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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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SCHEDULE 14D-9
(Amendment No. 2)
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(d)(4)
OF THE SECURITIES EXCHANGE ACT OF 1934
Ply Gem Industries, Inc.
(Name of Subject Company)
Ply Gem Industries, Inc.
(Name of Person Filing Statement)
Common Stock, par value $0.25 per share
(Title of Class of Securities)
CUSIP NO.729416 10 7
(CUSIP Number of Class of Securities)
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Jeffrey S. Silverman
Chairman and Chief Executive Officer
Ply Gem Industries, Inc.
777 Third Avenue
New York, New York 10017
(212) 832-1550
(Name, address and telephone number of person
authorized to receive notice and communications
on behalf of the person filing statement)
With copies to:
Victor I. Lewkow, Esq. Charles M. Modlin, Esq.
Cleary, Gottlieb, EAB Plaza
Steen & Hamilton and 12th Floor, West Tower
One Liberty Plaza Uniondale, New York 11556
New York, New York 10006 (516) 794-4600
(212) 225-2000
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This Amendment No. 2 amends and supplements the
Solicitation/Recommendation Statement on Schedule 14D-9 (the
"Schedule 14D-9") of Ply Gem Industries, Inc., a Delaware
corporation (the "Company"), filed with the Securities and
Exchange Commission with respect to the tender offer made on July
29, 1997 by NTK Sub, Inc., a Delaware corporation (the "Offeror"),
and a wholly owned subsidiary of Nortek, Inc., a Delaware
corporation ("Nortek"), to purchase all outstanding shares of
Common Stock.
Capitalized terms used herein and not defined herein
shall have the meanings ascribed to such terms in the Schedule
14D-9.
Item 8. Additional Information to be Furnished.
Item 8 is amended to add the following information:
Andrew Klotz, a purported shareholder of the Company, has
filed a complaint in Delaware Chancery Court against the Company,
the Company's Chairman and each of the other members of the Company's
Board of Directors (the Chairman and such other directors collectively,
the "Individual Defendants"). The complaint purports to be brought
on behalf of a class consisting of all public stockholders of the
Company, and claims that the Individual Defendants breached their
fiduciary duties and subordinated the interests of the Company's
public stockholders to the individual interests of the Company's
Chairman with respect to amounts to be received by him in
connection with the proposed termination of his existing
employment agreement with the Company in connection with an
acquisition of the Company, and that, as a result, the public
stockholders have not and will not receive their fair proportion
of the value of the Company's assets and business and/or have
been and will be prevented from obtaining a fair and adequate
price for their shares. The complaint seeks monetary relief based
on the defendants' purported wrongful acts and seeks to have the
Court impose a constructive trust upon all monies paid by Nortek
and the Company to any Individual Defendant as a result of such
person's purported breach of his fiduciary duties. The defendants
believe the complaint to be without merit. A copy of the
complaint is filed as Exhibit 15 to this Schedule 14D-9 and the
foregoing summary is qualified by reference to the actual
complaint.
Item 9. Material to be Filed as Exhibits.
Item 9 is amended to include Exhibit 15 as follows:
Exhibit
No. Description
------- -----------
15 -- Complaint in Klotz v. Ply Gem Industries, Inc., et.
al., C.A. No. 15880NC.
2
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SIGNATURE
After reasonable inquiry and to the best of my
knowledge and belief, I certify that the information set forth in
this statement is true, complete and correct.
PLY GEM INDUSTRIES, INC.
By: /s/ Herbert P. Dooskin
--------------------------
Herbert P. Dooskin
Executive Vice President
Dated: August 21, 1997
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EXHIBIT INDEX
Sequent-
ially
Exhibit Numbered
No. Description Page
--- ----------- ----
15 -- Complaint in Klotz v. Ply Gem Industries, Inc.,
et. al., C.A. No. 15880NC.
4
Exhibit 15
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
.......................................X C.A. No. 15880NC
:
ANDREW KLOTZ on behalf of himself and :
all others similarly situated, :
: CLASS ACTION
: COMPLAINT
Plaintiff, :
:
- against - :
:
PLY GEM INDUSTRIES, INC., JEFFREY S. :
SILVERMAN, DANA R. SNYDER, HERBERT P. :
DOOSKIN, ELIHU H. MODLIN, JOSEPH M. :
GOLDENBERG, ALBERT HERSH and WILLIAM :
LILLEY, III, :
:
Defendant. :
:
..........................................X
Plaintiff, by his attorneys, alleges upon information and
belief, except for the allegations pertaining to plaintiff which
he alleges upon knowledge, as follows:
1. Plaintiff is and was, at all times relevant to this
action, a shareholder of defendant Ply Gem Industries, Inc.
("PGI" or the "Company"). Plaintiff brings this suit on behalf of
the public stockholders of PGI to redress wrongs arising out of
(i) the exploration of strategic alternatives undertaken by PGI
and certain defendants named herein; (ii) the negotiation and
execution of the Atrium Merger Agreement (defined below) pursuant
to which PGI shareholders would receive $18.75 per share in cash,
which agreement was terminated on or about July 24, 1997; (iii)
the negotiation and execution of the Nortek Merger Agreement
(defined below) and the Tender Offer (defined below) pursuant to
which PGI shareholders will receive
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$19.50 per share in cash; (iv) the payment of breakup and
expense fees to Atrium in connection with the termination of the
Atrium Merger Agreement in the amount of $12 million; and (v) the
excessive payments to be received by certain defendants in
connection with the foregoing transactions.
2. Defendant PGI is a cporporation duly organized and
existing under the laws of the state of Delaware, with its
principal offices located at 777 Third Avenue, New York, New
York. The Company is a leading manufacturer and distributor of
building products used in remodeling and new construction of
residential and light-commercial properties. PGI common stock
trades on the New York Stock Exchange ("NYSE"). As of March 24,
1997, There were approximately 13.95 million shares of PGI common
stock outstanding.
3. a. Defendant Jeffrey S. Silverman ("Silverman") is
and was, at all times relevant hereto, Chief Executive Officer
and Chairman of the Board of Directors of PGI. Defendant
Silverman has served as Chief Executive Officer of the Company
since 1984 and as Chairman of the Board since 1985.
b. Defendant Silverman owns approximately 4.2 million
shares or 25% of PGI common stock outstanding. During 1996,
defendant Silverman received a salary of $2.49 million, a bonus
of $2.1 million, and a long term compensation award consisting of
options for 750,000 shares of PGI stock. Defendant Silverman's
compensation is determined in accordance with the provisions of
an employment agreement with the Company dated July 17, 1986, as
amended on
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October 1, 1987, June 2, 1990, February 19, 1991, November
3, 1992, December 23, 1992, December 31, 1994, June 10, 1995,
August 1, 1995, April 30, 1996, December 27, 1996 and April 11,
1997. Defendant Silverman's employment agreement contains
non-compete covenants applicable during the term of the agreement
and for a two year period thereafter. The non-compete provisions
in Silverman's employment agreement (and in the publicly
available amendments) provide that the non-compete provisions are
rendered ineffective "in the event of a change in control and
[Silverman's] employment is terminated as a result thereof."
4. Defendant Dana R. Snyder ("Snyder") is and was, at all
times relevant hereto, President, Chief Operating Officer and a
Director of PGI. Snyder has served in those positions since
joining the Company in June, 1995. Defendant Snyder owns
approximately 0.9 million shares or 6.2% of the outstanding
common stock of PGI. During 1996, Snyder received salary of $0.44
million, bonus of $0.89 million and a long term compensation
award consisting of options for 366,842 shares of PGI common
stock. Defendant Snyder has an employment agreement with PGI
providing, among other things, for Snyder's continued employment
in his current position until June 5, 1999. In connection with
the Nortek Merger Agreement and the Tender Offer, defendant
Snyder is expected to receive aggregate consideration for his
options of $3,625,526.
5. Defendant Herbert P. Dooskin ("Dooskin") is and was, at
all times relevant hereto, Executive Vice President and a
director of the Company.
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Dooskin joined the Company in 1986 and became a director in
the same year. Defendant Dooskin owns approximately 0.5 million
shares or 3.4% of the outstanding common stock of PGI. Defendant
Dooskin has an employment agreement with PGI providing, among
other things, for Dooskin's continued employment in his current
position until April 15, 2000. Defendant Dooskin's agreement
contains non-compete covenants applicable during the terms of the
agreement and for periods thereafter.
6. Defendant Elihu H. Modlin ("Modlin") is and was, at all
times relevant hereto, a director of the Company, a position he
has held since 1992, and general counsel to the Company, a
position he has held since 1960. He is a partner in the law firm
of Messrs. Elihu H. Modlin and Charles M. Modlin. During 1996,
the Company paid $975,000 for professional services rendered by
defendant Modlin's law firm. Defendant Modlin is also a member of
the Company's Compensation Committee. Charles Modlin, the son of
defendant Modlin, is the secretary of PGI.
7. Defendant Joseph M. Goldenberg ("Goldenberg") is and
was, at all times relevant hereto, a director of the Company.
Goldenberg is a co-founder of Goldenberg Group, Inc., wholly
owned subsidiary of the Company, and served as its Chairman from
1983 through 1994. He currently serves as a consultant to the
Company. He has been a director of the Company since 1983. During
1996, the Goldenberg Group, Inc., paid Goldenberg $287,397 in
consulting fees.
8. Defendant Albert Hersh ("Hersh") is and was at all times
relevant hereto a Director of the Company. Hersh, a co-founder of
the Company, has served
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on the Company's board since 1954. He provides consulting
services to the Company. Defendant Hersh is a member of the
Company's Compensation Committee. As a consultant to PGI during
1996, defendant Hersh was paid $91,000.
9. Defendant William Lilley, III ("Lilley") is and was, at
all times relevant hereto, a Director of the Company, a position
he has held since October 1994. He is President of Policy
Communications, Inc., a business consulting firm based in
Washington, D.C. During 1996, PGI paid Policy Communications,
Inc., $25,000 for consulting services. Defendant Lilley is a
member of the Compensation Committee of the PGI board.
10. The individual defendants named in paragraphs 3-9 above
(hereinafter, the "Individual Defendants"), are directors and/or
officers of PGI and, as such, have a fiduciary relationship and
responsibility to plaintiff and the other shareholders of the
Company and owe to plaintiff and the other class members the
highest obligations of good faith, loyalty, fair dealing, due
care and candor.
CLASS ACTION ALLEGATIONS
11. Plaintiff brings this action pursuant to Rule 23 of the
Rules of the Court of Chancery on behalf of himself and all other
shareholders of the Company (except defendants and any person,
firm, trust, corporation, or other entity related to or
affiliated with any defendant), who are or will be adversely
affected by the conduct of the defendants as more fully described
herein (the "Class").
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12. This action is properly maintainable as a class action
for the following reasons:
(a) The Class is so numerous that joinder of all
members is impracticable. As of March 24, 1997, PGI had
approximately 13.95 million shares of common stock outstanding;
(b) The members of the Class are scattered throughout
the United States and are so numerous as to make it impracticable
to bring them all before this Court;
(c) There are questions of law and fact which are
common to the Class and which predominate over questions
affecting any individual Class member. The common questions
include, inter alia, the following:
(1) whether the Individual Defendants are
breaching their fiduciary duties owed by them to plaintiff and
members of the class;
(2) whether plaintiff and the other members of
the Class will be irreparably damaged by defendants' wrongful
conduct alleged herein and if so, what is the proper remedy
and/or measure of damages.
(d) The claims of plaintiff are typical of the claims
of the Class in that all members of the Class will be damaged
alike by defendants' actions.
(e) Plaintiff is committed to prosecuting this action
and has retained competent counsel experienced in litigation of
this nature. Plaintiff is an adequate representative of the
Class.
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(f) The prosecution of separate actions by individual
members of the Class would create a risk of inconsistent or
varying adjudications with respect to individual members of the
Class.
(g) Defendants have acted or refused to act on grounds
generally applicable to the Class, thereby making appropriate
injunctive relief and/or corresponding declaratory relief with
respect to the Class as a whole.
CLAIM FOR RELIEF
The Nortek Merger Agreement
13. On or about July 24, 1997, Nortek announced that it had
entered into an agreement with PGI pursuant to which Nortek would
acquire all outstanding shares of PGI common stock for $19.50 per
share (the "Nortek Merger Agreement"). Pursuant to the Nortek
Merger Agreement, Nortek announced that it expected to commence a
tender offer by July 29, 1997 for all outstanding shares of PGI
common stock (the "Tender Offer"). Any shares not acquired in the
Tender Offer will be acquired by a merger of PGI with a
subsidiary of Nortek following consummation of the Tender Offer.
14. Concurrent with the announcement of the Nortek Merger
Agreement, PGI announced that it had terminated the merger
agreement dated June 24, 1997 (the "Atrium Merger Agreement")
entered into by PGI and Atrium Acquisition Holdings Corp.
("Atrium"), an affiliate of Hicks, Muse, Tate & Furst, Inc.
("Hicks Muse"). In connection with the termination of the Atrium
Merger
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Agreement, PGI paid Atrium $9.5 million in breakup fees
and up to $2.5 million for reimbursement of expenses. Nortek
provided funds for the payment of such amounts to Atrium by
purchasing from PGI 640,000 shares of PGI stock at $18.75 per
share.
15. Concurrently with the execution and delivery of the
Nortek Merger Agreement, defendant Silverman entered into a Non-
Compete and Termination Agreement with Nortek and the Company
(the "Non-Compete and Termination Agreement"). Pursuant to the
Non-Compete and Termination Agreement, as of the consummation of
the Tender Offer, defendant Silverman will resigns as an officer
and director of the Company and each of its subsidiaries, and his
employment agreement with the Company, which has a current term
through April 30, 2007, will be terminated in full. As liquidated
damages for the termination of Silverman's employment agreement,
the Company will make a payment to defendant Silverman in the
amount of $22,592,150, reduced by any amounts advanced to
defendant Silverman prior to such termination as bonus for 1997
under the terms of his employment agreement with the Company.
16. Pursuant to the Non-Compete and Termination Agreement,
effective as of the termination of defendant Silverman's
employment agreement, the Company will also forgive certain
indebtedness of defendant Silverman to the Company in the
aggregate principal amount of $17,407,850 plus an undisclosed
amount of accrued interest, if any, $11,407,850 of which
purportedly shall represent liquidated damages for the
termination of Silverman's employment agreement and the
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remainder of which shall be in consideration of defendant
Silverman's noncompetition agreement. Thus, the liquidated
damages for the termination of Silverman's employment agreement
total $34 million. The consideration being paid to Silverman for
his two year non-compete covenant totals $6 million plus the
amount of accrued interest, if any, on Silverman's indebtedness
to PGI of $17,407,850, which amount has not been disclosed
publicly.
The Exploration of Strategic Alternatives
17. On August 2, 1995, PGI announced that it had retained
the investment banking firm of Bear Stearns & Co. Inc. ("Bear
Stearns") to explore various strategic alternatives "to
accelerate the maximization of shareholder value, including the
possible sale of the Company." Between August 1995 and February
1996, PGI was shopped to various parties, some of which entered
confidentiality and standstill agreements and received non-public
information regarding the Company.
18. On or about September 27, 1995, the Company and Nortek
entered into a confidentiality agreement dated September 27, 1995
(the September 27, 1995 Confidentiality Agreement"). Pursuant to
that agreement, the Company provided Nortek and its
representatives certain information and material concerning the
Company on a confidential basis. Nortek also agreed on behalf of
itself and its affiliates to certain standstill provisions for a
period of two years with respect to certain actions involving or
leading to a transaction with the Company without the prior
consent of the Company.
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19. In or about February 1996, PGI received a non-binding
indication of interest from a person or entity not publicly
identified for an acquisition of the Company at $17.00 per share.
At or about the same time, Nortek expressed an interest in
exploring a possible merger with the Company.
20. Over the next several months, Nortek's chief executive
officer, met with defendants Silverman and Snyder to discuss a
possible stock-for-stock merger. Although Nortek never
specifically terminated discussions with PGI, on July 16, 1996,
"in view of the lack of progress," the Board determined that
stockholder value could best be maximized through internal growth
and without the sale of the Company. In a press release dated
July 16, 1996, the Company announced that it had decided against
selling the Company because "a four-fold increase in second
quarter earnings proves that its efforts to increase profits are
working."
21. From October, 1996 through January, 1997, defendants
Silverman and Snyder purportedly discussed other possible
transactions, including a recapitalization of the Company, which
contemplated, among other things, that defendant Silverman's
employment agreement would be terminated in consideration of
certain payments and defendant Snyder would have become Chief
Executive Officer of the Company.
22. In March 1997, defendant Silverman engaged another
investment banking firm -- the identity of which firm has not
been publicly disclosed -- to assist him in exploring a possible
leveraged buyout of PGI and to identify one or more
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potential financial partners to join with defendant
Silverman if he decided to pursue such a transaction involving
the Company.
23. Thereafter, in April 1997, the unidentified investment
banker contacted six leveraged buyout firms, which firms entered
into confidentiality agreements containing two year "standstill"
provisions prohibiting any acquisition proposals for the Company,
except with the prior approval of defendant Silverman or the prior
approval of the Company's Board of Directors. The standstill
provisions extracted by Silverman and his banker were designed to
protect defendant Silverman's interests rather than those of the
public shareholders. In the event that Silverman gave his prior
approval to an acquisition proposal, the leveraged buyout firm
could proceed with an offer, irrespective of the fact that the
Company might not consider such proposal to be in the best
interests of the PGI shareholders other than Silverman.
24. Each of the leveraged buyout firms was advised that
defendant Silverman did not wish to become chief executive
officer of a privately-held company and that defendant Snyder
would want to serve as chief executive officer. Each of such
firms was further advised to assume that (i) defendant Silverman's
employment agreement would be terminated as part of any such
transaction; (ii) in analyzing any such transaction, defendant
Silverman would receive a total of $25 million in connection with
such termination and $2 million per year for five years in
consideration of certain non-competition agreements entered into
by defendant
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Silverman, and (iii) the Company would forgive all of
defendant Silverman's indebtedness to the Company.
25. The assumptions which defendant Silverman and his
banker provided to the six leveraged buyout firms did not comport
with the actual terms of Silverman's existing employment contract.
As described above, the non-compete covenants in the employment
agreement became ineffective if there were a change in control
and Silverman's employment were terminated as a result thereof.
Nothing in the publicly available amendments to the employment
agreement varied this term or permitted Silverman to determine
unilaterally that he did not "wish" to continue in his position
and thereby avoid his obligations to comply with the existing two
year non-compete covenants in his employment agreement.
26. During May 1997, Hicks Muse and two other leveraged
buyout firms expressed interest in the type of transaction
dictated by defendant Silverman and his banker. Defendants
Silverman and Snyder decided to pursue negotiations with Hicks
Muse, which had expressed interest at a price of $17 to $19 per
share of PGI common stock.
27. Concurrent with their pursuit of transactions with
leveraged buyout firms in which each of them would have an equity
interest, defendants Silverman and Snyder continued to meet with
Nortek. By May 1997, Nortek was expressing interest at a price of
$17 per share.
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28. During May 1997, Hicks Muse advised Silverman of an
indication of interest in acquiring PGI at $18 per share. The
Hicks Muse indication of interest contemplated that defendant
Silverman would retain an equity interest in the Company or
Atrium and would receive a payment of $30 million in
consideration of the termination of his employment agreement and
certain non-competition agreements and Silverman's indebtedness
to the Company would be forgiven. Additionally, the Company would
pay Hicks Muse a $15 million "breakup" fee. Subsequently,
defendant Silverman advised Hicks Muse that he would forego an
equity interest in the Company or Atrium.
29. By mid-May, 1997, Nortek was expressing interest in an
acquisition of the Company by Nortek at a price of $18. Notably,
in contrast to the $30 million payment contemplated by the Hicks
Muse indication of interest, at this juncture, Nortek's
indication of interest still contemplated that Silverman would
receive only $20 million for such termination and a consulting
agreement.
30. During early June, Hicks Muse and Nortek requested, as a
condition to further exploration of a transaction, that the Company
agree to a period of exclusivity.
31. Although Nortek remain subject to the terms of the
standstill agreement contained in the September 27, 1995
confidentiality agreement and thus could not make an offer without
the prior consent of the Company, Silverman
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nevertheless sought to have Nortek enter into another such
agreement thereby delaying Nortek's commencement of its due
diligence.
32. On June 11, 1997 at the request of the PGI board,
Silverman and defendant Lilley, without benefit of independent
counsel, met with two investment banking firms identified by
defendant Silverman to select a banker to advise the Board.
Later that day. the PGI board authorized the retention of Furman
Selz.
33. On June 16, four days prior to the execution of an
exclusivity agreement between Hicks Muse and PGI, Nortek informed
defendant Silverman that Nortek would be prepared to offer $20
per share to acquire PGI, subject to, inter alia, the termination
of Silverman's employment on substantially the same terms as had
previously been discussed (i.e., the payment of $20 million and a
consulting agreement). Nortek also stated that it would execute
the proposed new confidentiality agreement if the standstill
period were reduced from two years to one year. On June 17,
Nortek confirmed its proposal in writing.
34. At a June 20, 1997 PGI board meeting, defendant
Silverman reported that Hicks Muse was not prepared to increase
its proposed merger price above $18. Furman Selz indicated to the
PGI board that it expected to opine that the $18 price was fair.
Furman Selz made a presentation regarding Silverman's employment
agreement which failed to address the fairness of the Atrium
Non-Compete and Termination Agreements to PGI's public
shareholders. The PGI board
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failed to consider the difference between what Silverman
would receive for the termination of his employment agreement
under the Atrium and Nortek proposals.
35. The Individual Defendants also failed to consider
whether (i) the terms of the Atrium Non-Compete and Termination
Agreement with defendant Silverman were fair to the public
shareholders of PGI given the fact that any decrease in the
amount payable to defendant Silverman would likely result in an
increase in the amount paid to the Company's public shareholders;
and (ii) whether the interests of the public shareholders in
receiving $20 per share rather than $18 per share outweighed
Silverman's interests in receiving an additional $10 million.
36. By June 22, Hicks Muse agreed to raise the proposed
merger price to $18.75 and to reduce its termination and expense
reimbursement fees to $12 million. Thus, as of June 23, 1997,
there were in effect two competing bids for PGI: one from Atrium
at $18.75 and one from Nortek at $20.
37. At a June 23, 1997 PGI board meeting, the PGI board was
advised that Hicks Muse expected to execute the Atrium Merger
Agreement the next morning. Furman Selz advised the Board that it
would be prepared to render a fairness opinion on the proposed
transaction. Furman Selz made another presentation regarding the
Silverman employment agreement.
38. That evening, Nortek reiterated to defendant Silverman
its continuing interest in a transaction at $20 per share or
more. On June 24, 1997, PGI representatives delivered proposed
agreements and related schedules to Nortek,
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including agreements similar to the Atrium Non-Compete and
Termination Agreement (with the amounts to be received by
defendant Silverman the same as under such agreement). In short,
confronted with two potential bids, one at $18.75 and one at $20
per share, defendant Silverman, still persisted in furthering his
own individual interests to extract the same exorbitant payment
from Nortek as he had obtained from Atrium for the proposed
termination of his employment agreement.
39. On the morning of June 24, Nortek raised questions
about certain information included in the draft schedules
furnished to it that morning of which it indicated it had not
previously been aware. These concerns pertained to the amount of
one-time expenses payable to certain non-director managers in
connection with a change of control, which expenses were
approved by the PGI board on June 17, 1997.
40. At a PGI June 24, 1997 board meeting, defendant
Silverman advised the Board that Nortek might be prepared to pay
up to $21 and expected to be in a position to execute definitive
agreements by the following evening. Nevertheless, the PGI board
approved the Atrium Merger at approximately 3:45 p.m. and the
Atrium Merger Agreement and related documents were executed
shortly thereafter.
41. Later that evening, at approximately 6:20 p.m., PGI
received Nortek's proposal, not subject to financing, to acquire
PGI for $20.25.
42. On the morning of June 25, 1997, the Atrium Merger at
$18.75 per share was announced and Nortek withdrew its higher
proposal.
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43. On July 14, 1997, PGI was advised that Nortek was
prepared to offer $19.50 to acquire PGI. Nortek was also prepared
to sign a Non-Compete and Termination Agreement with defendant
Silverman providing for the same termination payment to which
Atrium had agreed. Silverman had finally succeeded in
extracting from Nortek the same personal consideration he had
garnered from Atrium. Silverman's insistence upon furthering his
own selfish ends, however, will cost PGI's public shareholders
75(cent) per share, the difference between Nortek's June 24, 1997
proposal at $20.25 per PGI share and its July 14, 1997 offer at
$19.50 per PGI share.
44. On July 24, 1997, the Company terminated the Atrium
Merger Agreement and, with monies received from the sale of
640,000 shares of PGI stock to Nortek, paid Atrium a $12 million
termination fee and reimbursement of expenses. In connection with
the Nortek Merger, Furman Selz delivered a fairness opinion which
failed to address the fairness of Nortek's termination agreement
with Silverman, the present value of Silverman's employment
agreement and the assumptions underlying Furman Selz' calculation
of the present value of said agreement.
45. Silverman and the other Individual Defendants have
breached their fiduciary duties to Class members in subordinating
the interests of PGI's public shareholders to defendant
Silverman's own individual interests. At every turn, defendant
Silverman was given free rein by the PGI board of directors to
pursue his own interests irrespective of the detriment which
would inure to the interests of plaintiff and the Class. No
special committee of outside directors was ever formed at
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any time during the course of the Company's exploration of
strategic alternative starting in August 1995, and defendant
Silverman was permitted to structure the "strategic alternatives
exploration" process throughout the past two years to further his
own individual interests at the expenses of the interests of the
other public shareholders. Thus, for example, without benefit of
a special committee, Silverman negotiated a leveraged buyout
with Hicks Muse in which he would be paid an exorbitant sum
for his employment agreement while concurrently negotiating with
Nortek. Defendant Silverman was conflicted throughout his
negotiations with Hicks Muse and Nortek by virtue of the fact
that the two potential bidders were not both willing to pay him
the same exorbitant sums to obtain the termination of his
employment agreement. In consequence of Silverman's actions,
Nortek was precluded from proceeding with an offer of at least
$20.25 or even higher and the shareholders of PGI were deprived
of the best and highest price for their PGI shares.
46. The size of defendant Silverman's demands for
compensation were an obstacle to any effort to maximize
shareholder value for plaintiff and the Class. The Individual
Defendants breached their fiduciary obligations to PGI's public
shareholders by failing to ensure that defendant Silverman's
interests were not paramount to those of the Company's public
shareholders. The Individual Defendants never created a special
committee of outside directors or put into place any other
procedural safeguard to ensure the success of the value
maximization process that had been undertaken because of the
Company's disappointing results and stock price.
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Instead, during that two year interval and despite Silverman's
own admission that the stock price of the Company was
languishing, Silverman's employment agreement was repeatedly
amended in undisclosed ways and Silverman was given free rein to
direct, without any participation by an independent director or a
special committee, the course of PGI's exploration of strategic
alternatives. Moreover, because of the absence of a special
committee or of any truly independent board members and the
failure to obtain adequate independent legal and financial
advice, the Individual Defendants' consideration of the terms of
the agreements with defendant Silverman was seriously flawed.
47. By virtue of the acts and conduct alleged herein, the
defendants, who control PGI, have carried out a preconceived plan
and scheme to place Silverman's personal interests ahead of the
interests of PGI's public shareholders. The defendants have
violated their fiduciary duties owed to plaintiff and the Class
in that they have not and are not exercising independent business
judgment and have acted and are acting to the detriment of the
PGI's public shareholders.
48. As a result of the actions of the defendants, plaintiff
and the other members of the Class have been and will be damaged
in that they have not and will not receive their fair proportion
of the value of PGI's assets and businesses and/or have been and
will be prevented from obtaining a fair and adequate price for
their PGI shares of common stock.
49. Plaintiff and the Class have no adequate remedy at law.
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WHEREFORE, plaintiff prays for judgment and relief as
follows:
A. Ordering that this action may be maintained as a class
action and certifying plaintiff as the Class representative;
B. Directing defendants to account to Class members for
all damages suffered and to be suffered by them as a result of
the wrongs complained of herein;
C. Directing defendants to account for any profits
wrongfully obtained by any of the defendants as a result of the
wrongs complained of herein;
D. Imposing a constructive trust upon all monies paid by
Nortek and PGI to any defendant as a result of such defendant's
breach of his fiduciary duties to PGI and its public
shareholders;
E. Awarding plaintiff the costs and disbursements of this
action, including a reasonable allowance for plaintiff's
counsels' and experts' fees; and
F. Granting such other and further relief as the Court may
deem just and proper.
ROSENTHAL, MONHAIT, GROSS &
GODDESS, P.A.
By:____________________________
919 Market Street
Mellon Bank Center, Suite 1401
Wilmington, Delaware 19801
(302) 656-4433
Attorneys for Plaintiff
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OF COUNSEL:
ABBEY, GARDY & SQUITIERI, LLP
212 East 39th Street
New York, New York 10016
(212) 889-3700
SCHIFFRIN & CRAIG, LTD.
Three Bala Plaza East, Suite 400
Bala Cynwyd, Pennsylvania 19004
(610) 667-7706
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