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1 TIFFANY & BOSCO, P.A. Richard G. Himelrick, Arizona Bar #004738 2 J. James Christian, Arizona Bar #023614 Third Floor Camelback Esplanade II 3 2525 East Camelback Road Phoenix, Arizona 85016-4237 4 Tel: (602) 255-6000 Fax: (602) 255-0103 5 [email protected]; [email protected]

6 SAXENA WHITE P.A. Maya Saxena 7 Joseph E. White, III Christopher S. Jones 8 Lester R. Hooker 2424 N. Federal Highway, Suite 257 9 Boca Raton, FL 33431 Tel: (561) 394-3399 10 Fax: (561) 394-3082

11 Counsel for Lead Plaintiff

12 [Additional counsel appear on signature page]

13 UNITED STATES DISTRICT COURT 14 DISTRICT OF ARIZONA 15 DAVID SHAPIRO, Individually and On Behalf 16 Of All Others Similarly Situated, No. CV-09-1479-PHX-ROS 17 Plaintiff, Amended Class Action 18 Complaint for Violation of v. 19 the Federal Securities Laws MATRIXX INITIATIVES, INC., WILLIAM J. 20 HEMELT, SAMUEL C. COWLEY, TIMOTHY Jury Trial Demanded 21 L. CLAROT, and CARL J. JOHNSON,

22 Defendants.

23

24 25 Lead Plaintiff Axel Alegre de La Soujeole (“Plaintiff”), individually and on behalf 26 of all other persons and entities who purchased or otherwise acquired securities issued by 27 Matrixx Initiatives, Inc. (“Matrixx” or the “Company”) between December 22, 2007 and 28 June 15, 2009 (the “Class Period”), by his undersigned attorneys, alleges the following

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1 upon personal knowledge as to allegations specifically pertaining to himself and his own 2 acts, and upon information and belief and in reliance on the investigation of counsel as to 3 all other matters. 4 Plaintiff’s information and belief is based on his investigation (made by and 5 through his attorneys), which investigation included, among other things, a review and 6 analysis of: (a) public documents pertaining to Defendants (as defined herein); (b) 7 Matrixx’s filings with the Securities and Exchange Commission (“SEC”); (c) press 8 releases published by Matrixx; (d) Matrixx conference calls; (e) analyst reports 9 concerning the Company; and (f) newspaper and magazine articles (and other media 10 coverage) regarding Matrixx and its business. 11 I. NATURE OF THE ACTION 12 1. This is a federal securities class action brought on behalf of all purchasers 13 of the common stock of Matrixx who purchased the Company’s common stock during 14 the Class Period, seeking to pursue remedies under the Securities Exchange Act of 1934 15 (the “Exchange Act”). 16 2. Matrixx is a nutrient and drug delivery company that develops, 17 manufactures and markets delivery systems for bioactive compounds. The Company, 18 through its subsidiary, Zicam, LLC, produced, marketed and sold, among other 19 pharmaceutical products, Zicam Cold Remedy nasal gel, Zicam Cold Remedy gel swabs, 20 and Zicam Cold Remedy children’s swabs (“Zicam Cold Remedy Products”). 21 3. During the Class Period, Matrixx sold the Zicam Cold Remedy Products 22 over-the-counter without a prescription for the purpose of combating the symptoms and 23 duration of the common cold. As detailed below, the Zicam Cold Remedy Products are 24 nonprescription drugs subject to certain U.S. Food and Drug Administration (“FDA”) 25 regulations requiring the Company to submit to the FDA any reports of serious adverse 26 events involving the products. 27 4. Unbeknownst to investors, Matrixx had received hundreds of consumer 28 complaints of serious adverse events involving the loss of smell—also known as

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1 anosmia—after using the Zicam Cold Remedy Products, and the Company failed to 2 submit these reports to the FDA in violation of FDA regulations. The FDA’s Center for 3 Drug Evaluation and Research and Office of Compliance explained the serious nature of 4 anosmia in a March 11, 2009, memorandum authored by Charles E. Lee, M.D.:

5 Loss of sense of smell may have serious consequences. Patients with 6 anosmia may not be able to detect the smell of a gas leak, smoke, or spoiled food. Loss of taste (ageusia) may accompany anosmia, and may have a 7 major impact on the patient’s quality of life. Anosmia and ageusia may have a significant occupational impact for those employed in the culinary 8 professions. Finally, patients who develop anosmia may be subject to 9 adverse events from diagnostic tests or procedures, such as MRI or CT scans conducted with radiocontrast media, to determine its cause. 10 11 5. The investing public did not become aware of this adverse material 12 information until the Company disclosed that, on or about June 16, 2009, it had received 13 a warning letter from the FDA (the “FDA Warning Letter”) in which the FDA informed 14 Matrixx of several violations involving the Zicam Cold Remedy Products, as detailed 15 below. 16 6. The Complaint alleges that, throughout the Class Period, Defendants failed 17 to disclose material adverse facts about the Company’s operational well-being and future 18 prospects. Specifically, Defendants failed to disclose or indicate that: (1) Matrixx had 19 received notice of hundreds of serious adverse events regarding the Zicam Cold Remedy 20 Products; (2) Matrixx failed to report these incidents to the FDA despite having an 21 obligation to do so; (3) the Company failed to comply with FDA regulations despite 22 repeated assurances of its compliance; and (4) as a result of the foregoing, the Company’s 23 statements about its meeting FDA regulations were false and misleading when made. 24 7. As a result of Defendants’ wrongful acts, false and misleading statements 25 and omissions, which directly caused the precipitous decline in the market value of the 26 Company’s securities, Plaintiff and other Class members have suffered significant losses 27 and damages. 28

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1 II. JURISDICTION AND VENUE 2 8. The claims asserted herein arise under and pursuant to §§ 10(b) and 20(a) 3 of the Exchange Act, 15 U.S.C. §§ 78(i)(b), 78(t) and 78t-1(a). 4 9. This Court has jurisdiction over the subject matter of this action pursuant to 5 28 U.S.C. § 1331 because this action arises under the laws of the United States. 6 10. This Court has personal jurisdiction over this action because Matrixx does 7 business in this District and maintains its corporate headquarters in this District. 8 11. In connection with the acts and omissions alleged in this complaint, 9 Defendants, directly or indirectly, used the means and instrumentalities of interstate 10 commerce, including, but not limited to, the mails, interstate telephone communications, 11 and the facilities of the national securities markets. 12 III. PARTIES 13 12. Plaintiff purchased the publicly traded securities of Matrixx at artificially 14 inflated prices during the Class Period and has been damaged thereby, as set forth in his 15 certification which has previously been filed in this litigation and is incorporated by 16 reference. 17 13. Defendant Matrixx is a Delaware corporation and maintains its principal 18 executive offices at 8515 East Anderson Drive, Scottsdale, AZ 85255. Matrixx engages 19 in the development, production, marketing, and sale of over-the-counter (“OTC”) 20 healthcare products. The Company’s common stock traded on the NASDAQ exchange 21 under the symbol “MTXX” at all relevant times during the Class Period. 22 14. Defendant William J. Hemelt (“Hemelt”) has served as the Acting 23 President, Chief Operating Officer and Chief Financial Officer of the Company since 24 October 2008. Hemelt joined the Company in June 1998 as Chief Financial Officer, 25 Treasurer, and Secretary. He served as Secretary until February 2005 and Treasurer until 26 July 2007. 27 15. Defendant Samuel C. Cowley (“Cowley”) has served as the Executive Vice 28 President, Business Development, General Counsel and Secretary of the Company since

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1 May 2008. Cowley has served as a member of the Board of Directors of the Company 2 since July 2005. 3 16. Defendant Timothy L. Clarot (“Clarot”) has served as Vice President, 4 Research and Development of the Company since January 2004. Clarot previously 5 served as Director, Research and Development from June 2003 through January 2004, 6 and as Director of Operations from 2001 through June 2003. He joined the Company in 7 1999. 8 17. Defendant Carl J. Johnson (“Johnson”) served as President and Chief 9 Executive Officer of the Company from July 2001 until his retirement on October 31, 10 2008. Johnson served as a consultant of the Company following his retirement. 11 18. Defendants Hemelt, Cowley, Clarot and Johnson are collectively referred to 12 herein as the “Individual Defendants.” The Individual Defendants, together with the 13 Company, are collectively referred to herein as “Defendants.” 14 19. During the Class Period, the Individual Defendants, as senior executive 15 officers and/or directors of Matrixx, were privy to confidential, proprietary and material 16 adverse non-public information concerning the Company, its operations, finances, 17 financial condition and present and future business prospects via access to internal 18 corporate documents, conversations and connections with other corporate officers and 19 employees, attendance at management and/or board of directors meetings and 20 committees, and via reports and other information provided to them. Because of their 21 possession of such information, the Individual Defendants knew or recklessly disregarded 22 that the facts related to Zicam had not been disclosed to, and were being concealed from, 23 shareholders and the investing public. 24 20. The Individual Defendants are liable as direct participants in the wrongs 25 complained of herein. In addition, the Individual Defendants, by reason of their status as 26 senior executive officers and/or directors, were “controlling persons” within the meaning 27 of § 20(a) of the Exchange Act and had the power and influence to cause the Company to 28 engage in the unlawful conduct complained of herein. Because of their positions of

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1 control, the Individual Defendants were able to and did, directly or indirectly, control the 2 conduct of Matrixx’s business. 3 21. The Individual Defendants, because of their positions with the Company, 4 controlled and/or possessed the authority to control the contents of its reports, press 5 releases and presentations to securities analysts and through them, to the investing public. 6 The Individual Defendants were provided with copies of the Company’s reports and 7 publicly disseminated documents alleged herein to be misleading, prior to or shortly after 8 their issuance and had the ability and opportunity to prevent their issuance or cause them 9 to be corrected. Thus, the Individual Defendants had the opportunity to commit the 10 fraudulent acts alleged herein. 11 22. As senior executive officers and/or directors and as controlling persons of a 12 publicly traded company whose common stock was, and is, registered with the Securities 13 and Exchange Commission (“SEC”) pursuant to the Exchange Act, and is traded on the 14 NASDAQ and governed by the federal securities laws, the Individual Defendants had a 15 duty to disseminate promptly accurate and truthful information with respect to Matrixx’s 16 financial condition and performance, growth, operations, financial statements, business, 17 products, markets, management, earnings, and present and future business prospects, to 18 correct any previously issued statements that had become materially misleading or 19 untrue, so the market price of Matrixx’s securities would be based on truthful and 20 accurate information. The Individual Defendants’ misrepresentations and omissions 21 during the Class Period violated these specific requirements and obligations. 22 23. The Individual Defendants are liable as participants in a fraudulent scheme 23 and course of business that operated as a fraud or deceit on purchasers of Matrixx’s 24 publicly traded securities by disseminating materially false and misleading statements 25 and/or concealing material adverse facts. 26 27 28

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1 IV. SUBSTANTIVE ALLEGATIONS 2 A. Background of the Company and the Zicam Cold Remedy Products 3 24. Matrixx was formerly known as Gum Tech International, and was founded 4 in 1991 in Utah. Gum Tech developed, manufactured, and distributed chewing gum 5 products, some of which contained nutrients and vitamins which purportedly provided 6 health benefits to consumers. On June 18, 2002, Gum Tech changed its name to Matrixx 7 Initiatives, Inc. 8 25. Matrixx, through its subsidiaries, engages in the development, production, 9 marketing, and sale of OTC healthcare products. The Company sells products directly to 10 food, drug, mass market, and wholesale warehouse retailers in the United States, as well 11 as to distributors that sell to retail establishments under the Zicam, Nasal Comfort, and 12 Xcid brands. 13 26. The Zicam Cold Remedy Products were absolutely vital to Matrixx’s 14 financial well-being. According to the Company’s Form 10-K for the period ending 15 March 31, 2010 (the “2010 Form 10-K”),1 Zicam Cold Remedy Nasal Gel and Cold 16 Remedy Swabs accounted for 38%, or $42.5 million, of the Company’s net sales in fiscal 17 year 2009. In fiscal year 2008, Zicam Cold Remedy Nasal Gel and Cold Remedy Swabs 18 accounted for 33%, or $33.96 million, of the Company’s net sales. The 2010 Form 10-K 19 further states that, as a result of pulling the Zicam Cold Remedy Products from store 20 shelves, the Company had to record a $9.2 million reserve and take impairment charges 21 of $23.9 million. 22 27. During the Class Period, Matrixx sold the Zicam Cold Remedy Products 23 without a prescription. These products contained zinc gluconate (identified as zincum 24

25 1 Matrixx’s fiscal year coincided with the calendar year until December 31, 2006. Due to the 26 seasonality of its business, the Company’s board of directors approved a new fiscal year that runs from April 1 to March 31. Thus, fiscal year 2008 began on April 1, 2007; fiscal year 2009 began 27 on April 1, 2008, and so on. The three months ending March 31, 2007 are reported as a transition period. 28

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1 gluconicum on their labels) as their active ingredient. Zinc gluconate is also the active 2 ingredient in Neutersol, a chemical sterilization product for dogs which was approved by 3 the FDA on May 19, 2003. 4 28. The Zicam Cold Remedy Products are administered by direct application to 5 the nasal cavity and, as described in the labeling, are intended for use in “adults and 6 children 3 years of age and older (with adult supervision).” The labeling accompanying 7 the Zicam Cold Remedy Products claims that each of these products “reduces” the 8 “duration of the common cold” and the “severity of cold symptoms,” including 9 specifically “sore throat, stuffy nose, sneezing, coughing and congestion.” According to 10 the FDA Warning Letter, these claims “make these products drugs, as defined by section 11 201(g)(1) of the Federal Food, Drug, and Cosmetic Act (the Act), 21 U.S.C. § 321(g)(1), 12 because they are intended for use in the diagnosis, cure, mitigation, treatment, or 13 prevention of disease or to affect the structure or function of the body of man or other 14 animals.” Because these products are sold OTC without a prescription, they are 15 considered “nonprescription drugs.” 16 29. In the Company’s Form 10-K filed with the SEC on March 15, 2007, 17 Matrixx provided the following regarding its compliance with FDA regulations:

18 We are subject to various federal, state and local laws and regulations affecting our business. All of our products are subject to regulation by 19 the FDA, including regulations with respect to the approval of manufacturing processes and procedures, ingredients in the products, 20 labeling and claims made. All of our Zicam Cold Remedy products, the three oral delivery products, and Zicam Allergy Relief, are further subject 21 to the requirements of the Homeopathic Pharmacopeia of the United States. Zicam Extreme Congestion Relief, Zicam Sinus Relief, the seven Zicam 22 Cough Mist products, and four new Zicam Flu relief products are subject to the requirements of the FDA as allopathic drugs. All of our claims and 23 advertising are subject to the rules of the Federal Trade Commission (FTC). Although we believe that our products and claims comply in all material 24 respects with the regulatory requirements, if the FDA or FTC were to determine that we are in violation of any such requirement, either agency 25 could restrict our ability to market the products, change the claims that we make or cause us to remove the products from the market.2 26

27 2 Unless indicated otherwise, all emphasis is added. 28

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1 B. Background of the Dietary Supplement and Nonprescription Drug 2 Consumer Protection Act 3 30. On December 22, 2006, Congress passed the Dietary Supplement and 4 Nonprescription Drug Consumer Protection Act (the “Act”), which requires 5 manufacturers of nonprescription drugs to submit to the FDA any report received of a 6 serious adverse event associated with such drug within 15 business days after the report is 7 received. The Act took effect on December 22, 2007. 8 31. The Act defines a “serious adverse event” as follows:

9 SERIOUS ADVERSE EVENT.—The term ‘serious adverse event’ is an adverse event that— 10 (A) results in— 11 (i) death; 12 (ii) a life-threatening experience; (iii) inpatient hospitalization; 13 (iv) a persistent or significant disability or incapacity; or (v) a congenital anomaly or birth defect; or 14 (B) requires, based on reasonable medical judgment, a medical or surgical 15 intervention to prevent an outcome described under subparagraph (A).

16 32. The Act describes the reporting requirement for a manufacturer as follows: 17 (b) REPORTING REQUIREMENT.— 18 19 (1) IN GENERAL.—The manufacturer, packer, or distributor whose name (pursuant to section 502(b)(1)) appears on the label of 20 a nonprescription drug marketed in the United States (referred to in this section as the ‘responsible person’) shall submit to the 21 Secretary any report received of a serious adverse event associated with such drug when used in the United States, accompanied by a 22 copy of the label on or within the retail package of such drug. 23 33. The Act describes the requirement regarding submission of reports as 24 follows: 25 (c) SUBMISSION OF REPORTS.—

26 (1) TIMING OF REPORTS.—The responsible person shall submit to the Secretary a serious adverse event report no later than 15 27 business days after the report is received through the address or phone number described in section 502(x). 28

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1 34. Because Matrixx is the manufacturer of the Zicam Cold Remedy Products, 2 and because the Zicam Cold Remedy Products are nonprescription drugs, the Company 3 was under an obligation to submit to the FDA any reports of serious adverse events 4 involving these products beginning on December 22, 2007.

5 C. Serious Adverse Events Involving the Zicam Cold Remedy Products 6 35. On February 6, 2004, Good Morning America aired a report linking Zicam 7 Cold Remedy Products to anosmia. Reporter John Ferrugia stated that “Dr. Bruce Jafek 8 [of the University of Colorado School of Medicine] has discovered more than a dozen 9 patients with anosmia after using the Zicam product.” 10 36. In response to the Good Morning America broadcast, Defendants issued a 11 press release on February 6, 2004, which stated: 12 We want to assure our consumers that Zicam Cold Remedy intranasal zinc 13 gluconate products are manufactured and marketed according to Food and Drug Administration guidelines for homeopathic medicine. Our primary 14 concerns are the health and safety of those who use Zicam Cold Remedy nasal gels and the distribution of factual information about our products. 15 In no clinical trial of intranasal zinc gluconate gel products has there 16 been a single report of lost or diminished olfactory function (sense of 17 smell). Rather, the safety and efficacy of zinc gluconate for the treatment of symptoms related to the common cold have been well established in two 18 double-blind, placebo-controlled, randomized clinical trials. In fact, in neither study were there any reports of anosmia related to the use of this 19 compound. The overall incidence of adverse events associated with zinc gluconate was extremely low, with no statistically significant difference 20 between the adverse event rates for the treated and placebo subsets.

21 Thus, it is apparent from Matrixx’s own words that it considered the loss of smell to be 22 an adverse event impacting the health and safety of those customers who use its Zicam 23 Cold Remedy Products. 24 37. Just one month later, on March 4, 2004, John Ferrugia published an article 25 entitled Zicam Admits No Studies Done On Loss Of Smell on TheDenverChannel.com, 26 the website of the local ABC affiliate. The article reported that: 27 The makers of the nationally advertised cold remedy Zicam now admit they 28 don’t know if their nasal gel could cause loss of smell.

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1 * * * Matrixx Initiatives[] first told us its studies showed the product safe, but it 2 will now begin animal and human testing to determine whether its zinc compound could be harmful when sprayed in the nose, causing some to 3 lose their sense of smell.

4 These studies come after our investigative report aired both on “7NEWS” 5 and ABC’s “Good Morning America.” These reports prompted dozens of complaints to the U.S. Food and Drug Administration, which is now 6 investigating.

7 In response, the company formed a medical advisory panel in February.

8 It says it will now conduct: “…animal and human studies to further characterize these post-marketing complaints.” Study findings are expected 9 to be available in 12 months. 10 Matrixx’s formation of a medical advisory panel to determine if their flagship product 11 caused anosmia is yet another sign that Defendants considered the loss of smell to be a 12 serious adverse event. 13 38. In the wake of the Good Morning America broadcast, Matrixx was sued in 14 dozens of product liability and personal injury lawsuits that claimed its Zicam Cold 15 Remedy Products caused anosmia. The Company’s 2009 Form 10-K disclosed that as of 16 May 30, 2009, there were 14 active and pending product liability lawsuits against the 17 Company involving 29 plaintiffs. Amazingly enough, this number was actually a 18 decrease from December 31, 2005, when there were 50 product liability lawsuits 19 involving 427 plaintiffs pending against the Company. In addition to the lawsuits 20 actually filed against Matrixx, the Company disclosed that in 2005 and 2006 alone, there 21 were approximately 290 claimants who informed it that they were considering filing 22 lawsuits against the Company. The 2009 Form 10-K reveals that Matrixx spent 23 significant sums of money defending these lawsuits:

24 Fiscal Year Litigation Costs 25 2009 $2.2 million 26 2008 $2.5 million 27 (net of $560,000 for 28 insurance reimbursements)

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1 2007 $4.2 million 2 2006 $6 million 3 The 2009 Form 10-K further explains that “[t]he Company’s legal expense for these 4 lawsuits continues to have a significant impact on the results of operations . . . .” 5 39. In addition to defending itself in court, Defendants also took the time to 6 directly engage consumers who lodged anosmia complaints after using the Zicam Cold 7 Remedy Products. One individual from Greensboro, North Carolina reported a loss of 8 smell after using Zicam to the FDA’s Drug Quality Reporting System on March 15, 9 2007. Defendant Clarot replied to this individual on March 27, 2007, telling him that 10 Matrixx “do[es] not consider [his] concerns trivial, and the comments and questions our 11 customers provide to us either directly or through the FDA are essential to our 12 understanding of the perception of our products and our company.” Once again, it is 13 apparent from Defendants’ own words that the loss of smell was considered to be a 14 significant event. 15 D. The FDA’s May 2005 Inspection of Matrixx Reveals Numerous 16 Anosmia Complaints from Consumers 17 40. From May 25-27, 2005, the FDA conducted an investigation of Matrixx at 18 its headquarters, which revolved entirely around consumer complaints of anosmia. This 19 investigation, conducted by Consumer Safety Officer Randall N. Johnson, focused 20 primarily on the Company’s complaint procedures, its complaint records, and any follow- 21 up steps taken by the Company, as a result of consumer complaints of anosmia following 22 the use of Zicam Cold Remedy Products. As a result of this investigation, Officer 23 Johnson issued his Establishment Inspection Report (the “2005 FDA Report”), which 24 recorded his findings. 25 41. Defendant Clarot provided “the majority of information during the 26 inspection” to Officer Johnson. The Report explained that Defendant Clarot reported to 27 Defendant Johnson, and while Defendant Johnson reported to the board of directors, 28

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1 Johnson was in fact “the ultimate authority” at Matrixx in terms of product line and 2 overall market strategy. 3 42. The Report described two versions of Matrixx’s complaint form, known as 4 “Form A.” The information on each form is identical, except that one version contains 5 codes that are accessible to and used by the Company’s quality assurance and quality 6 control staff. At the end of every work week, coded Form A’s were downloaded into a 7 complaint database known as the “back end” data system. 8 43. Louise Wojcik, the Manager of quality assurance/quality control, told 9 Officer Johnson that she reviewed complaints “at least” weekly. She further stated that a 10 registered nurse would inform Matrixx “ASAP” of any “serious injury situations” 11 reported via the toll-free telephone number listed on product cartons. Defendant Clarot 12 also told Officer Johnson that he reviewed the electronic complaints on a regular basis. 13 44. Officer Johnson focused on data from the periods of December 2004 and 14 February to May 2005. In March 2005 alone, Matrixx received 38 consumer complaints 15 of anosmia. Officer Johnson noted that, according to Matrixx’s own data, there were an 16 average of 3.6 complaints of anosmia for every 100,000 units sold of Zicam Cold 17 Remedy nasal gel and swabs. Further, “according to management,” the Cold Remedy 18 Nasal Gel and Cold Remedy Adult Nasal swabs were the source of most anosmia 19 complaints. 20 45. The FDA Report also concluded that “[w]ritten procedures describing the 21 handling of complaints are not followed.” The FDA Report singled out SOP QA-001, 22 which became effective on January 11, 2005. The Report noted that fields concerning the 23 need for investigation of a complaint were often left blank for complaints dating 24 February-April 2005. Defendant Clarot admitted to Officer Johnson that there was no 25 consistent pattern to the use of the field for the name and date of the official who decided 26 that no investigation into the complaint was required. Defendant Clarot further admitted 27 that as a general matter, there was so much inconsistency in various fields among the 28

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1 various forms that he could not be sure what rules the person filling out the forms might 2 be following.

3 E. Unbeknownst to Investors, Defendants Receive Hundreds of Serious 4 Adverse Event Reports From Consumers Complaining of Anosmia After Using the Zicam Cold Remedy Products 5 46. As late as its 2009 Form 10-K (filed on June 8, 2009), the Company 6 continued to deny a connection between use of its Zicam Cold Remedy Products and 7 anosmia, stating that “[s]ince 2005, many lawsuits have been filed against us alleging that 8 our Zicam Cold Remedy nasal gel product has caused the permanent loss or 9 diminishment of the sense of smell or smell and taste. We believe such claims are 10 scientifically unfounded and misleading.” 11 47. Meanwhile, adverse event reports (“AERs”) complaining of the loss of 12 smell following the use of Zicam Cold Remedy Products poured into Matrixx. On 13 September 25, 2009, Matrixx’s counsel emailed Eric Blumberg, the FDA’s Deputy Chief 14 Counsel, Litigation. Referencing another FDA inspection of Matrixx that occurred in 15 May 2009, counsel admitted that Matrixx received AERs after the start of the Class 16 Period: 17 In May 2009, FDA again inspected complaints. When the inspector arrived 18 at Matrixx, he stated that the purpose of the inspection was specific to adverse event filings and MedWatch. He received a summary of smell loss 19 complaints from 1999-2008 and a summary of all adverse events for the 20 period 2004-2008 for Zicam Cold Remedy Swab and Spray. He of course was free to look at the complaints themselves, but did not. 21 22 48. The May 2009 investigation referenced in counsel’s September 25, 2009 23 email took place from May 26 to 28, and was conducted by FDA Inspector Timothy 24 Kapsala. The inspection resulted in the FDA issuing a Form 483 on May 28, 2009, 25 which concluded that “[s]erious adverse event(s) for a non-prescription drug used in the 26 United States has not been reported to the Secretary.” 27 49. The FDA itself also received AERs complaining of anosmia after using the 28 Zicam Cold Remedy Products. A September 17, 2008, FDA Memorandum authored by

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1 Michael Levy, the Director of the Division of New Drugs & Labeling Compliance, stated 2 that as of June 18, 2008, “there were 319 cases of anosmia associated with the use of 3 intranasal Zicam product” in the FDA’s Adverse Event Reporting System database. Of 4 those 319 cases, 131 reports involved the use of a zinc-containing product; 11 involved a 5 non-zinc-containing product; and in 177 cases, it was unclear whether the Zicam product 6 contained zinc. 7 50. A March 11, 2009 FDA Memorandum authored by Charles E. Lee, M.D. 8 found that there were an unusually large number of adverse event reports associated with 9 the Zicam Cold Remedy Products, especially as compared with other intranasal drugs:

10 Data mining using a Bayesian model has been used at FDA to 11 systematically screen the AERS [Adverse Event Reporting System] database for identification and surveillance of both known and unknown 12 drug-adverse event associations. . . . A score (Empirical Bayes Geometric Mean of Relative Risk; EBGM) is generated that indicates the strength of 13 the signal for the drug-adverse event association. Zicam had the highest 14 EBGM for anosmia of all drugs in AERS. The EBGM for Zicam was 591.9. In comparison, the EBGM for oxymetazoline [a topical nasal 15 decongestant found in Afrin] was 14, indicating a comparative relative risk 16 of 42.3. . . . The lack of a strong signal for anosmia in another intranasal product used for the common cold strongly suggest that the signal for 17 anosmia with Zicam is not due to confounding from postviral anosmia. In summary, reports in the AERS database of anosmia associated with use of 18 the Zicam Cold Remedy products, the lack of similar reports for other 19 intranasal products used for the common cold, and a strong association noted with data mining using a Bayesian model all strongly suggest that 20 this signal is drug-related and not due to confounding by postviral anosmia. 21 51. A March 1, 2010 FDA Memorandum, also written by Dr. Charles Lee and 22 addressed to Michael Levy, further reported that Matrixx received 1,046 adverse event 23 reports complaining of anosmia after using the Zicam Cold Remedy Products between 24 February 1, 2004 and May 31, 2009.

25 F. The FDA Issues a Warning Letter to Matrixx and a Public Health 26 Advisory Regarding the Zicam Cold Remedy Products 52. On June 16, 2009, the FDA sent Matrixx a Warning Letter regarding a link 27 between the Zicam Cold Remedy Products and anosmia. According to the FDA Warning 28

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1 Letter, a “significant and growing body of evidence substantiates that the Zicam Cold 2 Remedy [Products] may pose a serious risk to consumers who use them.” Specifically, 3 the FDA informed the Company that it had received over 130 reports of consumers losing 4 their sense of smell and/or taste in conjunction with their use of the Zicam Cold Remedy 5 Products:

6 FDA has received more than 130 reports of anosmia (loss of sense of smell, which in some cases can be long-lasting or permanent), associated 7 with use of these products; some individuals also report loss of sense of taste. By comparison, FDA has received few reports of anosmia associated 8 with other widely-used intranasal products for treatment of the common cold that are marketed subject to approved NDAs or according to an OTC 9 drug monograph. Further, there is evidence in the published scientific literature that various salts of zinc can damage olfactory function in animals 10 and humans.

11 53. The FDA Warning Letter also stated the following regarding the safety of 12 the Zicam Cold Remedy Products and the requirements with which Matrixx had failed to 13 comply: 14 We are not aware of any data establishing that the Zicam Cold Remedy 15 [Products] are generally recognized as safe and effective for the uses identified in their labeling. On the contrary . . . there is evidence that 16 these products pose a serious safety risk to consumers. Because they are not generally recognized as safe and effective for their labeled uses, these 17 products are new drugs, as defined by section 201(p) of the Act, 21 U.S.C. § 321(p). 18 Under sections 301(d) and 505(a) of the Act, 21 U.S.C. §§ 331(d) and 19 355(a), a new drug may not be introduced or delivered for introduction into interstate commerce unless an FDA‑approved application is in effect for it. 20 There are no approved new drug applications (NDAs) on file with FDA for any of the Zicam Cold Remedy [Products]; you market them without 21 FDA approval.

22 * * *

23 A homeopathic drug product marketed without an approved NDA is not subject to the enforcement discretion set forth in the CPG when there is 24 evidence of a safety risk associated with the product, as is the case for the Zicam Cold Remedy intranasal products. Under these circumstances, the 25 Agency enforces the Act’s new drug approval requirement, a provision that is essential to protect the public health by holding firms responsible 26 for demonstrating, based on adequate and well-controlled clinical investigations, that a product is safe and effective for each of its intended 27 uses before marketing it. Therefore, an approved NDA is required for the Zicam Cold Remedy [Products], regardless of their homeopathic status. 28 Your introduction of the Zicam Cold Remedy intranasal products into

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1 interstate commerce, without an approved application, violates sections 301(d) and 505(a) of the Act, 21 U.S.C. §§ 331(d) and 355(a). 2 3 54. The FDA Warning Letter also informed the Company that the Zicam Cold 4 Remedy Products “are misbranded under section 502(f)(2) of the Act, 21 U.S.C. § 5 352(f)(2), because their labeling does not bear adequate warnings regarding the risk of 6 anosmia associated with the product. In light of this failure to bear adequate warnings, 7 these products are also misbranded under section 502(a) of the Act, 21 U.S.C. § 352(a).” 8 55. The FDA Warning Letter further states that “[i]n addition to the reports 9 FDA has received directly from consumers, the agency is aware that Matrixx appears to 10 have more than 800 reports related to loss of sense of smell associated with Zicam Cold 11 Remedy [Products].” These reports were not submitted to the FDA. 12 56. On the same day that the FDA issued a Warning Letter to Matrixx, it also 13 issued a Public Health Advisory entitled Loss of Sense of Smell with Intranasal Cold 14 Remedies Containing Zinc. The Advisory states: 15 FDA is alerting consumers that Zicam Cold Remedy Nasal Gel, Zicam Cold Remedy Nasal Swabs, and Zicam Cold Remedy Swabs, Kids Size, a 16 discontinued product that consumers may still have in their homes, have all 17 been associated with long lasting or permanent loss of smell (referred to as anosmia) . . . . 18 * * * 19 Since the introduction of Zicam Cold Remedy Nasal Gel to the market in 1999, FDA has received more than 130 reports of anosmia associated with 20 the use of Zicam zinc-containing intranasal products. The reports vary. Many people state that the loss of sense of smell occurred with the first 21 dose of the Zicam product, although some people report it happened after 22 later doses. The loss of sense of smell may be long-lasting or even permanent in some people. 23 24 Loss of the sense of smell may cause serious problems, such as failing to smell smoke, a gas leak, or spoiled food. Also, loss of the sense of smell is 25 often linked with a loss of the sense of taste. People who cannot taste could unintentionally eat spoiled food and not appreciate flavors, and 26 lose much of the pleasure of eating. 27 28

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1 FDA recommends that consumers contact their healthcare provider if 2 they experience loss of the sense of smell or taste, or experience other problems after using any zinc-containing nasal products. 3 G. In a Stunning and Astonishing Reversal, Matrixx Changes its Position 4 and Responds to the FDA 5 57. In a letter dated June 5, 2009, Matrixx responded to the FDA Form 483 that 6 was issued to the Company on May 28, 2009. The letter acknowledges that Matrixx 7 “regularly” received adverse event reports of anosmia related to the use of the Zicam 8 9 Cold Remedy Products, but that “[t]he firm does not classify and report anosmia (loss of 10 smell) or loss of taste as a serious adverse event and therefore does not report these 11 complaints to the Food and Drug Administration (MedWatch reporting system).” 12 58. As stated in the letter, Matrixx’s refusal to classify the loss of smell as a 13 14 serious adverse event is based on an opinion provided to the Company by the law firm of 15 K&L Gates. Nowhere to be found, however, is the date that Matrixx requested such an

16 opinion or the date that the opinion was actually furnished to the Company. The K&L 17 Gates opinion, in turn, is based on another undated memorandum written by a clinician 18 19 and addressed to Defendant Clarot. 20 59. Matrixx’s reversal is stunning. Despite two FDA inspections and spending

21 tens of millions of dollars defending dozens of products liability lawsuits filed by 22 hundreds of consumers—all because of complaints of the loss of smell after using the 23 24 Zicam Cold Remedy Products—Matrixx suddenly reversed its position by stating that the 25 loss of smell is not a serious adverse event, essentially relying on the opinion of a single

26 doctor to do so. 27 28

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1 60. The precariousness of Matrixx’s reliance on a single doctor soon became 2 immediately apparent. On August 17, 2009, Matrixx’s counsel wrote to Alonza E. Cruse, 3 FDA Los Angeles District Director, that “Matrixx was reevaluating its policies on 4 5 reporting adverse events and signaling Matrixx’ [sic] willingness to start reporting

6 anosmia as a serious adverse event if FDA continued to believe that was appropriate.” 7 61. On July 22, 2009, Matrixx responded to the FDA’s Warning Letter by 8 sending a draft response to Deborah Autor, the Director of the FDA’s Office of 9 10 Compliance. While maintaining that there is no scientific link between use of the Zicam

11 Cold Remedy Products and anosmia, this draft response does not actually dispute that 12 anosmia is an adverse event. In fact, the draft response reveals that from January 1 to 13 May 31, 2009, 90 Zicam users expressed grave concerns and told Matrixx of the horrific 14 15 results they suffered after using the Zicam Cold Remedy Products. As an exhibit to the 16 draft response, the Company presented to the FDA its own data as to the number of 17 anosmia complaints per 100,000 boxes of product sold: 18 19 20 21 22 23 24 25 26 27 28

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1 2 3 4 5 6 7 8 9 10 11 12 13 14

15 16 The Company’s own data shows that it was regularly receiving anosmia complaints from

17 consumers, after using the Zicam Cold Remedy Products, and therefore knew that it was 18 lying to the public throughout the Class Period. 19 20 V. FALSE AND MISLEADING STATEMENTS 21 62. The Class Period begins on December 22, 2007, the date on which the Act 22 went into effect. Despite having an obligation under the Act and FDA regulations to 23 submit to the FDA any report regarding a serious adverse event involving one of its 24 nonprescription drugs, Matrixx failed to do so throughout the Class Period while 25 emphasizing to the investing public that the Company complied with all applicable 26 federal laws and government regulations. 27 63. On January 16, 2008, Matrixx filed a Form 8-K with the SEC (“1/16/08 28 Form 8-K”) announcing that the season-to-date incidence of illness for the 2007/2008

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1 cold season was the lowest since Zicam was introduced in 1999, which affected the 2 amount of reorders the Company received in the quarter ended December 31, 2007, 3 resulting in lower net sales and net income guidance. The Company failed to disclose 4 receiving any reports of serious adverse events involving the Zicam Cold Remedy 5 Products in the 1/16/08 Form 8-K. 6 64. On January 30, 2008, Matrixx filed a Form 8-K with the SEC (“1/30/08 7 Form 8-K”) announcing financial results for its fiscal 2008 third quarter and nine months 8 ended December 31, 2007. The 1/30/08 Form 8-K reported a decline in revenue due to 9 “extreme weakness in the cold season through December.” The Company failed to 10 disclose receiving any reports of serious adverse events involving the Zicam Cold 11 Remedy Products in the 1/30/08 Form 8-K. 12 65. On February 7, 2008, Matrixx filed a Form 10-Q with the SEC (“2/7/08 13 Form 10-Q”), which included the financial results released in the 1/30/08 Form 8-K. The 14 2/7/08 Form 10-Q included certifications by Defendants Johnson and Hemelt certifying 15 that the “report does not contain any untrue statement of a material fact or omit to state a 16 material fact necessary to make the statements made, in light of the circumstances under 17 which such statements were made, not misleading with respect to the period covered by 18 this report,” that these Defendants “are responsible for establishing and maintaining 19 disclosure controls and procedures,” and that they “designed such disclosure controls and 20 procedures, or caused such disclosure controls and procedures to be designed under our 21 supervision, to ensure that material information relating to [Matrixx], including its 22 consolidated subsidiaries, is made known to [them] by others within those entities.” In 23 addition, the 2/7/08 Form 10-Q included certifications by Defendants Johnson and 24 Hemelt made pursuant to the Sarbanes-Oxley Act of 2002 (“SOX”). The Company failed 25 to disclose receiving any reports of serious adverse events involving the Zicam Cold 26 Remedy Products in the 2/7/08 Form 10-Q. 27 66. On April 3, 2008, Matrixx filed a Form 8-K with the SEC (“4/3/08 Form 8- 28 K”) in which the Company provided a product liability litigation update regarding a

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1 favorable jury verdict in one of several lawsuits alleging that the Zicam Cold Remedy 2 nasal gel product caused the permanent loss or diminishment of the sense of smell or 3 smell and taste. The Company failed to disclose receiving any reports of serious adverse 4 events involving the Zicam Cold Remedy Products in the 4/3/08 Form 8-K. 5 67. On May 13, 2008, Matrixx filed a Form 8-K with the SEC (“5/13/08 Form 6 8-K”) in which the Company announced its financial results for the fiscal quarter and 7 year ended March 31, 2008. The Company failed to disclose receiving any reports of 8 serious adverse events involving the Zicam Cold Remedy Products in the 5/13/08 Form 9 8-K. 10 68. On June 13, 2008, Matrixx filed its annual report on a Form 10-K with the 11 SEC (“6/13/08 Form 10-K”). The 6/13/08 Form 10-K included certifications by 12 Defendants Johnson and Hemelt that the “report does not contain any untrue statement of 13 a material fact or omit to state a material fact necessary to make the statements made, in 14 light of the circumstances under which such statements were made, not misleading with 15 respect to the period covered by this report,” that these Defendants “are responsible for 16 establishing and maintaining disclosure controls and procedures,” and that they “designed 17 such disclosure controls and procedures, or caused such disclosure controls and 18 procedures to be designed under [their] supervision, to ensure that material information 19 relating to [Matrixx], including its consolidated subsidiaries, is made known to [them] by 20 others within those entities.” The 6/13/08 Form 10-K also included SOX certifications 21 by Defendants Johnson and Hemelt. 22 69. In the 6/13/08 Form 10-K, Matrixx reiterated that the Company believes it 23 is in compliance with FDA regulatory requirements:

24 We are subject to various federal, state and local laws and regulations that affect our business. All of our products are subject to regulation by 25 the FDA, including regulations with respect to manufacturing processes and procedures, ingredients in the products, labeling and claims made. 26 Our drug products are commercially distributed by following the Homeopathic Pharmacopeia or FDA’s OTC monographs. The OTC 27 monographs classify certain drug ingredients as safe and effective for specified uses and establish categorical requirements for the marketing of 28 drugs containing such ingredients without pre-approval. All of our Zicam

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1 Cold Remedy products and Zicam Allergy Relief are subject to the requirements of the Homeopathic Pharmacopeia of the United States. 2 Zicam Extreme Congestion Relief, Zicam Sinus Relief, the Zicam cough products, and the Zicam multi-symptom relief products are subject to the 3 requirements of the FDA as allopathic drugs. All of our claims and advertising are subject to the rules of the Federal Trade Commission (FTC). 4 Although we believe that our products and claims comply in all material respects with the regulatory requirements, if the FDA or FTC were to 5 determine that we are in violation of any such requirement, either agency could restrict our ability to market the products, require us to change the 6 claims that we make or cause us to remove the products from the market.

7 70. The Company failed to disclose receiving any reports of serious adverse 8 events involving the Zicam Cold Remedy Products in the 6/13/08 Form 10-K. 9 71. On July 1, 2008, Matrixx filed a Form 8-K with the SEC (“7/1/08 Form 8- 10 K”) in which the Company announced a manufacturer product recall for certain of its 11 Zicam products. The 7/1/08 Form 8-K stated that the Company’s manufacturer 12 conducted “the limited recall because of concern that the product in some lots may 13 contain small metal fragments,” and that there had been “no reports of injury or illness 14 involving the affected products.” The Company failed to disclose receiving any reports 15 of serious adverse events involving the Zicam Cold Remedy Products in the 7/1/08 Form 16 8-K. 17 72. On July 24, 2008, Matrixx filed a Form 8-K with the SEC (“7/24/08 Form 18 8-K”) in which the Company announced its financial results for the first quarter of fiscal 19 2009 ended June 30, 2008. The Company failed to disclose receiving any reports of 20 serious adverse events involving the Zicam Cold Remedy Products in the 7/24/08 Form 21 8-K. 22 73. On August 7, 2008, Matrixx filed a Form 10-Q with the SEC (“8/7/08 Form 23 10-Q”), which included the financial results reported in the 7/24/08 Form 8-K. The 24 8/7/08 Form 10-Q included certifications by Defendants Johnson and Hemelt that the 25 “report does not contain any untrue statement of a material fact or omit to state a material 26 fact necessary to make the statements made, in light of the circumstances under which 27 such statements were made, not misleading with respect to the period covered by this 28

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1 report,” that these Defendants “are responsible for establishing and maintaining 2 disclosure controls and procedures,” and that they “designed such disclosure controls and 3 procedures, or caused such disclosure controls and procedures to be designed under 4 [their] supervision, to ensure that material information relating to [Matrixx], including its 5 consolidated subsidiaries, is made known to [them] by others within those entities.” The 6 8/7/08 Form 10-Q also included SOX certifications by Defendants Johnson and Hemelt. 7 The Company failed to disclose receiving any reports of serious adverse events involving 8 the Zicam Cold Remedy Products in the 8/7/08 Form 10-Q. 9 74. On October 22, 2008, Matrixx filed a Form 8-K with the SEC (“10/22/08 10 Form 8-K”) in which the Company announced its financial results for the fiscal quarter 11 ended September 30, 2008, and announcing the retirement of Defendant Johnson from 12 the Company effective October 31, 2008, with Defendant Hemelt replacing Johnson as 13 Acting President and Chief Operating Officer until the completion of the Company’s 14 search for a permanent replacement for Johnson. The Company failed to disclose 15 receiving any reports of serious adverse events involving the Zicam Cold Remedy 16 Products in the 10/22/08 Form 8-K. 17 75. On November 6, 2008, Matrixx filed a Form 10-Q with the SEC (“11/6/08 18 Form 10-Q”), which included the financial results reported in the 10/22/08 Form 8-K. 19 The 11/6/08 Form 10-Q included a certification by Defendant Hemelt that the “report 20 does not contain any untrue statement of a material fact or omit to state a material fact 21 necessary to make the statements made, in light of the circumstances under which such 22 statements were made, not misleading with respect to the period covered by this report,” 23 that Hemelt is “responsible for establishing and maintaining disclosure controls and 24 procedures,” and that Hemelt “designed such disclosure controls and procedures, or 25 caused such disclosure controls and procedures to be designed under [their] supervision, 26 to ensure that material information relating to [Matrixx], including its consolidated 27 subsidiaries, is made known to [them] by others within those entities.” The 11/6/08 Form 28 10-Q also included a SOX certification by Defendant Hemelt. The Company failed to

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1 disclose receiving any reports of serious adverse events involving the Zicam Cold 2 Remedy Products in the 11/6/08 Form 10-Q. 3 76. On January 27, 2009, Matrixx filed a Form 8-K with the SEC (“1/27/09 4 Form 8-K”) in which the Company reported its financial results for the fiscal quarter and 5 nine months ended December 31, 2008. The Company failed to disclose receiving any 6 reports of serious adverse events involving the Zicam Cold Remedy Products in the 7 1/27/09 Form 8-K. 8 77. On February 6, 2009, Matrixx filed a Form 10-Q with the SEC (“2/6/09 9 Form 10-Q”), which included the financial results reported in the 1/27/09 Form 8-K. The 10 2/6/09 Form 10-Q included a certification by Defendant Hemelt that the “report does not 11 contain any untrue statement of a material fact or omit to state a material fact necessary to 12 make the statements made, in light of the circumstances under which such statements 13 were made, not misleading with respect to the period covered by this report,” that Hemelt 14 is “responsible for establishing and maintaining disclosure controls and procedures,” and 15 that Hemelt “designed such disclosure controls and procedures, or caused such disclosure 16 controls and procedures to be designed under [their] supervision, to ensure that material 17 information relating to [Matrixx], including its consolidated subsidiaries, is made known 18 to [them] by others within those entities.” The 2/6/09 Form 10-Q also included a SOX 19 certification by Defendant Hemelt. The Company failed to disclose receiving any reports 20 of serious adverse events involving the Zicam Cold Remedy Products in the 2/6/09 Form 21 10-Q. 22 78. On May 12, 2009, Matrixx filed a Form 8-K with the SEC (“5/12/09 Form 23 8-K”) in which the Company reported its financial results for the fiscal quarter and year 24 ended March 31, 2009. The Company failed to disclose receiving any reports of serious 25 adverse events involving the Zicam Cold Remedy Products in the 5/12/09 Form 8-K. 26 79. On June 8, 2009, Matrixx filed its annual report on Form 10-K with the 27 SEC (“6/8/09 Form 10-K”), which included the financial results reported in the 5/12/09 28 Form 8-K. The 6/8/09 Form 10-K included a certification by Defendant Hemelt that the

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1 “report does not contain any untrue statement of a material fact or omit to state a material 2 fact necessary to make the statements made, in light of the circumstances under which 3 such statements were made, not misleading with respect to the period covered by this 4 report,” that Hemelt is “responsible for establishing and maintaining disclosure controls 5 and procedures,” and that Hemelt “designed such disclosure controls and procedures, or 6 caused such disclosure controls and procedures to be designed under [their] supervision, 7 to ensure that material information relating to [Matrixx], including its consolidated 8 subsidiaries, is made known to [them] by others within those entities.” The 6/8/09 Form 9 10-K also included a SOX certification by Defendant Hemelt. 10 80. In the 6/8/09 Form 10-K, Matrixx reiterated that the Company believes it is 11 in compliance with FDA regulatory requirements:

12 We are subject to various federal, state and local laws and regulations that affect our business. All of our products are subject to regulation by 13 the FDA, including regulations with respect to manufacturing processes and procedures, ingredients in the products, labeling and claims made. 14 Our drug products are commercially distributed by following the Homeopathic Pharmacopeia or FDA’s OTC monographs. The OTC 15 monographs classify certain drug ingredients as safe and effective for specified uses and establish categorical requirements for the marketing of 16 drugs containing such ingredients without pre-approval. All of our Zicam Cold Remedy, Zicam Allergy Relief, and Zicam Cold Sore products are 17 subject to the requirements of the Homeopathic Pharmacopeia of the United States. Zicam Extreme Congestion Relief, Zicam Sinus Relief, the Zicam 18 cough product, and the Zicam multi-symptom relief products are subject to the requirements of the FDA as allopathic drugs. All of our claims and 19 advertising are subject to the rules of the Federal Trade Commission (FTC). Although we believe that our products and claims comply in all material 20 respects with the regulatory requirements, if the FDA or FTC were to determine that we are in violation of any such requirement, either agency 21 could restrict our ability to market the products, require us to change the claims that we make or cause us to remove the products from the market. 22 23 81. The Company failed to disclose receiving any reports of serious adverse 24 events involving the Zicam Cold Remedy Products in the 6/8/09 Form 10-K. 25 VI. THE TRUTH COMES TO LIGHT 26 82. On June 16, 2009, Matrixx filed a Form 8-K with the SEC (“6/16/09 Form 27 8-K”) in which it was forced to announce that it had received the FDA Warning Letter. 28 The 6/16/09 Form 8-K stated that the “FDA has asserted that the Company is in violation

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1 of its regulations by failing to file a new drug application for its Zicam Cold Remedy 2 [Products] and that those products are misbranded under their regulations for failing to 3 adequately warn of risks. The FDA referred to numerous complaints it has received of 4 anosmia associated with the use of these products.” 5 83. Also on June 16, 2009, Matrixx issued a press release confirming that it had 6 received the FDA Warning Letter and announcing the withdrawal of the Zicam Cold 7 Remedy Products from the market. 8 84. Following the filing of the 6/16/09 Form 8-K, the disclosure of the FDA 9 Warning Letter, the recall of the Zicam Cold Remedy Products, and the existence of over 10 800 serious adverse incidents in the Company’s possession that went unreported to the 11 FDA, Matrixx’s stock price plummeted on June 16, 2009 from a $19.24 closing price the 12 previous day to close at $5.78—a massive one-day drop of approximately 70%. 13 85. On June 18, 2009, Matrixx held a conference call to discuss the FDA 14 Warning Letter. In response to a question regarding the over 800 reports of serious 15 adverse events that the Company failed to submit to the FDA, Defendant Hemelt stated 16 the following:

17 There were new regulations that went into effect in 2007, I believe, with regard to the reporting of what are called serious adverse events, and we in 18 May – actually when the FDA came in for their – for a normal routine inspection, they suggested for the first time that their interpretation was to 19 report all complaints of diminishment of smell under these new regulations, rather than just having those complaints available for 20 inspection . . . So the 800 is – we have complaints here, clearly, but we weren’t required to send them to them. At least we didn’t believe they 21 were required to send them under the new regulations. 22 86. Defendant Hemelt provided this explanation for why the Company failed to 23 submit to the FDA over 800 reports of serious adverse events involving the Zicam Cold 24 Remedy Products despite the fact that the Act—on its face—clearly indicates that a 25 “manufacturer, packer or distributer . . . shall submit to the Secretary any report received 26 of a serious adverse event associated with such drug when used in the United States, 27 accompanied by a copy of the label on or within the retail package of such drug.” 28

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1 87. Thereafter, on June 23, 2009, Matrixx filed a Form 8-K with the SEC 2 (“6/23/09 Form 8-K”) in which it announced that on June 19, 2009, the Company had 3 received an informal inquiry from the SEC requesting certain documents and information 4 relating to the FDA Warning Letter. Upon release of this information, Matrixx’s stock 5 price declined even further to close on June 23, 2009 at $4.83. 6 88. Notably absent from Matrixx’s financial results during the Class Period was 7 any mention that the Company had received reports from consumers regarding any 8 serious adverse events involving the Zicam Cold Remedy Products. Indeed, the 9 Company had represented to the investing public throughout the Class Period that it 10 believed it was in compliance with FDA regulatory requirements even though the Act, on 11 its face, requires Matrixx to report any serious adverse events involving nonprescription 12 drugs to the FDA within 15 business days of receipt of such reports. 13 89. Matrixx’s statements and filings during the Class Period were materially 14 false and misleading because Defendants failed to disclose: (1) that Matrixx had received 15 notice of over 800 serious adverse events regarding the Zicam Cold Remedy Products; 16 (2) that Matrixx failed to report these incidents to the FDA despite having an obligation 17 to do so; (3) that the Company failed to comply with FDA regulations despite repeated 18 assurances of its compliance; and (4) that, as a result of the foregoing, the Company’s 19 statements about its meeting FDA regulations were false and misleading when made.

20 VII. DEFENDANTS’ OMISSIONS AND FAILURE TO REVEAL THE TRUTH 21 90. In addition to the false and misleading statements described in detail 22 throughout the Complaint, Defendants also failed to disclose the truth regarding 23 Matrixx’s operations. Specifically, and in addition to the other omissions described in 24 this Complaint, Defendants failed to tell the investing public that: (a) they had received 25 hundreds of AERs from consumers complaining of anosmia; (b) they knew of and 26 reviewed these AERs on a regular basis; and (c) they failed to reveal the existence of 27 these AERs to the FDA as required by federal law. As a result of this omitted 28

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1 information, Matrixx’s public statements as detailed in this Complaint were materially 2 false and misleading. 3 VIII. CLASS ACTION ALLEGATIONS 4 91. Plaintiff brings this action as a class action pursuant to Federal Rule of 5 Civil Procedure 23(a) and (b)(3) on behalf of all persons who purchased or otherwise 6 acquired Matrixx common stock on the NASDAQ during the Class Period and who were 7 damaged thereby (the “Class”). Excluded from the Class are Defendants, members of the 8 immediate family of each of the Individual Defendants, any subsidiary or affiliate of 9 Matrixx and the directors, officers and employees of the Company or its subsidiaries or 10 affiliates, or any entity in which any excluded person has a controlling interest, and the 11 legal representatives, heirs, successors and assigns of any excluded person. 12 92. The members of the Class are so numerous that joinder of all members is 13 impracticable. While the exact number of Class members is unknown to Plaintiff at this 14 time and can only be ascertained through appropriate discovery, Plaintiff believes that 15 there are thousands of members of the Class located throughout the United States. 16 Throughout the Class Period, Matrixx common stock was actively traded on the 17 NASDAQ, an open and efficient market. As of June 8, 2009, the Company had over 9 18 million shares of common stock outstanding. Record owners and other members of the 19 Class may be identified from records maintained by Matrixx and/or its transfer agents 20 and may be notified of the pendency of this action by mail, using a form of notice similar 21 to that customarily used in securities class actions. 22 93. Plaintiff’s claims are typical of the claims of the other members of the 23 Class as all members of the Class were similarly affected by Defendants’ wrongful 24 conduct in violation of federal law that is complained of herein. 25 94. Plaintiff will fairly and adequately protect the interests of the members of 26 the Class and have retained counsel competent and experienced in class and securities 27 litigation. 28

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1 95. Common questions of law and fact exist as to all members of the Class and 2 predominate over any questions solely affecting individual members of the Class. 3 Among the questions of law and fact common to the Class are: 4 a. whether the federal securities laws were violated by Defendants’ acts 5 and omissions as alleged herein; 6 b. whether Defendants participated in and pursued the common course 7 of conduct complained of herein; 8 c. whether documents, press releases, and other statements 9 disseminated to the investing public and the Company’s shareholders during the Class 10 Period misrepresented material facts about the business, finances, financial condition and 11 prospects of Matrixx; 12 d. whether statements made by Defendants to the investing public 13 during the Class Period misrepresented and/or omitted to disclose material facts about the 14 business, finances, value, performance and prospects of Matrixx; 15 e. whether the market price of Matrixx common stock during the Class 16 Period was artificially inflated due to the material misrepresentations and failures to 17 correct the material misrepresentations complained of herein; and 18 f. the extent to which the members of the Class have sustained 19 damages and the proper measure of damages. 20 96. A class action is superior to all other available methods for the fair and 21 efficient adjudication of this controversy since joinder of all members is impracticable. 22 Furthermore, as the damages suffered by individual Class members may be relatively 23 small, the expense and burden of individual litigation make it impossible for members of 24 the Class to individually redress the wrongs done to them. There will be no difficulty in 25 the management of this suit as a class action.

26 IX. LOSS CAUSATION 27 97. During the Class Period, as detailed herein, Defendants engaged in a 28 scheme to deceive the market and a course of conduct that artificially inflated the prices

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1 of Matrixx’s securities and operated as a fraud or deceit on Class Period purchasers of 2 Matrixx’s securities by failing to disclose to investors that the Company’s operational 3 statements were materially misleading and misrepresented material information. When 4 Defendants’ misrepresentations and fraudulent conduct were disclosed and became 5 apparent to the market, the price of Matrixx’s securities fell precipitously as the prior 6 inflation came out of the Company’s stock price. As a result of their purchases of 7 Matrixx’s securities during the Class Period, Plaintiff and the other Class members 8 suffered economic loss. 9 98. By failing to disclose that the Company had received hundreds of reports of 10 serious adverse events involving the Zicam Cold Remedy Products and violated the Act 11 by failing to submit these reports to the FDA, investors were not aware of the true state of 12 the Company’s financial and operational status. Therefore, Defendants presented a 13 misleading picture of Matrixx’s business and prospects. Thus, instead of disclosing 14 during the Class Period the true state of the Company’s business, Defendants caused 15 Matrixx to conceal the truth. 16 99. Defendants’ false and misleading statements and omissions had the 17 intended effect and caused Matrixx’s common stock to trade at artificially inflated levels 18 throughout the Class Period. However, as a direct result of the Company’s problems 19 coming to light, Matrixx’s common stock price fell nearly 70% percent immediately 20 following the announcement of the Company’s receipt of the FDA Warning Letter and 21 the disclosure of the hundreds of serious adverse events involving the Zicam Cold 22 Remedy Products, and continued to decrease over the following days and months. This 23 drop removed the inflation from the price of Matrixx’s securities, causing real economic 24 loss to investors who purchased the Company’s securities during the Class Period. 25 100. The decline in the price of Matrixx’s common stock after the truth came to 26 light was a direct result of the nature and extent of Defendants’ fraud finally being 27 revealed to investors and the market. The timing and magnitude of Matrixx’s stock price 28 decline negates any inference that the loss suffered by Plaintiff and the other Class

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1 members was caused by changed market conditions, macroeconomic or industry factors 2 or Company-specific facts unrelated to the Defendants’ fraudulent conduct. The 3 economic loss suffered by Plaintiff and the other Class members was a direct result of 4 Defendants’ fraudulent scheme to artificially inflate the prices of Matrixx’s securities and 5 the subsequent decline in the value of Matrixx’s securities when Defendants’ prior 6 misrepresentations and other fraudulent conduct were revealed.

7 X. APPLICABILITY OF PRESUMPTION OF RELIANCE: FRAUD ON THE MARKET DOCTRINE 8 101. At all relevant times, the market for Matrixx stock was an efficient market 9 for the following reasons, among others: 10 a. Matrixx securities met the requirements for listing, and were listed 11 and actively traded on the NASDAQ, a highly efficient market; 12 b. As a regulated issuer, Matrixx filed periodic public reports with the 13 SEC and the NASDAQ; 14 c. Matrixx regularly issued press releases which were carried by 15 national newswires. Each of these releases was publicly available and entered the public 16 marketplace. 17 102. As a result, the market for Matrixx securities promptly digested current 18 information with respect to the Company from all publicly-available sources and 19 reflected such information in Matrixx’s stock price. 20 103. During the Class Period, Defendants materially misled the investing public, 21 thereby inflating the price of Matrixx’s securities, by publicly issuing false and 22 misleading statements and omitting to disclose material facts necessary to make 23 Defendants’ statements, as set forth herein, not false and misleading. Such statements 24 and omissions were materially false and misleading in that they failed to disclose material 25 adverse non-public information and misrepresented the truth about the Company, its 26 business and operations, as alleged herein. 27 28

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1 104. At all relevant times, the material misrepresentations and omissions 2 particularized herein directly or proximately caused or were a substantial contributing 3 cause of the damages sustained by Plaintiff and the other members of the Class. As 4 described herein, during the Class Period, Defendants made or caused to be made a series 5 of materially false and misleading statements about Matrixx’s business, prospects and 6 operations. These material misstatements and omissions had the cause and effect of 7 creating in the market an unrealistically positive assessment of Matrixx and its business, 8 prospects and operations, thus causing the Company’s securities to be overvalued and 9 artificially inflated at all relevant times. 10 105. Because of the materially false and misleading statements and failures to 11 disclose described herein, Matrixx’s securities traded at artificially inflated prices during 12 the Class Period. Plaintiff and the other members of the Class purchased or otherwise 13 acquired Matrixx’s common stock relying upon the integrity of the market price of 14 Matrixx’s securities and market information related to Matrixx, and have been damaged 15 thereby. Under these circumstances, all purchasers of Matrixx securities during the Class 16 Period suffered similar injury through their purchase of stock at artificially inflated prices 17 and a presumption of reliance applies. 18 XI. INAPPLICABILITY OF SAFE HARBOR 19 106. As alleged herein, Defendants acted with scienter in that they: (a) knew, at 20 the time that they were released, that the public documents and statements issued or 21 disseminated in the name of Matrixx were materially false and misleading or omitted 22 material facts; (b) knew that such statements or documents would be issued or 23 disseminated to the investing public; (c) knew that persons were likely to reasonably rely 24 on those misrepresentations and omissions; and (d) knowingly and substantially 25 participated, or were involved in, the issuance or dissemination of such statements or 26 documents as primary violations of the federal securities law. 27 107. As set forth elsewhere herein, Defendants, by virtue of their: (a) receipt of 28 information reflecting the true facts regarding Matrixx; (b) control over, and/or receipt of

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1 the Company’s allegedly materially misleading misstatements; and (c) access to 2 confidential proprietary information concerning Matrixx were informed of, participated 3 in and knew of the fraudulent scheme alleged herein. With respect to non-forward- 4 looking statements and/or omissions, Defendants knew and/or recklessly disregarded the 5 falsity and misleading nature of the information which they caused to be disseminated to 6 the investing public. 7 108. Defendants’ false and misleading statements and omissions do not 8 constitute forward-looking statements protected by any statutory safe harbor. The 9 statements alleged to be false and misleading herein all relate to facts and conditions 10 existing at the time the statements were made. No statutory safe harbor applies to any of 11 Defendants’ material false or misleading statements. 12 109. Alternatively, to the extent that any statutory safe harbor is intended to 13 apply to any “forward-looking” statement pled herein, Defendants are liable for false 14 forward-looking statements because, at the time each forward-looking statement was 15 made, the speaker knew or had actual knowledge that the forward-looking statement was 16 materially false or misleading, and the forward-looking statement was authorized and/or 17 approved by a director and/or executive officer of Matrixx who knew that the forward- 18 looking statement was false or misleading. None of the historic or present tense 19 statements made by Defendants was an assumption underlying or relating to any plan, 20 projection or statement of future economic performance, as they were not stated to be 21 such an assumption underlying or relating to any projection or statement of future 22 economic performance when made nor were any of the projections or forecasts made by 23 Defendants expressly related to or stated to be dependent on those historic or present 24 tense statements when made. 25 26 27 28

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1 XII. CLAIMS FOR RELIEF 2 COUNT I For Violations Of §10(b) Of The Exchange Act And Rule 10b-5 Promulgated 3 Thereunder Against All Defendants 4 110. Plaintiff repeats and realleges the allegations set forth above as though fully 5 set forth herein. This claim is asserted against all Defendants. 6 111. During the Class Period, Matrixx and the Individual Defendants, and each 7 of them, carried out a plan, scheme and course of conduct which was intended to and, 8 throughout the Class Period, did: (i) deceive the investing public, including Plaintiff and 9 other Class members, as alleged herein; (ii) artificially inflate and maintain the market 10 price of Matrixx securities; and (iii) cause Plaintiff and other members of the Class to 11 purchase Matrixx securities at artificially inflated prices. In furtherance of this unlawful 12 scheme, plan and course of conduct, Defendants Matrixx and the Individual Defendants, 13 and each of them, took the actions set forth herein. 14 112. These Defendants made untrue statements of material fact and/or omitted to 15 state material facts necessary to make their statements not misleading in an effort to 16 maintain artificially high market prices for Matrixx securities in violation of § 10(b) of 17 the Exchange Act and Rule 10b-5. Defendants are sued as primary participants in the 18 wrongful and illegal conduct charged herein. The Individual Defendants are also sued 19 herein as controlling persons of Matrixx, as alleged herein. 20 113. Defendants were under a duty of full disclosure as a result of their making 21 affirmative statements and reports, and participation in the making of affirmative 22 statements and reports to the investing public. This duty of full disclosure included the 23 duty to promptly disseminate truthful information that would be material to investors. 24 114. Matrixx and the Individual Defendants, individually and in concert, directly 25 and indirectly, by the use of means or instrumentalities of interstate commerce and/or of 26 the mails, engaged and participated in a continuous course of conduct to conceal adverse 27 material information about the business, business practices, performance, operations and 28 future prospects of Matrixx as specified herein. While in the possession of material

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1 adverse non-public information, these Defendants engaged in acts and courses of 2 conduct, which included the making of, or the participation in the making of, untrue 3 statements of material facts and omitting to state material facts necessary in order to 4 make the statements made about Matrixx and its business, operations and future 5 prospects, in light of the circumstances under which they were made, not misleading, as 6 set forth more particularly herein, and engaged in transactions, practices and a course of 7 business which operated as a fraud and deceit upon the purchasers of Matrixx’s securities 8 during the Class Period. 9 115. Each of the Individual Defendants’ primary liability, and controlling person 10 liability, arises from the following facts: (i) each of the Individual Defendants was a high- 11 level executive and/or director at the Company during the Class Period; (ii) each of the 12 Individual Defendants, by virtue of his responsibilities and activities as a senior executive 13 officer and/or director of the Company, was privy to and participated in the creation, 14 development and reporting of the Company’s operational and financial projections and/or 15 reports; (iii) the Individual Defendants enjoyed significant personal contact and 16 familiarity with each other and were advised of and had access to other members of the 17 Company’s management team, internal reports, and other data and information about the 18 Company’s financial condition and performance at all relevant times; and (iv) the 19 Individual Defendants were aware of the Company’s dissemination of information to the 20 investing public which they knew or recklessly disregarded was materially false and 21 misleading. 22 116. Defendants had actual knowledge of the misrepresentations and omissions 23 of material facts set forth herein, or acted with reckless disregard for the truth in that they 24 failed to ascertain and to disclose such facts, even though such facts were readily 25 available to them. Defendants’ material misrepresentations and/or omissions were done 26 knowingly or recklessly and for the purpose and effect of concealing Matrixx’s operating 27 condition, business practices and future business prospects from the investing public and 28 supporting the artificially inflated price of its securities. As demonstrated by their

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1 misstatements of the Company’s financial condition and performance throughout the 2 Class Period, the Individual Defendants, if they did not have actual knowledge of the 3 misrepresentations and omissions alleged, were reckless in failing to obtain such 4 knowledge by deliberately refraining from taking those steps necessary to discover 5 whether those statements were false or misleading. 6 117. As a result of the dissemination of the materially false and misleading 7 information and failure to disclose material facts, as set forth above, the market price of 8 Matrixx securities was artificially inflated during the Class Period. In ignorance of the 9 fact that the market price of Matrixx shares was artificially inflated, and relying directly 10 or indirectly on the false and misleading statements made by Defendants, upon the 11 integrity of the market in which the securities trade, and/or on the absence of material 12 adverse information that was known to or recklessly disregarded by Defendants but not 13 disclosed in public statements by Defendants during the Class Period, Plaintiff and the 14 other members of the Class acquired Matrixx securities during the Class Period at 15 artificially inflated high prices. When Defendants’ misrepresentations and fraudulent 16 conduct were disclosed and became apparent to the market, the prices of Matrixx’s 17 securities fell precipitously as the prior inflation came out of the Company’s stock price, 18 and Plaintiff was damaged thereby. 19 118. At the time of said misrepresentations and omissions, Plaintiff and other 20 members of the Class were ignorant of their falsity, and believed them to be true. Had 21 Plaintiff and the other members of the Class and the marketplace known of the true 22 performance, business practices, future prospects and intrinsic value of Matrixx, which 23 were not disclosed by Defendants, Plaintiff and other members of the Class would not 24 have purchased or otherwise acquired Matrixx securities during the Class Period, or, if 25 they had acquired such securities during the Class Period, they would not have done so at 26 the artificially inflated prices which they paid. 27 119. By virtue of the foregoing, Matrixx and the Individual Defendants each 28 violated §10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder.

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1 120. As a direct and proximate result of Defendants’ wrongful conduct, Plaintiff 2 and the other members of the Class suffered damages in connection with their purchases 3 of the Company’s securities during the Class Period. 4 COUNT II For Violations of §20(a) of the Exchange Act 5 Against the Individual Defendants 6 121. Plaintiff repeats and realleges the allegations set forth above as if set forth 7 fully herein. This claim is asserted against the Individual Defendants. 8 122. The Individual Defendants were and acted as controlling persons of 9 Matrixx within the meaning of §20(a) of the Exchange Act as alleged herein. By virtue 10 of their high-level positions with the Company, participation in and/or awareness of the 11 Company’s operations and/or intimate knowledge of the Company’s actual performance, 12 the Individual Defendants had the power to influence and control and did influence and 13 control, directly or indirectly, the decision-making of the Company, including the content 14 and dissemination of the various statements which Plaintiff contends are false and 15 misleading. Each of the Individual Defendants was provided with or had unlimited 16 access to copies of the Company’s reports, press releases, public filings and other 17 statements alleged by Plaintiff to be misleading prior to and/or shortly after these 18 statements were issued and had the ability to prevent the issuance of the statements or 19 cause the statements to be corrected. 20 123. In addition, each of the Individual Defendants had direct involvement in the 21 day-to-day operations of the Company and, therefore, is presumed to have had the power 22 to control or influence the particular transactions giving rise to the securities violations as 23 alleged herein, and exercised the same. 24 124. As set forth above, Matrixx and the Individual Defendants each violated 25 §10(b) and Rule 10b-5 by their acts and omissions as alleged in this Complaint. By 26 virtue of their controlling positions, the Individual Defendants are liable pursuant to 27 §20(a) of the Exchange Act. As a direct and proximate result of Defendants’ wrongful 28

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1 conduct, Plaintiff and other members of the Class suffered damages in connection with 2 their purchases of the Company’s securities during the Class Period. 3 XIII. REQUEST FOR RELIEF 4 WHEREFORE, Plaintiff, individually and on behalf of the Class, requests 5 judgment as follows: 6 a) Declaring this action to be a class action pursuant to Rule 23(a) and (b)(3) 7 of the Federal Rules of Civil Procedure on behalf of the Class defined herein; 8 b) Awarding Plaintiff and the other members of the Class damages in an 9 amount which may be proven at trial, together with interest; 10 c) Awarding Plaintiff and the members of the Class pre-judgment and post- 11 judgment interest, as well as their reasonable attorneys’ and experts’ witness fees and 12 other costs; and 13 d) Awarding such other relief as this Court deems appropriate. 14 XIV. JURY DEMAND 15 Plaintiff demands a trial by jury. 16 17 18 19 20 21 22 23 24 25 26 27 28

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1

2 Dated: September 27, 2010 TIFFANY & BOSCO, P.A. 3 By: /s/ J. James Christian 4 Richard G. Himelrick (#004738) 5 J. James Christian (#023614) 6 Third Floor Camelback Esplanade II 2525 East Camelback Road 7 Phoenix, Arizona 85016-4237 8 Tel.: (602) 255-6000 Fax: (602) 255-0103 9 Local Counsel for Lead Plaintiff 10

11 SAXENA WHITE P.A. Maya Saxena 12 Joseph E. White, III 13 Christopher S. Jones Lester R. Hooker 14 2424 N. Federal Highway, Suite 257 Boca Raton, FL 33431 15 Tel: (561) 394-3399 16 Fax: (561) 394-3082

17 FARUQI & FARUQI, LLP 18 Nadeem Faruqi 369 Lexington Avenue, Tenth Floor 19 New York, NY 10017-6531 Tel: (212) 983-9330 20 Fax: (212) 983-9331 21 FARUQI & FARUQI, LLP 22 Vahn Alexander 23 1901 Avenue of the Stars, Second Floor Los Angeles, CA 90067 24 Tel: (310) 461-1426 Fax: (310 461-1427 25 26 Co-Lead Counsel for Lead Plaintiff

27 28

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1 CERTIFICATE OF SERVICE 2 I HEREBY CERTIFY that on the September 27, 2010, I electronically filed the 3 foregoing with the Clerk of Court using the CM/ECF system, which will send a notice of 4 electronic filing to all registered users. 5 /s/ J. James Christian 6 J. James Christian 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

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