SSI Asks Damages From Firm for Failed Merger
Specialized Systems Inc. has filed a legal claim alleging that it was defrauded by a firm it was once going to merge with.
SSI said it was defrauded through several “bogus accounting procedures” and has asked the American Arbitration Assn. to award it $176,500 in damages.
The legal claim, filed last week, alleges that SSI was “at least constructively defrauded” by Raytronics, a San Diego-based electronic design, engineering and manufacturing firm, and its president, Dennis H. Berglund.
Raytronics and Berglund, according to SSI, were “siphoning off” SSI’s cash and caused the company’s operations to suffer from “substantial neglect.”
The case could be heard by the AAA as early as August or September, according to Robert E. Jenks, SSI’s attorney.
Berglund on Monday said there are “no practical legal grounds” for SSI’s allegations.
“SSI has had an unusual history and this is a continuation of that,” said Berglund, adding that Raytronics soon will file a counter claim.
“It was a very unhappy chapter in our life,” Berglund said. “Our business suffered irreversible damages because of (SSI)--our banking relationships suffered as well as our supplier relationships.”
When SSI announced its proposed merger with Raytronics 13 months ago, officials said that Raytronics was “precisely what SSI needs.”
Raytronics, a 21-year-old firm, generates annual revenues of about $3 million and is consistently profitable.
The merger was contingent on persuading a lender to assume a $400,000 outstanding Raytronics loan. SSI was unable to find such a lender and the proposed merger soured in December.
Between the time the merger was announced and the time it collapsed, management control of SSI was taken over by Raytronics President Dennis H. Berglund. He was paid $90,000 and was to receive 400,000 shares of SSI common stock had the merger been completed.
SSI, according to the claim, wants the $90,000 returned. In addition, the company wants to recoup $76,502 it said was paid to Raytronics between July 1 and Nov. 30, 1984, when Berglund was in control of SSI’s assets and business operations.
SSI is seeking an additional $10,000 in damages from the accounting “mess created” by Raytronics.
Since the Raytronics merger soured, SSI has merged with Applied Marketing Inc. of Van Nuys, a drug and grocery products distributor that holds the marketing rights--with the estate of comedian W.C. Fields--to sell a hangover remedy called W.C.'s Morning Magic.
Applied Marketing founder Stephen J. Nemergut, who also was a founder of SSI, has taken over SSI as chief executive.
His tenure so far has been an active one. In addition to the legal action against Raytronics, Nemergut has reorganized SSI to emphasize sales of new, high-tech products, and he has eliminated an unprofitable product line.
Nemergut has also signed a tentative agreement for SSI to be acquired by Hong Kong-based Tauran Industries pending Tauran’s infusion of $12.5 million in capital into SSI over the next two years.