The lawsuit, which was initially filed in U. S. District Court, then dismissed and refiled locally, alleges top officials, including CEO David Haffner, and former head honchos Harry Cornell and Felix Wright, of illegally backdating options and filing misleading SEC documents.
This description was provided in the initial federal court filing:
Plaintiff’s investigation has revealed that Leggett has secretly backdated millions of options to its top officers and directors for over a decade, reporting false financial statements and issuing false proxies to shareholders. Backdating stock options is now recognized as a deceptive practice companies throughout the securities markets have used to conceal grants of “in-the-money” options or options otherwise with more intrinsic value than disclosed, without reporting the corresponding requisite compensation expense.
The lawsuit says the practice dates back to 1995.
Leggett & Platt officials addressed the lawsuit in their quarterly report, filed Thursday with the Securities and Exchange Commission. Except for noting the change of the courts, the wording was nearly the same as in a Sept. 8, 2008, SEC filing, four days after the federal case was filed:
On February 5, 2009, a shareholder derivative complaint was filed by the New England Carpenters Pension Fund, which represented that it owns 3,000 shares of Leggett stock, in the Circuit Court of Jasper County, Missouri. The complaint is substantially similar to a lawsuit filed by the New England Carpenters Pension Fund in federal court on September 4, 2008, which the plaintiff voluntarily dismissed on September 26, 2008 without prejudice to its right to re-file. However, this new lawsuit has fewer claims and asserts no federal causes of action. The action is purportedly brought on behalf of the Company, naming it as a nominal defendant and naming as defendants certain current and former officers and directors of the Company including David S. Haffner, Karl G. Glassman, Matthew C. Flanigan, Ernest C. Jett, Harry M. Cornell, Jr., Felix E. Wright, Robert Ted Enloe, III, Richard T. Fisher, Judy C. Odom, Maurice E. Purnell, Jr., Ralph W. Clark and Michael A. Glauber.
The plaintiff alleges, among other things, that the individual defendants participated in the backdating of stock options, breached fiduciary duties, caused or allowed the Company to issue false and misleading financial statements and proxy statements, and sold Company stock while in possession of material non-public information. The plaintiff seeks, among other things, unspecified monetary damages against the individual defendants, certain equitable and other relief relating to the profits from the alleged improper conduct, the adoption of certain Company corporate governance proposals, the imposition of a constructive trust over the defendants’ stock options and proceeds, punitive damages, the rescission of certain unexercised options, and the reimbursement of litigation costs. The plaintiff is not seeking any monetary relief from the Company. Policies of directors and officers liability insurance are in force, subject to customary limits and exclusions.
The Company and the other defendants filed motions to dismiss the suit in early April, asserting defenses including: (1) the plaintiff failed to make demand on the Company’s Board and shareholders as required by Missouri law and the court should not excuse the failure to make demand; (2) the plaintiff is not a representative shareholder because plaintiff is a professional plaintiff and does not have a significant economic stake in the litigation, (3) the lawsuit is based on a statistical analysis of stock option grants and Leggett stock prices that the Company believes is flawed, (4) the plaintiff fails to state a legally cognizable claim, and (5) the statute of limitations has expired on all the challenged grants except the December 30, 2005 deferred compensation grant. As to this grant, the motions to dismiss also advise the Court that it was made under the Company’s Deferred Compensation Program, which (i) provided that options would be dated on the last business day of December, and (ii) was filed with the SEC on December 2, 2005 setting out the pricing mechanism well before the grant date. A hearing was held on the motions to dismiss on June 26. The court took the motions under advisement.
The Company expects that the outcome of this litigation will not have a material adverse effect on its financial condition, operating cash flows or results of operations.