According to the Company’s FORM 10-K for the fiscal year ended January 1, 2006, on October 8, 2004, the Court issued an order consolidating the individual actions. On November 1, 2004, the Court appointed lead plaintiffs and lead plaintiffs’ counsel. On January 11, 2005, the Consolidated Amended Complaint was filed by the lead plaintiffs. On March 15, 2005, the defendants moved to dismiss the complaint, and October 19, 2005, the Court granted the motion and dismissed all of the plaintiffs’ claims. Applying the heightened pleading standards of the Private Securities Litigation Reform Act of 1995, or PSLRA, the Court found that all of the allegedly false statements were “forward-looking statements” and were accompanied by sufficient cautionary language to fall under the safe harbor for forward-looking statements provided by the PSLRA. On November 18, 2005, the court signed the final order dismissing this case.
The original complaint charges drugstore.com, its CEO, CFO, and CIO with violations of Section 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder. The Company's CEO is also charged with violating Section 20A of the Exchange Act. The complaint alleges that throughout the Class Period, Defendants issued false and misleading projections of the Company's fiscal year 2004 and second quarter 2004 earnings and overall profitability. While the market was focused on the positive guidance Defendants issued, Company insiders, including Defendants, sold millions of their Company stock. After selling nearly all of his holdings, the Company's CEO resigned while the Company issued revised downward guidance. Upon the Company's disclosure its stock plummeted 38%, on usually high trading volume of 3.8 million shares, from its June 10, 2004 close of $4.91 per share to a close of $3.06 on June 14, 2004.