HOUSTON (CN) - Aeriform, a specialty gas supplier, gave executives such large bonuses and took out such huge loans it knocked the share price "from $37.50 in 1998 to $0.03 in 2004," leaving longtime employee-shareholders "with nothing," shareholders claim in court.
Lead plaintiff Robert Morton sued 8350 Mosley Corporation fka Aeriform Corporation fka IWECO, and American Capital Strategies Limited and four company executives in Harris County Court.
Aeriform was a Union Carbide subsidiary called IWECO, according to the complaint.
"In October of 1990, IWECO was purchased by its employees pursuant to an employee stock ownership plan (the ESOP). The plan was established for the exclusive benefit of all its employees and their beneficiaries," the complaint states.
The IRS approved the plan, which took effect in March 2004 through an amendment by the corporation, Morton says.
"The creation of the ESOP permitted the employees to purchase IWECO from Union Carbide," the complaint states. "The ESOP also allowed employees to accumulate company stock for their retirement and provided additional benefits in the event of death, total disability, or other termination of employment.
"In 1996, IWECO changed its name to Aeriform Corporation. Management of Aeriform began making various acquisitions which were financed by borrowing from the defendant, American Capital Strategies Limited, at above-market interest rates. Pursuant to these loan agreements, American Capital Strategies Limited acquired warrants to Aeriform stock. American Capital Strategies Limited exercised these warrants, eventually becoming the majority shareholder in Aeriform, and was able to appoint members to the board of directors of Aeriform. On information and belief, these loans from American Capital Strategies Limited were at very high interest rates and were designed as a 'loan to own' scheme. By 2004, American Capital Strategies Limited had appointed enough directors to control the board of Aeriform Corporation. Several members of the Aeriform and ACS management received large bonuses out of the loan transactions from American Capital Strategies Limited.
"Defendants, Coggin and Logan and others, participated in these bonuses. The effect of the accumulation of debt, bonuses paid to the corporate officers and the exorbitant interest rate paid to American Capital resulted in a dramatic decline in the value of shares held by the plaintiffs. The share value dropped from $37.50 in 1998 to $0.03 in 2004. The employees were notified of the September 30, 2004 value of their stock until April 12, 2006 when they received their ESOP account statement for the plan year ending September 30, 2004."
In 2007, the American Capital-controlled board of directors sold Aeriform's assets to Airgas Corporation for about $90 million, Morton says.
"The proceeds of the sale went entirely to American Capital Strategies Limited for repayment of debt, interest and other obligations -- resulting in a windfall profit to ACS while the shareholders were left with worthless stock," the complaint states. "The defendants failed to exercise their fiduciary duties and allowed the company assets to be wasted without appropriate action or oversight.
"Sometime on or around July 15, 2009, plaintiff shareholders were notified in a letter written by American Capital Strategies CFO, defendant Karl Joe Thomas, of the final dissolution of Aeriform. Although dated July 15, 2009, the letter was not received by many of the plaintiff shareholder s until early 2010. The letter also informed plaintiff shareholders that as a result of the dissolution, all claims against the company were to be paid in full in order of priority. Importantly, the letter went on to state that there were insufficient funds to satisfy all claims against the company and thus no assets were left to be distributed to plaintiffs as stockholders of the corporation. As a direct result of the action of the defendants, the company stock was allegedly worthless and the plaintiff shareholders lost their entire retirement investment. Many of these employees had worked more than 20 years at the company and invested in company stock - the plaintiff shareholders were left with nothing."
The shareholders seek damages for Texas Securities Act violations, shareholder oppression and fraud.
They are represented by Michael Maloney with Maloney Martin in Houston.
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