According to the docket, on November 16, 2004, the hearing was held before U.S. District Judge Clarence Cooper on the final approval of the settlement. Judge Cooper approved the settlement, and signed the Final Judgment and Order of Dismissal with prejudice. The civil case is terminated.
As reported by the Company’s FORM 10-Q for the quarterly period ended September 30, 2004, the actions were consolidated by Order dated January 25, 2002. Plaintiffs served a Consolidated Amended Complaint on March 29, 2002. On June 6, 2002, Defendants filed Motions to Dismiss Plaintiffs' Amended Complaint. On February 3, 2003, the court denied Defendants' Motions to Dismiss. The Company's insurance carrier has reached an agreement to settle the Geller action at no cost to the Company. The settlement has received preliminary approval from the court, has been approved by the Bankruptcy Court and awaits final approval through a fairness hearing before the United States District Court for the Northern District of Georgia.
In the opinion of management, settlement of the previously disclosed shareholder actions under existing insurance coverage is probable. As a result of the settlement in principle (subject to court approval) of the Geller case, during the second quarter of 2004, the Company recorded a liability of $4,250,000 for its legal obligation to fund the settlement and a related receivable of $4,250,000 for the reimbursement from its insurance carrier.
The original complaint was filed alleging that WestPoint Stevens and certain of its officers and directors with violations of the Securities Exchange Act of 1934. The complaint alleges that to boost WestPoint Stevens stock on 2/10/99 and again on 4/15/99, defendants caused WestPoint Stevens to report better-than-expected 4thQ 98 and 1stQ 99 results. WestPoint Stevens also assured investors and analysts that its business remained extremely strong, demand for all of its products was good, its inventories were under control and that it remained postured to achieve revenue and EPS growth of 5% and 20%, respectively, going forward and was increasing its 99 and 00 EPS forecasts to $1.82-$1.85 and $2.10-$2.20, respectively. Based on these better-than-expected 1stQ 99 results and defendants' positive commentary on WestPoint Stevens' business, WestPoint Stevens stock advanced to its Class Period high of $37-9/16 in late 4/99, from $25-3/8 at the beginning of the Class Period. When WestPoint Stevens reported its 2ndQ and 3rdQ 99 results, it again assured investors that its business was very strong. It also told investors that while its inventories had increased, especially towels, the increased towel inventory did not pose any significant risk of loss to WestPoint Stevens because it was basic solid colored goods with core value. WestPoint Stevens continued to forecast strong revenue and EPS growth for the balance of 99 and 00, including 00 EPS of $2.10-$2.20. On 6/28/00, defendants announced that the Company's Eight-Point Program would ensure strong performance in the future, that momentum was building for strong prospects throughout 00 and inventory was now on target to below $400 million by year-end and the Company was still on track to report EPS of $2.08+ and $2.40 in 00 and 01, respectively. As a result, WestPoint Stevens' stock stabilized in the $10-$15 range through the remainder of the Class Period. However, by late 9/00, defendants knew that it would be impossible for them to continue to conceal the severe deterioration in WestPoint Stevens' business any longer, and that once the Company reported its 3rdQ 00 results, it would be apparent to the market how horrible WestPoint Stevens' business was actually performing and the stock would collapse. In an attempt to cause the stock to make a "soft landing" for what they knew would be horrible 00 results, defendants on 9/27/00 announced that 3rdQ 00 results would be flat with 3rdQ 99 results, in the same press release in which the Company also announced a new licensing agreement with Disney. WestPoint Stevens' stock declined only slightly on this news to $11-9/16 due to defendants' positive statements. Then, on 10/10/00, WestPoint Stevens revealed that 3rdQ 00 sales would actually decline 3% from the prior year, with earnings of only $0.55-$0.60 per share, lower than prior guidance. On this news, WestPoint Stevens stock declined to below $9 per share. Plaintiff seeks to recover damages on behalf of all purchasers of WestPoint Stevens common stock during the Class Period (the "Class").