r ~l r n

UNITED STATE DISTRICT COURTMIDDLE DISTRICT OF FLORIDA

Tampa Division

CRAIG CUTSFORTH, on Behalf of Himself andAll Others Similarly Situated,

Plaintiffs ,

V .

ARNOLD C. RENSCHLER, ROBERT DELLAVALLE, JAMES D. SHELTON, andPHARMERICA, INC .

Defendants .

AARON BRODY, on Behalf of Himself and AllOthers Similarly Situated,

Plaintiff,

v .

PHARMERICA, INC ., ARNOLD RENSCHLER,JAMES D. SHELTON, ROBERT DELLAVALLE, and ALLAN SILBER,

Defendants .

0

~ . U .S .O+STRI,,T COUR TWSTRtCI OF FLORIDA

TAMPA . FLORID A

CASE NO. 98-2424-CIV-T-25BJUDGE ADAM S

CASE NO. 99-296-CIV-T-25BJUDGE ADAMS

AMENDED CONSOLIDATED CLASS ACTION COMPLAIN T

Plaintiffs, by and through their attorneys, allege the following based upon, among other

things, the investigation of their attorneys, including without limitation : (a) review and analysi s

of public filings made by PharMerica Inc . ("PharMerica" or the "Company"), with the Securities

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and Exchange Commission ("SEC"); (b) interv iews with former employees of PharMerica; (c )

review and analysis of securities analysts' reports concerning PharMerica ; (d) review and

analysis of PharMerica press releases and reports and articles about PharMerica and/or th e

individual defendants in the financial and general press ; (e) review and analysis of other publicly

available information about PharMerica; (f) review and analysis of PharMerica financia l

statements and reports ; and (g) consultation with certified public accountants . Plaintiffs believe

that further evidentiary support for the allegations will be uncovered after reasonable opportunit y

for discovery. Many additional detailed facts supporting the allegations contained herein ar e

known only to defendants or are within their exclusive possession and control .

NATURE OF THE CASE

1 . This is a securities class action on behalf of purchasers of the common stock o f

PharMerica from January 7, 1998 through July 24, 1998, inclusive (the "Class Period") .

Plaintiffs' claims arise under Sections 10(b) and 20(a) of the Securities Exchange Act of 193 4

(the "Exchange Act") . Plaintiffs' claims are brought against PharMerica and certain of it s

officers and/or directors, based on their dissemination of materially false and misleading positive

statements about PharMerica's business and financial condition and the purported success of it s

aggressive acquisition program .

2. PharMerica, a provider of institutional pharmacy products and services, was

created in December 1997 through a merger of Pharmacy Corporation of Ame rica ("PCA") and

Capstone Pharmacy Services ("Capstone"). According to a former management employee of

Capstone, in October 1997, prior to the consummation of the merger, PCA and Capstone' s

management prepared an aggressive written acquisition schedule (the "Consolidation Plan") that

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called for the consolidation of nineteen (19) pharmacies located across the nation by the spring o f

1998 .

3 . Soon after the merger, commencing January 7, 1998, PharMe rica embarked upon

a "buying spree" in order to institute its management's Consolidation Plan . By February 9, 1998 ,

the Company announced the completion of six acquisitions and that it had five more underway .

These acquisitions primarily involved smaller, independent pharmacies located across the nation .

In February 1998, the Company turned its focus to larger acquisitions . By March 6, 1998,

PharMerica announced that it had completed a total of eleven acquisitions . On April 15, 1998 ,

the Company announced the acquisition of The Chamberlain Group, a large ge ri atric

pharmaceutical care management organization that consists of three clinical organizations. On

June 9, 1998, the Company announced that it had reached an agreement to acquire National

Institutional Pharmaceutical Services , Inc . ("NIPSI"), an institutional pharmacy that operated 3 5

pharmacies in 15 states . PharMerica announced two additional acquisitions, Apothecar e

Pharmacy Inc . in Tampa, Florida and Greenville Pharmacy in Portland, Connecticut, in June and

July of 1998 .

4. Throughout this time, the defendants continuously carried on a campaign that

consisted of publicly issuing false and misleading statements extolling the synergies and othe r

competitive advantages that PharMerica had already, and would continue to obtain from the

Capstone/PCA merger and the purportedly successful implementation of the Company's massiv e

acquisition program. During the Class Period, defendants repeatedly made statements and cause d

PharMerica to make statements in public filings and press releases, that its Consolidation Plan

was on track to expand PharMerica's network throughout the country, and as a result the

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Company was able to achieve signific ant cost savings through economies of scale, when in fact i t

was not . According to these defendants -- who were the top officers of the Company -- th e

consolidations had been proceeding smoothly, and "synergies" were being realized that woul d

continue to result in increased revenues and profitability .

5 . In fact, as defendants knew or recklessly disregarded, the acquisition program was

a debacle. PharMerica was experiencing significant problems and delays integrating and/o r

consummating acquisitions undertaken before and during the Class Period. These integration

problems manifested themselves in the form of duplicative expenses, delays in divesting certain

businesses, delays in consummating announced acquisitions and failure to monitor th e

performance of the pharmacies added to the PharMerica network . Indeed , as later revealed ,

defendants had set unrealistic, unattainable goals and budgets for PharMerica's newly acquired

pharmacies, and were including non-existent accounts as well as inflated and bogus accounts in

the budget . Moreover, as the defendants well knew, but failed to disclose, rather than achievin g

efficiencies of scale, the acquisitions were creating inefficiencies and increased costs, includin g

increased staffing .

6. As defendants well knew, yet failed to disclose, PharMerica was also experiencing

operating shortfalls at some of its recently acquired pharmacies and non-core businesses . In

particular, PharMerica's department of corrections business ("DOC") and five of its pharmacies ,

were generating significant losses and negative operating cash flows . Despite their knowledge o f

these facts and despite their knowledge of the complexities entailed in consolidating man y

pharmacies at one time, defendants barraged the market with announcements of acquisitions

which focused only on the increased revenues and synergies to be recognized from the

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transactions . Defendants disseminated false and misleading statements in press releases, financia l

statements and reports that minimized the risks associated with the Company's aggressive

acquisition strategy , the complexities entailed in consolidating Capstone , PCA and th e

subsequently acquired companies, and falsely portrayed the costs associated with th e

consolidation program and the prior performance of several of the acquired entities .

7. Defendants' fraud during the Class Period also included accounting manipulation s

and the public issuance of materially inflated financial results . The accounting fraud was part an d

parcel of defendants' overall scheme to conceal and misrepresent the true state of the Company's

business and operating condition in order to maintain the market price of its common stock at

artificially inflated levels . In particular, defendants engaged in accounting manipulation s

improperly deferring impairment losses in violation of generally accepted accounting principles

("GAAP") . Defendants knew and failed to disclose or recklessly failed to disclose that increased

earnings were not possible in 1998 because five pharmacies which had been generating losses and

negative operating cash flows would be sold or closed in the foreseeable future. When these

pharmacies were divested, PharMerica would recognize approximately $99 million of impairment

losses which had been inappropriately deferred from earlier accounting periods . Additionally, the

operations of the Company' s non-core businesses , such as the Company's DOC business, were

experiencing earnings shortfalls . These non-core businesses were expected to be disposed o f

during 1998, at which time, no less than $4.5 million of impairment losses which had been

inappropriately deferred from earlier accounting periods would have to be recognized .

8. Ultimately, PharMerica was forced to disclose facts that belied the defendants '

false and misleading statements during the Class Pe riod . On July 23, 1998, the Company issued a

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press release which disclosed the problems the Company was encountering with its acquisitio n

strategy, especially delays in closing its larger acquisitions (such as its acquisition of NIPSI), an d

the material and negative impact those problems were having on earnings . The Company also

disclosed that it was experiencing operating shortfalls at several of its pharmacies, and that it had

not completed divestiture of non strategic businesses. Overall, the announcement heralded an

earnings per share shortfall of $ .02 per share, or over $1 .8 million. In reaction to these

unexpected disclosures, the price of PharMerica common stock plummeted approximately 40% ,

to close at $5.50 per share on July 24, 1998 on unusually high volume of 18 million shares .

9. During the Class Period, plaintiffs and each member of the Class purchased share s

of PharMerica common stock in the open market without knowledge of the false and misleadin g

statements and omissions of the defendants and without knowledge that the price of PharMeric a

common stock was artificially inflated du ring the Class Period, and have suffered damages as a

result . During the Class Period, plaintiffs and each member of the Class directly or indirectl y

relied upon the defendants' public reports, press releases, filings with the SEC and other public

statements , as more fully described below, and the fact that PharMerica common stock was fairl y

priced and/or upon the integrity of the market for PharMerica securities . As a result, plaintiffs and

each member of the Class have been damaged by the defendants' wrongful conduct .

JURISDICTION AND VENUE

10. This Court has jurisdiction over the subject matter of this action pursuant t o

Section 27 of the Exch ange Act, 15 U .S.C. § 78aa and pursuant to 28 U .S.C. §§ 1331 and 1337 .

The claims asserted herein arise under Sections 10(b) and 20(a) of the Exchange Act and presen t

federal questions .

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11 . Venue is proper in this judicial dist rict pursuant to Section 27 of the Exchange Act

and pursuan t to 28 U.S.C. § 1391(b) and (c) . At all times relevant to the complaint , PharMerica

maintained its principal business executive offices in Tampa, Florida, in this judicial district . In

addition, a substantial number of the false and misleading statements complained of were

prepared and disseminated to the investing public from offices within this district .

12 . In connection with the violations of law alleged in this complaint , defendants ,

directly or indirectly, used the means and instrumentalities of interstate commerce, including the

United States mail, interstate wire and telephone facilities, the facilities of the national securitie s

markets and the Internet to distribute the false and misleading statements complained of herein .

THE PARTIES

13. Lead plaintiffs Craig Cutsforth, David C . and Helen M . Pool, Betty C . McPherson ,

Reuben J . Grubb, Joseph Perri, Annette Perri, Heavy Realty Co . and Frank Mandelbaum

purchased shares of PharMerica at artificially inflated prices during the Class Period and have

been damaged thereby.

14. Defendant PharMerica provides institutional pharmacy services to the elderly,

chronically ill and disabled in long-term care and alternate site settings, including skilled nursin g

facilities, assisted living facilities , specialty hospitals and the home . The Company is also a

leading provider of mail order pharmacy benefit services to the workers' compensation an d

catastrophic care markets . PharMerica is incorporated in the State of Delaware and maintains it s

p rincipal executive offices at 3611 Queen Palm Drive, Tampa, Florida 33619 . As of August 4,

1998, PharMerica had over 89 .9 million shares of common stock outstanding . Throughout the

Class Period, PharMerica common stock was actively traded on the NASDAQ National Market

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System under the symbol "DOSE ." In April 1999, Bergen Brunswig acquired PharMerica which

is now Bergen Brunswig's wholly-owned subsidiary .

15. Defendant Arnold C . Renschler ("Renschler") was, at all relevant times, the

President and Chief Executive Officer ("CEO") of the Company and a member of its Board o f

Directors . Prior to the formation of PharMe rica, Renschler was the CEO and President of PCA, a

subsidiary of Beverly Enterp rises, Inc .

16. Defendant Robert Della Valle ("Della Valle") was, at all relevant times, the

Company's Executive Vice President and Chief Executive Officer . Prior to the formation o f

PharMerica, Della Valle was the Chief Operating Officer of Capstone. On November 9, 1998 ,

defendants announced that the Company had accepted the resignation of defendant Della Valle .

17. Defendant James D. Shelton ("Shelton") was, at all relevant times, the Company' s

Executive Vice President and Chief Financial Officer . Prior to the formation, Shelton was th e

Chief Financial Officer for Capstone. As the Company's principal financial officer, Shelton wa s

responsible for PharMerica's financial, treasury and accounting functions . In such capacity, he

signed the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998, file d

with the SEC on May 15, 1998 and the Company's Annual Report on Form 10-K for the yea r

ended December 31, 1997, filed with the SEC on March 31, 1998 . Defendant Shelton was

replaced as Chief Financial Officer in August of 1998 .

18 . Defendants Renschler, Della Valle and Shelton are collectively referred to herei n

as the "Individual Defendants ."

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CLASS ACTION ALLEGATION S

19. Plaintiffs bring this action as a class action pursuant to Federal Rule of Civi l

Procedure 23(a) and (b)(3) on behalf of all persons who purchased PharMerica common stoc k

between January 7, 1998 and July 24, 1998, inclusive, and who were damaged thereby (the "Class

Period") . Excluded from the Class are defendants, the officers and directors of PharMerica ,

members of the immediate families of such officers and directors, and subsidiaries and affiliate s

of defendants and their officers and directors.

20. During the Class Period, there were over 90 million shares of PharMerica stoc k

outstanding held by thousands of shareholders . In its 1997 Annual Report to Shareholders ,

PharMerica estimated that as of March 17, 1998, there were approximately 2,082 record holder s

of PharMerica stock. PharMerica common stock was actively traded on the NASDAQ, an ope n

and efficient market, during the Class Period . Because persons who purchased PharMerica share s

during the Class Period number at least in the hundreds and are believed to be located throughou t

the country, joinder of all such class members is impracticable .

21 . There are questions of law and fact common to all class members whic h

predominate over any questions affecting only individual class members , including:

a. Whether the federal secu rities laws were violated by defendants' acts as

alleged herein ;

b. Whether documents , releases and/or statements disseminated to the

investing public and PharMerica shareholders during the Class Period omitted and/or

misrepresented material facts about the business and financial condition of the Company ;

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c. Whether defendants made mate rially misleading statements during the

Class Period about the business and financial condition of the Company ;

d. Whether the defendants acted knowingly and/or recklessly in makin g

materially false statements and omitting material facts about the business and financial condition

of the Company ;

e. Whether the market price of the Company's common stock was artificially

inflated during the Class Period due to the non-disclosures and/or material misrepresentation s

complained of herein ; and

f. Whether the members of the Class have suffered damages and, if so, what

is the proper measure of damages .

22. Plaintiffs' claims are typical of all class members' claims. Plaintiffs have selecte d

counsel expe rienced in class and securities litigation and will fairly and adequately protect the

interests of the Class. Plaintiffs have no interests antagonistic to those of the Class .

23 . A class action is superior to other available methods for the fair and efficien t

adjudication of this controversy. Since the damages suffered by individual class members may be

relatively small, the expense and burden of individual litigation make it virtually impossible fo r

members of the Class individually to seek redress for the wrongful conduct alleged .

24. Plaintiffs know of no difficulty which will be encountered in the management of

this litigation which would preclude its maintenance as a class action .

FACTUAL BACKGROUN D

25 . PharMerica is a provider of institutional pharmacy products and services to th e

long-term care, assisted living, subacute and skilled nursing industries, as well as correctiona l

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institutions, and mail-service workers' compensation including the catastrophically-injured

population. In the past several years, the institutional pharmacy industry has faced changin g

market demands in large part due to the introduction of the Prospective Payment System ("PPS" )

established by the Balanced Budget Act of 1997 ("Balanced Budget Act") .

26. The Balanced Budget Act signed into law on August 4, 1997, seeks to achieve a

balanced federal budget by, among other things, reducing federal spending on the Medicare

program. The Balanced Budget Act made substantial changes to the reimbursement policie s

applicable to various health care providers, including the new PPS for Medicare-funded resident s

of skilled nursing facilities . PPS became effective July 1, 1998 and is being phased-in over a

three-year period . Prior to PPS, skilled nursing facilities under Medicare received cost-base d

reimbursement . Under PPS, Medicare pays skilled nursing facilities a fixed fee per patient pe r

day based upon the acuity level of the resident . This per diem payment covers substantially al l

items and services furnished during a Medicare-covered stay, including ancillary services such as

pharmacy .

27. Because of these changes, consolidation became increasingly important in th e

institutional pharmacy business -- larger size equates to larger discounts from suppliers . The

Company acknowledged these market trends in its annual report on Form 10-K for the fiscal year

ended December 31, 1997 :

The Company believes that institutional pharmacy compan ies arebetter positioned to serve the changing market demands than localproviders and that the propo rtion of the long-term care pharmacymarket served by retail pharmacies should continue to decline. TheCompany also believes that consolidation of the market willaccelerate as some long-term care companies divest themselves ofcaptive pharmacies and owners of smaller institutional pharmaciesare encouraged to sell their business because of various competitive

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factors, including : (i) the advantages of economies of scale inpharmaceutical purchasing ; (ii) the benefits of national marketpresence in competing for managed care contracts and preferredprovider agreements with owners of multi-site facilities ; (iii) theefficiencies created by being able to provide a broad range ofservices; and (iv) the demands created by the need for specializedregulatory expertise and complex information systems.

28. Accordingly, PharMerica embarked on a veritable "shopping spree," acquiring

nineteen (19) companies in a relatively short period of time . The acquisitions began in 1997

before the beginning of the Class Period, as later disclosed during the Class Period . In December

1997, PharMerica acquired Hollins Manor I, LLC in Virginia, Family Center Pharmacy, Inc . in

Pittsburgh, Pennsylvania, and Resident Care Pharmacy, Inc . in North Carolina .

DEFENDANTS' FALSE AND MISLEADING STATEMENTSDURING THE CLASS PERIOD

29. On January 7, 1998, PharMerica announced the first two of six acquisitions

completed in the month of January . In announcing that it had expanded its pharmacy network on

both coasts by acquiring Sweetwater Pharmacy in California and Hollins Manor Pharmacy i n

Virginia, PharMerica stated that these acquisitions were expected to generate revenue of $11 .2

million. Renschler emphasized that "[t]echnology such as PharMerica's Profiles P1usTM, ou r

national data warehouse, and MediQuick, which provides immediate medication ordering an d

comprehensive drug monito ring , brings new value to customers and payors." On January 8, 1998 ,

defendants issued another press release announcing the acquisition of Medical Arts Pharmacy o f

Pittsburgh, stating that "PharMerica's cutting-edge technologies enable its consulting pharmacist s

to capitalize on best practices nationwide . . . . PharMerica's videoconferencing capabilitie s

connect a nationwide network of PharMerica employees, allowing quicker, more efficient sharing

of new information about medications and health care standards ." Similarly, the Company' s

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January 15, 1998 press release announcing the acquisition of Resident Care Pharmacy of Nort h

Carolina touted the benefits of PharMe rica's technology in what was being portrayed by

defendants as a seamless network of pharmacies nationwide . Press releases announcing the

acquisitions of Express Pharmacy Services and Tmesys , Inc. on January 20, 1999, and Goot

Pharmacy in Phoenix , Arizona on January 29, 1998, contained similar statements about

PharMerica's proprietary technology. According to PharMerica's press releases, the January

acquisitions were expected to generate total revenue of $71 .2 million .

30. In making the statements in ¶ 29 above, defendants intended to, and did, deceiv e

the investing public into believing that PharMerica's business and finances were and would

continue to flourish as a result of the successful merger of its constituent entities PCA an d

Capstone and the successful acquisition and consolidation of additional pharmacies throughout

the country, particularly as a result of PharMerica's mastery of "cutting-edge" advance d

technology. The defendants intended to, and did deceive the investing public into believing tha t

these acquisitions fortified PharMerica's growth potential, efficiency and market position ,

enhancing the Company's value to shareholders . The statements in ¶ 29 were false and

misleading because, as the defendants knew but failed to disclose, the acquisitions were not bein g

successfully integrated, but were generating myriad costly problems, detailed below . Moreover ,

the individual defendants were well aware of the true adverse condition of PharMerica's business

operations , including the problems arising from the PCA-Capstone merger and from the

acquisition and consolidation program. Defendants were fully familiar with the operations o f

both constituent entities prior to the formation of PharMerica as a result of (a) the due diligenc e

each of Capstone and PCA performed on the other's finances and operations prior to the merger ;

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and (b) the fact that PharMerica management consisted of management from both constituent

companies . Capstone and PCA were also directly involved in the other's business as evidenced b y

their Consolidation Plan, which was a product of the management of both companies working

together prior to the merger. Similarly, the defendants were intimately familiar with the busines s

operations and financial condition of the acquired pharmacies, and therefore how the acquire d

operations would fit into PharMerica's existing operations, both as a result of pre-acquisition due

diligence reviews and investigations and as a result of the ongoing process of integrating acquired

pharmacy operations , a process that began in 1997, before the beginning of the Class Period .

31 . Accordingly, the defendants were well aware of serious problems withi n

PharMerica which rendered the public statements alleged in ¶ 29, above, materially false an d

misleading when made. The defendants knew or recklessly disregarded, yet failed to disclose th e

following :

a. There were immense problems associated with merging the computer

systems of Capstone and PCA . According to a former computer Help Desk analyst fo r

PharMerica, PCA operated on an AS400 system platform, while Capstone operated on an RI S

system (RS6000) in all of its locations except Parsons, Tennessee . As a result, Capstone's entire

network had to be upgraded before their systems could communicate with PCA's system.

Capstone was also still using 386mhz, and in some places, 286mhz computers, which require d

massive upgrades . A by-product of the different platforms caused significant problems with

billing. Each pharmacy was supposed to download a "daily save" to a central computer in Tampa ,

Florida but this could not be done because the different systems could not communicate with each

other. The integration problems were so severe that PharMerica opted to convert some of the ol d

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PCA locations to the RIS system, creating a multitude of problems with PCA pharmacies (A PCA

pharmacy in Beltsville, Maryland was particularly affected) . The conversion to the RIS system

was done in the Northeast because one of Capstone's largest facilities was located i n

Massachusetts and PharMerica decided to focus on converting the smaller pharmacies first .

According to the former analyst for PharMerica, PCA's MIS department knew that integrating

Capstone 's & PCA' s computer systems would be a nightmare several months before the merger .

Indeed, after the merger, when a non-PCA pharmacy would call PharMerica's Help Desk fo r

assistance , they could not be provided as sistance because of the lack of resources due to th e

incompatible computer systems .

b. The Company was unable to properly bill customers for healthcare

products provided and also did not adequately pursue the accounts receivables once due . For

example, according to a former customer service supervisor in PharMerica's southwest corporat e

office in Grand Prairie, Texas, product orders were typically billed on a two week or 28 day cycle .

But there were widespread problems with sales representatives taking handwritten orders withou t

entering the orders in the computer system . As a result, no billing invoices were generated . The

pharmacies who ordered the products would still receive the products right away but would not be

billed by PharMerica . This problem was repeatedly brought to the attention of management . In

addition, PharMerica did not have a person in charge of properly pursuing delinquent accounts .

As a result, bad debts continuously mounted .

The Company had set unrealistic, unattainable goals and budgets for many

of its pharmacies . For example, as reported by a former employee, PharMerica set monthly goal s

of $25,000 each for each certain of its homes located in Waco and Tyler, Texas . These so-calle d

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"goals" and "budgets" were set despite the fact that the homes historically generated $3,000 pe r

month each and the highest revenue ever attained by these homes was $18,000 per month, which

was during the flu season .

d. The reported revenue on monthly reports were arbitrarily increased . In

particular, according to a former sales representative of the Company, prior to the merger betwee n

PCA and Capstone, sales representatives could expect to bring in $120-$150 per bed (nursing

home patient) per month. Yet, in one case, after the merger, a regional sales manager for th e

southeast region arbitrarily changed this number to $200.00 a bed, which reflected more revenue

than what sales representatives were actually producing . Moreover, in the wake of PPS, an d

without a strategy to achieve these goals other than to raise prices, budgets that had been set b y

managers at the end of 1997, were arbitrari ly increased 15% .

e. Some of PharMerica's accounts with nursing homes were bogus . For

example, PharMerica took on clients that it knew to be credit risks. One such company was

Chartwell, located in Dallas, Texas . At one point Chartwell was in debt to PharMerica for over $ 1

million , and as a result PharMerica dropped Chartwell as a client . Despite Chartwell's payment

history, however, PharMerica reestablished Chartwell as a client, a move that was questioned by

employees throughout the Company. Additionally, PharMerica claimed that it had a preferred

provider account with Tutera, a group of eight or nine nursing homes in Illinois, Kansas an d

Oklahoma, and Tutera's business was included in the budget . However, as disclosed by a former

employee, Tutera was never a PharMerica account . '

' The Company later admitted in the Company's Form 10-Q, for the third quarterended September 30, 1998, filed with the SEC on November 17, 1998, (the "Third Quarter 10-Q"), that the Company's bad debt expense was increased by a pre-tax charge of $37 .0 millionduring the third quarter of 1998 to increase its allowance for doubtful accounts . The Company

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f. PharMerica was having severe problems integrating its systems with the

systems of the acquired pharmacy operations . For example, the Company was having problem s

assimilating the human resource departments of its acquired pharmacies . Former employees who

had left the Company were still receiving paychecks and receiving benefits weeks after they had

left the Company. Further, the Company was experiencing extensive problems integrating

employee medical and 401K benefits plans from acquired pharmacies into PharMerica's employee

medical and 401K benefit plans.

g. PharMerica was having severe problems with inventory controls an d

efficiency. For example, PharMerica had acquired many pharmacies located in close proximity t o

each other . Unable to adequately consolidate these pharmacies to achieve efficiencies of scale, th e

Company sustained extensive waste and duplication. In one case, PharMerica owned tw o

pharmacies, one in Springfield, Colorado and another in the neighboring city of Broomfield ,

Colorado, each pharmacy serving different accounts . Rather than consolidate the pharmacies, or

strategically define each pharmacy's territory, the pharmacies ' territories overlapped, and truck s

from each of the pharmacies passed each other on the highway daily, delivering products and

servicing customers . In light of the systemic problems within PharMerica, defendants knew tha t

the Company had not, and indeed, lacked the ability to, successfully integrate the operations o f

Capstone and PCA, let alone handle the integration of the numerous pharmacies that it acquired i n

January 1998.

h. Given that PharMerica began making acquisitions in December 1997, even

if the failure to integrate newly acquired pharmacies into PharMerica's existing operations becaus e

conceded that "it adopted a more conservative accounting method of estimating the allowancenecessary for accounts receivable ."

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of the problems alleged above had not become apparent to the defendants as of January 7, 1998 --

which plaintiffs believe it was -- defendants, absent an extremely reckless disregard of the truth ,

must have known by January 29, 1998 -- by which time the Company was fully engaged in the

process of consolidating acquisitions made not only in December 1997, but also throughou t

January 1998 -- that announced expectations of revenues from these acquisitions were made

without any reasonable basis and were, in fact, contrary to the then existing facts about the sever e

problems throughout PharMerica's operations known to defendants .

32 . Reflecting the impact of defendants' misrepresentations to the market, after th e

news regarding PharMerica's acquisitions was disseminated to the marketplace, and as early a s

January 21, 1998, the price of PharMerica's stock began to rise, up $ .50 to 11 9/16 from 11 116 o n

January 20, 1998 .

33 . In a press release on February 9, 1998, PharMerica announced record revenues an d

operating income for its fourth 1997 fiscal quarter, and twelve month period ending December 31 ,

1997. The revenues were the combined results of Capstone and PCA, the constituent entities of

PharMerica . The February 9, 1998 press release contained a section in which defendant Renschle r

commented extensively as follows :

The record levels of revenues and earnings before non-recurring chargesreported for the fourth quarter and twelve months of fiscal 1997 reflect thecontinuing strong operating trends of our Company and the successfulconsummation of the merger announced last year . I am pleased to reportthat we have achieved the milestones in connection with the merger whichwe anticipated would be completed by year end .

During the fourth quarter we acquired pharmacy operations which will addapproximately $34 million in annualized revenues and expand our servicecoverage in several key states. With our new credit facility in place we wil l

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have additional capital resources to continue our strategic quisitionprogram .

Our commitment is to provide superior pharmacy services to our patientswhile creating value for our shareholders .

34. Renschler's statements in ¶ 33 above were false and misleading because th e

formation of PharMerica was not a "successful consummation of the merger" and the Company' s

extensive internal problems had not "creat[ed] value for [its] shareholders ." As Renschler knew, or

recklessly disregarded, at the time he made these statements, there were severe problem s

integrating the computer systems of Capstone and PCA , inadequate billing of customers o r

pursuing accounts receivables, setting unattainable budgets in different regions, arbitraril y

increasing reported revenues on monthly reports, claiming non-existent accounts and retainin g

known credit risks, integrating the Company's computer system with the systems of acquirees and

managing regional pharmacy networks efficiently (as detailed in ¶ 31 above) .

35. Significantly , on February 9, 1998, Stephens Inc . issued a "BUY" rating for

PharMerica, and, based on information from the Company, stated that :

The merger to date is proceeding smoothly with six of seventeenconsolidations complete and another five underway . Our biggestfear in terms of synergies was lost business as a result of badlyhandled consolidation and, to date, the Company reports no loss ofbusiness . The integration of computer systems remains on track .

36. Thus, the marketplace was led to believe that integration of the newly acquired

pharmacies was proceeding smoothly, and that synergies would begin to manifest themselves by

the second quarter . As a result, the marketplace was lead to believe the Company would realiz e

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increased revenues and profits by the second quarter, when in fact, as the defendants knew o r

disregarded, it would not .

37. On February 18, 1998, the Company issued a press release announcing yet another

acquisition, that of Kentucky Health Services, Inc ., making PharMerica the largest institutional

health services provider in Kentucky. Defendants touted this latest acquisition as the second

largest for PharMerica for the year to date with revenues of $20 .6 million expected in 1998 .

38. With regard to the acquisition defendant Renschler stated :

This acquisition supports our growth strategy of focusing on largeracquisitions and broadens our national reach -- an importantconsideration for our national health care partners . . . . We continue toenhance our ability to provide comprehensive pharmacy services tothe disabled patient, regardless of setting .

39 . Defendants' statements in ¶¶ 37-38 above were false and misleading because of th e

serious operational difficulties as alleged in detail in ¶ 31 above. In addition, the defendants knew ,

yet failed to disclose, that larger acquisitions are accompanied by larger operational problems an d

costs in integrating these larger acquisitions with the attendant delays and inability to close thes e

transactions . This is especially true in light of the other undisclosed problems (13 1), that

defendants knew PharMerica was then already experiencing .

40. Through the remainder of February and March of 1998, defendants continued t o

announce acquisitions and to herald the revenue generating capacities of each acquiree . On

February 27, 1998, the Company announced its entry into the Michigan market with th e

"acquisition the long-term care business formerly owned by Frank's Pharmacy and Medical Suppl y

in Detroit ," with expected annual revenues of $5.8 million . According to the Company, thi s

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acquisition was, again, "part of [its] strategic plan to improve efficiencies of scale and to expan d

geographic reach."

41 . The Company' s statements in ¶ 40 above were false and misleading for the reasons

set forth in ¶ 31 as defendants continue to foster this false image that PharMerica is a fast-growin g

company, quickly acquiring numerous companies shortly after its merger. Although defendants

continued to make these statements with the intent to deceive the investing public into believing

that PharMerica was a healthy, rapidly-growing company, defendants were well aware that th e

Company was then replete with systemic and pervasive problems directly related to its acquisition

program .

42. Defendants reaffirmed their previous false statements with the March 3, 199 8

announcement of PharMerica's acquisition of Whitney Village Pharmacy in Carmichael ,

California. Renschler stated :

This acquisition, along with our other recent string of pharmacytransactions, continues PharMerica's dynamic growth and addsenhanced value for our customers and investors . The acquisition ofWhitney Village Pharmacy is in keeping with PharMerica's goal tocreate highly-efficient pharmacy networks in key metropolitanmarkets .

43 . The statement contained in ¶ 42 was false and misleading because, as detailed in

13 1, these acquisitions did not represent "dynamic growth and [] enhanced value for . . . investors . "

As defendants knew, but failed to disclose, problems integrating the computer systems of Capstone

and PCA, inadequate and improper billing or failure to pursue delinquent accounts receivables ,

setting unattainable budgets in different regions, arbitrarily increasing reported revenues o n

monthly reports, claiming non-existent accounts and retaining known credit risks, and problem s

integrating the Company's computer system with the systems of acquirees, were not enhancing

-21-

value for customers or investors, but, to the contrary, were symptomatic of material problems in

PharMerica's business operations and financial condition . In addition, defendants knew tha t

PharMerica had not been creating "highly-efficient pharmacy networks in key metropolitan

markets," but rather acquiring many pharmacies located in close proximity to each other an d

failing to consolidate many of these pharmacies . This resulted in extensive waste and duplicatio n

as detailed in 131 above .

44. PharMerica continued to make similarly false and misleading statements throughou t

March, announcing additional acquisitions and touting the successful growth of PharMerica

through its consolidation program . For instance, on March 6, 1998, PharMerica announced tw o

more acquisitions, the acquisition of Senior Dimensions Pharmacy in Minneapolis, Minnesota, an d

Western North Carolina Pharmacy in Waynesville, North Carolina, bringing the total up to 1 1

acquisitions since January 1, 1998 . The Company announced that it expected these acquisitions to

generate annual revenues of almost $7 million.

45. The March 6, 1998 press release announcing these acquisitions falsely implied that

the Company' s acquisition and consolidation program was successful and effective, and that the

Company would meet the earnings projections it had disseminated into the marketplace .

Commenting on the most recent acquisitions, Renschler stated :

These acquisitions support our strategy of becoming a key player innationwide markets . By including these companies in our family ofpharmacy services, PharMerica adds value for our customers andinvestors .

46. Renschler's statement in ¶ 45 above was false and misleading for the reasons set

forth in 1131 and 43 above.

-22-

47. One week later, on March 13, 1998, as a result of this continuing campaign of

positive acquisition announcements, PharMerica's stock price reached its 52-week high of $16 per

share. That same day Stephens Inc . ("Stephens"), initiated coverage of PharMerica, issuing a

"Buy" rating and a twelve month price target of $20 .00. Stephens introduced EPS estimated o f

$.64 and $ .79 for 1998 and 1999, respectively , on revenues of $1 .130 million and $1 .295 million

for the same period.

48. Just as PharMerica's stock price reached its peak, on March 16, 1998, the Compan y

issued a press release and announced plans for an offering of approximately $300 million in senior

subordinated notes in a private placement to qualified institutional buyers . According to the pres s

release, the proceeds from the offe ring would be used to pay down the Company's senior credi t

facility. PharMerica had closed a $550 million credit facility in December of 1997 in order to fun d

its acquisition strategy .

49. The Company' s financial results for the year end 1997, first reported in a Februar y

9, 1998 press release, were repeated in PharMerica's Annual Report on Form 10-K filed with the

SEC on March 31, 1998, signed by defendants Renschler and Shelton . In a section headed

"Operations," defendants represented that PharMerica used "more centralized financial an d

inventory controls systems support than is typically available to small , independent pharmac y

operators" and that many services, including oversight and financial and accounting functions ,

were performed at the corporate level .

50. Despite the problems the Company was facing integrating its numerou s

acquisitions , defendants persisted in their scheme to mislead the marketplace into believing that the

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Company was realizing "synergies" and resulting profitability . With respect to its string of recent

acquisitions, the Company stated :

The Company believes that, when fully realized, the synergies fromthe merger would be approximately $25 million annually . Thisincludes savings from the consolidation of 19 institutionalpharmacies, seven of which have already occurred, more favorablepricing terms in the Company's new primary purchasing contractsand corporate and regional overhead reductions .

The Company expects to realize approximately $16 million of thesesynergies in 1998 and the full $25 million . . . beginning in 1999 .

51 . Defendants' statements in the Company's 1997 Form 10-K were false because, as

detailed in ¶ 31 above, defendants knew, at the time of filing PharMerica's 1997 Form 10-K, that

the merger was not synergistic . Instead, there were tremendous problems integrating the compute r

systems of Capstone and PCA, as detailed in ¶ 31, above . PharMerica was not properly billing

customers or pursuing delinquent accounts receivables, it was setting unattainable budgets i n

different regions, arbitrarily increasing reported revenues on monthly reports, claiming non-

existent accounts and retaining known credit risks, struggling to integrate the Company's computer

system with the systems of acquired pharmacies and not managing regional pharmacy networks

efficiently . (See ¶ 31 above) Although defendants were aware of these problems, they continued t o

communicate a mate rially false and misleading picture of the Company .

52. On April 1 , 1998, PharMerica announced that $325 million in notes had been

placed. Defendants used this opportunity to continue to hype the supposed success of it s

acquisition strategy, and the "milestones" the Company was achieving . With regard to the credi t

facility Renschler stated :

-24-

We are pleased with the reception to our subordinated debt offeringand, as a result, we have increased our offering from $300 million to$325 million . The interest rate on this offering reflects PharMerica'sposition as a leading provider of institutional pharmacy services .

53 . After the successful debt placement , defendants continued to announce acquisition s

at a rapid pace . PharMerica issued a press release on April 15, 1998 announcing that it had

acquired The Chamberlain Group , LLC of Virginia ("Chamberlain") . With regard to th e

acquisition, defendant Renschler stated :

This acquisition, along with our other recent string of pharmacytransactions, continues PharMerica's dynamic growth and adds enhancedvalue for our customers and investors . The acquisition of Whitney VillagePharmacy is in keeping with PharMerica's goal to create highly-efficientpharmacy networks in key metropolitan markets .

54. The statement in ¶ 53 was false and misleading because of the serious operational

difficulties as alleged in detail in ¶ 31 above. As stated in ¶ 43 above, the true condition o f

PharMerica was far from the picture of "dynamic growth" and "enhanced value" for investors

portrayed by defendants to the public . In addition, the defendants knew or disregarded and faile d

to disclose, that larger acquisitions, like that of Chamberlain, are accompanied by substantial risk s

and delays associated with consolidating larger acquisitions, as well as the costs and problems

assimilating such larger companies into PharMerica's existing operations .

55. On May 4, 1998, PharMerica issued a press release announcing the Company' s

financial results for the first quarter ended March 31, 1998 . The Company reported "record "

revenues for the quarter of $274 million and net income per share of $ .13, a 59% increase over the

first quarter pro forma results in the prior year . The press release attributed the Company's revenu e

growth to the eight acquisitions completed in the first quarter and emphasized that these

acquisitions were expected to generate $67 million in annualized revenue.

-25-

56. Continuing to lead the marketplace to believe that there were no integration

problems, and that the Company' s acquisition strategy w as on track to generate substantia l

increased earn ings and resulting profitability for the Company, defendant Renschler stated in th e

May 4, 1998 press release :

PharMerica's strong, top-line growth, combined with improvements in operating margins,has resulted in solid first quarter financial performance and progress in achieving ourstrategic objectives . Thanks to our extensive merger integration planning, we haveachieved all of the first quarter milestones established last year .

With PharMerica's first quarter successes , we are well-positioned to move forward withefforts to establish PharMerica as the nation's premier provider of geriatric pharmac yservices .

Thus, the press release attributed the improvements in operating margins referenced by defendan t

Renschler to the Company's integration plan which included closing 11 pharmacy acquisitions i n

the first quarter .

57. The statements in ¶ 55 & 56 above were false and misleading because of the seriou s

operational problems within PharMerica as alleged in detail in ¶ 31 above . Defendants' statement s

regarding the Company's first quarter successes and achieving all of its milestones, were clearly

intended to, and did, deceive the investing public into believing that the acquisition and integratio n

plan was proceeding successfully and without material problems . As defendants knew, or

recklessly disregarded, this simply was not true . At the time of these statements, the Company ha d

encountered tremendous problems integrating the computer systems of Capstone and PCA, wa s

failing to properly bill customers or pursue accounts receivables, set unattainable budgets i n

different regions, arbitrarily increased reported revenues on monthly reports, claimed non-existen t

accounts and retained known credit risks, and encountered difficulties integrating the Company' s

-26-

computer system with the systems of acquirees and managing regional pharmacy network s

efficiently . Renschler's statement that milestones have been achieved due to PharMerica' s

"extensive merger integration planning," stands in stark contrast with the true condition within the

Company .

58. On or about May 18, 1998, the Company filed a Form 8-K with the SEC whic h

contained a copy of a May 15, 1998 "1998 First Quarter Update" letter from defendant Renschler

to shareholders (the "Renschler letter") which, under a section entitled, "The Benefits Of

Integration And Scale," stated:

The recent first quarter also saw a great emphasis placed on takingadvantage of the benefits of integration . This included theconsolidation of 11 pharmacies targeted for closure, with eightconsolidations to be completed by the third quarter. We have donethis quickly, yet with no material net loss of customers - in spite of areduction of 118 full-time staff members .

Following these consolidations we have six sites that serve over10,000 residents and four sites that serve more than 8,000 residents .This is the greatest number ofsuch large scale pharmacies in theindustry . These larger pharmacies operate at higher margins andallow us to expand our service offerings .

59 . Renschler's statements in ¶ 58 above were materially false and misleading becaus e

of the serious operational problems alleged in detail in ¶ 31 above . As Renschler knew, yet failed

to disclose, larger acquisitions are accompanied by substantial risks and delays associated wit h

consolidating larger acquisitions, as well as the costs and problems of assimilating large r

companies into PharMerica's institution . Moreover, despite Renschler's claims that PharMeric a

was successfully achieving the benefits of integration, he knew that there were problems

integrating the computer systems of Capstone and PCA as well as the computer systems o f

acquirees into PharMerica . Also, despite Renschler's claims to the contrary, PharMerica was not

-27-

achieving the benefits of integration . Rather, extensive waste and duplication was created. This i s

exemplified through two PharMerica-owned pharmacies, one in Springfield, Colorado and anothe r

in the neighboring city of Broomfield, Colorado, each serving different accounts . Rather than

consolidate the pharmacies, or strategically define each pharmacy's territory, the pharmacies '

territories overlapped, and trucks from each of the pharmacies passed each other on the highwa y

daily, delivering products and servicing customers .

60. PharMerica's financial results reported in the May 4, 1998 press rele ase were

repeated in the quarterly report on Form 10-Q, for the period ending March 31, 1998, filed with th e

SEC on May 15, 1998, and signed by defendant Shelton (the "First Quarter 10-Q") . PharMerica

repo rted revenues of $274 .7 million and net income of $11 .6 million or $ .13 per share . In a section

headed "Management's Discussion and Analysis of Financial Condition and Results o f

Operations," the Company repeated its comments contained in PharMerica's 1997 Form 10-K

regarding the synergies the Company expected to realize from its acquisition strategy :

The Company believes that, when fully realized, the synergies fromthe merger would be approximately $25 million annually .includes savings from the consolidation of 19 institutionalpharmacies, eleven of which have already occurred, more favorablepricing terms in the Company's new primary purchasing contractsand corporate and regional overhead reductions .

The Company expects to realize approximately $ 16 million of thesesynergies in 1998 and the full $25 million . . . beginning in 1999 .

61 . The First Quarter 10-Q also stated :

The interim consolidated financial statements of the Company forthe three months ended March 31, 1997 and 1998, included herein,have been prepared by the Company, without audit, pursuant to therules and regulations of the Securities and Exchange Commission .

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Certain information and footnote disclosures normally included infinancial statements prepared in accordance with generally acceptedaccounting principles have been condensed or omitted pursuant tosuch rules and regulations . In the opinion of management, theaccompanying unaudited interim consolidated financial statementsreflect all adjustments necessary to present fairly the financialposition of the Company at March 31, 1998, and the results of itsoperations and cash flows for the three months ended March 31,1997 and 1998 .

62 . Defendants' statements set forth in the Company's First Quarter 10-Q were false an d

misleading because of the serious operational difficulties as alleged in detail in ¶ 31 above . As

detailed in 15 1, defendants knew that the merger was not synergistic because of the problem s

PharMerica was experiencing as a result of the merger.

63 . The results reported in the First Quarter 10-Q were also false and misleading ,

because defendants knew, or recklessly disregarded, that the financial results were prepared i n

contravention of generally accepted accounting p rinciples ("GAAP") . As the Company announced

in a press release issued on November 9, 1998, announcing its financial results for the third quarter

of its fiscal year 1998 (for the period ending September 30, 1998), the Company recorded an

impairment loss of approximately $99.0 million which related p rimari ly to five pharmacies, each

of which had negative operating cash flows during 1998. In addition to recording write-downs t o

reflect the estimated net realizable value for these pharmacies, the Company closed one of th e

pharmacies during the third quarter of 1998 and identified three of the other pharmacies as "asset s

to be disposed of." Defendants also disclosed that it recorded a pre-tax loss on the sale of its DO C

business, in the amount of $4.5 million -- another loss which the Company had improperly

deferred in contravention of GAAP .

-29-

64. GAAP are those p rinciples recognized by the accounting profession as th e

conventions, rules and procedures necessary to define accepted accounting practice at a particula r

time. SEC Regulation S-X (17C.F.R. § 210.4-01(a)(1)) states that financial statements filed with

the SEC which are not prepared in compli ance with GAAP are presumed to be misleading an d

inaccurate, despite footnote or other disclosure . Regulation S-X requires that interim financial

statements must also comply with GAAP, with the exception that interim financial statements need

not include disclosure which would be duplicative of disclosures accompanying annual financia l

statements . 17 C .F .R. § 210.10-01(a) .

65 . Specifically, PharMerica's First Quarter 10-Q financial results were materially fals e

and misleading because , as set forth in ¶ 61 above, PharMerica represented that its fin ancial

statements for the first quarter of 1998 were prepared in accordance with GAAP and the rules an d

regulations of the SEC . These representations were mate rially false and misleading becaus e

PharMerica employed improper accounting practices which resulted in its reported financia l

statements not being in conformity with GAAP and which artificially inflated the Company' s

reported operating results .

66. In particular, the Company's financial statements were materially false an d

misleading because PharMerica's reported financial results failed to properly reflect the substantial

and material $103 . 5 million impairment in the carrying value of the five loss generating pharmacies

and PharMerica's non-core businesses which were to be closed or sold during 1998. Defendants

knew or recklessly disregarded that impairment losses for long-lived assets are to be recognize d

when indicators of impairment are present as reflected in the Company's 1997 10-K, which stated :

"Financial Accounting Standards No. 121, 'Accounting for the Impairment of Long-Lived Assets

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and for Long -Lived Assets to be Disposed of.' ('SFAS No . : 121') . . . required impairment losses to

be recognized for long-lived assets used in operations when indicators of impairment are presen t

and the undiscounted future cash flows are not sufficient to recover the assets' carrying amounts .

The impairment loss is measured by comparing the fair value of an asset to its carrying amount . "

67. As defendants knew, yet failed to disclose in contravention of GAAP, by May 15 ,

1998, indicators of impairment were present as evidenced by the sheer magnitude of the Company' s

impairment losses ($103 .5 million) reflected in the Company's Third Quarter 1998 Form 10-Q.

Indeed , in a section entitled "Goodwill and Impairment of Long-Lived Assets," in the Third Quarter

1998 10-Q, defendants admitted that the Company had been incurring these extensive losse s

throughout the Class Period stating : "During the third quarter of 1998, the Company recorded a n

impairment loss of approximately $99 .0 million . This loss related primarily to five pharmacies ,

each of which has had negative operating cash flows du ring 1998." The Third Quarter 10-Q further

indicated that : "The Company closed one of the pharmacies during the third quarter of 1998 and has

identified three of the other pharmacies as "assets to be disposed of' and has recorded write-down s

to reflect management 's opinion of estimated net realizable value for these pharmacies . The fifth

pharmacy has had deteriorating operating results which required the Company to record the FA S

121 charge . "

68 . The undisclosed adverse information concealed by defendants during the Class

Period is the type of information which, because of SEC regulations, rules of the national stock

exchanges and customary business practice, is expected by investors and securities analysts to b e

disclosed to the investing public.' This information is known by corporate officials and their lega l

2The SEC has stated, in Securities Act Release No . 6349 (September 8, 1981), that :

-31-

and financial advisors to be the type of information which is expected to be and must be disclosed . '

. . . it is the responsibility of management toidentify and address those key variables andother qualitative and quantitative factorswhich are peculiar to and necessary for anunderstanding and evaluation of the individualcompany .

In addition, as noted by the SEC in Accounting Series Release 173 :

. . .it is important that the overall impressioncreated by the financial statements beconsistent with the business realities of thecompany's financial position and operations .

3For example :a. Under Item 303 of Regulation S-K, promulgated by the SEC under the

Exchange Act, there is a duty to disclose in periodic reports filed with theSEC "known trends or any known demands, commitments, events oruncertainties" that are reasonably likely to have a material impact on acompany's sales revenues, income or liquidity, or cause previouslyreported financial information not to be indicative of future operatingresults. 17 C .F .R. § 229.303(a)(1)-3(3) and Instruction 3 . In addition tothe periodic reports required under the Exchange Act, management of apublic company has a duty promptly "to make full and promp tannouncements of material facts regarding the company's financialcondition." SEC Release No. 34-8995, 3 Fed . Sec . L. Rep. (CCH)¶ 23,120A, at 17,095, 17 C .F.R. § 241 .8995 (October 15, 1970). The SEChas emphasized that "[i]nvestors have legitimate expectations that publiccompanies are making, and will continue to make, prompt disclosure ofsignificant corporate developments." SEC Release No . 18271, [1981-1982 Transfer Binder] Fed . Sec. L. Rep. (CCH) ¶ 83,049, at 84,618(November 19, 1981) ; and

b. Schedule D of the National Association of Securities Dealers ("NASD")Manual, which governs companies whose securities are included in theNASDAQ requires a NASDAQ company to "make prompt disclosure tothe public through the press of any material information that may affectthe value of its securities or influence investors' decisions ." NASDManual, Schedule D, Part II, § 1(c)(13) [¶ 1803(c)(13)] .

-32-

69. Following the filing of PharMerica's First Quarter 10-Q, several analysts issued

"BUY" ratings for PharMerica . Based in part on conversations with the Company, Stephens Inc .

("Stephens") issued a report on May 21 , 1998, giving PharMerica a "BUY" rating and a twelve

month price target of $20 .00. Stephens noted that PharMerica's earnings for the second quarte r

looked fine as a result of added beds and consolidation synergies.

70. Donaldson, Lufkin & Jeannette Securities ("Donaldson") also reacted positively t o

the Company' s strong optimistic statements regarding the success of its acquisition strategy and

issued a report on May 27, 1998 giving PharMerica a "BUY" rating . Donaldson stated that

"Management is comfortably on track to realize about 60% of an expected $25 million in synergy

savings ." Acknowledging the importance of the success of PharMerica's acquisition strategy ,

Donaldson stated :

We expect 10-20% revenue growth from acquisitions . A keycomponent of PharMerica's growth strategy is a strategic acquisitionprogram that targets the development of critical mass withinindividual states.

71 . In June and July of 1998, defendants PharMe rica announced three additional

acquisitions . In part icular, on June 8, 1998 , the Company issued a press rele ase announcing that i t

had reached an agreement to acquire NIPSI in New Mexico, an institutional pharmacy owned by

Integrated Health Services ("IHS") . Touting the benefits of the acquisition, defendants stated tha t

NIPSI operated 35 pharmacies in 15 states and served 38,000 beds . The Company also stated that a s

a part of the agreement, IHS had pledged to PharMerica all of IHS's nursing home business ,

including 139 newly acquired locations that IHS had acquired from Horizon .

72. With respect to the IHS deal defendant Renschler stated :

-33-

The acquisition of NIPSI will allow us to expand our core businessand enrich our relationship with one of our best and largest customers .

We are pleased that all issues between our companies are beingresolved and we are moving forward in a positive fashion .

73. Additionally, on July 9, 1998 the Company issued a press release entitled

"PharMerica Acquires Two Pharmacies -- Acquisitions Expected to Generate Revenue of $4 Millio n

Annually ." Trumpeting the Company's strategic acquisition strategy defendant Renschler stated :

PharMerica . . . is expanding its pharmacy network with theacquisition of Apothecare Pharmacy Inc . in Tampa, Fla. andGreenville Pharmacy in Portland, Conn . . . . The acquisitions areexpected to generate $2 million of annual revenues each .

74. Defendants' statements in ¶¶ 71-73 were false and misleading because of the failur e

to disclose the then existing materi al operational difficulties alleged in detail in ¶ 31 above .

Defendants continued to disseminate extremely positive statements regarding PharMerica' s

acquisitions despite defendants' knowledge of the severe problems PharMerica was having

implementing the consolidation of its acquisitions . In addition, defendants' statement that the

Company was moving forward in a positive fashion was deceptive because defendants omitted t o

disclose that the Company was experiencing delays in closing the NIPSI transaction , which could

and would adversely impact second quarter earnings . In fact, as defendants admitted on July 23 ,

1998 in the press release announcing PharMerica's second quarter earnings, the shift to larg e

acquisitions was resulting in complications and delays.

75. Moreover, defendants' statements regarding the expansion of pharmacy operatio n

were rendered misleading by their failure to disclose that the Company was planning to close or t o

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otherwise dispose of five major pharmacies resulting in the recognition of mate rial losses on it s

pharmacy operations .

76. On the day following PharMerica's announcement of its agreement with IHS t o

acquire 35 of IHS's institutional pharmacies, and based in part on information obtained from the

Company, Ladenburg Thalmann & Company ("Ladenburg") issued a report on June 10, 1998

giving PharMerica a "BUY" rating . Ladenburg stated that it "views prospects for this deal

favorably and maintain our Buy rating ." The Ladenburg report also acknowledged the importanc e

of assessing the impact of various integration activities on PharMerica's stock stating :

Through the acquisition of Integrated Health's pharmacies and bybroadening the relationship overall, the proposed transaction wouldadd 28,000 beds and three new states to PharMerica's base businessand begin service to 139 nursing facilities which are currently notbeing serviced by PharMerica . . . . While management has notprovided us details given that this is an agreement in principal, webelieve the deal would be accretive .

Because of the importance of the integration activities on PharMerica's value, PharMerica's pres s

releases and announcements were critical to the financial community and investors who were

extraordinarily reliant on the statements issued by the Company in evaluating the success o f

PharMerica's acquisition and integration program .

THE TRUTH BEGINS TO EMERGE

77. On July 23, 1998, the Company announced that earn ings results for the second

quarter of 1998 would fall short of the $ .14 per share the market had been lead to expect by at leas t

$.02, resulting in a total earnings shortfall of $1 .8 million .

78. In the press release, the Company, sought to explain the shortfall, and listed the

number one contributing factor for the revised earn ings outlook as delays in closing large r

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acquisitions. In the press release, defendant Renschler admitted : "In order to realize improve d

efficiencies of scale, PharMerica has shifted to larger acquisitions, which inherently require mor e

time to close, and planned acquisitions for the second quarter did not close as anticipated ."

79. Defendants also admitted in the press release that it was "focusing on improving

performance from field operations while removing redundancies throughout the Company at a

faster pace." Additionally, the Company acknowledged it had been experiencing operatin g

shortfalls at a number of pharmacy locations, as well as delays in the consolidation of some same-

site pharmacies .

80. Defendant Renschler also acknowledged that although divestiture of nonstrategi c

businesses had begun with the sale of PharMerica's DOC business, other nonstrategic businesse s

had not been sold .

81 . In reaction to the Company's announcement, PharMerica's stock price fell 39% ,

falling $ 3 9/16 to $5 V2 in heavy trading .

82. That next day, Salomon Smith Barney, after conversations with PharMeric a

management, issued a report that it would be downgrading PharMerica from a "BUY" to a

"HOLD ." Merrill Lynch followed suit , lowering their intermediate rating from "BUY" to

"NEUTRAL ."

83. On July 24, 1998, in a meeting with analysts, defendants admitted that the Company

had been experiencing operational difficulties at a few of its pharmacies, and that its pharmacie s

were somewhat regionally clustered and included both former Capstone and PCA sites . In a July

25, 1998 report issued by First Call, Caren Taylor, an analyst with BancAmerica Robertso n

Stephens ("BancAmerica"), stated :

-36-

Because of a lack of information, our best guess is that theconsolidation and integration of a couple of former Capstone andPCA pharmacies into "Megapharmacies" didn't progress as smoothlyas planned, customer service disruptions ensued, top lines sufferedand correspondingly margins deteriorated .

84. In the report, Taylor reported that BancAmerica was downgrading PharMerica fro m

"BUY" to "MARKET PERFORM ." In addition to lower earning expectations , a lack of confidenc e

in its revised estimates, and an increased risk profile given the Company's reliance upon large r

acquisitions , Taylor listed the following as one of the reasons for lowering its rating :

Serious concerns with respect to management credibility . Ourunderstanding is that as recently as two weeks ago, management wascomfortable with and endorsed the consensus EPS estimates of $0.14 .

85. On August 4, 1998, defendants caused the Company to announce earnings per share

of $.12 per share, in line with its earlier estimates. Confirming what analysts had previousl y

reported, Renschler confirmed that the following factors contributed to the Company's reported

results :

(1) To realize improved efficiencies of scale, PharMerica has shiftedits emphasis to larger acquisitions, which inherently require moretime to close and the planned transaction with IHS did not closeduring the second quarter as anticipated ; (2) the divestiture of non-strategic businesses has begun with the sale of PharMerica'department of corrections (DOC) business, but other non-strategicbusinesses have not been divested as anticipated; (3) there have beenoperating shortfalls at a limited number of pharmacy locations, whichare currently being addressed ; and (4) there were delays in theconsolidation of some same-site pharmacies .

86. In connection with the earnings announcement , Renschler announced on August 4 ,

1998 that defendant Shelton, PharMerica's Chief Financial Officer was being replaced as CFO an d

would assume new duties as senior vice president of corporate development . Defendant Renschle r

also announced that PharMerica had hired a Director of Investor Relations.

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87. After the close of the Class Period on November 9, 1998, defendants announced th e

Company's financial results for the third quarter ended August 31, 1998 . PharMerica announced a

net loss for the three and nine month period of $127 .4 million ($1 .42 per share) and $105 .4 million

($1 .19 per share) . According to the Company's press release, the results were impacted by non-cas h

pretax charges related to write -downs of certain assets , a pre-tax charge of $37 million to increase

the Company's allowance for doubtful accounts due to a change to a "more conse rvative accountin g

method," a pre-tax loss from the sale of PharMerica's Department of Corrections business and $9.2

million in net restructuring charges related to relocation. The assets being written down wer e

pharmacies with negative operating cashflows in 1998 . In connection with the quarterly earning s

announcement , defendants announced that the Company had accepted the resignation of defendant

Della Valle, the Company's Chief Operating Officer. The Company also announced that it had

retained an investment banker to advise it in connection with "considering various strategic

alternatives to enhance shareholder value . "

ADDITIONAL SCIENTER ALLEGATIONS

88. The facts and circumstances alleged herein support a strong inference of scienter a s

to all defendants, including:

a. Defendant Shelton signed PharMerica's Form 10-Q for the first quarter o f

1998 and both Shelton and Renschler signed PharMerica's 1997 Form 10-K . These documents

contained false and misleading statements, and the Form 10-Q included misstated financial results .

b. The individual defendants approved of the publication and release o f

PharMerica's press releases issued during the Class Period, containing false and misleading

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statements as alleged hereinabove, with defendant Renschler quoted within the text of the pres s

releases .

c. The serious operational problems within PharMerica were known to th e

defendants prior to the issuance of the false and misleading statements alleged hereinabove .

Through their due diligence prior to the merger and acquisitions, access to internal periodic reports

about the Company's operations and finances, meetings and discussions with each other and with

other members of management, the defendants knew of the computer problems that impede d

integration, the location of facilities that would result in extensive waste and duplication, as well a s

the myriad problems detailed at IT 31 and 43 above .

d. The individual defendants acted with scienter to artificially inflate the price

of PharMerica common stock in order to : (i) substantially increase the individual defendants '

compensation by way ofbonuses which were directly tied to the Company's profitability and

integration of acquisitions ; and (ii ) enhance the ability of PharMerica to fund further acquisitions b y

granting the acquired company shares of PharMerica stock . Specifically, PharMerica's inflate d

stock price enabled defendants to acquire Resident Pharmacy in North Carolina, a transaction i n

which $9,100,000 of the $12,967,000 purchase price was paid for by the Company through the

issuance of PharMerica common stock In addition, defendants artificially inflated the price o f

PharMerica common stock to benefit the Company's private placement offering of $300 million in

senior subordinated notes, proceeds of which would be used to pay down PharMerica's senior credit

facility .

89. Scienter is further demonstrated by the Individual Defendants ' motive and

opportunity to commit the fraud . PharMerica's executive compensation plan provided its officers a

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motive to artificially inflate PharMerica's financial results, and to falsify its progress with respect to

PharMerica's acquisition program . Opportunity is demonstrated by defendants' control of thei r

public statements and their knowledge of the true state of PharMerica's business . As disclosed in

the Company's Form 14A filed on April 28, 1998, PharMerica's compensation program provided

that 50% of executives' annual bonuses were tied to the Company's profitability . The remaining

50% of the available bonus percentage for PharMerica 's executives was in significant part tied to

PharMerica's revenue growth and the Company's integration of acquisitions . Thus, the Individual

Defendants had direct financial motives to conceal the serious problems with PharMerica's

acquisition strategy and ensure that PharMerica common stock continued to trade at artificially high

levels .

90. Moreover, defendants' scienter is also demonstrated by the fact that they were the to p

executives of PharMerica, with extensive experience in the long-term health care field .

Specifically, after meeting with management , The Wall Street Transcript Corporation issued a

report on November 2, 1998 reporting on a CEO Interview with defendant Renschler in which

defendant Renschler touted his extensive experience as well as the extensive experience o f

PharMerica's board. In that report, defendant Renschler acknowledged that he had more that 3 0

years' experience in health care, both as an executive and as a clinician. With regard to the

members of PharMerica's board defendant Renschler stated, " We have a broad range of talent that

includes those individuals with financial, human resources, and other very important functional skil l

sets, as well as individuals who have had very extensive operating experience ." Thus, in light o f

defendants' extensive experience -- experience that included operational, financial, huma n

resources, and clinical knowledge in the health care industry - - defendants could not, absent a

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severely reckless disregard of the truth, have been ignorant of the pervasive problems with

PharMerica's acquisitions, problems that were materially impacting the Company's fundamenta l

day-to day operations and that were no secret at the Company .

91 . The magnitude and nature of the accounting rule violations that directly involv e

failure to account for impairment losses, raise a strong inference that the individual defendants, as

the top managers of PharMerica intimately involved in its day-to-day business operations o f

PharMerica and responsible for pursuing its acquisition plan and dealing with the performance o f

the pharmacies within its network, knew, or recklessly disregarded that their announced first quarte r

financial results and public statements they made during the Class Period, were materially false and

misleading .

92. As Chief Financial Officer of the Company during the Class Period, Shelton had an

independent responsibility for the company's financial statements, and the responsibility to ensur e

that the Company reported accurate financial information to the SEC and to public investors . The

responsibilities of the corporate officer in charge of accounting and financial reporting are well-

established . They include "the maintenance of adequate internal control[s] and . . . the preparation

of accounting records and financial statements" (Miggs and Miggs, Financial Accounting (1998, 9th

ed.) at 528), and to be involved in "planning and decision making at all levels and across al l

functional areas of the enterp rise ." (See Hilton , Ronald W., Managerial Accounting (3d ed. 1997)

at 11) .

NO SAFE HARBOR

93. The statutory safe harbor provided for forward-looking statements under certai n

circumstances does not apply to any of the false statements pleaded in this complaint . Many of th e

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false and misleading statements pleaded in this complaint were not forward-looking statements .

Further, certain specific statements pleaded herein were not identified as "forward-lookin g

statements" when made .

94. To the extent there were any forward-looking statements, the statements were no t

accompanied by meaningful cautionary statements identifying important factors that could caus e

actual results to differ materially from those in the purportedly forward-looking statements .

Defendants used the same boilerplate "cautionary language" in its press releases and SEC filings .

Defendants identified several factors as part of its cautionary language : (1) availability of

acquisition prospects and financing for such prospects ; (2) changes in economic and market

conditions ; (3) changes in government reimbursement regulations and laws that could impair o r

hinder entering into strategic alliances or preferred provider agreements ; and (4) other factors

identified in other PharMerica SEC findings.

95 . The factors identified by PharMerica are merely boilerplate and do not qualify a s

"meaningful cautionary language ." None of the factors listed above even remotely cautio n

investors of serious pervasive and systemic problems present in the Company throughout the Clas s

Period.

96. The factors identified by PharMerica are generic and are not of the same importanc e

as the factors relating to difficulties with the merger and integration, problems with compute r

systems and poor performing pharmacies which will have a materially adverse impact o n

PharMerica's business and operations. The factors identified by PharMerica are virtually applicable

to any company involved in the healthcare industry and do not meaningfully caution investors .

Alternatively, the defendants are liable for any forward-looking statements pleaded herein becaus e

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at the time the forward-looking statements were made, defendants knew that the particular forward-

looking statements were false as they were well aware of PharMerica's serious operational problem s

and, thus, do not involve contingencies that may happen in the future but rather, involve events tha t

have already taken place .

APPLICABILITY OF FRAUD-ON-THE-MARKETPRESUMPTION OF RELIANC E

97. Plaintiffs will rely, in part, upon the presumption of reliance established by th e

fraud-on-the-market doctrine in that, among other things :

a. PharMerica common stock met the requirements for listing and was listed on

the NASDAQ automated market system, a highly efficient market ;

b. As a regulated issuer, the Company filed periodic public reports with th e

SEC and the NASD;

c. PharMerica was followed by securities analysts employed by several majo r

brokerage firms who wrote reports which were distributed to the sales force and certain customer s

of such firms, and which were available to various automated date retrieval services ;

d. The misrepresentations and omissions alleged herein were mate rial and

would tend to induce a reasonable investor to misjudge the value of PharMerica common stock ; and

e. Plaintiffs and members of the Class purchased their common stock during the

Class Period without knowledge of the omitted or misrepresented facts .

98. Based upon the foregoing, plaintiffs and the other members of the Class are entitle d

to a presumption of reliance upon the integrity of the market for the purpose of class certification as

well as for ultimate proof of their claims on the merits. Plaintiffs will also rely, in part, upon th e

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presumption of reliance established by material omissions and upon the actual reliance of the clas s

members .

PARTICIPATION OF INDIVIDUAL DEFENDANTS

99. The Individual Defendants part icipated in the drafting and preparation of the va rious

public filings and other communications complained of herein and were aware of the misstatements

contained therein and omissions therefrom, and were aware of their materially misleading nature .

Because of their Board membership and/or executive and managerial positions with PharMerica, the

Individual Defendants had access to the adverse non-public information about PharMerica's

business prospects and financial condition. The Individual Defendants, by reason of their stock

ownership, management positions, and/or membership on PharMerica's Board of Directors, were

controlling persons of PharMerica and had the power and influence, and exercised it, to caus e

PharMerica to engage in the illegal practices complained of herein .

100. It is appropriate to treat the Individual Defendants as a group for pleading purposes

and to presume that the materially false and misleading information conveyed in the Company' s

public filings, press releases and other publications as alleged herein are the collective actions of the

narrowly defined group of defendants identified above . Each of the above officers or directors of

PharMerica, by virtue of his high-level position with the Company, directly participated in the

management of the Company, was directly involved in the day-to-day operations of the Company at

the highest level and was privy to confidential proprietary information concerning the Company and

its business , operations and business prospects as alleged herein . The Individual Defendants were

involved or participated in the drafting, production, review and/or dissemination of the false and

misleading statements alleged herein. The Individual Defendants thus, were aware that these false

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and misleading statements were being issued regarding the Company and approved or ratified these

statements , in violation of the federal securities laws.

CONTROL OF INDIVIDUAL DEFENDANTS

101 . The Individual Defendants, because of their positions of control and authority as

officers and/or a director of the Company, were able to and did control the contents of the variou s

quarterly reports, SEC filings and press releases pertaining to the Company. The Individua l

Defendants were provided with copies of PharMerica's press releases, statements to analysts, an d

SEC filings after their issuance, with the opportunity to cause them to be corrected . Because of

their Board membership and/or executive and managerial positions with PharMerica, the Individual

Defendants had access to the adverse non-public information about PharMerica's business an d

finances particularized herein, via access to internal corporate officers and employees, attendance a t

PharMerica's management and/or Board of Directors meetings and committees thereof, and vi a

reports and other information provided to them in connection therewith . As a result, the Individual

Defendants were responsible for the accuracy of the public reports and releases detailed herein a s

"group published" information, and are therefore responsible and liable for the representation s

contained therein under Section 20(a) of the Exchange Act .

102. The Individual Defend ants either knew or recklessly disregarded the fact that the

illegal acts and practices and misleading statements and omissions described herein would

adversely affect the integrity of the market for PharMerica common stock and would artificiall y

inflate or maintain the price of PharMerica common stock. Each of the defendants, by acting as

herein described, did so knowingly or in such a reckless manner as to constitute a fraud and decei t

upon plaintiffs and the other members of the Class whom plaintiffs seek to represent .

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FIRST CLAIM

(Violations Of Section 10(b) Of The Exchange ActAnd Rule 10b-5 Promulgated Thereunder Against

All Defendants)

103 . Plaintiffs repeat and reallege each and every allegation contained above as if fully se t

forth herein .

104. During the Class Period, PharMerica and the Individual Defendants, and each of

them, carried out a plan, scheme and course of conduct which was intended to and, throughout th e

Class Period, did : (i) deceive the investing public, including plaintiffs and other Class members, a s

alleged herein; (ii) artificially inflate and maintain the market price of PharMerica's common stock ;

and (iii) cause plaintiffs and other members of the Class to purchase PharMerica's common stock a t

artificially inflated prices. In furtherance of this unlawful scheme, plan and course of conduct ,

defendants, and each of them, took the actions set forth herein .

105. 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 statement s

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 securities in an effort to maintain artificially

high market prices for PharMerica ' s secu rities in violation of Section 10(b) of the Exchange Ac t

and SEC Rule 1 Ob-5 promulgated thereunder . All defendants are sued as primary participants in th e

wrongful and illegal conduct charged herein and/or as controlling persons as alleged below .

106. In addition to the duties of full disclosure imposed on defendants as a result of their

making of affirmative statements and reports, or participation in the making of affirmativ e

statements and reports to the investing public, defendants had a duty to promptly disseminate

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truthful information that would be material to investors in compliance with the integrated disclosure

provisions of the SEC as embodied in SEC Regulation S-X (17 C .F.R. Sections 210 .01 et seq .) and

Regulation S-K (17 C .F.R. Sections 229 .10 et seq .) and other SEC regulations, including accurat e

and truthful information with respect to the Company's operations, financial condition and earnings

so that the market price of the Company' s securities would be based on truthful, complete an d

accurate information .

107. PharMerica and the Individual Defendants, individually and in concert, directly an d

indirectly, by the use, means or instrumentalities of interstate commerce and/or of the mails ,

engaged and participated in a continuous course of conduct to conceal adverse material informatio n

about the business, operations and future prospects of PharMerica as specified herein .

108. These defendants employed devices, schemes and artifices to defraud, while i n

possession of material adverse non-public information and engaged in acts, practices, and a cours e

of conduct as alleged herein in an effort to assure investors of PharMerica's value and performanc e

and continued substantial growth, which included the making of, or the participation in the making

of, untrue statements of material facts and omitting to state material facts necessary in order to make

the statements made about PharMerica and its business operations and future prospects in the ligh t

of the circumstances under which they were made, not misleading , as set forth more particularly

herein, and engaged in transactions, practices and a course of business which operated as a fraud

and deceit upon the purchasers of PharMerica's common stock during the Class Period .

109. Each of the Individual Defendants' primary liability, and controlling person liability ,

arises from the following facts : (i) the Individual Defendants were high-level executives and/o r

directors at the Company during the Class Period and members of the Company's management team

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or had control thereof ; (ii) each of these defendants , by virtue of his or her responsibilities and

activities as a senior officer and/or director of the Company was privy to and participated in th e

creation, development and reporting of the Company's internal budgets, plans, projections and/o r

reports ; (iii) each of these defendants enjoyed significant personal contact and familiarity with th e

other defendants and was advised of and had access to other members of the Company' s

management team , internal repo rts and other data and information about the Company's finances ,

operations, and sales at all relevant times ; and (iv) each of these defendants was aware of the

Company's dissemination of information to the investing public which they knew or recklessly

disregarded was materially false and misleading .

110. The defendants had actual knowledge of the misrepresentations and omissions of

material facts set forth herein, or acted with reckless disregard for the truth in that they failed t o

ascertain and to disclose such facts, even though such facts were available to them . Such

defendants' material misrepresentations and/or omissions were done knowingly or recklessly and

for the purpose and effect of concealing PharMerica's operating condition and future busines s

prospects from the investing public and supporting the artificially inflated price of its securities . As

demonstrated by defendants' overstatements and misstatements of the Company's business,

operations and earn ings throughout the Class Period , defendants , if they did not have actual

knowledge of the misrepresentations and omissions alleged, were reckless in failing to obtain such

knowledge by deliberately refraining from taking those steps necessary to discover whether thos e

statements were false or misleading .

111 . As a result of the dissemination of the materially false and misleading information

and failure to disclose mate rial facts, as set forth above, the market price of PharMerica' s common

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stock was artificially inflated during the Class Period. In ignorance of the fact that market prices o f

PharMerica's publicly-traded securities were artificially inflated, and relying directly or indirectly

on the false and misleading statements made by defendants, or upon the integrity of the market i n

which the securities trade, and/or on the absence of material adverse information that was known t o

or recklessly disregarded by defendants but not disclosed in public statements by defendants during

the Class Period, plaintiffs and the other members of the Class acquired PharMerica's commo n

stock during the Class Period at art ificially high prices and were damaged thereby.

112. At the time of said misrepresentations and omissions , plaintiffs and other members

of the Class were ignorant of their falsity, and believed them to be true . Had plaintiffs and the other

members of the Class and the marketplace known of the true financial condition and busines s

prospects of PharMerica, which were not disclosed by defendants, plaintiffs and other members o f

the Class would not have purchased or otherwise acquired their PharMerica common stock, or, i f

they had acquired such common stock during the Class Period, they would not have done so at th e

artificially inflated prices which they paid .

113 . By virtue of the foregoing, defendants have violated Section 10(b) of the Exchange

Act, and Rule I Ob-5 promulgated thereunder.

114. As a direct and proximate result of defendants ' wrongful conduct, plaintiffs and the

other members of the Class suffered damages in connection with their respective purchases and

sales of the Company's common stock during the Class Period .

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SECOND CLAIM

(Violation Of Section 20(a) Of The Exchange ActAgainst Individuals Defendants)

115 . Plaintiffs repeat and reallege each and every allegation contained above as if fully se t

forth herein .

116. The Individual Defendants acted as controlling persons of PharMerica within th e

meaning of Section 20(a) of the Exchange Act as alleged herein. By virtue of their high-leve l

positions, and their ownership and contractual rights, participation in and/or awareness of the

Company's operations and/or intimate knowledge of the Company 's acquisition integratio n

problems, the Individual Defendants had the power to influence and control and did influence and

control, directly or indirectly, the decision-making of the Company, including the content and

dissemination of the various statements which plaintiffs contend are false and misleading . The

Individual Defendants were provided with or had unlimited access to copies of the Company's

reports, press releases , public filings and other statements alleged by plaintiffs to be misleading

prior to and/or shortly after these statements were issued and had the ability to prevent the issuanc e

of the statements or cause the statements to be corrected .

117. In particular, each of these defendants had direct and supervisory involvement in the

day-to-day operations of the Company and, therefore, is presumed to have had the power to contro l

or influence the particular transactions giving rise to the securities violations as alleged herein, an d

exercised the same .

118. As set forth above , PharMerica and the Individual Defendants each violated Section

10(b) and Rule I Ob-5 by their acts and omissions as alleged in this Complaint . By virtue of thei r

positions as controlling persons, the Individual Defendants are liable pursuant to Section 20(a) o f

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the Exchange Act. As a direct and proximate result of defendants' wrongful conduct, plaintiffs and

other members of the Class suffered damages in connection with their purchases of the Company' s

common stock during the Class Period .

WHEREFORE , plaintiffs, on behalf of themselves and the other members of the Class ,

demand judgment against the defendants as follows :

A. Determining that this action is properly maintainable as a class action an d

certifying plaintiffs as class representatives pursuant to Rule 23 of the Federal Rules of Civi l

Procedure ;

B. Awarding compensatory damages in favor of plaintiffs and the other Class

members against all of the 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 ;

C. Awarding plaintiffs and the Class their reasonable costs and expenses

incurred in this action, including reasonable attorneys' and expert fees ; and

D. Such other and further relief as the Court may deem just and proper in light

of all of the circumstances of this case .

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JURY DEMAND

Plaintiffs demand a trial by jury .

Dated: May 25, 2000 MILBERG WEISS BERSHADHYNES & LERACH LLP

By :Abraham Rappaport - T unsel(Florida Bar No . 0163211 )Jack Reise(Florida Bar No . 058149)

5355 Town Center RoadSuite 900Boca Raton, FL 33486Tel : (561) 361-5000Fax: (561) 367-840 0

Stephen J . FearonKarin E. FischABBEY GARDY & SQUITIERI, LLP212 East 39th StreetNew York, NY 1001 6

Co-Lead Counsel

Linda P. NussbaumPOMERANTZ HAUDEK BLOCK &GROSSMAN100 Park Avenue, 26th FloorNew York, NY 10017-551 6

Leo W . DesmondTHE LAW OFFIC EOF LEO W . DESMOND

2161 Palm Beach Lakes BoulevardWest Palm Beach , FL 33409

Attorneys for Plaintiffs

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CERTIFICATE OF SERVICE

I hereby ce rt ify that on May 25 , 2000 a true and correct copy of the AMENDED

CONSOLIDATED CLASS ACTION COMPLAINT was sent by First-Class Mail to :

William C . Humphreys , Jr. Thomas G. LongTodd R. David BARNETT, BOLT, KIRKWOOD & LON GJason N. Poulos 601 Bayshore BoulevardALSTON & BIRD Suite 7001201 West Peachtree Street Tampa, FL 33606Atlanta, GA 30309-3424 (813) 253-2020(404) 881-7000

Counsel for PharMerica , Inc., et al.