UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK

______BERND TOENNESMANN, Individually Civ. Action No. And On Behalf Of All Others Similarly Situated, CLASS ACTION COMPLAINT FOR Plaintiff, VIOLATIONS OF THE FEDERAL SECURITIES - against - LAWS

MERRILL LYNCH & CO., INC. and HENRY BLODGET JURY TRIAL DEMANDED Defendants.

______

Plaintiff Bernd Toennesmann (“ Plaintiff”) alleges the following based upon the investigation of counsel, which included a review of United States Securities and Exchange Commission ("SEC") filings by Pets.com, Inc., (together with its subsidiaries, " Pets.com"), as well as regulatory filings and reports, securities analysts' reports and advisories about Pets.com issued by Lynch & Co. (“Merrill Lynch”), press releases and other public statements issued by Merrill Lynch, and media reports about Pets.com. Plaintiff believes that substantial additional evidentiary support will exist for the allegations set forth herein after a reasonable opportunity for discovery.

NATURE OF THE CLAIM

1. This is a federal securities class action which is brought by the Plaintiff against

Defendants Merrill Lynch and Henry Blodget (“Blodget”) on behalf of a class (the "Class") consisting of all persons or entities who purchased the common stock of Pets.com from March 7,

2000 through November 7, 2000, inclusive (the “Class Period”). Plaintiff seeks to recover damages caused to the Class by Defendants' violations of Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5 promulgated thereunder, and

Section 20(a) of the Exchange Act.

2. This action arises as a result of the issuance by Defendants of analyst reports regarding Pets.com that recommended the purchase of Pets.com common stock and which set price targets for Pets.com common stock, without any reasonable factual basis. Furthermore, when issuing their Pets.com analyst reports, the Defendants failed to disclose significant, material conflicts of interest which they had, in light of their use of Blodget’s reputation and his

Pets.com analyst reports, to obtain investment banking business for Merrill Lynch. Furthermore, in issuing their Pets.com analyst reports, in which they were recommending the purchase of

Pets.com common stock, the Defendants failed to disclose material, non-public, adverse information which they possessed about Pets.com. Throughout the Class Period, the Defendants maintained “BUY/BUY” or “ACCUMULATE/ACCUMULATE” recommendations on Pets.com in order to obtain and support a lucrative financial deal for Merrill Lynch.

3. The Class Period begins on March 7, 2000 the date when the Defendants “initiated coverage” of and issued their first analyst report on Pets.com. The Class Period ends on

November 7, 2000 the date Pets.com announced it was laying off 255 of its 320 employees, closing its website and for all practical purposes going out of business.

4. As demonstrated herein, as a result of Blodget’s highly publicized reputation as an analyst of Internet companies, the Defendants’ positive reports on, and their “BUY/BUY” and

“ACCUMULATE/ACCUMULATE” recommendations on Pets.com significantly and artificially inflated the price of Pets.com common stock throughout the Class Period. Defendants’

“BUY/BUY” and “ACCUMULATE/ACCUMULATE” recommendations of Pets.com and the price targets which they set for Pets.com common stock lacked a reasonable basis in fact and

2 were dominated and influenced by the Defendants’ undisclosed serious conflict of interest arising out of Merrill Lynch’s effort to be a as financial advisor to Pets.com.

JURISDICTION AND VENUE

5. This Court has jurisdiction over the subject matter of this action pursuant to Section

27 of the Securities Exchange Act of 1934 (the “Exchange Act”), 15 U.S.C. §78aa, and 28

U.S.C. §1331. This action arises under Sections 10(b) and 20(a) of the Exchange Act, 15 U.S.C.

§78j(b) and §78t(a), and the rules and regulations promulgated there under, including SEC Rule

10b-5, 17 C.F.R. 240.10b-5.

6. Venue is proper in this District pursuant to Section 27 of the Exchange Act (15

U.S.C. §78aa) and 28 U.S.C. §1391(b) and (c). Substantial acts in furtherance of the alleged fraud and/or its effects have occurred within this District and Merrill Lynch maintains its principal executive offices in this District.

7. In connection with the facts and omissions alleged in this Complaint, defendants, directly or indirectly, used the means and instrumentalities of interstate commerce, including, but not limited to, the mails, interstate telephone communications, and the facilities of the national securities markets.

PARTIES

8. Plaintiff Bernd Toennesmann purchased 1000 shares of Pets.com common stock, as set forth in the attached certification, and was damaged thereby.

9. Defendant Merrill Lynch has its headquarters located at 4 World Financial Center,

250 Vesey Street New York, New York. Defendant Merrill Lynch is the largest securities broker in the United States. Merrill Lynch claims to be one of the world’s leading financial management and advisory companies with offices in 44 countries and total client assets of about

3 $1.6 trillion. As an investment bank, Merrill Lynch claims to be the top global underwriter and market maker of debt and equity securities and a leading strategic advisor to corporations, institutions, and individuals worldwide.

10. Defendant Blodget was at all relevant times an Internet stock analyst and First Vice

President of Merrill Lynch. In the Fall of 2001, Merrill Lynch asked Blodget to resign by offering him a buy-out offer which will pay Blodget approximately $2 million. On November 14,

2001, it was announced that Blodget was resigning as an Internet analyst at Merrill Lynch.

SUBSTANTIVE ALLEGATIONS

Background

11. Since 1999, the internet research analysts (the "internet group") at Merrill Lynch have published on a regular basis ratings for internet stocks, including Pets.com, that were false and misleading because: (1) the ratings in many cases did not reflect the analysts' true opinions of the companies; (2) as a matter of undisclosed, internal policy, no "reduce" or "sell" recommendations were issued, thereby converting a published five-point rating scale into a de facto three-point system; and (3) Merrill Lynch failed to disclose to the public that Merrill

Lynch's ratings were tarnished by an undisclosed conflict of interest: the research analysts were acting as quasi-investment bankers for the companies at issue, often initiating, continuing, and/or manipulating research coverage for the purpose of attracting and keeping investment banking clients, thereby producing misleading ratings that were neither objective nor independent, as they purported to be.

12. There was a serious breakdown of the separation between the Merrill Lynch banking and research departments, a separation that was critical to the integrity of the recommendations

4 issued to the public by Merrill Lynch. Merrill Lynch's stated policies reflect an understanding that this separation is critical.

13. The pressures put on the Merrill Lynch internet group to appease both investment bankers and potential investment banking clients led the group to ignore the bottom two categories of the five-point rating system ("reduce" and "sell") and to use only the remaining ratings ("buy", "accumulate" and "neutral"). The absence of clear guidance from Merrill Lynch management on how to resolve the conflicts created by these pressures led Blodget, the head of the internet group, in a moment of candor, to threaten to "start calling the stocks (stocks, not companies)... like we see them, no matter what the ancillary business consequences are."

(emphasis added).

The Internet Group’s Stock Ratings Were Misleading

14. Merrill Lynch and Blodget rated internet stocks, including Pets.com, both for

Intermediate-Term and Long-Term growth as follows: Buy/Buy (1-1), Accumulate/Buy (2-1),

Accumulate (2-2), Neutral/Buy (3-1) and Neutral (3-2). Although Merrill Lynch's published rating system provided for 4s (reduce) and 5s (sell), the internet group never used reduce or sell.

The list of covered internet stocks for the second quarter of 2000, for instance, lists 24 stocks, none of which was rated less favorably than an Accumulate. From the spring of 1999 to the fall of 2001, Merrill Lynch never published a single reduce or sell rating on any stock covered by the internet group. In sworn testimony, both Blodget and his subordinate, Kirsten Campbell,

5 confirmed that the group never rated a stock Reduce or Sell. Thus, although represented to be a five-point system, internally it became a three-point system.1

15. The Defendants maintained that policy and practice because it would have jeopardized Merrill Lynch’s efforts to obtain investment banking and underwriting engagements and fees from Internet companies if the Defendants had given stocks of Internet companies a negative rating.

The Internet Research Group Was Not Independent Of Investment Banking

16. The internet research analysts were far from independent of their investment banking colleagues. This relationship drove both the selection of covered stocks and the ratings ultimately assigned.

17. The compensation system for internet analysts was a significant factor contributing to the breakdown between the internet group and investment banking departments. Research analysts knew that the investment banking business they generated or participated in would impact their compensation, and management encouraged them to produce investment banking business. Analysts curried favor with potential or actual investment banking clients by giving them special treatment. At times, officers of clients or prospective clients were allowed to redraft their own coverage, write quotations in which the analysts would tout their companies, and indicate which ratings would be acceptable to them. Indeed, research analysts at Merrill Lynch were actively involved in evaluating and effectuating investment banking transactions.

Moreover, analysts' compensation was tied to the success of their efforts in this regard.

1 References to sworn testimony and internal Merrill Lynch e-mails are based upon testimony taken and documents received by the New York State Attorney General in connection with his investigation of Merrill Lynch. 6 18. The analysts in the internet group at Merrill Lynch knew very well that investment banking business translated into compensation for them personally and the firm generally, and that their research played a role in attracting and keeping that investment banking business. In one revealing e-mail exchange, an analyst and investment banker discussed how to attract investment banking business of a company from a competitor. The banker proposed a formula that had apparently worked in the past with another banking client: “we should aggressively link coverage with banking - that is what we did with Go2Net (Henry [Blodget] was involved) ....[I]f you are very bullish (b/c they will love you), they are not happy with GS [Goldman Sachs] and are going to be active, we can probably get by on a ‘handshake.”’ This e-mail lays bare the understanding that Merrill Lynch intended the prospect of affirmative research to attract investment banking clients.

19. One way Blodget "prioritize[d]" research coverage for stocks was whether the company had an investment banking relationship with Merrill Lynch. Consistent with this agenda, Blodget, within weeks of joining Merrill Lynch as head of the internet research group, distributed a memorandum entitled, "Managing the Banking Calendar for Internet Research," which he sent to the Co-Heads of U.S. Equity Research, and senior investment bankers. The memorandum unapologetically described Blodget's expectation that at least 50 percent of his and his team's time would be allocated to investment banking matters. In addition to discussing

“banking transactions [] in the pipeline” and “promising deals,” the memorandum described

Blodget's work schedule for one week as being divided "85% banking, 15% research."

20. The research analysts' objectivity and independence was further eroded by the fact that their compensation depended in part on their efforts on behalf of investment banking, as

7 demonstrated by the following Fall 2000 request from respondent Deepak Raj, then co- head of global equity research, to all equity analysts:

We are once again surveying your contributions to investment banking during the year ....Please provide complete details on your involvement in the transaction, paying particular attention the degree that your research coverage played a role in origination, execution and follow-up. Please note, as well, your involvement in advisory work on mergers or acquisitions, especially where your coverage played a role in securing the assignment and your follow-up marketing to clients. Please indicate where your research coverage was pivotal in securing participation in high yield offering.

21. On November 2, 2000, Blodget and the internet research group responded to the above request. In a detailed memorandum with schedules, entitled "IBK Contributions: Internet

Team." Blodget stated that: (a) his group had been involved in over 52 completed or potential investment banking transactions; (b) the completed transactions had earned $115 million for the firm; and (c) more transactions would have been completed had not the “market window for most internet companies closed in June.” He also identified the services his analysts typically performed for investment banking, including pitching the client, marketing the offering and, notably, initiation and follow-on research coverage. Shortly after documenting these contributions, Blodget's salary contract -- which contained a guaranteed minimum -- was cancelled and replaced with a substantially larger compensation package. Overall, Blodget's agreed-annual compensation, including “guaranteed” minimum cash bonus, increased from $3 million for 1999 to $12 million for 2001.

22. Additionally, Merrill Lynch’s stock analysts, including Blodget, participated in a bonus pool which is funded, in part, from investment banking fees received by Merrill Lynch.

23. A November 2, 2000 e-mail message from Blodget to Merrill Lynch analysts Linda

Gausney, Deepak Raj and Steve Balog provides insight into Defendants’ false and misleading statements regarding internet companies, including Pets.com. The e-mail attaches a list of

8 transactions and potential transactions the Internet Team was involved in between December 1,

1999 through November, 2000. The transactions resulted in more than $115 million in revenue for Merrill Lynch, including $4,921,210 in fees as the lead manager for Pets.com’s initial offering.

24. The relationship between the Defendants’ research reports on Internet companies and

Merrill Lynch’s investment banking business is seen by the choices the Defendants made in picking Internet companies on which they would write analyst reports. Of the Internet companies that the Defendants were covering during the Class Period, Merrill Lynch or its affiliates had been a manager of the most recent offering of securities, within the last 3 years, of at least 20 of those companies, including Aether, eToys; EarthWeb; @Home; 24/7; Media;

Barnesandnoble.com; Buy.com; iVillage; Pets.com; Quokka; Safeguard Scientifics;

DoubleClick; ; AOL; Homestore.com; ; Internet Capital Group; Multex; and

Priceline.

Blodget’s Reputation As An Analyst Of Internet Companies

25. Prior to and throughout the Class Period, Blodget was repeatedly recognized in the financial and regular media as a preeminent analyst of Internet companies. Blodget was repeatedly the subject of newspaper and magazine articles and references, and he appeared repeatedly on business-oriented television programs. As demonstrated below, Blodget assumed virtual “celebrity status” which increased the influence and impact of his analyst reports, including his analyst reports regarding Pets.com. In 1999 and 2000, Blodget appeared on television at least 77 and 46 times, respectively, often on CNBC and CNN.

9 26. Blodget’s fame and extraordinary influence as an analyst of Internet companies began on December 16, 1998, while, when he was an analyst at CIBC Oppenheimer, he set a “target” price for .com of $400 per share.

27. In the spring of 2001, Merrill Lynch placed a two-page advertisement in a weekly trade publication headlined “Techtelligence.” In the advertisement, Merrill Lynch touted the capability of Merrill Lynch’s technology group, including the 100 analysts who cover 500 companies and the awards its analysts have won, including Merrill Lynch’s “Internet Guru”

Henry M. Blodget.

Defendants’ False And Misleading Statements Concerning Pets.com

28. Pets.com was first listed on the NASDAQ National Market in February 2000 in an initial offering of common stock at a price of $11 per share. Defendant Merrill Lynch served as lead underwriter for Pets.com’s initial offering, and derived substantial fees therefrom.

29. Shortly after the IPO, the Defendants initiated their analyst coverage of Pets.com with a report released to the public on March 7, 2000. The report recommended Pets.com common stock as “BUY” and classified it as a “Long Term BUY” with a 12-18 month objective price of

$16.

30. On March 8, 2000, Defendants issued another analyst report relating to Pets.com entitled “Initiating Coverage with a BUY/BUY Rating.” It reflected “Reason for Report: Initial

Coverage.” The report continued to recommend Pets.com common stock as “BUY” and classified it as a “Long Term BUY.”

31. On April 4, 2000, Defendants issued another analyst report relating to Pets.com entitled “Pets.com Launches Private Label Line.” It reflected “Reason for Report: Update.” The

10 report continued to recommend Pets.com common stock as “BUY” and classified it as a “Long

Term BUY.” The report stated

The private label launch is an important piece of pets.com strategy, as it achieves gross product margins above 40% versus branded products at closer to 19%, helping the company to turn gross margin positive. We estimate that the private label food line will represent 6% of total product sales in 2000, and will be on a 10% of total sales runrate by year-end. With the launch of the private label line, and last month’s opening of a second distribution center, we believe the company is on track to turn gross margin positive in Q3 2000.

32. On April 26, 2000, Defendants issued another analyst report relating to Pets.com entitled “Strong First Quarter Out of the Box.” It reflected “Reason for Report: 1Q Earnings

Report.” The report continued to recommend Pets.com common stock as “BUY” and classified it as a “Long Term BUY.” The report stated

Pets.com reported solid 1Q results, beating our revenue and loss per share estimates. We are raising our 2000 revenue estimates from $40 million to $42 million, due to 1Q results, but leaving the rest of the year the same, though we believe our estimates are conservative. We are also lowering our net loss assumptions to $126.6 million from a loss of $130.9 million, again adjusting for 1Q results, for a new EPS loss estimate of $4.70 from $.475.

33. On April 26, 2000, Defendants issued another analyst report relating to Pets.com entitled “Pets.com Acquires Competitor.” It reflected “Reason for Report: Pets.com to Acquire

Petstore.com customer base.” The report continued to recommend Pets.com common stock as

“BUY” and classified it as a “Long Term BUY.”

34. Defendants served as a investment advisors to Pets.com in connection with its acquisition of Petstore.com, including rendering a fairness opinion to Pets.com, and derived substantial fees therefrom.

35. On July 25, 2000, Defendants issued another analyst report relating to Pets.com entitled “Solid Quarter; Fundamentals Improving Part 2.” It reflected “Reason for Report:

11 Earnings Report.” The report continued to recommend Pets.com common stock as “BUY” and classified it as a “Long Term BUY.”

On October 25, 2000, Defendants issued another analyst report relating to Pets.com entitled “Soft Q3: Revenue Lower than Expected; Signs of Oper. Margin Improvement.” It reflected “Reason for Report: Earnings Report.” The report lowered the recommendation of Pets.com common stock to “ACCUMULATE” and classified it as a “Long Term ACCUMULATE.”

36. On Tuesday November 7, 2000, Pets.com announced that it was laying off 255 of its

320 employees, putting its trademarked Sock Puppet on the auction block, and closing its website on Thursday, November 9, 2000. For all practical purposes Pets.com was going out of business.

The Material Omissions From And Misrepresentations In The Pets.com Analyst Reports

37. All of the Pets.com analyst reports which were issued by the Defendant from March

7, 2000 through and including October 25, 2000, which are discussed herein, are collectively referred to herein as the “Pets.com Analyst Reports.”

38. As of the issuance of the Pets.com Analyst Reports, the Defendants possessed material, adverse, non-public information, which reasonable investors deciding whether to invest would want to know in making their investment decision.

39. The Defendants, when they issued the Pets.com Analyst Reports, knew that their issuance would, as had the past Analyst Reports by the Defendants regarding Pets.com, and other

Internet companies, serve to increase or inflate the price that Pets.com stock traded at, compared to the price it would have traded at had the Pets.com Analyst Reports not been issued. The

Defendants issued the Pets.com Analyst Reports with the express intention of increasing and inflating the price at which Pets.com stock would trade.

12 40. The Defendants issued the Pets.com Analyst Reports as part of Merrill Lynch’s effort to obtain or maintain substantial investment banking and advisor fees, which it would obtain as the financial advisor to Pets.com in connection with the potential IPOs, offerings, acquisitions or mergers.

41. As detailed above, in each of the Pets.com Analyst Reports, the Defendants set forth a

“Reason for Report.” The “Reason for Report” set forth in each of the Pets.com Analyst Reports was false and misleading because, in fact, the reason that the Defendants had issued each of the

Pets.com Analyst Reports was to assist Merrill Lynch in its efforts to obtain or maintain investment banking fees and to artificially inflate the price of Pets.com common stock.

42. The Pets.com Analyst Reports were deceptive and misleading because the Defendants failed to disclose in those Reports that the Defendants had based their decisions as to which companies to cover in their analyst reports and as to what they would say in those reports regarding those companies, on the impact which those actions would have on Merrill Lynch’s ability to obtain underwriting and investment banking engagements from those companies or others.

43. The Pets.com Analyst Reports, and particularly, the Defendants’ “BUY/BUY” and

“ACCUMULATE /ACCUMULATE” recommendations of Pets.com stock in those reports, were deceptive and misleading because they failed to disclose that Merrill Lynch and Blodget had a policy and practice prior to and throughout the Class Period of never issuing a negative analyst report on an Internet company. Defendants maintained that policy and practice, regardless of whether there was any rational economic basis for those recommendations that the applicable company’s stock be acquired, because if the Defendants had assigned an Internet company a rating of less than “ACCUMULATE/ACCUMULATE” it would jeopardize Merrill Lynch’s

13 ability to obtain underwriting or investment advisory engagements from those companies or others. The Pets.com Analyst Reports were deceptive and misleading because the Defendants did not disclose in those Reports the existence of, and Defendants’ reason for, the above-described rating policy and practice.

44. The Pets.com Analyst Reports were deceptive and materially misleading because they failed to disclose Defendants’ “BUY/BUY” and “ACCUMULATE/ACCUMULATE” recommendations of Pets.com lacked a reasonable basis in fact and were, in actuality, nothing more than undisclosed “momentum” plays – i.e. the stock should be bought because its price will rise, even though there are no rational economic reasons why the stock should trade at its current price and no rational economic reasons why the stock’s price should continue to rise.

CLASS ACTION ALLEGATIONS

45. Plaintiff brings this action as a class action pursuant to Federal Rule of Civil

Procedure 23(a) and (b)(3) on behalf of a Class consisting of all persons or entities who purchased shares of Pets.com common stock from March 7, 2000 through November 7, 2000, inclusive, and who were damaged thereby. Excluded from the Class are Defendants; members of the individual defendant’s immediate family; any director, officer, subsidiary, or affiliate of

Merrill Lynch; any entity in which any excluded person has a controlling interest; and their legal representatives, heirs, successors and assigns.

46. The members of the Class are so numerous that joinder of all members is impracticable. While the exact number of Class members is unknown to Plaintiff at this time and can only be ascertained through appropriate discovery, Plaintiff believes that there are thousands of members of the Class located throughout the United States. Throughout the Class Period,

Pets.com common stock was actively traded in an efficient market on the NASDAQ National

14 Market. Record owners and other members of the Class may be identified from records maintained by Pets.com and/or its transfer agent and may be notified of the pendency of this action by mail and publication, using forms of notice similar to those customarily used in securities class actions.

47. Plaintiff’s claims are typical of the claims of other members of the Class as all members of the Class were similarly affected by Defendants' wrongful conduct in violation of federal law that is complained of herein.

48. Plaintiff will fairly and adequately protect the interests of the members of the Class and have retained counsel competent and experienced in class and securities litigation.

49. Common questions of law and fact exist as to all members of the Class and predominate over any questions solely affecting individual members of the Class. Among the questions of law and fact common to the Class are:

(a) Whether the federal securities laws were violated by Defendants’ acts and

omissions as alleged herein;

(b) Whether Defendants participated in and pursued the illegal course of conduct

complained of herein;

(c) Whether statements disseminated to the investing public during the Class

Period made misrepresentations or omissions of material information as alleged herein;

(d) Whether the market price of Pets.com common stock during the Class Period

was artificially inflated due to the material misrepresentations and omissions complained

of herein;

(e) To what extent the members of the Class have sustained damages and the

proper measure of damages.

15 50. A class action is superior to all other available methods for the fair and efficient adjudication of this controversy since joinder of all members is impracticable. As the damages suffered by individual Class members may be relatively small, the expense and burden of individual litigations make it impossible for members of the Class individually to seek redress for the wrongs done to them. There will be no difficulty in the management of this suit as a class action.

COUNT I AGAINST ALL DEFENDANTS FOR VIOLATIONS OF SECTION 10(B) OF THE EXCHANGE ACT AND RULE 10B-5 PROMULGATED THEREUNDER

51. Plaintiff repeats and realleges each and every allegation set forth above.

52. During the Class Period, Defendants, and each of them, carried out a plan, scheme and course of conduct that was intended to and did: (i) deceive the investing public, including

Plaintiff and other Class members, as alleged herein; (ii) artificially inflate and maintain the market price of Pets.com common stock; and (iii) cause Plaintiff and other members of the Class to purchase Pets.com common stock at 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.

53. These 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 statements not misleading; and (c) engaged in acts, practices and a course of business which operated as a fraud and deceit upon the purchasers of Pets.com common stock in an effort to maintain artificially high market prices for Pets.com common stock in violation of Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder.

16 54. Defendants' material misrepresentations and/or omissions were done knowingly or recklessly and for the purpose and effect of manipulating the price of Pets.com common stock and concealing a serious conflict of interest arising out of Merrill Lynch’s role as Pets.com’s financial adviser. Defendants had no reasonable basis in fact for their “BUY/BUY” and

“ACCUMULATE /ACCUMULATE” recommendations for, and their target prices for, Pets.com common stock; they failed to disclose a serious conflict of interest arising out of Merrill Lynch’s role as investment advisor to Pets.com; they failed to disclose material, adverse information about Pets.com that they possessed.

55. As a result of the dissemination of the materially false and misleading information and failure to disclose material facts, as set forth above, the market price of Pets.com common stock was artificially inflated during the Class Period. In ignorance of the fact that the market price of Pets.com shares was artificially inflated, and relying directly or indirectly on the false and misleading statements made by Defendants, or upon the integrity of the market in which the securities trade, and/or on the absence of material adverse information that was known to or recklessly disregarded by Defendants but not disclosed in public statements by Defendants during the Class Period, Plaintiff and the other members of the Class acquired Pets.com common stock during the Class Period at artificially inflated prices and were damaged thereby.

56. At the time of said misrepresentations and omissions, Plaintiff and the other members of the Class were ignorant of their falsity, and believed them to be true. Had Plaintiff and the other members of the Class known of the omitted material facts, Plaintiff and the other members of the Class would not have purchased or otherwise acquired their Pets.com common stock during the Class Period, or, if they had acquired such stock during the Class Period, they would not have done so at the artificially inflated prices which they paid.

17 57. Plaintiff and the members of the Class were injured because the risks that materialized were risks of which they were unaware as a result of Defendants' misrepresentations, omissions and other fraudulent conduct alleged herein. Absent Defendants' wrongful conduct, Plaintiff and the members of the Class would not have been injured.

58. By virtue of the foregoing, Defendants each violated Section 10(b) of the Exchange

Act and Rule 10b-5 promulgated thereunder.

59. As a direct and proximate result of Defendants' wrongful conduct, Plaintiff and the other members of the Class suffered damages in connection with their purchases of Pets.com common stock during the Class Period.

PRAYER FOR RELIEF

WHEREFORE, Plaintiff, on behalf of themselves and the Class, prays for judgment as follows:

A. declaring this action to be a plaintiff class action properly maintained

pursuant to Rule 23(a) and (b)(3) of the Federal Rules of Civil Procedure;

B. finding that the Defendants violated Section 10(b) of the Exchange Act and

Rule 10b-5 promulgated thereunder by their acts and omissions as alleged in this

Complaint;

C. awarding Plaintiff and the members of the Class damages, together with

interest thereon;

D. awarding Plaintiff and other members of the Class their costs and expenses

of this litigation, including reasonable attorneys' fees and experts' fees and other costs

and disbursements; and

18 E. awarding Plaintiff and other members of the Class such other and further

relief as may be just and proper under the circumstances.

JURY TRIAL DEMAND

Plaintiff demands a trial by jury.

DATED: May 10, 2002 KAPLAN FOX & KILSHEIMER LLP

By:______Robert N. Kaplan (RK-3100) Frederic S. Fox ( FF-9102) Jonathan K. Levine (JL-8390) Donald R. Hall (DH-0273) 805 Third Avenue, 22nd Floor New York, NY 10022 Tel: (212) 687-1980 Fax: (212) 687-7714

- and -

Laurence D. King Kaplan Fox & Kilsheimer LLP 601 Montgomery Street, Suite 300 , CA 94111 Tel.: (415) 772-4700 Fax: (415) 772-4707

LAW OFFICES OF MARC S. HENZEL Marc S. Henzel, Esq. 273 Montgomery Ave., Suite 202 Bala Cynwyd, PA 19004 Tel: (610) 660-8000 Fax: (610) 660-8080

Attorneys for Plaintiff

19