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Synthetic Industries, L.P.
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(Name of Registrant as Specified In Its Charter)
Dwight E. Wininger
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Dr. Dwight E. Wininger
c/o The Mills Law Firm
300 Drake's Landing
Suite #155
Greenbrae, CA 94904
May 30, 1997
Dear (Limited Partner):
Like you, I am a limited partner in Synthetic Industries, L.P. ("the
Partnership"). On behalf of all of us, I have filed two class action lawsuits
to protect our investment in the Partnership. I am writing to you now to
respond to a letter you may have received from the Partnership's General
Partner. That letter, signed by Leonard Chill and dated March 21, 1997,
informed you that the General Partner will soon propose a Plan of Dissolution of
the Partnership ("Proposed Plan") for your approval.
I urge you to view the Proposed Plan with the utmost suspicion and
skepticism. As you may recall, in August of last year, the General Partner and
the individuals who control it (Leonard Chill and his associates -- henceforth
referred to as "Management") tried to jam through another plan to sell the
stock owned by the Partnership through a public offering. If this plan had gone
forward, the stock owned by the Partnership would have been sold at an unfairly
low price. Fortunately, we were able to demand a partnership meeting to vote on
this plan, and Management abandoned it.
Moreover, as explained in more detail below, Management has repeatedly
breached their fiduciary duties to us and damaged the value of our investment in
the Partnership. Among other things, they have unfairly diluted the value of
the stock owned by the Partnership and awarded themselves lucrative stock
options and "golden parachute" employment agreements. In addition, Management
has a grave conflict of interest which gives them a strong incentive not to
pursue the options for liquidating the Partnership that are likely to produce
the highest return for our investment in the Partnership.
It is true that Management has not yet revealed the details of the Proposed
Plan announced in the March 21 letter. Still, because of Management's past
conduct and conflict of interest, I urge you to view Management's Proposed Plan
with great suspicion and caution. I urge you NOT to submit any proxies or votes
for or against the Proposed Plan until I and attorneys I have retained, who
specialize in defending the rights of investors in limited partnerships, have
had a chance to review the Proposed Plan and to communicate with you.
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THE PARTNERSHIP, ITS ASSETS, AND ITS MANAGEMENT
The Partnership's only asset is stock in Synthetic Industries, Inc. ("the
Company"). The Partnership owns about two-thirds of this stock. The Management
of the Partnership is also the management of the Company and is led by Leonard
Chill. Management took control of the Partnership in 1993.
MANAGEMENT'S ATTEMPT TO SELL THE PARTNERSHIP'S ASSETS AT AN
UNFAIRLY LOW PRICE
Until October 1996, the Partnership owned all of the stock of the Company.
In August 1996, Management suddenly announced that all of the Company's stock
would be sold through an initial public offering ("IPO"), and that the
Partnership would then be liquidated. Seeking to block this transaction, I and
412 fellow limited partners retained The Mills Law Firm, a law firm which
specializes in defending the rights of investors in limited partnerships.
The Fall of 1996 was a particularly bad time for the Partnership to sell
its Company stock. The Company had just completed a massive capital
investment program, but the increased revenues and profits which would result
from this program had not yet been reflected in the Company's reports.
With the assistance of The Mills Law Firm, I and numerous fellow limited
partners launched a vigorous campaign to stop the proposed IPO. By complying
with onerous requirements in the partnership agreement, we demanded that
Management call a meeting of the Partnership where the proposed IPO would be
voted upon. In response to our legitimate demand for a vote, Management
withdrew the IPO proposal.
MANAGEMENT'S DILUTION OF THE VALUE OF OUR INVESTMENT
Unfortunately, Management went forward with a modified IPO plan -- an IPO
of stock newly issued by the Company. A few weeks after conducting the IPO,
the Company announced the expected substantial increase in its revenues and
profits. The market price for the stock swiftly rose over 50 percent, up to
between $19 and $20 per share. As of May 15, 1997, the Company's stock was
trading at $18.75 per share.
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However, because the modified IPO occurred before the Company's improved
performance was announced, the stock was sold at only $13 per share -- far less
than its true value. Because the Company did not receive full value for its
newly issued stock, the modified IPO reduced the value of the Partnership's
stock in the Company. In addition, the IPO diminished the Partnership's
ownership of and voting rights in the Company by roughly one-third.
MANAGEMENT'S STOCK OPTION GRANTS
Over the last three years Management has granted itself various options to
purchase well over ten percent of the Company's stock. Without our knowledge
or approval, Management caused the Partnership to approve these stock options.
These options have an exercise price far below the current value of the
Company's stock. If the options are exercised, the result will be a
significant dilution of the Partnership's interest in the Company and further
damage to the value of our investment.
MANAGEMENT'S GOLDEN PARACHUTES
In September 1996, Management caused the Company to grant Management
lucrative long-term employment agreements. These agreements include "golden
parachute" provisions that obligate the Company to pay Management a lump sum in
excess of twice their annual six-figure salaries -- and to immediately vest
Management's stock options -- in the event of a change of control of the
Company.
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These employment agreements unfairly enrich Management and may lower the
price the Partnership could receive in a sale of its controlling interest in
the Company. A buyer of a controlling interest in a corporation often
desires to install its own management. "Golden parachute" provisions can make
doing so extremely costly for a buyer. Thus the employment agreements may
substantially diminish the market value of the Partnership's stock in the
Company and the value of our investment.
MANAGEMENT'S CONFLICT OF INTEREST
Management has lucrative control positions in the Company. As a result,
Management's interests are in deep conflict with our interests.
Because the Partnership owns a controlling interest in the Company, the
value of the Partnership's stock includes a "control premium." A "control
premium" is often defined as the amount a purchaser is willing to pay for
control of a corporation in excess of the value of the corporation's assets
or the price of the corporation's publicly traded securities. In other
words, a "control premium" reflects the value of the power a controlling
shareholder has over a corporation. The Partnership can receive full value
for its "control premium," which exists due to the Partnership's controlling
interest in the Company, through transactions involving a change of control
- -- such as selling the controlling stock to a single purchaser, participating
in a merger, or selling all of the Company's assets.
But any such transaction would threaten Management's positions in the
Company. Management's positions in the Company enable the members of Management
to receive six-figure salaries and substantial bonuses and benefits. In 1996,
Management's salaries ranged from $141,720 to $254,871. Management's positions
in the Company also give Management great power -- power that Management has
used to award itself the lucrative stock options and "golden parachute"
employment agreements.
If a transaction involving a change of control of the Company occurs, the
entity which acquires control of the Company could remove Management from its
lucrative control positions. Management therefore has a strong incentive to
avoid entering the very transactions that are most likely to produce the highest
return on our investment.
MANAGEMENT'S VIOLATIONS OF SEC REGULATIONS
The March 21 letter that announced Management's Proposed Plan was a "proxy
solicitation" subject to regulations of the Securities and Exchange Commission
(SEC). SEC regulations required the letter to be filed with the SEC, and
prohibited the letter from being sent out unless it was accompanied or preceded
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by a "proxy statement" that made detailed disclosures about Management and the
Proposed Plan. Management violated these SEC regulations. Management also
violated SEC regulations by failing to disclose numerous material facts in the
March 21 letter, including facts relating to Management's conflict of interest.
CLASS ACTION LAWSUITS HAVE BEEN FILED TO PROTECT OUR RIGHTS
I have filed two class action lawsuits on behalf of all of the limited
partners in the Partnership to protect the value of our investment. The Mills
Law Firm is prosecuting these lawsuits on our behalf.
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The first lawsuit, filed in Delaware, seeks damages for Management's
dilution of the value of the Partnership's stock in the Company. In addition,
the Delaware lawsuit seeks invalidation of Management's stock options and
"golden parachute" agreements. The Delaware lawsuit also seeks to ensure that
our investment in the Partnership is expeditiously liquidated at the highest
possible price.
The second lawsuit was filed in California. The California lawsuit seeks
to remedy the violations of SEC regulations committed by Management in
connection with their March 21 letter. The California lawsuit seeks to force
Management to comply with SEC regulations and to disclose the material facts
which were not disclosed in their March 21 letter.
WE SHOULD BE HIGHLY SUSPICIOUS OF MANAGEMENT'S PROPOSED PLAN
I believe that we should view the Proposed Plan recently announced by
Management with the utmost skepticism and suspicion. Until the details of the
Proposed Plan are disclosed, we cannot fully evaluate whether it is fair.
However, based on what we now know, it appears that the Proposed Plan would
destroy the Partnership's "control premium" by dissipating the Partnership's
controlling interest in the Company through selling the Partnership's shares
in the Company to the public. Moreover, the conflict of interest created by
Management's desire to retain their control positions in the Company gives
Management great incentives to dissipate the controlling interest and destroy
the "control premium." Thus, Management has not even claimed that it has
explored the transactions most likely to maximize the value of our investment
- -- transactions which would involve a change of control of the Company and
which would thereby convert the "control premium" into cash value for us.
Furthermore, Management's past misconduct -- their attempt to sell the all
of the Company's stock at a depressed price, their dilution of the value of
the Partnership's stock in the Company, their stock option grants and "golden
parachutes," and their violations of SEC regulations -- should make us have
grave doubts about any proposal made by Management.
Therefore, I urge you NOT to submit any votes or proxies in favor or
against Management's Proposed Plan until I and The Mills Law Firm, which
specializes in defending the rights of limited partners, have had a chance to
fully analyze the Proposed Plan and to communicate with you.
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My overriding goal is to ensure that our investment is liquidated at the
highest possible price and as soon as possible. In pursuit of this goal, I and
The Mills Law Firm are currently in the process of exploring alternatives for
liquidating the Partnership and methods for ending Management's control over the
Partnership.
I will keep you informed about our progress. In the meantime, if you wish
to discuss the protection of your investment in the Partnership, please feel
free to call my attorney, Robert W. Mills of The Mills Law Firm, at
(415) 464-4770.
Very truly yours,
/s/ Dwight E. Wininger
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Dr. Dwight E. Wininger
