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Schedule 14A Information
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. 1)
Filed by the Registrant [ ]
Filed by a Party other than the Registrant [x]
Check the appropriate box:
[x] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Materials Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Synthetic Industries, L.P.
------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Dwight E. Wininger
------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
______________________________________________________________________________
(2) Aggregate number of securities to which transaction applies:
______________________________________________________________________________
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
______________________________________________________________________________
(4) Proposed maximum aggregate value of transaction:
______________________________________________________________________________
(5) Total fee paid:
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______________________________________________________________________________
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
______________________________________________________________________________
(2) Form, Schedule or Registration Statement No.:
______________________________________________________________________________
(3) Filing Party:
______________________________________________________________________________
(4) Date Filed:
______________________________________________________________________________
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Dr. Dwight E. Wininger
c/o The Mills Law Firm
300 Drake's Landing
Suite #155
Greenbrae, CA 94904
July __, 1997
Dear Limited Partner,
Like you, I am a Limited Partner in Synthetic Industries, L.P. ("the
Partnership"). My goal is to make sure that our investment in the
Partnership is promptly liquidated at the highest possible price.
For this reason, I have filed two class action lawsuits on our behalf,
in Delaware and in California, against the General Partner and the
individuals (Leonard Chill and four others) and entities which control it. A
copy of the pending complaint in the Delaware lawsuit, which sets forth the
allegations against the defendants and the relief sought, is enclosed for
your review. The court has not yet ruled on the validity of any of the
allegations of the lawsuit.
In a Registration Statement filed with the Securities and Exchange
Commission on June 9, 1997, the Partnership's General Partner proposed a Plan
of Withdrawal and Dissolution for the Partnership. I oppose this proposed
plan. If the proposed plan is not halted by a court or abandoned, I will
write you again to explain why I oppose the proposed plan and to ask you to
vote against it.
Also enclosed is a Proxy Statement which contains detailed disclosures
about who I am, the Delaware and California class action lawsuits I have
filed on your behalf, who my attorneys are, who the management of the
Partnership is, and other matters. Please review it carefully.
I will keep you informed about the progress of the lawsuits. In the
meantime, if you would like to discuss the lawsuits or your investment in the
Partnership, please contact my attorney, Robert W. Mills of the Mills Law
Firm, at (415) 464-4770.
Very truly yours,
/s/ Dwight E. Wininger
---------------------------------------
Dr. Dwight E. Wininger
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PROXY STATEMENT
BY: DR. DWIGHT E. WININGER
C/O THE MILLS LAW FIRM
300 DRAKE'S LANDING
SUITE #155
GREENBRAE, CA 94904
RE: SYNTHETIC INDUSTRIES, L.P.
309 LAFAYETTE ROAD
CHICKAMAUGA, GEORGIA 30707
JULY __, 1997
BACKGROUND AND PURPOSE OF THIS PROXY STATEMENT
On June 9, 1997, Synthetic Industries, Inc. ("the Company") filed a
Registration Statement ("the Registration Statement") with the Securities and
Exchange Commission ("SEC"). Approximately two-thirds of the stock of the
Company is owned by Synthetic Industries, L.P. ("the Partnership"). This
stock is the Partnership's only asset.
The Registration Statement contains a Joint Proxy Statement and
Prospectus, which proposes a "Plan of Withdrawal and Dissolution for the
Partnership" ("the Proposed Plan"). Under the Proposed Plan, the
Partnership's shares in the Company will be sold in a public offering or
distributed to the Partnership's limited partners ("the Limited Partners").
The Proposed Plan requires approval by a vote of the Limited Partners.
Dwight E. Wininger, M.D. is a limited partner in the Partnership. Dr.
Wininger opposes the Proposed Plan. If the Proposed Plan is not halted by a
court or abandoned, Dr. Wininger intends to send the Limited Partners one or
more additional communications which explain why he opposes the Proposed
Plan. The purpose of this Proxy Statement is to disclose certain items of
information, in accordance with the federal securities laws, about Dr.
Wininger, the preparation and financing of this Proxy Statement, the
Partnership, its management, the procedures for voting on the Proposed Plan,
and related matters.
WHO IS SENDING THIS PROXY STATEMENT
This Proxy Statement and the accompanying cover letter were not prepared
or sent by the Partnership. This Proxy Statement and the accompanying cover
letter are from Dwight
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E. Wininger, M.D. Dr. Wininger's attorneys, The Mills Law Firm, have paid
for all expenses associated with the preparation and dissemination of this
Proxy Statement and the accompanying cover letter. In coordination with Dr.
Wininger and on his behalf, The Mills Law Firm prepared the text of this
Proxy Statement and of the accompanying cover letter.
The sole financial interests of Dr. Wininger relating to the Partnership
or the Proposed Plan are to maximize the return on his investment of one-half
Partnership unit ("Unit") in the Partnership and/or to achieve a favorable
recovery in two lawsuits he has filed against the General Partner and the
individuals and entities which control it. The Mills Law Firm's only
financial interest relating to the Partnership or the Proposed Plan is in
receiving attorney's fees and reimbursement of costs in connection with its
representation of Dr. Wininger or other Limited Partners. The Mills Law Firm
has a financial incentive to increase the return the Limited Partners receive
for their investment in the Partnership as much as possible, because doing so
would be likely to increase the amount of attorney's fees The Mills Law Firm
would be entitled to.
WHO DR. WININGER IS
Dr. Wininger owns one-half of one Unit in the Partnership, which he
received in exchange for a capital contribution of $50,000. Dr. Wininger is
an anesthesiologist who resides in California. Dr. Wininger seeks to ensure
that he and the other Limited Partners receive the highest possible return on
their investment in the Partnership.
In September 1996, Dr. Wininger retained The Mills Law Firm to block a
proposed initial public offering ("IPO") of all of the Partnership's stock in
the Company announced by the Partnership's general partner ("the General
Partner") in August 1996. With the aid of The Mills Law Firm, Dr. Wininger
and other Limited Partners demanded a meeting of the Partnership, in
accordance with procedures in the governing partnership agreement ("the
Partnership Agreement"), to vote on the proposed IPO. Instead of convening
the meeting, the General Partner withdrew the IPO proposal.
Dr. Wininger has filed two class action lawsuits on behalf of the other
Limited Partners. The first lawsuit, filed in the Delaware Court of Chancery
("the Delaware Lawsuit"), alleges that the General Partner and the
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individuals and entities which control it have breached their fiduciary
duties to the Limited Partners and violated the Partnership Agreement. The
second lawsuit, filed in the U.S. District Court for the Northern District of
California ("the California Lawsuit"), alleges that the General Partner and
the individuals and entities which control it violated SEC regulations in
connection with a March 21, 1997 letter to the Limited Partners which
announced the Proposed Plan.
The Mills Law Firm represents Dr. Wininger in both lawsuits. Since Dr.
Wininger is the named plaintiff for the putative classes in the two lawsuits,
Dr. Wininger and The Mills Law Firm each have a fiduciary obligation to
represent the interests of the Limited Partners in the lawsuits. The details
of the two lawsuits are set forth below in the section entitled "The Class
Action Lawsuits Filed by Dr. Wininger." In addition, a copy of the pending
complaint in the Delaware Lawsuit is enclosed.
If the Proposed Plan is not halted by a court or abandoned, Dr. Wininger
intends to send one or more communications to the Limited Partners urging
them to vote against the Proposed Plan. Depending upon developments, Dr.
Wininger may also propose an alternative plan involving the dissolution of
the Partnership, the sale of the Partnership assets, and/or the removal of
the General Partner, and may attempt to obtain approval of such a plan by
vote of the Limited Partners pursuant to the terms of the Partnership
Agreement. There can be no assurance that any such alternative plan will be
proposed, approved, or implemented.
THE FINANCIAL INTEREST OF DR. WININGER IN THIS MATTER
The sole financial interests of Dr. Wininger relating to the Partnership
or the Proposed Plan are to maximize the return on his investment of one-half
Unit in the Partnership and/or to achieve a favorable recovery in the
Delaware and/or California lawsuits. Dr. Wininger has no other financial
interest relating to the Partnership or to the Proposed Plan.
PREPARATION AND FINANCING OF THIS PROXY STATEMENT
In coordination with Dr. Wininger and on his behalf, Dr. Wininger's
attorneys, The Mills Law Firm, prepared the text of this Proxy Statement and
of the accompanying cover letter. The cost of preparing and disseminating
this Proxy Statement was borne by The Mills Law Firm. Any future efforts by
Dr. Wininger to defeat the Proposed Plan or to propose an alternative plan
for the liquidation of the
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Partnership may be assisted and paid for by The
Mills Law Firm.
WHO THE MILLS LAW FIRM IS
The Mills Law Firm represents Dr. Wininger with respect to his
investment in the Partnership generally, and in the two lawsuits Dr. Wininger
has filed in Delaware and California. Dr. Wininger has authorized The Mills
Law Firm to take all actions necessary or appropriate, both through
litigation and other methods, to maximize the return he and other Limited
Partners will receive on their investments in the Partnership.
The Mills Law Firm maintains a nationwide law practice representing
investors in limited partnerships, other types of investors, consumers, and
victims of fraud. The firm's practice consists mainly of class actions
dealing with breaches of fiduciary duty involving limited partnerships and
trusts, business fraud and deceptive practices, product liability, and
environmental law.
In addition to representing Dr. Wininger, The Mills Law Firm represents
412 of the other Limited Partners ("the Represented Partners"). The
Represented Partners initially retained The Mills Law Firm to block the
proposed IPO announced by the General Partner in August 1996. The
Represented Partners also have authorized The Mills Law Firm to represent
them to pursue any claims of mismanagement or breach of fiduciary duty
against the General Partner or the individuals and entities which control it.
THE FINANCIAL INTERESTS OF THE MILLS LAW FIRM IN THIS MATTER
In connection with its representation of Dr. Wininger or the other
Represented Partners (including its representation of Dr. Wininger in the
Delaware Lawsuit, the California Lawsuit, and/or with respect to the
preparation and dissemination of proxy solicitations), The Mills Law Firm may
receive attorney's fees and reimbursement for the costs it incurs relating to
such representation. The costs for which The Mills Law Firm may be
reimbursed may include the costs incurred in connection with the preparation
and dissemination of this Proxy Statement and the accompanying cover letter.
The Mills Law Firm may receive attorney's fees and costs through an award of
fees and costs by a court, through approval by vote of the Limited Partners,
or based on contingency fee agreements it has with Dr. Wininger and the other
Represented Partners.
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The Mills Law Firm has a financial incentive to increase the return the
Limited Partners receive for their investment as much as possible, because
doing so would be likely to increase the amount of attorney's fees The Mills
Law Firm would be entitled to. The contingency fee agreements between The
Mills Law Firm and the Represented Partners provide that the attorney's fees
of The Mills Law Firm go up in proportion to the amount the Represented
Partners receive in the liquidation of the Partnership. Similarly, in class
actions, courts often, but not always, award attorney's fees in proportion to
the benefit generated by the attorneys on behalf of the class.
Neither The Mills Law Firm, nor any of its attorneys or other employees,
own any Units in the Partnership. Neither The Mills Law Firm, nor any of its
attorneys or other employees, have any financial interest relating to the
Partnership other than the interest in attorney's fees disclosed above.
THE PARTNERSHIP AND HOW IT IS GOVERNED
The Partnership is a limited partnership organized under the laws of
Delaware. The manner in which the Partnership is to be governed is set
forth in a partnership agreement effective as of November 11, 1986 ("the
Partnership Agreement"). The Partnership Agreement provides that "[t]he
Partnership shall be managed by the General Partner, and the conduct of the
Partnership's business shall be controlled and conducted solely by the
General Partner subject to and in accordance with this Agreement."
The only way the Limited Partners can exert control over the Partnership
is through the exercise of their voting rights. The matters which the
Partnership Agreement provides the Limited Partners may vote on are: (1)
approving a transaction proposed by the General Partner involving the sale,
exchange, mortgage, pledge, transfer, financing, or refinancing of
substantially all the Partnership assets (which requires approval of Limited
Partners holding two-thirds of the Units); (2) removing the General Partner
(which requires approval of Limited Partners holding a majority of the
Units); (3) amending the Partnership Agreement (which requires approval of
Limited Partners holding a majority of the Units); (4) dissolution of the
Partnership (which requires approval of Limited Partners holding a majority
of the Units and concurrence by the General Partner); (5) appointing, upon
removal of the last remaining general partner, a new general partner (which
requires approval of 100 percent of the Limited Partners);
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and (6) continuing the business of the Partnership upon an event which would
otherwise trigger dissolution of the Partnership (which requires approval of
100 percent of the Limited Partners).
WHO THE MANAGEMENT OF THE PARTNERSHIP IS
As used in this Proxy Statement, the term "Management" refers to the
five individuals who control the General Partner of the Partnership --
Leonard Chill, Jon Beckman, W. Wayne Freed, Ralph Kenner, and W. Gardner
Wright. These five individuals control the General Partner, and thereby
control the Partnership, through the following multi-level structure:
The sole General Partner of the Partnership is SI Management L.P. The
sole general partner of SI Management L.P. is Synthetic Management G.P. (Dr.
Wininger believes that Synthetic Management G.P. has at times referred to
itself as "SI Management G.P."). The general partners of Synthetic
Management G.P. are five Delaware corporations: Chill Investments, Inc.,
Beckman Investments, Inc., Freed Investments, Inc., Kenner Investments, Inc.,
and Wright Investments, Inc. Leonard Chill is the sole director and
stockholder of Chill Investments, Inc. Jon Beckman is the sole director and
stockholder of Beckman Investments, Inc. W. Wayne Freed is the sole director
and stockholder of Freed Investments, Inc. Ralph Kenner is the sole director
and stockholder of Kenner Investments, Inc. W. Gardner Wright is the sole
director and stockholder of Wright Investments, Inc.
MANAGEMENT'S POSITIONS AND SALARIES WITH THE COMPANY
The Partnership owns approximately two-thirds of the stock of Synthetic
Industries, Inc. ("the Company"), which is the Partnership's only asset.
Four of the five members of Management -- Chill, Wright, Freed, and Kenner --
have executive positions in the Company which pay them substantial salaries
and other compensation.
Leonard Chill is President, Chief Executive Officer, and a Director of
the Company. In the fiscal year which ended on September 30, 1996, Chill
received a salary of $254,871 and $127,413 in bonuses and other compensation.
Chill's annual salary is now $270,163.
W. Gardner Wright is the Company's Vice President -- General Manager
- --Carpet Backing Group. In the 1995-96 fiscal year, Wright received a salary
of $235,664 and
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$85,460 in bonuses and other compensation. Wright's annual salary is now
$249,803.
W. Wayne Freed is the Company's Vice President -- Market Development. In
the 1995-96 fiscal year, Freed received a salary of $152,400 and $41,293 in
bonuses and other compensation. Freed's annual salary is now $161,544.
Ralph Kenner is the Company's Vice President -- Manufacturing. In the
1995-96 fiscal year, Kenner received a salary of $145,973 and $59,233 in bonuses
and other compensation. Kenner's annual salary is now $154,731.
The fifth member of Management, Jon Beckman, is a consultant to the Company
and a former executive officer of the Company. Under Beckman's consulting
agreement with the Company, Beckman receives $125,000 per year and is required
to provide twenty hours of consulting services per month.
MANAGEMENT'S STOCK OPTIONS
Management holds options to purchase Company stock. Management caused the
Partnership to approve these stock options. Chill holds options to purchase
145,282 shares. Wright, Freed, Kenner, and Beckman each hold options to
purchase 53,871 shares. There are a total of 8,656,250 shares of Company stock.
The options have an exercise price of $10.72 per share. As of June 23,
1997, the Company's stock was trading at $19.25 per share.
MANAGEMENT'S EMPLOYMENT AGREEMENTS
In September 1996, Management caused the Company to grant four of the five
members of Management (Chill, Wright, Kenner, and Freed) long-term employment
agreements. Under these employment agreements, if their employment is
terminated in connection with a change of control of the Company, Chill, Wright,
Kenner, and Freed will each be entitled to the following substantial payments
and other benefits:
(1) a lump sum payment equal to two times his annual base salary and annual
incentive plan for the year in which the change of control occurs or the prior
year, whichever is greater;
(2) unpaid, accrued amounts under the annual incentive plan and a payment
that equals the average of the incentive
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payment received by him under the annual incentive plan for the immediately
preceding three years;
(3) certain other supplemental insurance coverages, for a maximum of 18
months; and
(4) immediate vesting of his stock options.
THE CLASS ACTION LAWSUITS FILED BY DR. WININGER
Dr. Wininger has filed two class action lawsuits on behalf of the other
Limited Partners. The Mills Law Firm is representing Dr. Wininger in both
lawsuits. IMPORTANT NOTE: NO COURT OF LAW HAS YET ISSUED A RULING ON THE
VALIDITY OF ANY OF THE ALLEGATIONS OF EITHER LAWSUIT.
THE DELAWARE LAWSUIT
The first lawsuit was filed in the Delaware Court of Chancery ("the
Delaware Lawsuit"). A copy of the pending complaint in the Delaware Lawsuit is
enclosed. The Delaware Lawsuit alleges:
(1) that Management took control of the General Partner in 1993, promptly
replaced the Company's formerly independent board of directors with their own
nominees, and have continued to elect their own nominees to the board;
(2) that, beginning in 1994, Management "embarked on a plan that would
eventually permit them to cause a liquidation of the assets of the Partnership
in a fashion that would not jeopardize their control over the Company, such as
might occur if the Partnership sold its stock in the Company to a single buyer
at a price reflecting a control premium. Rather, their plan contemplated a
series of transactions designed to culminate in the Company becoming a publicly
held company with a widely dispersed base of stockholders. This, combined with
generous stock options . . . and golden parachute employment contracts, would
leave [Management] well entrenched. To do so, however, required the Partnership
to forfeit, at the expense of the limited partners, the value of the control
premium inherent in the Partnership's ownership of . . . the stock of the
Company.";
(3) that, as part of this "preconceived, long range entrenchment plan, and
in order to enrich themselves at the expense of the limited partners,"
Management has "granted themselves . . . stock options . . . with unreasonably
low strike prices," which "unfairly diluted the value of the Company stock held
by the Partnership";
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(4) that, "as a second step in furtherance of their plan," in August 1996,
Management proposed an IPO of all the Company's stock in the Partnership, the
consequences of which would have been that "the Company's stock would be
dispersed in the hands of the public, the Partnership would forego any benefit
it might otherwise derive from a sale of control, and [Management] would
entrench themselves in control of the Company";
(5) that Management "were and continue to be under a strict fiduciary duty
to the Partnership and the limited partners to ensure that the value to be
received by the limited partners was the highest and best value reasonably
available, and that all feasible alternatives to achieving the highest possible
value were diligently and disinterestedly explored," that "[i]n breach of this
duty, the General Partner and [Management] unilaterally determined to liquidate
the Partnership in a manner that would not threaten the individual [members' of
Management] positions with and control over the Company and the substantial
monetary and other benefits they derive therefrom," and that Management "failed
to assure that transactions other than a public offering, such as a sale of the
Company stock as a block or a merger or acquisition, were disinterestedly and
adequately explored";
(6) that "[a]t the time of the proposed IPO, [Management was] aware that,
as a result of substantial capital investments and other factors, the Company
expected a huge surge in earnings in the very near future, and that a
significantly higher price for the Company stock could be realized by delaying a
public offering until those earnings were achieved and made public";
(7) that, after the Limited Partners demanded, pursuant to the Partnership
Agreement, a partnership meeting to vote on the proposed IPO, the General
Partner and Management, "[i]n breach of their fiduciary obligations and the
Partnership Agreement . . . refused to hold the meeting";
(8) that, in September 1996, Management "caused the Company to award [the
members of Management] lucrative golden parachute employment agreements," which
provide that Management would be entitled to "millions of dollars in payments,
and their stock options would vest should there be a 'change of control,' which
would occur upon . . . a transfer of the Partnership's controlling block of
Company stock";
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(9) that, "[l]ike the Stock Options, the employment agreements have
substantially impaired the marketability of the Partnership's assets and the
returns the limited partners may receive upon liquidation," and that Management
"entered into the employment agreements for their own personal benefit and to
entrench themselves in their positions with the Company, all at the expense of
the limited partners";
(10) that, in September 1996, "in circumvention of the expressed will of
the limited partners to conduct a vote on the proposed IPO, [Management]
announced that they would promptly cause the Company to . . . issue
approximately 3.4 million new shares in the Company, thereby diluting the
Partnership's ownership in the Company," and that Management, in November 1996,
"caused the Company to issue approximately 2.5 million new shares in a public
offering at a price of $13 per share";
(11) that, although Management "knew or should have known that the Company
had materially increased earnings, they did not disclose the improved earnings
to the public prior to the public offering or delay the public offering until
the earnings increase had been announced," that, as a result, "the public
offering price of $13 per share was artificially depressed below the stock's
true value," that, "within just a few weeks following the public offering, the
Company publicly announced a 34% jump in operating income," that "the trading
price of the Company's stock increased almost immediately by nearly 50% to over
$19 per share," and that, "[a]s a result of offering the Company's stock at an
artificially low price," Management caused "the Partnership's stock ownership of
the Company to be unfairly diluted from 100% to approximately 66%";
(12) that, through the Proposed Plan described in the Registration
Statement, Management has "again clearly evidenced their intention to sacrifice
the value of the control premium inherent in the controlling block of the
Company's stock owned by the Partnership solely to entrench" themselves;
(13) that the Registration Statement "discloses that [Management] and the
General Partner contend that their Plan of Dissolution may be adopted by a vote
of only a majority of the Partnership's limited partners, rather than the two-
thirds vote that plaintiff believes is required under the Partnership
Agreement";
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(14) that the General Partner and Management, "in failing to market the
Partnership assets effectively with a view to obtaining the highest possible
return to the limited partners upon liquidation . . . have breached and continue
to breach their fiduciary duties to the limited partners";
(15) that, as a result of the actions alleged in the complaint, Management
has "substantially reduced the value of the stock held by the Partnership,
impaired its marketability, and reduced the amounts the limited partners will
receive upon the planned liquidation of the Partnership"; and
(16) that Management has conflicts of interest "arising from their personal
interest in entrenching themselves and otherwise profiting at the expense of the
partnership and the limited partners," and that Management "face[s] an
irresolvable conflict of interest between their fiduciary obligations to the
Company and its public stockholders on the one hand and to the Partnership and
the limited partners on the other."
The Delaware Lawsuit requests the following relief:
(1) removal of the General Partner as general partner of the Partnership;
(2) dissolution of the Partnership;
(3) "[a]ppointing a liquidating trustee . . . and implementing such other
or alternative means as may be necessary or appropriate to ensure that all
reasonable means to maximize the returns to the limited partners are pursued and
evaluated in the limited partners' interests and that the highest possible price
is obtained, together with such other relief as may be necessary or appropriate
to ensure that the disposition of the Partnership assets and liquidation of the
Partnership is carried out without the contaminating influence of the
defendants' conflicts of interest so as to maximize the returns to the limited
partners";
(4) requiring Management "to disgorge all profits under the Stock Options
and all profits under the change of control provisions of their employment
agreements, together with such alternative relief as may be necessary to ensure
that the rights of the limited partners are not impaired by such Stock Options
and employment agreements and that [Management] are not unjustly enriched
thereunder";
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(5) "compensatory damages in such amount as the Court may determine
together with interest thereon at the legal rate";
(6) a declaratory judgment "[d]eclaring that in liquidating the assets of
the Partnership, the General Partner and [Management] have a duty to seek out
and obtain for the Partnership the highest and best value reasonably possible
for the controlling interest in the Company owned by the Partnership";
(7) a declaratory judgment that declares that the Proposed Plan put forward
in the Registration Statement requires the approval of Limited Partners holding
two-thirds of the Partnership Units;
(8) awarding of costs of suit, including attorneys' fees and expenses; and
(9) "granting such other relief as may be necessary to protect the limited
partners or that is otherwise just and reasonable."
NOTE THAT THE COURT HAS NOT YET RULED ON THE VALIDITY OF ANY OF THE
ALLEGATIONS IN THE DELAWARE LAWSUIT.
On April 11, 1997, the defendants filed a motion to dismiss the Delaware
Lawsuit. The motion to dismiss alleges that the complaint fails to states a
claim, that the complaint fails to join Synthetic Industries, Inc., which is
allegedly an indispensable party, and that the plaintiff failed to make a proper
demand on the board of directors of Synthetic Industries, Inc. A hearing date
has not been set for the defendants' motion to dismiss.
On June 11, 1997, the plaintiff amended his complaint in the Delaware
Lawsuit. A copy of this complaint is enclosed.
THE CALIFORNIA LAWSUIT
The second class action lawsuit filed by Dr. Wininger was filed in the U.S.
District Court of the Northern District of California ("the California
Lawsuit"). The California Lawsuit alleges:
(1) that a letter sent to all the Limited Partners on March 21, 1997, which
announced the Proposed Plan and was signed by Leonard Chill on behalf of the
General Partner,
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was a "proxy solicitation" subject to the proxy regulations of
the SEC;
(2) that the General Partner and Management violated SEC Rule 14a-3 (17
Code of Federal Regulations Section 240.14a-3) by sending the March 21 letter to
the Limited Partners without concurrently or previously sending them a proxy
statement that had been filed with the SEC;
(3) that the General Partner and Management violated SEC Rule 14a-6 (17
Code of Federal Regulations Section 240.14a-6) by not filing the March 21 letter
with the SEC;
(4) that the General Partner and Management violated SEC Rule 14a-9 (17
Code of Federal Regulations Section 240.14a-9) by failing to disclose in the
March 21 letter:
(a) "the identities and interests of the individuals and entities who
have authorized the proposed Plan of Dissolution and the sending of the March
21, 1997 letter and how these individuals and entities stand to benefit
therefrom";
(b) "that the Limited Partners and the Partnership own a control
premium by virtue of the Partnership's ownership of a controlling interest in
the Company, and that the proposed Plan of Dissolution would cause this control
premium to be dissipated and irrevocably lost";
(c) "that a sale or transfer of the Partnership's controlling interest
in the Company as a block or other transaction which would allow the realization
of the control premium would threaten [Management's] control over the Company";
(d) "the facts regarding [Management's] lack of efforts to market the
Company stock held by the Partnership as a block or [to] explore other
alternatives [for] realiz[ing] the control premium and/or maximiz[ing] the price
to be received";
(e) "that the interests of the Limited Partners and/or the Partnership
may be in conflict with [Management's] duties to the Company and/or the public
shareholders of the Company";
(f) that Management caused the Company to grant Management stock
options;
(g) the details of those stock options;
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(h) the Delaware Lawsuit or the details of the Delaware Lawsuit;
(i) that Management caused the Company to grant Management "golden
parachute" employment agreements;
(j) the details of the "golden parachute" employment agreements;
(k) the positions of the members of Management in the Company or the
salaries and other compensation the members of Management receive from the
Company; and
(l) that, in connection with the November 1996 public offering of
newly issued stock by the Company, the Partnership entered into a lock-up
agreement with Bear, Stearns & Co., Inc., the underwriter of the public
offering, which prohibits the Partnership from selling any Company stock for a
period of 270 days after the offering without the consent of Bear, Stearns &
Co., Inc., and which also prohibits the Partnership from selling any Company
stock except pursuant to an underwritten public offering until December 1, 1997.
The California Lawsuit requests the following relief:
(1) a declaratory judgment stating that the General Partner and Management
violated SEC Rules 14a-3, 14a-6, and 14a-9;
(2) injunctive relief to remedy the alleged violations of SEC regulations;
(3) "an award of costs of suit therein, including attorneys' fees and
expenses, to the extent permitted by law"; and
(4) "such other relief as may be necessary to protect the Limited Partners
or that is otherwise just and reasonable."
NOTE THAT THE COURT HAS NOT YET RULED ON THE VALIDITY OF ANY OF THE
ALLEGATIONS IN THE CALIFORNIA LAWSUIT.
The plaintiff has filed a motion for a preliminary injunction in the
California Lawsuit. This motion is scheduled to be heard on July 25, 1997. The
preliminary injunction motion requests the court to issue a preliminary
injunction which would bar the General Partner and
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Management from conducting further proxy solicitations until they:
(1) file a proxy statement with the SEC which complies with SEC regulations
and send the proxy statement to all the Limited Partners;
(2) file the March 21 letter with the SEC; and
(3) send a corrective disclosure to the Limited Partners which makes full
disclosure of all facts material to the Proposed Plan or the March 21 letter.
VOTING PROCEDURES AND RELATED MATTERS
PROCEDURE FOR APPROVAL OF THE PROPOSED PLAN
In the Registration Statement, the General Partner has taken the position
that the Proposed Plan will require approval of Limited Partners owning a
majority of the Partnership Units. The position of Dr. Wininger is that the
Partnership Agreement requires that the Proposed Plan be approved by Limited
Partners owning two-thirds of the Units. The Partnership Agreement states that
"the General Partner, without the consent, approval or ratification of two-
thirds in Interest of the Limited Partners, may not cause the Partnership . . .
to sell, exchange, mortgage, pledge, transfer, finance or refinance all or
substantially all of the assets of the Partnership . . . ." In addition, in the
March 21, 1997 letter which announced the Proposed Plan, Leonard Chill stated
that two-thirds approval would be required.
NUMBER OF PARTNERSHIP UNITS AND LIMITED PARTNERS
There is only one class of Units. There are 800 outstanding Units. There
are approximately 1850 Limited Partners in the Partnership.
DATE OF PARTNERSHIP MEETING / DEADLINE FOR RETURN OF PROXIES
The Registration Statement filed by the Company with the SEC on June 9,
1997 contains a Joint Proxy Statement / Prospectus. The SEC's review of the
Registration Statement may lead to revisions in the Joint Proxy Statement /
Prospectus. The SEC's review process, with respect to a registration statement,
normally lasts about 30 days or longer.
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Thus, the General Partner has not yet mailed out the Joint Proxy Statement
/ Prospectus to the Limited Partners. Nor has the General Partner mailed any
proxies to the Limited Partners. The General Partner has not yet set a date,
time, and place for the meeting of the Partnership at which the Proposed Plan
would be voted on. Similarly, the General Partner has not yet set a date by
which proxies must be received.
DETERMINATION OF THE LIMITED PARTNERS ENTITLED TO VOTE
Under the Delaware Revised Uniform Limited Partnership Act ("DRULPA"),
voting procedures for a partnership are left up to each individual partnership
agreement. The governing Partnership Agreement is silent on whether determining
the Limited Partners who are entitled to vote is to be done by setting a record
date or through some other criteria.
According to the Registration Statement, the General Partner will set a
record date for determining the Limited Partners who will be entitled to vote on
the Proposed Plan. According to the Registration Statement, only persons who
are Limited Partners on the record date will be entitled to vote on the Proposed
Plan. The General Partner has not yet set the record date.
METHOD FOR COUNTING VOTES
Under DRULPA, how votes are to be counted or how abstentions and broker
non-votes are to be treated is left up to the partnership agreement. The
governing Partnership Agreement contains no provisions dealing with the method
for counting votes or the treatment of abstentions or broker non-votes.
The Registration Statement does not explain how the General Partner intends
to count votes, except that it states that "[a]ll questions as to the validity
of Proxies . . . will be determined by the General Partner, and such
determination will be final and binding." The position of Dr. Wininger is that
the Partnership Agreement does not give the General Partner limitless authority
to make "final and binding" determinations concerning the validity of proxies.
The Registration Statement states that abstentions will be treated as votes
against the Proposed Plan. Dr. Wininger agrees that it is correct to treat
abstentions as votes against the Proposed Plan.
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The Registration Statement states that, "[w]here no instructions are
given," proxies will be voted for the Plan. The position of Dr. Wininger is
that the General Partner has no authority to cast blank proxies in favor of the
Proposed Plan.
REVOCABILITY OF PROXIES
Under DRULPA, whether or not proxies are revocable is left up to the
partnership agreement. The governing Partnership Agreement is silent on the
matter of whether proxies are revocable.
The Registration Statement states that proxies will be revocable. Dr.
Wininger agrees that proxies should be revocable.
RIGHTS OF APPRAISAL
Under DRULPA, whether limited partners in a partnership have rights of
appraisal or similar rights of dissenters is left up to the partnership
agreement. Under the governing Partnership Agreement, there are no rights of
appraisal or similar rights of dissenters, with respect to the Proposed Plan.
DETAILS OF THE PROPOSED PLAN
Under the Proposed Plan, the Partnership's controlling shares in the
Company will be not be sold or marketed, as a block, to a third party. Instead,
the Partnership's shares will be distributed to the Limited Partners or sold in
a public offering (the proceeds of which would be distributed to the Limited
Partners).
In order to receive cash for the sale of shares in the public offering, a
Limited Partner must vote all his or her Units in favor of the Proposed Plan.
Limited Partners who vote all their Units in favor of the Proposed Plan will be
able to "withdraw" some or all of the shares of Company stock underlying their
Units. These "withdrawn shares" will then be sold in the public offering, the
proceeds of which will be distributed to the Limited Partners who "withdraw"
shares.
There is no assurance that the public offering will take place, however, or
that it will be completed if it does take place. If the public offering does
not take place, or is not completed, within 180 days of approval of the Proposed
Plan, any "withdrawn shares" not sold in the public
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offering will be distributed to the Limited Partners who "withdraw" shares.
Limited Partners who do not vote all their Units in favor of the Proposed
Plan will receive shares in the Company in one or more distributions which will
begin no earlier than 270 days after the completion of the public offering or
270 days after the distribution of "withdrawn shares" upon failure to complete
the public offering. Limited Partners who do vote all their Units in favor of
the Proposed Plan but do not "withdraw" all their shares will receive the shares
they do not "withdraw" in the same distribution or distributions in which the
Limited Partners who do not vote all their Units in favor of the Proposed Plan
receive their shares.
If the shares that remain in the Partnership after completion of the public
offering or the distribution of "withdrawn shares" represent less than 20
percent of the total shares of Company stock, then these "remaining shares" will
be distributed in one distribution that will take place 270 days after the
completion of the public offering or the distribution of "withdrawn shares." On
the other hand, if the "remaining shares" represent 20 percent or more of the
Company's stock, they will be distributed in three equal increments: the first
of these three distributions would take place 270 days after the completion of
the public offering or the distribution of "withdrawn shares," the second
distribution would take place 180 days after the first distribution, and the
third distribution would take place 180 days after the second distribution.
Thus, under the Proposed Plan, some Limited Partners may not receive cash
or stock for some of their Units until 810 days (nearly two years and three
months) after approval of the Proposed Plan.
More details of the Proposed Plan are contained in the Registration
Statement (Form S-4) filed with the SEC by the Company on June 9, 1997. The
Registration Statement can be obtained through the internet by going to
http://www.sec.gov/cgi-bin/srch-edgar and typing in "Synthetic" in response to
the prompt "Enter search keywords."
Alternatively, a copy of the Registration Statement can be obtained from
Dr. Wininger's attorneys, The Mills Law Firm. Upon receipt of a written or oral
request for the Registration Statement, The Mills Law Firm will provide a copy
of the Registration Statement, without charge, by first
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class mail or other equally prompt means within one business day of receipt
of such request.
A written request for the Registration Statement may be directed to:
The Mills Law Firm
300 Drake's Landing, Suite #155
Greenbrae, CA 94904
A telephonic request for the Registration Statement may be directed to The Mills
Law Firm at (415) 464-4770.
POSSIBLE FUTURE SOLICITATIONS IN OPPOSITION TO THE PROPOSED PLAN
Dr. Wininger opposes the Proposed Plan. If the Proposed Plan is not halted
by a court or abandoned, Dr. Wininger intends to send the Limited Partners one
or more additional written communications which explain why he opposes the
Proposed Plan and which ask the Limited Partners to vote against it.
Dr. Wininger may or may not make communications other than by use of the
mails in opposition to the Proposed Plan. If Dr. Wininger does make
communications other than by use of the mails in opposition to the Proposed
Plan, or if such communications are made on his behalf, a supplemental
disclosure will be made describing the methods of any such communications.
Dr. Wininger may or may not hire a professional proxy solicitor or other
specially paid employee to aid efforts by him to defeat the Proposed Plan. If
Dr. Wininger does hire such a professional proxy solicitor or other specially
paid employee, or if such a professional solicitor or other employee is hired on
his behalf, a supplemental disclosure will be made about the material features
of any contract or arrangement for such solicitation and the cost or anticipated
cost thereof.
OWNERSHIP OF PARTNERSHIP UNITS BY CERTAIN INDIVIDUALS OR ENTITIES
Dr. Wininger is not aware of any beneficial ownership by any person or
group of more than five percent of the Units. The General Partner owns one
percent of the equity in the Partnership. Dr. Wininger is not aware of any
beneficial ownership of any Units by any officer of the Partnership or by any
person or entity who has an interest
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in or control over the General Partner (other than through the interest such
persons or entities may have in the General Partner's equity stake of one
percent in the Partnership).
*****
If you would like to discuss any of the matters that are the subject of
this Proxy Statement, please contact Dr. Wininger's attorney, Robert W. Mills of
The Mills Law Firm, at (415) 464-4770.
/s/ Dwight E. Wininger
----------------------------------------
(Dr. Dwight E. Wininger)
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Exhibit 99.1
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
DWIGHT E. WININGER, on behalf of himself )
and all others similarly situated, and derivatively )
on behalf of Synthetic Industries, L.P., )
)
Plaintiff, )
v. ) C.A. No. 15538NC
)
SI MANAGEMENT L.P., a limited partnership, )
SYNTHETIC MANAGEMENT G.P., a General )
Partnership, LEONARD CHILL, JON P. )
BECKMAN, W. WAYNE FREED, RALPH )
KENNER, W. GARDNER WRIGHT, CHILL )
INVESTMENTS, INC., BECKMAN )
INVESTMENTS, INC., FREED )
INVESTMENTS, INC., KENNER )
INVESTMENTS, INC., and WRIGHT )
INVESTMENTS, INC., )
)
Defendants. )
)
and )
)
SYNTHETIC INDUSTRIES, L.P., a Delaware )
limited partnership, )
)
Nominal Defendant. )
AMENDED AND SUPPLEMENTAL
CLASS AND DERIVATIVE ACTION COMPLAINT(1)
- ----------------------
(1)For convenience in reading, the changes from the original complaint
filed February 11, 1997, are not marked in the text of the amended and
supplemental complaint. However, in accordance with Chancery Court Rule
15(aa), attached as Exhibit D hereto and incorporated herein by reference is
a copy of the amended and supplemental complaint marked to show the changes
from the original complaint.
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Plaintiff DWIGHT E. WININGER, by and through his attorneys, alleges on his
own behalf, derivatively and on behalf of all others similarly situated, all on
information and belief (except those allegations which pertain to his own
actions or those of his attorneys, which are alleged on personal knowledge), as
follows:
NATURE OF THE ACTION
1. SYNTHETIC INDUSTRIES, L.P. (the "Partnership") is a Delaware
limited partnership with approximately 1850 limited partners. Plaintiff
WININGER is one of those limited partners. This action -- brought as a class
action and as to Counts III and IV alternatively as a derivative action --
arises from breaches of contractual and fiduciary duties by the defendants in
connection with the operation and now the proposed liquidation of the
Partnership. In connection therewith, the defendants, who are the
Partnership's general partner and the persons who control it, have
fundamental conflicts of interest. They have pursued a plan to dispose of
all Partnership assets and liquidate the Partnership in such a way as to
further their own conflicting interests at the expense of the limited
partners. Because of their conflicting interests, the defendants have failed
to market the Partnership assets effectively, to pursue alternatives or
otherwise to obtain the highest possible return to the limited partners upon
liquidation. And in furtherance of their plan of liquidation, the defendants
have engaged in a series of self-dealing transactions that have impaired the
marketability and value of the Partnership's assets and harmed the limited
partners.
2. To ensure that the interests of the limited partners are protected,
plaintiff seeks the removal of the defendants from their position of control
over the Partnership, the appointment of a liquidating trustee under the
direction of the limited partners and such other or alternative
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means as may be necessary or appropriate to ensure that all reasonable means
to maximize the returns to the limited partners are pursued and evaluated in
the limited partners' interests and that in connection with the liquidation
of the Partnership the highest possible price is obtained for its assets.
The plaintiff also seeks a declaratory judgement that the general partner has
a duty to maximize the value of the assets of the limited partnership upon
dissolution. Finally, plaintiff seeks damages for breach of fiduciary duty.
PARTIES
3. Plaintiff WININGER resides in Danville, California. He brings this
action as a class action on behalf of himself and the other limited partners
of the Partnership alternatively as to certain counts as a derivative action
in the right of the Partnership. Plaintiff now owns and at all times
relevant to the allegations herein has owned one-half of one Partnership unit
evidencing a capital contribution of $50,000.
4. SYNTHETIC INDUSTRIES, L.P., named herein as a nominal defendant, is
a Delaware limited partnership organized in 1986. The principal place of
business of the Partnership is located in Chickamauga, Georgia. A copy of
the Partnership's Amended and Restated Partnership Agreement ("the
Partnership Agreement"), dated November 11, 1986, is attached hereto as
Exhibit A.
5. The Partnership, capitalized in 1987 with approximately $78,000,000
contributed by the limited partners, was created by Integrated Resources Inc.
("Integrated") for the purpose of acquiring all of the stock of Synthetic
Industries, Inc. ("the Company"), increasing the Company's value, and then
realizing that increased value through a sale of the Company and a complete
liquidation of the Partnership. The Company is a leading producer of
polypropylene
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fabrics and fibers for the home furnishing, construction, environmental,
recreational and agricultural industries. At all relevant times, the
Partnership has owned a controlling interest in the stock of the Company. As
alleged more fully below, the Partnership owned 100% of the Company's stock
until October, 1996, when, as a result of the wrongful acts of the
defendants, its ownership was unfairly and improperly diluted to
approximately sixty-six percent (66%).
6. Defendant SI MANAGEMENT L.P. (the "General Partner"), a limited
partnership organized under the laws of the State of Delaware, is the sole
general partner of the Partnership. Until approximately April 22, 1993, the
General Partner was a subsidiary of Integrated.
7. Defendant SYNTHETIC MANAGEMENT G.P. ("Synthetic GP"), a general
partnership organized under the laws of the State of Georgia, is the sole
general partner of the General Partner.
8. At all relevant times since April 22, 1993, the only general
partners of Synthetic GP have been five Delaware corporations: defendant
CHILL INVESTMENTS, INC., defendant BECKMAN INVESTMENTS, INC., defendant FREED
INVESTMENTS, INC., defendant KENNER INVESTMENTS, INC. and defendant WRIGHT
INVESTMENTS, INC.
8. Defendant LEONARD CHILL has at all relevant times been the
President and CEO of the Company. On information and belief, defendant CHILL
is the sole director and stockholder of defendant CHILL INVESTMENTS, INC.
9. Defendant JON P. BECKMAN was at certain relevant times acting as
Vice President of Finance, Director and Chief Financial Officer of the
Company and is now a consultant to the Company. On information and belief,
defendant BECKMAN is the sole director and stockholder of defendant BECKMAN
INVESTMENTS, INC.
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10. Defendant W. WAYNE FREED has at all relevant times acted as Vice
President of Development of the Company. On information and belief,
defendant FREED is the sole director and stockholder of defendant FREED
INVESTMENTS, INC.
11. Defendant RALPH KENNER has at all relevant times acted as Vice
President of Manufacturing of the Company. On information and belief,
defendant KENNER is the sole director and stockholder of defendant KENNER
INVESTMENTS, INC.
12. Defendant W. GARDNER WRIGHT has at all relevant times acted as Vice
President of Sales and Marketing of the Company. On information and belief,
defendant WRIGHT is the sole director and stockholder of defendant WRIGHT
INVESTMENTS, INC.
13. Defendants CHILL, BECKMAN, FREED, KENNER, and WRIGHT and their
related solely owned and managed Delaware corporations described in
paragraphs 8-13 herein are collectively referred to as the "Management
Defendants."
14. On or about April 22, 1993, the Management Defendants, without the
approval of the limited partners, caused SYNTHETIC GP to acquire from
Integrated the general partner interest held by Integrated in the General
Partner. As a result of this acquisition, at all times since April 22, 1993,
the Management Defendants have controlled the General Partner and, by virtue
of the Partnership's ownership of the stock of the Company, the Company as
well.
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CLASS ALLEGATIONS
15. As set forth below, plaintiff brings Counts I through IV as a class
action pursuant to Delaware Court of Chancery Rules 23(a), 23(b)(1), 23(b)(2)
and 23(b)(3) on behalf of himself and each of the other limited partners of
the Partnership other than defendants, their agents and all persons acting in
concert with them. Each of the non-excluded limited partners is similarly
situated to plaintiff, and the class members are referred to in this
complaint as the limited partners. Counts I through IV of this action are
properly maintainable as a class action for the reasons that follow.
16. This case meets the requirements of Delaware Court of Chancery Rule
23(a). There are approximately 1850 limited partners living in many states
throughout the country, making the class members so numerous that joinder of
all members is impractical. In addition, there are questions of law and fact
common to the class. These include a determination of whether defendants
breached their various obligations and should be removed, whether the
Partnership should be dissolved and whether a liquidating trustee should be
appointed to wind up the affairs of the Partnership. The claims and defenses
of the class representative are typical of those of the class. These include
plaintiff's claim that the General Partner and the Management Defendants
breached their various obligations by taking actions to further their own
self-interests that are against the interests of the limited partners. The
class representative and class counsel will fairly and adequately protect the
interests of the class.
17. In addition, the class meets the prerequisites of Delaware Court of
Chancery Rule of 23(b)(1). The prosecution of separate actions by or against
individual members
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of the class would create a risk of inconsistent or varying adjudications
with respect to individual members of the class which would establish
incompatible standards of conduct for defendants. All of the class members
are limited partners in the same partnership. Removal of the General
Partner, dissolution of the Partnership, appointment of a liquidating trustee
and the declaratory relief sought by this complaint will affect all limited
partners alike. Alternatively, adjudications with respect to individual
members of the class would as a practical matter be dispositive of the
interests of the other members not parties to the adjudications or
substantially impair or impede their ability to protect their interests.
18. The class also meets the prerequisites of Delaware Court of
Chancery Rule 23(b)(2) in that the parties opposing the class have acted and
refused to act on grounds generally applicable to the class, thereby making
final injunctive relief or corresponding declaratory relief with respect to
the class as a whole appropriate.
19. The class also meets the prerequisites of Delaware Court of
Chancery Rule 23(b)(3) in that questions of law and fact common to members of
the class predominate over any questions affecting only individual members
and a class action is superior to other available methods for the fair and
efficient adjudication of the controversy.
20. Class action treatment is essential for, and provides a fair and
efficient method of, adjudicating the claims alleged in this complaint, which
affect a large number of the limited partners who reside in various states
around the country and whose joinder would be impracticable. This class
action provides an effective method of enforcing the rights of all the class
members without unnecessary expense or duplication.
7
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GENERAL ALLEGATIONS
21. The General Partner owes common law and contractual fiduciary
duties to the Partnership and the limited partners individually.
Additionally, by virtue of their control of the General Partner, the
Management Defendants owe fiduciary duties to the Partnership and the limited
partners individually. Among the duties owed to the Partnership and the
limited partners by the General Partner and the Management Defendants is to
refrain from actions which benefit them and injure the Partnership's assets
or the rights and interests of the limited partners.
22. Prior to the Management Defendants' takeover of the General Partner
in April 1993, control of the Partnership resided in an independent general
partner unaffiliated with management of the Company and that, free of
conflicts of interest, was able to ensure that the Company was operated in a
manner beneficial to the Partnership.
23. Upon taking over the General Partner in 1993, the Management
Defendants, formerly answerable to the Partnership and its independent
general partner, acquired complete control of the Partnership and, through
the Partnership, of the Company. Exercising the voting rights of the Company
stock held by the Partnership, the Management Defendants promptly replaced
the Company's independent Board of Directors with their own nominees and have
continued to elect their own nominees to the Company's Board.
24. Prior to the April 1993 takeover by the Management Defendants, the
Partnership enjoyed complete ownership of all of the Company's outstanding
stock, and no other person or entity held any interest in stock of the
Company.
25. Beginning in 1994, the Management Defendants embarked on a plan that
would eventually permit them to cause a liquidation of the assets of the
Partnership in a fashion that
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would not jeopardize their control over the Company, such as might occur if
the Partnership sold its stock in the Company to a single buyer at a price
reflecting a control premium. Rather, their plan contemplated a series of
transactions designed to culminate in the Company becoming a publicly held
company with a widely dispersed base of stockholders. This, combined with
generous stock options, a poison pill plan implemented for the Company and
golden parachute employment contracts, would leave the individual Management
Defendants well entrenched. To do so, however, required the Partnership to
forfeit, at the expense of the limited partners, the value of the control
premium inherent in the Partnership's ownership of 100% of the stock of the
Company.
26. As part of that preconceived, long range entrenchment plan, and in
order to enrich themselves at the expense of the limited partners, in or
about August 1994, the Management Defendants entered into a series of
transactions by which they caused the Company to grant to the individual
Management Defendants and their hand-picked Directors selected options to
purchase a substantial portion of the Company stock. On information and
belief, the Management Defendants have granted themselves and their
hand-picked directors stock options that in the aggregate total approximately
5.93% of the Company's currently outstanding stock and have authorized, but
not yet issued to themselves, options for an additional 3.09%, for a total of
9.02% (the "Stock Options"). In a flagrant act of self-dealing, the
Management Defendants unilaterally caused the General Partner and the
Partnership to approve the Stock Options.
27. The Management Defendants caused the Stock Options to be issued
with unreasonably low strike prices, and the Stock Options unfairly diluted
the value of the Company stock held by the Partnership. As the sole
stockholder of the Company, the Partnership could
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have prevented such dilution. But it did not because to have done so was
contrary to the self interest of the individual Management Defendants. Thus,
the General Partner passively allowed the value of the Partnership's sole
asset to be diluted.
28. As a second step in furtherance of their plan, on or about August
2, 1996, the Management Defendants caused the General Partner to send a 30
Day Sale of Assets Notice to the limited partners (the "Notice"). The Notice
announced that the Partnership would conduct an initial public offering (the
"IPO") in which the Partnership would sell its 5,781,250 shares of Company
stock (100% of the common stock then outstanding) and the Company would
simultaneously issue an additional 1,178,750 previously unissued shares.
Through the IPO, the Company's stock would be dispersed in the hands of the
public, the Partnership would forego any benefit it might otherwise derive
from a sale of control, and the individual Management Defendants would
entrench themselves in control of the Company. Following the IPO, the
Partnership was to be dissolved and liquidated.
29. Having decided to dispose of all the Partnership assets and
liquidate the Partnership, the General Partners and Management Defendants
were and continue to be under a strict fiduciary duty tot he Partnership and
the limited partners to ensure that the value to be received by the limited
partners was the highest and best value reasonably available, and that all
feasible alternatives to achieving the highest possible value were diligently
and disinterestedly explored. In breach of this duty, the General Partner
and Management Defendants unilaterally determined to liquidate the
Partnership in a manner that would not threaten the individual Management
Defendants' positions with and control over the Company and the substantial
monetary and other benefits they derive therefrom. The Management Defendants
and the
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General Partner failed to assure that transactions other than a public
offering, such as a sale of the Company stock as a block or a merger or
acquisition, were disinterestedly and adequately explored.
30. At the time of the proposed IPO, the Management Defendants were
aware that, as a result of substantial capital investments and other factors,
the Company expected a huge surge in earnings in the very near future, and
that a significantly higher price for the Company stock could be realized by
delaying a public offering until those earnings were achieved and made public.
31. Following receipt of the Notice relating to the proposed sale by
the Partnership of its stock in the Company, the plaintiff and fellow limited
partners representing significantly more than 10% of the interests in the
Partnership retained The Mills Firm, co-counsel herein, to protect the
interests of limited partners in connection with the liquidation of the
Partnership.
32. The plaintiff and his fellow limited partners demanded, pursuant to
Sections 7(i) and 12(d) of the Partnership Agreement, that the General
Partner call a meeting of the Partnership pursuant to the Partnership
Agreement to conduct a vote of the limited partners on the general partner's
proposed IPO of all of the Partnership's shares of the Company.
33. The limited partners fully complied with the requirements of paragraph
12(d) of the Partnership Agreement by obtaining the requisite unqualified
opinion of special counsel of recognized standing approved by limited partners
holding more than 10% of the limited partnership interests. Pursuant to
paragraph 12(d) of the Partnership Agreement, the plaintiff and his fellow
limited partners whose aggregate interests exceed 10% of the interests of the
Partnership timely sent the required notice to the General Partner by registered
mail together with
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the required unqualified opinion of Special Counsel, affirmatively approved
in writing by limited partners holding more than 10% of the aggregate
interest of all of limited partners.
34. Paragraph 12(d) of the Partnership Agreement required the General
Partner to send notice of a meeting of limited partners to all of the limited
partners within seven days following the General Partner's receipt of the
demand for the meeting. Following receipt of the demand for a meeting, more
than seven days elapsed, but the General Partner failed and refused to send
out the notice pursuant to the Partnership Agreement. In breach of their
fiduciary obligations and the Partnership Agreement, the defendants also
refused to hold the meeting.
35. Apparently frustrated by what they perceived as strong opposition
by the limited partners to their self-dealing plans, on or about September 6,
1996, the Management Defendants caused the Company to award the Management
Defendants lucrative golden parachute employment agreements. These
employment agreements provide, INTER ALIA, that the Management Defendants are
entitled to millions of dollars in payments, and their stock options
immediately vest, should there be a "change in control," which would occur
upon, INTER ALIA, a transfer of the Partnership's controlling block of
Company stock.
36. Like the Stock Options, the employment agreements have
substantially impaired the marketability of the Partnership's assets and the
returns the limited partners may receive upon liquidation. The Management
Defendants entered into the employment agreements for their own personal
benefit and to entrench themselves in their positions with the Company, all
at the expense of the limited partners.
37. On or about September 10, 1996, in circumvention of the expressed
will of the limited partners to conduct a vote on the proposed IPO, the
Management Defendants announced
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that they would promptly cause the Company to undertake a "modified
transaction," whereby the Company would issue approximately 3.4 million new
shares in the Company, thereby diluting the Partnership's ownership of the
Company. The modified transaction was structured so as to avoid any vote by
the limited partners.
38. In the modified transaction, the amount of stock to be issued by the
Company was increased over what had been planned for the original IPO. That
increase was designed to assure a sufficient float for the publicly held stock,
thereby assuring that the Stock Options held by the individual Management
Defendants would have substantial value. It also ensured that the Company
became subject to Section 203 of the Delaware General Corporation Law, thereby
impeding a change of control and reducing the value of the Partnership's
remaining control block of stock.
39. In or about September 1996, the Management Defendants amended the
Company's registration statement on Form S-1 previously filed with the
Securities and Exchange Commission (the "SEC") in connection with the planned
original IPO to reflect the modified transaction. The Management Defendants
then caused the Company to issue approximately 2.5 million new shares in a
public offering at a price of $13 per share. In disregard of their obligations
to the limited partners, the Management Defendants provided no opportunity to
the limited partners to vote on the public offering of stock by the Company or
otherwise to approve or disapprove the transaction.
40. Although the Management Defendants knew or should have known that the
Company had materially increased earnings, they did not disclose the improved
earnings to the public prior to the public offering or delay the public offering
until the earnings increase had
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been announced. As a result, the public offering price of $13 per share was
artificially depressed below the stock's true value. Within just a few weeks
following the public offering, the Company publicly announced a 34% jump in
operating income. Not surprisingly, the trading price of the Company's stock
increased almost immediately by nearly 50% to over $19 per share. As a result
of offering the Company's stock at an artificially low price, the Management
Defendants caused, and the General Partner permitted, the Partnership's stock
ownership of the Company to be unfairly diluted from 100% to approximately
66% and caused or permitted a diminishment of the value of those shares by
reason of the sale of the Company's stock at an artificially low price.
41. By letter dated March 21, 1997 (attached as Exhibit B), the General
Partner informed the limited partners that it intended to dissolve the
Partnership. Under the proposed "highly flexible Plan of Dissolution for the
Partnership" described in that letter, the limited partners may choose to
receive cash, common stock or a combination of both. In furtherance of that
plan, the Management Defendants, through a press release issued by the Company
on June 9, 1997, announced that the Company has filed a registration statement
with the SEC relating to the 5,781,250 shares of the Company's common stock
owned by the Partnership in anticipation of the implementation of the Management
Defendants' plan described in the March 21, 1997 letter. A copy of the press
release is attached as Exhibit C. By their proposed plan of dissolution and
their causing the Company to file a registration statement with the SEC, the
General Partner and the Management Defendants have again clearly evidenced their
intention to sacrifice the value of the control premium inherent in the
controlling block of the Company's stock owned by the Partnership solely to
entrench the individual Management Defendants.
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42. On June 11, 1997, the Company's registration statement became publicly
available. The registration statement discloses that the Management Defendants
and the General Partner contend that their Plan of Dissolution may be adopted by
a vote of only a majority of the Partnership's limited partners, rather than the
two-thirds vote that plaintiff believes is required under the Partnership
Agreement.
43. Upon dissolution, the General Partner and the Management Defendants
have an obligation to ensure that the limited partners receive the highest price
possible for the Partnership's assets.
44. The Management Defendants have not and, based on their past and
present conduct as well as their debilitating conflicts of interest, will not
explore any means of disposing of the Partnership's assets other than
distribution of stock directly to the limited partners or the general public
through a public offering. Such action will only protect the Management
Defendants' control of the Company and the monetary benefit they gain therefrom.
However, in failing to market the Partnership assets effectively with a view to
obtaining the highest possible return to the limited partners upon liquidation,
the General Partner and Management Defendants have breached and continue to
breach their fiduciary duties to the limited partners.
45. As a result of the actions alleged above, the defendants have
substantially reduced the value of the stock held by the Partnership, impaired
its marketability, and reduced the amounts the limited partners will receive
upon the planned liquidation of the Partnership. In contrast, these
transactions have improperly benefitted the Management Defendants.
46. Despite their conflicts of interest, the Management Defendants
undertook the transactions alleged above without the approval of the limited
partners and without independent
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representation of the interests of the limited partners, which conflict with
those of the Management Defendants.
47. The Management Defendants are obligated to ensure that limited
partners are not deprived of any available means for maximizing the proceeds
they will receive upon the disposition of the Partnership's assets and
liquidation of the Partnership. Despite their conflicts of interest, the
defendants have unilaterally limited the means by which the disposition and
liquidation will proceed to means that will not threaten the Management
Defendants' positions with the Company. The Management Defendants have acted
and continue to threaten to act without creating any procedural safeguards to
ensure that there is independent representation of the interests of the limited
partners or other assurances that the interests of the limited partners are
fully protected from overreaching by the Management Defendants.
48. The Management Defendants' conflicts of interests are not limited to
conflicts arising from their personal interest in entrenching themselves and
otherwise profiting at the expense of the partnership and the limited partners.
They face an irresolvable conflict of interest between their fiduciary
obligations to the Company and its public stockholders on the one hand and to
the Partnership and the limited partners on the other. The interests of the
Company and of the Partnership are not aligned. By way of illustration, the
Management Defendants have determined that it is in the best interests of the
Company and its public stockholders to increase the public float by eliminating
the Partnership as a controlling stockholder. In contrast, it is clearly in
the best interests of the Partnership and the limited partners to seek to sell
the Partnership's stock as a block to a single purchaser and capture for the
Partnership and the limited partners the value of the control premium. Indeed,
this conflict of interests is pointed out
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by defendant Leonard Chill in the Company's June 9, 1997 press release.
Mr. Chill commented that the plan of dissolution proposed for the Partnership
would "enhance liquidity for limited partners in our majority shareholder,
while increasing the public float for common shareholders in a non-dilutive
manner." (Exhibit C). Mr. Chill was noticeably silent on the Partnership's
interest in obtaining a control premium for its control block, and admitted
that the increased public float (obtainable only by the Partnership's
sacrificing any control premium) would benefit stockholders other than the
Partnership.
COUNT I
REMOVAL OF THE GENERAL PARTNER, DISSOLUTION AND APPOINTMENT OF A LIQUIDATING
TRUSTEE
49. Plaintiff realleges paragraphs 1 through 48 as though fully set forth
herein.
50. The General Partner and the Management Defendants have: caused the
Company to issue Stock Options to the Management Defendants at an unreasonably
low strike price; burdened the Company with lucrative golden parachute
employment agreements with the Management Defendants without approval of the
Partnership or the limited partners; caused the Partnership's stock ownership in
the Company to be unfairly diluted; embarked on a course of conduct
intentionally designed to enable them to entrench themselves in control of the
Company by proposing a plan of liquidation and dissolution that will destroy the
value of the control premium owned by the Partnership and preclude any transfer
of the Partnership's control block of stock in the Company. All such actions
benefit the Management Defendants at the expense of the limited partners.
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51. The Defendants have disabling conflicts of interest that preclude them
from faithfully and properly carrying out their fiduciary obligations to the
limited partners and their obligations under the Partnership Agreement.
52. The Defendants have also committed serious and repeated breaches of
their fiduciary duty of loyalty to the limited partners which justify removal of
the General Partner, judicial dissolution and the appointment of a liquidating
trustee pursuant to 6 DEL. C. Sections 17-802 and 17-803.
53. By reason of the conflicts of interests between the Management
Defendants and the limited partners and the repeated breaches of fiduciary duty
by the Management Defendants, the limited partners are entitled to judicial
dissolution of the Partnership pursuant to 6 DEL. C. Section 17-802 because it
is no longer reasonably practicable to carry on the Partnership business in
conformity with the Partnership Agreement and the removal of the General Partner
and the appointment of a liquidating trustee is essential to ensure the highest
possible return to the limited partners upon dissolution.
54. In addition, as alleged above, the General Partner has determined that
the Partnership's assets should be liquidated and the Partnership dissolved,
thereby putting up for sale substantially all of the Partnership's assets.
55. Removal of the General Partner is necessary to protect the interests
of the limited partners. Because of their conflicting interests, the defendants
are unable to carry out the sale or other disposition of the assets of the
Partnership in accordance with their fiduciary obligation to act solely in the
interests of the limited partners and maximize the returns to them. In
addition, without removal, the limited partners and the Partnership will
continue to be damaged by the
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defendants' wrongful acts. The self-dealing undertaken by the Management
Defendants has demonstrated that the General Partner will not and cannot
protect the interests of the limited partners and that neither the General
Partner nor the Management Defendants have fulfilled or intend to fulfill
their fiduciary and contractual obligations to the limited partners. Removal
of the General Partner and appointment of a liquidating trustee is necessary
to ensure that the limited partners' interests are properly and adequately
protected.
COUNT II
DECLARATORY JUDGMENT
56. Plaintiff realleges paragraphs 1 through 55 as if fully set forth
herein.
57. The General Partner has proposed a Plan of Dissolution. Under the
proposed Plan of Dissolution, the General Partner intends to distribute the
Company's stock to the limited partners or, for those limited partners not
desiring to receive a distribution of stock, to dispose of the Company's stock
attributable to those limited partners in a public offering and distribute cash
to such limited partners. Such a plan threatens to waste a significant part of
the value of the Partnership's assets by forfeiting any control premium inherent
in the Partnership's ownership of a controlling block of stock in the Company.
58. The General Partner owes fiduciary duties to the limited partners to
act in their best interests. By virtue of their control of the General Partner,
the Management Defendants owe fiduciary duties to the limited partners to act in
their best interests. The General Partner and the Management Defendants have an
obligation to act in the interests of the limited partners and explore
alternative means to obtain the highest possible price for the stock.
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59. The General Partner and the Management Defendants propose to cause
their Plan of Dissolution to be adopted only by a majority vote of limited
partners rather than the two-thirds vote called for by the Partnership
Agreement.
60. Plaintiff seeks a declaratory judgment that the General Partner has an
obligation to obtain the highest possible price in the dissolution for the
Company stock owned by the Partnership and that the Plan of Dissolution requires
for its adoption the approval of the holders of two-thirds of the outstanding
limited partnership units.
COUNT III
BREACH OF CONTRACT-PARTNERSHIP AGREEMENT
61. Plaintiff realleges paragraphs 1 through 60 as though fully set forth
herein.
62. Pursuant to paragraph 7(b) of the Partnership Agreement, the General
Partner has at all times owed contractual fiduciary obligations to the limited
partners. By virtue of their acquisition of and exercise of control over the
Partnership as a result of the April 1993 takeover, the Management Defendants
have shared equally in those contractual obligations.
63. The Management Defendants continue to be obligated to comply with
these duties in connection with the planned disposition of the Partnership's
assets and dissolution of the Partnership. In particular, they are obligated to
ensure that the returns to the limited partners are maximized and all possible
transactions to that end are fully explored in a diligent and disinterested
manner, free of conflicts of interest.
64. By acting as alleged herein, the defendants have breached, and
threaten to continue to breach, their contractual obligations.
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65. As a proximate result of the defendants' conduct, the limited partners
have suffered damages in an amount to be proven at trial.
COUNT IV
BREACH OF FIDUCIARY DUTY
66. Plaintiff realleges paragraphs 1 through 65 as if fully set forth
herein.
67. The General Partner has at all times owed fiduciary obligations to the
limited partners. By virtue of their acquisition of and exercise of control
over the General Partner as a result of the April 1993 takeover, the Management
Defendants have shared equally in those fiduciary duties.
68. The Management Defendants continue to be obligated to comply with
these duties in connection with the planned disposition of the Partnership's
assets and dissolution of the Partnership. In particular, they are obligated to
ensure that the returns to the limited partners are maximized and all possible
transactions to that end are fully explored in a diligent and disinterested
manner, free of conflicts of interest.
69. By acting as alleged herein, the defendants have breached, and
threaten to continue to breach, their fiduciary obligations.
70. As a proximate result of the defendants' conduct, the limited partners
have suffered damages in an amount to be proven at trial.
DERIVATIVE ALLEGATIONS
71. In the alternative, plaintiff brings Counts III and IV as a derivative
action pursuant to 6 DEL. C. Sections 17-1001 and 17-1002 and Delaware Court of
Chancery Rule 23.1.
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72. Plaintiff is and at all time relevant to the allegations herein has
been a holder of one-half of a unit of limited partnership interest in the
Partnership, representing a capital contribution of $50,000.
73. The plaintiff has made no demand on the General Partner or the
Management Defendants. The Management Defendants all have material and
disqualifying conflicts of interest with respect to the Partnership Agreement,
the interests of the limited partners and the claims alleged herein. The
Management Defendants control the General Partner. Demand upon the General
Partner or the Management Defendants would be futile and is therefore excused.
74. Demand is further excused because the conduct alleged herein
constitutes a waste of assets of the Partnership and is not the product of the
exercise of good faith business judgment by a disinterested and independent
general partner.
PERSONAL JURISDICTION
75. The Court has personal jurisdiction over defendants Synthetic
Industries, L.P., SI Management L.P., Chill Investments Inc., Beckman
Investments Inc., Freed Investments Inc., Kenner Investments, Inc. and Wright
Investments Inc. because each is an entity organized under Delaware law and
having an agent for service of process in Delaware.
76. The Court has personal jurisdiction over defendants Leonard Chill, Jon
P. Beckman, W. Wayne Freed, Ralph Kenner and W. Gardner Wright pursuant to 10
DEL. C. Section 3114.
77. The Court has personal jurisdiction over defendant Synthetic
Management GP because the Court has personal jurisdiction over each of its
general partners.
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SUBJECT MATTER JURISDICTION
78. The Court has jurisdiction over the matters complained of herein
pursuant to 6 DEL. C. Sections 17-110, 17-111, 17-802 and 17-803, 10 DEL. C.
Section 6501, and the Court's inherent equitable jurisdiction.
PRAYERS FOR RELIEF
WHEREFORE, Plaintiff demands judgment in his favor, in favor of the class,
and alternatively as to Counts III and IV in favor of Synthetic Industries,
L.P., and against defendants SI MANAGEMENT L.P., SYNTHETIC MANAGEMENT G.P.,
LEONARD CHILL, JON P. BECKMAN, W. WAYNE FREED, RALPH KENNER, W. GARDNER WRIGHT,
CHILL INVESTMENTS, INC., BECKMAN INVESTMENTS, INC., FREED INVESTMENTS, INC.,
KENNER INVESTMENTS, INC., and WRIGHT INVESTMENTS, INC., jointly and severally,
and prays that this Court enter one or more orders:
a. Removing SI MANAGEMENT L.P. as the general partner of the
Partnership, together with such other relief as necessary to effect the removal
and protect the limited partners' interests;
b. Dissolving the Partnership;
c. Appointing a liquidating trustee under the direction of the
limited partners and implementing such other or alternative means as may be
necessary or appropriate to ensure that all reasonable means to maximize the
returns to the limited partners are pursued and evaluated in the limited
partners' interests and that the highest possible price is obtained, together
with such other relief as may be necessary or appropriate to ensure that the
disposition of the Partnership assets and liquidation of the Partnership is
carried out without the contaminating
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influence of the defendants' conflicts of interest so as to maximize the
returns to the limited partners;
d. Requiring the Management Defendants to disgorge all profits under
the Stock Options and all profits under the change of control provisions of
their employment agreements, together with such other or alternative relief as
may be necessary to ensure that the rights of the limited partners are not
impaired by such Stock Options and employment agreements and that the Management
Defendants are not unjustly enriched thereunder;
e. Awarding compensatory damages in such amount as the Court may
determine together with interest thereon at the legal rate;
f. Declaring that in liquidating the assets of the Partnership, the
General Partner and the Management Defendants have a duty to seek out and obtain
for the Partnership the highest and best value reasonably possible for the
controlling interest in the Company owned by the Partnership;
g. Certifying this action as a class action, appointing plaintiff as
class representative and appointing the firms of Smith, Katzenstein & Furlow and
The Mills Law Firm as class counsel;
h. Awarding costs of suit herein, including attorneys' fees and
expenses; and
i. Granting such other relief as may be necessary to protect the
limited partners or that is otherwise just and reasonable.
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SMITH, KATZENSTEIN & FURLOW
By: /s/ Craig Smith
-------------------------
Craig B. Smith
The Corporate Plaza
800 Delaware Avenue
P.O. Box 410
Wilmington, DE 19899
(302) 652-8400
Attorneys for Plaintiff
OF COUNSEL:
Robert W. Mills
Derek G. Howard
Gilmur R. Murray
THE MILLS LAW FIRM
300 Drake's Landing, Suite 155
Greenbrae, California 94904
(415) 464-4770
Dated: June 11, 1997
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