UNITED STATES DISTRICT COURT
DISTRICT OF CONNECTICUT
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:
ECHLIN INC., Civil Action No.:
:
Plaintiff,
:
- against -
: COMPLAINT
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SPX CORPORATION, :
Defendant. :
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Plaintiff Echlin Inc. ("Echlin"), by its undersigned attorneys,
for its complaint in this action, alleges, upon knowledge as to itself and
upon information and belief as to others:
NATURE OF THE CASE
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1. This is an action for a declaratory judgment and
injunctive relief pursuant to Section 14(a) of the Securities Exchange Act
of 1934 (the "Exchange Act"), 15 U.S.C. Section 78n(a), and the rules and
regulations of the Securities and Exchange Commission (the "SEC")
promulgated thereunder.
2. This action seeks preliminary and permanent injunctive
relief to prevent SPX Corporation ("SPX") from continuing to pursue a
flawed and corrupted solicitation of Echlin shareholders. SPX's stated
purpose in soliciting demands from Echlin shareholders is to call a special
meeting of shareholders to attempt to replace Echlin's entire incumbent
board of directors with five SPX nominees, in furtherance of SPX's scheme
to acquire control of Echlin.
3. SPX's scheme is intended to circumvent Connecticut's
"business combination" statute which, in the circumstances of an SPX offer
for Echlin's shares, would require approval from Echlin's board of
directors. SPX also hopes to assure the success of an SPX offer for Echlin
shares by making announcements that cause many long-term Echlin
shareholders to sell their shares to arbitrageurs whose only interest is
short-term profit and who consequently may be more receptive to an SPX
offer.
4. This manipulative plan has had the intended effect of
causing significant turnover among Echlin shareholders. In fact, February
17, 1998, the date SPX publicly announced its plan, was the busiest day of
trading in Echlin shares in the history of the Company.
5. Under Connecticut law, the holders of 35% of a
corporation's shares may demand that a special meeting of shareholders be
called, and (absent board action) the record date for determining the
shareholders that are entitled to demand that a special meeting be called
is the date the first shareholder signs a demand. On February 17, 1998,
Cede & Co., a record holder of Echlin shares acting at the direction of
SPX, the beneficial holder of such shares, signed and delivered a demand to
Echlin's headquarters, thereby establishing February 17, 1998 as the record
date for the solicitation of demands (hereinafter the "Record Date"). In
subsequent communications with Echlin and in press releases and proxy
materials delivered to Echlin shareholders, SPX has repeatedly acknowledged
and confirmed the Record Date to be February 17, 1998.
6. On March 24, 1998, SPX announced to the world in a press
release and a Schedule 14A filing with the SEC that it had received and was
delivering to the Company demands calling for a special meeting from
holders of more than 35% of Echlin's outstanding shares. In fact, however,
contrary to its announcements, SPX did not solicit and deliver anything
approaching that number of demands from Echlin shareholders as of the
Record Date. In furtherance of its plan and with full knowledge that its
announcements caused a significant amount of market activity, SPX solicited
and delivered demands as of a different date -- February 18, 1998.
Moreover, a large number of the demands that SPX did deliver to Echlin
following SPX's misleading solicitation were invalid because they were
submitted on behalf of purported beneficial holders of Echlin shares
without any supporting proxy from the record holder of such shares -- Cede
& Co.
7. SPX's irresponsible actions have totally and completely
contaminated the proxy process. Contrary to its SEC filings and
announcements, SPX has not delivered the requisite number of demands from
shareholders on the Record Date. Moreover, SPX's actions have made it
impossible to conduct the proxy solicitation process in a fair and
equitable manner. While some Record Date shareholders may have received
proxy materials sent out by SPX and/or Echlin, many others have not. The
entire marketplace and the judgments of the proper body of shareholders as
to whether they should execute or revoke a demand have been infected by
SPX's false announcement that SPX has already obtained the requisite number
of valid demands. Moreover, that announcement has furthered SPX's scheme
of causing the transfer of shares from long-term Echlin shareholders to
arbitrageurs whose only interest is short-term profit.
8. The injunctive relief sought herein is therefore
necessary (1) to prevent SPX from the continued execution of its deceptive
and unlawful scheme and (2) to provide the correct body of Echlin
shareholders with a full and fair opportunity to decide questions that are
rightfully theirs to decide.
9. This Court should enjoin the continuation of SPX's flawed
proxy effort and any action of SPX based upon such proxy effort.
JURISDICTION AND VENUE
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10. This Court has subject matter jurisdiction over this
action pursuant to 28 U.S.C. Section Section 1331, sections 14 of the
Exchange Act, 15 U.S.C. Section Section 78n and the rules and regulations
promulgated thereunder, and section 27 of the Exchange Act, 15 U.S.C.
Section 78aa.
11. Venue is properly laid in this District under section
27 of the Exchange Act, 15 U.S.C. Section 78aa, and under 28 U.S.C. Section
1391(b).
THE PARTIES
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12. Plaintiff Echlin is a corporation organized under the
laws of the State of Connecticut, with its principal place of business in
Branford, Connecticut. Echlin common stock is listed on the New York Stock
Exchange and is registered with the SEC pursuant to Section 12(b) of the
Exchange Act, 15 U.S.C. Section 78l(b). As of February 17, 1998, there
were 63,248,939 shares of Echlin common stock outstanding.
13. Defendant SPX is a corporation organized under the laws
of the State of Delaware, with its principal place of business in Muskegon,
Michigan. As of February 17, 1998, SPX reported that it held 1,150,150
shares of Echlin common stock, or approximately 1.82% of Echlin common
stock outstanding.
SUBSTANTIVE ALLEGATIONS
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A. Background
14. Echlin is a Fortune 500 company that is a leading
producer of quality automotive parts for both original equipment
manufacturers and the aftermarket distribution channels. Although it has
extensive operations worldwide, Echlin's headquarters are in Connecticut,
the state of its incorporation, where it employs over 900 people in
manufacturing and administrative positions.
15. In comparison to Echlin, which had revenues of $3.568
billion for its fiscal year ended August 31, 1997, SPX is a much smaller
company, with reported revenues of $922 million for its fiscal year ended
December 31, 1997.
16. In November 1997, representatives of SPX and
representatives of Echlin had two meetings at which general discussions
regarding a business combination occurred. Notwithstanding Echlin's
response to SPX that further discussions regarding a business combination
would not be fruitful, SPX proceeded in December 1997 to send letters to
Echlin's chief executive officer and subsequently each member of Echlin's
board of directors formally suggesting such a business combination. The
Echlin board of directors, after giving careful consideration to SPX's
letters, unanimously determined that it had no interest in pursuing further
discussions with SPX, and Echlin reported this view to SPX.
B. SPX's Announcement and Intentions
17. On February 17, 1998, SPX publicly announced its
intention to make a hostile tender offer for shares of Echlin common stock.
The same day, SPX delivered to the members of Echlin's board of directors a
letter setting forth certain terms of the offer that SPX said it intended
to make. In the hypothetical SPX offer, Echlin shareholders would receive
$12 in cash and 0.4796 shares of SPX common stock for each of their Echlin
shares.
18. Unlike many hostile takeovers, however, SPX's "offer"
was not a formal offer subject to the securities laws and regulations. No
formal offer was made to Echlin shareholders nor has SPX to this date made
such an offer. Instead, SPX announced its intention to make an offer
someday in the future, subject to certain other significant conditions.
19. Like many other states, Connecticut has for 10 years
had a "business combination" statute that, in most circumstances, places a
corporation's decision whether to enter into a merger or other business
combination squarely in the hands of the corporation's board of directors.
See Conn. Gen. Stat. Ann. Section Section 33-840, et seq. This requirement
has the effect of preventing destructive acquisitions that sacrifice long-
term shareholder value for short-term gain, and that often result in
layoffs, plant closings and disruption to the community of which the
corporation is a significant member. The Connecticut business combination
statute would bar SPX's proposed acquisition of Echlin absent the approval
of Echlin's board of directors.
20. In addition to these provisions, Connecticut's
"constituency statute" requires directors to take a number of factors into
consideration when considering a proposed business combination, including
the long-term as well as short-term interests of the corporation and its
shareholders, the interests of the corporation's employees, customers,
creditors and suppliers, and community and societal considerations. Conn.
Gen. Stat. Ann. Section 33-756(d).
21. Because SPX recognized that the application of these
statutory provisions made approval of SPX's intended hostile offer
unlikely, SPX has chosen instead to try to call a special meeting of
Echlin's shareholders and then wage a proxy contest in connection with the
special meeting to replace Echlin's current, independent board of directors
with SPX's five hand-picked nominees. Three of those nominees are officers
of SPX. SPX's stated intention is for the SPX nominees, who would be
acting at the direction and under the control of SPX, to approve the
consummation of the proposed business combination.
22. SPX's stated intention to force through a transaction
between Echlin and SPX once it has obtained control of the Echlin board of
directors creates an immediate and irremediable conflict of interest
between the duties of SPX nominees to SPX, particularly the three nominees
who are also officers of SPX, and their duties to Echlin shareholders.
Under Connecticut law, including the constituency statute, directors of
Echlin owe a duty of undivided loyalty to Echlin and an obligation to
consider the best interests of the corporation's other constituencies as
well. From the moment of their election, however, the SPX nominees'
decisions will flow from their principal and conflicting duties to SPX and
its shareholders. Those duties to SPX will require the SPX nominees to
seek a transaction under which SPX will acquire Echlin at the lowest
possible price for SPX -- in direct conflict with their duties to Echlin's
shareholders and its other constituency interests.
C. SPX's Demand for a Special Meeting
23. On February 17, 1998, the same day as its public
announcement of its intentions, Cede & Co., the record holder of Echlin
shares, acting at the direction of Merrill Lynch, Pierce, Fenner & Smith,
Inc. for the benefit of SPX, signed and delivered to Echlin a letter
demanding a special meeting of the shareholders of Echlin. See Exhibit A
attached hereto. Pursuant to Connecticut law, holders of 35% of the
outstanding Echlin shares can demand a special meeting and "the Record Date
for determining shareholders entitled to demand a special meeting is the
date the first shareholder signs the demand". Conn. Gen. Stat. Ann.
Section 33-696(a) and (b). Thus, Cede & Co.'s demand letter established
February 17, 1998 as the Record Date for the solicitation of demands.
24. In SPX's Definitive Proxy Statement, SPX confirmed that
"SPX believes that the Demand Record Date is February 17, 1998". See
Exhibit B attached hereto at 13. In that proxy statement, SPX also
acknowledged receiving from Echlin a list of shareholders of record as of
February 17, 1998, and SPX calculated the number of shares as of February
17, 1998 that would have to sign demands for a special meeting in order to
achieve the 35% required before such a special meeting of shareholders
would be called. Id. at 12.
25. Additionally, on February 17, 1998, SPX delivered a
letter to Echlin's General Counsel requesting that, pursuant to Rule 14a-7
under the Exchange Act, Echlin either provide SPX with a list of all Echlin
shareholders of record or mail SPX's proxy materials to all such Echlin
shareholders. By letter dated February 23, 1998, Echlin responded that it
would agree to mail SPX's proxy materials to all of Echlin's shareholders
on SPX's behalf. SPX did not accept this offer by Echlin, choosing instead
to mail its own proxy materials.
D. The Solicitation Process
26. SPX retained the professional proxy solicitation firm
D.F. King & Co., Inc. ("D.F. King") to conduct solicitations of demands
on its behalf. As is the case with many Fortune 500 companies, a large
percentage of Echlin stock is held in "street name" at various banks and
financial institutions. In order to reach shareholders whose shares were
held in street name, D.F. King contacted a service organization called ADP
Proxy Services ("ADP") to obtain the client records of street name
organizations and to mail proxy materials to the owners of shares as of
that date. On March 11, 1998, D.F. King, through ADP, mailed SPX's proxy
materials to all owners of Echlin stock held in street name. A follow-up
solicitation was made by D.F. King through ADP to all street name holders
on March 13, 1998.
27. SPX and its agent, D.F. King, should have sent the
proxy materials to the Echlin shareholders who held shares on the Record
Date of February 17, 1998. Instead, SPX caused the proxy materials to be
delivered to shareholders who held shares as of February 18, 1998 -- the
wrong date. Thus, instead of soliciting demands from shareholders on the
Record Date, SPX and D.F. King solicited demands from a different
population of shareholders, namely shareholders on February 18, 1998. SPX
knew or should have known that the March 11, 1998 and March 13, 1998
mailings were sent to the wrong Echlin shareholders.
28. Echlin retained the proxy solicitation firm Morrow &
Co., Inc. ("Morrow") to conduct a solicitation that would encourage
shareholders to revoke any demand for a special meeting that any
shareholder had already submitted. In order to reach the beneficial
holders of shares held in street name that were being solicited for SPX by
D.F. King, Morrow contacted ADP and asked ADP to mail Echlin's proxy
materials. An initial mailing of Echlin's proxy materials to street name
holders was made by ADP on March 16, 1998 and a follow-up mailing was made
by ADP on March 20, 1998.
29. As a direct result of the instructions provided to ADP
by SPX, the March 16, 1998 and March 20, 1998 Echlin mailings were also
sent to the holders of Echlin shares as of February 18, 1998 -- the wrong
date.
30. In contrast, some of the mailings made on behalf of
both SPX and Echlin -- those made to the registered owners of Echlin shares
that were not held in street name -- were made to the record holders as of
the correct date, February 17, 1998. Thus, street name solicitations were
sent to holders as of one date (the wrong date) and other registered owner
solicitations were sent to holders as of another date (the correct date).
31. SPX furthered its scheme and further tainted the
process by making a false and misleading public announcement on March 24,
1998, an announcement which SPX subsequently incorporated into a proxy
filing. In that announcement, SPX falsely announced that it had received
valid demands from holders of more than 35% of the outstanding Echlin
shares:
SPX Corporation (NYSE: SPW) today announced that
shareholders of Echlin Inc. (NYSE: ECH) have demanded that
Echlin hold a special shareholder meeting to vote on
replacing the Echlin Board of Directors with SPX's nominees.
SPX has received demands from holders of more than 27
million Echlin shares, representing over 43% of Echlin's
outstanding shares, and will deliver these demands tomorrow
to Echlin.
See Exhibit C attached hereto.
32. In fact, contrary to SPX's false and misleading
announcement, only 1,142,878 valid and unrevoked demands, or 1.81% of
Echlin's outstanding shares, had been received by Echlin as of March 25,
1998. Through April 1, 1998, only 1,189,040 valid and unrevoked demands,
or 1.88% of Echlin's outstanding shares, had been received. These figures
were tabulated by Coopers & Lybrand L.L.P., which was retained by the
Secretary of Echlin to perform certain agreed upon procedures relating to
tabulation of demands.
33. According to Coopers & Lybrand's report, a large number
of purported demands delivered by SPX were invalid. Many of those
purported demands were invalid because they were apparently solicited by
SPX from shareholders as of February 18, 1998, which was not the Record
Date. In addition to those invalid demands, a large number of purported
demands were invalid because they were delivered by SPX without an
accompanying "omnibus proxy" from Cede & Co., the record holder of such
shares, establishing the purported beneficial shareholders' entitlement to
issue a demand as of the Record Date.
34. SPX knew the significance of such Cede & Co. proxies.
Indeed, in making its demand on February 17, 1998, SPX arranged for Cede &
Co. to deliver a demand letter to Echlin relating to the Echlin shares that
SPX beneficially owned. See Exhibit A. However, similar Cede & Co.
proxies were not submitted for the other demands that SPX delivered.
35. The confusion described above, created wholly by SPX,
has resulted in a solicitation process that is now in complete disarray.
Many Echlin shareholders as of the Record Date have not received proxy
materials mailed out by one or both of the parties. Some of these
shareholders may have seen or heard announcements or advertisements
generated by one or both of the parties, but they have not received the
comprehensive proxy materials cleared by the SEC and published by the
parties. Many of these shareholders thus have not had the opportunity to
consider all of the available information concerning this crucial decision.
Moreover, it is impossible for Echlin to reconstruct which Echlin
shareholders who held shares as of February 17, 1998 have received or have
been otherwise informed of SPX's proxy materials in order to ensure that
they receive Echlin's proxy materials as well. The subsequent passage of
time and additional announcements by SPX have only added to this confusion.
36. In addition, as a consequence of SPX's false and
misleading announcement, and the numerous reports in the press that
followed the announcement, the price of Echlin's shares on the New York
Stock Exchange rose making long-term holders of Echlin's stock more likely
to have sold their shares to arbitrageurs whose only interest is short-term
profit and who may be more receptive to an SPX offer. Moreover, as often
happens in elections for political office when election results are
announced while the polls are still open, those holders of Echlin shares as
of the Record Date who have already issued demands may now believe it
futile to submit a revocation to change their vote based on the mistaken
belief that a special meeting is a fait accompli.
CLAIM FOR RELIEF
SECTION 14(a) OF THE EXCHANGE ACT
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37. Echlin repeats and realleges the allegations of
paragraphs 1 through 36 as if fully restated herein.
38. Section 14(a) of the Exchange Act, 15 U.S.C. Section
78n(a), provides that it shall be unlawful for any person to solicit
proxies in contravention of the rules and regulations of the SEC. Rule
14a-9, promulgated thereunder, provides, in pertinent part:
No solicitation . . . shall be made by means of any proxy
statement, form of proxy, notice of meeting or other
communication, written or oral, containing any statement
which, at the time and in the light of the circumstances
under which it is made, is false or misleading with respect
to any material fact, or which omits to state any material
fact necessary in order to make the statements therein not
false or misleading . . .
17 C.F.R. Section 240.14a-9.
39. Note (d) to Rule 14a-9 further provides that a claim
made prematurely regarding the results of a solicitation is an example of a
statement that may be misleading under Rule 14a-9:
Note. The following are some examples of what, depending
upon particular facts and circumstances, may be misleading
within the meaning of this rule: . . .
(d) Claims made prior to a meeting regarding the results of a
solicitation.
17 C.F.R. Section 240.14a-9, Note (d).
40. On March 6, 1998, SPX filed with the SEC a Schedule 14A
and definitive proxy materials seeking proxies to demand a special meeting
of Echlin shareholders for the purpose of implementing SPX's plan to
acquire control of Echlin. The SPX Schedule 14A and definitive proxy
materials misrepresented that SPX would be soliciting proxies from Echlin
shareholders as of February 17, 1998, when in fact SPX knew or should have
known that it was soliciting proxies from Echlin shareholders using the
incorrect date of February 18, 1998.
41. On March 24, 1998, SPX issued a press release and filed
with the SEC a Schedule 14A and definitive additional materials
representing that SPX had received demands from the holders of more than
35% of the outstanding shares of Echlin. In fact, most of the demands
which SPX referred to were not valid demands because they had been
solicited and received from holders of Echlin stock as of a date other than
the Record Date, and there is no omnibus proxy.
42. These statements were false and misleading statements
pursuant to Section 14(a) of the Exchange Act and Rule 14a-9 promulgated
thereunder.
43. These false and misleading statements have been made by
SPX under circumstances reasonably calculated to result in the procurement
of demands from Echlin's shareholders and the transfer of Echlin shares
from long-term to short-term holders, such as arbitrageurs.
44. These false and misleading statements have been and
will be material to the decisions of Echlin's shareholders as to whether or
not they issue demands pursuant to the SPX solicitation or submit
revocations of their prior submitted demands to Echlin, and whether or not
they submit to SPX's scheme to acquire control of Echlin.
45. As a consequence of the false and misleading statements
by SPX, a substantial number of Echlin shareholders who have the right to
decide whether to call for a special meeting have been disenfranchised.
Moreover, it will not be possible for Echlin to unscramble the confusion
that SPX has created or to determine the outcome of the demand solicitation
process that would have resulted from a proper solicitation directed
exclusively to the correct array of shareholders and uninfluenced by SPX's
false and misleading announcements and Schedule 14A filings.
46. Echlin's shareholders have reasonably relied, and will
in the future reasonably rely upon the false and misleading statements set
forth above to their detriment unless the relief requested herein is
granted.
47. The material false and misleading statements made by
SPX will cause Echlin's shareholders to be misled and to issue demands
pursuant to the SPX solicitation in an uninformed manner.
48. Unless an injunction is issued to enjoin the
continuation of SPX's current unlawful and contaminated demand effort,
Echlin and its shareholders will suffer irreparable harm.
49. Echlin has no adequate remedy at law.
50. Based upon the foregoing, Echlin respectfully requests
that this Court enter judgment (i) granting a declaratory judgment that the
SPX public statements and filings described above are false and misleading
and the conduct of SPX in soliciting proxies in violation of Section 14(a)
of the Exchange Act and Rule 14a-9 promulgated thereunder has corrupted the
proxy contest for demands from shareholders of Echlin as of February 17,
1998, and (ii) entering a preliminary and permanent injunction pursuant to
Federal Rule of Civil Procedure 65 enjoining SPX and its officers,
employees, attorneys and agents from continuing SPX's illegal proxy
solicitation for demands or from taking any further action based upon such
illegal solicitation.
PRAYER FOR RELIEF
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WHEREFORE, Echlin respectfully prays that this Court enter
judgment providing as follows:
(a) granting a declaratory judgment that the SPX public
statements and filings described above are false and misleading in
violation of Section 14(a) of the Exchange Act and Rule 14a-9 promulgated
thereunder, and entering a preliminary and permanent injunction pursuant to
Federal Rule of Civil Procedure 65 enjoining SPX and its officers,
employees, attorneys and agents from continuing SPX's illegal proxy
solicitation for demands or from taking any further action based upon such
illegal solicitation;
(b) granting a declaratory judgment that the conduct of SPX
in soliciting proxies in violation of Section 14(a) of the Exchange Act and
Rule 14a-9 promulgated thereunder has corrupted the proxy contest for
demands from shareholders of Echlin as of February 17, 1998, and entering a
preliminary and permanent injunction pursuant to Federal Rule of Civil
Procedure 65 enjoining SPX and its officers, employees, attorneys and
agents from continuing SPX's illegal proxy solicitation for demands or from
taking any further action based upon such illegal solicitation;
(c) awarding Echlin the out-of-pocket costs it has been
forced to incur to respond to the illegal proxy solicitation conducted by
SPX and the false and misleading statements made by SPX, as set forth
herein, including Echlin's attorneys' fees and costs in bringing this
action; and
(d) granting Echlin such other and further relief as the
Court may deem just and proper.
Dated: New Haven, Connecticut
April 6, 1998
TYLER COOPER & ALCORN, LLP
/s/ Ronald J. Cohen
-----------------------------------
Ronald J. Cohen
Federal Bar No. CT 04158
David W. Schneider
Federal Bar No. CT 04159
205 Church Street
New Haven, Connecticut 06510
(203) 784-8200
DAVIS POLK & WARDWELL
Dennis E. Glazer
Federal Bar No. CT 02919
Kenneth M. Bernstein
John J. Clarke, Jr.
450 Lexington Avenue
New York, New York 10017
(212) 450-4000