice of providing "support" — locally
26 referred to as "apoyo" — to doctors with whom it did business, including many
27 employed at government-owned hospitals. These support payments, generally
28 between 1.5% and 3% of sales, mostly came in the form of sponsorships for the
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1 doctors' attendance at educational seminars, including payments for registration fees,
2 travel, lodging, and meals. They also included gifts of computer equipment, software,
3 office furniture, and medical supplies to doctors and their hospitals; sponsorships of
4 social functions and fundraisers at the hospitals; funds provided to cover the cost of
5 temporary employees at the hospitals; and payments made for outside testing when
6 a particular hospital's laboratory equipment was not functioning properly.
7 28. According to the SEC complaint, during the years 2000 through 2002,
8 Syncor de Mexico made a total of at least $200,000 in support payments, which were
9 arbitrarily distributed among several of Syncor de Mexico's business expense
10 accounts in a manner designed to minimize their detection and disallowance by
11 Mexican tax authorities. This improper characterization of the payments caused
12 inaccuracies in the books and records of Syncor de Mexico.
13 Defendants' Admissions
14 29. On November 19, 2002, Syncor issued a press release entitled "Syncor
15 Files Form 10-Q and Reports Strong Third-Quarter Financial Results for Its U.S.
16 Pharmacy Services Business; Company Reports on Status of Special Committee
17 Investigation," which stated:
18 "The special committee has found that questionable payments have been
19 made over a substantial period of time to customers in Taiwan, including
20 state-owned and private healthcare facilities and certain of their
21 employees. Based on information gathered to date, some or all of the
22 payments appear to have violated U.S. law, including various provisions
23 of the Foreign Corrupt Practices Act of 1977 (the "FCPA"). In addition,
24 some or all of the payments appear to have violated local Taiwan law.
25 Over the past five years, these payments to state-owned facilities and
26 certain of their employees appear to have totaled an estimated $500,000.
27
28
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1 The special committee has also found questionable payments and other
2 transactions at Syncor operations in at least six other countries in Asia,
3 Latin America and Europe that also may have violated U.S. law,
4 including the payment, record-keeping and controls provisions of the
5 FCPA. In addition, some or all of these payments appear to have
6 violated local laws in the relevant jurisdiction.
7
8 During the course of its investigation of Syncor's foreign operations, the
9 special committee identified a number of additional instances where
10 activities of Syncor or of its subsidiaries or representatives may have
11 constituted violations of local laws and regulations relating to, among
12 other things, tax, competition and regulatory matters."
13 Motive
14 30. In addition to having actual knowledge of the falsity of their false
15 statements, each of the defendants had the motive and the opportunity to perpetrate
16 the fraudulent scheme and course of business described herein. In 1997, Syncor
17 introduced a new incentive-based compensation plan for its senior management.
18 Under the incentive plan, members of senior management are eligible to receive
19 bonus compensation equivalent to 1 to 2 times annual salary if certain share price
20 targets are achieved and approximately two-thirds times annual base salary if certain
21 earnings per share ("BPS") targets are achieved. The stock price bonus compensation
22 is triggered if the stock trades at or above the target level for 10 days in 20
23 consecutive days during the relevant period and is payable in an equal mix of cash,
24 options, and restricted stock vesting over three years. The EPS bonus compensation
25 would be payable, in cash, if the Company achieved the EPS targets.
26
27
28
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1 Stock and EPS Targets for Management Bonus
2 Year EPS Target
3 1998 $0.95 $20
4 1999 $1.45 $25
5 2000 $1.80 $34
6 2001 $2.35 $43
2002 $3.00 $537
2003 $3.75 $65 8
9 31. Under a second plan, senior managers were offered a stock purchase loan
10 equivalent to seven times their base compensation. As of the end of 1998, 25
11 individuals, representing virtually all of senior management, had participated in this
12 program, taking out aggregate loans of $19.0 million. Shares have been purchased
13 under this program in two tranches, with the average cost basis of shares in a 1998
14 tranche being $17 and in a 1999 tranche being $27. Participants in the program are
15 required to make annual cash interest payments on outstanding loan amounts and are
16 protected from severe price declines, as they are permitted to sell the shares back to
17 the Company at 95% of their purchase price. Interest between 5.5% and 6% is
18 payable to Syncor in connection with the loans.
19 False and Misleading Statements
20 32. On March 9, 1998, Syncor issued a press release entitled "Syncor
21 Reports 45 Percent Increase in Income from Continuing Operations for Year Ended
22 Dec. 31, 1997," which stated:
23 Syncor International Corp.(NASDAQ: SCOR) Monday announced
24 earnings for the fourth quarter and year ended Dec. 31, 1997.
25
26 Income from continuing operations for the quarter ended Dec. 31, 1997
27 increased by 64 percent and for the year ended Dec. 31, 1997 by 45
28 percent, when compared to the same period of the prior year.
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1 Net income for the three months ended Dec. 31, 1997, increased to $1.7
2 million or 16 cents per diluted share, compared to $0.2 million or 1 cent
3 per diluted share for the corresponding period of the prior year (includes
4 net loss of 8 cents per diluted share from discontinued operations, net of
5 tax). Net sales for the fourth quarter of 1997 increased by 4.3 percent
6 to $94.8 million, up from $909 million.
7
8 Net income for the year ended Dec. 31, 1997, increased to $111 million
9 or $1.08 per diluted share (includes 16 cents nonrecurring gain, net of
10 tax, and net gain of 10 cents per diluted share from discontinued
11 operations, net of tax), compared to $4.6 million or 44 cents per diluted
12 share for the corresponding period of the prior year (includes net loss of
13 21 cents from discontinued operations, net of tax).
14
15 Net sales for the year ended Dec. 31, 1997 increased by 3.9 percent to
16 $380.6 million, up from $366.4 million for the corresponding period of
17 the prior year.
18
19 "Our financial results for 1997 reflect the successful implementation of
20 four key strategies which were targeted at driving increased sales and
21 earnings," said Robert Funari, Syncor's President and Chief Executive
22 Officer.
23
24 "These strategies were to expand relationships with all manufacturers of
25 radiopharmaceuticals, to implement a strong cardiology marketing
26 program, to accelerate the pace of international market expansion and
27 to expand Syncor's scope of business operations."
28
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— _
1 33. These financial results and the statements that "Our financial results for
2 1997 reflect the successful implementation of four key strategies which were targeted
3 at driving increased sales and earnings" and "These strategies were to accelerate the
4 pace of international market expansion and to expand Syncor's scope of business
5 operations" were false or misleading because as set forth in detail in 1111-29,
6 defendants knew that (a) Syncor Taiwan paid referral fees to physicians in violation
7 of the Foreign Corrupt Practices Act and charged the expense to marketing; (b) in
8 order to obtain and retain business with hospitals for the provision of unit dosage
9 radiopharmaceuticals, Syncor Taiwan, entered into "side agreements" to pay
10 physicians illegal commissions on the defendant's sales of radiopharmaceuticals; (c)
11 beginning in 1998, Syncor Taiwan also paid improper fees to doctors at hospitals
12 owned by Taiwan authorities for referrals of patients to medical imaging centers
13 owned and operated by Syncor Taiwan; (d) Syncor de Mexico entered into "over-
14 invoicing" arrangements with doctors; (e) Syncor de Mexico had a general practice
15 of providing "support" — locally referred to as "apoyo" — to doctors; and (f) once
16 Syncor's illegal practices were revealed it would be forced to cease them, adversely
17 affecting sales and earnings and exposing the company to criminal and regulatory
18 investigations.
19 34. In Syncor's 1997 Annual Report distributed on or about March 31, 1998
20 defendants represented:
21 LAYING THE FOUNDATION FOR FUTURE GROWTH
22 The preceding pages focused on the steps Syncor is taking in
23 order to become a $600 million company by 2001. This section
24 highlights what Syncor is doing to ensure that this initial wave of rapid
25 growth will be followed by another wave of equal — if not greater —
26 scope and significance.
27 Because more than half of the world's nuclear medicine market
28 lies outside the U.S., and is, for the most part, currently underserved,
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1 Syncor's greatest growth after 2001 is expected to come from
2 international operations. The percentage of Syncor's business that will
3 be international in the first decade of the 21st century will depend
4 largely on the Company's success in converting overseas customers from
5 buying radiopharmaceuticals in multi-dose form to adopting our more
6 accurate, convenient, cost-effective — and higher margin — unit-dose
7 approach.
8 Syncor is currently building foundations for the establishment of
9 businesses in relatively underdeveloped international healthcare services
10 markets. Led by Syncor founder and chairman Monty Fu, this effort is
11 analogous to what the Company did in the U.S. in the 1970s when it
12 introduced the advantages of purchasing prepared radiopharmaceuticals
13 from a centralized external supplier to domestic hospitals, clinics and
14 national healthcare systems.
15 At December 31, 1997, Syncor's international radiopharmacy
16 network was comprised of 13 pharmacy service centers, four of which
17 were established during the year. Syncor's pharmacy service centers are
18 located in Puerto Rico, South Africa, Mexico and six Pacific Rim
19 countries, with the highest concentration in Asia. We believe that the
20 radiopharmacy model Syncor introduced in these countries has
21 applicability to other parts of the world. Through strategic partnering
22 arrangements, we plan to expand into Europe and further into Asia and
23 Latin America during 1998. By the end of the year, Syncor intends to
24 have a total of 20 international pharmacy service centers on six
25 continents.
26 The pace of the Company's overseas development is dictated by
27 the relative maturity of the targeted markets and the strength of our
28 business connections in those regions. In Taiwan, which has one of
- 17 -
1 Asia's most advanced health-care communities, Syncor is now profitably
2 operating three radiopharmacies and has begun to expand into other
3 types of medical services. For example, we are currently managing an
4 in-house nuclear medicine department on behalf of a major hospital.
5 Starting in 1999, Syncor will also be operating a cyclotron facility
6 owned by another large Taiwanese hospital. This facility will be used
7 to produce isotopes employed in positron emission tomography (PET),
8 a highly accurate diagnostic imaging technology.
9 In addition to this expansion of Syncor's management service
10 capabilities, we are also exploring avenues for promoting the Company's
11 new medical imaging services business outside of the U.S. Among the
12 more promising of these activities is selling nonnuclear medical imaging
13 devices as well as cyclotrons and nuclear medicine cameras in selected
14 overseas markets. The new roles that Syncor is playing abroad are not
15 only laying a foundation for future international business but also
16 providing valuable insight into ways in which we might best broaden the
17 range of services the Company offers to customers at home.
18 35. The statements that Syncor is taking steps "to ensure that this initial
19 wave of rapid growth will be followed by another wave of equal — if not greater —
20 scope and significance," "Syncor's greatest growth after 2001 is expected to come
21 from international operations," "Syncor is currently building foundations for the
22 establishment of businesses in relatively underdeveloped international healthcare
23 services markets," "[t]hrough strategic partnering arrangements, we plan to expand
24 into Europe and further into Asia and Latin America during 1998. By the end of the
25 year, Syncor intends to have a total of 20 international pharmacy service centers on
26 six continents," and "Mil Taiwan, which has one of Asia's most advanced health-care
27 communities, Syncor is now profitably operating three radiopharmacies and has
28 begun to expand into other types of medical services" were false or misleading
-18-
1 because as set forth in detail in 19[11-29, defendants knew that the reasons that Syncor
2 was growing was that (a) Syncor Taiwan paid referral fees to physicians in violation
3 of the Foreign Corrupt Practices Act and charged the expense to marketing; (b) in
4 order to obtain and retain business with hospitals for the provision of unit dosage
5 radiopharmaceuticals, Syncor Taiwan, entered into "side agreements" to pay
6 physicians illegal commissions on the defendant's sales of radiopharmaceuticals; (c)
7 beginning in 1998, Syncor Taiwan also paid improper fees to doctors at hospitals
8 owned by Taiwan authorities for referrals of patients to medical imaging centers
9 owned and operated by Syncor Taiwan; (d) Syncor de Mexico entered into "over-
10 invoicing" arrangements with doctors; (e) Syncor de Mexico had a general practice
11 of providing "support" — locally referred to as "apoyo" — to doctors; and (f) once
12 Syncor's illegal practices were revealed it would be forced to cease them, adversely
13 affecting sales and earnings and exposing the company to criminal and regulatory
14 investigations.
15 36. On July 24, 1998, Syncor issued a press release entitled "Syncor Reports
16 64 Percent Increase in Operating Income for Second Quarter and 75 Percent for Six
17 Months Ended June 30, 1998," which stated:
18 Syncor International Corp. (Nasdaq:SCOR) Friday announced record
19 sales of $113.2 million for the quarter ended June 30, 1998.
20
21 Excluding non-recurring items, net income for the second quarter ended
22 June 30, 1998, increased by 38 percent to $.38 per diluted share
23 compared with $.31 per diluted share for the same period of the prior
24 year.
25
26 Net sales for the three months ended June 30, 1998, increased by 15.3
27 percent to $113.2 million, up from $98 2 million for the same period of
28 the prior year.
- 19 -
1 Net income for the second quarter ended June 30, 1998, increased to
2 $4.4 million, or $.40 per diluted share (includes $.02 non-recurring),
3 compared with $4.3 million, or $.44 per diluted share (includes $.02 per
4 diluted share non-recurring and $.11 per diluted share from discontinued
5 operations), for the corresponding period of the prior year.
6
7 Net sales for the six months ended June 30, 1998, increased by 12.9
8 percent to $216.0 million, up from $191.3 million for the same period
9 of the prior year.
10
11 Net income for the six months ended June 30, 1998, increased to $7.8
12 million, or $.71 per diluted share (includes $.03 nonrecurring),
13 compared with $7 6 million, or $.76 per diluted share (includes $.17 per
14 diluted share non-recurring and $.11 per diluted share from discontinued
15 operations), for the corresponding period of the prior year.
16 37. These financial results were false because as set forth in detail in ¶91 11 -
17 29, defendants knew that (a) Syncor Taiwan paid referral fees to physicians in
18 violation of the Foreign Corrupt Practices Act and charged the expense to marketing;
19 (b) in order to obtain and retain business with hospitals for the provision of unit
20 dosage radiopharmaceuticals, Syncor Taiwan, entered into "side agreements" to pay
21 physicians illegal commissions on the defendant's sales of radiopharmaceuticals; (c)
22 beginning in 1998, Syncor Taiwan also paid improper fees to doctors at hospitals
23 owned by Taiwan authorities for referrals of patients to medical imaging centers
24 owned and operated by Syncor Taiwan; (d) Syncor de Mexico entered into "over-
25 invoicing" arrangements with doctors; (e) Syncor de Mexico had a general practice
26 of providing "support" — locally referred to as "apoyo" — to doctors; and (f) once
27 Syncor's illegal practices were revealed it would be forced to cease them, adversely
28
-20-
_
1 affecting sales and earnings and exposing the company to criminal and regulatory
2 investigations.
3 38. On October 23, 1998, Syncor issued a press release entitled "Syncor
4 Reports 119 Percent Increase in Operating Income for Third Quarter and 86 Percent
5 for Nine Months Ended Sept.30, 1998; EPS of 24 Cents Compared With 17 Cents for
6 Third Quarter," which stated:
7 Syncor International Corp. (Nasdaq:SCOR) Friday announced continued
8 strong financial results for the quarter and nine months ended Sept. 30,
9 1998.
10
11 Net income for the third quarter ended Sept. 30, 1998, increased by 55
12 percent to $2 7 million, compared with $1 8 million for the same period
13 of the prior year.
14
15 Net sales for the three months ended Sept 30, 1998, increased by 20.8
16 percent to $114.1 million, up from $94.5 million for the same period of
17 the prior year. Net income for the third quarter ended Sept. 30, 1998,
18 increased to $2.7 million, or 24 cents per diluted share, compared with
19 $1 8 million, or 17 cents per diluted share, for the corresponding period
20 of the prior year.
21
22 Net sales for the nine months ended Sept. 30, 1998, increased by 15.5
23 percent to $330.1 million, up from $285.8 million for the same period
24 of the prior year. Net income for the nine months ended Sept. 30, 1998,
25 increased to $10.5 million, or 94 cents per diluted share (includes 3
26 cents non-recurring), compared with $9.4 million, or 92 cents per diluted
27 share (includes 16 cents per diluted share non-recurring and 11 cents per
28
-21-
1 diluted share from discontinued operations), for the corresponding
2 period of the prior year.
3
4 "Syncor financial performance for the first nine months of 1998 reflects
5 our commitment to increase stockholders' value and our continued
6 commitment to meet our financial objectives," said Robert Funari,
7 Syncor's president and chief executive officer. "Syncor anticipates the
8 improvement in its gross margin percentage and operating income as a
9 percent of sales to continue through the balance of 1998."
10 39. These financial results and the statements that "Syncor financial
11 performance for the first nine months of 1998 reflects our commitment to increase
12 stockholders' value and our continued commitment to meet our financial objectives,"
13 and "Syncor anticipates the improvement in its gross margin percentage and operating
14 income as a percent of sales to continue through the balance of 1998" were false or
15 misleading because as set forth in detail in ¶111-29, defendants knew that (a) Syncor
16 Taiwan paid referral fees to physicians in violation of the Foreign Corrupt Practices
17 Act and charged the expense to marketing; (b) in order to obtain and retain business
18 with hospitals for the provision of unit dosage radiopharmaceuticals, Syncor Taiwan,
19 entered into "side agreements" to pay physicians illegal commissions on the
20 defendant's sales of radiopharmaceuticals; (c) beginning in 1998, Syncor Taiwan also
21 paid improper fees to doctors at hospitals owned by Taiwan authorities for referrals
22 of patients to medical imaging centers owned and operated by Syncor Taiwan; (d)
23 Syncor de Mexico entered into "over-invoicing" arrangements with doctors; (e)
24 Syncor de Mexico had a general practice of providing "support" —locally referred to
25 as "apoyo" — to doctors; and (f) once Syncor's illegal practices were revealed it would
26 be forced to cease them, adversely affecting sales and earnings and exposing the
27 company to criminal and regulatory investigations.
28
-22-
1 40. On March 2, 1999, Syncor issued a press release entitled ''Syncor
2 Reports 101.4 Percent Increase in Operating Income for Fourth Quarter and 88.7
3 Percent for Year Ended Dec. 31, 1998," which stated:
4 EPS of $.29 Compared With $.16 for Fourth Quarter and EPS of $1.23
5 for Year Ended Dec. 31, 1998, vs. $1.08 for Prior Year
6
7 Syncor International Corp. (Nasdaq:SCOR) Tuesday announced
8 continued strong financial performance for the quarter and 12 months
9 ended Dec. 31, 1998.
10
11 Net income for the fourth quarter ended Dec. 31, 1998, increased by
12 103.7 percent to $3.5 million compared with $1.7 million for the same
13 period of the prior year.
14
15 Net sales for the three months ended Dec. 31, 1998, increased by 25.5
16 percent to $119 0 million, up from $94 8 million for the same period of
17 the prior year. Net income for the fourth quarter ended Dec. 31, 1998,
18 increased to $3.5 million or $.29 per diluted share (includes $.05 per
19 diluted share non-recurring) compared with $1.7 million or $.16 per
20 diluted share for the corresponding period of the prior year.
21
22 Net sales for the year ended Dec. 31, 1998, increased by 18 percent to
23 $449.0 million, up from $380.6 million for the same period of the prior
24 year. Net income for the year ended Dec. 31, 1998, increased to $13.9
25 million or $1.23 per diluted share (includes $.08 per diluted share non-
26 recurring) compared with $11.1 million or $1.08 per diluted share
27 (includes $.16 per diluted share non-recurring and $.10 per diluted share
28
-23 -
1 from discontinued operations) for the corresponding period of the prior
2 year.
3
4 "Syncor experienced an extraordinary 1998 with its financial results
5 reaching record levels," said Robert Funari, Syncor's president and chief
6 executive officer. "Additionally, the appreciation in Syncor stock price
7 by more than 68 percent during 1998 reflects the confidence the
8 investment community has in Syncor's ability to deliver strong financial
9 results that are consistent with building stockholder value."
10 41. These financial results and the statement that "Syncor experienced an
11 extraordinary 1998 with its financial results reaching record levels" were false or
12 misleading because as set forth in detail in 1111-29, defendants knew that (a) Syncor
13 Taiwan paid referral fees to physicians in violation of the Foreign Corrupt Practices
14 Act and charged the expense to marketing; (b) in order to obtain and retain business
15 with hospitals for the provision of unit dosage radiopharmaceuticals, Syncor Taiwan,
16 entered into "side agreements" to pay physicians illegal commissions on the
17 defendant's sales of radiopharmaceuticals; (c) beginning in 1998, Syncor Taiwan also
18 paid improper fees to doctors at hospitals owned by Taiwan authorities for referrals
19 of patients to medical imaging centers owned and operated by Syncor Taiwan; (d)
20 Syncor de Mexico entered into "over-invoicing" arrangements with doctors; (e)
21 Syncor de Mexico had a general practice of providing "support" — locally referred to
22 as "apoyo" — to doctors; and (f) once Syncor's illegal practices were revealed it would
23 be forced to cease them, adversely affecting sales and earnings and exposing the
24 company to criminal and regulatory investigations.
25 42. In Syncor's 1998 Annual Report signed on or about March 31, 1999 by
26 Monty Fu and Funari, defendants represented:
27 Syncor's international subsidiary, Syncor Overseas Ltd., increased its
28 revenues in 1998 by 52 percent and is aiming at annual sales of $75
- 24 -
_
1 million in 2001. A new business strategy, introduced early in 1998, is
2 driving this accelerated growth. The new strategy differs from the
3 previous business approach in two respects.
4
5 Traditionally, Syncor Overseas expanded geographically by
6 entering new markets to establish radiopharmacies. Because
7 "greenfielding" in this manner incurs start-up losses for a relatively long
8 period, the Company is now beginning to penetrate new markets through
9 related businesses that generate profits more quickly, such as medical
10 imaging, distribution of nuclear medical equipment and supplies, and
11 management of nuclear medicine departments....
12
13 The second difference in strategy involves acquisitions. For the first
14 time in its 13-year history, Syncor Overseas will be entering and
15 expanding its presence in several promising markets by acquiring
16 existing medical imaging businesses. The Company expects
17 international acquisitions to account for a substantial portion of Syncor
18 Overseas' revenues in 1999.
19 * * *
20 The Company established its first overseas nuclear pharmacy in 1987 in
21 Taiwan. Syncor now operates three radiopharmacies in that country and
22 is Taiwan's leading radiopharmacy services provider. In this advanced
23 Asian healthcare market, Syncor also manages the in-house nuclear
24 medicine departments of three major hospitals.
25 * * *
26 Syncor intends to achieve leadership in world markets with the same
27 strengths that have made the Company the undisputed leader in the U.S.
28 What Syncor brings to the international marketplace — in addition to
-25 -
1 demonstrated operational excellence and a proven commitment to
2 customer service — is knowledge of medical imaging and radiopharmacy
3 operations as businesses. Because the need to control healthcare costs
4 is universal, Syncor's formula for creating value for customers, partners,
5 and payers has enormous potential for successful application worldwide.
6 43. The statements that "Syncor's international subsidiary, Syncor Overseas
7 Ltd., increased its revenues in 1998 by 52 percent and is aiming at annual sales of $75
8 million in 2001. A new business strategy, introduced early in 1998, is driving this
9 accelerated growth," "the Company is now beginning to penetrate new markets
10 through related businesses that generate profits more quickly, such as medical
11 imaging, distribution of nuclear medical equipment and supplies, and management
12 of nuclear medicine departments," "Syncor intends to achieve leadership in world
13 markets with the same strengths that have made the Company the undisputed leader
14 in the U.S.," and "[Necause the need to control healthcare costs is universal, Syncor's
15 formula for creating value for customers, partners, and payers has enormous potential
16 for successful application worldwide" were false or misleading because as set forth
17 in detail in 19111-29, defendants knew that (a) Syncor Taiwan paid referral fees to
18 physicians in violation of the Foreign Corrupt Practices Act and charged the expense
19 to marketing; (b) in order to obtain and retain business with hospitals for the
20 provision of unit dosage radiopharmaceuticals, Syncor Taiwan, entered into "side
21 agreements" to pay physicians illegal commissions on the defendant's sales of
22 radiopharmaceutica1s, (c) beginning in 1998, Syncor Taiwan also paid improper fees
23 to doctors at hospitals owned by Taiwan authorities for referrals of patients to
24 medical imaging centers owned and operated by Syncor Taiwan; (d) Syncor de
25 Mexico entered into "over-invoicing" arrangements with doctors; (e) Syncor de
26 Mexico had a general practice of providing "support" — locally referred to as "apoyo"
27 — to doctors; and (f) once Syncor's illegal practices were revealed it would be forced
28
- 26 -
1 to cease them, adversely affecting sales and earnings and exposing the company to
2 criminal and regulatory investigations.
3 44. On April 22, 1999, Syncor issued a press release entitled "Syncor
4 Reports 49.8% Increase in Net Income for First Quarter; EPS of $.41 Per Diluted
5 Share Compared to $.31 Per Diluted Share," which stated:
6 Syncor International Corporation (Nasdaq:SCOR) today announced
7 record earnings for the quarter ended March 31, 1999.
8
9 Net income for the quarter ended March 31, 1999 increased by 49.8
10 percent to $5.0 million when compared to the same period of the prior
11 year.
12
13 Net sales for the three months ended March 31, 1999, increased by 20.6
14 percent to $123.9 million, up from $102.7 million for the same period
15 of the prior year. Net income for the first quarter ended March 31, 1999
16 increased to $5.0 million or $.41 per diluted share compared to $3.4
17 million or $.31 per diluted share (includes $.01 per diluted share non-
18 recurring) for the corresponding period of the prior year.
19
20 "Syncor continues to demonstrate strong financial performance in
21 executing the strategy that we established at the beginning of 1997,"
22 said Robert Funari, Syncor's President and Chief Executive Officer.
23 "Both the Pharmacy Services and Medical Imaging business segments
24 are on track to meet their 1999 financial targets. I am extremely pleased
25 with the performance of both businesses."
26 45. These financial results and the statements that "Syncor continues to
27 demonstrate strong financial performance in executing the strategy that we
28 established at the beginning of 1997," and" [b]oth the Pharmacy Services and Medical
-27 -
1 Imaging business segments are on track to meet their 1999 financial targets" were
2 false or misleading because as set forth in detail in fill-29, defendants knew that (a)
3 Syncor Taiwan paid referral fees to physicians in violation of the Foreign Corrupt
4 Practices Act and charged the expense to marketing; (b) in order to obtain and retain
5 business with hospitals for the provision of unit dosage radiopharrnaceuticals, Syncor
6 Taiwan, entered into "side agreements" to pay physicians illegal commissions on the
7 defendant's sales of radiopharmaceuticals; (c) beginning in 1998, Syncor Taiwan also
8 paid improper fees to doctors at hospitals owned by Taiwan authorities for referrals
9 of patients to medical imaging centers owned and operated by Syncor Taiwan;
10 (d) Syncor de Mexico entered into "over-invoicing" arrangements with doctors;
11 (e) Syncor de Mexico had a general practice of providing "support" — locally referred
12 to as "apoyo" — to doctors; and (f) once Syncor's illegal practices were revealed it
13 would be forced to cease them, adversely affecting sales and earnings and exposing
14 the company to criminal and regulatory investigations.
15 46. On May 3, 1999, Syncor issued a press release entitled "Syncor Re-
16 enters Market to Purchase Its Common Stock," which stated:
17 Syncor International Corp. (Nasdaq:SCOR) Monday announced that it
18 might enter the market to repurchase shares of its common stock.
19
20 Neither the timing nor the amount of shares that may be repurchased has
21 yet been decided. The company has a total of 537,800 shares authorized
22 for purchase. The company has repurchased shares from time to time
23 over the past several years.
24 47. The repurchase of the stock by the Company while the individual
25 defendant's sold stock constitutes a manipulative and deceptive device in violation
26 of §10(b) and Rule 10b-5.
27
28
- 28 -
1 48. On July 21, 1999, Syncor issued a press release entitled "Syncor Reports
2 40 Percent Increase in Operating Income for Second Quarter and 54 Percent for Six
3 Months Ended June 30, 1999," which stated:
4 EPS of 50 Cents Compared With 38 Cents, Excluding Non-Recurring
5
6 Syncor International Corp. (NASDAQ:SCOR) Wednesday announced
7 strong financial performance for the quarter ended June 30, 1999.
8
9 Net income for the second quarter ended June 30, 1999, increased by
10 45.3 percent to $6.4 million, compared with $4.4 million for the same
11 period of the-prior year.
12
13 Net sales for the three months ended June 30, 1999, increased by 15.1
14 percent to $130.3 million, up from $113.2 million for the same period
15 of the prior year. Net income per diluted share for the second quarter
16 ended June 30, 1999, increased by 31.6 percent to 50 cents compared
17 with 38 cents (net of 2 cents per diluted share for non-recurring) for the
18 same period of the prior year.
19
20 Net sales for the six months ended June 30, 1999, increased by 17.7
21 I percent to $254 2 million, up from $216.0 million for the same period
22 of the prior year. Net income for the six months ended June 30, 1999,
23 increased to $11.4 million or 91 cents per diluted share, compared with
24 $7.8 million or 71 cents per diluted share (includes 3 cents per diluted
25 share nonrecurring) for the corresponding period of the prior year.
26
27 "Syncor's financial performance for the first six months of 1999 has
28 been exceptional," said Robert Funari, Syncor's president and chief
- 29 -
1 executive officer. "We anticipate double-digit sales growth and
2 continued margin improvement going forward as we pursue our strategy
3 of profitable growth in both pharmacy services and medical imaging."
4 49. These financial results and the statements that "Syncor's financial
5 performance for the first six months of 1999 has been exceptional," and "[wie
6 anticipate double-digit sales growth and continued margin improvement going
7 forward as we pursue our strategy of profitable growth in both pharmacy services and
8 medical imaging," were false or misleading because as set forth in detail in919[11-29,
9 defendants knew that (a) Syncor Taiwan paid referral fees to physicians in violation
10 of the Foreign Corrupt Practices Act and charged the expense to marketing; (b) in
11 order to obtain and retain business with hospitals for the provision of unit dosage
12 radiopharmaceuticals, Syncor Taiwan, entered into "side agreements" to pay
13 physicians illegal commissions on the defendant's sales of radiopharmaceuticals; (c)
14 beginning in 1998, Syncor Taiwan also paid improper fees to doctors at hospitals
15 owned by Taiwan authorities for referrals of patients to medical imaging centers
16 owned and operated by Syncor Taiwan; (d) Syncor de Mexico entered into "over-
17 invoicing" arrangements with doctors; (e) Syncor de Mexico had a general practice
18 of providing "support" — locally referred to as "apoyo" — to doctors; and (f) once
19 Syncor's illegal practices were revealed it would be forced to cease them, adversely
20 affecting sales and earnings and exposing the company to criminal and regulatory
21 investigations.
22 50. Based on defendant's representations, the market believed that Syncor's
23 strong financial results were a product of a successful execution of the Company's
24 growth strategy, and that expansion of Syncor's international operations would fuel
25 future growth. For example, on August 11, 1999, Warburg Dillon Read issued a
26 report stating the following:
27 Growth Strategy.
28
- 30 -
1 Syncor's core radiopharmaceuticals business continues to perform well
2 and has exhibited strong revenue and earnings growth. Management
3 intends to exploit other avenues to complement its strong presence in the
4 radiopharmaceutical segment. The company has already established
5 international operations, which it intends to grow further over the next
6 several years; it also intends to expand its medical imaging business.
7
8 International Expansion.
9 Syncor has expanded its radiopharmaceutical operations into
10 international markets. In 1998, the company generated $10 million in
11 revenues through its ownership of 25 centers in 14 countries. The
12 company provides six services in these markets including
13 radiopharmacy, nuclear medicine department management, operation of
14 PET cyclotron, management of hospital based-MRI facility, radiation
15 therapy facility management, and production and acquisition of ancillary
16 products. The company intends to double its revenues from
17 international operations during each of the next three years as it further
18 penetrates these markets through new offerings and service expansion.
19 51. On October 19, 1999, Syncor issued a press release entitled "Syncor's
20 Operating Income Jumps 48.4 Percent and 52.5 Percent for Three and Nine Months
21 Ended Sept. 30, 1999," which stated:
22 Syncor International Corp. (Nasdaq:SCOR) Tuesday announced
23 continued strong operating performance for 1999.
24
25 Syncor reported that its operating income for the third quarter ended
26 Sept. 30, 1999, increased by 48.4 percent to $8.3 million, compared with
27 $5.6 million for the same period of the prior year.
28
-31-
1 Net sales for the three months ended Sept. 30, 1999, increased by 15.3
2 percent to $131.5 million, up from $114,1 million for thc bume period
3 of the prior year. Excluding a non-operating investment write-down
4 charge of $1 1 million, net of tax, or $.08 per diluted share, the earnings
5 per share for the three months ended Sept. 30, 1999, from operations
6 would have been $.33 per diluted share, an increase of 37.5 percent,
7 compared with $.24 per diluted share for the same period of the prior
8 year on a pro forma basis.
9
10 Actual reported net income of $3.2 million, or $.25 per diluted share, for
11 the third quarter ended Sept. 30, 1999, increased by 4.2 percent (net of
12 a non-operating investment writedown of $.08 per diluted share),
13 compared with $2.7 million, or $.24, for the same period of the prior
14 year.
15
16 Net sales for the nine months ended Sept. 30, 1999, increased by 16.8
17 percent to $385.7 million, up from $330.1 million for the same period
18 of the prior year. Excluding a non-operating investment write-down
19 charge of $1.1 million, net of tax, or $.08 per diluted share, the earnings
20 per share for the nine months ended Sept. 30, 1999, from operations
21 would have been $1.23 per diluted share, an increase of 30.9 percent,
22 compared with $.94 per diluted share for the same period of the prior
23 year on a pro forma basis.
24
25 Actual reported net income for the nine months ended Sept. 30, 1999
26 increased 39.4 percent to $14.6 million, or $1.15 per diluted share
27 (inclusive of a non-operating investment writedown of $1.1 million, net
28 of tax, or $.08 per diluted share), compared with $10.5 million, or $.94
- 32 -
1 per diluted share (includes $.03 per diluted share non-recurring income),
2 for the corresponding period of the prior year.
3
4 "Syncor's positive momentum in both pharmacy services and medical
5 imaging contributed to this quarter's strong financial performance," said
6 Robert Funari, Syncor's president and chief executive officer. "Syncor
7 is on track to meet its 1999 financial objectives and continues to
8 improve stockholder value through its consistent financial
9 performance."
10 * * *
11 Radiopharmacy Business Segment (Domestic and International)
12 * * *
13 "The overall market demand for radiopharmaceuticals continues to
14 remain strong," said Brad Nutter, executive vice president and chief
15 operating officer. "Syncor has been extremely successful during 1999
16 in driving double-digit sales growth and leveraging expenses to ensure
17 its radiopharmaceutical business achieves consistent margin and profit
18 contribution growth."
19 52. These financial results and the statements that "Syncor is on track to
20 meet its 1999 financial objectives and continues to improve stockholder value
21 through its consistent financial performance," and "Syncor has been extremely
22 successful during 1999 in driving double-digit sales growth and leveraging expenses
23 to ensure its radiopharmaceutical business achieves consistent margin and profit
24 contribution growth" were false or misleading because as set forth in detail in 1-
25 29, defendants knew that (a) Syncor Taiwan paid referral fees to physicians in
26 violation of the Foreign Corrupt Practices Act and charged the expense to marketing;
27 (b) in order to obtain and retain business with hospitals for the provision of unit
28 dosage radiopharmaceuticals, Syncor Taiwan, entered into "side agreements" to pay
- 33 -
1 physicians illegal commissions on the defendant's sales of radiopharmaceuticals; (c)
2 beginning in 1998, Syncor Taiwan also paid improper fees to doctors at hospitals
3 owned by Taiwan authorities for referrals of patients to medical imaging centers
4 owned and operated by Syncor Taiwan; (d) Syncor de Mexico entered into "over-
5 invoicing" arrangements with doctors; (e) Syncor de Mexico had a general practice
6 of providing "support" — locally referred to as "apoyo" — to doctors; and (f) once
7 Syncor's illegal practices were revealed it would be forced to cease them, adversely
8 affecting sales and earnings and exposing the company to criminal and regulatory
9 investigations.
10 53. On January 13, 2000, Syncor issued a press release entitled "Syncor
11 Reaffirms Comfort With Market Expectations," which stated:
12 Syncor today reaffirmed its comfort with current analysts' earnings
13 estimates for the fourth quarter of 1999 of between $0.31 and $0.32 per
14 share.
15
16 In addition, Syncor also reaffirmed its comfort with analysts' earnings
17 estimates for calendar 2000 of between $1.82 and $1.87 per share.
18
19 Bob Funari, president and chief executive officer, stated: "We continue
20 to see strong growth and earnings performance from our core
21 radiopharmacy business. In addition, our investments in medical
22 imaging and expansion into the international marketplace will provide
23 a significant contribution to improved operating income in 1999.
24
25 "We are looking forward to another successful year in calendar 2000.
26 The combination of continued expansion in the core business, new
27 product offerings, and significantly increased profitability in both of our
28
- 34 -
1 medical imaging and international businesses provides us with a firm
2 .foundation for continued earnings growth."
3
4 Funari continued; "Over the past two years the company's strategy has
5 been to expand its scope of activity in high-technology health care
6 services in order to diversify and provide better balance against the
7 potential risks that exist in health care and medical technology. The
8 company began its diversification program several years ago with the
9 creation of the radiopharmacy services business in Taiwan.
10
11 "This development effort has expanded beyond its original geographic
12 and product scope to include an extensive product and service offering
13 in China, the Pacific Rim, Australia, New Zealand, Spain, Israel,
14 Mexico, Puerto Rico and South America. In 1997 the company further
15 expanded its scope of services to include medical imaging through a
16 combination of acquisitions and start-ups.
17
18 "Based on our demonstrated ability to deliver results, I believe that we
19 will continue to be successful in meeting or exceeding our earnings
20 commitments in the coming years."
21 54. The statements that "Syncor today reaffirmed its comfort with current
22 analysts' earnings estimates for the fourth quarter of 1999 of between $0.31 and $0.32
23 per share," "[i]n addition, Syncor also reaffirmed its comfort with analysts' earnings
24 estimates for calendar 2000 of between $1.82 and $1.87 per share," "our investments
25 in medical imaging and expansion into the international marketplace will provide a
26 significant contribution to improved operating income in 1999," "[w]e are looking
27 forward to another successful year in calendar 2000. The combination of continued
28 expansion in the core business, new product offerings, and significantly increased
- 35 -
profitability in both of our medical imaging and international businesses provides us
2 with a firm foundation for continued earnings growth," "[o]ver the past two years the
3 company's strategy has been to expand its scope of activity in high-technology health
4 care services in order to diversify and provide better balance against the potential
5 risks that exist in health care and medical technology. The company began its
6 diversification program several years ago with the creation of the radiopharmacy
7 services business in Taiwan," and "[biased on our demonstrated ability to deliver
8 results, I believe that we will continue to be successful in meeting or exceeding our
9 earnings commitments in the coming years" were false or misleading because as set
10 forth in detail in M[11-29, defendants knew that (a) Syncor Taiwan paid referral fees
11 to physicians in violation of the Foreign Corrupt Practices Act and charged the
12 expense to marketing; (b) in order to obtain and retain business with hospitals for the
13 provision of unit dosage radiopharmaceuticals, Syncor Taiwan, entered into "side
14 agreements" to pay physicians illegal commissions on the defendant's sales of
15 radiopharmaceuticals; (c) beginning in 1998, Syncor Taiwan also paid improper fees
16 to doctors at hospitals owned by Taiwan authorities for referrals of patients to
17 medical imaging centers owned and operated by Syncor Taiwan; (d) Syncor de
18 Mexico entered into "over-invoicing" arrangements with doctors; (e) Syncor de
19 Mexico had a general practice of providing "support" — locally referred to as "apoyo"
20 — to doctors; and (f) once Syncor's illegal practices were revealed it would be forced
21 to cease them, adversely affecting sales and earnings and exposing the company to
22 criminal and regulatory investigations.
23 55. On January 13, 2000, Syncor issued a press release entitled "Syncor
24 Re-Enters Market to Purchase Its Common Stock," which stated:
25 In connection with the stock repurchase program announced on May 3,
26 1999 and July 27, 1999, Syncor International Corp. has re-entered the
27 market to repurchase shares of its common stock.
28
-36-
1 Neither the timing nor the amount of shares that may be repurchased
2 have yet been decided. The Company currently has a total of
3 approximately 500,800 shares authorized for purchase. The Company
4 has repurchased shares from time-to-time over the past several years.
5 56. The repurchase of the stock by the Company while the individual
6 defendant's sold stock constitutes a manipulative and deceptive device in violation
7 of §10(b) and Rule 1 Ob-5.
8 57. Professional securities analysts believed defendant's representations that
9 Syncor's international operations would produce strong revenue and earnings growth.
10 For example, on January 18, 2000, Sidoti & Company issued a report stating:
11 We are comfortable with our BPS projection for 2000. Double-digit
12 revenue growth (13%-14%), coupled with wider margins, should
13 account for the solid advance. The company's core business
14 (radiopharmaceuticals) remains healthy and is growing at a faster rate
15 (12%) than the industry (6%-8%). Meanwhile, we expect Syncor to
16 expand the medical imaging segment via the acquisition of existing
17 facilities in both the U.S. and overseas. Syncor Overseas is the fastest
18 growing segment of the company's business. The medical imaging
19 business and the overseas operations probably contributed $70 million
20 to the top line in 1999 and this could grow to $95 million in 2000,
21 versus about $50 million in 1998. In addition, the gross margin in the
22 medical imaging business is more attractive than it is for the
23 radiopharmaceutical business, an the international markets are more
24 profitable than the U.S. market.
25
26 Growth opportunities are plentiful. Over 50% of the global nuclear
27 medicine market (approximately $900 million) is overseas. Currently,
28 less than 10% of Syncor's revenues come from this source.
- 37 -
1 58. On February 17, 2000, Syncor issued a press release entitled, "Syncor's
2 Net Income Jumps 33.6 Percent and 38 Percent for the Three Months and Year Ended
3 December 31, 1999," which stated:
4 Syncor International Corp. today announced its financial results for the
5 three months and fiscal year ended December 31, 1999.
6
7 Earnings for the three months ended December 31, 1999, exceeded the
8 high end of Wall Street analysts' forecasts by $.04 per diluted share.
9 * * *
10 "I am pleased to report Syncor exceeded its 1999 financial objectives,"
11 said Robert Funari, Syncor's president and chief executive officer.
12 "Throughout 1999, Syncor experienced double-digit sales growth in all
13 three of its business units. This strong growth in sales allowed Syncor
14 to deliver the outstanding financial results that are the key components
15 to enhancing stockholder value.
16
17 "More importantly, the investments that were made in 1999 will position
18 Syncor for continued profitable growth in the years ahead."
19 * * *
20 International Business Segment
21
22 Syncor's international subsidiary, Syncor Overseas Ltd., experienced
23 significant sales and earnings growth during 1999. Sales increased by
24 74.1 percent to $8.5 million and 72.2 percent to $28.9 million for the
25 fourth quarter and year ended December 31, 1999. This compares to
26 sales of $4.9 million and $16 8 million for the same periods in 1998.
27
28
- 38 -
1 Gross profit increased $1.7 million and $5.6 million for the fourth
2 quarter and year ended December 31, 1999, over the corresponding
3 periods in 199R. In addition, ross profit as a pereentaae of sales was
4 approximately 39 percent for both the quarter and year ended December
5 31, 1999, compared with 32.2 percent and 33.7 percent for the
6 corresponding periods in 1998.
7 59. These financial results and statements that " [t]hroughout 1999, Syncor
8 experienced double-digit sales growth in all three of its business units" and "the
9 investments that were made in 1999 will position Syncor for continued profitable
10 growth in the years ahead" were false or misleading because as set forth in detail in
11 (11111-29, defendants knew that (a) Syncor Taiwan paid referral fees to physicians in
12 violation of the Foreign Corrupt Practices Act and charged the expense to marketing;
13 (b) in order to obtain and retain business with hospitals for the provision of unit
14 dosage radiopharmaceuticals, Syncor Taiwan, entered into "side agreements" to pay
15 physicians illegal commissions on the defendant's sales of radiopharmaceuticals;
16 (c) beginning in 1998, Syncor Taiwan also paid improper fees to doctors at hospitals
17 owned by Taiwan authorities for referrals of patients to medical imaging centers
18 owned and operated by Syncor Taiwan; (d) Syncor de Mexico entered into "over-
19 invoicing" arrangements with doctors; (e) Syncor de Mexico had a general practice
20 of providing "support" — locally referred to as "apoyo" — to doctors; and (f) once
21 Syncor's illegal practices were revealed it would be forced to cease them, adversely
22 affecting sales and earnings and exposing the company to criminal and regulatory
23 investigations.
24 60. On February 17, 2000, defendant Funari interviewed by The Wall Street
25 Transcript, in which he stated:
26 TWST: What are the most significant trends, developments or changes
27 that you anticipate in your marketplace over the next several years?
28
- 39 -
•_
1 Mr. Funari: I think there are several, Richard. First, overseas markets
2 are going to be a source of growth for us over the course of the next
3 several years. We're well positioned in a number of developing markets
4 for healthcare services, and as those countries become more
5 sophisticated in the way that they deal with health care, the demand for
6 the types of services that we provide will grow dramatically....
7 * * .*
8 TWST: What are the greatest opportunities for Syncor over the next
9 several years? Is there a chain of events that could lead the company to
10 really beat expectations in the future?
11
12 Mr. Funari: ... The second area of opportunity is the growth in overseas
13 markets. Today overseas revenues represent less than 5% of our base.
14 As we look ahead, I could see that number growing substantially in
15 future years to become a much more significant part of our total revenue.
16 * * *
17 TWST: What are your specific goals for Syncor over the next several
18 years?
19
20 Mr. Funari: The specific goals would be to demonstrate the ability to
21 consistently generate profitable growth. And when we talk about
22 targets, we're looking for revenue growth somewhere in the 15-17%
23 range on a consistent basis with consistent improvement in margins over
24 the next three to four years. Our goal is that we become the undisputed
25 leader in every business and market that we compete in.
26 61. The statements that "overseas markets are going to be a source of growth
27 for us over the course of the next several years. We're well positioned in a number
28 of developing markets for healthcare services, and as those countries become more
-40-
1 sophisticated in the way that they deal with health care, the demand for the types of
2 services that we provide will grow dramatically," "[Ole second area of opportunity
3 is the growth in overseas markets. Today overseas revenues represent less than 5%
4 of our base. As we look ahead, I could see that number growing substantially in
5 future years to become a much more significant part of our total revenue," and "we're
6 looking for revenue growth somewhere in the 15-17% range on a consistent basis
7 with consistent improvement in margins over the next three to four years" were false
8 or misleading because as set forth in detail in ill 1-29, defendants knew that (a)
9 Syncor Taiwan paid referral fees to physicians in violation of the Foreign Corrupt
10 Practices Act and charged the expense to marketing; (b) in order to obtain and retain
11 business with hospitals for the provision of unit dosage radiopharmaceuticals, Syncor
12 Taiwan, entered into "side agreements" to pay physicians illegal commissions on the
13 defendant's sales of radiopharmaceuticals; (c) beginning in 1998, Syncor Taiwan also
14 paid improper fees to doctors at hospitals owned by Taiwan authorities for referrals
15 of patients to medical imaging centers owned and operated by Syncor Taiwan; (d)
16 Syncor de Mexico entered into "over-invoicing" arrangements with doctors; (e)
17 Syncor de Mexico had a general practice of providing "support" —locally referred to
18 as "apoyo" — to doctors; ; and (f) once Syncor's illegal practices were revealed it
19 would be forced to cease them, adversely affecting sales and earnings and exposing
20 the company to criminal and regulatory investigations.
21 62. Professional securities analysts believed defendant's representations that
22 Syncor's international operations would produce strong revenue and earnings growth.
23 For example, on February 18, 2000, Sidoti & Company, LLC, released a report
24 stating:
25 Finally, the international business segment (Syncor Overseas Ltd.)
26 contributed $8.5 million ($28.9 million for the year, versus $16.8
27 million in 1998) compared with $8.9 million in 4Q:98.
28 * * *
-41-
1 EPS growth will likely remain solid in 2000. Double-digit revenue
2 growth (12%), coupled with wider margins, should account for the
3 strong advance. The company's core business (radiopharmaceuticals)
4 remains solid and is growing at a faster rate (11%) than the industry
5 (6%-8%). In addition to volume growth, we expect higher prices (a 5%
6 hike) to also contribute to revenues in this segment. Meanwhile, we
7 expect Syncor to expand the medical imaging segment via the
8 acquisition of existing facilities in both the U.S. and internationally.
9 Syncor Overseas is the fastest growing segment of the company's
10 business. The medical imaging business and the overseas operations
11 will probably contribute over $100 million to the top line in 2000. In
12 addition, the gross margin in the medical imaging business is more
13 attractive than it is for the radiopharmaceutical business, and the
14 international markets are more profitable than the U.S. market. We are
15 raising our 2000 EPS estimate to $1.82 (from $1.79) to reflect continued
16 solid growth from all three business segments. Our estimates exclude
17 any effects of new applications of nuclear medicine in oncology (PET
18 and Brachytherapy).
19
20 Growth Opportunities are plentiful. Over 50% of the global nuclear
21 medicine market (approximately $900 million) is overseas. Currently,
22 less than 10% of Syncor's revenues come from this source.
23 63. On March 13, 2000, defendant Funari interviewed by The Wall Street
24 Transcript, in which he stated:
25 TWST: How do you see the domestic versus the international markets
26 changing or evolving? Is there any ideal mix there?
27
28
- 42 -
1 Mr. Funari: There is no question that as far as growth is concerned, the
2 overseas markets will contribute proportionally at a much faster rate
3 over the next five years than the US. Our overseas presence today is
4 relatively small. We have less than 5% of our current revenue base
5 coming from overseas markets, and the market potential overseas is
6 easily the equivalent of what we see here in the US. The opportunity for
7 expansion in growth in overseas markets is substantial, even on the basis
8 of the business currently being transacted in these countries. We are
9 positioned in primarily developing markets in countries like Taiwan,
10 China, Thailand, the Philippines. We believe that if those countries
11 continue to develop economically, their healthcare systems will become
12 more sophisticated, and the opportunities for applying our business
13 models will expand dramatically.
14 * * *
15 In the overseas market, the real important issue is one of making the
16 technology available and accessible almost on any kind of basis. As you
17 do that, you will do [sic] experience higher margins probably than what
18 we see in the US currently, and certainly more growth than what we see
19 in the US currently.
20 * * *
21 More importantly, the geographic scope of our company will continue
22 to expand and much more significant in overseas markets. Looking
23 ahead, this is a company that has a very bright and dynamic future with
24 a great deal of growth potential and the ability to bring back superior
25 returns for our shareholders.
26 64. The statements that "[t]here is no question that as far as growth is
27 concerned, the overseas markets will contribute proportionally at a much faster rate
28 over the next five years than the US," "the market potential overseas is easily the
-43 -
1 equivalent of what we see here in the US. The opportunity for expansion in growth
2 in overseas markets is substantial," "the opportunities for applying our business
3 models will expand dramatically," "you will do [Sic] experience higher margins
4 probably than what we see in the US currently, and certainly more growth than what
5 we see in the US currently," and "[m]ore importantly, the geographic scope of our
6 company will continue to expand and much more significant in overseas markets"
7 were false or misleading because as set forth in detail in ¶9111-29, defendants knew
8 that (a) Syncor Taiwan paid referral fees to physicians in violation of the Foreign
9 Corrupt Practices Act and charged the expense to marketing; (b) in order to obtain
10 and retain business with hospitals for the provision of unit dosage
11 radiopharmaceuticals, Syncor Taiwan, entered into "side agreements" to pay
12 physicians illegal commissions on the defendant's sales of radiopharmaceuticals; (c)
13 beginning in 1998, Syncor Taiwan also paid improper fees to doctors at hospitals
14 owned by Taiwan authorities for referrals of patients to medical imaging centers
15 owned and operated by Syncor Taiwan; (d) Syncor de Mexico entered into "over-
16 invoicing" arrangements with doctors; (e) Syncor de Mexico had a general practice
17 of providing "support" — locally referred to as "apoyo" — to doctors; and (f) once
18 Syncor's illegal practices were revealed it would be forced to cease them, adversely
19 affecting sales and earnings and exposing the company to criminal and regulatory
20 investigations.
21 65. On March 14, 2000, Syncor issued a press release entitled "Syncor's
22 CEO Robert Funari talks to The Wall Street Transcript," which stated:
23 Funari explains, "The company has experienced significant growth in
24 recent years as a result of broadening the scope of our business
25 activities. Looking ahead, we anticipate that these two businesses the
26 ability to support ongoing growth in the 15-17% per year range, with
27 earnings growth that will be significantly greater than that."
28
-44-
1 66. This statement was false because as set forth in detail in 11[11-29,
2 defendants knew that (a) Syncor Taiwan paid referral fees to physicians in violation
3 of the Foreign Corrupt Practices Act and charged the expense to marketing; (b) in
4 order to obtain and retain business with hospitals for the provision of unit dosage
5 radiopharmaceuticals, Syncor Taiwan, entered into "side agreements" to pay
6 physicians illegal commissions on the defendant's sales of radiopharmaceuticals, (c)
7 beginning in 1998, Syncor Taiwan also paid improper fees to doctors at hospitals
8 owned by Taiwan authorities for referrals of patients to medical imaging centers
9 owned and operated by Syncor Taiwan; (d) Syncor de Mexico entered into "over-
10 invoicing" arrangements with doctors; (e) Syncor de Mexico had a general practice
11 of providing "support" — locally referred to as "apoyo" — to doctors; and (f) once
12 Syncor's illegal practices were revealed it would be forced to cease them, adversely
13 affecting sales and earnings and exposing the company to criminal and regulatory
14 investigations.
15 67. In Syncor's 1999 Annual Report signed on or about March 31, 2000, by
16 Monty Fu and Funari, defendants represented:
17 Tremendous growth opportunities for both of the Company's current
18 businesses — radiopharmaceutical distribution services and medical
19 imaging — also exist overseas. Syncor's international subsidiary, Syncor
20 Overseas Ltd., continues to increase its radiopharmacy network. Syncor
21 is now the leading provider of radiopharmacy services in Taiwan and is
22 establishing radiopharmacy strongholds in China and other locations
23 throughout Asia as well as in Australia, Colombia, Israel, Mexico, New
24 Zealand, Puerto Rico and South Africa. Syncor also provides medical
25 imaging services in Puerto Rico, New Zealand, and Taiwan and is
26 manufacturing brachytherapy seeds in Shanghai, China.
27
28
- 45 -
1 By the end of 2001, Syncor plans to have operations in 20
2 countries and has committed to grow its overseas sales from $10 million
3 to $100 million by 2003.
4 * * *
5 Sales for 1999 were $28.9 million and grew at an annual rate of 72
6 percent or $12.1 million over the 1998 results. This growth is a
7 combination of acquisitions, start-ups, existing store growth and the
8 expansion in the offering of its products and services. Year over year
9 same store revenue growth amounted to approximately 40 percent.
10 Radiopharmacy services supporting cardiology and oncology continue
11 to represent a substantial portion of the revenues....
12 * * *
13 Syncor Overseas Ltd. showed a year over year growth in gross profits
14 from $5.7 million to $11.3 million, a gain of 99 percent. The margin
15 gains are due primarily to the strong sales growth from existing
16 pharmacies. In 1998, many of the international sites were in their
17 embryonic stages of development. The Company has always believed
18 that significant growth opportunities existed in the overseas markets. In
19 1999, the sales levels contributed to more efficient utilization of the
20 direct materials and labor leading to increased gross profit. The
21 Company expects the growth opportunities to continue.
22 68. These financial results and the statements that " [tiremendous growth
23 opportunities for both of the Company's current businesses — radiopharmaceutical
24 distribution services and medical imaging — also exist overseas. Syncor's
25 international subsidiary, Syncor Overseas Ltd., continues to increase its
26 radiopharmacy network. Syncor is now the leading provider of radiopharmacy
27 services in Taiwan," "[bly the end of 2001, Syncor plans to have operations in 20
28 countries and has committed to grow its overseas sales from $10 million to $100
-46-
1 million by 2003," "Whi g growth is a combination of acquisitions, start-ups, existing
2 store growth and the expansion in the offering of its products and services," "[t]he
3 margin gains are due primarily to the strong sales growth from existing pharmacies"
4 and "[lin 1999, the sales levels contributed to more efficient utilization of the direct
5 materials and labor leading to increased gross profit. The Company expects the
6 growth opportunities to continue" were false or misleading because as set forth in
7 detail in 11111-29, defendants knew that (a) Syncor Taiwan paid referral fees to
8 physicians in violation of the Foreign Corrupt Practices Act and charged the expense
9 to marketing; (b) in order to obtain and retain business with hospitals for the
10 provision of unit dosage radiopharmaceuticals, Syncor Taiwan, entered into "side
11 agreements" to pay physicians illegal commissions on the defendant's sales of
12 radiopharmaceuticals; (c) beginning in 1998, Syncor Taiwan also paid improper fees
13 to doctors at hospitals owned by Taiwan authorities for referrals of patients to
14 medical imaging centers owned and operated by Syncor Taiwan; (d) Syncor de
15 Mexico entered into "over-invoicing" arrangements with doctors; (e) Syncor de
16 Mexico had a general practice of providing "support" — locally referred to as "apoyo"
17 — to doctors; and (f) once Syncor's illegal practices were revealed it would be forced
18 to cease them, adversely affecting sales and earnings and exposing the company to
19 criminal and regulatory investigations.
20 69. On April 25, 2000, Syncor issued a press release entitled "Syncor
21 Reports 49 Percent Increase in Net Income for First Quarter; EPS of $.59 Per Diluted
22 Share Compared to $.41 Per Diluted Share," which stated:
23 International Operations
24
25 Syncor's international subsidiary, Syncor Overseas Ltd., experienced
26 significant sales and earnings growth in the first quarter. Sales increased
27 by 80.3 percent to $10 million for the three months ended March 31,
28 2000 compared to $5.6 million for the same period of the prior year.
-47 -
1 Operating income increased by $1.2 million to $1.0 million, or 9.9
2 percent of gala, compared to a loss of 2 million for the same period
3 of the prior year.
4
5 "Syncor Overseas is now realizing the benefits from choosing the right
6 markets and the right business opportunities," said Funari. The
7 Company expects this segment's sales and operating income to both
8 continue to show dramatic improvements during 2000. Same store sales
9 growth was estimated at 43 percent during the three months ended
10 March 31, 2000.
11 70. These financial results and the statements that "Syncor Overseas Ltd.,
12 experienced significant sales and earnings growth in the first quarter" and "Syncor
13 Overseas is now realizing the benefits from choosing the right markets and the right
14 business opportunities," "[t]he Company expects this segment's sales and operating
15 income to both continue to show dramatic improvements during 2000" were false or
16 misleading because as set forth in detail inn11-29, defendants knew that (a) Syncor
17 Taiwan paid referral fees to physicians in violation of the Foreign Corrupt Practices
18 Act and charged the expense to marketing; (b) in order to obtain and retain business
19 with hospitals for the provision of unit dosage radiopharmaceuticals, Syncor Taiwan,
20 entered into "side agreements" to pay physicians illegal commissions on the
21 defendant's sales of radiopharmaceuticals, (c) beginning in 1998, Syncor Taiwan also
22 paid improper fees to doctors at hospitals owned by Taiwan authorities for referrals
23 of patients to medical imaging centers owned and operated by Syncor Taiwan; (d)
24 Syncor de Mexico entered into "over-invoicing" arrangements with doctors; (e)
25 Syncor de Mexico had a general practice of providing "support" — locally referred to
26 as "apoyo" — to doctors; and (f) once Syncor's illegal practices were revealed it would
27 be forced to cease them, adversely affecting sales and earnings and exposing the
28 company to criminal and regulatory investigations.
-48-
1 71. Based on defendant's representations, the market believed that Syncor's
2 strong financial results were caused by a successful execution of the Company's
3 growth strategy, and that expansion of Syncor's international operations would fuel
4 future growth. For example, a report dated April 26, 2000, Sutro & Co. stated:
5 INVESTMENT THESIS. Syncor is masterfully executing on its
6 business strategy. It has maintained strong momentum in its core
7 nuclear pharmacy business (operating income is growing at 23%) while
8 impressively building its domestic medical imaging and international
9 business to the point that they have now emerged as important drivers
10 of revenues and profits.
11 * * *
12 This success is now being seen "in the numbers". Syncor's earnings
13 exploded in the quarter as sales increased 20%, operating income 36%
14 and EPS 46%. We have raised our fiscal 2000 EPS estimate from $1.87
15 to $2.17 and our fiscal 2001 EPS estimate from $2.17 to $2.82. We
16 have also increased our three year growth rate from 20% per annum to
17 30%. We think that this acceleration in earnings growth will lead to an
18 expansion in the P/E multiple and this significantly impacts our price
19 target. We are now assuming that investors, one year hence, will value
20 the stock at 22 times projected EPS estimates of $2.82. This causes us
21 to raise our one year price target from $44 to $62 per share.
22 72. Similarly, a report dated June 28, 2000, Sutro & Co. stated:
23 Yesterday, we attended a luncheon with Syncor management and the
24 highlights of that meeting are shown later in this note....
25
26 KEY INVESTMENT POINTS.
27
28
-49 -
1 •Syncor first began forecasting its EPS targets in 1997. Initially, this was met
2 with some skepticism by investors, concerned that it might be more hype than
potential. Nowever 7 Syncor exceeded tl1 of it En targets, giving
4 management great credibility. Hence the new forecast presented at this
5 meeting will carry great weight with investor[s]. Management's EPS forecast
through 2003 is as follows: FY 2000, $2.17: FY 2001, $2_ g0: FY 2002, $175:
7 and FY 2003, $5.00.
-We think that these E3 estimates arc achievable and of course, the FY
10 2000 and FY 2001 e gtimates are in line with our existing estimates. We
11 haven't published on FY 2002 and FY 2003....
12 >l< >i<
13 BUSINESS OVERVIEW. Syncor is masterfully executing on its
14 business strategy. It has maintained strong momentum in its core
15 nuclear pharmacy business (operating income is growing at 23%) while
16 impressively building its domestic medical imaging and international
17 business to the point that they have now emerged as important drivers
18 of revenues and profits_ It has confounded its critics through it success
19 in building a strong, profitable and swiftly growing presence in medical
20 imaging services, a business which many proclaimed to be a mistake
21 when the company first entered it in early 1999. This success is now
22 being seen "in the numbers". Syncor's earnings exploded in the first
23 quarter as sales increased 20%, operating income 36% and EPS 46%.
24 * * *
25 International has now emerged as a driver in the business model. Its
26 sales increased 70% and operating income changed from a slight loss to
27 a profit of $1.2 million.
28
-50-
1 73. On July 26, 2000, Syncor issued a press release entitled "Syncor Reports
2 40 Percent Increase in Operating Income for Second Quarter and 41 Percent for the
3 Six Months Ended June 30, 2000," which stated:
4 "Syncor's outstanding second-quarter results provide continuing
5 evidence that our business strategies are working, as all three business
6 segments demonstrated strong sales and earnings growth," said Robert
7 G. Funari, president and chief executive officer of Syncor. "We not only
8 realized outstanding operating results this quarter, but also took a
9 number of steps to establish the foundation for continued profitable
10 growth and increased shareholder value.
11
12 International Operations
13
14 Syncor's international subsidiary, Syncor Overseas Ltd., continued to
15 experience sales and earnings growth in the second quarter. Sales
16 increased by 29.2 percent to $9.2 million for the three months ended
17 June 30, 2000, compared to $7.1 million for the same period of the prior
18 year. Sales for the six months ended June 30, 2000, increased 51.6
19 percent, or $6.5 million, to $19.2 million.
20
21 For the three months ended June 30, 2000, operating income increased
22 by $.5 million to $.2 million compared to a loss of $ 3 million for the
23 same period of the prior year. For the six months ended June 30, 2000,
24 operating income increased to $1.2 million from a loss of $.5 million.
25
26 Same-store sales growth was 17.5 percent for the quarter ended June 30,
27 2000. Syncor Overseas continues to focus on strategic acquisitions in
28 radiopharmacy, radiology and radiotherapy.
- 51 -
1 74. These financial results and the statement that "Syncor's outstanding
2 second-quarter results provide continuing evidence that our business strategies are
3 workins, as all three bu5ineos Wgmentu demonstrated strong Salo and earnings
4 growth" were false or misleading because as set forth in detail in (19111-29, defendants
5 knew that (a) Syncor Taiwan paid referral fees to physicians in violation of the
6 Foreign Corrupt Practices Act and charged the expense to marketing; (b) in order to
7 obtain and retain business with hospitals for the provision of unit dosage
8 radiopharmaceuticals, Syncor Taiwan, entered into "side agreements" to pay
9 physicians illegal commissions on the defendant's sales of radiopharmaceuticals; (c)
10 beginning in 1998, Syncor Taiwan also paid improper fees to doctors at hospitals
11 owned by Taiwan authorities for referrals of patients to medical imaging centers
12 owned and operated by Syncor Taiwan; (d) Syncor de Mexico entered into "over-
13 invoicing" arrangements with doctors; (e) Syncor de Mexico had a general practice
14 of providing "support" — locally referred to as "apoyo" — to doctors; and (f) once
15 Syncor's illegal practices were revealed it would be forced to cease them, adversely
16 affecting sales and earnings and exposing the company to criminal and regulatory
17 investigations.
18 75. The market continued to believe, based upon defendant's representations,
19 that Syncor's international operations would be a source of significant revenue and
20 earnings growth. For example, a report dated August 28, 2000, Solomon Smith
21 Barney stated:
22 SUMMARY. We view the International operations as an opportunity
23 for growth as the company leverages its unit dose technique overseas.
24 * *
25 REVENUE AND EARNINGS OUTLOOK. We are forecasting Syncor
26 Overseas revenue growth of 65% to $41 million in 2000 and 45% to $60
27 million in 2001. We believe that acquisitions and the increasing
28
-52-
1 adoption of the unit-dose distribution model should be the main growth
2 drivers.
3 76. On October 25, 2000, Syncor issued a press release entitled "Syncor
4 Reports 48 Percent Increase in Operating Income for Third Quarter and 43 Percent
5 for the Nine Months Ended Sept. 30, 2000," which stated:
6 International Operations
7
8 Syncor's international subsidiary, Syncor Overseas Ltd., continued to
9 experience sales and earnings growth in the third quarter. Sales
10 increased by 21.2 percent to $9 4 million for the three months ended
11 Sept. 30, 2000, compared to $7.7 million for the same period of the prior
12 year. Sales for the nine months ended Sept. 30, 2000, increased 40
13 percent, or $8.2 million, to $28.6 million.
14
15 For the three months ended Sept. 30, 2000, operating income increased
16 slightly by $.1 million to $ 4 million compared to $.3 million for the
17 same period of the prior year. For the nine months ended Sept. 30,
18 2000, operating income increased to $1.6 million from a loss of $.1
19 million for the same period of the prior year. Same-store sales growth
20 was 11.4 percent for the quarter ended Sept. 30, 2000.
21 77. These financial results were false because as set forth in detail in 919111-
22 29, defendants knew that (a) Syncor Taiwan paid referral fees to physicians in
23 violation of the Foreign Corrupt Practices Act and charged the expense to marketing;
24 (b) in order to obtain and retain business with hospitals for the provision of unit
25 dosage radiophannaceuticals, Syncor Taiwan, entered into "side agreements" to pay
26 physicians illegal commissions on the defendant's sales of radiopharmaceuticals; (c)
27 beginning in 1998, Syncor Taiwan also paid improper fees to doctors at hospitals
28 owned by Taiwan authorities for referrals of patients to medical imaging centers
- 53 -
1 owned and operated by Syncor Taiwan; (d) Syncor de Mexico entered into "over-
2 invoicing" arrangements with doctors; (e) Syncor de Mexico had a 6eneral practice
3 of providing "support" — locally referred to as "apoyo" — to doctors; and (f) once
4 Syncor's illegal practices were revealed it would be forced to cease them, adversely
5 affecting sales and earnings and exposing the company to criminal and regulatory
6 investigations.
7 78. On October 25, 2000, subsequent to the release of its quarterly results,
8 Syncor held a conference call for analysts, money and portfolio managers,
9 institutional investors and large Syncor shareholders. During the call, defendants
10 stated:
11 Turning to international operations, sales grew 21.2% to $9.4 million
12 primarily due to continued expansions in overseas imaging and
13 radiopharmacy business. Same-store sales grew by 11.4%, or 900,000,
14 and represents approximately 54% of the total increase. In addition, we
15 are beginning to see sales for our PET isotopes and new production
16 facilities as they come on line. Gross margins for international
17 operations declined from 41% in the third quarter of 1999 to 38% in the
18 third quarter of 2000, mainly due to infrastructure investments needed
19 to start up both brachytherapy and PET isotope businesses, which we
20 estimated to be around $400,000.
21
22 Excluding these expenses, the gross margin would have improved to
23 42.6%....
24 * * *
25 Haig Bagerdjian, President &CEO, Syncor Overseas: I'd like to give
26 you a report on Syncor's overseas operation and manufacturing
27 activities. As you heard from Mike, sales at Syncor Overseas rose
28 21.2% to $9.4 million. Same-store sales for the quarter at $8.6 million
- 54
I
contributed $1 4 million to the operating profit. This translates into a
2 22% return on an 11.4% increase in the same-store sales. We continue
3 to experience good bottom-line leverage and expect to report improving
4 results as we expect significant growth potential in our market Syncor's
5 overseas business strategy is based on the identlfleation of profitable
6 growth opportunities in radiopharumGy, medical imaging,
7 brachytherapy, and PET.
79. These financial results and the statement that "[w]e continue to
0 experience good bottom-line leverage and expect to report improving results as we
10 expect significant growth potential in our market, Syncor's Overseas business strategy
11 is based on the identification of profitable growth opportunities in radiopharmacy,
12 medical imaging, brachytherapy, and PET" were false or misleading because as set
13 forth in detail in ¶N11-29, defendants knew that (a) Syncor Taiwan paid referral fees
14 to physicians in violation of the Foreign Corrupt Practices Act and charged the
15 expense to marketing; (b) in order to obtain and retain business with hospitals for the
16 provision of unit dosage radiopharmaceuticals, Syncor Taiwan, entered into "side
17 agreements" to pay physicians illegal commissions on the defendant's sales of
1 g radiopharmaceutleals i (c) beginning in 1998, Syncor Taiwan also paid improper fees
19 to doctors at hospitals owned by Taiwan authorities for referrals of patients to
20 medical imaging centers owned and operated by Syncor Taiwan; (d) Syncor de
21 Mexico entered into "over-invoicing" arrangements with doctors; (e) Syncor de
22 Mexico had a general practice of providing "support" — locally referred to as "apoyo"
23 — to doctors; and (f) once Syncor's illegal practices were revealed it would be forced
24 to cease them, adversely affecting sales and earnings and exposing the company to
25 criminal and regulatory investigations.
26 80. Based on defendant's representations the market believed that Syncor's
27 strong financial results were a product of a successful execution of the Company's
28
- 55 -
1 growth strategy, and that expansion of Syncor's international operations would fuel
2 future growth, For example, in a report dated December 1, 2000 Sutro &Co. stated:
3 Syncor's CEO, Bob Funari, has made it clear that he is intent on
changing the company's business model. Until 1998 7 the company was
5 focused on the distribution of ractiophamiaceuticals,...
6
7 Mr. Funari has put together a three pronsed strate8y....
9 The third prong of the strategy is expanding the new and old
10 components of the domestic businesses into international markets. Like
11 medical imaging, international has now turned the corner and is
12 profitable and in a rapid growth phase. We think that within a decade
13 that International could contribute as much to the company's Sales and
14 earnines as Domestic.
15 81. On February 21, 2001, Syncor issued a press release entitled "Syncor
16 Reports 41 Percent Increase in Operating Income for the Fourth Quarter and 43
17 Percent for the Year Ended Dec. 31, 2000; EPS of $.25, up 39 Percent from $_18,"
18 which stated:
19 Syncor International Corporation today announced its financial results
20 for the three months and year ended Dec, 31, 2,000.
21
22 This quarter marks the fourteenth consecutive quarter that Syncor's
23 operating income has increased by at least 40 percent. Operating
24 income for the fourth quarter ended Dec. 31, 2000, increased by 41.4
25 percent to $14.3 million compared to $10 1 million for the same period
26 of the prior year. Operating income for the year ended Dec. 31, 2000,
27 increased 42.6 percent, or $16.8 million, to $56.3 million, from $39.5
28 million in the prior year.
-56-
1 * * *
2 International Operations
4 Syncor's international subsidiary, Syncor Overseas Ltd., experienced
5 strong sales and operating income growth during 2000. gales increased
6 91.5 percent to $14.5 million and 59.5 percent to $39 6 million for the
7 fourth quarter and year ended Dec. 31, 2000. This compares to sales of
8 $7.6 million and $24.8 million for the same periods in 1999. Operating
9 income increased $ 1 million and $1 8 million for the fourth quarter and
10 year ended Dec. 31, 2000, as compared to the corresponding periods in
11 1999. Syncor Overseas operating results include net losses associated
12 with start-up costs for PET and Seeds production for $ 7 million and
13 $2.1 million for the fourth quarter and year ended Dec. 31, 2000,
14 respectively. Same-store sales growth was 9.2 percent and 25.2 percent
15 for the fourth quarter and the year ended Dec. 31, 2000, respectively.
16 82. These financial results were false or misleading because as set forth in
17 detail in ¶J[1 1-29, defendants knew that (a) Syncor Taiwan paid referral fees to
18 physicians in violation of the Foreign Corrupt Practices Act and charged the expense
19 to marketing; (b) in order to obtain and retain business with hospitals for the
20 provision of unit dosage radiopharmaceuticals, Syncor Taiwan, entered into "side
21 agreements" to pay physicians illegal commissions on the defendant's sales of
22 radiopharmaceuticals; (c) beginning in 1998, Syncor Taiwan also paid improper fees
23 to doctors at hospitals owned by Taiwan authorities for referrals of patients to
24 medical imaging centers owned and operated by Syncor Taiwan; (d) Syncor de
25 Mexico entered into "over-invoicing" arrangements with doctors; (e) Syncor de
26 Mexico had a general practice of providing "support" — locally referred to as "apoyo"
27 — to doctors; and (f) once Syncor's illegal practices were revealed it would be forced
28
- 57 -
1 to cease them, adversely affecting sales and earnings and exposing the company to
2 criminal and regulatory investigations.
3 83. On February 21, 2001, subsequent to the release of its quarterly results,
4 Syncor held a conference call for analysts, money and portfolio managers,
5 institutional investors and large Syncor shareholders. During the call, defendants
6 stated:
7 Turning{] to international operations, sales grew by 92% to $14.5
8 million, due primarily to continued expansion in overseas imaging and
9 the radiopharmacy businesses. The same store sales grew by 9.2% or
10 $600,000.
11 * * *
12 Haig Bagerdjian, president & chief executive officer, Syncor Overseas:
13 I'm pleased to give you a positive report on the result of Syncor's
14 overseas operation and manufacturing activities both for the fourth
15 quarter and the year-end 2000....
16 * * *
17 Existing business. Same-store profits for the fourth quarter total
18 $600,000 on sales of $7 million, or 15.6% return, or a 9.2% increase on
19 sales. We continue to experience good bottom line leverage, and we
20 expect those results to continue, as significant growth potential remains
21 in our existing markets.
22
23 The favorable results are attributed to a combination of growth from the
24 existing side and better utilization of resources. Plus higher margins
25 from mature medical imaging sites. Same store margins, for example,
26 improved by three percentage points to 48.4% in fourth quarter 2000.
27 Full-year 2000 provided more favorable results for existing businesses
28 compared to 1999. Same-store sales grew, amounted to 25.2%,
-58-
1 delivering profits of approximately $5.7 million on sales of $3.3 million
2 for a 2.9% return on sales. Same-store margins improved by 3.2% to
3 49.2%, mainly due to better utilization of resources and high margin
4 from mature imaaina sites. The favorable results tor the year 2000 have
5 brought additional 6.3% return on a sales for the existing business.
6 84. These financial results and the statements that "[w]e continue to
7 experience good bottom line leverage, and we expect those results to continue, as
8 significant growth potential remains in our existing markets. The favorable results
9 are attributed to a combination of growth from the existing side and better utilization
10 of resources. Plus higher margins from mature medical imaging sites" were false or
11 misleading because as set forth in detail in 111 1-29, defendants knew that (a) Syncor
12 Taiwan paid referral fees to physicians in violation of the Foreign Corrupt Practices
13 Act and charged the expense to marketing; (b) in order to obtain and retain business
14 with hospitals for the provision of unit dosage radiophannaceuticals, Syncor Taiwan,
15 entered into "side agreements" to pay physicians illegal commissions on the
16 defendant's sales of radiopharrnaceuticals (c) beginning in 1998, Syncor Taiwan also
17 paid improper fees to doctors at hospitals owned by Taiwan authorities for referrals
18 of patients to medical imaging centers owned and operated by Syncor Taiwan; (d)
19 Syncor de Mexico entered into "over-invoicing" arrangements with doctors; (e)
20 Syncor de Mexico had a general practice of providing "support" — locally referred to
21 as "apoyo" — to doctors; and (f) once Syncor's illegal practices were revealed it would
22 be forced to cease them, adversely affecting sales and earnings and exposing the
23 company to criminal and regulatory investigations.
24 85. On April 25, 2001, Syncor issued a press release entitled "Syncor
25 Reports 37 Percent Increase in First Quarter Net Income; Operating Income Growth
26 in Excess of 40 Percent for 15th Consecutive Quarter," which stated:
27 Syncor International Corporation today announced its financial results
28 for the three months ended March 31, 2001.
- 59 -
n16.
1 This quarter marks the 15th consecutive quarter that Syncor's quarter
2.over quarter operating income has increased by at least 40 percent.
3 Operating income for the three months ended March 31, 2001 increased
4 by $7.4 million to $21.0 million, an increase of 53.8 percent.
Additionally, operating income as a percentage of net Salo increased
6 240 basis points for the three months ended March 31, 2001 compared
7 with the same period of the prior year.
8
9 Net sales for the three months ended March 31, 2001 increased by 21.8
10 percent to $181.4 million, up from $149.0 million for the same period
11 of the prior year. Net income for the quarter ended March 31, 2001
12 increased by 36.5 percent to $10 2 million, or $.38 per diluted share,
13 compared with $7.5 million or $.30 per diluted share for the same period
14 of the prior year.
15
16 "Syncor is off to a solid start in 2001, with strong growth prospects in
17 each of our business units," said Robert Funari, Syncor's President and
18 Chief Executive Officer. "We continue to focus our resources on
19 building on our radiopharmaceutical service capabilities, capitalizing on
20 the emerging PET area, working to secure distribution rights for
21 complex medical pharmaceuticals and products, and implementing new
22 computer systems that will produce efficiencies and improve returns.
23 We are proud that we have grown our operating income by over 40
24 percent for 15 consecutive quarters, and we believe the best for Syncor,
25 and our shareholders, is yet to come."
26 * * *
27 International Operations
28
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1 Syncor's international subsidiary, Syncor Overseas Ltd., experienced
2 strong sales growth in the first quarter. Sales increased by 18.6 percent,
3 to $10.5 million, for the three months ended March 21, 2001, compared
4 with $8 8 million for the same period of the prior year.
5
6 Excluding the Taiwan operations, same store sales growth was 5.4
7 percent for the three months ended March 31, 2001, Including the
t3 Taiwan operations, same-store sales growth for the three months ended
9 Mardi 31, 2001 remained flat. Operating income decreased slightly to
10 $.4 million, compared with $,t3 million for the same period of the prior
11 year.
12 86. These financial results and the staternentg that Q11 -yncor is off to a solid
11 start in 2001, vvith strong growth prospects in each of our business units," ana "fwle
14 are proud that we have grown our operating income by over 40 percent for 15
15 consecutive quarters, and we believe the best for Syncor, and our shareholders, is yet
16 to come" were false or misleading because as set forth in detail in 11111-29,
17 defendants knew that (a) Syncor Taiwan paid referral fea g to tshysinians in violation
18 of the Foreign Corrupt A +1,rac-ces and charged expense to marketing; (b) in
19 order to obtain and retain business with hospitals for the provision of unit dosage
20 radiopharmaceuticals, Syncor Taiwan, entered into " gide agreements" to pay
21 physicians illegal commissions on the defendant's sales of racliopharmaccuticals i (c)
22 beginning in 1998, Syncor Taiwan also paid improper fees to doctors at hospitals
23 owned by Taiwan authorities for referrals of patients to medical imaging centers
24 owned and operated by Syncor Taiwan; (d) Syncor de Mexico entered into "over-
25 invoicing" arrangements with doctors; (e) Syncor de Mexico had a general practice
26 of providing "support" - locally referred to as "apoyo" - to doctors; and (f) once
27 Syncor's illegal practices were revealed it would be forced to cease them, adversely
28
-61-
,
1 affecting sales and earnings and exposing the company to criminal and regulatory
2 investigations.
87. On April 25, 2001, subsequent to the release of it quarterly result5,
4 Syncor held a conference call for analysts, money and portfolio managers,
5 institutional investors and large Syncor shareholders. During the call, defendants
6 stated:
7 Turning now to Syncor Overseas, this business had sales growth of 19%,
8 to $10.5 million, primarily due to the continued expansion in overseas
9 imaging and radiopharmacy businesses. Excluding the operation in
10 Taiwan, same-store sales grew by 5.4% or $300,000 for 1Q01, compared
11 to 1Q00. Counting Taiwan's sales, overall same-store growth remained
12 flat year over year, at $7.3 million. A number of acquisitions and
13 start-ups completed in 2000 generated $3.2 million in sales. Gross
14 margins for the overseas operations improved slightly, from 41% in
15 1Q00 to 43% in 1Q01. Operating margins declined to 3.4%, compared
16 to 9% in 1Q00, primarily due to lower sales and profits from Taiwan
17 operations, and the start-up costs associated with new businesses. The
18 overall lower sales and margins from operations in Taiwan are mainly
19 due to a temporary slowdown of government health care funding, which
20 limited the number of medical imaging procedures in 1Q01. Going
21 forward, we expect this situation to correct itself, and we are confident
22 that our Taiwan businesses will meet their fiscal year 2001 operating
23 commitments.
24 * * *
25 Haig Bagerdjian, President & CEO, Syncor Overseas:
26
27 Same-store profits for 1Q01 totaled $1.1 million on sales of $7.3
28 million, or a 15.5% return generating a 9.8% increase in the same-store
- 62 -
1 profit, when compared to the samestore profit in 1Q00. Excluding
2 Taiwan operations, existing operations generated a same-store sales
3 growth at 5.4% for the quarter.... The Taiwan site reported
4 lower-than-anticipated sales and profitability, mainly due to what we
5 view as a temporary slowing in government health funding; we expect
6 that Taiwan will return to normal levels of operation on a full-year basis.
7
8 New acquisitions and start-ups generated $3.2 million of revenue in the
9 quarter. This comes from a number of acquisitions and start-up
10 operations in 2000. We entered two new countries, Trinidad & Tobago,
11 and Argentina; opened six new sites in Australia, Spain, and Taiwan....
12 * * *
13 Syncor Overseas' overall profit contribution in 1Q01 totaled $400,000
14 on sales of $10.5 million, or 3.4% of sales, compared to $800,000 in
15 1Q00 on sales of $8.8 million. Again, the profit contribution was
16 adversely affected by lower Taiwan sales, as well as the additional
17 start-up costs associated with new businesses and acquisitions. We
18 expect Syncor Overseas profits to contribute to the improvement of our
19 new business-generated revenues, and Taiwan improvements in coming
20 quarters.
21 * * *
22 Lehman Brothers: I think you had $138 million in net receivables, and
23 if you subtract that $49 million, you get about $89 million. You said
24 $80 million for pharmacy. So, where's the other $8 million or $9
25 million?
26
27 Guttman: Our overseas operation.
28 * * *
- 63 -
1 Funari: Haig, if you could comment a little on the Taiwan situation?
2 Assuming it takes a little longer in terms of having it return to normal,
3 are you comfortable that the rest of the business will be able to make up
4 for any shortfall in Taiwan, or do you feel that you may have to revise
5 your numbers or goals downward?
6 * * *
7 Bagerdjian: Regarding Taiwan, I want to reassure you that we will not
8 be needing to adjust the financial numbers. Business in Taiwan itself
9 will substitute for whatever shortfall. I just want to give you some
10 numbers. Total Taiwan sales grew 24.9%. The reference earlier was to
11 same-store growth. So, we have initiatives on the way to overcome
12 whatever shortfall we will have in that market. But more important, we
13 think that the slowdown in the volume of procedures done in Taiwan is
14 temporary due to governmental differences between the new regime that
15 came into power last year and the parliament, or the legislatures that are
16 governing the purse, and I think eventually logic will prevail there. But,
17 we're not relying on the government's action. We are taking steps to
18 overcome whatever shortfall that same-store growth represents.
19 88. These financial results and the statements that "we are confident that our
20 Taiwan businesses will meet their fiscal year 2001 operating commitments," "we
21 expect that Taiwan will return to normal levels of operation on a full-year basis,"
22 "[w]e expect Syncor Overseas profits to contribute to the improvement of our new
23 business-generated revenues, and Taiwan improvements in coming quarters,"
24 " [r]egarding Taiwan, I want to reassure you that we will not be needing to adjust the
25 financial numbers. Business in Taiwan itself will substitute for whatever shortfall,"
26 "we have initiatives on the way to overcome whatever shortfall we will have in that
27 market," and "[w]e are taking steps to overcome whatever shortfall that same-store
28 growth represents" were false or misleading because as set forth in detail in 1[111-29,
- 64 -
1 (a) Syncor Taiwan paid referral fees to physicians in violation of the Foreign Corrupt
2 Practices Act and charged the expense to marketing: (b) in order to obtain and retain
3 business with hospitals for the provision of unit dosage radiopharmaceuticals, gyncor
4 Taiwan, entered into "side agreements" to pay physicians illegal commissions on the
5 defendant's sales of radiopharmaceuticals; (c) beginning in 1998, Syncor Taiwan also
6 paid improper fees to doctors at hospitals owned by Taiwan authorities for referrals
7 of patients to medical imaging centers owned and operated by Syncor Taiwan;
8 (d) Syncor de Mexico entered into "over-invoicing" arrangements with doctors;
9 (e) Syncor de Mexico had a general practice of providing "support" —locally referred
10 to as "apoyo" — to doctors; and (f) once Syncor's illegal practices were revealed it
11 would be forced to cease them, adversely affecting sales and earnings and exposing
12 the company to criminal and regulatory investigations.
13 89. In Syncor's 2000 Annual Report signed on or about May 1, 2001, by
14 Monty Fu and Funari, defendants represented:
15 Syncor Overseas Limited
16
17 Syncor Overseas Limited is a global enterprise with operations in 17
18 countries on six continents. By the end of 2001, Syncor Overseas plans
19 to have operations in 20 countries and has committed to grow sales from
20 $39.6 million in 2000 to $100 million by 2003.
21
22 Syncor Overseas enjoys tremendous opportunities for growth.
23 The worldwide market for Syncor's services is far larger than the
24 domestic market. Moreover, while a growing demand for complex
25 medical technologies exists in several regions, no dominant service
26 provider has emerged to meet these needs.
27 * * *
28
-65 -
1 Sales for 2000 were $39.6 million and grew at an annual rate of 59.5
2 percent or $14.8 million over the 1999 results. This growth is a
3 combination of acquisitions, start-ups, existing store growth and the
4 expansion in the type of products and services offered. Year over year
5 same store revenue growth amounted to approximately 25 percent.
6 Radiopharmacy services supporting cardiology and oncology continue
7 to represent the most substantial portion of the revenues at 36 percent of
8 the group's 2000 revenues. There has been a continued expansion into
9 the radiology product and service areas....
10 * *
11 Syncor Overseas, Ltd. showed a year over year growth in gross profits
12 from $11.3 million to $18.1 million, a gain of 60.5 percent. The margin
13 gains are due to the strong sales growth from existing pharmacies, which
14 contributed $1.3 million of this increase, additional revenues from
15 imaging services, which contributed $2.2 million, and acquisitions and
16 new businesses, which contributed the remainder of the increase.
17 Additionally, the increased sales levels in 2000 contributed to more
18 efficient utilization of direct costs leading to increased gross profit.
19 90. These financial results and the statements that "[b]y the end of 2001,
20 Syncor Overseas plans to have operations in 20 countries and has committed to grow
21 sales from $39 6 million in 2000 to $100 million by 2003. Syncor Overseas enjoys
22 tremendous opportunities for growth. The worldwide market for Syncor's services
23 is far larger than the domestic market," '[t]his growth is a combination of
24 acquisitions, start-ups, existing store growth and the expansion in the type of products
25 and services offered," and "[Ole margin gains are due to the strong sales growth from
26 existing pharmacies, which contributed $1.3 million of this increase, additional
27 revenues from imaging services, which contributed $2.2 million, and acquisitions and
28 new businesses, which contributed the remainder of the increase. Additionally, the
- 66 -
1 increased sales levels in 2000 contributed to more efficient utilization of direct costs
Z leading to increased gross profit" were false or misleading because as set forth in
3 detail in E1l-29, defendants knew that (a) Syneor Taiwan paid referral fees to
4 physicians in violation of the Foreign Corrupt Practices Act and charged the expense
5 to marketing; (b) in order to obtain and retain business with hospitals for the
6 provision of unit dosage radiopharmaceuticals, Syncor Taiwan, entered into "side
7 agreements" to pay physicians illegal commissions on the defendant's sales of
8 radiopharmaceuticals; (c) beginning in 1998, Syncor Taiwan also paid improper fees
9 to doctors at hospitals owned by Taiwan authorities for referrals of patients to
10 medical imaging centers owned and operated by Syncor Taiwan; (d) Syncor de
11 Mexico entered into "over-invoicing" arrangements with doctors; (e) Syncor de
12 Mexico had a general practice of providing "support" — locally referred to as "apoyo"
13 — to doctors; and (f) once Syncor's illegal practices were revealed it would be forced
14 to cease them, adversely affecting sales and earnings and exposing the company to
15 criminal and regulatory investigations.
16 91. On July 24, 2001, Syncor issued a press release entitled "Syncor Reports
17 24 Percent Increase in Second Quarter Net Income and 30 Percent for the Six Months
18 Ended June 30, 2001," which stated:
19 EPS Of $.41 Compared to $.33, Excluding Non-Recurring Income
20
21 Syncor International Corporation today announced record earnings for
22 the quarter ended June 30, 2001.
23
24 Excluding non-recurring items, net income for the quarter ended June
25 30, 2001, increased by 24.3 percent to $11.0 million, or $.41 per diluted
26 share, compared to $8.8 million or $.33 per diluted share for the same
27 period of the prior year.
28
- 67 -
I
1 Net sales for the second quarter increased by 21.6 percent to $187.7
million, up from $154.4 million for the same period of the prior year.
3 Net 1111C0tYle for the quarter increased by 21 percent to 11 0 million or
4 $.41 per diluted share compared- to $9,1 million or $.34 (incluclo $,01
5 non-recurring income from legal settlements) for the same period of the
6 prior year.
8 Net sales for the six months ended June 30, 2001, increased by 21.7
9 percent to $369 1 million, up from $303.3 million for the same period
10 of the prior year. Net income for the six months ended June 30, 2001,
11 increased by 28 percent to $21.2 million or $.78 per diluted share
12 compared to $16.6 million or $.64 (includes $.01 non-recurring income
13 from legal settlements) for the same period of the prior year.
14 * * *
15 International Operations
16
17 Syncor's international subsidiary, Syncor Overseas Ltd., experienced
18 strong sales growth in the second quarter. Sales increased by 34.7
19 percent, to $10.8 million, for the three months ended June 30, 2001,
20 compared to $8.0 million for the same period of the prior year. Sales for
21 the six months ended June 30, 2001, increased $4.4 million to $21.3
22 million compared to $16.8 million for the same period of the prior year.
23
24 Operating income for the three months ended June 30, 2001, increased
25 to $.9 million compared to $.1 million for the same period of the prior
26 year. For the six months ended June 30, 2001, operating income
27 increased to $1.2 million compared to $.9 million for the same period of
28 the prior year.
- 68 -
•
1 92. These financial results were false or misleading because as set forth in
2 detail in 7111-29, defendants knew that (a) Syncor Taiwan paid referral fees to
3 physicians in violation of the Foreign Corrupt Practices Act and charged the expense
4 to marketing; (b) in order to obtain and retain business with hospitals for the
5 provision of unit dosage radiopharmaceuticals, Syncor Taiwan, entered into "side
6 agreements" to pay physicians illegal commissions on the defendant's sales of
7 radiopharrnaceuticals, (c) beginning in 1998, Syncor Taiwan also paid improper fees
8 to doctors at hospitals owned by Taiwan authorities for referrals of patients to
9 medical imaging centers owned and operated by Syncor Taiwan; (d) Syncor de
10 Mexico entered into "over-invoicing" arrangements with doctors; (e) Syncor de
11 Mexico had a general practice of providing "support" — locally referred to as "apoyo"
12 — to doctors; and (f) once Syncor's illegal practices were revealed it would be forced
13 to cease them, adversely affecting sales and earnings and exposing the company to
14 criminal and regulatory investigations.
15 93. On October 24, 2001, Syncor issued a press release entitled, "Syncor
16 Reports 25 Percent Increase in Operating Income for Third Quarter and 37 Percent
17 for the Nine Months Ended Sept. 30, 2001," which stated:
18 Syncor International Corp. today announced continued strong operating
19 performance for the quarter ended Sept. 30, 2001.
20
21 Syncor reported that its operating income for the third quarter ended
22 Sept. 30, 2001, increased by 25.2 percent to $15.4 million, compared
23 with $12.3 million for the same period of the prior year. Operating
24 income for the nine months ended Sept. 30, 2001, increased 37.5
25 percent, or $15.7 million, to $57.7 million, from $42 million for the
26 same period of the prior year.
27
28
-69-
I Net sales for the third quarter increased by 24.7 percent to $193.8
2 million, up from $155 5 million for the same period of the prior year.
3 Net income for the quarter increased to $7.8 million, or 29 cents per
4 diluted share, compared with $6 3 million, or 23 cents per diluted share,
5 for the same period of the prior year.
6 * * *
7 International Operations
8
9 Syncor's international subsidiary, Syncor Overseas Ltd., continued to
10 experience sales and earnings growth in the third quarter. Sales
11 increased by 48.6 percent to $12.1 million for the three months ended
12 Sept. 30, 2001, compared with $8.1 million for the same period of the
13 prior year. Sales for the nine months ended Sept. 30, 2001, increased
14 33.6 percent, to $33 4 million, compared with $25.0 million for the same
15 period of the prior year.
16
17 For the three months ended Sept. 30, 2001, operating income decreased
18 slightly to $ 3 million, compared with $.8 million for the same period of
19 the prior year. For the nine months ended Sept. 30, 2001, operating
20 income decreased slightly to $1.6 million from $1.7 million for the same
21 period of the prior year.
22
23 Same-store sales growth was 3.4 percent for the quarter ended Sept. 30,
24 2001. Sales and operating income have been negatively impacted by a
25 slowdown in the Taiwan government's funding for diagnostic imaging
26 procedures. For the three months ended Sept. 30, 2001, sales for the
27 company's Taiwan businesses have improved, 4 percent, as compared
28
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1 with the three months ended June 30, 2001. It is anticipated that sales
2 will improve during the balance of the year.
3 94. These financial results and the statement that "[i]t is anticipated that sales
4 will improve during the balance of the year" were false or misleading because as set
5 forth in detail in 1111-29, defendants knew that (a) Syncor Taiwan paid referral fees
6 to physicians in violation of the Foreign Corrupt Practices Act and charged the
7 expense to marketing; (b) in order to obtain and retain business with hospitals for the
8 provision of unit dosage radiopharmaceuticals, Syncor Taiwan, entered into "side
9 agreements" to pay physicians illegal commissions on the defendant's sales of
10 radiopharmaceuticals; (c) beginning in 1998, Syncor Taiwan also paid improper fees
11 to doctors at hospitals owned by Taiwan authorities for referrals of patients to
12 medical imaging centers owned and operated by Syncor Taiwan; (d) Syncor de
13 Mexico entered into "over-invoicing" arrangements with doctors; (e) Syncor de
14 Mexico had a general practice of providing "support" —locally referred to as "apoyo"
15 — to doctors; and (f) once Syncor's illegal practices were revealed it would be forced
16 to cease them, adversely affecting sales and earnings and exposing the company to
17 criminal and regulatory investigations.
18 95. On October 24, 2001, subsequent to the release of its quarterly results,
19 Syncor held a conference call for analysts, money and portfolio managers,
20 institutional investors and large Syncor shareholders. During the call, defendants
21 stated:
22 Our Syncor overseas business unit also had a sales growth of nearly 50
23 percent, to 12.1 million, due primarily to acquisitions made in quarter
24 four, 2000, and early 2001, and the continued expansion in the various
25 businesses. Our same-store sales grew by 3.4 percent for the third
26 quarter of 2001, compared to the same period last year. Our overseas
27 same-store numbers are still impacted by lower-than-expected Taiwan
28 results. Of importance, we're trying to see improvements in sales from
-71-
•
1 our Taiwan subsidiaries. For the third quarter of 2001, our consolidated
2 Taiwan sales results improved four percent to 13 million, when
3 compared to quarter two of 2001. And the third quarter of 2001 resultg
4 are 13 percent better than the first quarter of 2001, when the government
5 initially announced its intentions to the slowdown funding for diagnostic
6 imaging procedures. Our improvements in Taiwan are in spite the
7 effects of a continued economic slowdown in the electronics and
8 technology section and typhoon Bills, which struck Taiwan in late
9 August. For the first time, our radiopharnaacies were unable to deliver
10 doses to their customers. Heavy winds and rain crippled Taiwan and
11 impacted all businesses. Turning now to the margins, the overseas
12 business realized improvement in their gross margin to 44.6 percent in
13 the third quarter of 2001, compared to 40-1/2 percent for that same
14 period of the prior year. Operating margins, however, declined to 2.8
15 percent in the current quarter, from 9.6 percent, due to higher operating
16 costs and depreciation associated with startup businesses and
17 acquisitions....
18
19 Looking forward to the fourth quarter, we remain comfortable with the
20 range of current first-call EPS estimates of between 32 and 33 cents per
21 diluted share. The current range of first-call estimates for 2002, is $1.70
22 to $1.75, with the consensus average being $1.72. Please note that these
23 estimates do not take into account the impact of making the proposed
24 accounting change for eliminating the Goodwill portion of our
25 amortization. The Company is still reviewing the accounting change
26 and its impact on 2002 earnings. Excluding this impact and based on
27 our current expectations and judgment, we remain comfortable with the
28 first-call consensus for 2002....
- 72 -
1 * * *
2 As Bill mentioned in his review of Taiwan sales results, we are now
3 seeing some improvements in the topline performance of this group. We
4 have just completed a new MRI site, located at the Taiwan Armed
5 Forces Hospital and, in addition, we had a PET imaging center open in
6 Taiwan in late September. Both of these facilities will improve our
7 revenues coming from Taiwan in the fourth quarter of 2001.
8 96. These financial results and the statements that "[o]ur Syncor overseas
9 business unit also had a sales growth of nearly 50 percent, to 12.1 million, due
10 primarily to acquisitions made in quarter four, 2000, and early 2001, and the
11 continued expansion in the various businesses," "Mooking forward to the fourth
12 quarter, we remain comfortable with the range of current first-call EPS estimates of
13 between 32 and 33 cents per diluted share. The current range of first-call estimates
14 for 2002, is $1.70 to $1.75, with the consensus average being $1.72," "we are now
15 seeing some improvements in the topline performance of this group" and "these
16 facilities will improve our revenues coming from Taiwan in the fourth quarter of
17 2001" were false or misleading because as set forth in detail in 19111-29, defendants
18 knew that (a) Syncor Taiwan paid referral fees to physicians in violation of the
19 Foreign Corrupt Practices Act and charged the expense to marketing; (b) in order to
20 obtain and retain business with hospitals for the provision of unit dosage
21 radiopharmaceuticals, Syncor Taiwan, entered into "side agreements" to pay
22 physicians illegal commissions on the defendant's sales of radiopharmaceuticals; (c)
23 beginning in 1998, Syncor Taiwan also paid improper fees to doctors at hospitals
24 owned by Taiwan authorities for referrals of patients to medical imaging centers
25 owned and operated by Syncor Taiwan; (d) Syncor de Mexico entered into "over-
26 invoicing" arrangements with doctors; (e) Syncor de Mexico had a general practice
27 of providing "support" — locally referred to as "apoyo" — to doctors; and (f) once
28 Syncor's illegal practices were revealed it would be forced to cease them, adversely
- 73 -
1 affecting sales and earnings and exposing the company to criminal and regulatory
2 investigations.
3 97. In February 2002, defendant Funari interviewed by The Wall Street
4 Transcript, in which he stated:
5 TWST: If we put all this together, what kind of longer-term growth rate
6 have you targeted?
7
8 Mr. Funari: If you look at the last five years, we've demonstrated
9 revenue growth in the range of 15%-16% a year with earnings growth
10 in the 35%-36% range per year. We have done an exceptional job of
11 improving profitability of the business over the last five years.
12 Looking ahead, I would anticipate revenue growth to be 20% or
13 better over that period of time, with earnings growth probably in the
14 20%-25% ranges. Return on invested capital should grow from about
15 15%, which is where we are today, up toward 20% by the end of the
16 next five years.
17 98. This statements was false or misleading because as set forth in detail in
18 fill-29, defendants knew that (a) Syncor Taiwan paid referral fees to physicians in
19 violation of the Foreign Corrupt Practices Act and charged the expense to marketing;
20 (b) in order to obtain and retain business with hospitals for the provision of unit
21 dosage radiopharmaceuticals, Syncor Taiwan, entered into "side agreements" to pay
22 physicians illegal commissions on the defendant's sales of radiopharmaceuticals;
23 (c) beginning in 1998, Syncor Taiwan also paid improper fees to doctors at hospitals
24 owned by Taiwan authorities for referrals of patients to medical imaging centers
25 owned and operated by Syncor Taiwan; (d) Syncor de Mexico entered into "over-
26 invoicing" arrangements with doctors; (e) Syncor de Mexico had a general practice
27 of providing "support" — locally referred to as "apoyo" — to doctors; and (0 once
28 Syncor's illegal practices were revealed it would be forced to cease them, adversely
-74-
1 affecting sales and earnings and exposing the company to criminal and regulatory
2 investigations.
3 99. On February 7, 2002, Syneor i ggued a pregg releage entitled "Syneor
4 Confident in Meeting Expectations, Continues Stock Repurchase Program," which
5 btated;
6 Syncor International Corporation reaffirmed today its comfort with
7 meeting analysts' consensus earnings expectations for both the fourth
8 quarter and full-year 2001.
9
10 The mean consensus expectation of the six analysts who provide
11 estimates to First Call, Zacks, and IBES is $0.32 for the fourth quarter
12 and $1.40 for full-year 2001. Estimates remain in a range of $0.31 to
13 $0.33 for the fourth quarter and $1.38 to $1.41 for full-year 2001. These
14 expectations are consistent with guidance provided by the company in
15 early 2001, and that guidance remained unchanged throughout the year.
16 * * *
17 Stock Repurchase Program
18
19 Syncor also announced that it continues to repurchase Syncor shares
20 under the company's stock repurchase program. The company has
21 repurchased in excess of 500,000 shares since June 2001 and currently
22 has a total of approximately 233,000 shares remaining for repurchase
23 under the current authorization from its Board of Directors. The current
24 repurchase authorization can be increased by the Board and does not
25 have an expiration date.
26
27 "We believe that the current market price levels do not adequately
28 reflect Syncor's long-term business prospects," said William P. Forster,
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_
1 Syncor's Senior Vice President and Chief Financial Officer. "We also
2 believe that the repurchase of shares at current prices is a good use of
3 the company's resources and will further enhance shareholder value."
4 100. The statements that "Syncor International Corporation reaffirmed today
5 its comfort with meeting analysts' consensus earnings expectations for both the fourth
6 quarter and full-year 2001," and "[Wiese expectations are consistent with guidance
7 provided by the company in early 2001, and that guidance remained unchanged
8 throughout the year" were false or misleading because as set forth in detail in ¶911 1 -
9 29, defendants knew that (a) Syncor Taiwan paid referral fees to physicians in
10 violation of the Foreign Corrupt Practices Act and charged the expense to marketing;
11 (b) in order to obtain and retain business with hospitals for the provision of unit
12 dosage radiopharmaceuticals, Syncor Taiwan, entered into "side agreements" to pay
13 physicians illegal commissions on the defendant's sales of radiopharmaceuticals; (c)
14 beginning in 1998, Syncor Taiwan also paid improper fees to doctors at hospitals
15 owned by Taiwan authorities for referrals of patients to medical imaging centers
16 owned and operated by Syncor Taiwan; (d) Syncor de Mexico entered into "over-
17 invoicing" arrangements with doctors; (e) Syncor de Mexico had a general practice
18 of providing "support" — locally referred to as "apoyo" — to doctors; and (f) once
19 Syncor's illegal practices were revealed it would be forced to cease them, adversely
20 affecting sales and earnings and exposing the company to criminal and regulatory
21 investigations.
22 101. On February 20, 2002, Syncor issued a press release entitled "Syncor
23 Reports $0.33 EPS for Fourth Quarter; 20th Consecutive Quarter of Over 20%
24 Earnings Growth," which stated:
25 Syncor International Corporation today announced its financial results
26 for the three months and year ended December 31, 2001. Syncor
27 reported that its operating income for the fourth quarter ended December
28 31, 2001 increased by 19.8 percent to $17.2 million compared to $14.3
- 76 -
1 million for the same period of the prior year. Operating income for the
• 2 year ended December 31, 2001 increased 33.0 percent to $74.9 million
3 from $56.3 million for the same period of the prior year.
4
5 Net sales for the fourth quarter increased by 24.2 percent to $211.8
6 million, up from $170.6 million for the same period of the prior year.
7 Net income for the quarter increased to $8.8 million, or $0.33 per diluted
8 share. This compared with net income of $6.7 million, or $0.25 per
9 diluted share, for the same period of the prior year. This marks the 20th
10 consecutive quarter that Syncor has realized growth of over 20 percent
11 in its fully diluted EPS from continuing operations (excluding non-
12 recurring items)
13
14 Net sales for the year ended December 31, 2001 increased by 23.1
15 percent to $7747 million, up from $629.4 million for the same period
16 of the prior year. Net income for the year ended December 31, 2001
17 increased to $37.9 million, or $1.40 per diluted share, compared to $29.5
18 million, or $1.11 per diluted share for the same period of the prior year.
19 * * *
20 International Operations
21
22 Syncor's international subsidiary, Syncor Overseas Ltd., continued to
23 realize double-digit sales growth. Sales increased by 12.9 percent to
24 $16.0 million for the three months ended December 31, 2001 compared
25 to $14.2 million for the same period of the prior year. Sales for the year
26 ended December 31, 2001 increased 26.1 percent, to $49.4 million,
27 compared to $39.1 million for the same period of the prior year.
28
- 77 -
I ,
1 For the three months ended December 31, 2001, operating income
decreased by $0.9 million to an operating loss of $(0.3) million
3 compared to operating income of $0 6 million for the same period of the
4 prior year. sales and operating income were iiripactel during the year
5 by a Slowdown in the Taiwan government's fanding for diagnostic
6 imaging procedures, and start-up of new sites. As a result, for the year
ended December 31, 2001, operating income decreased to $1 2 million
from $2.2 million for the same period of the prior year. gyncor
9 anticipates improvements in its overseas operations during 2002.
10
11 2002 Guidance
12
13 Syncor remains confident in its ability to meet current analysts'
14 expectations for 2002. These expectations range between $1.80 and
15 $1.85 per fully diluted share, including the benefit from the elimination
16 of goodwill amortization pursuant to the adoption of Statement of
17 Financial Accounting Standards No. 142. The company expects revenue
18 growth in excess of 20 percent and free cash flow to be in the range of
19 $15-$20 million for the year.
20 102. These financial results and statements that "Syncor anticipates
21 improvements in its overseas operations during 2002," "Syncor remains confident in
22 its ability to meet current analysts' expectations for 2002" and "[Ole company expects
23 revenue growth in excess of 20 percent and free cash flow to be in the range of $15-
24 $20 million for the year" were false or misleading because as set forth in detail in
25 91111-29, defendants knew that (a) Syncor Taiwan paid referral fees to physicians in
26 violation of the Foreign Corrupt Practices Act and charged the expense to marketing;
27 (b) in order to obtain and retain business with hospitals for the provision of unit
28 dosage radiopharmaceuticals, Syncor Taiwan, entered into "side agreements" to pay
- 78 -
1 physicians illegal commissions on the defendant's sales of radiopharrnaceuticals;
2 (c) beginning in 1998, Syncor Taiwan also paid improper fees to doctors at hospitals
3 owned by Taiwan authorities for referrals of patients to medical imaging centers
4 owned and operated by Syncor Taiwan; (d) Syncor de Mexico entered into "over-
invoicing" arrangements with doctors; (e) gyncor de Mexico had a general practice
6 of providing "support" — locally referred to as "apoyo" — to doctors: and (f) once
7 Syncor's illegal practices were revealed it would be forced to cease them, adversely
8 affecting sales and earnings and exposing the company to criminal and regulatory
9 investigations.
10 103. On April 9 2002 7 Syncor issued a press release entitled "Syncor Expands
11 5tocli Repurchase Program: which stated:
12 Syncor International Corporation announced today that its Board of
13 Directors has voted to increase the company's share repurchase program
14 by an additional 3,000,000 shares.
15
16 Earlier this year Syncor reported that since June 2001 it had repurchased
17 in excess of 500,000 shares through the company's stock repurchase
18 program. Under the preceding authorization, there were 233,000 shares
19 remaining for repurchase and this increase in authorization will be added
20 to that balance. As of December 31, 2001, the company had
21 approximately 24,831,000 shares outstanding.
22
23 The repurchase authorization can be increased by the Board and does
24 not have an expiration date.
25
26 "We continue to believe that stock repurchase is an attractive investment
27 for the company and that a share repurchase program is an excellent way
28
-79-
1 to bring value to our shareholders," said William P. Forster, Syncor's
Senior Vice President and Chief Financial Officer,
3 104. The repurchase of the stock by the Company while the Individual
4 Defendants' sold stock constitutes a manipulative and deceptive device in violation
5 of §10(b) and Rule 10b-5.
6 105. On April 24, 2002, Syneor issued a press release entitled "Syneor
7 Reports $0.41 EPS for First Quarter 2002," which stated:
8 Syncor International Corporation today announced it financial re5ults
9 for the three months ended March 31, 2002. Net income for the quarter
10 increased to 10.9 million, or 0.41 per diluted share, compared with net
11 income of $10,2 million, or $0,38 per diluted shale, for the same period
12 of the prior year.
13
14 Net sales for the first quarter increased by 18.8 percent to $215.5
15 million, up from $181.4 million for the same period of the prior year.
16 Operating income increased to $21.3 million compared to $21 0 million
17 for the same period of the prior year. Free cash flow for the first quarter
18 2002 was $12.4 million, a significant improvement as compared to
19 $(27.3) million for the first quarter of 2001 and $4.2 million for the
20 fourth quarter of 2001.
21 106. These financial results were false or misleading because as set forth in
22 detail in 919111-29, defendants knew that (a) Syncor Taiwan paid referral fees to
23 physicians in violation of the Foreign Corrupt Practices Act and charged the expense
24 to marketing; (b) in order to obtain and retain business with hospitals for the
25 provision of unit dosage radiopharmaceuticals, Syncor Taiwan, entered into "side
26 agreements" to pay physicians illegal commissions on the defendant's sales of
27 radiopharmaceuticals; (c) beginning in 1998, Syncor Taiwan also paid improper fees
28 to doctors at hospitals owned by Taiwan authorities for referrals of patients to
- 80 -
,
1 medical imaging centers owned and operated by Syncor Taiwan; (d) Syncor de
2 Mexico entered into "over-invoicing" arrangements with doctors; (e) Syncor de
3 Mexico had a general practice of providing "support" —locally referred to as "apoyo"
4 — to doctors; and (f) once Syncor's illegal practices were revealed it would be forced
5 to cease them, adversely affecting sales and earnings and exposing the company to
6 criminal and regulatory investigations.
7 107. On June 14, 2002, Cardinal and Syncor announced an agreement
8 allowing Cardinal Health to acquire Syncor for approximately $1.1 billion. The
9 release stated:
10 The acquisition of Syncor is a stock-for-stock deal in which
11 Syncor will become a wholly owned subsidiary of Cardinal Health.
12 Terms of the definitive agreement call for Syncor shareholders to
13 receive .52 Cardinal Health common shares for each outstanding share
14 of Syncor common stock, with Cardinal Health issuing an aggregate of
15 approximately 14 million common shares on a fully diluted basis. The
16 transaction is intended to be tax-free to the holders of Syncor common
17 stock. Cardinal Health will also assume Syncor's debt, which, net of
18 cash, totaled $202 million as of March 31, 2002. The acquisition is
19 expected to be completed by the end of 2002, subject to regulatory
20 clearance, approval by Syncor shareholders, and other customary
21 conditions. Cardinal Health expects the completed acquisition to be
22 accretive to its earnings within the first year.
23 108. This acquisition would permit defendants to receive value for their
24 Syncor shares prior to disclosure of their illegal payment scheme.
25 109. On July 30, 2002, Syncor issued a press release entitled "Syncor Reports
26 Earnings and Results of Operations for Second Quarter 2002; Continues Strong Free-
27 Cash Flow and Debt Repayment," which stated:
28
- 81 -
1 Syncor International Corporation (Nasdaq: SCOR) today announced its
2 financial results for the three months ended June 30, 2002.
3
4 Net sales from continuing operations in the quarter increased 31 percent
5 to $189.3 million, compared to $144.4 million for the same period of the
6 prior year.
7 110. On August 1, 2002, the Company issued a press release which stated in
8 part:
9 Cardinal Health, Inc. and Syncor International Corporation
10 announced today that the waiting period under the Hart-Scott-Rodino
11 Antitrust Improvements Act of 1976 has expired with respect to the
12 proposed acquisition of Syncor by Cardinal Health. The transaction is
13 expected to be completed by the end of 2002 subject to satisfaction of
14 customary conditions, including Syncor shareholder approval. Syncor's
15 shareholders' meeting is expected to take place in the fall of 2002.
16 This acquisition provides Cardinal Health with a leadership
17 presence in the high-growth and profitable nuclear pharmacy business
18 and advances its strategy of expanding the breadth of offerings it
19 provides to health care customers.
20 As previously announced, the terms of the transaction call for
21 Syncor shareholders to receive 0.52 Cardinal Health common shares for
22 each share of Syncor common stock owned, with Cardinal Health
23 issuing approximately 14 million shares on a fully diluted basis. The
24 combination has been structured as a tax-free transaction.
25 111. On October 16, 2002, Syncor announced it had scheduled the
26 stockholders meeting for November 19, 2002 to be acquired by Cardinal.
27
28
- 82 -
1 Revelation of the Truth
Z 112. Then on November 6, 2002, the Company issued a press release entitled
3 "Syncor Announces Internal Investigation Regarding Payments in Overseas
4 Operations," which shocked the market. The press release stated in part:
5 Syncor International Corporation announced that a committee of
6 outside directors, together with special outside counsel, has been
7 investigating the propriety of certain payments made by overseas
8 subsidiaries to customers in several foreign countries, including Taiwan
9 and China. To date, the investigation indicates that some of the
10 payments made to state-owned and private healthcare facilities may have
11 violated foreign and U.S. law, including the Foreign Corrupt Practices
12 Act. The investigation will cover Syncor's other overseas operations as
13 well.
14 Representatives of Syncor have met with the Securities and
15 Exchange Commission and the U.S. Department of Justice to discuss the
16 matter. Syncor intends to cooperate fully with the authorities.
17 The Company also said that Mr. Monty Fu, Chairman of Syncor,
18 and his brother, Mr. Moses Fu, Director, Asia Region — Syncor Overseas
19 LTD., have gone on paid leave pending completion of an investigation
20 into their involvement in the payments. Monty Fu has also agreed to
21 suspend his participation as a company director pending completion of
22 the investigation. The Board of Directors has elected Mr. Bernard
23 Puckett, a current director and Chair of the special committee
24 investigating the payments, as lead director of the Board.
25 * * *
26 The payments were brought to Syncor's attention by Cardinal
27 Health, Inc., which learned of them in the course of its ongoing post-
28 signing due diligence relating to the previously announced planned
- 83 -
1 merger of the two companies. Syncor is working closely with Cardinal
2 Health regarding the matter.
3 The Company announced that in order to provide additional time
4 to complete the investigation of its overseas operations and make any
appropriate disclosures to stockholders, it has postponed until Friday,
6 December 6, 2002, its special meeting of stockholders to vote on the
7 pending merger with Cardinal Health. The meeting had originally been
8 scheduled for November 19th. The exact time and place of the special
9 meeting will be included in an amended notice of meeting and
10 supplemental proxy materials that will be mailed to stockholders as soon
11 as they are available.
12 113. On November 6, 2002, Cardinal responded with its own press release
13 entitled "Cardinal Health Responds to Syncor Announcement; Improper payments by
14 Syncor identified through ongoing due diligence; Intends to carefully monitor the
15 situation,"which stated in part:
16 Cardinal Health, Inc. confirmed today that during its ongoing due
17 diligence investigation of Syncor International Corporation, the
18 proposed acquisition of which was announced on June 14, 2002,
19 Cardinal Health recently discovered certain improper payments that had
20 been made in foreign countries by subsidiaries of Syncor. As soon as it
21 made these discoveries, Cardinal Health promptly informed Syncor of
22 its findings and Syncor immediately initiated an investigation.
23 Cardinal Health has since been informed of the results to date of
24 the investigation undertaken by a special committee formed by the
25 Board of Directors of Syncor to review these improper payments.
26 Cardinal Health supports the actions taken today by the Syncor Board
27 in response to the results of the special committee's ongoing
28 investigation as well as the proactive decision by Syncor to make full
- 84 -
1 disclosure of its findings to the Department of Justice and the Securities
2 and Exchange Commission. Cardinal Health will continue to carefully
3 monitor the Syneor situation and assess the results of the Syncor special
4 committee's ongoing investigation as well as the results of Cardinal
5 Health's continuing due diligence review. Cardinal Health intends to
6 use all appropriate resources and spend the time necessary to complete
7 its ongoing comprehensive due diligence review in a deliberate manner.
8 Robert D. Walter, chairman and chief executive officer of
9 Cardinal Health stated: "Cardinal Health has an outstanding reputation
10 for integrity in operating our domestic and international businesses in an
11 ethical and honest manner. This reputation extends to our employees,
12 suppliers and customers as well as to the government agencies that come
13 in contact with our business and operations. We are committed to
14 adhering to the principle of operating our businesses consistent with all
15 applicable legal obligations. While we continue to believe that the
16 strategic rationale for the acquisition of Syncor and its nuclear pharmacy
17 business has validity, any decision with respect to this transaction must
18 be made in the context of adhering to our core values and protecting
19 Cardinal Health's reputation."
20 Cardinal Health notes that the acquisition of Syncor by Cardinal
21 Health is subject to the satisfaction or waiver of a number of conditions
22 set forth in the merger agreement, dated June 14, 2002, between Syncor
23 and Cardinal Health. At this time, Cardinal Health has not yet
24 concluded whether those conditions will be satisfied. Cardinal Health
25 intends to fully comply with its obligations under the merger agreement.
26 There can be no assurance that the transaction involving the acquisition
27 of Syncor by Cardinal Health will be completed.
28
- 85 -
1 114. On November, 6, 2002, Syncor issued a press release entitled "Syncor
2 Responds to Inquiries Relating to Previously Announced Investigation," which
3 stated:
4 In response to inquiries, Syncor International Corporation today
5 announced that based on the results to date of the previously-announced
6 investigation by a committee of outside directors, together with outside
7 counsel, into the propriety of certain payments made by overseas
8 subsidiaries, Syncor does not currently believe that the amounts of such
9 payments are material to the financial results of the Company. The
10 Company said it must await completion of the investigation to be able
11 to determine the full impact on its financial results.
12
13 For Syncor's most recent fiscal year ended December 31, 2001,
14 continuing international operations in total generated approximately 6%
15 of its overall revenues and 7% of its gross profits, respectively. For the
16 nine months ended September 30, 2002, continuing international
17 operations in total also generated approximately 6% of its overall
18 revenues and 7% of its gross profits, respectively.
19
20 The Company also said, in response to the announcement earlier today
21 of Cardinal Health, Inc. as well as inquiries it has received, that based
22 on the investigation to date, Syncor does not currently believe that the
23 information it has learned would result in its failure to satisfy the
24 conditions to the previously announced proposed merger with Cardinal
25 Health. Syncor noted, however, that Cardinal Health said it was
26 reviewing the matter and that it had not yet concluded whether the
27 conditions to the merger agreement will be satisfied.
28
- 86 -
1 Based on the findings of the investigation to date, Syncor currently
2 believes it should be able to report its quarterly results for the period
3 ended September 30, 2002, in a timely manner. The Company is
4 currently reviewing the matter with its auditors.
5 115. On December 4, 2002, Syncor issued a press release entitled "Syncor
6 Announces Agreement with Chairman Monty Fu," which stated:
7 Syncor International Corporation today announced that it has reached an
8 agreement with its Chairman Monty Fu regarding his status with the
9 company. Syncor and Mr. Fu have mutually agreed that Mr. Fu will
10 cease to be an officer and employee of Syncor and will resign as a
11 director of Syncor immediately prior to the completion of the previously
12 announced acquisition by Cardinal Health. Until such time, as
13 previously announced on November 6, 2002, Mr. Lu will remain on paid
14 leave from Syncor and will continue his agreed suspension from
15 participation as a member of Syncor's board of directors.
16
17 Mr. Fu has also agreed to surrender to Syncor $2 5 million of Syncor
18 common stock. The value of the stock Mr. Fu will surrender equals the
19 total fines and monetary penalties agreed to by Syncor in separate
20 agreements, announced earlier today, with the United States Department
21 of Justice and the staff of the Securities and Exchange Commission.
22 These agreements relate to matters that are the subject of Syncor's
23 internal investigation first announced on November 6, 2002.
24
25 Subject to the completion of the acquisition by Cardinal Health, Mr. Fu
26 has agreed to waive his right to receive a cash severance payment valued
27 at approximately $2.1 million under the terms of his severance
28 agreement with Syncor. Mr. Fu may have been entitled to this payment
- 87 -
1 if his employment were terminated after completion of the transaction
2 with Cardinal Health.
3
4 In Mr. MS agreement with Syncor, Syncor also confirmed that, based
5 on the information known at this time, it would comply with its
6 pre-existing contractual obligations to advance to Mr. Fu his reasonable
7 expenses incurred in connection with the matters subject to the
8 investigation and related proceedings.
9 116. On December 4, 2002, Syncor issued a press release entitled "Cardinal
10 Health and Syncor Announce Amended Merger Agreement," which stated:
11 Exchange Ratio Lowered to 0.47 Cardinal Health Common Shares per
12 Syncor Share
13 * * *
14 Cardinal Health further announced it is satisfied that it can move
15 forward with the acquisition in a manner that is consistent with its high
16 standards. Following the acquisition, Syncor's core domestic nuclear
17 pharmacy business and the Central Pharmacy Services (CPSI) business
18 of Cardinal Health will be combined, creating a leading provider in the
19 fast growing and profitable nuclear pharmacy services business and
20 furthering Cardinal Health's strategy of expanding its breadth of
21 offerings to health care customers.
22
23 Syncor also announced today that it had reached separate agreements
24 with the U.S. Department of Justice (D0J) and the staff of the U.S.
25 Securities and Exchange Commission (SEC) related to the previously
26 disclosed improper payments made by Syncor subsidiaries in certain
27 foreign countries.
28
- 88 -
1 "We have taken the steps and the time necessary to be fully satisfied that
2 we can move forward with the acquisition of Syncor consistent with
3 Cardinal Health's high standards of conduct," said Robert D. Walter,
4 chairman and chief executive officer of Cardinal Health. "As a result of
5 our further extensive domestic and international due diligence, which
6 included investigations conducted by outside legal and forensic
7 accounting teams, and the separate investigation conducted by the
8 Syncor Special Committee, the issues have been identified and dealt
9 with decisively. We believe that these actions, in conjunction with the
10 agreements reached with the Department of Justice and SEC, bring these
11 issues to closure and give us the confidence that Cardinal Health
12 shareholders will be protected as we move forward to complete the
13 acquisition."
14 FIRST CLAIM FOR RELIEF
15 For Violation of §10(b) of the 1934 Actand Rule 10b-5 Against All Defendants
16
17117. Plaintiff incorporates 9111-116 by reference.
18118. During the Class Period, defendants disseminated or approved the false
19 statements specified above, which they knew or recklessly disregarded were
20 materially false and misleading in that they contained material misrepresentations and
failed to disclose material facts necessary in order to make the statements made, in2122 light of the circumstances under which they were made, not misleading.
23119. Defendants violated §10(b) of the 1934 Act and Rule 10b-5 in that they:
24(a) Employed devices, schemes, and artifices to defraud;
(b) Made untrue statements of material facts or omitted to state2526 material facts necessary in order to make statements made, in light of the
27 circumstances under which they were made not misleading; or
28
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1 (c) Engaged in acts, practices, and a course of business that operated
2 as a fraud or deceit upon plaintiff and others similarly situated in connection with
3 their purchases of Syncor publicly traded securities during the Class Period.
4 120. Plaintiff and the Class have suffered damages in that, in reliance on the
5 integrity of the market, they paid artificially inflated prices for Syncor publicly traded
6 securities. Plaintiff and the Class would not have purchased Syncor publicly traded
7 securities at the prices they paid, or at all, if they had been aware that the market
8 prices had been artificially and falsely inflated by defendants' misleading statements.
9 121. As a direct and proximate result of these defendants' wrongful conduct,
10 plaintiff and the other members of the Class suffered damages in connection with
11 their purchases of Syncor publicly traded securities during the Class Period.
12 SECOND CLAIM FOR RELIEF
13 For Violation of §20(a) of the 1934 ActAgainst All Defendants
14
15122. Plaintiff incorporates (fil -121 by reference.
16123. Defendants prepared, or were responsible for preparing, the Company's
17 press releases and SEC filings. These Individual Defendants controlled other
18 employees of Syncor. Syncor controlled the Individual Defendants and each of its
19 officers, executives and all of its employees. By reason of such conduct, defendants
20 are liable pursuant to §20(a) of the 1934 Act.
CLASS ACTION ALLEGATIONS21
124. Plaintiff brings this action as a class action pursuant to Rule 23 of the2223 Federal Rules of Civil Procedure on behalf of all persons who purchased Syncor
24 publicly traded securities (the "Class") on the open market during the Class Period.
Excluded from the Class are defendants, directors and officers of Syncor and their25
families and affiliates.26
125. The members of the Class are so numerous that joinder of all members2728 is impracticable. The disposition of their claims in a class action will provide
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1 substantial benefits to the parties and the Court. During the Class Period Syncor had
2 more than 25 million shares of stock outstanding, owned by thousands of persons.
3 126. There is a well-defined community of interest in the questions of law and
4 fact involved in this case. Questions of law and fact common to the members of the
5 Class which predominate over questions which may affect individual Class members
6 include!
7 (a) Whether the 1934 Act was violated by defendants;
8 (b) Whether defendants omitted and/or misrepresented material facts;
9 (c) Whether defendants' statements omitted material facts necessary
10 to make the statements made, in light of the circumstances under which they were
11 made, not misleading; and
12 (d) Whether defendants knew or recklessly disregarded that their
13 statements were false and misleading.
14 PRAYER FOR RELIEF
15 WHEREFORE, plaintiff prays for judgment as follows: declaring this action
16 to be a proper class action; awarding damages, including interest; and such other
17 relief as the Court may deem proper.
18 JURY DEMAND
19 Plaintiff demands a trial by jury.
20 DATED: May 19, 2003 MILBERG WEISS BERSHAD21 HYNES & LERACH LLP
WILLIAM S. LERACH22 EDWARD P. DIETRICH
ANDREW J. BROWN23 TRICIA L. McCORMICK
24 ,25 . .
EDWARD P. DIETRICH26
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1 401 B Street, Suite 1700
2 San Diego, CA 92101Telephone: 619/231-1058
3 619/221-7422 (fax)
4 Lead Counsel for Plaintiffs
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, 2_•- ) )
1 CERTIFICA'IION OF NAMED PLAINTIFFPURSUANT TO FEDERA,L SECLIRITIES LAWS
2
2
4MILTON ARBITRAGE PARTNERS, L.L. C. ("Plaintiff') declares, as to
' the claims asserted under the federal securities laws, that:
1. Plaintiff has reviewed the Complaint gled in connection with this
- matter.7
2. Plaintiff did not purchase the security that is the subject of this8
action at the direction of Plaintiff's counsel or in order to participate in any9
private action.10
3. Plaintiff is willing to serve as a representative party on behalf of the1112Class.
13• Attached are Plaintiffs transactions in Syncor International
14 Corporation (Nasdaq: SCOR) stock during the Class Period.
15• Plaintiff has complete investment authority and is the agent and
16 attomey-in-fact with full power and authority to bring suit to recover for
investment losses.17
6. 1 am authorized to make legal decisions on behalf of Milton1819 Arbitrage Partners, L.L.C.
• 7. Plaintiff will endeavor to provide fair and adequate representation20
21 ' and work directly with the efforts of Class counsel to ensure that we obtain the
22 largest recovery for the Class consistent with good faith and meritorious
23 judgment.
24 11 8. During the three years prior to the date of this Certificate, Plaintiff
25 has neither sought to serve nor served as a representative party for a class action
26 filed under the federal securities laws.
9.27
Plaintiffwill not accept any payment for serving as a representative
28 party on behalf of the Class beyond the Plaintiffs pro rata share of any recovery,
GAnewcases TERM \Syncoal &cm-Arbitrage Partner/Leer 000002 SYNCOR
.13°
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1 except such reasonabl y costs and expenses (including lest wages) directly
relating to the representation of the class as order yd or approved by thy Court.
3 I declare under penalty of perjury that the foregoing is true and correct.
4 Executed this 3day of D.g..c4014(/ , 2002.
5
6 MILTON Alk.DITRACM PARTNntt.S,
8 By: _
9Its l2irector Research
10 e 3iabry),m/
11 Print Name
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0:1nevica3eACERTSSyncorkMilton-Arbitrago Partners.cer -2- 000003 SYNODR
-94-
)
SCHEDULE A
SECURITIES TRANSACTIONS
Acquisitions
Date Type/Amount of
Acquired Securities Acquired Price
06/24/2002 20,000 $32.13
06/24/2002 25,000 $32.07
06/25/2002 14,000 $31.54
06/25/2002 22,400 $32.00
07/05/2002 25,000 $30.01
07/18/2002 25,000 $27.39
07/19/2002 10,000 $26.97
08/02/2002 3,100 $27.86
08/02/2002 21,500 $28.05
08/05/2002 9,000 $27.01
08/0612002 5,028 $28.83
08/06/2002 22,300 $28.51
08/0612002 25,000 $28.39
08/07/2002 1,000 $29.10
08/07/2002 52,500 $29.01
08/08/2002 600 $30.82
08/08/2002 10,000 $30.77
08109/2002 21,500 $31.03
08/09/2002 50,000 $31.11
08/09/2002 50,000 $31.37
08/12/2002 1,600 $31.85
08/12/2002 2,300 $31.68
08/12/2002 39,600 $31.79
08/15/2002 23,100 $32.82
08/16/2002 72 $34.18
08120/2002 25,000 $33.93
08/21/2002 15,900 $34.56
09/10/2002 4,500 $34.25
09/10/2002 25,000 $33.95
09/19/2002 4,000 $32.18
09/19/2002 26,640 $32.08
09/20/2002 5,800 $32.08
09/20/2002 5,800 $32.21
09/20/2002 15,000 $32.16
09123/2002 2,000 $31.28
09/23/2002 5,200 $31.38
09/23/2002 12,500 $31.60
09/24/2002 286 $31.46
09/24/2002 1,000 $31.75
09/24/2002 2,514 $31.47
09/24/2002 7,400 $31.49
09/25/2002 10,200 $32.56
000004
_)
SCHEDULE A
SECURITIES TRANSACTIONS
Acquisitions
Date TypelAmount ofAcquired Securities Acquired Price
09/25/2002 26,100 $32.4409/26/2002 7,200 $34.050912612002 13,500 $33.7209/2612002 30,200 $33.9309/2712002 1,030 $34.0309/27/2002 9,570 $34.0409127/2002 21,450 $33.7809/3012002 11,400 $32.4109/30/2002 21,600 $32.4209/30/2002 75,000 $32.3810/01/2002 1,700 $32.8210/01/2002 6,500 $32.3510/01/2002 27,700 $32.3410/02/2002 2,500 $32.6110/0212002 4,900 $32.9710/02/2002 16,600 $33.0810/0212002 21,900 $33.1410/03/2002 4,000 $33.7510/03/2002 8,100 $33.6510/04/2002 1,200 $32.4510/0412002 2,900 $32.5810/04/2002 8,100 $32.8010/0712002 1,500 $32.9710/07/2002 5,000 $32.9210/0812002 5,900 $32.8910/08/2002 8,000 $32.7910/09/2002 3,600 $32.4110/09/2002 5,000 $32.5210/10/2002 10,300 $32.8110/16/2002 5,000 $35.0410/16/2002 7,200 $35.2510/16/2002 36,000 $35.1410/17/2002 12 $35.1010/17/2002 1,200 $34.6310/17/2002 2,488 $35.0910/17/2002 8,500 $35.2710/17/2002 31,300 $34.6610/18/2002 2,200 $34.4410/18/2002 3,000 $34.6410/18/2002 6,000 $34.4710/21/2002 4,100 $35.4710/21/2002 10,400 $35.91
000005
"
)
SCHEDULE A
SGURITM* TRAN§ACT1911§
Acqutions
Date Type/Amount ofAcquired Securities Acauired 131484
10/22/2002 8474 f30.4110/2212002 20 o.421012212002 12,800 336.0610/2312002 4,200 $35.02I einnao2 4.600 3g.t610/24/2002 2,900 $36.7310/25(2002 3,100 §35,6010/2512002 10,300 335.5410125/2002 15,000 $36.5210)2912002 4,000 SIG.07I co0/2652 t1,466 06.2210/30/2002 3,500 *30.241 9/ Q( 9 172 t315QQ 0,3Z1013112002 2,300 336.541013112002 13,500 $36.191110112002 5,700 $36.4411/01/2002 12,000 $36.9311/0412002 7,740 336.7211/00/2002 2,700 335.90
Sales
• Date Typeimmount ot
aolti Securities Sold Price
OT102/2002 00,000 020.400810112002 408,600 $29.1808/01/2002 91,400 $29.19
000(M
G\--4
I CERTIFICATION OF NAMED PLAINTIFF
2PURSUANT TO FEDERAL SECURITIE$ LAW
3WEST VIRGINIA LABORERS PENSION TRUST FUND ("Plaintiff')
4declares:
5
1. Plaintiff has reviewed a complaint and authorized its filing.6
2. Plaintiff did not acquire the security that is the subject of this action7
at the direction of plaintiffs counsel or in order to participate in this private8
action or any other litigation under the federal securities laws.9
10• Plaintiff is willing to serve as a representative party on behalf ofthe
class, including providing testimony at deposition and trial, if necessary.11
124. Plaintiff has made the following transaction(s) during the Class
Period in the securities that are the subject of this action:13
14 Acquisitions: Number of Shares Acquisition Price Per
15 Date Acquired Acquired Share
16 03/28/02 2,000 shares $27.10
, 06/11/02 2,500 shares $29.79 17
18 5. During the three years prior to the date of this Certificate, Plaintiff
19 has not sought to serve or served as a representative party for a class in an action
20 filed under the federal securities laws except as detailed below;
21 Feder v. Electronic Data Systems Corporation, et al., No. 5:02-CV-2071E.D.22 Tex.)
23
24
25 6. The Plaintiff will not accept any payment for serving as a
26 representative party on behalf of the class beyond the Plaintiffs pro rata share •
27 of any recovery, except such reasonable costs and expenses (including lost28
CrAnewcases\CERTS%Syncor\WVLaborers.cer SYNCOR
".•
1 wages) directly relating to the representation of the class as ordered or approved2 by the court.
3 I declare under penalty of perjury that the foregoin is true and correct.4 txecuted this 2 I stciay of.. 42,azde=si_, 2002.
5
6 WEST YIRGIVIAL/ADORaftb PLNSIQ1`1
7 TRUST FUND
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GAnevicaseACERTStSyncorNWVLabarers.csr — 2- SYNCOR
C)f\
1 DECLARATION OF SERVICE BY MAIL
2I, the undersigned, declare!
3
1. That declarant is and was, at all times herein mentioned, a citizen of the4
United Skates and a resident of the County of San Diego, over the age of 16 years, and5
not a party to or interest in the within action; that declarant's business address is 4016
D Street, Suite 1700, San Diego, California 92101,7
2. That on May 19, 2003, declarant served the CONSOLIDATED6
AMENDED CLASS ACTION COMPLAINT FOR VIOLATION OF THE9
10 FEDERAL SECURITIES LAWS by depositing a true copy thereof ift a United States
mailbox at San Diego, California in a sealed envelope with postage thereon fully11
prepaid and addressed to the parties listed on the attached ScrYi9c12
3, That there is a regular communication by mail between the place of1314 mailing and the places so addressed.
I declare under penalty of perjury that the foregoing is true and Coft&Cf.15
Executed this 19th day of May, 2003, at San Diego, California16
17J. ti.A1
18 Marcy - s torino
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SYNCORService List - 5/19/2003 (02-0543)
Page 1 of 3
Counsol For Dofondont(s)Dean J. Kitchens Gordon A. GreenbergDaniel S. Floyd McDermott, Will & EmeryTed A. Gehring 2049 Century Park East, Suite 3400 •Gibson, Dunn & Crutcher LLP Los Angeles, CA 90067-3283333 South Grand Avenue 310/277-4110Los Angeles, CA 90071-3197 310/277-4730(Fax)
213/229-70002131229-7520(Fax)
Eric S. WaxmanAmy S. ParkSkadden, Arps, Slate, Meagher & Flom LLP300 S. Grand Ave., Suite 3400Los Angeles, CA 90071
213/687-5000213/687-5600(Fax)
Counsel For Plaintiff(s)
Mark C. Gardy Paul J. GellerNancy Kaboolian Howard K. Coates, Jr.Abbey Gardy, LLP Jack Reise212 East 39th Street Cauley Geller Bowman Coates & Rudman, LLPNew York, NY 10016 2255 Glades Road, Suite 421A
212/889-3700 Boca Raton, FL 33431212/684-5191 (Fax) 561/750-3000
561/750-3364(Fax)
Martin D. Chitwood Steven J. TollLauren S. Antonino Daniel S. SommersChitwood & Haney, LLP Cohen, Milstein, Hausfeld & Toll, P.L.L.C.2300 Promenade II 1100 New York Ave., N.W., Suite 5001230 Peachtree Street, N.C. Washington, DC 20005-3964Atlanta, GA 30309 202/408-4600
404/873-3900 202/408-4699(Fax)404/876-4476 (Fax)
SYNCORService List - 5/19/2003 (02-0543)
Page 2 of 3
Nadeem Farucil Lionel Z. Glancy
Faruqi & Faruqi, LLP Glancy & Binkow LLP320 East 39th Street, 3rd Floor 1801 Avenue of the 5terS, Sla 311New YorK, NY 10010 Los Angeles, CA 90067
2121983-9330 310/204-0150212/983-9331 (Fax) 3101201-$160(Fax)
Emily C. Komlossy Ira M. PressGoodkind Labaton Rudoff & Sucharow, LLP Kirby, McInerney & Squire, LLPInternational Building 830 Third Avenue, 10th Floor2455 E. Sunrise Blvd., Suite 813 New York, NY 10022Fort Lauderdale, FL 33304 212/371-6600
9841630-1000 212/751-2640 (Fax)964/665-1312(Fax)
Brian M. Felgoise Marc S. Henze!Law Offices of Brian M. Felgoise Law Offices of Marc S. Henze!261 Old York Road, Suite 423 273 Montgomery Avenue, Suite 202Jenkintown, PA 19046 Bala Cynwyd, PA 19004
215/886-1900 610/660-8000610/660-8080(Fax)
W. Mark McNair Edward P. DietrichLaw Offices of W. Mark Mcnair Andrew J. Brown1101 30th Street, N.W., Suite 500 Tricia L. McCormickWashington, DC 20007 Milberg Weiss Bershad Hynes & Lerach LLP
202/872-4717 401 B Street, Suite 1700202/872-4718(Fax) San Diego, CA 92101-5050
619/231-1058619/231-7423 (Fax)
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SYNCORService List - 5/19/2003 (02-0543)Page 3 of 3
Marc A. Topaz Thomas G. thapiroSchiffrin & Barroway, LLP Theodore M. 1-less-MahanThree Pala Plaza rest, Suite 4110 Shapiro l-laber P Urmy, LLPBala Cynwyd, PA 19004 75 State Street
610/667-7706 Boston, MA 02109610/667-7056(Fax) 617/439-3939
017/439-0134(Fax)
Mielidel D. Braun Kevin J. VourmanPatrice L. Bishop Weiss & You rmanStull, Stull & Brody 10940 Wilshire Blvd., 24th Floor10940 Wilshire Blvd., Suite 2300 Los Angeles, CA 90024Los Angeles, CA 90024 310/208-2800
310/209-2468 310/209-2348(Fax)310/209-2087(Fax)
Francis M. Gregorek Robert C. FinkelWolf Haldenstein Adler Freeman & Herz, LLP Wolf Popper LLP750 B Street, Suite 2770 845 Third AvenueSan Diego, CA 92101 New York, NY 10022
619/239-4599 212/759-4600619/234-4599(Fax) 212/486-2093(Fax)
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