EXHIBIT 23
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
__________________________________________
:
A.D. GELHART & CO., INC., :
ON BEHALF OF ITSELF AND ALL OTHERS :
SIMILARLY SITUATED, :
: INDEX NO. 95/111517
PLAINTIFF, :
:
: CLASS ACTION COMPLAINT
-AGAINST - :
:
GROW GROUP, INC., RUSSELL BANKS, :
JOSEPH M. QUINN, JOHN F. GLEASON, :
PETER L. KEANE, PHILIPPE ERARD, :
TOLLY PLESSER, ROBERT J. MILANO, :
ARTHUR W. BROSLAT, LLOYD FRANK, :
ANGUS N. MACDONALD, WILLIAM :
H. TURNER, AND HAROLD G. BITTLE, :
:
DEFENDANTS. :
:
__________________________________________
Plaintiff, individually and on behalf of all others
similarly situated, by its undersigned attorneys, for its
complaint, alleges based upon personal knowledge as to itself and
its own acts, and upon information and belief as to all other
matters, based upon, inter alia, the investigation made by and
through its attorneys, which investigation included, among other
things, a review of public documents, published reports and news
articles:
NATURE OF THE ACTION
1. Plaintiff A.D. Gilhart & Co., Inc. brings this
class action on behalf of itself and the public stockholders of
Grow Group, Inc. ("Grow Group" or the "Company") against
defendants herein for failing to insure that the shareholders of
the Company receive maximum value for their shares of the common
stock of the Company.
2. The Company is supporting a tender offer (the
"Tender Offer") by GDEN Corporation, a New York corporation and a
wholly owned subsidiary of Imperial Chemical Industries PLC, a
company organized under the laws of England ("ICI"), to purchase
all of the outstanding common stock of the Company, for the
grossly inadequate price of $18.10 per share. Moreover,
defendants, through the use of a shareholder rights plan or
"poison pill" and a lock-up and bust up fee granted to ICI, have
effectively impeded competing bids for the Company's shares and
removed the possibility of the Company's shareholders receiving
the best possible valuation of their shares. Plaintiff seeks to
recover damages from the Director Defendants, as defined below,
for breach of fiduciary duty to maximize shareholder value in
connection with the Tender Offer.
3. The Company and the Director Defendants owe to the
Company's stockholders the highest fiduciary obligations of
fidelity, trust, loyalty and due care and to act in furtherance of
the best interests of the Company and its stockholders. In an
effort to entrench themselves in their positions with the Company,
and to earn potential profits of in excess of $6.5 million, by
forcing potential acquirors to pay for their cooperation, the
Director Defendants are using fiduciary positions of control over
the Company to aid ICI in their Tender Offer. The actions taken
or intended to be taken by defendants to aid the proposed takeover
of the Company constitute self dealing, deception, unfair dealing,
overreaching and a breach of their fiduciary duty to maximize
shareholder value.
THE PARTIES
4. Plaintiff A.D. Gilhart & Co., Inc. owns shares of
the Company's common stock and has held such stock up to and
including the time of the announced Tender Offer.
5. Defendant Company is a corporation organized and
existing under the laws of the State of New York since 1950, with
its principal executive offices located at 200 Park Avenue, New
York, New York 10166. The Company and its subsidiaries purport to
formulate and produce a complete line of architectural coatings,
including paints, and a diverse line of chemical products for the
automotive industry and maritime and industrial users.
6. As of April 29, 1995, the Company had approximately
16,420,411 shares of common stock outstanding, which shares are
traded on the New York Stock Exchange.
7. The below named defendants (the "Director
Defendants") constitute the entire Board of Directors of the
Company as of September, 1994:
(a) Defendant Russell Banks, has been President
and Chief Executive Officer of the Company since 1962
and a director since 1960. If the Tender Offer is
completed, defendant Banks will reap a windfall of $2.1
million pursuant to an employment agreement; $400,000
pursuant to a consulting agreement; $115,000 pursuant to
a stock option agreement; and up to $620,000 pursuant to
a supplemental retirement and death benefit agreement.
(b) Defendant Philippe Erard, has been a director
of the Company since 1992. Defendant Erard is also
Chairman of Corimon C.A.S.A.C.A., a Venezuelan
industrial corporation ("Corimon") which has agreed to
sell its 25% stake of the Company's common stock to ICI
for $70.5 million. Defendant Erard is acting in the
best interests of Corimon, not the other public
shareholders of the Company. If the Tender Offer is
completed, defendant Erard will personally reap a
$62,900 windfall pursuant to a stock option agreement.
(c) Defendant Arthur W. Broslat, has been a
director of the Company since 1992. Defendant Broslat
is also an Executive Vice President and the Chief
Financial Officer of Corimon. If the Tender Offer is
completed, defendant Broslat will reap a $61,000
windfall pursuant to a stock option agreement.
(d) Defendant Joseph M. Quinn is an Executive Vice
President, Chief Operating Officer and director of the
Company. If the Tender Offer is completed, defendant
Quinn will reap of windfall of $1.03 million pursuant to
the terms of an employment agreement; $350,000 pursuant
to a stock option agreement; and up to $377,285 pursuant
to a supplemental retirement and death benefit
agreement.
(e) Defendant John F. Gleason, is an Executive
Vice President and director of the Company. Defendant
Gleason became a director of the Company in 1976. If
the Tender Offer is completed, defendant Gleason will
reap a $15,000 windfall pursuant to a stock option
agreement; and up to $347,665 pursuant to a supplemental
retirement and death benefit agreement.
(f) Defendant Peter L. Keane has been a director
of the Company since 1969. If the Tender Offer is
completed, defendant Keane will reap a windfall of
$20,000 for 10 years under a director fee continuation
plan.
(g) Defendant Harold G. Bittle, became a director
of the Company in 1993. Defendant Bittle also has
served as a consultant to Corimon from 1951 to 1989. If
the Tender Offer is completed, defendant Bittle will
reap a $41,000 windfall pursuant to a stock option
agreement.
(h) Defendant Robert J. Milano, has been a
director since 1983. If the Tender Offer is completed,
defendant Milano will reap a windfall of $20,000 a year
for life under a director fee continuation plan.
(i) Defendant Tully Plesser became a director of
the Company in 1993. If the Tender Offer is completed,
defendant Plesser will reap a $41,000 windfall pursuant
to a stock option agreement.
(j) Defendant Lloyd Frank is Secretary and a
director the Company. If the Tender Offer is completed,
defendant Frank will reap a windfall of $20,000 for 10
years under a fee director fee continuation plan;
$72,000 pursuant to a stock option agreement; and up to
$248,332 pursuant to a supplemental retirement and death
benefit agreement.
(k) Defendant Angus N. MacDonald has been a
director of the Company since 1984. If the Tender Offer
is completed, defendant MacDonald will reap a windfall
of $20,000 for 10 years under a fee director fee
continuation plan.
(l) Defendant William H. Turner has been a
director of the Company since June 1994.
8. The Director Defendants as a group stand to
personally reap a windfall of in excess of $6.5 million if the
Tender Offer is consummated.
9. By reason of their relationships and offices, the
Director Defendants are in a fiduciary relationship with the
plaintiff and the other public shareholders of the Company and owe
to them the highest obligations of good faith, loyalty and fair
dealing. They are sued herein because they have breached these
fiduciary duties.
CLASS ACTION ALLEGATIONS
10. Plaintiff brings this action on its own behalf and
as a class action pursuant to CPLR SECTION 901, seeking declaratory,
injunctive and other relief, on behalf of all current common
stockholders of the Company (the "Class') (excluded from the Class
are defendants herein and any person, firm, trust, corporation or
other entity related to or affiliated with defendants) who are or
will be deprived of their equity interest in the Company at an
unfair price under the proposed Tender Offer of the Company's
public stockholders through the wrongful acts described herein.
11. This action is properly maintainable as a class
action pursuant to Rule 901 of the New York Civil Practice Law and
Rules for the following reasons:
a. The Class of stockholders for whose benefit
this action is brought is so numerous that joinder of
all Class members is impracticable. There are
approximately 16,420,411 shares of the Company's common
stock outstanding, held by approximately 4,000
shareholders of record and thousands more beneficial
owners, all widely dispersed. Furthermore, as the
damages suffered by individual Class members may be
small, the expense and burden of individual litigation
makes it virtually impossible for the Class members on
an individual basis to address wrongs done to them.
b. There are questions of law and fact which are
common to members of the Class and which predominate
over any questions affecting only individual members,
including whether the defendants have breached their
fiduciary duties to plaintiff and the Class by reason
of:
(1) their efforts to entrench themselves in
office and prevent the Company's public
shareholders from maximizing the value of their
holdings;
(2) engaging in unlawful plans and schemes to
thwart valid offers and proposals to acquire the
Company at terms more favorable to the Company's
shareholders;
(3) approving and causing the Company to
adopt and retain various provisions designed solely
to discourage competing tender offers, including a
poison pill and lockup fee, without regard to the
best interests of the Company's shareholders; and
(4) damaging shareholders by preventing them
from the financial benefits of a tender offer for
their shares at terms more beneficial than those
offered by ICI.
c. The claims of plaintiff are typical of the
claims of the other members of the Class and Plaintiff
has no interests that are adverse or antagonistic to the
interest of the Class.
d. Plaintiff is a member of the Class, has
sustained and will sustain damages as a result of the
misconduct alleged herein, and is committed to
prosecuting this action and has retained competent
counsel experienced in litigation of this nature.
Accordingly, plaintiff is an adequate representative of
the Class and will fairly and adequately protect the
interests of the Class.
e. 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.
f. A class action is superior to the other
available methods for adjudication of this controversy.
There will be no difficulty in the management of this
case as a class action.
FACTUAL BACKGROUND
12. On May 1, 1995, Imperial Chemical Industries
announced that it had agreed to buy Grow Group for $290 million;
that it had reached an agreement with the Company's biggest
shareholder, Corimon, to sell its 25 percent stake for $17.50 per
share; and that the Company's directors had agreed to a tender
offer for the rest of the Company's shares at $18.10 each.
13. The Board of Directors of the Company, in the
Company's Form 14D-9 filed with the Securities and Exchange
Commission on May 4, 1995, stated that they had unanimously
determined that the offer and merger are fair and in the best
interest of the Company's shareholders, and recommended that the
shareholders accept the offer and tender their shares.
14. The merger agreement calls for ICI to make a cash
Tender Offer for all outstanding shares of the Company for $18.10
per share. The Tender Offer will be followed as soon as possible
by a second-step cash merger in which each share of the Company's
common stock not acquired in the merger would be converted into
the right to receive $18.10 in cash.
15. Corimon, the Company's largest shareholder which is
represented by three of its officers on the Company's Board of
Directors, has entered into a separate agreement with ICI to sell
its 25% stake of the outstanding common stock of the Company to
ICI for $70.5 million.
16. On May 4, 1995, it was publicly reported for the
first time that the Company had received a credible and serious
expression of interest from Sherwin-Williams Company ("Sherwin-
Williams") to acquire the Company. It was reported that the
Company, on April 28, 1995, received a letter from Sherwin-
Williams stating that they were interested in pursuing a
transaction to purchase the Company, but that the Company had
notified Sherwin-Williams on April 17, 1995 that Sherwin-Williams
would be excluded from bidding on the Company.
SUBSTANTIVE ALLEGATIONS
17. The Director Defendants, by virtue of the acts and
conduct alleged herein, are carrying out a preconceived plan and
scheme to entrench themselves in office and to thwart legitimate
offers to acquire the Company on terms more beneficial than those
offered by ICI and supported by defendants, regardless of the
benefit to the Company's public shareholders. In so doing, the
Director Defendants are acting in total disregard of their
fiduciary duties to Plaintiff and the other members of the Class.
18. The Director Defendants have entered into the
merger agreement without properly exploring other offers and
rejecting possible offers out of hand. By failing to properly
expose the Company for sale, the Director Defendants remain
uninformed of the true value of the Company and unaware if another
suitor is in a better position to put forth an offer which would
serve to maximize shareholder value.
19. The Director Defendants have acted without regard
to their fiduciary duties to the shareholders by rejecting
Sherwin-Williams, a serious and reportedly very financially able
suitor, without informing themselves about Sherwin-Williams'
intentions.
20. If the poison pill and lockup fee granted to ICI
designed to discourage a competing takeover attempt are permitted
to survive, the Company's shareholders who wish to avail
themselves of bona fide other offers to purchase their shares for
fair value would be deprived of the ability to do so.
21. By adopting and retaining the poison pill and other
procedures, the Director Defendants, without shareholder approval,
caused a fundamental shift of power from the shareholders to
themselves. These actions permit the Company's directors to act
as the primary negotiators of -- and, in effect, to preclude --
any and all other offers to acquire the Company that do not
provide unfair and unreasonable compensation for the directors or
permit them to stay in power over the Company.
22. By assuming power to consider or reject potential
takeovers of the Company, the Director Defendants had also assumed
a heightened fiduciary obligation to consider all third-party bids
in good faith, without regard to personal interests but with
regard only to the interests of the public shareholders, and to
negotiate in good faith with bidders on behalf of the public
shareholders. Moreover, to fulfill their fiduciary obligations,
the Director Defendants cannot merely accept a third-party offer
that satisfies their interests, but must pursue third party
interest in acquiring the Company so as to maximize the value to
the shareholders.
23. In order to entrench themselves in office and to
continue receiving their compensation, fees and emoluments of
office, the Director Defendants have not acted in good faith
toward plaintiff and the Class; have breached and are breaching
their fiduciary duties to plaintiff and the Class; and have
willfully participated in unfair dealing toward plaintiff and the
Class.
24. As a result of the actions of the Director
Defendants, plaintiff and their members of the Class have been and
will be damaged in that they are the victims of unfair dealing and
are not receiving the fair value of their interests in the
Company.
25. Unless enjoined by this Court, the Director
Defendants will continue to breach their fiduciary duties owed to
plaintiff and the Class, and succeed in their plan to entrench
themselves in their corporate offices, all to the irreparable harm
of the plaintiff and the Class.
26. The plaintiff and the Class have no adequate remedy
at law.
WHEREFORE, plaintiff, on behalf of itself and the Class,
prays for judgment and relief as follows:
A. Declaring that this action is properly maintainable as a
Class action and certifying the plaintiff as the representative of
the Class;
B. Declaring that the Director Defendants have committed a
gross abuse of trust and have breached their fiduciary duties to
plaintiff and the Class;
C. Preliminarily and permanently enjoining defendants and
their counsel, agents, employees and all persons acting under, in
concert with, or for them, from enforcing the challenged anti-
takeover procedures or otherwise violating their fiduciary duties
to plaintiff and the Class;
D. Requiring defendants to fulfill their fiduciary duties
to maximize shareholder values by exploring third party interest
and accepting the highest offer obtainable for the public
shareholders or by permitting the shareholders to make that
decision free from any coercion;
E. Awarding plaintiff and the Class compensatory damages,
together with appropriate prejudgment interest at the maximum rate
allowable by law;
F. Awarding plaintiff and the Class their costs and
expenses for the litigation including reasonable attorneys' fees
and other disbursements; and
G. Granting such other and further relief as this Court
deems to be just and proper.
Dated: May 8, 1995
POMERANTZ HAUDEK BLOCK & GROSSMAN
Stephen P. Hoffman
Michael A. Schwartz
100 Park Avenue
New York, New York 10017
212/661-1100
Attorneys for Plaintiff