Tempers Hot in Proxy Fight for Gradco; Winner Not Yet Known

New York publisher Martin E. Tash and his supporters squared off Friday against Gradco Chairman Keith B. Stewart in a dramatic proxy fight that featured attorneys, shareholders and company officials hurling angry accusations at each other.

But the question of who will gain control of the struggling office-products supplier--Stewart and Gradco’s current board members, or an alternative slate of directors proposed by Tash’s Plenum Publishing Corp.--was left unanswered. Votes cast by shareholders in the proxy contest aren’t expected to be counted until the middle of next week.

In a spirited, three-hour meeting at a Newport Beach hotel, Stewart was challenged to explain: a complicated financial transaction involving Irvine-based Gradco’s Japanese subsidiary; why the company paid for a Rolls-Royce for Stewart’s personal use, and why the company has been losing so much money.

“We appreciate the turnout,” Stewart said to the standing-room-only crowd. “It almost matches the Marriott fight night, and I hope we can make it just as entertaining.”

Entertaining it was. Stewart acknowledged that the once high-flying company had a disastrous year, which he likened to going from “utopia to the gutter.” But he maintained that the company, which lost $28.1 million for its year ended March 31, is on the road to recovery.

Stewart accused Tash and his supporters of undertaking a “dirty campaign” to oust Gradco’s management. He contended that Gradco’s headquarters had been defaced by graffiti, that he has received death threats and that the “media has not been friendly” since the proxy fight began in August.

Tash said he would have preferred not to lead a shareholder revolt. “I’m here today because the facts required somebody to do something,” he said. “After the votes are counted, (Stewart) is not going to be (Gradco’s) chief executive.”

Stewart was asked to defend the controversial transaction that prompted Tash, whose company owns 9.4% of Gradco’s stock, to file a lawsuit and announce in August that it would seek control of Gradco’s board.

The Plenum suit accuses Stewart and Gradco directors of trying to misappropriate company assets by awarding themselves warrants to buy stock in the firm’s profitable Gradco Japan subsidiary at below-market prices. The suit alleges that the transaction could generate a potential $12-million windfall for Stewart and other Gradco executives.

Stewart told shareholders that the board approved the warrants for Gradco managers at the recommendation of Japanese investors. The Gradco Japan transaction was crucial because Gradco “desperately needed capital.”

The meeting’s most-heated confrontation came when Plenum’s outspoken corporate secretary, Bernard Bressler, interrogated Stewart about the Gradco Japan transaction.

“Don’t be lawyerly with me!” Stewart said when asked if his company had failed to make adequate disclosures to shareholders.

“I am not defending a record here. You are defending a record!” Bressler retorted, his face flushed. “I did not award myself warrants at a discount of 28% of the market value!”

Angry shareholders then jumped into the fray, peppering Stewart with questions about the conduct of company officials and accusing the company of failing to disclose its poor financial condition in a timely fashion.

Stewart grew visibly angry when one shareholder asked him if the company had paid for his Rolls-Royce and whether he owned a 150-feet yacht. Stewart denied owning a yacht, but he confirmed that the company bought him a Rolls seven years ago.

Bressler, upset with the voting procedure, said he will seek a court order on Monday to stop Gradco management from overseeing the vote-counting.

Stewart made an emotional plea for shareholder support.

“I have not the slightest intent of continuing as CEO of this company if it’s deemed to be at shareholder expense,” he said. “No one here has more to gain or lose than me. Your vote here today will ensure the continuation of management . . . . Otherwise, all of this can be translated into nothing more than a farewell speech.”

As they left the meeting, Stewart and Bressler shook hands.