Stanford University Law School - Securities Class Action Clearinghouse
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IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
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STI CLASSIC FUNDS and STI CLASSIC :
SUNBELT EQUITY FUND, on Behalf of :
Themselves and All Persons Similarly :
Situated, : AMENDED COMPLAINT
:
Plaintiffs, : CIVIL ACTION NO.
: 3:96C-V-0823-R
- against - : Filed May 31, 1996
:
BOLLINGER INDUSTRIES, INC., GLENN D. :
BOLLINGER, BOBBY D. BOLLINGER, :
CURTIS D. LOGAN, and MICHAEL J. :
BECK, :
:
Defendants. :
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Plaintiffs, by their attorneys, allege the following upon
personal knowledge as to themselves and to their own acts, and upon
information and belief based upon the investigation made by
plaintiffs by and through their attorneys as to all other matters.
The investigation includes the thorough review and analysis of
public statements, documents filed with the Securities and Exchange
Commission, analyst reports, article, and new wires, all of which
are specifically identified to the extent they are referenced
herein.
NATURE OF THE CASE
1. Plaintiffs bring this action as a class action,
pursuant to Rule 23, of the Federal Rules of Civil Procedures on
behalf of a class of persons who purchased securities issued by
Bollinger Industries, Inc. ("Bollinger" or the "Company") at prices
which were artificially inflated and maintained as a result of the
scheme and conduct alleged herein in violation of the antifraud
provisions of the securities laws.
JURISDICTION AND VENUE
2. The claims asserted herein arise under and pursuant
to Sections 10(b) of the Securities Exchange Act of 1934 (the
"Exchange Act"), 15 U.S.C. §§ 78j(b), and Rule 10b-5 promulgated
thereunder by the Securities and Exchange Commission, 17 C.F.R.
140.10b-5. Plaintiffs also assert that certain defendants are
liable as controlling persons pursuant to Section 20(a) of the
Exchange Act, 15 U.S.C. § 78t(a).
3. This court has jurisdiction over this action
pursuant to Section 27 of the Exchange Act, as amended, 15 U.S.C.
§ 78aa and 28 U.S.C. § 1331.
4. Venue is properly laid in this District pursuant to
Section 27 of the Exchange Act, 15 U.S.C. § 78aa, and 28 U.S.C.
§ 1391(b) and (c). The acts and conduct complained of, including
the manipulation and other fraudulent acts alleged hereafter,
occurred in substantial part in this District. In addition,
certain defendants and others maintain their principal offices in
this District.
5. In connection with the acts alleged in this
Complaint, defendants, directly or indirectly, used the means and
instrumentalities of interstate commerce, including the mails and
telephonic communications, and the facilities of national
securities markets.
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PARTIES
6. STI Classic Funds and STI Classic Sunbelt Equity
Fund, purchased 5,708 shares of Bollinger on July 6, 1994 at a per
share price of $10.50; purchased 5,424 shares on August 24, 1994 at
a per share price of $10.63; purchased 7,516 shares on November 10,
1994 at a per share of $13.00; purchased 4,000 shares on December
29, 1994 at a per share of $13.88; and purchased 2,654 shares on
April 24, 1995 at a per share price of $8.13.
7. Bollinger Industries, Inc. ("Bollinger") is a
Delaware corporation whose principal place of business is at 222 W.
Airport Freeway, Irving, Texas 75062. Bollinger was founded in
1974 by two brothers, Glenn D. Bollinger ("G. Bollinger) and Bobby
D. Bollinger ("B. Bollinger") (collectively, the "Bollingers").
Bollinger is a domestic supplier of consumer fitness accessories
and certain sports medicine and safety products.
8. G. Bollinger was and is the principal executive
officer of Bollinger with the title Chairman of the Board and Chief
Executive Officer. G. Bollinger signed the 1994 Form 10-K filed
with the SEC by Bollinger.
9. B. Bollinger was and is Vice Chairman of the Board
and President of Bollinger. B. Bollinger signed the 1994 Form 10-K
filed with the SEC by Bollinger.
10. Curtis D. Logan ("Logan") was Senior Vice President
- Finance, Chief Financial Officer, Treasurer and Secretary of
Bollinger until his resignation in July 1995. Logan signed the
1994 Form 10-K filed with the SEC by Bollinger, the Form 10-Q
Bollinger filed for its quarter ended June 30, 1994, the Form 10-Q
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Bollinger filed for its quarter ended September 30, 1994, and the
Form 10-Q Bollinger filed for its quarter ended December 31, 1994.
11. Michael J. Beck ("Beck") was Controller and Chief
Accounting Officer of Bollinger on September 29, 1993 and at
relevant times thereafter. Beck signed the 1994 Form 10-K filed
with the SEC by Bollinger, the Form 10-Q Bollinger filed for its
quarter ended June 30, 1994, the Form 10-Q Bollinger filed for its
quarter ended September 30, 1994, and the Form 10-Q Bollinger filed
for its quarter ended December 31, 1994.
12. Defendants G. Bollinger, B. Bollinger, Logan and
Beck are referred to collectively as the "Individual Defendants."
13. During the Class Period, each of the Individual
Defendants occupied a position with Bollinger that made him privy
to the adverse non-public information alleged herein relating to
Bollinger's accounting and financial controls and procedures and
Bollinger's financial reporting. The Individual Defendants were
each responsible for overseeing the functions which, it was later
discovered, were plagued with substantial irregularities resulting
in the falsification of Bollinger's financial results. Further, at
the end of the Class Period, as The Wall Street Journal reported on
August 8, 1995, the Company's law firm, Gardere & Wynne, its two
outside directors and its outside auditor concluded that the only
way these irregularities could be cured would be if the Individual
Defendants were either replaced or "cease[d] day-to-day control of
the company."
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CLASS ACTION ALLEGATIONS
14. Plaintiffs bring this class action pursuant to Federal
Rules of Civil Procedure 23(a) and 23(b) on behalf of a class (the
"Class") consisting of all persons who purchased securities issued
by Bollinger, during the period from June 29, 1994 through June 26,
1995 (the "Class Period") and were damaged thereby, except any
person who purchased Bollinger securities pursuant to private
placements or any other transaction not on a public offering or on
the public market. Excluded from the Class are (a) the defendants
herein, and their confederates and participants in the illegal
scheme, (b) members of the immediate family of any of the foregoing
persons, (c) any person, firm, trust, corporation, officer,
director or other individual or entity in which any excluded person
has a controlling interest or which is related to or affiliated
with any excluded person, and (d) the legal representatives, heirs,
successors-in-interest or assigns of any excluded person.
15. The members of the Class are so numerous that
joinder of all members is impracticable. Throughout the Class
Period, the Bollinger securities were actively traded on the NASDAQ
market and were followed by analysts. Accordingly, at all relevant
times, there was an efficient market for the trading of the
Bollinger securities. The precise number of Class members is
unknown to plaintiffs at this time but it is believed that it is
greater than one thousand. The names and addresses of the Class
members can be ascertained from the books and records of
defendants, their agents and other sources.
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16. Plaintiffs will fairly and adequately represent and
protect the interests of the members of the Class. Plaintiffs have
retained competent counsel experienced in class action litigation
under the federal securities laws to further ensure such protection
and intended to prosecute this action vigorously.
17. Plaintiffs' claims are typical of the claims of the
other members of the Class because plaintiffs' and all the Class
members' damages arise from and were caused by the same pattern of
fraudulent and unlawful conduct of defendants. Plaintiffs do not
have interests antagonistic to, or in conflict with, those of the
Class.
18. A class action is superior to other available
methods for the fair and efficient adjudication of this
controversy. Since the damages suffered by individual Class
members may be relatively small, the expense and burden of
individual litigation make it virtually impossible for the Class
members to seek redress for the wrongful conduct alleged.
Plaintiffs know of no difficulty which will be encountered in the
management of this litigation which would preclude its maintenance
as a class action.
19. Common questions of law and fact exist as to all
members of the Class and predominate over any questions affecting
solely individual members of the Class. Among the questions of law
and fact common to the Class are:
(a) Whether the federal securities laws were
violated by defendants' acts as alleged herein;
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(b) Whether defendants acted willfully, knowingly
or recklessly in engaging in the acts and course of conduct
alleged;
(c) Whether the market prices of Bollinger
securities during the Class Period were artificially inflated due
to the scheme, device and artifice to defraud complained of herein;
and
(d) The extent of injuries sustained by the members
of the Class the appropriate measure of damages.
MOTIVE AND OPPORTUNITY OF THE
BOLLINGERS TO ENGAGE IN WRONGFUL CONDUCT
20. On or about October 25, 1993, Bollinger filed a
Registration Statement with the Securities and Exchange Commission
for a proposed initial public offering of 1,400,000 shares of
common stock. Pursuant to the Registration Statement, Bollinger
sold 1,200,000 shares of common stock for $15,000,000 and
G. Bollinger and B. Bollinger, together, sold an aggregate
additional 200,000 shares for $2,500,000.
21. After the offering, the Bollingers still owned
almost 60% of the outstanding shares of Bollinger, which comprised
the overwhelming share of their net worth.
22. As important, later in January 1994, a Compensation
Committee of the Board of Directors was formed to, inter alia,
award "performance-based cash bonuses" to management. As indicated
in the Bollinger Proxy Statement, filed August 3, 1994, "the return
on the Common Stock" of Bollinger was set forth as a factor in
determining cash bonus awards for the Bollingers. Given the
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importance of near term stock performance for their cash bonus
compensation, the Bollingers had a clear motive to keep the stock
price of Bollinger as high as possible.
23. Bollinger's financial performance, and therefore the
direction of its stock price, has been heavily dependent during
most of its existence, including the Class Period, upon the sales
Bollinger could generate from just a small number of large
retailers. As the analyst William Blair & Company ("Blair") stated
in its September 1, 1994 report on Bollinger, "Bollinger's revenue
base is fairly concentrated; its top 15 accounts represent
approximately 70% of total revenue." In fact, in its March 14,
1994 report, Blair stated that "[f]ully 40% of the current year's
total revenue [fiscal 1994] is with K-Mart, Wal-Mart, QVC, and
Sears," and the Dallas Business Journal reported in a November 19,
1993 article that "K-Mart and Wal-Mart together account for 33% of
total [Bollinger] net sales." Blair emphasized these facts in its
March report by concluding that "[s]lower growth from top accounts
is probably the biggest risk in our investment thesis on this
company."
24. Given the narrow concentration of Bollinger's
revenue base, this risk to continued growth, as well as the promise
of more rapid growth, and the concomitant effect of both upon the
prospective compensation of the Individual Defendants, were
dependent upon revenue increases from a small number of major
customers. As detailed below, the manipulation of sales
transactions with such customers, and the related improper
recognition of revenues and income on Bollinger's financial
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statements, created a false image of the skyrocketing growth during the
Class Period. As an example of the effect of this manipulation,
Blair noted in its September 1994 report that Bollinger's "positive
revenue [in the first quarter of fiscal 1995] was driven by
outstanding growth at several major retailers. In fact, we
estimate that Bollinger's top five accounts were up a minimum of
70% in the first quarter." However, as alleged below, Bollinger's
"positive revenue" in the first quarter of fiscal 1995 was later
revealed, after the end of the Class Period, to be far more modest
than defendants represented during the Class Period.
25. The Bollingers had a clear opportunity to manipulate
transactions with Bollinger's major customers. As was reported by
Forbes Magazine in its November 7, 1994 issue, "Bollinger is still
very much a family business . . . 'If you're a customer, you are
going to talk to a Bollinger,' explains Bobby [Bollinger]. 'The
perception is that we are hands-on.'" Indeed, as Blair noted in
its March 1994 report, "this company's sales organization is rather
centralized with Glenn and Bob Bollinger retaining significant
contact with most major customers." Logan and Beck, as the Chief
Financial Officer and Chief Accounting Officer, respectively, of
Bollinger, were also clearly well-positioned to participate in a
scheme to materially distort Bollinger's financial statements.
26. Given the relationship of the Bollingers with the
Company's most important customers, as well as their pervasive
domination of Bollinger, including over the two other Individual
Defendants, the Bollingers were able to create fraudulent inventory
and sales entries supported by fraudulent inventory, shipping and
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other related documentation. Furthermore, they could and did
override those few internal controls that existed in the shipping,
receiving and other departments, all in order to create a false
financial picture of Bollinger for securities analysts and the
marketplace.
FALSE STATEMENTS TO THE MARKETPLACE DURING THE CLASS PERIOD
The Form 10-K
27. On June 29, 1994, Bollinger filed with the
Securities and Exchange Commission its Form 10-K for its 1994
fiscal year ended March 31, 1994.
28. Bollinger reported accounts receivable of
$11,770,081, as compared to $8,441,289 the prior year, an almost
40% increase; net sales of $45,162,743, as compared to $32,846,777
the prior year, an over 37% increase; and earnings before an
extraordinary item of $1,802,775, as compared to $1,190,390 the
prior year, over a 50% increase.
29. However, these impressive results were overinflated
by serious violations of accounting and financial controls.
30. Pursuant to Section 13(b) of the Exchange Act, 15
U.S.C. § 78m(b), Bollinger was required to devise and maintain a
system of internal accounting controls sufficient to provide
reasonable assurances that transactions were properly recorded and
otherwise assure that the accountability of assets was maintained.
31. Further, pursuant to Rule 13b2-1, 17 C.F.R.
§ 240.13b2-1, promulgated under the Exchange Act, it is unlawful to
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falsify the books, record or accounts by recording false entries on
the books, records and accounts of a registrant.
32. In violation of these legal requirements, Bollinger
lacked meaningful internal accounting controls and defendants
permitted such controls as existed to be overridden and ignored for
the purpose of invoicing fraudulent sales transactions with one or
more of Bollinger's customers.
33. In their resignation letters dated June 19, 1995,
outside directors J.S.B. Jenkins and C.A. Rundell stated that they
had several disagreements with management over several matters
relating to the operations, policies and practices of the Company.
Among these concerns, which together evidenced a view that the
Company's financial reporting had been manipulated by senior
management, were the following issues:
(e) "Proper financial reporting and documentation
of certain sales and shipments made in fiscal year 1995 and in
prior fiscal years and the steps that must be taken so that any
problems of this type do not recur" (emphasis added); and
(f) "The composition of management, the
relationships of the board to management, control of the Company,
and the composition and independence of the board."
34. Grant Thornton, in its resignation letter of July 3,
1995 as Bollinger's outside auditor, stated that it could no longer
rely on the representations of management as to, among other
matters:
(g) "Questions concerning the substance of a
previous sale in March 1994 to one of the aforementioned customers"
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(emphasis added), a reference to another misleading sales
transaction with one of the Company's customers in 1995; and
(h) "Questions regarding the apparent override of
internal controls in the shipping and receiving departments."
35. Given these allegations of financial improprieties
going back to fiscal year 1994 and to earlier years, by individuals
and entities in a position to have knowledge of the facts and who
were exercising independent professional and fiduciary
responsibilities, the financial results reported in Bollinger's
1994 Form 10-K were false and misleading and overstated the size of
the Company's revenues and earnings, notwithstanding the decision
by defendants to not restate those results.
36. The Form 10-K further represented that net sales in
fiscal 1994 increased by $12.3 million from fiscal 1993 and that of
that increase approximately $11.2 million was attributable to
"increased sales of fitness accessories primarily to existing
customers. . ." This statement is misleading to the extent it
overstates total sales and sales to existing customers for the
year.
The Quarterly Reports - Press Releases and Form 10-Q's
37. On August 5, 1994, Bollinger announced in a press
release the financial results for its fiscal 1995 first quarter
ended June 30, 1994.
38. In order to create a picture of sustained and
increasing earnings growth for the analyst community and otherwise
to prop up the stock price, Bollinger announced dramatically
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increased "record" sales for the quarter, "$14.5 million, a 60%
increase over the same fiscal quarter of the previous year."
39. Bollinger also announced net earnings per share of
$.20 for the quarter. This quarterly result contrasted with the
loss of $.08 per share for the three-month period which ended June
30, 1993. That is, Bollinger presented to the marketplace a false
picture as to the extent of its earnings growth, from a loss of
$.08 per share to a positive $.20 per share in the one-year period.
In fact, however, the increase was much more modest, and when the
quarterly results of operations were subsequently restated in
October 1995 for that quarter, earnings were restated at $.13 per
share rather than $.20 per share, or $.07 per share less.
40. In or about August 16, 1994, Bollinger filed with
the Securities and Exchange Commission its fiscal 1995 quarterly
report on Form 10-Q for the quarter ended June 30, 1994. The
report included financial statements for the quarter reflecting the
same false and misleading representation of financial results made
in the August 5 press release. The Form 10-Q also represented that
approximately $4.2 million of the purported increase in sales of
$5.4 million over the results reported for the comparable period
for the prior year "was attributable to increased unit sales of
fitness accessories primarily to existing customers . . . ." This
statement is misleading to the extent it overstates total sales and
sales to existing customers for the quarter.
41. On November 1, 1994, Bollinger announced its
financial results for its fiscal 1995 second quarter ended
September 30, 1994. The Company announced dramatically increased
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sales for the first six months of fiscal 1995, a total of $32.5
million, 67.1% higher than the comparable period the year before.
As a result of this growth in sales, Bollinger announced earnings
from continuing operations during the first six months of fiscal
1995 of $1.6 million or 41 cents per share, a 54.4% increase over
earnings from operations during the comparable period in the prior
fiscal year.
42. Quarterly comparisons were even more impressive.
Bollinger announced second quarter net sales of $18 million, a
73.4 percent increase over the same period in the previous fiscal
year. These revenues resulted in earnings from continuing
operations for the quarter of $865,000 or $.22 per share, a 54.5
percent increase over the results for the comparable period in the
prior year.
43. In the press release, G. Bollinger was quoted as
saying, "We are again on target with our second quarter
performance. The groundwork we began months ago is coming to
fruition in sales and earnings. Our shipping performance and the
sell-through at store level is excellent. The newly acquired NBF
trampoline line, introduction of the Bollinger Trainer Support
Medicine line, and the Denise Austin Tone Up 1-2-3 for retail have
all contributed positively to sales." This representation of "on
target" and "excellent" performance, implying ever-increasing
financial growth, was false and misleading, as were the announced
financial results upon which they were premised.
44. When the financial statements were subsequently
restated in October 1995, a $.14 per share reduction was required
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to result in a $.08 per share figure as contrasted to $.22 per
share. Had the accurate per share earnings figure been disclosed
to the marketplace, it would have shown a negative trend from $.13
per share in the first quarter of fiscal year 1995 to the true $.08
per share figure, rather than the fraudulent "positive" trend of
per share increases in earnings from $.20 for the first quarter of
its fiscal year to $.22 per share for the second quarter, as
actually reported. In dollar amounts, the contrast is also
striking -- from $511 thousand in the first quarter to $323
thousand in the second, as compared to the earnings progress of
$770 thousand to $865 thousand reported during the Class Period.
Further, the actual second quarter results also represented a
regression from the results reported for the comparable quarter
during the prior year -- $560 thousand or $.21 cents per share --
rather than the advance portrayed during the Class Period.
45. The earnings were artificially inflated due to the
fraudulent practices which led to a net sales figure of at least
$541,000 higher than it should have been for that quarter, as
subsequently reported in October 1995 in the restated financial
statements.
46. On or about November 14, 1994, Bollinger reported
the same false and misleading financial results in its second
fiscal quarterly report on Form 10-Q that it filed with the
Securities and Exchange Commission on that date. Also, the Company
represented in the Form 10-Q that approximately $9.4 million of the
purported increase of $13.1 million for the first six months of
fiscal 1995 and approximately $5.2 million of the purported
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increase in sales of $7.6 million in the second quarter of fiscal
1995, over the amounts reported for comparable periods in the prior
fiscal year, "were attributable to increased unit sales of fitness
accessories primarily to existing customers . . . ." These
statements were misleading to the extent they overstated total
sales and sales to existing customers for the relevant periods.
47. In an article in the December 6, 1994 edition of
Investor's Business Daily, B. Bollinger is quoted as saying, "We
still have tremendous growth within our existing distribution by
expanding our product offerings to the major retail chains." This
statement was misleading since it omitted to disclose that in fact
Bollinger had experienced a decline in earnings during the second
quarter of fiscal 1995 as compared with both the first quarter of
fiscal 1995 and the comparable quarter in fiscal 1994 and that the
purported increase reflected in defendants' financial reports for
the second quarter was the result, at least in part, of the
manipulation of sales transactions with one or more of Bollinger's
existing major retail chain customers.
48. On December 21, 1994, Bollinger announced in a press
release that though "important weeks are ahead for the Company,"
the Company would likely exceed analysts' estimates as to its third
quarter 1995 results. Bollinger represented that it expected third
quarter sales to reach $26 million and earnings per share to be in
the range of $.34 to $.36, as compared to $13.1 million in sales
and earnings per shares of $.23, respectively, for the comparable
quarter in the prior year.
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49. Indeed, in a February 1, 1995 press release
Bollinger announced almost exactly those "expected" results. By
doing so, defendants painted a misleading picture of steadily
increasing sales and dramatic earnings growth on a per share basis.
50. In the press release, Bollinger announced net sales
had increased 77.7% for the first three quarters of the fiscal year
as compared to the same period the year before. Bollinger also
announced net sales for the quarter of $25.3 million, which it
characterized as a "93.3 percent increase over the same period in
the previous fiscal year." Further, Bollinger announced net
earnings of $1.4 million or $.35 per share for the quarter as
contrasted to $725,000 or $.23 per share for the third quarter of
fiscal 1994, representing a "92.4 percent increase." Indeed, these
reported earnings were also greater than the $.22 per share
reported for the prior quarter.
51. In reality, defendants' fraudulent practices had
increased, and no less than $760,000 of net sales were later
restated for that quarter in October 1995. Moreover, as restated,
the net earnings per share for the third quarter should have been
reported as $.16 or possibly less, representing over a 10% decrease
from the earnings reported for the fiscal 1994 third quarter.
Thus, the fraudulent conduct in question led to a per share value
being reported to the marketplace that was at least twice as large
as it should have been (i.e., $.35 per share as opposed to $.16 per
share) against a backdrop of the fraudulent upward "trend" in per
share earnings reports.
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52. G. Bollinger was quoted in the press release stating
that, "We are extremely happy to be able to show this kind of
performance for our shareholders and would like to express our
gratitude to all those who had a part in achieving these
exceptional results." Given that the reported financial results
for the third quarter were greatly inflated and, if they had been
correctly stated would have shown a decrease in earnings for the
comparable quarter in the prior year, this representation of
"exceptional results" was false and misleading.
53. On or about February 14, 1995, Bollinger filed with
the Securities and Exchange Commission its fiscal 1995 Form 10-Q
for the third quarter ending December 31, 1994. The Form 10-Q
repeated the false and misleading statement of financial results
announced in the February 1 press release. It also represented
that approximately $17.2 million of the purported $25.3 million
increase in sales for the first nine months of fiscal 1995, and
approximately $8.4 million of the purported increase in sales of
$12.2 million for the third quarter of fiscal 1995, over the
amounts reported for comparable periods in the prior fiscal year,
were "attributable to increased unit sales of fitness accessories,
primarily to existing customers . . . ." These statements were
misleading to the extent they overstated total sales and sales to
existing customers for the relevant periods.
54. The financial results reported in these three
foregoing Form 10-Q's, and in the related press releases, were
false and misleading for the same and similar reasons referenced
above with respect to the 1994 Form 10-K. Some of the other
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concerns expressed by Jenkins and Rundell in their resignation
letter, which, again, together evidenced a view that the Company's
financial reporting had been manipulated by senior management,
included:
(i) "Disclosure of the Company's pre-tax loss and
lower-than-expected sales for the fourth quarter";
(j) "Disclosure of the Company's delay in
completing its annual audit and filing form 10-K";
(k) "Disclosure of possible liquidity and cash flow
problems arising from declining sales"; and
(l) "Disclosure of defaults and potential defaults
under the Company's line of credit."
55. Some of the other issues as to which Grant Thornton
stated it could no longer rely on the representation of management
included:
(m) "Questions concerning the substance of sales to
two customers during March 1995", at least one of which was a major
customer of the Company, as the Company admitted in an August 8,
1995 Wall Street Journal article, with both of them likely major
customers given the strong action taken by Grant Thornton;
(n) "Questions concerning the validity of certain
shipping documents supporting sales recorded during the last week
of March 1995";
(o) "Reluctance of employees to answer our
questions during the course of the 1995 audit."
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FRAUDULENT CONDUCT RELATED TO THE NBF SUBSIDIARY
56. In May 1994, Bollinger acquired NBF Inc. ("NBF"), a
trampoline manufacturer. Inventory in the NBF subsidiary was
overstated for at least several months as a result of the weak
internal controls Bollinger maintained, in violation of lawful
requirements, and as to which defendants made no disclosure during
the Class Period, despite the materiality of such weak controls to
the reliability of the Company's reported results.
57. Indeed, given the extraordinary extent to which
inventory levels at NBF were being overstated on a daily basis, as
set forth below, internal controls were either nonexistent or, more
likely, given the domination of the Company by the Bollingers and
the pervasive disregard of internal controls throughout the
Company, defendants knew or were reckless in not knowing of these
practices earlier than they stated and decided to disclose them
only when it became impossible to continue the false
representation of ever-escalating "record" sales and earnings. At
that point, defendants stated estimates of dismal fourth quarter
results without disclosing that reported results for prior quarters
had been inflated. In effect, the NBF practices were used to
camouflage more pervasive manipulation of financial results.
58. On or about March 22, 1995, Bollinger reported
fourth quarter 1995 earnings well below Wall Street's expectations
and attributed the shortfall to, among other things, losses
sustained at the NBF subsidiary. At least one defendant sought to
blame these losses on fraudulent conduct by NBF employees. In an
article disseminated on March 23, 1995 by the Dow Jones News
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Service, defendant Logan was reported to have stated that the
Company discovered in February that some NBF supervisors "were
falsifying reports to show inflated daily production levels."
Indeed, according to Logan, in December and January NBF was
producing about 200 trampolines daily -- about a third less than
the falsified reports showed. Logan was quoted as saying, "We will
be very cautious about assuming anything about that operation in
the future." However, nowhere did Logan or any other defendant
state: (p) that was a result of these "discoveries," financial
results of the third quarter or earlier quarters would need to be
restated, or (q) why, if these practices were discovered in
February, the Company waited until the end of March to disclose
them.
59. Moreover, in a press release issued the next day, on
March 23, 1995, the Company "disputed certain news reports
appearing yesterday that inappropriately characterized the reason
for losses sustained at its NBF, Inc. subsidiary." The Company
stated that in January it discovered certain "inventory production
problems." In particular, the Company discovered "overstated
production levels and errors in classification and reporting."
G. Bollinger was quoted as saying the problems would be corrected
with new "procedures to raise production and reporting standards."
G. Bollinger further stated that, "we are confident that the
difficulties experienced have been corrected and are enthusiastic
about NBF's future contribution to Bollingers' continued growth."
No further mention was made as to Logan's prior representation that
NBF employees were falsifying reports. Also, again, no mention was
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made as to the accuracy of the financial results reported for prior
periods, given the practices within NBF, or as to why, if these
practices were discovered in January they were not disclosed to the
public until two to three months later. The practices are clearly
material and rendered false and misleading, at the very least, the
February 1, 1995 press release which touted "exceptional results"
for the Company and the third quarter financial results reported in
that press release and in the third quarter Form 10-Q. Indeed, the
Form 10-Q stated that a portion of the purported increase in sales
for the first nine months of fiscal 1995 and the third quarter of
1995, over that achieved during periods in the prior fiscal year,
were due in part "from the Company's NBF subsidiary which was
acquired in May 1994." Given what was purportedly discovered as to
the NBF's inflated financial results, this representation was at
best misleading.
60. The false and misleading nature of defendants'
representations relating to the above-referenced circumstances was
emphasized by the statement of Jenkins and Rundell in their
resignation letters that one of the areas of their concerns was
"[d]isclosure of the Company's pre-tax loss and lower-than-expected
sales for the Fourth Quarter." No further details were provided
but what was stated by two independent directors with fiduciary
duties to the Company and its shareholders and who were in a
position to know non-public facts clearly demonstrated that the
defendants' representations as to fourth quarter financial results
were false and/or materially misleading. At the very least,
defendants failed at that time to describe the pervasive problems
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in the entire Company's internal control and reporting systems,
problems that affected financial reports of prior periods.
The First Market Drop
61. On March 22, 1995, Bollinger stock dropped 43% from
$5.56 per share to $7.50 per share as a result of the announcement
of the fourth quarter results.
62. On March 22, 1995, Bollinger's volume was 15 times
more than usual, amounting to 87,300 shares. Bollinger indicated
on that date its expected earnings for the quarter ended March 31,
1995 to be "between $.05 and $.07" per share, according to a
statement to the press that day by Logan. Ultimately, however,
when the earnings per share numbers were finally reported for this
quarter several months later in October 1995, they showed a loss of
$.35 per share, or at least $.30 per share worse than the reported
"expectation."
Resignations and the Second Market Drop
63. On June 7, 1995, Grant Thornton met with the two
outside directors, Jenkins and Rundell, and with Gardere & Wynne,
Bollinger's outside legal counsel and informed them it could no
longer rely on the representations of the Bollingers, and
therefore, had to resign. Pursuant to the direction of the outside
directors, Gardere & Wynne drafted a memo proposing a management
structure change that would separate the Bollingers from operations
and stop their pervasive dominance of the company, as well as
calling for a new chief financial officer and a new operating
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officer. Thereafter, the two outside directors presented the
proposal to the Bollingers.
64. On June 15, 1995, the Grant Thornton representatives
met with Bollingers. The Grant Thornton representatives discussed
the circumstances pursuant to which Grant Thornton could no longer
rely on the management's representations and stated that their
continued work for the Company depended on implementation of the
alternative management structure proposed. However, the Bollingers
rejected both this threat to their total dominance and the
disclosure of the pattern of fraud.
65. The two outside directors resigned on or about
June 20, 1995 and the Bollingers fired Gardere & Wynne. Grant
Thornton resigned on or about June 22, 1995.
66. On Monday, June 25, 1995, upon the announcement of
the resignations, the stock price of Bollinger declined 71%, losing
$4.625 per share and closing at $1.875 per share.
67. Thereafter and continuing until today, Bollinger
implemented a "restructuring plan" without admitting the fraud.
Many months later, in a Form 10-K for the fiscal year ending
March 31, 1995, filed on or about October 23, 1995, Bollinger was
forced by its new auditors to restate certain financial
information, as set forth above, with respect to the improperly
recorded "sales" and inflated earnings per share figures reported
in the first three quarters of the 1995 fiscal year, but it cast
these as mere deficiencies in the quality and quantity of staff,
particularly in the accounting functions, despite the
representations by the two outside directors that one of the
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factors causing the problems the Company was encountering was "the
composition and independence of the board."
CLAIMS FOR RELIEF
FIRST CLAIM
Section 10(b) and Rule 10b-5 As Against All Defendants
CLAIM FOR RELIEF I
Section 10(b) Of The
Exchange Act And Rule 10b-5
68. Plaintiffs incorporate by reference ¶¶ 1-67.
69. Each of the defendants: (r) knew or had access to
the material adverse non-public information about Bollinger's
financial and accounting controls and procedures and the manner in
which its reported financial results were inflated, all of which
was not disclosed and (s) participated in drafting, reviewing
and/or approving the misleading statements, releases, reports and
other public representations of Bollinger.
70. During the Class Period, defendants, with knowledge
of or reckless disregard for the truth, disseminated or approved
the false statements specified above, which were misleading in that
they contained misrepresentations and failed to disclose material
facts necessary in order to make the statements made, in light of
the circumstances under which they were made, not misleading.
71. Defendants have violated § 10(b) of the Exchange Act
and Rule 10b-5 promulgated thereunder in that they: (t) employed
devices, schemes and artifices to defraud; (u) made untrue
statements of material facts or omitted to state material facts
necessary in order to make statements made, in light of the
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circumstances under which they were made, not misleading; or
(v) engaged in acts, practices and a course of business that
operated as a fraud or deceit upon the purchases of Bollinger stock
during the Class Period.
72. Plaintiffs and the Class have suffered damage in
that, in reliance on the integrity of the market, they paid
artificially inflated prices for Bollinger stock. Plaintiffs and
the Class would not have purchased Bollinger stock at the prices
they paid, or at all, if they had been aware that the market prices
had been artificially and falsely inflated by defendants' false and
misleading statements.
CLAIM FOR RELIEF II
Section 20(a) Of The Exchange Act Against
G. Bollinger and D. Bollinger
73. Plaintiffs incorporate by reference ¶¶ 1-72.
74. The Bollingers acted as controlling persons of the
Company within the meaning of § 20 of the Exchange Act. By reason
of G. Bollinger's positions as Chairman of the Board and CEO of
Bollinger, and B. Bollinger's positions as Vice Chairman of the
Board and President of Bollinger, as alleged above, and their
ownership of 60% of the Company's outstanding common stock, the
Bollingers had the power and authority to direct the action of the
two other individual defendants and cause the Company to engage in
the wrongful conduct complained of herein.
75. By reason of such wrongful conduct, the Bollingers
are liable pursuant to § 20(a) of the Exchange Act. As a direct
and proximate result of these defendants' wrongful conduct,
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plaintiffs and the other members of the Class suffered damages in
connection with their purchases of the Company's securities during
the Class Period.
WHEREFORE, plaintiffs, on their own behalf and on behalf
of the class, pray for judgment as follows:
A. declaring this action to be a class action properly
maintained pursuant to Rule 23(a) and (b)(3) of the Federal Rules
of Civil Procedure and declaring plaintiffs to be proper class
representatives;
B. awarding plaintiffs and the other members of the Class
damages and interest as provided by law;
C. awarding plaintiffs and other members of the Class
their costs and expenses of this litigation, including reasonable
attorneys' fees and experts' fees; and
D. granting such other and further relief as to this
Court may deem just and proper.
Dated: May 31, 1996
Respectfully submitted,
KILGORE & KILGORE, INC.
/s/
By:___________________________
W. D. Masterson
State Bar No. 13184000
William G. Shaw, Jr.
State Bar No. 18157100
700 McKinney Place
3131 McKinney Avenue, LB-103
Dallas, Texas 75204-2471
(214) 969-9099 - Telephone
(214) 953-0677 - Telecopier
ATTORNEYS FOR PLAINTIFF
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CERTIFICATE OF CONFERENCE
The undersigned counsel has conferred with all counsel of
record, and none of such counsel oppose leave being granted for
the filing of this Amended Complaint. Written consent by such
counsel will be separately filed.
/s/
__________________________
William G. Shaw, Jr.
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CERTIFICATE OF SERVICE
This is to certify that on the 31st day of May, 1996, a true
and correct copy of the foregoing document has been forwarded to
the following counsel via the means set forth herein:
David F. Graham Via CC RRR #P-296-461-369
Kathleen Roach
SIDLEY & AUSTIN
One First National Plaza
Chicago, IL 60603
William B. Dawson Via CC RRR #P-296-461-370
CARRINGTON, COLEMAN, SLOMAN
& BLUMENTHAL, L.L.P.
200 Crescent Court, Suite 1500
Dallas, TX 75201
Robert W. Coleman Via CC RRR #P-296-461-371
James A. McCorquodale
Tracy W. Berry
VIAL, HAMILTON, KOCH & KNOX, L.L.P.
1717 Main St., 44th Floor
Dallas TX 75201-3890
John Allen Chalk Via CC RRR #P-296-461-372
Jonathan K. Henderson
MICHENER, LARIMORE, SWINDLE, WHITAKER
FLOWERS, SAWYER, REYNOLDS & CHALK, L.L.P.
3500 City Center Tower II
301 Commerce St.
Ft. Worth, TX 76102
Paul F. Schuster Via CC RRR #P-296-461-374
AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P.
1700 Pacific Avenue, Suite 4100
Dallas, TX 75201-4675
/s/
____________________________
William G. Shaw, Jr.
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Source: Scanned paper copy of court-stamped document