IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE IN AND FOR NEW CASTLE COUNTY - - - - - - - - - - - - - - - - - - x 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. : - - - - - - - - - - - - - - - - - - x CLASS ACTION COMPLAINT ---------------------- 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 ---------------- 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 ------- 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. -2- 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 ------------------------ 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 -3- 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: --------- (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. -4- (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 ---------------- 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 -5- 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 --------------------- 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 -6- 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 -7- 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. -8- 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; -9- 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 ------------------------ 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 -10-