Ex-Chairman Countersues Gradco Systems
Keith B. Stewart, former chairman of Gradco Systems Inc., has denied allegations that he used company funds for personal reasons and has filed a countersuit charging the company has failed to honor his lucrative “golden parachute.”
Stewart, who lost control of the company to an investor group headed by New York publisher Martin E. Tash in a bitter proxy fight, resigned from the company in October. His lucrative severance package or “golden parachute” granted him $1.1 million.
In a lawsuit filed by the company in December, two months after Tash won control of its board, Gradco Systems claimed that Stewart used more than $2 million in company funds for his own benefit, including $162,736 paid to his yacht crew and $700,000 paid to his ex-wife in a divorce settlement.
In his countersuit against the company’s lawsuit, Stewart denies the charges and is asking for the amount of the parachute plus legal fees and other damages that together add up to more than $10 million.
Stewart is seeking more than $5 million in damages for mental anguish he says he suffered as a result of his removal from the company. The suits are filed in Orange County Superior Court in Santa Ana.
Gradco is fighting Stewart’s claims and attempting to win control of Stewart’s luxury home in Laguna Beach. Judge Thomas N. Thrasher denied an emergency request by Gradco to secure ownership of the house before it is sold. Thrasher postponed a formal hearing on the matter last week.
In court filings, Stewart denies that he tried to enrich himself at company expense through a board-approved transaction in which he was given warrants, or the right to buy shares in Gradco’s Japanese subsidiary at a fixed price that Gradco alleges was below the market price.
Instead, Stewart says that he played no part in setting the price for the shares and that the transaction was arranged only at the request of the subsidiary’s Japanese investors, who wanted management to show confidence in the subsidiary by investing in it.
In addition, Stewart, who was removed from the board of Gradco Japan in December, has tendered his warrants to the board on the condition that he be relieved of his responsibility to purchase the shares.
“The parties (including Stewart) do not deem themselves management, and the warrants were intended as an expression of management confidence in the subsidiary,” said Arnold M. Stone, Stewart’s attorney. “So they’ve concluded the warrants should be tendered.”
Gradco has contended that those warrants, which expire at the end of the month, could have netted Stewart a windfall of millions of dollars. However, Stewart would have had to pay more than $4 million to exercise the warrants.
“The company was in very deep trouble when Mr. Tash took over, and we have strived with great effort to overcome some difficult conditions,” said Bernard Bressler, corporate secretary for Gradco. “Litigation won’t help, but we have no choice but to pursue the company’s claims.”
