WEST PALM BEACH, Fla. — Billionaire Ron Perelman's colleague testified Wednesday that after reading materials provided to him by Morgan Stanley, he believed Sunbeam's CEO had dramatically outperformed the company's sales and cost-cutting goals.

"He'd accomplished in one year what he'd set out to do in three," Howard Gittis said of Al Dunlap's performance.

Dunlap, also called "Chainsaw Al," because of his reputation for closing factories and cutting jobs, took over Sunbeam in 1996.

Before accounting irregularities at the small-appliance maker surfaced in April 1998, Dunlap was regarded as a wizard CEO for transforming Sunbeam into a profitable company in less than two years at its helm.

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Dunlap was renowned for performing the same wizardry at paper products company Scott Paper two years before. Scott Paper later merged with Kimberly-Clark in a much-lauded $9 billion deal.

Shortly after the sale of camping-equipment maker Coleman to Sunbeam in March 1998, the accounting scandal erupted and its stock price plummeted. By June of that year, Dunlap was ousted by shareholders and paid $500,000 to settle SEC charges that he defrauded investors by inflating sales figures. He did not admit any wrongdoing.

Perelman, chairman of Revlon Cosmetics, is suing Morgan Stanley for $2.7 billion over its advisory role in the sale of Coleman to Sunbeam. Morgan Stanley acted as Sunbeam's sole investment banker in the deal.

In a cash-and-stock deal, Perelman sold Coleman to Sunbeam for $1.5 billion, which included Sunbeam stock worth between $450 million and $680 million. By 2001, the stock Perelman had received as consideration for Coleman had fallen to $0.51 a share, from a high of nearly $53 a share.

Throughout the trial, witnesses from Perelman's side of the table have emphasized how Morgan Stanley's involvement in the deal was of paramount importance and that the "white shoe" firm instilled confidence and trust. Perelman testified he has been involved in just under 30 transactions with Morgan Stanley and hired the firm as his own investment banker when he purchased Revlon in 1986.

Today's testimony was no different. Perelman counsel Jerold Solovy led Gittis through numerous passages from documents Morgan Stanley used to promote its debenture offering. Morgan Stanley agreed to raise $500 million through a debenture offering to help complete the Coleman-Sunbeam transaction.

In a convertible debenture offering, investors can buy the debenture and receive principal plus interest for their investment or opt to convert it to common stock at a later date. In this case, debenture investors would have been able to convert their shares to stock at set periods over the next few years. 

Gittis, who is vice chairman and chief administrative officer of Perelman's holding company, MacAndrews & Forbes, which sold the 82 percent stake of the Coleman Company to Sunbeam, said the fact that Morgan Stanley was underwriting the convertible debenture indicated the firm's approval.

"It was Morgan Stanley putting its imprimatur on this offering," Gittis said.

As a way to market debentures, investment banking firms solicit investors through "roadshows." These are presentations made to institutional investors — buyers had to be worth $100 million in the Sunbeam offering — that spotlight the financial health and potential of the company underlying the offering. 

Although Gittis did not personally attend any of the Morgan Stanley "roadshows," William Nesbitt, one of his associates, did. Nesbitt then handed off the presentation materials to Gittis, who said he believed the documents to be true and had no reason to suspect any of the statements were false.

Asking Gittis to read aloud to the jury, Solovy highlighted some of the particularly optimistic statements used in the presentation.

"We believe it's possible to have revenues of $4 billion to $5 billion by the year 2000 and achieve operating margins approaching 20 percent," Gittis read to the jury.

After reading numbers and statements like this, Gittis said he believed Sunbeam "was a very powerful company."

Of course, none of these projections came true. Sunbeam filed for bankruptcy protection in 2001 and emerged later as a new company called American Household Inc.

Because of an earlier ruling by Judge Elizabeth Maass that instructed the jury to accept as fact that Morgan Stanley aided in defrauding Sunbeam investors, Perelman's attorneys need only prove the billionaire relied on information Morgan Stanley provided to win the case.

Morgan Stanley's defense hinges on its ability to convince the nine-member jury that Perelman, recognized as one of Wall Street's most successful corporate raider in the 1980s, made an independent decision when he decided to sell Coleman to Sunbeam. Morgan Stanley further contends any failure of due diligence is Perelman's responsibility, not that of Morgan Stanley. 

Perelman settled with Sunbeam in a separate suit.

The case is being tried in the 15th Judicial Circuit Court in Palm Beach County.

The trial is being streamed live on Court TV Extra.