The original complaint charges that the Registration Statement and the Prospectus failed to disclose material risks arising from two important conditions existing at the time of the IPO, namely that at the time of the IPO, gray market distribution of Adams Golf products and an oversupply of golf club inventory at the retail level were negatively affecting Adams Golf's earnings. According to the complaint, the price of Adams Golf stock has declined dramatically in the period following the IPO as investors have learned the truth. The complaint also alleges that, in the IPO, individual defendants sold more than two million shares of the Company's stock for more than $36 million in proceeds.
Beginning in June 1999, the first of seven class action lawsuits was filed against the Company, certain of its current and former officers and directors, and the three underwriters of the Company’s initial public offering ("IPO") in the United States District Court of the District of Delaware. The complaints alleged violations of Sections 11, 12(a)(2) and 15 of the Securities Act of 1933, as amended, in connection with the Company’s IPO. In particular, the complaints alleged that the Company’s prospectus, which became effective July 9, 1998, was materially false and misleading in at least two areas. Plaintiffs alleged that the prospectus failed to disclose that unauthorized distribution of the Company’s products (gray market sales) threatened the Company’s long-term profits. Plaintiffs also alleged that the prospectus failed to disclose that the golf equipment industry suffered from an oversupply of inventory at the retail level, which had an adverse impact on our sales. On May 17, 2000, these cases were consolidated into one amended complaint, and a lead plaintiff was appointed. The plaintiffs were seeking unspecified amounts of compensatory damages, interest and costs, including legal fees. On December 10, 2001, the United States District Court for the District of Delaware dismissed the consolidated, amended complaint. Plaintiffs appealed. On August 25, 2004, the appellate court affirmed the dismissal of plaintiffs' claims relating to oversupply of retail inventory, while reversing the dismissal of the claims relating to the impact of gray market sales and remanding those claims for further proceedings.
According to the Company’s FORM 10-Q for the quarterly period ended June 30, 2006, on August 3, 2005, the district court certified a class of section 11 claimants, but shortened the proposed class period to end on October 22, 1998, and declined to certify a section 12(a)(2) class against the Adams Golf defendants. On September 1, 2005, plaintiffs filed a motion for leave to amend their complaint, which was granted on January 24, 2006. Defendants filed a motion to dismiss the second amended complaint ("SAC"), which the District Court granted in part and denied in part on April 10, 2006. Now, in addition to the gray-market sales claim, the SAC alleges that the prospectus failed to disclose that the Company engaged in questionable sales practices (including double shipping and unlimited rights of return), which threatened post-IPO financial results. Fact discovery closed on June 30, 2006. Trial is currently set for June 18, 2007.
According to the Company’s FORM 10-K for the fiscal year ended December 31, 2006, discovery closed on August 11, 2006. On November 21, 2006, all summary-judgment briefing was completed. On December 13, 2006, the Company learned that the Delaware District Court judge whom the case was set before was elevated to the United States Court of Appeals for the Third Circuit. On December 15, 2006, the Company was notified that the case was assigned to the vacant judicial position. All proceedings have been postponed until a new judge is confirmed, and there is no trial date set at this time.
On February 7, 2008, the case was reassigned from the Vacant Judgeship to Judge Gregory M. Sleet. On May 26, 2009, Judge Sleet denied the defendants’ motions for summary judgment. On December 9, 2009, a Stipulation of Settlement was filed. According to the Stipulation, the Adams Golf Defendants and their insurers and the Underwriter Defendants, other than LBI and LBHI, shall pay or cause to be paid to Plaintiffs $16,500,000 in cash. The $16,500,000, less the amount payable from Federal Insurance Company. On December 11, 2009, a motion for preliminary approval of the settlement was filed. On March 3, 2010, Chief Judge Gregory M. Sleet preliminarily approved the settlement. The Final Hearing has been scheduled for June 17, 2010.
On June 17, 2010, Chief Judge Gregory M. Sleet signed the Final Order and Judgment approving the settlement as fair and dismissing the action with prejudice. The case is now closed. According to the Final Order, Plaintiffs' Counsel were awarded One-Third (1/3) of the Settlement Fund in fees, which the Court finds to be fair and reasonable, and $761,196.44 in reimbursement of expenses, which fees and expenses shall be paid to Plaintiffs' Lead Counsel from the Settlement Fund.