According to the latest docket posted, on September 2, 2003, the Court entered the Order and Judgment from the Fifth Circuit Court of Appeals, affirming the judgment of the District Court.
By the Order dated September 28, 2001, U.S. District Court Judge Barbara M. G. Lynn granted in part and denied in part the motion to dismiss certain defendants in the action. On October 17, 2001, a Second Amended Complaint was filed, but the Court amended its September 28, 2001 order to dismiss more defendants in the case. As a result, all the defendants were dismissed in the controversy and Judge Lynn ordered the case closed on December 20 of that year. A Notice of Appeal was filed by several plaintiffs in the case.
The original complaint charges American Pad and certain of its officers, directors,
controlling shareholders, its lending bank and its securities underwriters with
violations of the Securities Exchange Act of 1934. American Pad sells paper
writing products. The action complains of a scheme by defendants to escape from
a failing leveraged buyout ("LBO") of American Pad by misrepresenting American
Pad's business, financial results and future prospects to accomplish a $234
million initial public offering of American Pad stock. Defendants represented
that the restructured American Pad was a growth company in a growth industry
which had competitive strengths and advantages, was uniquely well positioned to
benefit from the consolidation occurring at the retail distribution level of
office paper products, had significant purchasing advantages and had
implemented policies that insulated its profits from any adverse impact of
fluctuations in paper prices and thus American Pad would achieve strong
earnings per share growth of at least 20% per year over the next several years.
These alleged misrepresentations artificially inflated the price of American
Pad's stock, enabling defendants to take American Pad public, selling 16.2
million shares of American Pad stock at $15 per share, raising $243 million.
American Pad received $172.8 million from the IPO, which it used to repay and
restructure its bank debt, paying Bankers Trust New York Corporation, American
Pad's main lender, $175 million owed under a bank credit agreement and under
senior subordinated notes arranged by Bankers Trust. The IPO also allowed Bain
Capital, Inc., American Pad's controlling shareholder, which had arranged the
1992 LBO of American Pad, to sell off 3.4 million of its American Pad shares
for $49 million. The cash raised in the IPO also replaced American Pad's
negative ($66 million) stockholders' equity with an $88.9 million positive
shareholders' equity, boosting the book value of the 10 million American Pad
shares Bain Capital continued to own after the IPO by $13.45 per share, a $135
million windfall for it. This large IPO rescued the American Pad LBO that by
1995 was on the verge of failure, exposing Bain Capital and Bankers Trust to
losses. Defendants' allegedly false and misleading statements not only
facilitated the $234 million IPO, but also drove American Pad stock to as high
as $26-1/2 per share and allowed American Pad's two top officers (Hanson and
Gard) to later sell off 100,000 shares of their American Pad stock, for $1.3
But, the complaint further alleges, in September 1997, when American Pad revealed sharply weakening demand for its products, the lack of growth in its business and that its 3rdQ and 4thQ 97 EPS would decline, American Pad's stock collapsed from $24-3/8 to $11-1/2 and then to just $7-3/4 per share, when it admitted in December 1997 it would suffer a huge 4thQ 97 loss and a loss for all of 97, due to major accounting adjustments which showed it had been falsifying and artificially inflating its net income and EPS.