Exhibit (c) (5)
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF NORTH CAROLINA
RALEIGH DIVISION
WALKER F. RUCKER, Individually Civil File No.
and on behalf of all others similarly
situated, and derivatively on behalf of
North Carolina Railroad Company,
Plaintiff
V. DERIVATIVE COMPLAINT
OR
IN THE ALTERNATIVE
CLASS ACTION
JOHN F. McNAIR, III;
JOHN McKNITT ALEXANDER, JR.;
P. C. BARWICK, JR.;
J. MELVILLE BROUGHTON, JR.;
SIDNEY R. FRENCH;
MARVIN D. GENTRY;
ALEXANDER H. GRAHAM, JR.;
M. REX HARRIS;
WILLIAM H. KINCHELOE;
CHAUNCEY W. LEVER;
LYNN T. McCONNELL;
JACK A. MOODY;
JOHN S. RUSSELL;
SCOTT M. SAYLOR;
VAN WYCK WEBB; and
DAVID T. WOODARD,
Defendants
and
NORTH CAROLINA RAILROAD
COMPANY,
Nominal Defendant JURY TRIAL REQUESTED
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1. JURISDICTION AND VENUE
Plaintiff, complaining of defendants, alleges and says:
1. Plaintiff is a citizen and resident of Greensboro,
Guilford County, North Carolina, and with other family members,
is the owner of in excess of 25,000 shares of North Carolina
Railroad Company (NCRR). Plaintiff brings this action
derivatively on behalf of NCRR. or alternatively as a class
action for the private shareholders of NCRR.
2. The nominal defendant North Carolina Railroad Company
(NCRR) is a North Carolina corporation organized and existing
under the laws of the State of North Carolina.
3. The individual defendants all purport to be members of
the Board of Directors of NCRR, and the defendant McNair is
president of NCRR and chairman of the Board of Directors of NCRR.
Defendants Alexander, Broughton, Russell, Saylor, Webb, and
Woodard are citizens and residents of Wake County, North
Carolina; the defendant Barwick is a citizen and resident of
Cleveland County, North Carolina; the defendant French is a
citizen and resident of Craven County, North Carolina; the
defendant Gentry is a citizen and resident of Stokes County,
North Carolina; the defendant Graham is a citizen and resident of
Durham County, North Carolina; the defendant Harris is a citizen
and resident of Cumberland County, North Carolina; the defendant
Kincheloe is a citizen and resident of Edgecombe County or Nash
County, North Carolina; the defendant Lever is a citizen and
resident of Guilford County, North Carolina; the defendant
McConnell is a
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citizen and resident of Mecklenburg County, North Carolina; the
defendant McNair is a citizen and resident of Forsyth County,
North Carolina; the defendant Moody is a citizen and resident of
Chatham County, North Carolina.
4. This case arises under Section 14(a) of the Securities
Exchange Act of 1934, Rule 14a-9 thereunder, and claims of common
law fraud, breach of fiduciary duty, and negligence are asserted
in this Court under principles of pendent jurisdiction.
5. Venue in this district is proper because this is an
action under 28 U.S.C. Section 1331, and pursuant to 28 U.S.C.
Section 1391. Defendants Alexander, Broughton, Russell, Saylor,
Webb, French, Harris, and Kincheloe reside in the Eastern
District of North Carolina and a substantial part of the events
or omissions giving rise to the claims alleged herein occurred in
said district, and a substantial part of the property that is the
subject of this action is situated in said district, and NCRR's
principal place of business is in Raleigh, North Carolina.
II. BACKGROUND
6. On November 13, 1995, the individual defendants, as
officers and directors of the corporate defendant NCRR
(defendants may herein be generally referred to as "defendants"
or "the Board"), caused to be issued a Proxy Statement,
soliciting proxies from private shareholders, in favor of the
entry by NCRR into a thirty year lease extension with Norfolk
Southern Railway Company (herein "NS"), with a twenty year
extension of said lease at the option of NS. The proposed lease
extension was to begin
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retroactively as of January 1, 1995, at the termination of a
lease for 100 years signed in 1895 between NCRR and Southern
Railway Company. The proposed lease extension is at an absurdly
low yearly rental of $8,000,000, only 1.2% of the latest
appraised value of the property owned by NCRR, which is
$512,000,000. The lease contained other provisions further
detrimental to NCRR and its shareholders. It was based upon no
appraisals or valid comparisons with similar railroad leases, was
at least $11,000,000 annually below any likely amount which ICC
would have awarded had the Board brought proceedings before it
(and ICC might have awarded up to $74,000,000 annually), and it
disregarded other property values of NCRR over and above the
$512,000,000 appraisal. It disregarded that without lease rights
NS would have been required to spend in the $100's of millions
for additional track routes in North Carolina. The Proxy
Statement sought proxies in favor of the lease proposal for a
meeting of shareholders to be held December 15, 1995.
7. The shareholding interest in NCRR is that 75 % of the
shares are owned by the State of North Carolina and 25 % of the
shares are owned by private shareholders. However, in order for
the lease extension to be passed a quorum of private shareholders
must be represented at any shareholder meeting called for
purposes of extending the lease. NCRR has 1,076,297 private
shares outstanding, so that a quorum of shareholders necessary at
any meeting would be 538,149 shares. The bylaws of NCRR provide
that,
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if a quorum is present, a proposition such as the proposed lease
extension can be passed upon a majority vote of the quorum
present.
8. Because of the basic conflict of interest between the
State of North Carolina and the private shareholders there has
been public pressure to separate the public and private interests
in NCRR for many years, either through a buyout by the State of
North Carolina of the private shares or through a reorganization
of the corporation by the issuance of preferred shares to the
private shareholders or otherwise. In anticipation of the
approaching negotiations for extension of the lease terms
committees working under two governors, Martin and Hunt, together
with Councils of State for each governor, have recommended buyout
of the private interests.
9. In a March 3, 1992, press release from the Governor, the
State of North Carolina publicly announced that "the State wants
to insure that the terms of any new lease ... provides for
operating the railroad in a way that best serves the State's
economy."
10. On March 3, 1992, at the request of the Governor of the
State of North Carolina, the Council of State created a special
advisory group (the North Carolina Railroad Study Group) to study
the advisability and feasibility of acquiring all the capital
stock of NCRR.
11. In a report released December 1, 1992 (the "Advisory
Report"), the Railroad Study Group concluded that:
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(a) The general rules applicable to most businesses
corporation is that the directors must operate the affairs of the
company in a fashion designed to maximize the economic return of
all of its shareholders, without furthering the interest of the
majority shareholders to the detriment of the minority
shareholders. Likewise, a majority shareholder is bound by a
fiduciary duty not to use its influence to the detriment of the
minority shareholders. These traditional corporate principles
are not fully applicable, however, in the contest of a
corporation "controlled" by a public entity such as the State of
North Carolina (emphasis added);
(b) That North Carolina courts, while having a "long
history of protecting minority shareholders' reasonable
expectations of profiting from a business enterprise", would
abandon this doctrine in favor of the State's interest of
economic development;
(c) That the State of North Carolina has the "potential
for control of an invaluable economic development asset" in its
ownership of the majority interest in NCRR;
(d) That the North Carolina Department of
Transportation ("NCDOT") believes that the rail lines owned by
NCRR is "a literally irreplaceable transportation resource for
the State";
(e) That "through the creative management of the [NCRR]
rail line, the State has potential to exert a positive influence
on economic development in North Carolina";
(f) According to NCDOT, by controlling the use of
NCRR's assets, "the State could spur the growth of new business
and enhance the State's transportation infra structure";
(g) [I]t is important to distinguish between monetary
return on the State's "investment" in [NCRR] and the value of the
assets of the State solely as an economic and development tool.
Unlike the minority shareholders, the primary value of the [NCRR]
to the State is not based on the monetary return on its
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investment, but on the ability to leverage [NCRR] assets to
promote ancillary economic growth throughout the State (emphasis
added); and
(h) Although the State would derive both direct and
indirect benefits from ancillary economic growth, the minority
shareholders would not derive similar benefits.
12. The Advisory report recommended:
(a) That it was "critical" that the State take an
active role in insuring that the NCRR assets be utilized in a
manner that promotes the State's needs; and
(b) It is in the best interest of the State to acquire
the minority shareholders' interest in NCRR.
13. In addressing the feasibility of a State buyout of the
minority shareholders, the report conceded that the actual value
of the minority shareholders' interests could be dependent on the
"terms of any new operating agreements to be entered by [NCRR] at
the expiration of the current leases. " (Emphasis supplied).
14. The Advisory Report concluded that the State should make
clear to the management of NCRR its desire that assets of NCRR
not only be used for an economic return to the shareholders, but
also the economic development of the State should be considered.
Additionally, any new operating agreements with NS should be
"structured in a manner that promotes" the State's economic
development goals.
15. On January 5, 1993, the Council of State adopted a
resolution which endorsed the recommendations of the Advisory
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Report. However, the Council recommended that the State should
not acquire the minority stake in NCRR until the lease
negotiations with Norfolk were concluded or abandoned.
16. The 1895 lease by NCRR with Southern Railway provided
annual lease payments of $286,000 a year. Such amount was
recently increased to approximately $600,000 per year by reason
of a merger of NCRR with another railroad. The earlier leases
were, of course, highly inadequate and inappropriate. However,
negotiations for the terms of the lease renewal to take effect
January 1, 1995, were kept completely secret. No persons, other
than members of the Board, the Governor of North Carolina, or
those privy to him, and Norfolk Southern were provided any
details concerning lease negotiations as they proceeded.
17. On February 10, 1994, NCRR announced that it had
retained the services of Morgan Stanley & Company to advise and
assist in negotiations with Norfolk Southern over extension of
the leases, and defendant McNair stated that the retention of
Morgan Stanley "should contribute to adding value for our
stockholders."
18. On November 23, 1994, NCRR and Norfolk Southern
announced the basic terms of the lease extension.
19. By the close of the stock market on November 29, 1994,
NCRR's stock price had dropped by $11 per share to $25 per share.
The stock had traded as high as $40.50 in April, 1994.
20. On August 10, 1995, the Board purported unanimously to
approve the lease extension agreement generally described above.
On November 13, 1995, the Board issued its Proxy Statement
8
seeking to convince private shareholders to return proxy cards
and approve the proposed lease extension.
III. MATERIAL MISREPRESENTATIONS AND
NONDISCLOSURES IN THE PROXY STATEMENT
21. The Proxy Statement of November 13, 1995, contained
numerous misrepresentations and nondisclosures in violation of
Rule 14a-9 under Section 14(a) of the Securities Exchange Act of
1934 and other provisions of federal and state law. The
misrepresentations and nondisclosures in the Board's Proxy
Statement include, without limitation, the following:
(a) That the Board did not consider the State of North
Carolina to be an interested party (p. 33); in truth it is
apparent that the Board considered the State and NS to be the
only interested parties;
(b) That the Board determined that the economic
development interests of the State of North Carolina are
substantially consistent with the interests of the other
shareholders of NCRR to the extent that growth of revenue traffic
along the line is promoted; (p. 34) in truth, the growth of
revenue traffic along the line will mean nothing to the private
shareholders whose income from NCRR will be fixed by the terms of
the lease extension;
(c) That the Board determined that the lease extension
agreement is in the best interest of all the shareholders of NCRR
(p. 34); in truth, the inadequate lease terms are in the best
9
interests of only the State and NS;
(d) That the interest of all shareholders is promoted
by increase in the value of NCRR's line (p. 34); in truth,
whatever the increase in the value of NCRR because of
increased revenues will not promote the interest of private
shareholders whose benefits from their stockholding interests is
fixed for 50 years at least;
(e) That the lease extension agreement contains no
special provisions that promote the State's interest to the
detriment of the interests of other shareholders (p. 35); in
truth, all of the inadequate terms of the proposed lease
extension benefit the state to the detriment of the private
shareholders.
22. The misrepresentations and nondisclosures in the Board's
Proxy Statement further include the following. If a buyout is to
occur it is clearly not in the best interests of the private
shareholders for NCRR to enter into a lease with an inadequate
income stream which may last for fifty years and thereby depress
the true value of the private shares. Of obvious materiality to
any reasonable shareholder is the status of plans for the private
shareholders to be bought out of NCRR, but the Proxy Statement
published by the defendants stated, "The NCRR is not aware of the
extent or seriousness of such discussions [relating to buyout or
reorganization], or whether the State will decide to enter into
or approve such a transaction. The Proxy Statement further
stated, "The Board of Directors is not aware of any decision by
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the State to buy out the other shareholders and is not aware of
what legislative or other government approvals would be required
to accomplish a buyout by the State." (Proxy Statement, pp.
35-36).
23. The foregoing language is false or, if not false, is
deliberately ambiguous and designed to omit disclosure of the
extent or seriousness of discussions of buyout by the State of
North Carolina, and the Board knows or should know and disclose
the status of such discussions of obvious materiality before
seeking to have the shareholders commit NCRR to a fifty year
lease extension which can only have the effect of depressing the
price at which a buyout would occur. The Board thereby seeks to
accomplish the buyout purpose stated by the Council of State on
January 5, 1993, [see paragraph 15 supra] and the Board would
have the private shareholders bought out at bargain basement
prices by omitting to disclose information highly material to the
reasonable shareholder.
24. The Board's Proxy Statement contained further material
misrepresentations or nondisclosures, in addition to the
foregoing, in that:
(a) The Proxy Statement, p. 9, stated that the Board
had unanimously approved the lease extension agreement, without
disclosing that the Board was not legally constituted. The
resolution by the Board approving the lease extension agreement
is invalid, for that the bylaws of NCRR provides that each
director "own at least 500 shares" in NCRR (Art. III, Sec. 2) The
Proxy Statement represented that defendants Woodard, Russell and
11
McConnell are "beneficial owners" of 500 shares which manifestly
is not true. Directors Woodard, Russell, and McConnell do not
own 500 shares, but only hold most of the shares in their names,
without having paid cash consideration to the State of North
Carolina pursuant to an agreement which entitles the State to
receive all dividends and to reacquire the stock. Proxy
Statement, pp. 40-41. The agreement with the State as to their
stock is not ownership by McConnell, Woodard, and Russell within
the meaning of the foregoing bylaw provision, and the
shareholders of NCRR are entitled, before the directors place
before them a transaction of the magnitude of the proposed lease
extension, to have said proposal passed by a duly constituted
Board of Directors, which in this case has not occurred.
(b) The Proxy Statement, pp. 7, 33, failed to advise
private shareholders who held their shares in street name [many
of which were in a NOBO list--see paragraph 25 infra] that they
would be counted present for purposes of a quorum at the meeting
of December 15 unless they advised their broker not to return a
proxy on any subject and it was a material omission, given the
provisions of NCRR's bylaws, not to inform the shareholders that
in order not to be counted for quorum purposes they must inform
their brokers to send in no proxy even one voting only on the
election of directors, a subject on which the brokers had
discretion to vote unless instructed otherwise by the
shareholders.
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IV. BREACH OF LEGAL DUTIES BY DEFENDANTS
AFTER ISSUANCE OF THEIR PROXY STATEMENT
25. Because of the bylaw provision that a quorum of
shareholders must be present for the proposed lease extension to
be passed, on December 2, 1995, plaintiff mailed a Response to
the Board's Proxy Statement of November 13, 1995, stating reasons
for his opposition, and that of a committee of private
shareholders supporting him, and asking private shareholders to
boycott the meeting by not attending the meeting or returning
proxy cards relating thereto. In anticipation of the coming
proxy battle plaintiff had officially requested of the Board in
January 1995 that it provide him a list of beneficial owners of
NCRR shares held by stock brokers, or their nominees, in street
name. This is called a "non-objecting beneficial owner" list
(called a NOBO list) and is comprised of shareholders who do not
have share certificates issued in their names, but nonetheless
are the true (beneficial) owners of the shares which may be held
by brokers or nominees in trust, and the shareholders on the NOBO
list are the ones who had the right to decide whether to boycott
the meeting or vote the shares. The brokers or nominees had no
such right to decide. By letter of January 31, 1995, defendants
denied they had possession of a NOBO list and refused to seek to
get it for plaintiff. Copies of correspondence between counsel
relating to such list are attached hereto as EXHIBITS A and B. On
December 2, 1995, plaintiff's counsel requested a list of all
13
shareholders entitled to vote at the meeting, EXHIBIT C. This was
furnished without a NOBO list. EXHIBIT D. However, plaintiff's
counsel became aware that defendants or their solicitors were
probably using a NOBO list on December 11, 1995, and late in the
afternoon in a telephone call questioned defendants' counsel
about it. Defendants' outside counsel first denied any knowledge
of whether defendants had or were using a NOBO list, EXHIBIT E,
but on the afternoon of the following day, December 12, 1995,
NCRR's in-house counsel sent the list to plaintiff's counsel.
EXHIBIT F. Obviously receipt of such list thus was too late to
afford plaintiff an effective opportunity to get his message to
persons on the list prior to the meeting on December 15. Such
list should have been sent when initially requested or, if not at
that time, it should have been sent to plaintiff's counsel at
such time as it was received by defendants. Instead, upon
information and belief, defendants used the NOBO list, with
plenty of time, to solicit shares on behalf of management through
mailings to private shareholders on the NOBO list, and through
professional proxy solicitors, to which management paid up to the
sum of $25,000. The failure to provide a NOBO list to plaintiff
in a timely manner was destructive to his efforts to obtain a
full boycott, was in violation of both state and federal law and
effectively negates any vote at the December 15, 1995 meeting.
26. Although the bylaws of the corporation (Art. 11, Sec. 8)
provide for three shareholders to verify any proxies to be used
at a shareholder meeting defendants refused to allow a
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shareholder representing those who disagree with the proposed
lease extension to serve as one of such shareholders to verify
proxies and refused to state which shareholders would so verify.
Copies of correspondence demonstrating such refusal between
plaintiff's counsel, and counsel representing defendants is
attached hereto as EXHIBITS G, H and I.
V. BREACH OF DUTIES BY DEFENDANTS IN THE CONDUCT
OF MEETING
27. The meeting of December 15, 1995, at which there were
less than 50 persons actually in attendance, was conducted by the
president of the Board, defendant John F. McNair, in breach of
the fiduciary duties of the Board to all shareholders as follows:
(a) The Chairman attempted to open the meeting and
call for discussion leading to a vote on the proposed lease
extension without announcing whether a quorum of shareholders was
present in person or by proxy at the meeting. Undersigned
counsel for plaintiff, who was at the meeting by reason of a
proxy given him by a shareholder other than plaintiff, insisted
upon the Chairman stating whether a quorum was present, which
request was denied or ignored on several occasions, but finally,
about 20 to 30 minutes into the meeting, it was announced that a
quorum was present.
(b) The Chairman failed to state the number of
shares by which a quorum was present, but again at the insistence
of counsel, the Secretary of NCRR, defendant Barwick, reported
that 50.48% of the total shares held by private shareholders,
1,076,297 was present in person or by proxy. The percentage of
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50.48% of 1,076,297 calculates to 543,315 shares, or only 5,166
votes over the quorum requirement. Later, further at the
insistence of plaintiff's counsel, defendant Barwick reported
that there were 543,880 shares represented which, if accurate,
increased the quorum to 5,731 shares. Defendant Barwick reported
that, of the shares present, 372,781 voted for the lease
extension, 33,814 voted against the lease extensions, and 137,288
abstained it is apparent that the 137,288 reported abstentions
resulted from brokers, without the knowledge of the beneficial
owners of shares, sending in proxy cards voting for director
nominees. See paragraph 24(b) supra.
(c) Upon information and belief, given the time
after the start of the meeting before a quorum was declared, it
is apparent that originally no quorum was present in person or
through valid proxies, or if such was present, purported proxies
were obtained through telephone calls made by agents of
defendants after the meeting began. An agent of defendants was
observed making calls after the meeting began, and obviously a
serious question of the timeliness of proxies is raised.
(d) After the quorum was announced, counsel
requested an opportunity for representatives of private
shareholders opposing the lease transaction, including an expert
on proxy verification, to examine the proxies to determine their
validity in order to lodge appropriate objections thereto. This
request was denied. The Chairman then disclosed for the first
time that he had earlier appointed defendants Lever, Alexander
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and Webb as the committee of shareholders to verify proxies.
None of those individuals have any expertise regarding proxy
verification, and none of them are disinterested, and given the
closeness of the proxy vote on December 15, 1995, it is obvious
that if only a few proxies are invalid the result may be totally
different from that announced by plaintiff. At some point in the
meeting defendants announced that Ernst and Young was the
Inspector of Election, but upon information and belief, Ernst and
Young is not independent of defendants and, in any event, no
opportunity to express objections to any Inspector was allowed.
(e) Counsel further requested that the proxies be held
for safekeeping until they could be examined pursuant to court
order, if necessary, but the Chairman stated that the proxies
would be held by First Citizens Bank and Trust Company which, as
transfer agent for the Board and for other reasons, is not a
disinterested party. Because numerous persons may have access
thereto, proxies may be altered, revocations may be lost or
destroyed, invalid proxies corrected and other acts detrimental
to the corporate election may occur before plaintiff or his
representatives can examine the proxies in order to determine
which ones, if any, are subject to objections. Moreover, valid
objections can be anticipated, including the probable facts that
there are duplicate proxies, invalid executed proxies, non-
recordation of revocations, untimely proxies and the like.
(f) In response to a request by undersigned counsel
defendants refused to say whether private shareholders objecting
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to the lease transaction would be allowed examination of the
proxies at all or when, if examination was allowed, it would
occur.
(g) During the course of the meeting, the defendant
McNair stated specifically that he had not asked the Governor or
other representatives of the State of North Carolina whether a
buyout of the private shareholders was planned, and he stated he
did not consider it his fiduciary duty to do so even though the
information would be highly material to a reasonable
shareholder's vote on the lease. Defendant McNair thus confirmed
the misrepresentations and nondisclosures alleged supra,
paragraphs 22 and 23.
(h) Undersigned counsel had requested that a court
reporter be present at the meeting, and if one were not to be
present at the meeting that he be so informed. Counsel for the
Board did not respond to this request and undersigned counsel
employed a court reporter employed by plaintiff to attend the
meeting. Defendants would not allow this court reporter to
attend the meeting, stating that they had a court reporter for
the meeting, although they had previously refused to inform the
undersigned counsel that they would.
(i) At the conclusion of the meeting undersigned
counsel requested an immediate transcript of the meeting, but
this was denied by counsel for defendants who would not say
whether or when undersigned counsel would be allowed a
transcript.
Undersigned counsel further requested at the
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meeting that, at least pending a review of the proxies by both
sides, the proposed lease extension be held in status quo. This
request was also denied, and defendant McNair the same day
announced to the press that the lease extension had passed.
(k) Plaintiff is now informed that a meeting is
scheduled for 8:00 a.m. before the Council of State on Wednesday,
December 20, 1995, at which the defendants will seek approval of
the lease extension by the Council of State pursuant to N.C. Gen.
Stat. Section 124-5, and it is anticipated that defendants will
say to the Council of State that the lease extension received the
necessary approval from the private shareholders, and defendants
will seek this approval as a means of rushing through the
proposed lease approval in the fastest possible manner in order
to defeat the rights of the private shareholders.
28. By reason of the foregoing it is clear that defendants,
in conspiracy with NS and officials of the State of North
Carolina, seek to put into effect a lease extension agreement,
for the purposes of the State and to the detriment of the private
shareholders, and to depress the price by which the State can
expect to buy out the private shareholders, since there will be
no effective way in which to increase the income stream from the
lease for the next fifty years.
29. It is clear that a shocking violation of the rights
of the private shareholders has occurred, and that defendants
have run roughshod, in breach of their fiduciary duties to all
the shareholders over the private shareholders in this matter.
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Even if the presence of a quorum and the vote is as stated by the
defendants, and that is denied, the rights of the private
shareholders in this matter have been seriously and unfairly
violated by the fact that, without the presence of over 113,000
shares owned by NS, and without the presence of approximately
26,000 shares by the members of the Board, a quorum would have
been lacking at the December 15 meeting by well over 120,000
shares. Given the serious conflict of interest by NS its shares
should be disregarded with regard to the presence of a quorum or
otherwise in this matter.
30. Moreover, on any realistic basis it is clear that the
private shareholders, either by boycott or by abstention,
expressed themselves overwhelmingly against the proposed lease
extension, since the 532,417 shares which boycotted, plus the
33,814 shares which, ignorant of the boycott, voted against, far
exceeds the 372,781 shares which defendants reported as voting
for the lease extension.
31. By reason of the matters and things alleged herein it
is clear that the defendants' resolution in favor of the proposed
lease extension did not pass or, if it did, is not valid because
of defects in the Proxy Statement and procedures leading up to
and surrounding the meeting.
VI. CLAIMS FOR RELIEF
32. First Cause of Action. The matters and things alleged
herein violate Section 14(a) of the Securities Exchange Act of
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1934, Rule 14a-9, and other antifraud provisions of the
securities laws of the United States.
33. Second Cause of Action. The matters and things alleged
herein constitute a breach of fiduciary duty and loyalty by the
defendants toward the private shareholders.
34. Third Cause of Action. The matters and things alleged
herein constitute both common law and constructive fraud.
35. Fourth Cause of Action. The matters and things alleged
herein constitute negligent misrepresentations.
VII. DEMAND IS EXCUSED
36. Plaintiff did not make demand upon NCRR's Board of
Directors to assert the claims set forth herein, because such
demand would be vain since the director defendants are aware of,
and performed the acts constituting, the wrongs alleged herein
and have not chosen to protect NCRR or rectify the policies and
practices complained of herein. Therefore, the director
defendants are in no position to prosecute this action and to
request that they do so would be of no use. The law does not
require a vain act.
VIII. ALLEGATIONS AS TO CLASS
37. In the event this action does not proceed as a
derivative action, it is brought pursuant to Rule 23 of the
Federal Rules of Civil Procedure on behalf of all persons or
entities [expressly excluding any of the named defendants,
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members of their families, corporations in which they own
majority or controlling interest, or any other defendants'
affiliates, successors and assigns] who owned any of the private
shares of NCRR on or about November 13, 1995.
38. The class of such shareholders, most of whom are
geographically diverse, numbers approximately 800 and their
joinder as plaintiffs in this action is impractical.
39. Plaintiff will fairly and adequately represent the
interest of the proposed class members. Plaintiff and members of
his family own approximately 25,000 shares in NCRR and suffered
damage as a result of the wrongful conduct and matters alleged
herein. Plaintiff's claim is typical of each and every member of
the class and plaintiff will diligently prosecute said claim.
40. Issues of law and fact common to all class members will
predominate over such questions involving only individual class
members. This class action will be superior to any other
available method of determining the issues raised herein, since
separate actions on behalf of the approximately 800 private
shareholders would be unduly burdensome and pose a threat of
conflicting adjudication and impairment of rights of individual
class members to recover for the wrongs alleged.
41. Although other actions concerning the inadequacies of
the proposed lease extension are pending, no other action
concerning the matters alleged herein relating to the Proxy
Statement by the Board of Directors and the conduct of the
meeting is known by plaintiff to have been commenced. No
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particular difficulty in the management of this class action
should be presented such that it will vary materially from other
similar such actions brought in this Court.
42. The issues of law and fact common to all class members
include the following:
(a) Whether some or all of the defendants caused to be
published material misrepresentations and nondisclosures in the
Proxy Statement dated November 13, 1995.
(b) Whether some or all of the defendants breached
their fiduciary duties to the class with regard to the proposed
lease extension and the promotion thereof through the Proxy
Statement and the meeting of December 15, 1995.
(c) Whether some or all of the defendants negligently
misrepresented material facts concerning the proposed lease
extension.
(d) Whether the conduct of the defendants as alleged in
this complaint were fraudulent and/or procured through the fraud
of some or all of the defendants.
(e) Whether the conduct of some or all the defendants
constituted an aiding and abetting of the wrongs and violations
by other defendants.
(f) Whether the conduct of some or all of the defendants
constituted a conspiracy to violate the rights of the class
members as alleged herein.
IX. PRAYERS FOR RELIEF
4. With regard to the wrongs alleged herein plaintiff has
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no adequate remedy at law and plaintiff moves for injunctive and
other relief as follows:
(a) That plaintiff, with appropriate assistance, be
allowed to examine proxies and other documents relating thereto
for purposes of lodging such objections as he has to such
proxies;
(b) That after such examination of proxies the Court
grant a hearing on and grant plaintiff's motion for preliminary
injunction against consummation of the proposed lease extension
between NCRR and NS, pending full determination of the merits of
this action;
(c) For permanent injunction against the consummation
of the proposed lease extension between NCRR and NS;
(d) For such damages to be recovered by the corporation
as shall be caused to it by the actions of defendants alleged
herein, or alternatively for such damages as class members may be
entitled to recover;
(e) For an award of attorneys' fees, expert witness
fees, and other costs of the litigation;
(f) For such other and further relief as the Court may
deem just and proper.
JURY TRIAL IS HEREBY REQUESTED ON ALL ISSUES SO TRIABLE.
This the 19 day of December, 1995.
OF COUNSEL:
CLARK WHARTON & BERRY /s/ David M. Clark
125 South Elm Street, Suite 600 David M. Clark (NC Bar #813)
P. 0. Box 1349
Greensboro, NC 27402 /s/ Kurt A. Seeber
(910) 275-7275 Kurt A. Seeber (NC Bar #20110)
Attorneys for Plaintiff
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NORTH CAROLINA
GUILFORD COUNTY
Walker F. Rucker, being first duly sworn, deposes and says
that he has read the foregoing complaint and knows the contents
thereof; that the same are true of his own knowledge, save and
except those matters and things stated therein upon information
and belief, and save and except matters occurring at the meeting
of shareholders which are alleged herein, but as to such matters
alleged he is informed and believes that they are true.
/s/ Walker F. Rucker
Sworn to and subscribed before me
this 18th day of December, 1995.
/s/ Margaret T. Bell
Notary Public
My commission expires 1/15/2000.