As reported by the Company's SEC Form 10-Q for the quarterly period ended April 4, 1999, the case against the Rainforest Cafe was dismissed without prejudice on December 21, 1998. Plaintiffs filed an appeal of the judgement of dismissal
on January 29, 1999 and then filed a motion to voluntarily dismiss the appeal on
March 16, 1999. The appeal was dismissed on April 21, 1999.
According to the docket 98-CV-0074, on June 4, 1998, the Court entered the Order for Consolidation and Appointment of Lead Plaintiffs and Counsel. All related actions were consolidated into Civil File No. 98-74, entitled In Re Rainforest Cafe, Inc. Securities Litigation. The lead plaintiffs are Emanuel Massing, James Hiss, Jack Florio, Shirley Benjamin, James Zimmerman and Thomas Obinger, and the Court approved the the selection of Wolf Haldenstein Adler Freeman & Herz LLP as Lead Counsel and Heins, Mills and Olsen, P.L.C. as Liaison Counsel. On July 31, 1998, the plaintiffs filed a First Consolidated Amended Complaint, and on August 31, 1998, the defendants responded by filing a motion to dismiss the First Consolidated Amended Complaint.
The original complaint charges Rainforest and certain officers and directors of the Company during the relevant time period with violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 for misrepresenting material information concerning Rainforest's financial condition, including negative sales trends in certain of the Company's restaurants, during the Class Period. Because of the issuance of a series of false and misleading statements and omissions concerning Rainforest's business and true financial condition, Rainforest common stock was artificially inflated during the Class Period.
On Jan 6, 1998 the Company announced that its three longest standing restaurants, that comprise its comparable store sales base, had experienced an 11% decline in sales in its 1997 fourth quarter in comparison to the same quarter in 1996. The Company additionally, announced that several other Company restaurants had also suffered declining sales in the fourth quarter. On the release of these negative results the Company's shares fell $12-3/8 to $18-3/8 or 40%.
The Complaint alleges that the Company's sophisticated Management Information Systems, including its point of sale system (the "POS" System) and its Unit- level system, provided management with daily information from each store, including inventory, revenue and sales information. The Complaint alleges that defendants therefore had immediate knowledge of the ompany's negative sales trends and failed to disclose this information to the investing public. The Complaint further alleges that defendants availed themselves of this inside knowledge of the Company's increasingly negative sales trends in the fourth quarter to sell the vast majority of their stock beginning on Oct. 23, 1997 (i.e. 25 days into the fourth quarter). The Complaint alleges that defendants sold 107,400 Rainforest shares for proceeds of over $3,640,000 at prices as high as $35.38 per share (i.e. nearly double its Jan. 6, 1998 price of $18-3/8). The Company's Chief Financial Officer sold 90% of his Rainforest stock holdings between Oct. 23 and Oct. 28, 1997 i.e. only three days after the Company announced, through its CEO, defendant Lyle Berman, that it was "pleased with the continued strong performance of all existing Rainforest Cafe units ... "