Joseph J. Tabacco, Jr. (75484)
Nicole Lavallee (165755)
BERMAN, DEVALERIO, PEASE & TABACCO
425 California Street, Suite 2025
San Francisco, CA 94104-2205
(415) 433-3200

COHEN, MILSTEIN, HAUSFELD & TOLL, P.L.L.C.
Steven J. Toll
999 Third Avenue, Suite 3600
Seattle, WA 98104-4001
(206) 5521-0080

Plaintiff, individually and on behalf of all other persons similarly situated, by his undersigned attorneys, for his complaint, alleges upon personal knowledge as to himself and his own acts, and upon information and belief as to all other matters, based upon, inter alia, the investigation made by and through his attorneys, which investigation included, among other things, a review of the public documents, Securities and Exchange Commission ("SEC") filings, analyst reports, news releases and media reports of Raster Graphics, Inc. ("Raster" or the "Company"), as follows:

1. The claims alleged herein arise under Sections 10(b) and 20 of the Securities Exchange Act of 1934 (the "Exchange Act"), 15 U.S.C. §§ 78j(b) and 78t, and Rule 10b-5, 17 C.F.R. § 240.10b-5 promulgated thereunder.

2. The jurisdiction of this Court is based on Section 27 of the Exchange Act, 15 U.S.C. § 78aa and 28 U.S.C. § 1331 (federal question jurisdiction).

3. Many of the acts alleged herein, including the dissemination to the investing public of the misleading statements at issue, occurred in substantial part in this District. Raster maintains its executive offices at 3025 Orchard Parkway, San Jose, California, 95134.

4. In connection with the acts, transactions and conduct alleged herein, defendants used the means and instrumentalities of interstate commerce, including the United States mails, interstate telephone communications and the facilities of national securities exchanges and markets.

5. Plaintiff purchased shares of Raster common stock during the Class Period, as set forth in the accompanying Certification, and has been damaged as a result of defendants' conduct as alleged herein.

6. Defendant Raster is a Delaware corporation that maintains its principal offices in San Jose, California. The Company develops, manufactures and markets high-performance, large format, digital color printing systems and sells related consumables and software for the on-demand large format digital printer market. As of November 1, 1997, there were 9,560,385 shares of common stock issued and outstanding which trade on the NASDAQ National Market System.

7. Defendant Rak Kumar ("Kumar") is and was at all relevant times Raster's Chairman, President and Chief Executive Officer. For the fiscal year ended December 31, 1996 ("1996 Fiscal Year"), Kumar received cash compensation of $168,923. Kumar is also a signatory to the SEC filings described herein.

8. Plaintiff brings this action as a class action pursuant to Federal Rules of Civil Procedure 23(a) and (b)(3) on behalf of a class consisting of all persons who purchased Raster common stock during the period from October 20, 1997 through February 3, 1998, inclusive (the "Class Period") and who were damaged thereby. Excluded from the Class are the Company, its officers and directors, employees, affiliates, legal representatives, heirs, predecessors, successors and assigns, and any entity in which the Company has a controlling interest or of which the Company is a parent or subsidiary.

9. The members of the Class are located in geographically diverse areas and are so numerous that joinder of all members is impracticable. The Company has 9.5 million shares of common stock outstanding. While the exact number of Class members is unknown to plaintiff at this time and can only be ascertained through appropriate discovery, plaintiff believes there are, at a minimum, over 158 members of the Class.

10. Common questions of law and fact exist as to all members of the Class and predominate over any questions affecting solely individual members of the Class. Among the questions of law and fact common to the Class are:

(a) Whether defendants engaged in acts or conduct in violation of the federal securities laws as alleged herein;

(b) Whether defendants had a duty to disclose certain information;

(c) Whether defendants acted knowingly or recklessly in making materially false and misleading statements or in failing to correct such statements upon learning that they were materially false and misleading during the Class Period;

(d) Whether the market prices of the Company's securities during the Class Period were artificially inflated because of defendants' conduct complained of herein; and

(e) Whether the members of the Class have sustained damages and, if so, what the proper measure of damages is.

11. Plaintiff's claims are typical of the claims of the members of the Class as plaintiff and members of the Class sustained damages arising out of defendants' wrongful conduct in violation of federal law as complained of herein.

12. Plaintiff will fairly and adequately protect the interests of the members of the Class and has retained counsel competent and experienced in class and securities litigation. Plaintiff has no interests antagonistic to or in conflict with those of the Class.

13. A class action is superior to other available methods for the fair and efficient adjudication of this controversy since joinder of all members of the Class is impracticable. Furthermore, because the damages suffered by individual Class members may be relatively small, the expense and burden of individual litigation make it impossible for the Class members individually to redress the wrongs done to them. There will be no difficulty in the management of this action as a class action.

14. Plaintiff will rely, in part, upon the presumption of reliance established by the fraud-on-the-market doctrine in that:

(a) Defendants made public misrepresentations or failed to disclose material facts regarding Raster's financial results during the Class Period;

(b) the omissions and misrepresentations were material;

(c) the securities of the Company trade on the NASDAQ, an efficient and open market;

(d) the misrepresentations and omissions alleged would tend to induce a reasonable investor to misjudge the value of the Company's securities; and

(e) Plaintiff and the members of the Class purchased their Raster stock between the time defendants failed to disclose or misrepresented material facts and the time the true facts were disclosed, without knowledge of the misrepresented facts.

15. Based upon the foregoing, Plaintiff and the members of the Class are entitled to a presumption of reliance upon the integrity of the market.

16. The statutory safe harbor provisions for forward-looking statements under certain circumstances does not apply to any of the allegedly false statements pleaded in this complaint. The statements alleged to be false and misleading herein all relate to then-existing facts and conditions. In addition, to the extent certain of the statements alleged to be false may be characterized as forward-looking, they were not adequately identified as "forward-looking statements" when made, there were no statements made with respect to any of those representations forming basis of the complaint that actual results "could differ materially from those projected," and there were no meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those in the purportedly forward-looking statements. Alternatively, to the extent that the statutory safe harbor is intended to apply to any forward-looking statements pleaded herein, defendants are liable for those false forward-looking statements because at the time each of those forward-looking statements was made, the particular speaker had actual knowledge that the particular forward-looking statement was materially false or misleading, and/or the forward-looking statement was authorized and/or approved by an executive officer of Raster who knew that those statements were false when made.

17. Raster went public on August 9, 1996, offering for sale to the public 3 million shares of common stock at a price of $8 per share ("IPO"). Raster stock rose to over $11 per share in the weeks following the IPO.

18. On or about October 20, 1997, Raster issued a press release ("October 20 press release") announcing its financial results for the third quarter ended September 30, 1997 ("3Q financial results"). In the October 20 press release, defendants reported a 31% increase in net revenue to $14,330,000, compared with $10,960,000 for the same period in the prior year and net income of $889,000 or as $.09 per share compared with $937,000 or $.10 per share. Defendants boasted in the October 20 press release that this marked Raster's fifteenth consecutive quarter of revenue growth and thirteenth consecutive quarter of profitability.

19. In the October 20 press release, defendant Kumar stated, "We believe our top line growth of over 30 percent, although not meeting our internal targets, represents good performance in a quarter which was extremely slow in several of [Raster's] important international markets -- a condition which, we believe, existed across the industry."

20. In a separate press release on October 20, 1997, Raster announced that, effective immediately, Chief Financial Officer Dennis R. Mahoney ("Mahoney") was leaving the Company. No reason was given for Mahoney's departure.

21. On or about November 14, 1997, Raster filed its Form 10-Q for the quarter ended September 30, 1997 with the SEC ("3Q 10-Q"), which was signed by defendant Kumar. The 3Q 10-Q reiterated the financial information set forth in the October 20 press release.

22. In the 3Q 10-Q, Raster indicated that its $5 million bank line of credit that was secured by the Company's tangible assets was scheduled to expire on December 14, 1997 but that management expected to renew the facility under similar terms and conditions by that date.

23. In the 3Q 10Q, Raster reported accounts receivables, net of allowance for doubtful accounts of $835,000, of $18,709,000, compared with $10,070,000 for the same period in the prior year. Inventories were reported as $11,066,000, compared with $6,705,000 for the same period in the prior year. According to the "Notes to Condensed Consolidated Financial Statements" (the "Notes") inventories are stated at the lower of cost (first in, first out) at fair market value.

24. In the Notes in the 3Q 10Q, defendants stated:

The Company has implemented a program under which customers are introduced to financing institutions through a third party broker by the Company. Through this program, customers are able to obtain lease financing for their purchases with the Company receiving the associated payment directly from the financial institution.

25. Defendants also represented in the 3Q 10Q that:

In the opinion of management, the accompanying unaudited condensed consolidated financial statements have been prepared on the same basis as the audited financial statements and include all recurring adjustments necessary for a fair presentation of the interim periods presented. The operating results for the nine months ended September 30, 1997 are not necessarily indicative of the results for any other interim period or for the full fiscal year ending December 31, 1997.

26. Thereafter, on February 3, 1998, Raster issued a press release ("February 3 press release") announcing that it expected to report a loss for the fourth quarter ended December 31, 1997 ("4Q financial results") and further, to the suprise of the investment community, that it expected to restate its 3Q financial results.

27. In the February 3 press release, Raster announced that the 4Q financial results would show a pretax loss of between $3.2 - $3.7 million as compared to net income of $993,000 for the same period in 1996. The Company attributed the loss to "...the recognition of greater than expected exposure in accounts receivable and inventories," and a revenue shortfall. In addition, Raster announced that it expected to recognize $1 million of inventory adjustments and write downs, and would increase the reserve for allowance for doubtful accounts by approximately $1.5 million to cover "significant customer accounts which are more than 90 days outside their payment terms...."

28. With respect to the Company's 3Q financial results, the February 3 press release stunned the market by announcing that Raster would restate its results, thereby decreasing revenue for that period by approximately $1 million. The Company attributed the decrease to the "reversal of revenue from transactions involving sales that had not been funded by third party leasing partners as of September 30, 1997." Thus, Raster acknowledged that, consistant with generally accepted accounting principles, it could only recognize revenue when the leased equipment is accepted by the customer and the lease has been funded by Raster's leasing partners.

29. On February 4, 1998, the day after the announcement of the restatement, Raster stock, which traded as high as $8 5/16 per share during the Class Period, closed at $2 15/16, down from the prior day's closing price of $4.50 per share.

Defendants Misrepresented and
Failed to Disclose Material Facts

30. In knowing or reckless disregard of the truth and/or as part of their ongoing efforts to continue the illusion of Raster's consecutive earnings growth, defendants issued and/or participate in the issuance of materially false and misleading statements and financial information to the investing public as particularized above. These representations were materially false and misleading when made for the reasons set forth herein in that they falsely stated and/or failed to disclose the following material, adverse facts about Raster's business and financial condition, which acts were known to or recklessly disregarded by defendants that:

(a) The 3Q 10-Q and the October 20 press release, which Kumar caused the Company to file and issue during the Class Period, were the result of fraudulent financial manipulations which deceived the investing public, who purchased Raster securities based upon those representations in that revenue and net income were over stated;

(b) Defendants falsely stated in the 3Q 10-Q that Raster's financial statements were prepared in accordance with generally accepted accounting principles; and

(c) Defendants falsely represented that the allowance for doubtful accounts were adequate when defendants knew that material amounts were already past due at the time the 3Q 10Q was filed.

31. During the Class Period, defendants materially misled the investing public, thereby inflating and/or maintaining the price of Raster securities, by publicly issuing false and misleading statements and omitting to disclose material facts necessary to make defendants' statements, as set forth herein, not false and misleading. Said statements and omissions were materially false and misleading in that they failed to disclose material adverse information and misrepresented the truth about the Company, its financial performance, accounting, reporting and condition, including, inter alia:

(a) The Company's revenues, earnings, and earnings per share as reported in the 3Q 10-Q and October 20 press release were overstated, with revenues overstated by approximately $1 million, a material amount considering the Company's originally-reported results;

(b) The allowance for doubtful accounts should have been increased to account for customers already in default of payment terms;

(c) The financial statements in the 3Q 10-Q did not present, in all material respects, the Company's true financial condition, and did not reflect all adjustments which were necessary for a fair statement of the interim period presented; and

(d) The Company's 3Q 10-Q was not presented in conformity with GAAP or principles of fair reporting.

32. In addition, the defendants not only falsely and materially overstated the Company's net income and earnings per share for the Company's quarter, but failed to file financial statements with the SEC which conformed to the requirements of GAAP, such that the financial statements were presumptively misleading and inaccurate pursuant to Regulation S-X, 17 CFR 210.4-01(a)(1).

33. As a result of its accounting improprieties, the Company's reported financial results also violated at least the following provisions of GAAP for which defendants are necessarily responsible:

(a) The principle that financial reporting should provide information that is useful to present and potential investors and creditors and other users in making rational investment, credit and similar decisions was violated (FASB Statement of Concepts No. 1, ¶ 34);

(b) The principle that financial reporting should provide information about the economic resources of an enterprise, the claims to those resources, and the effects of transactions, events and circumstances that change resources and claims to those resources was violated (FASB Statement of Concepts No. 1, ¶ 40);

(c) The principle that financial reporting should provide information about how management of an enterprise has discharged its stewardship responsibility to owners (stockholders) for the use of enterprise resources entrusted to it was violated. To the extent that management offers securities of the enterprise to the public, it voluntarily accepts wider responsibilities for accountability to prospective investors and to the public in general (FASB Statement of Concepts No. 1, ¶ 50);

(d) The principle that financial reporting should provide information about an enterprise's financial performance during a period was violated. Investors and creditors often use information about the past to help in assessing the prospects of an enterprise. Thus, although investment and credit decisions reflect investors' expectations about future enterprise performance, those expectations are commonly based at leads partly on evaluations of past enterprise performance (FASB Statement of Concepts No. 1, ¶ 42);

(e) The principle that financial reporting should be reliable in that it represents what it purports to represent was violated. That information should be reliable as well as relevant to a notion that is central to accounting (FASB Statement of Concepts No. 2, ¶ ¶ 58-59);

(f) The principle of completeness, which means that nothing is left out of the information that may be necessary to ensure that it validly represents underlying events and conditions, was violated (FASB Statement of Concepts No. 2, ¶ 79); and

(g) The principle that conservatism be used as a prudent reaction to uncertainty to try to ensure that uncertainties and risks inherent in business situations are adequately considered was violated. The best way to avoid injury to investors is to try to ensure that what is reported represents what it purports to represent (FASB Statement of Concepts No. 2, ¶ ¶ 95, 97).

34. The February 3 press release revealed problems related to Raster's business and financial operations which by their nature were ongoing and severe. These problems were operative throughout the Class Period and contrary to and/or discredited by defendants' statements disseminated to the investing public during the Class Period.

Defendants' Knowledge or Reckless
Disregard of the False and
Misleading Financial Statements

35. Defendants' false representations and material omissions were made with scienter in that: defendants knew or recklessly disregarded that the 3Q 10-Q and October 20 press release disseminated by Raster with respect to its third quarter financial results were materially false and misleading as described above; knew or were reckless in not knowing that the false financial results would be issued or disseminated to the investing public; and knowingly and substantially participated in the preparation and/or issuance or dissemination of such statements or documents. The following factors indicate that defendants made the misrepresentations knowingly or with reckless disregard for the truth:

(a) Defendants were under strong pressure to report consecutive earnings growth for each quarter;

(b) The Company, which was in need of renegotiating its bank facility prior to the end of the fiscal year, would have had a difficult time obtaining such financing if Raster posted a loss;

(c) Defendant Kumar was the signatory on the 3Q 10-Q which contained the financial statements, which were subsequently restated; and

(d) The Company's Chief Financial Officer resigned on the date defendants released the Company's 3Q financial results. This resignation caused, or should have caused, defendants, but for their recklessness, to have been aware of the improper revenue recognition by the Company.

36. Plaintiff incorporates by reference and realleges each of the foregoing paragraphs 1 through 35.

37. During the Class Period, defendants, individually and in concert, engaged in a plan, scheme, and course of conduct, pursuant to which they knowingly and/or recklessly engaged in acts, transactions, practices, and courses of business which operated as a fraud upon plaintiff and other members of the Class, and made various untrue and deceptive statements of material fact and omitted to state material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading to plaintiff and other Class members. The purpose and effect of this scheme was to induce plaintiff and the Class to purchase Raster common stock at artificially inflated prices.

38. During the Class Period, defendants, pursuant to their plan, scheme and unlawful course of conduct, knowingly and/or recklessly issued, or caused to be issued statements to the investing public as described above, including the 3Q 10-Q and October 20 press release as set forth in paragraphs 18 through 25 above.

39. Defendants knew and/or recklessly disregarded the falsity of the foregoing statements. As a senior officer and director of the Company involved in its founding and operations, Defendant Kumar had access to the non-public information detailed above and received periodic internal reports detailing actual sales, sales terms and other financial information.

40. Defendant Kumar was motivated to participate in the unlawful conduct alleged above in order to obtain financing for Raster as set forth in paragraph 35 above. 41. Throughout the Class Period, Raster acted through the Individual Defendant, Kumar, whom it portrayed and represented to the press and public as its valid representative. The willfulness, motive, knowledge, and recklessness of Defendant Kumar is therefore imputed to Raster, which is primarily responsible for the securities law violations of Defendant Kumar while acting in their official capacity as a Company representative, or, in the alternative, which is liable for the acts of Defendant Kumar under the doctrine of respondeat superior.

42. Each of the defendants knew or recklessly disregarded the fact that the above acts and practices, misleading statements, and omissions would adversely affect the integrity of the market in Raster's common stock. Had the adverse facts defendants concealed been properly disclosed, Raster stock would not have sold at the artificially inflated prices it did during the Class Period.

43. As a result of the foregoing, the market price of Raster common stock was artificially inflated during the Class Period. In ignorance of the false and misleading nature of the representations, plaintiff and other members of the Class relied, to their detriment, on the integrity of the market as to the price of Raster's common stock.

44. The price of Raster common stock declined materially upon public disclosure of the true facts which had been misrepresented or concealed, as alleged in this complaint. Plaintiff and other members of the Class have suffered substantial damages as a result of the wrongs alleged herein.

45. By reason of the foregoing, defendants violated Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder.

46. By reason of his membership on the Board of Directors and his status as an officer of Raster, Defendant Kumar was a "controlling person" of Raster within the meaning of Section 20 of the Exchange Act and had the power and influence to cause Raster to engage in the unlawful conduct complained of herein. Because of his position of control, Defendant Kumar was able to and did, directly or indirectly, control the conduct of Raster's business, the information contained in its filings with the SEC and public statements about its business.

Plaintiff demands a trial by jury on all issues.

WHEREFORE, plaintiff on his own behalf and on behalf of the Class pray for judgment as follows:

A. Declaring this action to be a proper class action maintainable pursuant to Rule 23 of the Federal Rules of Civil Procedure and plaintiff to be proper class representatives;

B. Awarding plaintiff and the Class compensatory damages, together with appropriate prejudgment interest at the maximum rate allowable by law;

C. Awarding plaintiff and the Class their costs and expenses for this litigation including reasonable attorneys' fees and other disbursements; and

D. Granting such other and further relief as their Court deems to be just and proper.