Shareholders seek $100 million from Victor firm, Daily Messenger - August 14, 2008

By Jessica Pierce, staff writer

Victor, N.Y. More than half of the shareholders of what had been one of the region's fastest growing businesses, Ecovation Inc., have filed a lawsuit seeking $100 million in damages from the company's top brass. The plaintiffs - more than 100 minority shareholders - claim in the civil suit that Evocationís board of directors, chief executive officer and controlling shareholders breached their fiduciary duties and committed a variety of improper transactions, including a merger with the Minnesota-based Ecolab Inc. earlier this year.

Ecovation, based in Victor, was founded some 13 years ago and, as of July, had about 70 employees. The company produces energy and clean water in a special process of treating waste from the food and beverage industry.

Ecolab, a Fortune 500 company, purchased Ecovation in February. Last year, Ecovation was at the top of the Rochester Top 100 list of the fastest-growing privately held companies.  An Ecolab executive, Michael J. Monahan, said in an industry conference call last month that the economy had caused a number of Ecovation projects to be delayed but insisted the business would see more growth in 2008.

The state Supreme Court lawsuit was filed in the Ontario County Clerk's Office Wednesday, Aug. 13. The plaintiffs are being represented by New York City attorneys from the firm Thacher, Proffitt  & Wood.

An employee who answered the phone at Ecovation Thursday afternoon said the firm had not yet received a copy of the suit and declined to comment.

In addition to Ecovationís board of directors, Chief Executive Officer Diane Creel and controlling shareholders, the lawsuit names Ecolab as a defendant. It claims the merger with Ecolab was improper and violated Ecovationís own "certificate of incorporation," by allocating merger proceeds to favor controlling shareholders W. Jerome Frautschi and Pleasant T. Rowland as well as Ecovation CEO Diane Creel.

Frautschi and Rowland, who are married, founded the popular American Girl doll company.  Working with Creel, the suit alleges, they lent funds to Evocation, at "exorbitant" interest rates. Ecovation, the suit claims, lost money under Creel and got more capital - some $60 million - from Frautschi and Rowland.

The court papers claim Frautschi and Rowland, with the help of Creel, used their positions as lenders to extract Ecovation stock warrants and shares for a penny apiece, well below its market value. Frautschi and Rowland - who have homes in Aurora, N.Y., and Wisconsin - took majority control of the stock ownership "to take the lionís share of the merger consideration," the court papers claim.

The plaintiffs say the alleged scheme ended with the $210 million merger fund being distributed unfairly: The common shareholders received 1.2 percent of the consideration, while Frautschi, Rowland and Creel received more than 60 percent.

 "In short, the merger has allowed Frautschi and Rowland to take far more for themselves than that to which they are legally or equitably entitled," the suit said. "The windfall that (the defendants) generated for themselves is no accident. Rather, it is the result of a carefully planned and deftly engineered scheme."

In addition to seeking $100 million in damages, the suit also calls for a judge to rescind the merger of Ecovation and Ecolab.

Industrial Technologies Ventures Files Suit Against Ecovation CEO, W. Jerome Frautschi Revocable Trust and Pleasant T. Rowland Living Trust

Business Week, 6/21/08
Industrial Technologies Ventures L.P. announced that it has filed a suit in Rochester, accuses Ecovation CEO Diane Creel and Ecovation investor Jerome Frautschi of colluding to squeeze-Industrial Technologies and other investors out of the company before the lucrative takeover deal closed. According to its court complaint, Industrial Technologies first invested in Ecovation in 2002 and at one time owned some 17% of Ecovation's series A preferred shares and had put some $4.4 million into the Victor company. Two trust funds, the W. Jerome Frautschi Revocable Trust and the Pleasant T. Rowland Living Trust are also named as defendants in the court action. Both funds are named as lenders to the Victor firm. In the Ecovation action, Industrial Technologies claims in court papers that Creel continually pressured the Ecovation board to up her compensation and painted an overly dire picture of the firm's finances to convince its directors to sell a controlling interest in the company to the Frautschi and Rowland funds for as little as a penny a share. Industrial Technologies is seeking unspecified compensatory and punitive damages for alleged breaches of fiduciary duty by Creel, Frautschi and the Frautschi and Rowland funds' alleged breaches of fiduciary duty.

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