First Horizon Pharmaceutical Corporation ("First Horizon" or the Company) manufactures specialty pharmaceutical products.

The original Complaint charges that Defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder, and sections 11, 12(a)(2) and 15 of the Securities Act of 1933, by issuing a series of materially false and misleading statements to the market. On April 24, 2002, First Horizon completed a public offering of securities, selling 6.5 million shares of common stock at an offering price of $21.75 per share, pursuant to a Prospectus declared effective by the SEC on April 18, 2002. The Company failed to disclose material information in the Prospectus relating to two products, Tanafed Suspension (a pediatric liquid and allergy product) and Prenate GT (a prescription prenatal vitamin). The Company touted the market for these products highly in its Prospectus. However, the market for these products was severely declining and Defendants had flooded wholesalers with Prenate GT inventory in the first quarter of 2002 in order to report strong sales prior to the secondary offering. Belatedly, Defendants disclosed that due to price erosion arising from generic competition, First Horizon's products had not been widely accepted by the market. In addition, sales growth from the Company's newly acquired "Sular" drug line had failed to yield strong results, and a promised redeployment of First Horizon's sales force similarly failed to boost First Horizon's bottom line. As a result of the Company's misrepresentations, First Horizon investors have sustained tremendous losses, and stand to lose much more as the Company's financial condition continues to decline. On July 2, 2002, the Company shocked the market by revealing that for the second quarter of 2002, the Company expected to report revenues of between $25 and $26 million, and earnings per share between $0.00 and $0.02, excluding a $2.2 million debt write-off. For the full year, First Horizon revised its guidance to $0.34 a share, a far cry from its earlier guidance of $0.56 to $0.57 a share. A July 2, 2002 press release attributed the massive shortfall mainly to "greater than expected erosion of sales in the second quarter" of Tanafed and Prenate GT, as well as "distraction" arising out of a sales force "realignment." In response to the Company's devastating news concerning the lack of acceptance of two of the Company's key products, First Horizon's stock price plummeted by an astonishing 81% or by $14.74 to $3.51, on volumes of 16.4 million shares, about 30 times the daily average.

Conversely, First Horizon said the lawsuit is apparently the result of its stock decline after July 2, when it released a second-quarter outlook that was below Wall Street's expectations. The Company attributed the shortfall to "expected erosion" from products that competed with Tanafed and Prenate.

According to the Company’s FORM 10-K for the fiscal year ended December 31, 2005, the Company, along with certain former and current officers and directors, were named Defendants in a consolidated securities lawsuit initiated on August 22, 2002 in the United States District Court for the Northern District of Georgia. Plaintiffs in the class action litigation alleged in general terms that the Company violated Sections 11 and 12(a)(2) of the Securities Act of 1933 and that the Company violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. In an amended Complaint, Plaintiffs claimed that the Company issued a series of materially false and misleading statements to the market in connection with its public offering on April 24, 2002 and thereafter relating to alleged “channel stuffing” activities. The amended Complaint also alleged controlling person liability on behalf of certain of the Company’s officers under Section 15 of the Securities Act of 1933 and Section 20 of the Securities Exchange Act of 1934. Plaintiffs sought an unspecified amount of compensatory damages in an amount to be proven at trial. On September 29, 2004, the U.S. District Court for the Northern District of Georgia dismissed, without prejudice, the class action lawsuit. Although the class action lawsuit was dismissed, the court granted the Plaintiffs the opportunity to amend their class action lawsuit provided that the Plaintiffs pay all of the Defendants’ fees and costs associated with filing the motions to dismiss the class action lawsuit. Plaintiffs did not file a second amended Complaint as permitted, but instead filed a motion asking the District Court to reconsider its September 29, 2004 order and lift the condition that they must pay Defendants’ fees and costs before further amendment. On June 22, 2005, the District Court denied Plaintiffs’ motion and gave them another opportunity to amend if they pay Defendants’ fees and costs. Once again, Plaintiffs chose not to file a second amended Complaint. Instead, Plaintiffs filed an appeal to the United States Court of Appeals for the Eleventh Circuit. This appeal was then pending.

On October 18, 2006 the United States Court of Appeals issued an order reversing the lower courts decision of dismissal and remanding the case back to the lower court of repleading purposes. The Plaintiffs then filed a Second Amended and Consolidated Complaint against Defendants on April 20, 2007. Two months later, Plaintiffs filed a notice of voluntary dismissal without prejudice for one of the First Horizon individual Defendants.

According to the Company’s FORM 10-K for the fiscal year ended December 31, 2007, the parties recently engaged in a mediation that led to an agreement in principle to settle all of the claims in the class action lawsuit for an amount up to $4.65 million. The settlement is to be entirely funded by the Company's insurance carriers. The parties have entered into a Memorandum of Understanding regarding certain terms of the settlement. The settlement is subject to preliminary and final approval by the District Court. The Company expects to receive these approvals during 2008.

On September 24, 2008 the judge entered the Order and Final Judgment approving the settlement and terminating the case.