IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
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H. DAVID SCHNEIDER, :
:
Plaintiff, : C.A. No.
: 20493
v. :
:
CAL-MAINE FOODS, INC.; FRED R. ADAMS, :
JR.; RICHARD K. LOOPER, ADOLPHUS B. :
BAKER; BOBBY J. RAINES; JACK B. SELF; :
JOE M. WYATT; CHARLES F. COLLINS, :
W.D. COX; R. FRASER TRIPLETT; and LETITIA :
C. HUGES, :
Defendants. :
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CLASS ACTION COMPLAINT
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Plaintiff, by and through plaintiffs attorneys, alleges upon information
and belief, except as to paragraph 1 which is alleged upon personal knowledge,
as follows:
THE PARTIES
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1. Plaintiff H. David Schneider ("plaintiff') is the owner of less than
2,500 shares of common stock of Cal-Maine Foods, Inc. ("CALM" or the "Company")
and has been the owner of such shares continuously since prior to the wrongs
complained of herein.
2. Defendant CALM is a corporation duly existing and organized under the
laws of the State of Delaware, with its principal executive offices located at
3320 Woodrow Wilson Avenue, Jackson, Mississippi. CALM is engaged in the
production, cleaning, grading, and packaging of fresh shell eggs in the
manufacture and sale of egg products.
3. Defendant Fred R. Adams, Jr. ("Adams") is and at all relevant times has
been Chief Executive Officer and Chairman of the Board of directors of CALM.
Adams beneficially owns approximately 69% of CALM's outstanding common stock.
4. Defendant Richard K. Looper ("Looper") is and at all relevant times has
been a director of CALM. Looper served as President and Chief Operating Officer
from 1983 through 1997.
5. Defendant Adolphus B. Baker ("Baker") is and at all relevant times has
been President, Chief Operating Officer, and a director of CALM. Baker
beneficially owns approximately 5% of the Company's outstanding common stock.
6. Defendant Bobby J. Raines ("Raines") is and at all relevant times has
been Vice President, Chief Financial Officer, Treasurer, Secretary, and a
director of the Company. Raines beneficially owns 1% of the Company's
outstanding common stock.
7. Defendant Jack B. Self ("Self') is and at all relevant times has been
Vice President/Operations and Production and a director of the Company.
8. Defendant Joe M. Wyatt ("Wyatt") is and at all relevant times has been
Vice President/Mill Division and a director of the Company.
9. Defendants W.D. Cox, R. Faser Triplett, and Letitia C. Hughes are and
have been at all relevant times directors of CALM.
10. The defendants referred to in paragraphs 3 through 9 are collectively
referred to herein as the "Individual Defendants." The Individual Defendants
collectively own approximately 77% of the Company's outstanding common stock.
11. The Individual Defendants as officers and/or directors of the Company,
and Adams as controlling shareholder of the Company, are in a fiduciary
relationship with plaintiff and the other public stockholders of CALM, and owe
plaintiff and the other members of the class the highest obligations of good
faith, fair dealing, due care, loyalty and full and candid disclosure.
CLASS ACTION ALLEGATIONS
------------------------
12. Plaintiff brings this action on his own behalf and as a class action,
pursuant to Rule 23 of the Rules of the Court of Chancery, on behalf all
shareholders of CALM common stock who own less than 2,500 shares of CALM common
stock, or their successors in interest, who are being and will be harmed by
defendants' conduct described herein (the "Class"). Excluded from the Class are
defendants herein and any person, firm, trust, corporation or other entity
related to or affiliated with any of the defendants.
13. This action is properly maintainable as a class action.
14. The Class is so numerous that joinder of all members is impracticable.
As of August 18, 2003, there were approximately 2 million shares of CALM common
stock in the public float, owned by hundreds of public shareholders.
15. There are questions of law and fact which are common to the Class
including, inter alia, the following:
(a) whether defendants have improperly engaged in a course of conduct
designed to benefit themselves at the expense of CALM's public
stockholders; and
(b) whether plaintiff and the other members of the Class would be
irreparably damaged were the transactions complained of herein
consummated.
16. Plaintiff is committed to prosecuting this action and has retained
competent counsel experienced in litigation of this nature. Plaintiff's claims
are typical of the claims of the other members of the Class and plaintiff has
the same interests as the other members of the Class. Accordingly, plaintiff is
an adequate representative of the Class and will fairly and adequately protect
the interests of the Class.
17. The prosecution of separate actions by individual Class members would
create the risk of inconsistent or varying adjudications with respect to the
individual members of the Class which would establish incompatible standards of
conduct for defendants, or adjudications with respect to individual members of
the Class which would, as a practical matter, be dispositive of the interests of
the other members not parties to the adjudications or substantially impair their
ability to protect their interests.
18. Defendants have acted on grounds generally applicable to the Class with
respect to the matters complained of herein, thereby making appropriate the
relief sought herein with respect to the Class as a whole.
SUBSTANTIVE ALLEGATIONS
-----------------------
19. On or about August 18, 2003, CALM announced that the Individual
Defendants approved a 1 for 2,500 reverse stock spit of the Company's shares in
order to effect taking the
Company private. Under the terms of the reverse stock split, CALM's public
shareholders owning less than 2,500 shares will receive $7.35 in cash for each
share of existing common stock.
20. The Individual Defendants have timed the proposal to freeze out the
Company's public shareholders in order to capture for themselves the Company's
future potential without paying an adequate or fair price to the Company's
public shareholders. CALM common stock was trading in excess of the transaction
price - as high as $7.70 per share --on August 15, 2003, the last trading day
prior to the time the reverse stock split/going private transaction was
announced.
21. The Individual Defendants have timed the announcement of the proposed
reverse stock split/going private transaction to place an artificial lid on the
market price of CALM stock so that the market will not reflect CALM's improving
potential, thereby purporting to justify an unreasonably low price.
22. The Individual Defendants have access to internal financial information
about CALM, its true value, expected increase in true value, and the benefits of
100% ownership of CALM to which plaintiff and the Class members are not privy.
The Individual Defendants are using such inside information to benefit
themselves in this proposed transaction, to the detriment of the Company's
public stockholders.
23. A majority of the Individual Defendants have clear and material
conflicts of interest and are acting to better their own interests at the
expense of CALM's public shareholders. Defendant Adams has voting control of the
Company and controls its proxy machinery. Adams has selected and controls all of
the Company's directors, who are beholden
to Adams for their offices and the valuable perquisites which they enjoy
therefrom. Moreover, seven of the Company's ten directors are or recently have
served as executive officers of the Company and will presumably continue in
their positions with the Company once CALM becomes privately held.
24. The Individual Defendants are engaging in self-dealing and not acting
in good faith toward plaintiff and the other members of the Class. By reason of
the foregoing, the Individual Defendants have breached and are breaching their
fiduciary duties to the members of the Class.
25. Unless the proposed reverse stock split/going private transaction is
enjoined by the Court, defendants will continue to breach their fiduciary duties
owed to plaintiff and the members of the Class to the irreparable harm of the
members of the Class.
26. Plaintiff and the Class have no adequate remedy at law.
WHEREFORE, plaintiff prays for judgment and relief as follows:
A. Ordering that this action may be maintained as a class action and
certifying plaintiff as the Class representative;
B. Preliminarily and permanently enjoining defendants and all persons
acting in concert with them, from proceeding with, consummating or closing the
proposed transaction;
C. In the event the proposed reverse stock split/going private transaction
is consummated, rescinding it and setting it aside or awarding rescissory
damages to the Class;
D. Directing defendants to account to Class members for their damages
sustained as a result of the wrongs complained of herein;
E. Awarding plaintiff the costs of this action, including reasonable
allowance for plaintiff's attorneys' and experts' fees;
F. Granting such other and further relief as this Court may deem just and
proper.
ROSENTHAL, MONHAIT, GROSS & GODDESS, P.A.
By: /s/ Carmella P. Keener
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919 Market Street, Suite 1401
P.O. Box 1070 Wilmington, DE 19899
(302) 656-4433
Of Counsel:
SCHIFFRIN & BARRO WAY, LLP
Marc A. Topaz
Gregory M. Castaldo
Three Bala Plaza East
Suite 400
Bala Cynwyd, PA 19004
(610) 667-7706