in re: laboratory corporation of america securities...

41-121

FOR THE

MAP 1 8, ?O04IN RE LABORATORY CORP TION N t„IS OFFIC E

Clerk U, S . District Court

SECURITIES LITIGATION By

COURT

OF AMERICA HOLDINGS Greensboro, N . C .

TH CAROLINA

C"ivil Action No. 03-CV-59 1

?'/JURY TRIAL DEMANDED

CONSOLIDATED AND AMENDED CLASS ACTION COMPLAIN T

Lead Plaintiffs, by their undersigned attorneys, on behalf of themselves and the Clas s

they seek to represent, for their Consolidated and Amended Class Action Complaint make the

following allegations, based upon the investigation conducted by, and under the supervision of,

their counsel, which investigation included the review and analysis of information related to the

relevant time period, including, inter alia, United States Securities and Exchange Commissio n

("SEC") filings by Laboratory Corporation of America Holdings ("LabCorp" or the

"Company"), press releases, news articles , and other media repo rts ( including those disseminated

in print and by electronic media), reports of securities analysts and investor advisory services ,

interviews with numerous former employees of LabCorp and companies acquired by LabCorp ,

and interviews with employees of competitors of LabCorp . Except as alleged herein, th e

underlying information concerning defendants' misconduct, and the particulars thereof, are no t

available to Lead Plaintiffs and the public and lie within the possession and control of defendant s

and other LabCorp insiders . Accordingly, Lead Plaintiffs believe that additional substantia l

evidentiary support will exist for the allegations set forth herein after a reasonable opportunit y

for discovery.

NATURE OF THE ACTION AND SUMMARY OF ALLEGATION S

1 . This is a securities class action on behalf of purchasers other than defendants and

certain related parties (the "Class") of the common stock of LabCorp during the period Februar y

13, 2002 through October 3, 2002, inclusive (the "Class Period"), seeking to recover damages

under the Securities Exchange Act of 1934 (the "Exchange Act") . The Complaint alleges a

fraudulent scheme and deceptive course of business that injured purchasers of LabCorp commo n

stock throughout the Class Period .

2. LabCorp is a Burlington , NC-based independent laborato ry offering clinica l

medical tests used to diagnose , monitor , and treat patients . Although LabCorp offered

specialized esoteric and genomic testing during the Class Period, its core "routine" busines s

consisted of routine testing such as blood chemistry analysis, urinalysis and Pap tests, whic h

accounted for over 75% of the Company's revenues and 90% of its test volume . Throughout th e

Class Period, defendants falsely represented that : (i) volume growth was strong including it s

"routine" testing business ; (ii) LabCorp was "compet[ing] favorably with its principal

competitors" on pricing, accuracy and timeliness of reporting test results, service and reputatio n

in the medical community and, therefore, (iii) that the Company was well-positioned in 2002 to

achieve growth of 12% in revenues (8-9% volume; 3-4% price) and 33% growth in earnings .

Defendants repeatedly reaffirmed these representations in press releases, conference calls wit h

securities analysts and media interviews during the Class Period .

3. The price of LabCorp common stock was inflated as a result of these

misrepresentations and reached a split adjusted Class Period high of $51 .98 on May 10, 2002 .

Throughout the Class Period, LabCorp insiders, including defendants MacMahon, Elingburg ,

Novak, Smith , and Stark took full advantage of LabCorp' s inflated stock price and sold a total o f

316,112 shares of LabCorp common stock that they owned at artificially inflated prices, grossing

-2-Lab Corp .-Consolidated and Amended Class Action Complaint .DOC

a total of over $25,000,000 . As detailed below, each of the Individual Defendants sold a materia l

portion of his overall holdings of LabCorp stock . In addition , LabCorp was able to use its

inflated stock as currency for the strategically important acquisition of Dynacare, Inc .

("Dynacare"), which the Company announced in May 2002, and which it paid for with a

combination of stock, cash and assumed debt .

4. In fact, however, as defendants knew or recklessly disregarded , LabCorp' s

business was being negatively impacted by small regional competitors, which were gaining a

mate rial po rtion of the Company' s market share in what defendants have since admitted were

important markets in which LabCorp previously faced little or no competition . As a result ,

defendants' rosy growth and earnings projections lacked any reasonable basis in fact . The

erosion in LabCorp's market share was particularly acute in No rth Carolina , one of its

traditionally strongest markets .

Investors remained unaware of these issues until October 3, 2002, when , after the

close of trading, LabCorp shocked the market by revealing that due to a "continued slowdown i n

volume growth in the routine, or core, testing business in certain key regions of the country," the

Company's results in the third quarter would be less than it had previously led the market t o

believe . The Company further stated that the downturn was expected to last through the

remainder of 2002 .

6 . The reaction of investors, who had been primed by defendants' Class Perio d

statements to believe that the Company's business was growing faster than ever, was swift an d

punitive. On October 4, 2002, the price of LabCorp common stock plummeted, falling 34 .6%

from the previous day's closing price of $33 .18 per share to $21 .68 on trading volume of over

21 .2 million shares, which is thirteen times the Company's average daily trading volume .

-3-Lab Corp .- Consolidated and Amended Class Action Complaint .DOC

JURISDICTION AND VENUE

The claims asserted herein arise under and pursuant to Sections 10(b) and 20(a) of

the Exchange Act [15 U .S.C. §§ 78j(b) and 78t(a)] and Rule lOb-5 promulgated thereunder by th e

SEC [17 C.F.R. § 240 .10b-5 1 .

8. This Court has jurisdiction over the subject matter of this action pursuant to 2 8

U.S .C. §§ 1331 and 1337 and Section 27 of the Exchange Act [15 U . S.C . § 78aa] .

9. In connection with the acts alleged in this complaint, defendants, directly or

indirectly, used the means and instrumentalities of interstate commerce, including, but no t

limited to, the mails, interstate telephone communications and the facilities of the nationa l

securities markets .

10. Venue is proper in this District pursuant to Section 27 of the Exchange Act, an d

28 U.S .C. § 1391(b) . Many of the acts charged herein , including the preparation an d

dissemination of materially false and misleading information , occurred in substantial part in this

District . Additionally, the Company maintains its principal executive offices within this District .

PARTIE S

11 . As set forth in their certifications previously filed with this Court, Lead Plaintiffs

City of Sterling Heights General Employee Retirement System, City of Sterling Heights Police

and Fire Retirement Act 345, John Vasey , Pompano Beach Police & Firefighters' Retiremen t

System, and Philip Mehler, each purchased the common stock of LabCorp at artificially inflate d

prices during the Class Period and were damaged thereby.

12 . Defendant LabCorp is a Delaware corporation that maintains its p rincipa l

executive offices at 358 South Main Street , Burlington, NC 27215 . LabCorp is the second-

largest national provider of clinical laboratory services in the U .S .

-4-Lab Corp.-Consolidated and Amended Class Action Complaint .DOC

13. Defendant Thomas P. MacMahon ("MacMahon") was LabCorp's Chief

Executive Officer, President and Chairman of the Board of Directors throughout the Clas s

Period . During the Class Period , defendant MacMahon sold a total of 117,733 shares of the

Company's common stock that he owned at artificially inflated prices, for gross proceeds o f

$10,307,970. The 117,733 shares sold by defendant MacMahon du ring the Class Period

represented 25.6% of his total holding of LabCorp stock . Defendant MacMahon signed the

Company's annual report on Form 10-K for fiscal year 2001, which was filed with the SEC

during the Class Period .

14. Defendant Wesley Elingburg ("Elingburg") was LabCorp's Chief Financia l

Officer, Executive Vice President and Treasurer throughout the Class Pe riod. During the Class

Period, defendant Elingburg sold a total of 47,978 shares of the Company's common stock tha t

he owned at artificially inflated prices , for gross proceeds of $4,304,922 . The 47,978 shares sold

by defendant Elingburg during the Class Period represented 30 .5% of his total holdings of

LabCorp stock. Defendant Elingburg signed the Company's Form 10-K for fiscal year 2001 ,

which was filed with the SEC during the Class Period .

15. Defendant Richard L. Novak ("Novak") was LabCorp's Chief Operating Office r

throughout the Class Pe riod. During the Class Period , defendant Novak sold a total of 27,000

shares of the Company's common stock that he owned at artificially inflated prices, for gros s

proceeds of $2,440,801 . The 27,000 shares sold by defendant Novak during the Class Period

represented 15 .2% of his total holdings of LabCorp stock .

16 . Defendant Bradford T. Smith ("Smith") was LabCorp's Executive Vice Presiden t

of Public Affairs, Human Resources , Law and Compliance, and Secretary throughout the Class

Period. During the Class Period, defendant Smith sold a total of 59,834 shares of the Company' s


common stock that he owned at artificially inflated prices, for gross proceeds of $5,318,296 .

The 59,834 shares sold by defendant Smith during the Class Period represented 35 .6% of his

total holdings of LabCorp stock . Defendant Smith signed each of the Company's Form 8- K

filings identified herein, and spoke about LabCorp's business and prospects at numerou s

securities conferences throughout the Class Period .

17. Defendant Stevan R. Stark ("Stark") was LabCorp's Executive Vice Presiden t

throughout the Class Pe riod . During the Class Period, defendan t Stark sold a total of 31,767

shares of the Company's common stock that he owned at artificially inflated prices, for gros s

proceeds of $3,100,424 . The 31 ,767 shares sold by defendant Stark during the Class Period

represented 37 .3% ofhis total holdings of LabCorp stock.

18. Defendants MacMahon , Elingburg , Novak, Smith, and Stark are referred to

collectively herein as the "Individual Defendants" .

19. During the Class Period, each of the Individual Defendants, as senior executiv e

officers and directors of LabCorp was privy to confidential and proprietary information

concern ing LabCorp, its operations , finances, financial condition , and present and future

business prospects . The Individual Defendants also had access to material adverse non-publi c

information concerning LabCorp , as discussed in detail below . Because of their positions with

LabCorp, the Individual Defend ants had access to non-public information about its business ,

finances, products, markets and present and future business prospects via access to internal

corporate documents, conversations and connections with other corporate officers an d

employees, attendance at management and Board of Directors' meetings and committees thereo f

and via reports and other information provided to them in connection therewith . For example ,

during LabCorp's conference call with analysts on October 31, 2002, with respect to th e


Company's results for the third quarter of 2002, defendant MacMahon described the informatio n

available to defendants with respect to trends in volume growth as follows :

We look at accessions on a daily basis, by region, by location and bydivisions. We have senior management meetings constantly related toaccession growth in all regions throughout the United States. We look attrends and we look at predictions . . . . We look at our distribution networkconstantly as it relates to the number of patient service centers, the numberof account managers, number of sales force contacts we have with ourcustomers . We have call reports for sales forces . We have accountmanager customer calls every week .

Because of their possession of such information, the Individual Defendants knew or recklessl y

disregarded the fact that the adverse facts specified herein had not been disclosed to, and wer e

being concealed from, the investing public .

20. Each of the defendants is liable as a direct participant in, and a co-conspirato r

with respect to the wrongs complained of herein . In addition, the Individual Defendants, by

reason of their status as senior executive officers and directors were each a "controlling person"

within the meaning of Section 20 of the Exchange Act and had the power and influence to cause

the Company to engage in the unlawful conduct complained of herein . Because of their position

of control, the Individual Defendants were able to and did, directly or indirectly; control the

conduct of LabCorp' s business .

21 . The Individual Defendants, because of their positions with the Company ,

controlled and/or possessed the authority to control the contents of its reports, press releases an d

presentations to securities analysts and through them, to the investing public . The Individual

Defendants were provided with copies of the Company's reports and press releases alleged

herein to be misleading, prior to or shortly after their issuance and had the ability an d

opportunity to prevent their issuance or cause them to be corrected . Thus , the Individua l

Defendants had the opportunity to commit the fraudulent acts alleged herein .


CLASS ACTION ALLEGATION S

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

Procedure 23(a) and (b)(3) on behalf of a Class, consisting of all persons other than defendant s

and certain related parties who purchased the common stock of LabCorp during the period

February 13, 2002 through October 3, 2002, inclusive (the "Class Period") and who wer e

damaged thereby. Excluded from the Class are defendants, persons serving as officers an d

directors of the Company during the relevant time, members of each of their immediate families ,

and the legal representatives, heirs, successors or assigns of any of the foregoing, and any entit y

in which any of the foregoing has or had a controlling interest .

23. The members of the Class are so numerous that joinder of all members i s

impracticable . Throughout the Class Period, LabCorp had approximately 147 million shares o f

common stock outstanding, which were actively traded on the New York Stock Exchange (the

"NYSE") . While the exact number of Class members is unknown to Lead Plaintiffs at this tim e

and can only be ascertained through appropriate discovery, Lead Plaintiffs believe that there ar e

thousands of members in the proposed Class and that they are geographically dispersed . Record

owners and other members of the Class may be identified from records maintained by LabCor p

or its transfer agent, and may be notified of the pendency of this action by mail, using the for m

of notice similar to that customarily used in securities class actions.

24. Lead Plaintiffs' claims are typical of the claims of the members of the Class, as al l

members of the Class are similarly affected by defendants' wrongful conduct in violation o f

federal law that is complained of herein and have incurred damages in connection therewith.

25. Lead Plaintiffs will fairly and adequately protect the interests of the members o f

the Class and have retained counsel who are competent and experienced in class action an d


securities litigation . Lead Plaintiffs have no interests which conflict with those of the Clas s

members they seek to represent .

26. Common questions of law and fact exist as to all Class members and predominat e

over any questions that may affect only individual Class members . Among the questions of law

and fact common to the Class are :

(a) Whether the federal securities laws were violated by defendants' acts a s

alleged herein;

(b) Whether statements made by defendants to the investing public during th e

Class Period omitted and/or misrepresented material facts about the business, operations and

financial performance of LabCorp ;

(c) Whether defendants breached any duty to convey material facts or to

correct material facts previously disseminated ;

(d) Whether defendants participated in and pursued the fraudulent scheme o r

course of conduct complained of,

(e) Whether defendants acted willfully, with knowledge or recklessly, i n

omitting and/or misrepresenting material facts ;

(f) Whether the market price of LabCorp common stock was artificiall y

inflated during the Class Period due to the material misrepresentations and omissions complaine d

of herein ; and

(g) Whether the members of the Class have sustained damages and, if so ,

what is the proper measure of damages .

27. A class action is supe rior to all other available methods for the fair and efficient

adjudication of this controversy, since joinder of all members is impracticable . Further, as th e


damages suffered by individual Class members may be relatively small, the expense and burde n

of individual litigation make it impossible for members of the Class to individually redress the

wrongs done to them . There will be no difficulty in the management of this action as a clas s

action .

SUBSTANTIVE ALLEGATION S

Background

28 . In its 2001 Form 10-K, filed with the SEC on March 18, 2002, LabCorp describe d

itself as the second largest independent clinical laboratory in the United States, based on 200 1

net revenues . At all relevant times , the Company 's corporate headquarters , were located in

Burlington, NC where its financial functions, including purchasing and accounting, wer e

centralized .

29. Prior to its acquisition of Dynacare in July 2002, the Company had a network o f

24 primary testing facilities . Geographically , the Company' s major testing labs were divided

into the following ten divisions :

DIVISION STATES NUMBER OF LABS

Western Washington, California , Nevada,A rizona, Utah

6

Southwest Colorado , Texas 4Central Illinois , Kentucky 2Great Lakes Ohio , Michigan 2Northeast New York, New Jersey 2

Mid-Atlan tic Maryland, Virginia 3South Atlantic North Carolina 3South Alabama IFlorida Florida I

30. A core group of routine tests (e .g ., blood chemistry analysis, urinalysis, blood cel l

counts, and Pap tests) account for the majority of LabCorp's revenues and testing volume s

(92%) . According to the Company's Form 8-K filings during the Class Period, this core testin g

-10-Lab Corp .-Consolidated and Amended Class Action Complaint.DOC

accounted for 83 .15%, 77.17% and 76 .53% of LabCorp' s total revenue in the fourth quarter of

2001 and the first two quarters of 2002, respectively . The Company also performs specialized

esoteric and genomic testing. Esoteric testing includes allergy testing, toxicology, specia l

chemistry, special coagulation and esoteric immunoassay . Genomic testing is molecular

diagnostic/gene based testing . Beginning in 2000 , as it began to lose market share in its core

testing business , LabCorp' s public statements began to emphasize growth in its higher margi n

esoteric and genomic testing business . Nevertheless, its core testing business accounted for more

than 75% of its reported revenues and over 90% of test volume during the Class Period .

31 . In 1999, 2000 and 2001, shares of LabCorp outperformed the S&P 500 as th e

Company posted huge gains in earnings . Over the three year period from 1999 to 2001, EP S

increased from $0 .30 to $1 .33, an astounding 343% gain . Not surprisingly, the stock followe d

suit, appreciating from $3 .44 at the beginning of 1999 to $40.50 at the end of 2001, a gain of

approximately 1000% .

32. Quest and LabCorp are far and away the largest clinical laboratory providers i n

the U.S . with market shares of approximately 12% and 7%, respectively . The remainder of th e

market is fragmented with smaller regional hospital labs accounting for approximately 61 % o f

the market for clinical lab services . At all relevant times , LabCorp's strongest market was in the

southeast United States (the South Atlantic division), where, as late as 2000, it totally dominated

with as much as 80% of the market share in that region . Quest, which is the country's larges t

independent clinical laboratory, did not have significant market share in this region . As

described more fully below, however, during 2001 smaller regional labs were increasingl y

successful in taking market share from LabCorp, particularly in the all-important South Atlanti c

region where the Company was headquartered .

-I1-Lab Corp .-Consolidated and Amended Class Action Complaint .DOC

33. As a result, by the beginning of the Class Period, defendants knew or recklessly

disregarded that the spectacular growth LabCorp had exhibited in each of the preceding thre e

years could not be sustained. As detailed below, in order to maintain the illusion of continue d

strong growth in earnings prior to and during the Class Period, LabCorp implemented extensiv e

cost cutting measures, most importantly, significant layoffs of phlebotomists, accoun t

representatives, drivers and other workers . However, these actions left the Company shor t

staffed and caused even greater numbers of workers to leave the Company voluntarily due to th e

increasingly poor working conditions . As a result, the Company's aggressive cost cutting had

the unintended effect of adversely impacting customer service (e .g., the timeliness and accurac y

of tests and reports and billing errors), which only exacerbated the Company's loss of business t o

its competitors . Service levels, which were always a weakness for the Company even in the bes t

of times , became an acute problem for the Company in 2001 and became increasingly wors e

during the Class Period because it allowed small regional labs with better service to gain eve n

greater market share .

Undisclosed Adverse Facts Concerning LabCorn's Business

34. Prior to and throughout the Class Period, the Company's core testing business

was adversely affected by increased competition from regional labs in its traditionally stronges t

markets. The most serious inroads were made by Spectrum Laboratory Network ("Spectrum"), a

regional lab company based in North Carolina formed by a core group of hospitals including

Moses Cohen Health System, Novant Health, Inc . and High Point Regional Health System . At

all relevant times, Spectrum managed five labs in North Carolina - three, including its core lab ,

in Greensboro, one in High Point and one in Winston-Salem . Prior to and during the Class

Period, Spectrum's business was focused primarily in the southeastern part of the U .S. and it wa s

LabCorp's primary competitor in this area.


35. Prior to 2000, LabCorp dominated the southeast region of the U .S. However ,

according to Spectrum 's CEO, beginning in April 2000, Spectrum began to gain market share at

LabCorp' s expense . In or about 2000, Spectrum had approximately $ 18 million in revenues . By

2001, that number had grown to $60 million . Spectrum's CEO estimated that between 70%-80 %

of this revenue growth came p rimari ly at LabCorp' s expense . Spectrum was able to acquir e

significant market share away from LabCorp because of its superior customer service .

36. This loss of business and the disastrous impact of the cost cutting measure s

LabCorp implemented during the Class Period in response to it were confirmed by numerous

former LabCorp employees who worked in the Company' s Burlington facilities prior to and

during the Class Period (the South Atlantic division) . For example :

(a) According to a former operations manager who worked in Burlington, N C

and who was employed by LabCorp from May 1994 through June 2003, the Company imposed a

freeze on hiring in the last quarter of 2001 and began laying off workers early in 2002 . These

actions had a negative impact on service, including test accuracy and turnaround time, an d

caused numerous customers to take their lab business to the Company's competitors . This

former operations manager attended monthly management meetings beginning in January 2002 ,

at which Brad Hayes , a LabCorp senior vice president , repeatedly emphasized that business an d

profits were down, and that the Company would have to trim staffing in order to cut costs . At

the meetings various reports including a Cash Anticipation Report, which was distributed to

senior management including defendants Elingburg, Novak and MacMahon, were discussed .

The Cash Anticipation Report, which projected revenue based on the prior three months of sales,

projected the negative impact of Spectrum on the core testing business . Also, at these meetings

business losses to Spectrum and Quest were discussed . In addition, according to this forme r


operations manager, customers who were dissatisfied with LabCorp 's poor service but elected to

stay with the Company such as Medical Mutual of Ohio were able to win significant pric e

concessions from LabCorp by threatening to take their business elsewhere . Thus, even when

LabCorp was able to fend off its competitors it paid a price;

(b) According to a former program analyst who worked in Burlington, NC

and was employed by LabCorp from May 2000 until June 2003, during 2002, the Company lost

important North Carolina state and county contracts due to poor service . During 2002, this

former employee attended monthly meetings at which Ellen Macowitz, a LabCorp vice

president, acknowledged that business was slowing and projections were not being met ;

(c) A former senior programmer analyst who worked in Burlington, NC an d

was employed by the Company from February 2001 until November 2002, reported that

beginning in March 2002 , he observed a decline in the number of specimens (accessions ) coming

into his facility. According to this former employee, the Company lost the National Marro w

Donor Program ("NMDP") as a customer in March 2002, which accounted for 60% of th e

business in his facility. According to this former employee, layoffs of phlebotomists, drivers ,

and others occurred throughout 2002 ;

(d) A former sales manager who worked in Winston- Salem and Burlington ,

NC and was employed by the Company from 1985 until April 2003, reported attending a

regional management meeting in early May 2002 at which the severe downturn in business in the

important South Atlantic division during December 2001 and January and February 2002 caused

by competition from Spectrum was discussed . This regional meeting was attended by, inter alia ,

Jean Neff, senior vice president for sales and marketing for the South Atlantic division an d

William Cox, vice president of operations for that division . According to this former employee ,


LabCorp's level of service was declining, especially with respect to turnaround time, an d

Spectrum was able to offer customers superior service ; and

(e) According to a former project manager who worked in the IT department

in Burlington , NC and was employed by LabCorp from August 1998 until March 2003, during

2002, the Company's occupational testing workforce was downsized by 15% .

37. While it was most acute in the South Atlantic division , throughout the Clas s

Period, LabCorp's core testing business in other parts of the country was being adversel y

impacted by competition as well . For example :

(a) According to a former laboratory technologist and team leader wh o

worked in Columbus, Ohio (the Great Lakes division) and was employed by the Company from

April 1996 until April 2003, du ring 2002 , LabCorp shut down its facility in Chicago due t o

increased competition . Night and weekend operations at the Louisville, Kentucky lab wer e

curtailed during 2002 as well . Additionally, this former employee attended meetings in 2002 a t

which management reported that sales were down and business goals were not being met ;

(b) According to a former director of laboratory operations who worked i n

Herndon, VA (the Mid-Atlantic division) and was employed by LabCorp from October 199 1

until August 2002, the Company encountered serious business difficulties in the Mid-Atlanti c

Division during 2002. Among other things, LabCorp's important contract with Mid Atlanti c

Medical Systems, Inc. ("MAMSI"), a regional health services company with health plan s

covering about 1 .8 million lives in Maryland, Washington, D .C. and Virginia, which th e

Company touted in its conference call with analysts with respect to its fou rth quarter and yea r

end 2001 results, was being negatively impacted by the Company's poor service . This former

employee also reported that in March or April 2002, defendant Novak told Janet Richert, th e


Mid-Atlantic Region Director, to focus her efforts on North Carolina because a tremendou s

amount of business was being lost there ;

(c) LabCorp's difficulties with MAMSI were also confirmed by a former

client/vendor interface project coordinator who worked in the information service department i n

Herndon, VA (the Mid-Atlantic division) and was employed by LabCorp from August 2001 unti l

November 2002 ;

(d) According to a former billing manager who worked in Kansas City,

Missouri and was employed by LabCorp from June 2000 until June 2003, LabCorp lost a

significant contract with the National Postal Mail Handlers Union in 2002 . The loss of thi s

contract , which had been announced with much fanfare in an April 19, 1999 press release and

accounted for 10-15% of the Kansas City office's revenues, had a significant, adverse financial

impact on this facility. This former employee reported attending monthly regional managemen t

meetings in 2002 with division vice president Gary Smith and senior vice president Brad Haye s

at which the Company's declining business operations and lost contracts were discussed ;

(e) A former billing supervisor , who worked in Kansas City and Denver (the

Southwest division) from February 2001 until June 2003, confirmed that the National Posta l

Mail Handlers contract was lost in January 2002 . According to this former employee, the loss o f

this one contract caused a 25% decline in the number of specimens or "accessions" coming into

the Kansas City office . According to the former operations manager in the Burlington, North

Carolina offices, identified in ¶ 36(a) above, the National Postal Mail Handlers' account was los t

to Quest due to service issues including, inaccurate tests, untimely reports and billing errors ;

(f) According to a former vice president of finance for the Central Divisio n

who worked at LabCorp from June 1995 until March 2003, the downturn in business in his


division during 2002, which accounted for 20% or $175 million of the Company' s annual

revenue, was evident from two monthly reports - the New Sales Report and the Lost Business

Report - which were disseminated to senior management, including defendants Stark an d

MacMahon . The information on these reports, which was netted to determine sales growth ,

demonstrated the declining volume trends ;

(g) According to a former account manager who worked in Dallas, Texas an d

was employed by LabCorp from June 2001 until July 2002, her customer base of physician

offices generating between $5,000 and $10,000 in monthly revenue apiece withered from 132 t o

75 between December of 2001 and January of 2002 ; and

(h) The problems of lost contracts extended to the northeast U .S. as well .

According to a former account representative with customer service and billing who worked i n

Uniondale, NY and was employed by LabCorp from January 1999 until November 2002, a

hiring freeze was implemented in the Northeast division in April or May 2002, which remaine d

in place throughout the year. The Northeast billing center where he was employed was closed i n

November 2002 . According to this former employee, as a result of service issues caused b y

inadequate staffing, the Company lost major contracts such as Vytra, GHI, CIGNA, United

HealthCare, and Empire-Blue Cross/Blue Shield .

38 . Thus, contrary to defendants' materially false and misleading statements durin g

the Class Period detailed below, defendants knew or recklessly disregarded that LabCorp was no t

competing effectively and was losing market share and, therefore, could not sustain the growth i n

revenues and earnings it had reported in the recent past and had primed the market to expect i n

2002 .


Defendants' Materially False and Misleading Statements During The Class Perio d

39. The Class Period begins on February 13, 2002, the day LabCorp issued a press

announcing its results for the fourth quarter and year ended December 31, 2001 . This press

release was included in a Form 8-K signed by defendant Smith, which was filed with the SEC.

The Company reported growth in revenue and earnings per share in the fourth quarter of 2001 of

16% and 76%, respectively, ahead of consensus estimates, and quoted defendant MacMahon a s

stating :

LabCorp's strong fourth quarter performance rounded out an impressiveyear of price and volume gains for the Company. . . . We achieved steadygrowth and exceeded our performance measures for each quarter . Oursignificant accomplishments include further expansion of our managedcare business while strengthening our scientific expertise and marketshare through acquisitions and strategic partnerships . [Emphasis added . ]

40. The same day, LabCorp filed with the SEC a Form 8-K signed by defendan t

Smith, which included, among other things, defendants' guidance for LabCorp's financial result s

for the full year 2002, which was to be provided to analysts the following day on the Company' s

conference call to discuss the fourth quarter and year end results . According to defendants '

representations in the Form 8-K, in 2002, total revenues were expected to increase 12 %

compared to the previous year (8-9% volume ; 3-4% price) and growth of 33% in earnings pe r

share was forecasted after giving effect to certain changes in accounting rules .

41 . According to reports issued at or about the time of LabCorp's fourth quarter an d

year end 2001 earnings announcement by several analysts, including Joel M . Ray and Julie S .

Peterman of Wachovia Securities, Theresa L . Womble of Morgan Keegan & Company, Inc . ,

John Szabo and Amy Mulderry of CIBC World Markets, Tom Gallucci and A .J. Rice of Merril l

Lynch, Alexander Draper and Judy Merrick of Suntrust Robinson Humphrey, Kemp Dollive r

and Ann Hynes of SG Cowen, and Scott Estes and Balaji Gandhi of Deutsche Banc Alex Brow n


Inc., during the February 14, 2002 earnings conference call with analysts, defendants cited the

Company's contract with MAMSI as a primary driver of growth in the fourth quarter and a s

providing opportunities for continued volume growth in 2002 . Defendants' characterized the

MAMSI contract as "extremely successful " in building LabCorp' s presence in the Mid-Atlanti c

region .

42. Defendants' materially false and misleading statements had their intended effect

as numerous analysts reiterated their favorable ratings with respect to LabCorp stock and raised

their pre-split p rice targets for the Company' s shares in the wake of the fourth quarter earnings

announcement and conference call . For example :

(a) Suntrust Robinson Humphrey analysts Alexander Draper and Jud y

Merrick issued a report on February 19, 2002, reiterating their "Buy" rating on LabCorp stock

and raising their price target for the Company's shares to $120 ;

(b) US Bancorp Piper Jaffray analysts William B . Bonello and Angela C .

Samflippo issued a report on February 14, 2002, reiterating their "Strong Buy" rating on th e

Company's stock and raising their 2002 revenue and EBITDA estimates ;

(c) Morgan Keegan & Company analyst Theresa L. Womble issued a report

on February 14, 2002, reiterating her "Outperform" rating on the Company' s shares and raising

EPS estimates for 2002 and 2003 ;

(d) Deutsche Banc Alex Brown analysts Scott Estes and Balaji Gandhi issued

a report on February 15, 2002, maintaining their "Buy" rating on the Company's shares an d

raising their 2002 EPS estimate ;


(e) CIBC World Markets analysts John Szabo and Amy Mulderry issued a

report on February 14, 2002 reiterating their "Buy" rating on the Company's stock an d raisin g

their 2002 EPS estimates ; and

(f) On February 15, 2002, SG Cowen analysts Kemp Dolliver and Ann Hyne s

issued a report reiterating their "Buy" rating on the Company's shares and raising their 2002 an d

2003 EPS estimates .

43 . Each of the statements set forth in ¶¶ 39-41 above was materially false and

misleading when made because it failed to disclose and misrepresented the material adverse fact s

described in IT 28-38 above, which then existed and were known to or recklessly disregarded by

defendants including :

(a) LabCorp's market share had not been "strengthened" during the fourt h

quarter . To the contrary, the Company had lost significant market share in its core testin g

business , which accounted for the majority of the Company's revenues and volume to Spectrum

in the important southeaster U .S. region (the South Atlantic division) and had imposed a hiring

freeze to curtail costs ;

(b) As a result, defendants' guidance with respect to earnings, revenue and

volume for 2002, which could not be attained in the absence of continued strong growth in th e

Company' s core testing business, lacked any reasonable basis ; and

(c) LabCorp was encountering se rious business difficulties in the Mid

Atlantic division . In particular, its contract with MAMSI was not "extremely successful ." To

the contrary MAMSI was completely dissatis fied with LabCorp' s service and the Company was

in danger of losing this contract .


44. On March 13, 2002, defendant Smith made a presentation at the SG Cowe n

Annual Healthcare Conference in Boston, Massachusetts . According to a Form 8-K filed b y

LabCorp on March 12, 2002, at the conference defendant Smith intended to (and did) make th e

following statements concerning the Company's expected results in 2002 :

For 2002, we expect revenue growth of 12 percent compared to 2001,EBITDA margins of approximately 23 percent of sales and EPS growth ofapproximately 33 percent compared to 2001, before applying the newaccounting rules regarding goodwill effective January 1, 2002 .

The Form 8-K, which was signed by defendant Smith, incorporated by reference boilerplate

"warnings" with respect to forward-looking statements contained in the Company's 2001 For m

10-K described below .

45 . On or about March 18, 2002, LabCorp filed its Form 10-K with the SEC signe d

by defendants MacMahon and Elingburg, which contained LabCorps's previously announce d

financial results for the fourth quarter and year ended December 31, 2001 . With respect to

LabCorp's competitive position , the Form 10-K stated in relevant part :

The Company believes that the following factors, among others, are oftenused by health care providers in selecting a laboratory : (i) pricing of thelaboratory's test services ; (ii) accuracy, timeliness and consistency inreporting test results ; (iii) number and type of tests performed ; (iv) servicecapability and convenience offered by the laboratory ; and (v) its reputationin the medical community . The Company believes that it competesfavorably with its principal competitors in each of these areas and iscurrently implementing strategies to improve its competitive position .

The Company believes that consolidation will continue in the clinicallaboratory testing business . In addition, the Company believes that it andthe other large independent clinical laboratory testing companies will beable to increase their share of the overall clinical laboratory testingmarket due to a number of external factors including cost efficienciesafforded by large-scale automated testing . Medicare reimbursementreductions and the growth of managed health care entities, which requirelow-cost testing services and large service networks . In addition, legalrestrictions on physician referrals and the ownership of laboratories aswell as increased regulation of laboratories are expected to contribute tothe continuing consolidation of the industry. [Emphasis added . ]

-21 -Lab Corp.-Consolidated and Amended Class Action Complaint . DOC

46. In a letter to shareholders included in the Company's annual report, which wa s

also filed with the SEC, defendant MacMahon touted LabCorp 's prospects for continued growth

stating:

As LabCorp enters 2002, our competitive position has never beenstronger . . ..

Beyond the promise of genomics and molecular testing, LabCorp isfortunate to have numerous additional upside opportunities . Increasedmarket share, particularly in the managed care sector , is one of them.Despite our recent gains in managed care testing, most of theopportunity for growth in this market remains ahead of us. Thisincludes testing with the three national managed care providers withwhom we currently have multi-year agreements . As a result, the potentialto expand service to these key providers is significant. [Emphasis added . ]

47. Each of the statements set forth in ¶¶ 45-46 above was materially false and


described in ¶¶ 28-38 above, which then existed and were known to or recklessly disregarded b y

defendants including:

(a) Defendants knew or recklessly disregarded that LabCorp was not

competing favorably with its principal competitors with respect to pricing, accuracy, timelines s

and consistency in reporting test results, service, and/or reputation in the medical community .

To the contrary, as detailed above, (i) due to its poor service, the Company was required to mak e

price concessions to customers such as Medical Mutual of Ohio in order to maintain thei r

business ; (ii) test accuracy and turnaround time was being adversely impacted because th e

Company was not adequately staffed to serve existing accounts in key regions ; and (iii) customer

service was so poor key customers such as the National Postal Handlers Union had switched t o

competitors and significant new contracts such as the one with MAMSI were in jeopardy o f

being lost . Thus, the Company's competitive position was not stronger than ever . To the


contrary, as detailed in ¶¶ 28-38 above, defendants were well aware that increased competitio n

was hurt ing LabCorp, particularly in key areas that it had dominated prior to the Class Period ;

(b) As a result, defendants' guidance for earnings, revenue and volum e

growth for 2002, which could not be attained in the absence of continued strong growth in th e

Company's core testing business, lacked any reasonable basis because LabCorp's core testin g

business , which accounted for the majority of LabCorp' s revenues and volume, was being

significantly, adversely impacted by regional labs, especially in the important southeaster n

region of the U.S. where LabCorp had once dominated ; and

(c) Rather than providing significant potential for new business, LabCorp' s

managed core business was being adversely impacted by the Company's poor service due to it s

inadequate staffing . For example, MAMSI was extremely dissatisfied with LabCorp' s serv ice

and was considering taking its business elsewhere.

48. Further, the Form 10-K contained purported "cautionary" statements that were, i n

themselves, materially misleading . Specifically, LabCorp represented that its future results coul d

be affected by, inter alia, (i) increased competition, (ii) the Company's "failure to obtain an d

retain new customers and alliance partners, or a reduction in tests ordered or specimen s

submitted by existing customers ," and/or (iii ) LabCorp' s inability "to attract and retain

experienced and qualified personnel ." These statements, which were identical to the "warnings"

contained in the Company's 2001 SEC filings notwithstanding the dramatically change d

competitive landscape, were themselves materially false and misleading in that defendants kne w

or recklessly disregarded (i) that LabCorp's core testing business had been and was continuing t o

be adversely impacted by increased competition, (ii) that the Company was losing importan t


customers due to , inter alia , poor service , and (iii) that LabCorp was woefully understaffed

which was negatively impacting the Company's core testing business .

49 . On March 20, 2002, defendant Smith made a presentation at the Banc of Americ a

Securities Genomics Conference in New York . According to a Form 8-K filed by the Company

on March 19, 2002, defendant Smith's presentation would (and did) include the materially fals e

and misleading guidance for 2002 financial results contained in the Form 8-K filed by LabCorp

on March 12, 2002. The March 20, 2002 Form 8-K, which was signed by defendant Smith ,

incorporated by reference the materially misleading boilerplate "warnings" contained in th e

Company's 2001 Form 10-K .

50. On April 4, 2002, defendant Smith made a presentation at the Banc of America

Securities Healthcare Conference in Las Vegas, Nevada . According to a Form 8-K filed by th e

Company on April 3, 2002, defendant Smith's presentation would (and did) include th e

materially false and misleading financial guid ance for 2002 contained in LabCorp' s Form 8-K

dated February 13, 2002 . The Form 8-K, which was signed by defendant Smith, incorporated b y

reference the materially misleading boilerplate "warnings" contained in the Company's 200 1

Form 10-K .

51 . On or about April 22, 2002, after the market close , the Company issued a press

release announcing its financial results for the first quarter ended March 31, 2002 . Under the

banner headline, "Double-Digit Revenue Growth Fuels 33 Percent Increase in EPS ; Announce s

Two-For-One Stock Split," the Company reported that net revenues grew by approximatel y

12.3% over the comparable period in 2001, ahead of consensus estimates .

52. Also on April 22, 2002, LabCorp filed with the SEC a Form 8-K signed b y

defendant Smith, which reiterated the Company's previously announced materially false and


misleading guid ance for 2002, which was to be discussed during the first quarter conference call

with analysts the following day .

53 . On or about April 24, 2002 defendant Smith was interviewed by correspondent A .

Morley for the Bloomberg Forum . Smith reviewed the Company's first quarter 2002 results and

commented in very positive terms about LabCorp' s future prospects . When asked to comment

on LabCorp's reported sales growth, defendant Smith stated :

Well, we had growth in all areas of the company. But what really helped,there are two primary drivers of our revenue growth . One is our growth

in our managed care business, which we continue to see healthyincreases both in terms of the amount of managed care business that weget and our ability to increase the price per order or session that we get.And the second, and perhaps the thing that's the most exciting to us, isgrowth in new genomic and highly esoteric tests . And this really helpedfuel both our growth and our overall test volume and our price per testorder or session . [Emphasis added . ]

54. When asked to comment on the market reaction to the Company's first quarter

earnings announcement, defendant Smith stated :

[W]hen you look at it over a slightly longer period of time, the trend hasbeen significantly improving . And I think based upon our optimism andwhat we see in connection with the trends for our company and the overallindustry, clinical laboratory testing industry, I'm hopeful that the market,when you look at more than one day, that will reflect our view of thegrowth potential and prospects for the industry and an increase in sharevalue .

55. During the interview, defendant Smith also reiterated the Company's previousl y

announced guidance for 2002 and suggested that this guidance was conservative stating :

[D]uring our earnings conference call, we did give guidance for the year,which included an increase in revenues of approximately 12 percent for2002 compared to 2001 . And that included a growth in volume of 9percent and price of 3 to 4 percent, and an increase in our EBITDAmargins to 23 percent . That's about a 2 percent increase over 2001 . EPSgrowth of 30 percent compared with 2001 using the new accounting rules .And that basically are the primary points in connection with the guidancethat we've given. We also talked a lot about - that's guidance based uponcurrent trends. But there are a number ofgrowth opportunities that are

-25-Lab Corp .- Consolidated an d Amended Class Action Complaint .DOC

sort of upside potential, that we didn't provide guidance in connectionwith them. That includes things like new tests, growth in new testrevenues such as cystic fibrosis, which is growing very rapidly, HepatitisC testing in connection with some of the new pegilated interferontreatments that are available. [Emphasis added. ]

56. Defendants' materially false and misleading statements had their intended effec t

as numerous analysts reiterated or boosted their favorable ratings of LabCorp common stoc k

following the Company's first quarter earnings announcement and conference call as follows :

(a) On April 23, 2002, analysts William B. Bonello and Angela C . Sam fl ippo

of US Bancorp Piper Jaffray issued a report reiterating their "Strong Buy" rating on LabCorp's

shares and raising their 12-month pre-split price target for the stock from $104 to $120 stating :

"We expect that volume growth could accelerate in future quarters . . . ; "

(b) On April 23, 2002, Wachovia Securities analysts Joel M . Ray and Julie S .

Peterman issued a report reiterating Wachovia's "Strong Buy" rating on LabCorp' s shares and

raising their 12-month pre-split price target for the shares to $120 from $110, stating : "[W]e

remain bullish on the shares of LabCorp . . . ; "

(c) On April 24, 2002, analysts Deborah J . Lawson and Andrea M. Bici of

Solomon Smith Barney issued a report reiterating their "Outperform" rating on LabCorp's share s

due to the Company' s "solid prospects for volume growth," stating : "LabCorp has exhibited

among the strongest increases in pricing and volume over the past two years, and recent contrac t

wins, which appear to be favorably priced, should enable LabCorp to post strong pricing and

volume increases over the 2002-2003 timeframe ; "

(d) On April 26, 2002, Banc of America Securities analysts Todd B . Richter

and Mark Miller issued a repo rt maintaining their "Buy" rating on LabCorp' s shares and raising

their pre-split price target for the stock to $117 noting that during the first quarter conference cal l


the Company' s management had stated that it "believe[d] that there [was] still plenty of

opportunity for volume growth and margin expansion ;" and

(e) On April 30, 2003, Merrill Lynch Capital Markets analysts Tom Gallucci

and A.J. Rice issued a report reiterating their "Strong Buy" rating and 12-month pre-split pric e

objective of $112-114 per share stating : "We anticipate continued strength in consolidate d

volume trends . "

57. Defendants' statements to analysts during the first quarter conference call an d

defendant Smith's comments in his interview with Bloomber Forumorum caused the price o f

LabCorp' s common stock to rise significantly . LabCorp common stock closed at a split adjuste d

price $47 .525 on April 24, 2002, the day of Smith 's interv iew with Bloomberg Forum .

Thereafter, the Company's stock price rose steadily and reached a Class Period split adjuste d

high of $51 .98 on May 10, 2002 .

58. Each of the statements set forth in ¶¶ 48-55 above was materially false an d


described in ¶¶ 28-38 above, which then existed and were known to or recklessly disregarded b y

defendants including:

(a) Rather than being conservative or having "upside potential", the

Company' s guidance with respect to revenue, earn ings and volume for 2002 lacked an y

reasonable basis because LabCorp' s core testing business , which accounted for the majority of

the Company' s revenue and volume , was being eroded, especially in the important southeastern

region of the U .S. where Spectrum had increased its market share significantly at LabCorp' s

expense. Thus, growth rates with respect to core testing volume were declining from previou s

quarters; and

-27-Lab Corp.-Consolidated and Amended Class Action Complaint.DOC

(b) The Company' s serv ice issues were undermining its managed care

business . For example , MAMSI was extremely dissatisfied with LabCorp's service and thi s

important contract was in jeopardy . Another managed care company dissatisfied with LabCorp' s

service, Medical Mutual of Ohio, had extracted significant price concessions detrimental t o

LabCorp' s bottom line in return for its continued business .

59. On May 7, 2002, defendant Smith made a presentation to the Deutsche Ban k

Securities Health Care Conference in Baltimore, Maryland . According to a Form 8-K filed b y

the Company on May 9, 2002, defendant Smith's presentation would (and did) include th e

previously issued materially false and misleading guidance for 2002 set forth in the April 22 ,

2002 Form 8-K described above . The May 7, 2002 Form 8-K, which was signed by defendan t

Smith, also incorporated by reference the materially misleading boilerplate "warnings" contained

in LabCorp's 2001 Form 10-K .

60. On May 9, 2002, LabCorp announced in a press release that it had entered into a

definitive agreement to acquire Dynacare Inc., a Dallas-based independent laboratory, for $48 0

million in cash and stock . In addition , LabCorp would assume approximately $205 million in

Dynacare debt. Pursuant to the terms of the agreement, LabCorp would acquire 100% of th e

outstanding stock of Dynacare for $23 per share. Each outstanding share of Dynacare stock was

to be exchanged for $11 .50 in cash and 0 .2328 shares of LabCorp common stock (adjusted fo r

the two-for-one stock split on May 10, 2002) . The transaction closed on July 25, 2002 . LabCorp

financed the transaction by issuing 4 .9 million shares of common stock and using $260 million in

cash, a $150 million bridge loan, borrowing $50 million under its existing revolving line o f

credit, and paying off $195 million in Dynacare debt (plus a call premium of $7 million) .


61 . On June 12, 2002, defendant Smith made a presentation to the Goldman, Sachs &

Company Global Healthcare Conference in Dana Point, California . According to a Form 8- K

filed by the Company on June 11, 2002, defendant Smith' s presentation would (and did ) include

the previously issued materi ally false and misleading guidance for 2002 set forth in the April 22 ,

2002 and May 9, 2002 Form 8-Ks described above . The June 12, 2002 Form 8-K, which wa s

signed by defendant Smith, also incorporated by reference the materially misleading boilerplat e

"warnings" contained in LabCorp's 2001 Form 10-K .

62. On July 15, 2002, LabCorp issued a press release announcing that it had signed a

material contract with Premier, Inc ., one of the country 's largest group purchasing organizations .

The press release was included in a Form 8-K signed by defendant Smith, which was filed b y

LabCorp the same day .

63 . On or about July 24, 2002, the Company issued a press release announcing it s

financial results for the second quarter ended June 30, 2002 . Under the banner headline,

"EBITDA Hits Record Level of 25 .5 Percent of Net Sales; Dynacare Shareholders Approv e

Acquisition by LabCorp ; Closing Expected July 25th," the Company announced that net sales

had increased 11 .4% as a result of increases of approximately 7 .0 percent in volume and 4 . 4

percent in price. The press release was included in a Form 8-K signed by defendant Smith ,

which was filed with the SEC on July 24, 2002 .

64. Also on July 24, 2002, LabCorp filed another Form 8-K signed by defendant

Smith which included summary financial information to be disclosed during the Company' s

conference call with analysts the following day to discuss LabCorp' s second quarter results .

This information included updated financial guidance for 2002, which reflected the impact of th e

Dynacare acquisition (excluding anticipated restructu ring charges). This updated guidanc e

-29-Lab Corp .- Consolidated and Amended Class Action Complaint.DOC

called for ( i) revenue growth of approximately 15 .5% to 16 .5% compared to 2001 (attributable to

a 12% increase in volume and a 4% increase in p rice) ; ( ii) adjusted EBITDA margins of

approximately 23% of sales ; and (iii) EPS in the range of $1 .90 to $1 .95. The Company also

provided the following financial guidance for 2003: (i) revenue growth of 16% to 17% compared

to 2002; ( ii) adjusted EBITDA margins of approximately 24% to 24 .5% of sales ; and (iii) EP S

growth of approximately 25% to 30% compared to 2002 .

65 . The following day, on July 25, 2002, the Company held a conference call wit h

analysts to discuss its second quarter results . A transcript of the call was made available to the

public over the Fair Disclosure Wire . Although defendant MacMahon stated that sales volum e

growth had slowed in certain unidentified regions of the country, he emphasized that othe r

regions continued to show solid volume growth and that the Company' s guidance was for 15 .5%

to 16.5% revenue growth in 2002 . MacMahon attributed the slower growth in certain regions to

a delay in closing deals, including the recently announced transaction with Premier, Inc . stating :

[T]he question is can you shed some more information on what happenedin certain regions . I guess my answer is that Bill, there were some regionsthat were disproportionally [sic] impacted by our inability to finalize thePremier deal as well as some other big deals. The fact [is] that there weresome smaller labs out there that really hurt us in several regions of thecountry. Now what are we going to do about that? The first thing we aregoing to do when we begin is we have got the Premier deal done . Thatdoes impact in certain regions in a greater way than other regions. Weare putting great emphasis in getting some of these other deals done.Secondly we had developed plans to more effectively compete with thesesmaller lab providers, which include highlighting the advantages of ourgenomic strategy, differentiating ourselves in the esoteric area, anddevelopingplans to be more effective from a sales perspective in acouple of these regions. [Emphasis added. ]

66. In response to questions about trends in sales volume growth, defendan t

MacMahon repeatedly reiterated that defendants were confident in their ability to continue t o

-30-Lab Corp.-Consolidated an d Amended Class Action Complaint .DOC

grow revenues, including in LabCorp's core testing business, at the levels seen in the recent pas t

stating :

[W]hen I look at what is ahead for us over the next six months I look atstrong pricing, I look at continued volume increases , I look at theintegration of Dynacare, and I look at the most recent information that Ihave. I look at our standards compared to everything else that is going onin the industry, and I think it's a pretty good accomplishment . [Emphasisadded . ]

67. MacMahon also assured the analysts that the Company had dealt with th e

challenges posed by competitors in certain regions stating :

In terms of our competitor [sic] response I think you have already seen wehave announced the Premier deal . We expect[ ] during the second half ofthe year that we will strengthen ourselves in those regions [of the] countrywhere we have identified slower volume growth [than] we would like tohave by some of the points that I have outlined before .

68. MacMahon assured the analysts that growth in sales volume was not an ongoin g

issue stating :

I know how analysts look at this, but the volume is growing . There isnot a substantial slowdown in volume. The volume is still up 7%, inmost areas of the country more than that . So we continue to besatisfied with that . . . . [Emphasis added . ]

69 . Each of the statements set forth in ¶¶ 59-68 above was materially false an d

misleading when made because it failed to disclose and misrepresented the material adverse facts

described in ¶¶ 28-38 above, which then existed and were known to or recklessly disregarded by

defendants, including :

(a) Defendants' guidance for 2002 financial results, which could not be

attained in the absence of continued strong growth in the Company's core testing business ,

which accounted for the majority of LabCorp's revenues and testing volume, lacked any

reasonable basis because competition from regional labs, including Spectrum in the importan t

southeastern U.S . was adversely impacting the Company's core testing business ; and

-31-Lab Corp .-Consolidated and Amended Class Action Cornplaint .DOC

(b) Slower volume growth was not the result of delays in closing the Premier

deal . Rather, it was due to a steady erosion of LabCorp's customer base by Spectrum in th e

southeast which had been growing its business at LabCorp's expense since 2000, and the

defection of key customers such as the National Postal Handlers Union due to ongoing servic e

issues .

70. Notwithstanding defendants' aggressive efforts to reassure the market that growth

in sales volume was on track, the price of the Company's common stock fell over 25% that da y

to close at $28 .20 per share in heavy trading . In the days that followed, based on defendants '

statements during the second quarter earnings conference call, analysts issued reports supportiv e

of the Company and characterized the decline in LabCorp's share price as misguided . For

example :

(a) Morgan Keegan & Company analyst Theresa L . Womble issued a repor t

on July 25, 2002, reiterating her "Outperform" rating on the Company's stock and stating :

"While volume growth was at the low end of expectations, we believe LabCorp continues to

make wise decisions about the types of business the Company accepts favoring more attractiv e

pricing to sheer volume . This discipline can at times pressure test volume growth ;" and

(b) UBS Warburg analyst Ricky Goldwasser issued a report on July 26, 2002,

reiterating UBS' "Strong Buy" rating on the Company' s shares stating : "While we acknowledge

that volume growth was not as strong as we would have liked, we are encouraged by the strong

pricing trends, and the completion of the Dynacare acquisition gives us even greater confidence

in the Company's ability to grow earnings 25 -30% over the next 18 months and 20% over the

next 3 years ."

-32-Lab Corp.- Consolidated and Amended Class Action Complaint .DOC

71 . Then, on Saturday July 27, 2002 , the Charlotte Observer published an article ,

written by M. Stobe, discussing the recent market volatility in the Company's stock . The articl e

quoted defendant Smith as stating that the Company had been unfairly penalized for merel y

meeting as opposed to exceeding expectations as it had done in previous quarters . The article

stated in relevant part :

Wednesday, after the market close, LabCorp reported net income of $78 .5million - or 55 cents a share - for the quarter ended June 30 . That was upfrom $52.1 million a year ago and in line with analyst's expectations . Butsome analysts said sales and volume trends were on the light side. And,after the quarterly report came out, 2 of the 14 analysts who cove rLabCorp cut their ratings of the stock . That's what apparently started theprice slide, said Brad Smith, the company's executive vice president overpublic affairs . Smith said LabCorp has consistently been exceedinganalysts ' expectations but apparently suffered when the expectationsthis week were merely met "In this market it doesn 't take much. Theysell first and ask questions later," he added. [Emphasis added . ]

72. The foregoing analyst reports reiterating defendants' reassuring comments abou t

continued volume growth and defendant Smith's comments to the Charlotte Observer had their

intended effect. By July 31, 2002, LabCorp shares had recovered over 21 % in value to close at

$34.30 per share.

THE TRUTH IS REVEALE D

73 . On October 3, 2002 , after the close of the market , LabCorp 's problems became

known to the public when the Company issued a press release pre-announcing its third quarter

2002 financial results . LabCorp reported that it would not achieve revenue growth in line wit h

its previous guidance, and that it was lowering guidance for third quarter revenues and

anticipated lowering guidance for fourth quarter revenues as well . The press release stated in

relevant part :

[LabCorp] today announced , based on a preliminary projection of thirdquarter results , that it expects revenues for the quarter ended September30, 2002, to be in the range of $650 to $655 million , an increase of

-33-Lab Corp .-Consolidated and Amended Class Action Complaint,DOC

approximately 16 percent compared to third quarter 2001 . This representsan increase of approximately 14 .5 percent on a per day basis, which is 2percent lower than LabCorp had previously anticipated . The ThomsonFinancial First Call consensus revenue estimate for the third quarter of2002 is $664 .2 million .

LabCorp said that the less than anticipated quarterly revenue growth isdirectly related to a continued slowdown in volume growth in the routine,or core, testing business in certain key regions of the country. LabCorpnoted, based upon its preliminary review , that testing volume growth in itsstrategically important genomics business continued to be strong . . . .

As a result of the revised revenue estimates, the Company expects thatthird quarter diluted earnings per share (EPS) will now be approximately10 percent lower than the First Call consensus estimate of $0.49 .Although LabCorp has implemented a series of programs to increaserevenue growth in the regions affected, it believes this trend will mostlikely continue throughout the fourth quarter and, accordingly, willprovide updated guidance for the fourth quarter of 2002 during itsquarterly earnings conference call . . . .

74. In an interview with the Bloomberg Forum on October 4, 2002, defendant

MacMahon admitted what defendants had known for more than a year, i.e., that the Company' s

business in the southeastern U .S., particularly in North Carolina, had been adversely impacted ,

and conceded "it's obviously a piece of our business that's fairly important, so it does have a n

impact ." MacMahon also acknowledged that the Company's problems were due to inroads b y

"regional competitors," and that the downturn was specific to LabCorp rather than an industry-

wide issue stating :

From everything that I can see in the diagnostic market in this country, theindustry continues to be very solid . The demand for medical testing is onthe increase. The number of new medical tests that are becomingavailable is rather significant and on the increase. What we are facing inselected regions of the United States is increased pressure fromcompetitors that are attempting to take away core-testing volume fromLabCorp. And to a degree, they've had some success in the last three tofour months in doing that . And in looking at our plans and in looking atwhat we have put into place to correct this issue, we think this possibilityexists that it'll continue through the fourth quarter and we'll see ourselvesbeginning to come out of this core testing issue in only selected regionssome time early next year .


75 . MacMahon also admitted that the downturn was apparent "as early as last May -

about four or five months ago," and was the result of poor service, stating :

[W]hat we need to do is we need to be more effective very quickly insatisfying the turnaround times in the distribution needs of the doctors incertain pockets of the country . What that would mean is that we wouldopen more routes ; we will create more patient service centers wherethey're needed ; and we will attempt to deal with the problem to improvingour quality and bringing more tests to the physicians.

76. Market reaction to defendants' belated disclosures was swift and severe . On

October 4, 2002, the first day of trading following LabCorp's announcements, the price o f

LabCorp common shares fell over 34% to close at $21 .68 per share, a decline of over 58% from

its split adjusted Class Period high of $51 .98 per share on May 10, 2002 .

77. Subsequently, on or about October 30, 2002 , defendants reported that the

Company's diluted earnings per share for the third quarter of 2002, including certain "specia l

charges" related to the Dynacare acquisition, were $0 .39 or 20.4% lower than defendants' pre-

October 3 guidance of $0 .49, and more than twice the 10% decrease disclosed by defendants o n

October 3rd .

78. In a conference call with analysts the following day, a transcript of which wa s

made available by Fair Disclosure Wire, defendant MacMahon revealed that the "volum e

problem" stemmed from service issues and that the process of reacquiring lost business woul d

take significant time . In this regard, defendant MacMahon stated :

We have to give doctors in our affected regions good, solid reasons tocome back to us . And that has to be directly related to the quality of thepatient service centers . It has to be related to the quality of the accountmanagement in the doctor's offices and it has to sometimes be related toassisting the doctor through appropriately putting phlebotomist[s] in theiroffices. And we're considering each of those often on an individual basis .


ADDITIONAL SCIENTER ALLEGATIONS

79. As alleged herein , defendants acted with scienter in that defendants knew o r

recklessly disregarded, that the public documents and statements issued or disseminated in th e

name of the Company, as set forth herein, were materially false and misleading when made .

Defendant knew that such statements or documents would be issued or disseminated to th e

investing public and they knowingly and substantially participated or acquiesced in the issuance

or dissemination of such statements or documents as primary violators of the federal securities

laws. As set forth elsewhere herein in detail, defendants, by virtue of their receipt of informatio n

reflecting the true facts regarding LabCorp and its business, their control over LabCorp' s

allegedly materially misleading misstatements, and/or their associations with the Company ,

which made them privy to confidential proprietary information concern ing LabCorp were active

and culpable participants in the fraudulent scheme alleged herein .

80. At all relevant times, defendants had actual knowledge of, or recklessl y

disregarded, LabCorp' s declining financial perform ance as particularized in ¶¶28-38 above .

Nevertheless, defendants issued the materially false and misleading statements identified above ,

which were contradicted by internal evidence, which was known to or recklessly disregarded b y

defendants during the Class Period .

81 . In addition, defendants were motivated to commit the fraud alleged herein so tha t

LabCorp could use its artificially inflated common shares as currency to acquire Dynacare .

Dynacare did substantial business in the southeastern U .S. and was strategically important due to

the significant business that had been lost to Spectrum in this region .

82. Defendants were further motivated to engage in the fraudulent scheme allege d

herein in order to enable the Individual Defendants and other LabCorp insiders to sell thei r

personally-held LabCorp common stock to the unsuspecting public at artificially inflated p rices

-36-Lab Corp .-Consolidated and Amended Class Action Complaint. DOC

and while they were in the possession of material non-public information about the Company.

The following chart sets forth the substantial selling by the Individual Defendants during th e

Class Period :

Wesley R. Elingburg . Chief Financial Officer :

DATE # OF SHARES PRICE PER SHARE TOTAL VALU E

2/15/02 100 87 .01 $8,701 .00

2/15/02 1,900 86 .85 $165,015.00

2/15/02 3,000 87 .08 $261,240.00

2/15/02 3,600 87 $313,200.00

3/14/02 2,000 90.03 $180,060.00

3/14/03 4,200 90.08 $378,336.00

3/14/03 6,178 90 $556,020.00

3/15/02 5,000 91 $455,000.00

3/15/02 5,000 90.4 $452,000.00

3/15/02 5,000 90.2 $451,000.00

3/15/02 5,000 89.82 $449,100.00

3/15/02 7,000 90.75 $635,250.00

Total 47,978 (30 .5% of TotStock of 157,402)

$4,304,922,00

-37-Lab Corp .- Consolidated and Amended Class Action Complaint.DOC

Thomas P. MacMahon , Chief Executive Officer :


3/01/02 2,733 81 .23 $222,001 .59

3/01/02 3,400 81 .41 $276,794.00

3/01/02 5,000 81 .45 $407,250.00

3/01/02 5,000 81 .35 $406,750.00

3/01/02 5,000 81 .3 $406,500.00

3/01/02 5,400 81 .4 $439,560.00

3/15/02 300 90.27 $27,081 .00

3/15/02 1,300 90.3 $117,390.00

3/15/02 1,600 90 $144,000.00

3/15/02 1,600 89.88 $143,808.00

3/15/02 6,800 90.05 $612,340.00

3/15/02 10,000 91 $910,000.00

3/15/02 28,300 90.4 $2,558,320 .00

3/18/02 5,000 91 $455,000.00

3/18/02 5,000 90 .42 $452,100.00

3/18/02 5,000 90 .05 $450,250.00

3/18/02 5,000 90 $450,000.00

3/18/02 10,000 90.7 $907,000.00

Total 117,733 (25 .6% ofTot. Stock of460,039)

.$10,3071,970 .59


Bradford T. Smith, Executive Vice President :


3/01/02 200 81 . 42 $16,284 .00

3/01/02 800 81 . 3 $65,040 .00

3/01/02 1,000 81 . 5 $81,500 .00

3/01/02 1,000 81 .35 $81,350 .00

3/01/02 1,000 81 . 23 $81,230 .00

3/01/02 2 ,000 81 . 41 $162,820.00

3/01/02 2 ,600 81 .4 $211,640.00

3/14/02 5,000 90.03 $450 , 150.00

3/14/02 24 ,334 90 $2 , 190,060.00

3/15/02 100 89 . 88 $8,988 .00

3/15/02 1,000 89 . 85 $89 ,850.00

3/15/02 3 ,900 89 .81 $350 ,259 .00

3/15/02 5 ,000 90 . 39 $451 ,950.00

3/15/02 5 ,000 90.2 $451,000.00

3/15/02 6 ,900 90.75 $626,175.00

Total 59,834 (35.6% ofTot.Stock of 168,211)

$5,318,296 .00


Richard L. Novak, Chief Operating Officer :


3/15/02 100 90.01 $9,001 .00

3/15/02 4,900 90 $441 ,000.00

3/15/02 5,000 91 $455,000.00

3/15/02 5 ,000 90.2 $451,000.00

3/15/02 12,000 90 . 4 $1,084,800 .00

Total 27,000 (15.2% of TotStock of 177,144)

$2,440,801 .00

Steven R . Stark , Executive Vice President :


4/02/02 400 95 . 76 $38 ,304.00

4/02/02 800 95.24 $76 ,192.00

4/02/02 1,700 95 . 18 $161,806.00

4/02/02 2,500 96 $240,000.00

4/02/02 4 ,600 95 . 5 $439,300.00

4/02/02 7 ,700 95 .86 $738,122.00

4/19/02 14,067 100 $1,406,700 .00

Total 31,767 (37.3% of Tot .Stock of 85,083)

$3,100,424,00 ,

DEFENDANTS' MATERIALLY FALSE AND MISLEADINGMISPREPRESENTATIONS AND OMISSIONS WERE THE CAUS E

OF THE DAMAGES SUFFERED BY LEAD PLAINTIFFS AND THE CLAS S

83 . The market for LabCorp common stock was open, well-developed and efficient a t

all relevant times . As a result of the materially false and misleading statements and failures t o


disclose described above, LabCorp common stock traded at artificially inflated prices during the

Class Period. The artificial inflation continued at least through and including October 3, 2002 ,

when defendants disclosed, among other things, that the touted guidance for growth in revenues

and earn ings in 2002 would not be achieved . Lead Plaintiffs and other members of the Clas s

purchased or otherwise acquired LabCorp's common stock relying upon the integrity of th e

market price of the Company's common stock and market information relating to LabCorp, an d

have been damaged thereby .

84. During the Class Period, defendants materially misled the investing public ,

thereby inflating the price of LabCorp common stock, by publicly issuing false and misleading

statements and omitting to disclose material facts necessary to make defendants' statements, a s

set forth herein, not false and misleading . Said statements and omissions were materially fals e

and misleading in that they failed to disclose material adverse information and misrepresente d

the truth about the Company, its business and operations, as detailed herein .

85 . At all relevant times , the material misrepresentations and omissions pa rticularized

in this Complaint directly or proximately caused, or were a substantial contributing cause of, th e

damages sustained by Lead Plaintiffs and other members of the Class . As described herein,

during the Class Period, defendants made or caused to be made a series of materially false o r

misleading statements about LabCorp' s business, prospects and operations . These materia l

misstatements and omissions had the cause and effect of creating in the market an unrealisticall y

positive assessment of LabCorp and its business, prospects and operations, thus causing th e

Company's common stock to be overvalued and artificially inflated at all relevant times .

Defendants' materially false and misleading statements during the Class Period resulted in Lead

Plaintiffs and other members of the Class purchasing the Company's common stock a t


artificially inflated prices , thus leading to their losses when the deception was revealed, and the

market was able to accurately value the Company's shares .

APPLICABILITY OF PRESUMPTION OF RELIANCE :FRAUD-ON-THE-MARKET DOCTRINE

86. Lead Plaintiffs rely, in part, on the presumption of reliance established by th e

fraud-on-the-market presumption .

87. At all relevant times , the market for LabCorp' s securities was an efficient market

for the following reasons, among others :

(a) LabCorp 's stock met the requirements for listing, and was listed and

actively traded on the NYSE, a highly efficient and automated market ;

(b) As a regulated issuer, LabCorp filed periodic public reports with the SE C

and the NYSE that contained material misrepresentations and/or omitted material facts during

the Class Period as alleged herein, causing LabCorp stock to trade at artificially inflated prices ;

(c) LabCorp regularly communicated with public investors via establishe d

market communication mechanisms, including through regular disseminations of press release s

on the national circuits of major newswire services and through other wide-ranging publi c

disclosures, such as communications with the financial press, conference calls with analysts an d

other similar reporting services;

(d) LabCorp was followed by several secu rities analysts employed by major

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

customers of their respective brokerage firms . Each of these reports was publicly available an d

entered the public marketplace . In writing these reports, analysts reflected information provide d

by defendants ; and

-42-Lab Corp .-Consolidated and Amended Clas s Action Complaint .DOC

(e) The trading volume of LabCorp common stock was substantial during th e

Class Period , indicating that there was a liquid market for LabCorp common stock du ring the

Class Period .

88 . As a result of the foregoing, the market for LabCorp's securities promptl y

digested current information regarding the Company from all publicly available sources an d

reflected such information in LabCorp's stock price . Under these circumstances, all purchaser s

of LabCorp common stock during the Class Period are entitled to a presumption of reliance

because they all suffered similar injury through their purchase of LabCorp common stock at

artificially inflated prices .

NO SAFE HARBOR

89. The statutory safe harbor provided for forward-looking statements under ce rtain

circumstances does not apply to any of the allegedly false statements pleaded in this complaint .

Many of the specific statements pleaded herein were not identified as "forward-lookin g

statements" when made. To the extent there were any forward-looking statements, there were n o

meaningful cautionary statements identifying important factors that could cause actual results t o

differ materially from those in the purportedly forward-looking statements . Alternatively, to th e

extent that the statutory safe harbor does apply to any forward-looking statements pleade d

herein, defendants are liable for those false forward-looking statements because at the time eac h

of those forward-looking statements was made, the particular speaker knew that the particula r

forward-looking statement was false, and/or the forward-looking statement was authorized

and/or approved by an executive officer of LabCorp who knew that those statements were fals e

when made.


FIRST CLAIM

Violation Of Section 10(b) OfThe Exchange Act And Rule 10b-5

Promultated Thereunder Against A ll Defendants

90. Lead Plaintiffs repeat and reallege each and every allegation contained above as i f

fully set forth herein .

91 . During the Class Period, LabCorp and the Individual Defendants, and each o f

them, carried out a plan, scheme and course of conduct which was intended to and, throughou t

the Class Period, did : (i) deceive the investing public, including Lead Plaintiffs and other Clas s

members , as alleged herein; (ii) artificially in flate and maintain the market price of LabCorp' s

common stock ; and (iii) cause Lead Plaintiffs and other members of the Class to purchas e

LabCorp' s 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 .

92 . Defendants, either individually or as a group : (a) employed devices, schemes, and

artifices to defraud; (b) made untrue statements of material fact and/or omitted to state materia l

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 the Company' s

common stock in an effort to maintain artificially high market prices for LabCorp's commo n

stock in violation of Section 10(b) of the Exchange Act and Rule I Ob-5 . All defendants are sue d

either as primary participants in the wrongful and illegal conduct charged herein and the

Individual Defendants are also sued as controlling persons of LabCorp as alleged below .

93 . In addition to the duties of full disclosure imposed on defendants as a result o f

their dissemination of affirmative statements, or participation in the making of affirmativ e

statements to the investing public, they each had a duty to promptly disseminate truthful

information that would be material to investors in compliance with the integrated disclosur e


provisions of the SEC as embodied in SEC Regulation S-X (17 C .F.R. §§ 210 . 01 et seq .) and

Regulation S-K (17 C.F.R. §§ 229.10 et seq .) and other SEC regulations , including accurate and

truthful information with respect to the Company's operations, financial condition an d

performance so that the market price of LabCorp common stock would be based on truthful ,

complete and accurate information.

94. LabCorp and the Individual Defendants, individually and in concert, directly an d

indirectly, by the use, means or instrumentalities of interstate commerce and/or of the mails ,

engaged and participated in a continuous course of conduct to conceal adverse materia l

information about the business , operations and future prospects of LabCorp as specified herein .

95. Defendants employed devices, schemes and artifices to defraud, while i n

possession of material adverse non-public information and engaged in acts, practice, and a

course of conduct as alleged herein in an effo rt to assure investors of LabCorp 's value and

performance and continued substantial growth, which included the making of, or the

participation in the making of, untrue statements of material facts and omitting to state materia l

facts necessary in order to make the statements made about LabCorp and its business operation s

and future prospects, in the light of the circumstances under which they were made, no t

misleading, as set forth more particularly herein, and engaged in transactions, practices and a

course of business which operated as a fraud and deceit upon the purchasers of LabCorp' s

common stock during the Class Period .

96. Each of the Individual Defendant's primary liability, and controlling person

liability, arises from the following facts : (i) the Individual Defendants were high-level executive s

and/or directors at the Company during the Class Period and members of the Company' s

management team; (ii) each of the Individual Defendants, by virtue of his responsibilities an d


activities as a senior officer of the Company, was privy to and part icipated in the creation ,

development and reporting of the Company's internal budgets, plans, projections and/or reports ;

(iii) each of the Individual Defendants enjoyed significant personal contact and familiarity with

the other defendants and was advised of or had access to other members of the Company' s

management team, internal reports and other data and information about the Company' s

business, finances and operations at all relevant times ; and (iv) each of the Individual Defendants

was aware of the Company's dissemination of information to the investing public which he kne w

or recklessly disregarded was materially false and misleading .

97. Defendants had actual knowledge of the misrepresentations and omissions o f

material facts set forth herein, or acted with reckless disregard for the truth in that they failed t o

ascertain and to disclose such facts, even though such facts were readily available to them .

Defendants' material misrepresentations and/or omissions were made knowingly or recklessly

and for the purpose and effect of concealing LabCorp's operating condition and future busines s

prospects from the investing public and supporting the artificially inflated price of its common

stock. If defendants did not have actual knowledge of the misrepresentations and omission s

alleged, they were at the very least reckless in failing to obtain such knowledge by deliberately

refraining from taking those steps necessary to discover whether those statements were false or

misleading.

98. As a result of the dissemination of the materially false and misleading informatio n

and failure to disclose material facts, as set forth above, the market price of LabCorp's commo n

stock was artificially inflated during the Class Period . In ignorance of the fact that market pric e

of LabCorp's shares was artificially inflated, and relying directly or indirectly on the false an d

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 o r

recklessly disregarded by defendants but not disclosed in public statements by defendants during

the Class Period, Lead Plaintiffs and the other members of the Class acquired LabCorp common

stock during the Class Period at artificially high prices based on their reliance and were damage d

thereby.

99. At the time defendants disseminated the misrepresentations and omission s

complained of herein, Lead Plaintiffs and other members of the Class were ignorant of thei r

falsity, and believed them to be true thereby inducing Lead Plaintiffs to purchase LabCorp

common stock . Had Lead Plaintiffs and the other members of the Class and the marketplac e

known of the true financial condition and business prospects of LabCorp, which were no t

disclosed by defendants, Lead Plaintiffs and other members of the Class would not have

purchased or otherwise acquired their LabCorp shares, or, if they had acquired such secu ritie s

during the Class Period, they would not have done so at the artificially inflated prices which they

paid .

100. By virtue of the foregoing, defendants have violated Section 10(b) of the

Exchange Act, and Rule I Ob-5 promulgated thereunder.

101 . The market price of LabCorp common stock declined dramatically upo n

defendants' disclosure of the facts that had been concealed and misrepresented by defendant s

during the Class Period . As a direct and proximate result of defendants' wrongful conduct, Lead

Plaintiffs and the other members of the Class suffered damages in connection with thei r

respective purchases and sales of the Company's common stock during the Class Period .


SECOND CLAIM

Violation Of Section 20(a) OfThe Exchange Act Against The Individual Defendants

102. Lead Plaintiffs repeat and reallege each and every allegation contained above as i f

fully set forth herein .

103. The Individual Defendants were and acted as a controlling persons of LabCorp

within the meaning of Section 20(a) of the Exchange Act as alleged herein. By virtue of thei r

high-level positions with LabCorp, their ownership and contractual rights, their part icipation in

and/or awareness of the Company's operations, and/or their intimate knowledge of th e

Company's actual performance and undisclosed problems, the Individual Defendants had th e

power to influence and control and did influence and control, directly or indirectly, the decision-

making of the Company, including the content and dissemination of the various statement s

which Lead Plaintiffs contend are false and misleading . The Individual Defendants were

provided with, or had unlimited access to, copies of the Company's reports, press releases, publi c

filings and other statements alleged by Lead Plaintiffs to be misleading prior to and/or shortl y

after these statements were issued and had the ability to prevent the issuance of the statements o r

cause the statements to be corrected .

104. In particular, each of the Individual Defendants had direct and supervisory

involvement in the day-to-day operations of the Company and, therefore, is presumed to hav e

had the power to control or influence the particular transactions giving rise to the securitie s

violations as alleged herein, and exercised the same .

105 . As set forth above, LabCorp violated Section 10(b) and Rule IOb-5 by its acts an d

omissions as alleged in this Complaint . By virtue of their positions as a controlling persons o f

LabCorp, the Individual Defendants are liable pursuant to Section 20(a) of the Exchange Act .


As a direct and proximate result of defendants' wrongful conduct, Lead Plaintiffs and othe r

members of the Class suffered damages in connection with their purchases of the Company' s

common stock during the Class Period .

WHEREFORE, Lead Plaintiffs pray for reliefand judgment , as follows :

(a) Determining that this action is a proper class action and certifying Lea d

Plaintiffs as class representatives under Rule 23 of the Federal Rules of Civil Procedure ;

(b) Awarding compensatory damages in favor of Lead Plaintiffs and the othe r

Class members against all defendants, jointly and severally, for all damages sustained as a result

of defendants' wrongdoing, in an amount to be proven at trial, including interest thereon ;

(c) Awarding Lead Plaintiffs and the Class their reasonable costs an d

expenses incurred in this action, including counsel fees and expert fees ; and

(d) Awarding such other and further relief as the Court may deem just an d

proper .

JURY TRIAL DEMANDED

Lead Plaintiffs hereby demand a trial by jury .

Dated: March 18, 2004

Respectfully submitted ,

WILSON & ISEMAN, LL P

By :Y :S. Ranchor Harris110 Oakwood D rive, Suite 400Winston-Salem , NC 27103Tel . : (336) 631-8866Fax: (336) 631-9770N.C. State Bar No . 2102 2

Liaison Counsel for Plaintiffs


MILBERG WEISS BERSHAD HYNES &LERACH LLPDeborah Clark-WeintraubTodd KammermanOne Pennsylvania Plaza - 49th FloorNew York, NY 1011 9Tel . : (212) 594-5300Fax: (212) 868-122 9

SCHIFFRIN & BARROWAY, LLPRobert WeiserRobin WinchesterThree Bala Plaza East, Suite 400Bala Cynwyd, PA 19004Tel . : (610) 667-7706Fax : (610) 667-7056

Co-Lead Counsel for Plaintiffs


in re: laboratory corporation of america securities...

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