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UNITED STATES DISTRICT COURT EASTERN DISTRICT OF PENNSYLVANIA
Plaintiff, individually and on behalf of all others similarly situated, by and through his attorneys, alleges the following upon the investigation made by and through plaintiff's counsel. I. PRELIMINARY STATEMENT 1. For over a period of many months, defendants have concealed from the investing public the fact that they have continuously been committing gross violations of the federal securities laws, including misleading the public as to the financial and business conditions of defendant Rite Aid Corporation ("Rite Aid" or the "Company"). 2. Throughout the Class Period of November 17, 1998 to March 12, 1999, defendants disseminated materially false and misleading statements regarding the Company's current financial performance and future business prospects. Specifically, while making positive statements about the strength and growth of the Company, the defendants were aware, but failed to disclose, that (i) the Company was unable to manage its rapid expansion and was losing control over its operations; (ii) the costs associated with advertising and opening or relocating its stores were higher than they represented to analysts and to the public; (iii) the loss on the liquidation of inventory in its newly opened or relocated stores were higher than they represented to analysts and to the public; (iv) the incremental costs associated with Rite Aid's distribution center in Perryman, Maryland, contrary to the defendants' representations, would negatively impact its fourth quarter 1998; (v) synergies from the acquisition of PCS would not be realized in Rite Aid's fourth quarter 1998; and (vi) the revised merchandising strategy implemented by Rite Aid would negatively impact fourth quarter 1998 results. 3. As a result of defendants' deceptive and illegal conduct, plaintiff and other class members purchased their Rite Aid shares at grossly inflated prices. Had plaintiff and the other class members been aware of the true condition of Rite Aid, they would not have purchased their Rite Aid shares or at least not at the inflated prices at which they purchased those shares. II. JURISDICTION AND VENUE 4. This court has jurisdiction over the subject matter of this action pursuant to 28 U.S.C. §1331 and §1337, and Section 27 of the Securities Exchange Act of 1934 (the "Exchange Act") (15 U.S.C. §78aa). 5. This action arises under Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder (17 C.F.R. §240.10b-5). 6. Venue is proper in this District pursuant to Section 27 of the Exchange Act and 28 U.S.C. §1391(b). Rite Aid is headquartered in this District at 30 Hunter Lane, Camp Hill, Pennsylvania 17011, and the acts charged herein, including the dissemination of materially false and misleading information, occurred in this district. 7. In connection with the acts alleged in this Complaint, the defendants, directly or indirectly, used the means and instrumentalities of interstate commerce, including, but not limited to, the mails, interstate telephone communications and the facilities of the national securities markets. III. PARTIES 8. Plaintiff James Pearson purchased shares of Rite Aid common stock, as indicated in his certification attached hereto, during the Class Period and was damaged thereby. 9. Defendant Rite Aid is one of the largest retail drugstore chains in the United States. As of February 28, 1998, Rite Aid operated 3,975 drugstores, with pharmacy services at the core of its business. 10. Defendant Martin L. Grass at all relevant times was the Chairman of the Board and the Chief Executive Officer of Rite Aid. 11. Defendant Frank M. Bergonzi at all relevant times was the Chief Financial Officer of Rite Aid. 12. Defendant Timothy J. Noonan at all relevant times was the President, Chief Operating Officer and a director of Rite Aid. 13. Defendants Grass, Bergonzi and Noonan (the "Individual Defendants") were at all relevant times during the Class Period controlling persons of Rite Aid within the meaning of Section 20(a) of the Exchange Act. In addition, the Individual Defendants had the power and influence, and exercised such power and influence, to cause Rite Aid to engage in the unlawful practices complained of herein. Because of their executive, managerial and/or directorial positions with Rite Aid, the Individual Defendants had access to the adverse, non-public information about the business, finances and future business prospects of Rite Aid as particularized herein and acted to misrepresent, misstate or conceal such information from plaintiff, class members and the investing public. 14. The Individual Defendants participated in the wrongdoing complained of herein in order to, among other things, inflate and maintain the price of the common stock of the Company, and conceal the adverse facts concerning the Company's operations, businesses, management, financial condition and future prospects, so that they could, among other things, (i) protect and enhance their positions as officers and/or directors of Rite Aid and the substantial compensation and prestige they obtained thereby, (ii) enhance the value of their personal holdings of Rite Aid common stock (iii) enhance the ability of Rite Aid in making future acquisitions; and (iv) enable Rite Aid to pay for the acquisition of PCS, which was financed largely with short-term debt, and Rite Aid planned to use proceeds of a public offering of more shares to repay that commercial-paper debt. 15. Defendants are liable, jointly and severally, as direct participants in the wrongs complained of herein. Defendants had a duty to promptly disseminate accurate and truthful information with respect to Rite Aid's business, operations, financial condition and future prospects or to cause and direct that such information be disseminated so that the market price of Rite Aid stock would be based on truthful and accurate information. 16. Each of the defendants knew of and recklessly disregarded the fact that the illegal acts and practices and misleading financial statements and omissions described herein would adversely affect the integrity of the market for Rite Aid common stock and would artificially inflate or maintain the price of those securities. Each of the defendants, by acting as herein described, did so knowingly or in such a reckless manner as to constitute a fraud and deceit upon plaintiff and members of he Class plaintiff seeks to represent. IV. PLAINTIFF'S CLASS ACTION ALLEGATIONS 17. Plaintiff brings this action as a class action pursuant to Rule 23(a) and (b)(3) of the Federal Rules of Civil Procedure on behalf of a Class consisting of all persons and entities who purchased or otherwise acquired Rite Aid common stock from November 17, 1998 to March 12, 1999, inclusive (the "Class Period"), and who were damaged thereby. Excluded from the Class are the defendants, officers and directors of the Company, members of their immediate families, and their legal representatives, heirs, successors or assigns and any entity in which defendants have or had a controlling interest. 18. During the Class Period, thousands of shares of common stock of Rite Aid were traded on an efficient and developed securities market. Thousands of brokers nationwide have access to trading information about Rite Aid through the system. Within minutes of any transaction taking place, this system displays the most recent trades and prices. 19. The members of the Class are so numerous that joinder of all members is impracticable. While the exact number of Class members is unknown to plaintiff at this time and can only be ascertained through appropriate discovery, plaintiff believes that there are hundreds, if not thousands, of members of the Class. As of January 12, 1999, there were approximately 258 million shares of Rite Aid common stock outstanding and actively traded on the NYSE, an efficient market, under the ticker symbol "RAD". 20. Plaintiff's claims are typical of the claims of the members of the Class as all members of the Class are similarly affected by defendants' wrongful conduct in violation of federal law that is complained of herein. 21. 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 that are adverse or antagonistic to those of the Class. 22. A class action is superior to other available methods for the fair and efficient adjudication of this controversy. Because the damages suffered by many individual Class members may be relatively small, the expense and burden of individual litigation make it virtually impossible for the Class members to individually seek redress for the wrongful conduct alleged herein. 23. 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: (i ) whether the federal securities laws were violated by defendants' acts as alleged herein; (ii) whether defendants participated in and pursued the common course of conduct complained of herein; (iii) whether documents, press releases and other statements disseminated to the investing public and the Company's shareholders during the Class Period misrepresented the business and financial condition of Rite Aid; (v) whether defendants failed to correct prior statements when subsequent events rendered those prior statements untrue or inaccurate; (vi) whether defendants acted willfully or recklessly in misrepresenting and/or omitting to state material facts; (vii) whether the market price of Rite Aid's common stock during the Class Period was artificially inflated due to the misrepresentations and/or non-disclosures complained of herein; and (viii) whether the members of the Class have sustained damages, and, if so, what is the proper measure thereof. 24. Plaintiff will rely, in part, upon the presumption of reliance established by the fraud-on-the-market doctrine in that:
25. Based upon the foregoing, plaintiff and members of the Class are entitled to a presumption of reliance upon the integrity of the market for, at least, the purposes of class certification, as well as for ultimate proof of the claims on their merit. Similarly, plaintiff and members of the Class are entitled to a presumption of reliance with respect to the omissions alleged herein. 26. Plaintiff envisions no difficulty in the management of this litigation as a class action. V. ALLEGATIONS OF FRAUD 27. During the Class Period, the defendants engaged in a scheme to defraud the investors of Rite Aid by disseminating false and misleading information about the Company's business and financial conditions. 28. The scheme to defraud began on November 17, 1998, when Rite Aid and Eli Lilly and Company announced that they entered into an agreement to enable Rite Aid to acquire the equity of Lilly's subsidiary, PCS, for $1.5 billion in cash. In order to finance the purchase, which "is expected to be financed with a sufficient amount of common equity and equity-linked securities to allow Rite Aid to maintain its credit rating and its strategic and financial flexibility," the defendants had to make sure that Rite Aid's stock be maintained at an artificially inflated, since the acquisition of PCS was financed largely with short-term debt, and Rite Aid planned to use proceeds of a public offering of more shares to repay that commercial-paper debt. 29. Throughout the Class Period, the defendants were in regular communication with analysts from Merrill Lynch, Raymond James & Associates and Morgan Stanley Dean Witter. The defendants used the analysts and their reports as conduits through which to disseminate false and misleading statements about Rite-Aid in order to artificially inflate the stock price. 30. Following the announcement concerning Rite Aid's acquisition of PCS on November 17, 1998, CEO Martin Grass and the other defendants held a Company sponsored call. Among the analysts present was D.J. Levin of Morgan Stanley Dean Witter, who issued a highly positive analyst report about Rite Aid that same day, based on the statements of the defendants. The analyst report stated that: WE VIEW POSITIVELY RAD'S ANNOUNCEMENT THAT IT WILL ACQUIRE PCS, THE NATION'S LARGEST PHARMACY BENEFIT MANAGER (PBM) FROM ELI LILLY . . .. * * * RAD EXPECTS TO BENEFIT FROM $80-100 MILLION OF SYNERGIES in the first full year of operations and expects the acquisition to be accretive, adding $0.01-0.03 in the first full year of operations and $0.06-0.07 in the following year . . .. 31. Likewise, on November 18, 1998, Merrill Lynch Capital Markets issued an analyst report written by M. Husson, which was also based on the statements of the defendants. The report stated: Accretion in First Full Year . . . [T]he deal comes with an estimated $80 million of synergies in year 1 and an additional $20-40 million in year to (i.e. year to Feb. 2001). The following additions and subtractions amount to $0.02 accretion: $121 million EBITDA+$80 million synergies-$40 million amortization-$19 million depreciation= $142 million incremental EBIT. Subtract $110 million in interest expense (7.5% financing) and $30 million tax (this is at a higher rate because of disallowable amortization) equals a net income contribution of $4.6 million or EPS accretion of $0.02. We believe these forecasts are conservative. 32. The above statements were false and misleading, as defendants were aware, when they communicated the information to analysts, that the company would not be able to realize any fourth-quarter benefits from synergies between Rite-Aid and PCS. 33. On December 15, 1999, Raymond James & Associates issued an analyst report written by M.T. Glover, Jr. concerning Rite Aid, based on information provided by defendants. The report rated Rite Aid a "buy", and stated that: We are maintaining our FQ4 and FY98 EPS estimates of $0.53 and $1.51, respectively. We are also maintaining our FY99 EPS estimate of $1.80, which assumes $0.02-$0.03 of accretion from the PCS acquisition. In FQ4, our $0.53 versus $0.44 EPS estimate (+20%) is based on the continuation of strong pharmacy comp momentum and related expense leverage, improved profit margins due to the discontinuation of loss-leader promotions on the West Coast, and continued improvements in gross and operating profitability in the South. Also, the company incurred some start-up costs related to the Perryman DC in FQ3, which will not occur in FQ4. Additionally, we look for West Coast front-end sales to show gradual improvement throughout FQ4 and into next year as the company anniversaries the elimination of the promotional activity and continues to see benefits from WC remodels. 34. On December 29, 1999, Raymond James & Associates issued another analyst report written by J.W. Ransom concerning Rite Aid, based on information provided by defendants. The report gave Rite Aid a "buy" rating, and maintained its FQ4 and FY98 EPS estimates of $0.53 and $1.51. The report stated: We believe that the PCS transaction is a major step forward in the company's efforts to remake itself into a healthcare company. With 60 million members, Rite Aid/PCS will own the largest PBM membership base in the country and will control a membership that is 10x-15x larger than that owned by the other retail drug store chains. We reiterate our belief that the PCS acquisition will further strengthen Rite Aid's position as a leading provider of integrated pharmacy services to managed care providers. We believe this positioning, as well as the enhanced growth opportunities that should result from the acquisition, argue for substantial multiple improvement from current levels. * * * We spoke to management on Monday. Early indications are that the Christmas season was strong and the company is on track to meet its short-term sales/inventory goals. The report also reiterated: We are maintaining our FQ4 and FY98 EPS estimates of $0.53 and $1.51, respectively. We are also maintaining our FY99 EPS estimate of $1.80, which assumes $0.02-$0.03 of accretion from the PCS acquisition. In FQ4, our $0.53 versus $0.44 EPS estimate (+20%) is based on the continuation of strong pharmacy comp momentum and related expense leverage, improved profit margins due to the discontinuation of loss-leader promotions on the West Coast, and continued improvements in gross and operating profitability in the South. Also, the company incurred some start-up costs related to the Perryman DC in FQ3, which will not occur in FQ4. Additionally, we look for West Coast front-end sales to show gradual improvement throughout FQ4 and into next year as the company anniversaries the elimination of the promotional activity and continues to see benefits from WC remodels. 35. On January 8, 1999, Morgan Stanley Dean Witter issued an analyst report written by D.J. Levin concerning Rite Aid, based on information provided by defendants. The report rated Rite Aid a "strong buy", and stated the following: - WE ARE RAISING OUR PRICE TARGET ON SHARES OF RAD BY $6 TO $60 . . .. * * * - We continue to recommend shares of RAD given our belief that the company will benefit from strong steady earnings growth due to its aggressive expansion and remodeling program, strong sales growth, and the benefits from its investments in technology and distribution. In addition, we expect the forthcoming acquisition of PCS to benefit sales and earnings going forward. 36. The foregoing statements about Rite Aid were false and misleading, as the defendants were aware, but failed to disclose facts (and failed to correct analysts statements) concerning the following: that (i) the Company was unable to manage its rapid expansion and was losing control over its operations; (ii) the costs associated with advertising and opening or relocating its stores were higher than they represented to analysts and to the public; (iii) the loss on the liquidation of inventory in its newly opened or relocated stores were higher than they represented to analysts and to the public; (iv) the incremental costs associated with Rite Aid's distribution center in Perryman, Maryland, contrary to the defendants' representations, would negatively impact its fourth quarter 1998; (v) synergies from the acquisition of PCS would not be realized in Rite Aid's fourth quarter 1998; and (vi) the revised merchandising strategy implemented by Rite Aid would negatively impact fourth quarter 1998 results. 37. On February 1, 1999, in an effort to keep Rite Aid stock at an artificially inflated level, the defendants announced over the Business Wire that Rite Aid's same store sales for the four weeks ended January 23, 1999, rose 8.7 percent over the prior-year period led by pharmacy same-store sales increases of 15.6 percent. 38. On March 3, 1999, the defendants issued another press release over the Business Wire that the same store sales of Rite Aid, for the five weeks ended February 27, 1999, rose 9.8 percent over the prior period led by pharmacy same-store sales increases of 16.6 percent. 39. In making these positive announcement about the Company, however, the defendants failed to disclose that the Company was incurring high costs in connection with its growth and expansion and that it was losing control over its operations. 40. Finally, on March 12, 1999, the truth was disclosed when defendants announced via the Business Wire that Rite Aid expects fourth quarter earnings of $0.30 to $0.32 a share, well below Wall Street expectations of $.52. According to the defendants: During the year, the company opened 578 new and relocated stores. Thirty-five percent of these units, or 206 stores, were opened in the last 45 days of the fourth quarter. The costs and expenses associated with the opening or relocation of those 206 stores accounted for approximately $.07 of the shortfall, which includes $.02 in greater than anticipated grand opening advertising expenses. In addition, the fourth- quarter loss on the liquidation of inventory in the 208 stores closed during the third and fourth quarters exceeded expectations by about $.04. Rite Aid's new 875,000 square-foot, state of the art distribution center in Perryman, Maryland, became fully operational this week, supplying 760 stores in the mid-Atlantic region. Start-up software problems at Perryman delayed the closing of the older Shiremanstown, Pennsylvania, distribution for 11 weeks. The incremental costs incurred in running both facilities for that time period were approximately $.03 per share. The acquisition of PCS Health Systems on January 22, 1999, five weeks earlier than anticipated, did not allow sufficient time for the company to realize any fourth-quarter benefits from the synergies. This was responsible for approximately $.02 of the shortfall. Rite Aid also implemented a revised merchandising strategy during the quarter to reduce the selection of certain seasonal categories primarily in the eastern and southern stores. The markdowns associated with this strategy were responsible for approximately $.02 of the shortfall. Certain unanticipated costs and settlements were responsible for the balance of the shortfall. 41. Shocking the investing public, the same day as the announcement, Rite Aid shares tumbled 43 percent from $37 3/11 the day before to close at $22 9/16, a decline of over $14. Analysts were equally shocked. According to a March 12, 1999 Bloomberg article, Merrill Lynch analyst Mark Husson stated that the Company needs to "slow down and establish a greater level of control. There appears to be an accounting black hole here. There's been a shortfall in their ability to forecast." According to a March 12, 1999 Reuters article, analyst Eric Bossard at Midwest Research said, "It certainly is a surprise." In another Bloomberg article entitled "Rite Aid 4th-Qtr Profit to be Far Below Estimates", Scott George, chief investment strategist at Corinthian Partner LP, stated: "They overextended their boundaries." VI. UNDISCLOSED FACTS 42. Defendants' public statements and others of similar import described above were materially false, misleading and lacking in reasonable basis in that defendants failed to disclose, inter alia, that: (i) the Company was unable to manage its rapid expansion and was losing control over its operations; (ii) the costs associated with advertising and opening or relocating its stores were higher than they represented to analysts and to the public; (iii) the loss on the liquidation of inventory in its newly opened or relocated stores were higher than they represented to analysts and to the public; (iv) the incremental costs associated with Rite Aid's distribution center in Perryman, Maryland, contrary to the defendants' representations, would negatively impact its fourth quarter 1998; (v) synergies from the acquisition of PCS would not be realized in Rite Aid's fourth quarter 1998; and (vi) the revised merchandising strategy implemented by Rite Aid would negatively impact fourth quarter 1998 results. 43. As a result of the disclosure of the truth regarding defendants' irregular accounting activities, defendants have overstated the revenues and net income of the Company during the Class Period. 44. In ignorance of the adverse facts concerning Rite Aid's true business and financial condition, which were concealed by defendants, plaintiff and other members of the Class purchased Rite Aid common stock at artificially high prices, relying upon the statements made and/or upon the integrity of the market and were damaged thereby. 45. Had plaintiff and the other members of the Class known of the materially adverse information not disclosed by the defendants, they would not have purchased Rite Aid common stock at the artificially inflated prices that they did. VII. DEFENDANTS' GUIDANCE TO SECURITIES ANALYSTS AND USE OF THEM TO PROVIDE FALSE INFORMATION TO THE SECURITIES MARKETS 46. As described below, among other wrongful conduct, defendants used communications with securities analysts to promote the Company and to manipulate and artificially inflate the price of Rite Aid common stock during the Class Period. 47. Rite Aid is followed by securities analysts employed by brokerage houses and/or broker/dealers which issue reports and make recommendations concerning Rite Aid's common stock to their clients. Among the securities firms that followed the Company during the Class Period were Merrill Lynch, Morgan Stanley Dean Witter and Raymond James and Associates. 48. In writing their reports, analysts from Merrill Lynch, Morgan Stanley Dean Witter and Raymond James and Associates and others relied in substantial part upon information provided by the Company, public statements and reports of the Company, and information provided privately by defendants and assurances by the individual defendants and the Company that information in the analysts' draft reports did not materially vary from the Company's internal knowledge of its operations, financial condition, and prospects. 49. Prior to and during the Class Period, it was the Company's practice to have its top officers and key members of its management team, including the individual defendants, communicate regularly with securities analysts at Merrill Lynch, Morgan Stanley Dean Witter and Raymond James and Associates and others to discuss, among other things, the Company's operating results, financial condition, and anticipated revenues and to provide detailed "guidance" to these analysts with respect to the Company's business and anticipated revenues and earnings. These communications included, but were not limited to, conference calls, meetings, and analyst briefings where defendants discussed relevant aspects of the Company's operations, financial condition, and prospects. 50. The defendants knew that by participating in these regular and periodic direct communications with analysts, the Company could disseminate information to the investment community and that investors would rely and act upon such information (i.e., make purchases and/or sales of the Company's securities). The individual defendants had these communications with analysts in order to cause or encourage them to issue favorable reports concerning Rite Aid, which the analysts did, and defendants used these communications to falsely present the operations and financial condition of Rite Aid to the marketplace in order to artificially inflate the market price of Rite Aid's common stock. Despite their duty to do so, the individual defendants failed to correct these statements (of which they were the sources or which they had caused or facilitated) during the Class Period. 51. The investment community and, in turn, investors relied and acted upon the information communicated in these written reports that recommended that investors purchase Rite Aid shares and touted the purported appreciation prospects of the shares. Defendants manipulated and inflated the market price of Rite Aid shares by falsely presenting to analysts, through regular meetings and during both telephonic and written communications, the condition and prospects of the Company and by failing to disclose the true adverse information about the Company that was known only to them. 52. During the Class Period, each individual defendant occupied a position that made him privy to non-public information regarding Rite Aid. Because of this access, each of these defendants knew that the adverse facts specified herein were being concealed and that the public statements being made by the Company were false. VIII. DEFENDANTS' INTERNAL FORECASTS, PLANS AND PROJECTIONS 53. A key management tool for Rite Aid's top executives was Rite Aid's annual budget or forecasts (including, inter alia, information with respect to Rite Aid's strategic business plan and the size of contracts entered into and the impact of entering into larger contracts on the Company's revenue stream), by which the Company's Board, after input from top executives, set performance goals and then closely monitored the Company's actual performance compared to that budgeted and/or forecasted. 54. Each of the individual defendants was aware of Rite Aid's actual or preliminary 1998 budget forecasts and relied upon such estimates in their communications with financial analysts and other participants in the securities markets, with whom they shared their plans and whose forecasts of earnings incorporated or were based on such plans and projections. Defendants knew that analysts and other market participants would make such use of Rite Aid's internal plans and forecasts and consciously and deliberately sought to have its budgets and forecasts used in this manner. 55. However, defendants were also constantly aware of internal, non-public reports and analyses comparing Rite Aid's actual results with those budgeted and/or forecasted. Based upon the negative internal reports of the Company's actual performance compared to that budgeted or forecasted, the individual defendants knew (or recklessly disregarded) that Rite Aid's business was not performing as well as publicly represented and that Rite Aid's statements (as set forth below) were without reasonable basis and, thus knowingly or recklessly false when made. Despite such knowledge, defendants did not share their knowledge of these adverse facts with the investing public until after the Class Period, but continued to disseminate falsely optimistic and bullish messages to investors and failed to correct previous statements when they knew or should have known that such statements were incorrect. 56. Thus, defendants each knew that the statements issued during the Class Period about Rite Aid were similarly materially false and misleading at all relevant times. COUNT I 57. Plaintiff repeats and realleges the allegations above as though fully set forth herein. 58. During the Class Period, the defendants, and each of them, carried out a plan, scheme and course of conduct which was intended to and, throughout the Class Period, did: (i) deceive the investing public, including plaintiff and the other class members, as alleged herein; (ii) artificially inflate and maintain the market price of Rite Aid; and (iii) cause plaintiff and other members of the Class to purchase Rite Aid securities at inflated prices. In furtherance of this unlawful scheme, plan and course of conduct, defendants, and each of them, took the actions set forth herein. 59. Defendants (a) employed devices, schemes, and artifices to defraud; (b) made untrue statements of material fact and/or omitted to state material facts necessary to make the statements not misleading; and (c) engaged in acts, practices, and a course of business which operated as a fraud and deceit upon the purchasers of the Company's stock in an effort to maintain artificially high market prices for Rite Aid securities in violation of section 10(b) of the Exchange Act and Rule 10b-5. 60. The statements made by defendants during the Class Period were materially false and misleading because at the time they were made, the Company and persons acting as corporate officers knew or recklessly ignored, but failed to disclose, the matters set forth herein. 61. In ignorance of the artificially high market prices of Rite Aid' publicly traded securities, and relying directly on defendants or indirectly on the false and misleading statements made by defendants, upon the integrity of the market in which the securities trade, on the integrity of the regulatory process and the truth of representations made to appropriate agencies throughout the Class Period and/or on the absence of material adverse information that was known to defendants but not disclosed in public statements by defendants during the Class Period, plaintiff and the other members of the Class acquired Rite Aid securities during the Class Period at artificially high prices and were damaged thereby. 62. Had plaintiff and the other members of the Class and the marketplace known of the true financial condition, business prospects and character of leadership of Rite Aid which were not disclosed by defendants, plaintiff and other members of the Class would not have purchased or otherwise acquired their Rite Aid securities during the Class Period, or would have not done so at the artificially inflated prices which they paid. Hence, plaintiff and the Class were damaged by defendants' violations of Section 10(b) and Rule 10b-5. COUNT II 63. Plaintiff incorporates by reference the above paragraphs above as if set forth fully herein. This Count is asserted against the Individual Defendants. 64. The Individual Defendants acted as controlling persons of Rite Aid within the meaning of Section 20 of the Exchange Act as alleged herein. By reasons of their executive, managerial and/or directorial positions with Rite Aid, the Individual Defendants had the power and authority to cause the Company to engage in the wrongful conduct complained of herein. 65. By reasons of the aforementioned wrongful conduct, the Individual Defendants are liable pursuant to Section 20(a) of the Exchange Act. As a direct and proximate result of their wrongful conduct, plaintiff and the other members of the Class suffered damages in connection with purchasing the Company's securities during the Class period. WHEREFORE, plaintiff prays for relief and judgment, as follows: (i) Determining that this action is a proper class action, certifying plaintiff as class representative under Rule 23 of the Federal Rules of Civil Procedure and his counsel as class counsel; (ii) Awarding compensatory damages in favor of plaintiff and the other class members against all defendants, jointly and severally, for all damages sustained as a result of defendants' wrongdoing, in an amount to be proven at trial, including interest thereon; (iii) Awarding plaintiff and the Class their reasonable costs and expenses incurred in this action, including counsel fees and expert fees; and (iv) Such other and further relief as the Court may deem just and proper. JURY DEMAND Plaintiffs hereby demand a trial by jury.
SAVETT FRUTKIN PODELL & RYAN, P.C. By: _______________________________ Kevin J. Yourman |