IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
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RALPH DIETSCHE, :
: Civil Action No. 14156
Plaintiff, :
:
-against- :
:
LEO J. McKERNAN, JAMES C. CHAPMAN, :
DONALD N. FREY, JAMES A.D. GEIER, :
GAYNOR N. KELLEY, RAY B. MUNDT, :
FRANK M. SIMMS and CLARK EQUIPMENT :
COMPANY, :
:
Defendants. :
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CLASS ACTION COMPLAINT
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Plaintiff, by his attorneys, for his Complaint alleges,
upon information and belief, except as to the allegations
contained in paragraph 2, which plaintiff alleges upon knowledge,
as follows:
NATURE OF ACTION
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1. Plaintiff brings this class action on behalf of
himself and all other shareholders of defendant Clark Equipment
Company ("Clark" or the "Company") similarly situated (the
"Class") for declaratory and injunctive relief, and/or
compensatory damages arising from defendants' breach of fiduciary
duty to the shareholders of Clark. As detailed herein,
defendants have acted contrary to the best interests of Clark's
public shareholders by, among other things, failing to
investigate and consider fully an offer by Ingersoll-Rand Co.
("Ingersoll-Rand") to purchase all outstanding shares of the
Company for up to $75 per share, which represents a premium of
more than 40% above the recent market price of the Company's
common stock. Defendants' who currently own or control less than
1% of the Company's common stock outstanding, have taken these
unlawful actions in violation of their fiduciary duties, for the
purpose of entrenching themselves in managerial and directorial
positions.
PARTIES
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2. Plaintiff Ralph Dietsche is and was at all time
material hereto the owner of common shares of defendant Clark.
3. Defendant Clark is a Delaware corporation with
principal executive offices located at 100 North Michigan Street,
Southbend, Indiana 46634. Clark produces and sells construction
machinery, fork lift trucks, transmissions for on-highway trucks
and axles and transmissions for off-highway equipment worldwide.
As of March 13, 1995, the Company had approximately 17,132,696
shares of common stock outstanding. For the fiscal year ended
December 31, 1994, the Company reported net earnings of $161.9
million, or $9.30 per share. At the close of fiscal 1994, Clark
reported assets of $1.194 billion against liabilities of $741.7
million.
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4. At all relevant times herein, defendant Leo J.
McKernan was President and Chief Executive Officer of the
Company, as well as the Chairman of its Board of Directors (the
"Board").
5. At all relevant times hereto, the following
defendants were members of the Company's Board:
James C. Chapman
Donald N. Frey
James A. D. Geier
Gaynor N. Kelley
Ray B. Mundt
Frank M. Simms
For the fiscal year ended December 31, 1994, these individual
defendants, as a group, received cash compensation from the
Company of nearly $3 million. As of March 13, 1995, however, the
individual defendants collectively owned or controlled less than
1% of the Company's outstanding common stock.
CLASS ACTION ALLEGATIONS
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6. Plaintiff brings this action pursuant to rule 23
of the rules of the Court of Chancery, for declaratory,
injunctive and other relief on his own behalf and as a class
action, on behalf of all common stockholders of Clark (except
defendants herein and any person, firm, trust, corporation or
other entity related to or affiliated with any of the defendants)
and their successors in interest, who are being deprived of the
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opportunity to maximize the value of their Clark shares by the
wrongful acts of the defendants described herein.
7. This action is properly maintainable as a class
action for the following reasons:
(a) The class of stockholders for whose benefit
this action is brought is so numerous that joinder of all class
members is impracticable. As of March 13, 1995, Clark had
approximately 17,132,696 shares of common stock duly issued and
outstanding, owned by thousands of shareholders. Members of the
Class are scattered throughout the United States.
(b) There are questions of law and fact which are
common to the members of the Class and which predominate over any
questions affecting any individual members. The common questions
include, interalia, the following:
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(i) whether the defendants, in bad faith and for
improper motives, have impeded or erected barriers to
other offers for the Company, including Ingersoll-
Rand's all-cash tender offer of $75-77 per share;
(ii) whether the defendants have engaged in
conduct constituting unfair dealing to the detriment of
the public stockholders of Clark; and
(iii) whether the defendants have breached their
fiduciary and common law duties owed by them to
plaintiff and the other members of the Class.
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(c) The claims of plaintiff are typical of the claims
of the other members of the Class, and plaintiff has no interests
that are adverse of antagonistic to the interest of the Class.
(d) Plaintiff is committed to the vigorous prosecution
of this action and has retained competent counsel experienced in
litigation of this nature. Accordingly, plaintiff is an adequate
representative of the Class and will fairly and adequately
protect the interests of the Class.
(e) The prosecution of separate actions by individual
members of the Class would create a risk of inconsistent or
varying adjudications with respect to individual members of the
Class, which would establish incompatible standards of conduct
for the party opposing the Class.
(f) Defendants have acted and are about to act on
grounds generally applicable to the Class, thereby making
appropriate final injunctive or corresponding declaratory relief
with respect to the Class as a whole.
CLAIM FOR RELIEF
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8. Clark produces and sells construction machinery,
fork lift trucks, transmissions for on-highway trucks and axles
and transmissions for off-highway equipment worldwide. In March
1994, Ingersoll-Rand approached Clark, to propose an acquisition
of Clark by Ingersoll-Rand. Ingersoll-Rand is a leading
manufacturer of compressed air systems and other industrial
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equipment and trucks. Ingersoll-Rand viewed Clark's strengths as
complimentary to Ingersoll-Rand's strengths and specifically
viewed that the two companies products, customers and
distribution capabilities would enable the combined entity
competitor in the global market place.
9. After reaching an all-time high of $71 per share
in August 1994, the price of Clark common stock began to decline
substantially as its earnings growth subsided. Specifically, on
November 21, 1994, Dow Jones New Service reported that Clark
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expected to report earnings for the fourth quarter of the fiscal
year ending December 31, 1994 "to be reasonably consistent" with
third quarter earnings of $1.86 per share. Following this
announcement of flattening earnings, the price of Clark common
stock fell to $56.625 per share, signifying a decline of nearly
10% from the prior day's closing price. The price of Clark
common stock continued to fall during the ensuring months,
closing as low as $51.25 per share on November 15, 1994.
10. On or about January 26, 1995, Clark reported 1994
net income of $161.9 million, or $9.30 per share. Despite the
announcement of these positive results, the stock failed to
recover the value it lost following Clark's November 21, 1994
earnings projection, closing at $55.625 per share on the day
following the January 26 announcement.
11. In a purported effort to recover this lost value,
on or about February 3, 1995, the Company announced that its
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Board authorized the Company to purchase up to 3 million shares
of the company's common stock, in what amounts to a share "buy-
back" program to maximize the value of the Clark shareholders'
equity interest in the Company.
12. On March 28, 1995, Ingersoll-Rand mounted a $1.34
billion hostile tender offer for Clark, representing a more than
40% premium to its current market value. In announcing the all
cash bid of $75 to $77 a share, Ingersoll-Rand disclosed that it
made the offer privately to Clark earlier this month but was
rebuffed by Clark's board of directors. James E. Perrella,
Ingersoll-Rand's chairman of the board, noted in a letter to
Clark that "we have proposed a transaction that is so compelling
for the stockholders of both our companies that we that we feel
obligated to pursue it notwithstanding your board's rejection."
The letter also stated "we would have thought that an acquisition
proposal at a 50% premium over the price at which Clark common
stock has recently been trading -- and a price exceeding Clark's
all-time high stock price -- would have lead to a more
constructive dialogue between us."
13. In commenting on Clark's rejection of Ingersoll-
Rand's proposal, Leo J. McKernan, Clark's Chairman of the Board
and President and Chief Executive Officer, stated that "the
management team at Clark . . . has been successfully implementing
a strategic plan which has benefitted our shareholders
materially." However, Clark's shareholders have yet to benefit
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from any strategic plan implemented by Clark thus far and the
significant benefit to shareholder value presented by the
Ingersoll-Rand offer outweighs the nebulous long-term value which
could be realized through management's plan.
14. By virtue of the acts and conduct alleged herein,
the defendants are carrying out a preconceived plan to entrench
management to the detriment of Clark's public stockholders. As a
result, the public shareholders of Clark will be deprived of
their ability to avail themselves of the significantly lucrative
offer for their shares submitted by Ingersoll-Rand, and not
adequately considered by defendants.
15. On August 14, 1990, the Clark Board adopted a
Rights Agreement or "Poison Pill", a defensive measure designed
to afford the Company protection upon any initiation of a hostile
offer to acquire the Company. The Poison Pill was in place at
the time Ingersoll-Rand made initial overtures to the Clark Board
regarding a corporate transaction and still is operative. The
Board's failure to adequately consider the Ingersoll-Rand offer
and deliberate failure to negotiate, while the Company was
afforded the protections of the Poison Pill, further demonstrates
that the Board and Clark management are failing to exercise their
fiduciary responsibilities and are continuing their plan of
entrenchment.
16. The defendants have committed further breaches of
their fiduciary duty to the public stockholders of Clark.
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Specifically, prior to announcing the tender offer by Ingersoll-
Rand the Individual Defendants failed to (i) undertake an
adequate valuation of Clark's worth as a potential merger or
acquisition candidate; (ii) give adequate consideration to the
offer for Clark submitted by Ingersoll-Rand; and/or (iii) act so
that the interests of the public stockholders of Clark were
protected.
17. Unless enjoined by this Court, defendants will
continue to breach their fiduciary duties owed to plaintiff and
the other members of the Class, and will succeed in thwarting a
value maximizing transaction, all to the irreparable harm of the
Class.
18. Plaintiff and the other members of the Class have
no adequate remedy at law in that it is impossible to ascertain
what price would be realized for plaintiff and the Class as the
result of an open and vigorous auction of the Company.
WHEREFORE, plaintiff demands judgment and relief in its
favor and in favor of the Class and against defendants, as
follows:
A. Declaring that this action be certified as a
proper class action and certifying plaintiff as class
representative;
B. Declaring that the defendants and each of them
have committed a gross abuse of trust and have breached their
fiduciary duties to plaintiff and other members of the Class;
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C. Ordering that the defendants take appropriate
measures to comply with their duty to maximize shareholder value;
E. Awarding compensatory damages in an amount to be
determined upon the proof submitted to the Court;
F. Awarding the costs and disbursements of this
action;
G. Awarding plaintiff's counsel fees; and
H. Awarding such other and further relief which the
Court may deem just and proper.
Dated: March 29, 1995
ROSENTHAL, MONHAIT, GROSS
& GODDESS
By:/s/ Joseph Rosenthal
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Joseph Rosenthal
First Federal Plaza
Suite 214
P.O. Box 1070
Wilmington, DE 19899
(302) 656-4433
Attorneys for Plaintiff
OF COUNSEL:
BERNSTEIN LITOWITZ BERGER
& GROSSMANN
Vincent R. Cappucci
Ivan J. Dolowich
1285 Avenue of the Americas
New York, New York 10019
(212) 554-1400
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