<PAGE>
MILBERG WEISS BERSHAD
HYNES & LERACH LLP
WILLIAM S LEARCH (68581)
DARREN J ROBBINS (168593)
600 West Broadway, Suite 1800
San Diego, CA 92101
Telephone 619/231-1058
CAULEY & GELLER, LLP
PAUL J. GELLER
One Boca Place, Suite 421A
2255 Glades Road
Boca Raton, FL 33431
Telephone 561/750-3000
Attorneys for Plantiff
SUPERIOR COURT OF THE STATE OF CALIFORNIA
COUNTY OF SANTA CLARA
GEORGE REYNOLDS, On Behalf of Himself | BY FAX
and All Others Similarly Situated, | Case No.
|
Plantiff, | CLASS ACTION
| ------------
vs | COMPLAINT FOR BREACH OF
BUSINESS RESOURCE GROUP, HARRY S. | FIDUCIARY DUTY
ROBBINS, JOHN W. PETH, BRIAN D. |
McNAY, JEFFREY D. TUTTLE and DOES 1- |
25, inclusive, |
|
Defendants. |
|DEMAND FOR JURY TRIAL
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COMPLAINT FOR BREACH OF FIDUCIARY DUTY
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Plantiff, by his attorneys, alleges as follows.
SUMMARY OF THE ACTION
1. This is a stockholder class action brought by plantiff on behalf of
the holders of Business Resource Group ("BRG" or the "Company") common stock
against BRG and its directors arising out of defendants' efforts to complete a
management-led buyout ("MBO")of BRG at a grossly inadequate and unfair price
and their efforts to provide certain insiders and directors with preferential
treatment at the expense of, and which is unfair to, the public shareholders.
2. On March 31, 2000, BRG announced that the CEO and President (John W
Peth) together with three of its senior officers had submitted an offer to the
BRG Board to purchase the outstanding shares of BRG for $9.25 per share (the
"Acquisition").
3. In pursuing the unlawful plan to cash out BRG's public stockholders
for grossly inadequate consideration, each of the defendants violated applicable
law by directly breaching and/or aiding the other defendants' breaches of their
fiduciary duties of loyalty, due care, independence and good faith and fair
dealing.
4. In fact, instead of attempting to obtain the highest price reasonably
available for BRG for its shareholders, the Individual Defendants spent a
substantial effort tailoring the structural terms of the Acquisition to meet the
specific needs of Perth.
5. In essence, the proposed Acquisition is the product of a hopelessly
flawed process that was designed to ensure the sale of BRG to one buyer and one
buyer only on terms preferential to Peth and to subvert the interests of the
plaintiff and the other public stockholders of BRG Plaintiff seeks to enjoin the
proposed transaction or, alternatively, rescind the transaction in the event
that the transaction is consummated.
JURISDICTION AND VENUE
6. This Court has jurisdiction over BRG because BRG conducts business in
California and is a citizen of California, as its principal place of business
is in San Jose, California and is incorporated in California. Likewise, certain
of the Individual Defendants, including defendants Peth, Tuttle and McNay are
citizens of California. This action is not removable.
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COMPLAINT FOR BREACH OF FIDUCIARY DUTY
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7. Venue is proper in this Court because the conduct at issue took place
and had an effect in this County.
PARTIES
8. Plaintiff George Reynolds is a resident and citizen of Tulsa,
Oklahoma and at all times relevant hereto, was a shareholder of BRG.
9. Defendant BRG is a corporation organized and existing under the laws
of the State of California with its principal place of business located in San
Jose, California. BRG operates in this County as a provider of workspace
service: and products to businesses. The Company markets a variety of new office
workstation products, refurbished office systems furniture, and related
services such as management outsourcing and consulting services, computer-aided
facilities management, computerized space planning and design, move management,
and installation.
10. Defendant Harry S. Robbins ("Robbins") is a director of BRG.
11. Defendant Brian D. McNay ("McNay") is a director and Executive Vice
President of Sales for BRG.
12. Defendant John W. Peth ("Peth") is a director and the President and
Chief Executive Officer of BRG.
13. Defendant Jeffrey D. Tuttle ("Tuttle") is Executive Vice President of
Marketing and a director of BRG.
14. The defendants named above, Robbins, Peth, McNay and Tuttle, are
sometimes collectively referred to herein as the "Individual Defendants."
15. The true names and capacities of defendants sued herein under
California Code of Civil Procedures ss. 474 as Does 1 through 35, inclusive,
are presently not known to plantiff, who therefore sues these defendants by such
fictitious names. Plantiff will seek to amend this Complaint and include
these Doe defendants' true names and capacities when they are ascertained. Each
of the fictitiously named defendants is responsible in some manner for the
conduct alleged herein and for the injuries suffered by the Class.
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COMPLAINT FOR BREACH OF FIDUCIARY DUTY
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Defendants' Fiduciary Duties
16. In any situation where the directors of a publicly traded corporation
undertake a transaction that will result in either (i) a change in corporate
control or (ii) a break-up of the corporation's assets, the directors have an
affirmative fiduciary obligation to obtain the highest value reasonably
available for the corporation's shareholders, and if such transaction will
result in a change of corporate control, the shareholders are entitled to
receive a significant premium. To diligently comply with these duties, the
directors may not take any action that.
(a) adversely affects the value provided to the corporation's
shareholders;
(b) will discourage or inhibit alternative offers to purchase control
of the corporation or its assets,
(c) contractually prohibits them from complying with theit fiduciary
duties;
(d) will otherwise adversely affect their duty to search and secure
the best value reasonably available under the circumstances for the
corporation's shareholders; and/or
(e) will provide them preferennal treatment at the expense of, or
separate from, the public shareholders.
17. In accordance with their duties of loyalty and good faith, the
defendants as directors and/or officers of BRG are obligated to refrain from;
(a) participating in any transaction where the directors' or
officers' loyalties are divided;
(b) participating in any transaction where the directors or officers
receive or are entitled to receive a personal financial benefit not equally
shared by the public shareholders of the corporation; and/or
(c) unjustly enriching themselves at the expense or to the detriment
of the public shareholders.
18. Plaintiff alleges herein that the Individual Defendants, separately
and together, in connection with the Acquisition, violated the fiduciary duties
owned to plantiff and the other public shareholders of BRG, including their
duties of loyalty, good faith and independence, insofar as they
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COMPLAINT FOR BREACH OF FIDUCIARY DUTY
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stood on both sides of the transaction and engaged in self-dealing and obtained
for themselves personal benefits, including personal financial benefits, not
shared equally by plaintiff or the Class.
19. Because the Individual Defendants have breached their duties of
loyalty, good faith and independence in connection with the Acquisition, the
burden of proving the inherent or entire fairness of the Acquisition, including
all aspects of its negotiation, structure, price and terms, is placed upon the
Individual Defendants as a matter of law.
CLASS ACTION ALLEGATIONS
20. Plaintiff brings this action pursuant to ss.382 of the
California Code of Civil Procedure on his own behalf and as a class action on
behalf of all holders of BRG stock who are being and will be harmed by
defendants' actions described below (the "Class"). Excluded from the Class are
defendants herein and any person, firm, trust, corporation, or other entity
related to or affiliated with any defendants.
21. This action is properly maintainable as a class action.
22. The Class is so numerous that joinder of all members is
impracticable. According to BRG's SEC filings, there were more than [??]
million shares of BRG common stock outstanding as of April 30, 2000.
23. There are questions of law and fact which are common to the
Class and which predominate over questions affecting any individual Class
member. The common questions include, inter alia, the following:
(a) whether defendants have breached their fiduciary duty of
undivided loyalty, independence or due care with respect to plaintiff and the
other members of the Class in connection with the Acquisition;
(b) whether the Individual Defendants are engaging in
self-dealing in connection with the Acquisition,
(c) whether the Individual Defendants have breached their
fiduciary duty to secure and obtain the best price reasonable under the
circumstances for the benefit of plaintiff and the other members of the Class in
connection with the Acquisition;
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COMPLAINT FOR BREACH OF FIDUCIARY DUTY
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(d) whether the Individual Defendants are unjustly enriching
themselves and other insiders or affiliates of BRG,
(e) whether defendants have breached any of their other fiduciary
duties to plaintiff and the other members of the Class in connection with the
Acquisition, including the duties of good faith, diligence, honesty and fair
dealing,
(f) whether the defendants, in bad faith and for improper motives,
have impeded or erected barriers to discourage other offers for the Company or
its assets,
(g) whether the Acquisition compensation payable to plaintiff and
the Class is unfair and inadequate, and
(h) whether plaintiff and the other members of the Class would be
irreparably damaged were the transactions complained of herein consummated.
24. Plaintiff's claims are typical of the claims of the other
members of the Class and plaintiff does not have any interest adverse to the
Class.
25. Plaintiff is an adequate representative of the Class, has
retained competent counsel experienced in litigation of this nature and will
fairly and adequately protect the interests of the Class.
26. The prosecution of separate actions by individual members of
the Class would create a risk of inconsistent or varying adjudications with
respect to individual members of the Class which would establish incompatible
standards of conduct for the party opposing the Class.
27. Plaintiff anticipates that there will be no difficulty in the
management of this litigation. A class action is superior to other available
methods for the fair and efficient adjudication of this controversy.
28. Defendants have acted on grounds generally applicable to the
Class with respect to the matters complained of herein, thereby making
appropriate the relief sought herein with respect to the Class as a whole.
THE PROPOSED ACQUISITION
29. BRG provides workspace services and products to businesses. The
Company markets a variety of new office workstation products, refurbished office
systems furniture, and related services
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COMPLAINT FOR BREACH OF FIDUCIARY DUTY
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such as management outsourcing and consulting services, computer-aided
facilities management, computerized space planning and design, move management
and installation.
30. On January 6, 2000, BRG announced it intended to explore
strategic alternatives to enhance shareholder value. The press release
associated with the announcement stated in part,
SAN JOSE, Calif -- Jan. 6 2000 -- Business Resource Group (BRG),
a leading provider of total workspace solutions, today announced that
its board of directors has engaged the investment banking firm of
Huntington Holdings, Inc. to explore various strategic and financial
alternatives for maximizing shareholder value. Such alternatives may
include, but are not limited to, a merger, a strategic alliance, the
infusion of additional equity, or an affiliation with a strategic
partner. There can be no assurance that a transaction will result from
the process.
John W. Peth, president and chief executive officer, commented.
"The management team of BRG is pleased with the progress that it has
made to date and is committed to continue leading the company to
achieve its long-term growth and profit objectives. We believe it is
in the best interests of BRG shareholders to explore a wide range of
strategic alternatives in order to more aggressively expand our
operations and capitalize on the market opportunities available to
BRG. Our goal in this process is to maximize shareholder value by
strengthening our position as a leading supplier of total workspace
solutions, which we believe will also enhance career opportunities for
our employees."
31. On February 24, 2000, BRG reported record quarterly revenues of
$40.7 million and a net earnings increase of 195% to $1.1 million. The press
release associated with the report stated in part,
SAN JOSE, Calif. --Feb. 24, 2000 -- Business Resource Group
(BRG), a leading provider of total workspace solutions, today
announced total net revenues for the first quarter of fiscal 2000 of
$40.7 million, an increase of 57% over fiscal 1999 first quarter net
revenues of $26.0 million. In addition, the Company reported net
income for the first quarter ended January 31, 2000 of $1,066,000, an
increase of 195% over the net income of $36,000 reported in the first
quarter fiscal 1999 Diluted earnings per share for the first quarter
of fiscal 2000 were $0.19 per share, an increase of 171% over the
$0.07 per share reported for the first quarter of fiscal 1999
* * *
"We are pleased with the Company's revenue growth and the
improvement in our operating performance for the first quarter of
fiscal 2000," commented John W. Peth, president and chief executive
officer of BRG. "In addition to establishing a new quarterly record
for revenues, it marks the seventh consecutive quarter of double digit
earnings growth from the Company. We believe that these operating
results demonstrate that BRG's value proportion of providing customers
with single-sourced workspace solutions continues to be well received
in the marketplace and provides us with a platform for future
success."
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COMPLAINT FOR BREACH OF FIDUCIARY DUTY
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32. On May 25, 2000, BRG reported record quarterly revenues and
earnings, a revenue increase of 62% and a net earnings increase of 122%. The
press release associated with the report stated in part.
SAN JOSE, Calif., May 25, 2000 -- Business Resource Group (BRG),
a leading provider of total workspace solutions, today announced total
net revenues for the second quarter of fiscal 2000 of $47.7 million,
an increase of 62% over fiscal 1999 second quarter net revenues of $29
million. In addition, the Company reported net income for the second
quarter ended April 30, 2000 of $1,252,000 an increase of 122% over
the net income of $663,000 reported in the second quarter fiscal 1999.
Diluted earnings per share for the second quarter of fiscal 2000 were
$0.21 per share, an increase of 91% over the $0.11 per share reported
for the second quarter of fiscal 1999.
* * *
"We are extremely pleased with the Company's continuing trend of
significant growth in revenue and earnings for both the second quarter
and the first six month of fiscal 2000," commented John W. Peth,
president and chief executive officer of BRG. "In addition to
establishing a new quarterly record for revenues and net earnings,
this quarter represents the eighth consecutive quarter that we have
achieved double digit growth in both revenues and earnings. We
believe that these operating results continue to validate the
acceptance of BRG's value proposition in the market place."
33. On July 20 2000, BRG announced that a management group formed by
Peth, its President and Chief Executive Officer, had submitted an offer to BRG
wherein Peth and other management proposed to pay shareholders of BRG the sum of
$9.25 in cash for each share they own of BRG. The press release, stated in part:
NEW YORK, July 10 --BRG Acquisition Corporation and Business
Resource Group today jointly announced that they have executed a
definitive merger agreement under which BRG Acquisition Corporation
will commence a cash tender offer to acquire all of the outstanding
shares of Business Resource Group, other than those owned by BRG
Acquisition Corporation or its affiliates at the expiration of the
offer, for $9.25 per share. The tender offer is scheduled to expire
at 5:00 p.m., New York City time, on August 7, 2000.
* * *
In connection with the transition, the chief executive officer
and three other senior officers of Business Resource Group have agreed
to maintain an equity interest in the company after the completion of
the transaction and have entered into employment agreements with BRG.
Acquisition that will take effect when the merger is completed.
John W. Peth, Business Resource Group president and chief
executive officer stated "We believe that this transaction provides
significant value to our existing stockholders. In addition, we are
very excited about our new partnership with Three Cities. We believe
that this relationship will enhance our company's market position and
provide additional resources to help meet our long-term strategic
objectives."
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COMPLAINT FOR BREACH OF FIDUCIARY DUTY
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SELF-DEALING
34. The self-dealing, conflicts of interest and conduct harmful to
the interests of the shareholders results from at least the following
(a) The $9.25 price offered to the public shareholders is
inadequate.
(b) It is in Peth's interest to buy the public's shares at the
lowest possible price, $9.25. The realizable value from growth and a recovery of
the Company's historic performance is far in excess of $9.25 per share. The
$9.25 per share price does not reflect this fact nor the fact that the offer is
a substantial discount to where BRG stock traded in the past months.
(c) The BRG Board is fraught with conflicts. It consists of, and
is controlled by, Peth, Tuttle, and McNay, who control approximately 38% of the
outstanding shares.
(d) While Peth was exploring personal opportunities to buy out
BRG, the conflicted Board did not search for competitive suitors in compliance
with its fiduciary obligation to do so.
35. The Acquisition is designed to essentially freeze BRG's public
stockholders out of a large portion of the valuable assets which have produced,
and defendants expect will continue to produce, substantial revenue and
earnings, and these assets are being sold for grossly inadequate consideration
to Peth.
36. The price of $9.25 per share which Peth proposes to pay to Class
members is grossly unfair and inadequate because, among other things
(a) The announcement of the proposed Acquisition was made at a
time when the Company's stock price was trading below where it had traded in the
month prior, and
(b) The defendants timed the announcement of the Acquisition to
place an artificial cap on the price for BRG's stock to enable them to acquire
the stock at the lowest possible price.
37. If the Acquisition is consummated, plaintiff and the other
members of the Class will no longer own shares in a "growth" company, but rather
will be cashed out of their BRG shares for just $9.25 per share.
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COMPLAINT FOR BREACH OF FIDUCIARY DUTY
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38. The shareholders have been denied the fair process and arm's-
length negotiated terms to which they are entitled in a sale of their Company.
The officers and directors are obligated to maximize shareholder value, not
structure a preferential deal for themselves.
39. The director defendants are obligated to maximize the value of
BRG to its shareholders. The Class members are being deprived of their right to
a fair and unbiased process to sell the Company, and the opportunity to obtain
maximum value and terms for their interests, without preferential treatment to
the insiders.
40. By reason of their positions with BRG, the Individual Defendants
are in possession of non-public information concerning the financial condition
and prospects of BRG, and especially the true value and expected increased
future value of BRG and its assets, which they have not disclosed to BRG's
public stockholders, including, but not limited to, BRG's third quarter 2000
results, which Peth and other defendants have access to. Moreover, despite
their duty to maximize shareholder value, the defendants have clear and material
conflicts of interest and are acting to better their own interests at the
expense of BRG's public shareholders.
41. The Board members and advisors identified herein have
irremediable positions of conflict and cannot be expected to act in the best
interest of BRG's public stockholders in connection with this proposed
Acquisition, as they are beholden to Peth, McNay and Tuttle.
42. The proposed MBO is wrongful, unfair and harmful to BRG's public
stockholders, and represents an effort by Peth to aggrandize his own financial
position and interests at the expense of and to the detriment of Class members.
The Acquisition is an attempt to deny plaintiff and the other members of the
Class their right to share proportionately in the true value of BRG's valuable
assets, and future growth in profits and earnings, while usurping the same for
the benefit of Peth on unfair and inadequate terms.
43. As a result of defendants' unlawful actions, plaintiff and the
other members of the Class will be damaged in that they will not receive their
fair portion of the value of BRG's assets and business and will be prevented
from obtaining the real value of their equity ownership of the Company.
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COMPLAINT FOR BREACH OF FIDUCIARY DUTY
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44. In light of the foregoing, the Individual Defendants must, as
their fiduciary obligations require,
o Undertake an appropriate evaluation of BRG's worth as an
acquisition candidate.
o Act independently so that the interests of BRG's public
stockholders will be protected, including, but not limited to, the retention of
truly independent advisors and/or the appointment of a truly independent Special
Committee.
o Adequately ensure that no conflicts of interest exist between
defendants' own interests and their fiduciary obligations to maximize
stockholder value or, if such conflicts exist, to ensure that all conflicts be
resolved in the best interests of BRG's public stockholders.
o If an acquisition transaction is to go forward, require that
it be approved by a majority of BRG's minority stockholders and require that
BRG's third quarter 2000 results be revealed to the shareholders.
45. Peth designed the Acquisition in a manner which best serves his
interests in order to secure for himself personal benefits which will not be
shared equally by Plaintiff and the Class.
46. The Individual Defendants have also approved the Acquisition so
that it transfers 100% of BRG's revenues and profits to BRG and Peth, and thus
all of BRG's operations will now accrue to the personal benefit of Peth. By
contrast, plaintiff and the Class will be frozen out of all of these revenues,
earnings and profits.
CAUSE OF ACTION
Claim for Breach of Fiduciary Duties
47. Plaintiff repeats and realleges each allegation set forth
herein.
48. The defendants have violated fiduciary duties of care, loyalty,
candor and independence owed to the public shareholders of BRG and have acted
to put their personal interests ahead of the interests of BRG shareholders.
49. By the acts, transactions and courses of conduct alleged herein,
defendants, individually and acting as a part of a common plan, are attempting
to unfairly deprive plaintiff and other members of the Class of the true value
of their investment in BRG.
50. The Individual Defendants have violated their fiduciary duties
by entering into a transaction with BRG without regard to the fairness of the
transaction to BRG shareholders.
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COMPLAINT FOR BREACH OF FIDUCIARY DUTY
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Defendant BRG directly breached and/or aided and abetted the other defendants'
breaches of fiduciary duties owed to plaintiff and the other holders of BRG
stock.
51. As demonstrated by the allegations above, the defendant
directors failed to exercise the care required, and breached their duties of
loyalty, good faith, candor and independence owed to the shareholders of BRG
because, among other reasons
(a) they failed to take steps to maximize the value of BRG to
its public shareholders and they took steps to avoid competitive bidding, to cap
the price of BRG's stock and to give the Individual Defendants an unfair
advantage, by, among other things, failing to solicit other potential acquirors
or alternative transactions,
(b) they failed to properly value BRG, and
(c) they ignored or did not protect against the numerous
conflicts of interest resulting from the directors' own interrelationships, or
connections with the Acquisition.
52. Because the Individual Defendants dominate and control the
business and corporate affairs of BRG, and are in possession of private
corporate information concerning BRG's assets (including BRG's third quarter
2000 results) businesses and future prospects, there exists an unbalance and
disparity of knowledge and economic power between them and the public
shareholders of BRG which makes it inherently unfair for them to pursue any
proposed transaction wherein they will reap disproportionate benefits to the
exclusion of maximizing stockholder value.
53. By reason of the foregoing at its practices and course of
conduct, the defendants have failed to exercise ordinary care and diligence in
the exercise of their fiduciary obligations toward plaintiff and the other
members of the Class.
54. As a result of the actions of defendants, plaintiff and the
Class have been and will be irreparably damaged in that they have not and will
not receive their fair portion of the value of BRG's assets and business.
55. Unless enjoined by this Court, the defendants will continue to
breach their fiduciary duties owed to plaintiff and the Class, and may
consummate the proposed Acquisition which will exclude the Class from its fair
share of BRG's valuable assets and business, and/or benefit defendants in the
unfair manner complained of herein, all to the irreparable harm of the Class, as
aforesaid.
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COMPLAINT FOR BREACH OF FIDUCIARY DUTY
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56. Defendants are engaging in self-dealing, are not acting in good
faith toward plaintiff and the other members of the Class, and have breached and
are breaching their fiduciary duties to the members of the Class.
57. Unless the proposed Acquisition is enjoined by the Court,
defendants will continue to breach their fiduciary duties owed to plaintiff and
the members for the Class, will not engage in arm's-length negotiations on the
Acquisition terms, and will not supply to BRG's minority stockholders
sufficient information to enable them to cast informed votes on the proposed
Acquisition and may consummate the proposed Acquisition all to the irreparable
harm of the members of the Class
58. Plaintiff and the members of the Class have no adequate remedy
at law. Only through the exercise of this Court's equitable powers can plaintiff
and the Class be fully protected from the immediate and irreparable injury which
defendants' actions threaten to inflict.
PRAYER FOR RELIEF
WHEREFORE, plaintiff demands preliminary and permanent relief, including
injunctive relief in his favor and in favor of the Class and against defendants
as follows:
A. Declaring that this action is properly maintainable as a class
action,
B. Declaring and decreeing that the Acquisition agreement was
entered into in breach of the juduciary duties of the defendants and is
therefore unlawful and unenforceable,
C. Enjoining defendants, their agents, counsel, employees and all
persons action in concert with them from consummating the Acquisition, unless
and until the Company adopts and implements a procedure of process that is free
from conflicts of interest:
D. Directing the individual Defendants to exercise their fiduciary
duties to obtain a transaction which is in the best interests of BRG's
shareholders until the process for the sale or auction of the Company is
completed.
E. Rescinding, to the extent already implemented, the Acquisition
or any of the terms thereof.
F. Awarding plaintiff the costs and disbursements of this action,
including reasonable attorneys' and experts fees; and
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COMPLAINT FOR BREACH OF FIDUCIARY DUTY
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G. Granting such other and further relief, including equitable
relief, as this Court may deem just and proper.
JURY DEMAND
Plaintiff demands a trial by jury.
DATED July 10, 2000 MILBERG WEISS BERSHAD
HYNES & LERACH LLP
WILLIAM S. LERACH
DARREN J. ROBBINS
/s/ Darren J. Robbins
------------------------
Darren J. Robbins
600 West Broadway, Suite 1800
San Diego, CA 92101
Telephone: 619- 231-1058
CAULEY & GELLER, LLP
PAUL J. GELLER
One Boca Place, Suite 421A
2255 Glades Road
Boca Raton, FL 33431
Telephone: 561-750-3000
Attorneys for Plaintiff
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COMPLAINT FOR BREACH OF FIDUCIARY DUTY
