KEVIN J. YOURMAN (147159)
VAHN ALEXANDER (167373)
WEISS & YOURMAN
10940 Wilshire Blvd.
24th Floor
Los Angeles, California 90024
Tel: (310) 208-2800
Attorneys for Plaintiff
SUPERIOR COURT OF THE STATE OF CALIFORNIA
FOR THE COUNTY OF SAN DIEGO
PETER VERRONE on Behalf of Himself and all Others ) CASE NO. 720700
Similarly Situated, )
) (VIA FACSIMILE)
Plaintiff, )
) CLASS ACTION
) ------------
v. )
)
MYCOGEN CORPORATION, DOW ) COMPLAINT FOR BREACH
AGROSCIENCES LLC, NICHOLAS D. HEIN, ) OF FIDUCIARY DUTIES AND
CARLTON J. EIBL, THOMAS J. CABLE, JERRY D. ) INJUNCTIVE RELIEF
CAULDER, PERRY J. GEHRING, LOUIS W. )
PRIBILA, DAVID H, RAMMLER, WILLIAM C. )
SCHMIDT, G. WILLIAM TOLBERT, W. WAYNE ) JURY TRIAL DEMAND
WITHERS and DOES 1-25, inclusive )
)
Defendants. )
)
- -------------------------------------------------
KEVIN J. YOURMAN (147159)
VAHN ALEXANDER (167373)
WEISS & YOURMAN
10940 Wilshire Blvd.
24th Floor
Los Angeles, California 90024
Tel: (310) 208-2800
Attorneys for Plaintiff
SUPERIOR COURT OF THE STATE OF CALIFORNIA
FOR THE COUNTY OF SAN DIEGO
PETER VERRONE on Behalf of Himself and all Others ) CASE NO:
Similarly Situated, )
) (VIA FACSIMILE)
Plaintiff, )
) CLASS ACTION
) ------------
v. )
)
)
MYCOGEN CORPORATION, DOW ) COMPLAINT FOR BREACH
AGROSCIENCES LLC, NICHOLAS D. HEIN ) OF FIDUCIARY DUTIES AND
CARLTON J. EIBL, THOMAS J. CABLE, JERRY D. ) INJUNCTIVE RELIEF
CAULDER, PERRY J. GEHRING, LOUIS W. )
PRIBILA, DAVID H, RAMMLER, WILLIAM C. )
SCHMIDT, G. WILLIAM TOLBERT, W. WAYNE ) JURY TRIAL DEMAND
WITHERS and DOES 1-25, inclusive )
)
Defendants. )
)
- -------------------------------------------------
Plaintiff, by his undersigned attorneys, for his complaint against
defendants, alleges upon knowledge as to himself and his own acts, and upon
information and belief, as to all other matters, as follows:
1. Plaintiff brings this action individually and as a class action on
behalf of all persons, other than defendants, who own the common stock of
Mycogen Corporation ("Mycogen" or the "Company") and who are similarly
situated ("the Class"), to enjoin the consummation of the proposed acquisition
of the remaining shares of Mycogen by Dow AgroSciences LLC ("Dow") for a
purchase price of $20.50 per share or $232 million (the "proposed
transaction"). Alternatively, in the event that the proposed transaction is
consummated, plaintiff seeks to recover damages caused by the breach of
fiduciary duties of care, candor and loyalty, described herein, owed by all
defendants. The proposed transaction and the acts of defendants constitute a
breach of defendants' fiduciary duties to plaintiff and the Class to take all
necessary and appropriate steps to obtain the maximum value realizable for
the shareholders of Mycogen.
PARTIES
2. Plaintiff Peter Verrone is, and has been since the announcement of
the proposed transaction described herein, the owner of shares of common
stock of Mycogen.
3. Defendant Mycogen is a California corporation headquartered at 5501
Oberlin Drive, San Diego, California, 92121. The Company is publicly traded
on the NASDAQ market exchange under the ticker symbol "MYCO" and currently
has over 36,100,000 shares of common stock outstanding. Mycogen is a
diversified agribusiness and biotechnology company that develops and markets
seeds and value-added traits for genetically-enhanced crops and provides crop
protection products and services. Mycogen's majority owner is Dow, a
wholly-owned subsidiary of The Dow Chemical Company of Midland, Michigan.
4. Defendant Dow (formerly DowElanco) is a wholly owned subsidiary of
the Dow Chemical Company and maintains its principal offices at 9330
Zionsville Road, Indianapolis, Indiana, 46268. Dow owns approximately 69% of
Mycogen. Dow employs more than 3,000 people in 26 countries and has worldwide
sales of more than $2 billion. The company discovers, develops,
2
manufactures and markets a wide range of agricultural and specialty products
for farm, home and industrial use.
5. Defendant Nicholas D. Hein ("Hein") is, and at all relevant times
has been, Chairman of the Board of the Company. Defendant Hein is also Vice
President of Biotechnology of Dow.
6. Defendant Carlton J. Eibl ("Eibl") is, and at relevant times has
been, President and Chief Executive Officer of the Company.
7. Defendant Thomas J. Cable ("Cable") is, and at all relevant times
has been, a Director of the Company.
8. Defendant Jerry D. Caulder ("Caulder") is, and at all relevant
times has been, a Director of the Company.
9. Defendant Perry J. Gehring ("Gehring") is, and at all relevant
times has been, a Director of the Company. Defendant Gehring is also Vice
President of Research and Development of Dow.
10. Defendant Louis W. Pribila ("Pribila") is, and at all relevant
times has been, a Director of the Company. Defendant Pribila is also Vice
President, Secretary and General Counsel of Dow.
11. Defendant David H. Rammler ("Rammler") is, and at all relevant
times has been, a Director of the Company.
12. Defendant William C. Schmidt ("Schmidt") is, and at all relevant
times has been, a Director of the Company. Defendant Schmidt is also Vice
President and Chief Financial Officer of Dow.
13. Defendant G. William Tolbert ("Tolbert") is, and at all relevant
times has been, a Director of the Company. Defendant Tolbert is also a
Director of Dow.
14. Defendant W. Wayne Withers ("Withers") is, and at all relevant
times has been, a Director of the Company.
15. The true names and capacities of defendants used herein under
California Code of Civil Procedure Section 474 as Does 1 through 25,
inclusive, are presently not known to plaintiff, who therefore sues these
defendants by such fictitious names. Plaintiff will seek to amend this
Complaint and include these Doe defendants' true names and capacities when
they are ascertained. Each of the fictitiously named
3
defendants is responsible in some manner for the conduct alleged herein and
for the injuries suffered by the Class.
16. Defendants Hein, Eibl, Cable, Caulder, Gehring, Pribila, Rammler,
Schmidt, Tolbert and Withers (collectively the "Individual Defendants"), by
reason of their corporate directorship and/or executive positions, stand in
a fiduciary position relative to Mycogen's shareholders, which fiduciary
relationship, at all times relevant herein, required the Individual
Defendants to exercise their best judgment and to act in a prudent manner and
in the best interests of Mycogen's shareholders. A director is not permitted
to act in his/her own self-interest to the detriment of the shareholders.
17. Defendant Dow, as a majority shareholder of the Company, also stands
in a fiduciary position relative to Mycogen's shareholders, which fiduciary
relationship, at all times relevant herein, required Dow to exercise its best
judgment and to act in a prudent manner and in the best interests of
Mycogen's shareholders. A majority shareholder is not permitted to act in its
own self-interest to the detriment of the shareholders.
18. Each defendant herein is sued individually as a conspirator and
aider and abettor, as well as in such defendant's capacity as an officer
and/or director or majority shareholder of Mycogen, and the liability of each
arises from the fact that he, she, or it has engaged in all or part of the
unlawful acts, plans, schemes, or transactions complained of herein.
JURISDICTION AND VENUE
19. This Court has proper jurisdiction over this action pursuant to
SECTION 410.10 of the California Code of Civil Procedure. The violations of
law complained of herein occurred in this county. Furthermore, the amounts in
controversy exceed the jurisdictional minimum of this Court.
20. Venue is proper in the Superior Court of the County of San Diego
pursuant to California Code of Civil Procedure SECTIONS 395 and 395.5.
CLASS ACTION ALLEGATIONS
21. Plaintiff brings this action individually on his own behalf and as
a class action, on behalf of all stockholders of Mycogen (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
4
or will be threatened with injury arising from defendants' actions as more
fully described herein (the "Class").
22. This action is properly maintained as a class action.
23. The class is so numerous that joinder of all members is
impracticable. As of May 1998, there were over 36,100,000 shares of Mycogen
common stock outstanding. The disposition of their claims in a class action
will be of benefit to the parties and the Court. The record holders of
Mycogen's common stock can be easily determined from the stock transfer
journals maintained by Mycogen or its agents.
24. A class action is superior to other methods for the fair and
efficient adjudication of the claims herein asserted, and no unusual
difficulties are likely to be encountered in the management of this action as
a class action.
25. There is a well-defined community of interests in the questions of
law and fact involved affecting the members of the Class. Among the questions
of law and fact which are common to the Class, which predominate over
questions affecting any individual class member are, INTER ALIA, the
following:
a. whether the proposed transaction is grossly unfair to the
public stockholders of Mycogen,
b. whether defendants have failed to disclose all material facts
relating to the proposal including the potential positive future financial
benefits which they expect to derive from Mycogen;
c. whether defendants willfully and wrongfully failed or refused
to obtain or attempt to obtain a purchaser for the assets of Mycogen at a
higher price than the Dow proposal;
d. whether plaintiff and the other members of the Class would be
irreparably damaged were the proposed transaction complained of herein
consummated;
e. whether defendants have breached or aided and abetted the
breach of fiduciary and other common law duties owned by them to plaintiff
and the members of the Class; and
f. whether plaintiff and the members of the Class have been
damaged and what is the proper measure of damages.
5
26. Plaintiff is a member of the Class and 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. Plaintiff does not have interests antagonistic to or in
conflict with those she seeks to represent. Plaintiff is an adequate
representative of the Class.
27. The likelihood of individual class members prosecuting separate
individual actions is remote due to the relatively small loss suffered by
each Class member as compared to the burden and expense of prosecuting
litigation of this nature and magnitude. Absent a class action, the
defendants are likely to avoid liability for their wrongdoing, and Class
members are unlikely to obtain redress for their wrongs alleged herein. This
Court is an appropriate forum for this dispute.
SUBSTANTIVE ALLEGATIONS
28. Mycogen was founded in 1983 by chemical engineer Andrew Barnes,
biochemist David Edwards, and defendant Rammler. The goal was to use genetic
engineering techniques to create alternatives to chemical pesticides. Mycogen
went public in 1987 and acquired control of seed company Agrigenetics from
The Lubrizol Corporation ("Lubrizol") in 1992. That year it also took a
controlling interest in Lubrizol. One of the keys to Mycogen's rapid growth
was its discovery of a protein-delivery system, a gelatin capsule that
protects the Bt toxin from ultraviolet rays and plant acidity.
29. The San Diego-based company develops technology-based seed and
biopesticide products that control agricultural pests and improve crop
yields. Using its proprietary "Bacillus thuringiensis" (Bt) biotoxin gene
technology, Mycogen has developed pesticides that can target specific pests.
Its Mycogen Seeds division develops genetically enhanced pest-resistant
planting seeds. Mycogen Crop Protection develops fungicides, herbicides, and
insecticides, while its Soilserv subsidiary provides specialized
crop-protection services. Mycogen also conducts research with other
companies, including seed giant Pioneer Hi-Bred.
30. In February 1996, Dow purchased 37% of Mycogen's common stock from
Lubrizol, and in a simultaneous transaction, Mycogen issued Dow 9% of its
common stock in return for cash and Dow seed businesses. As part of this
transaction, Dow entered into an agreement (the "1996 Agreement") whereby it
was prohibited from acquiring all of the shares of Mycogen prior to February
1999.
6
31. Nevertheless, since 1996, Dow has substantially increased its
interest in Mycogen. For example, as recently as November 12, 1997,
defendants issued a press release over the PR NEWSWIRE entitled MYCOGEN BOARD
APPROVES $75 MILLION PRIVATE PLACEMENT WITH DOW/ELANCO. The release stated in
pertinent part:
The Board of Directors of Mycogen Corporation (Nasdaq: MYCO) today
approved private placement of up to $75 million in newly issued shares of
Mycogen common stock with the company's majority owner, DowElanco.
*****
As of October 31, 997, DowElanco, a wholly owned subsidiary of The Dow
Chemical Company (NYSE: DOW), owned 18.1 million shares, or approximately
57.5 percent of Mycogen's 31.4 million outstanding common shares.
32. This private placement boosted Dow's stake in Mycogen from 57.5% to
63%. Shortly thereafter, Dow increased its interest in Mycogen once more. On
or about March 17, 1998, defendant Dow issued the following press release
over the PR NEWSWIRE entitled DOW AGROSCIENCES PURCHASES ADDITIONAL MYCOGEN
SHARES. The release stated:
Dow AgroSciences today announced it has purchased $40.1 million of
additional equity in Mycogen Corporation from Pioneer Hi-Bred
International, Inc. The acquisition totals two (2) million shares of
Mycogen common stock at $20.059 per share.
"DOW AGROSCIENCES IS PLEASED TO ADVANCE ITS INTEREST AND OWNERSHIP OF
MYCOGEN," SAID NICK HEIN, VICE PRESIDENT OF BIOTECHNOLOGY AT DOW
AGROSCIENCES AND CHAIRMAN OF MYCOGEN'S BOARD OF DIRECTORS. "WE'VE STATED
BEFORE OUR BELIEF IN MYCOGEN'S LONG-TERM VALUE AND THAT WE WOULD CONTINUE
FROM TIME TO TIME TO ENHANCE OUR INVESTMENT IN IT. We are doubly pleased
that this change in ownership will in no way affect the joint research
and product development collaboration formed by Mycogen and Pioneer in
1995."
THE ADDITIONAL INVESTMENT IN MYCOGEN INCREASES DOW AGROSCIENCES' TOTAL
OWNERSHIP FROM 63 PERCENT TO 69 PERCENT OF MYCOGEN'S OUTSTANDING COMMON
SHARES.
33. In response to Dow's acquisition of additional shares of Mycogen,
THE DES MOINES REGISTER reported the following on or about March 18, 1998:
WITH A MAJORITY INTEREST IN MYCOGEN EVEN BEFORE THE PURCHASE FROM
PIONEER, DOW ALREADY HAD A STRONG INFLUENCE ON THE COMPANY, ANALYSTS
SAID. THE ADDITIONAL SHARES WILL STRENGTHEN ITS GRIP, THEY SAID. "The
expectation is it's going to own 100 percent of Mycogen at some point, so
you have to get shares wherever you can," said George Dahlman, an analyst
with Piper Jaffray in Minneapolis.
34. Then, on or about April 30, 1998, defendants issued the following
press release over the PR NEWSWIRE entitled DOW REQUESTS AMENDMENT TO
AGREEMENT WITH MYCOGEN. The release noted:
7
The Dow Chemical Company (NYSE:DOW), through its wholly owned subsidiary
Dow AgroSciences LLC, announced today that it has requested an amendment
to a 1996 agreement with Mycogen Corporation (Nasdaq: MYCO). The
amendment would allow Dow AgroSciences to begin discussions regarding
the acquisition of the remaining shares of Mycogen that it does not
already own. Dow AgroSciences currently owns approximately 69 percent of
Mycogen's outstanding shares.
THE TERMS OF DOW AGROSCIENCES' 1996 AGREEMENT WITH MYCOGEN CURRENTLY
STATE THAT DOW AGROSCIENCES CANNOT ACQUIRE THE REMAINING SHARES OF
MYCOGEN BEFORE FEBRUARY 1999. IF MYCOGEN'S BOARD OF DIRECTORS AND THE
INDEPENDENT DIRECTORS AGREE TO AMEND THE AGREEMENT, DOW AGROSCIENCES IS
PREPARED TO BEGIN DISCUSSIONS IMMEDIATELY REGARDING A TRANSACTION IN
WHICH MYCOGEN'S MINORITY SHAREHOLDERS WOULD RECEIVE $20.50 IN CASH PER
SHARE. Under the terms of the proposed amendment, any transaction would
be subject to the prior approval of Mycogen's board of directors and the
independent directors.
35. The following day, THE NEW YORK TIMES released an article
regarding the proposed transaction which stated:
The Dow Chemical Company said yesterday that it would seek talks to
acquire the remaining shares of the Mycogen Corporation that it does not
already own for $20.50 a share in cash. Dow AgroSciences LLC currently
owns about 69 percent of Mycogen's outstanding shares. DOW AGROSCIENCES'
OFFER OF $20.50 IN CASH WAS EQUAL TO YESTERDAY'S CLOSING PRICE FOR THE
SHARES OF MYCOGEN, WHICH IS BASED IN SAN DIEGO. MYCOGEN'S MINORITY
SHAREHOLDERS OWN 11.3 MILLION SHARES OF THE BIOTECHNOLOGY AND
GENETICALLY ENGINEERED CROPS COMPANY, MAKING THE PROPOSED TRANSACTION
WORTH $231.7 MILLION.
36. In light of Dow's stranglehold over the Company, and its Board of
Directors, Dow's request to amend the 1996 Agreement is a foregone
conclusion. None of the directors can be considered "independent" and they
cannot be expected to vigorously protect the rights and interests of
Mycogen's public shareholders. Defendants' intention to pursue the above
proposed transaction, a transaction which offers no premium whatsoever for
Mycogen's shareholders, is in breach of their fiduciary duties of care,
candor, and loyalty owed to the Company's stockholders to take all necessary
steps to ensure that Mycogen's minority shareholders will receive the maximum
value realizable for their shares in any extraordinary transaction involving
the Company.
37. The $20.50 per share price is not the result of arm's-length
negotiations but was unilaterally set by Dow so that it could obtain complete
ownership of Mycogen's assets and business at the lowest possible price. The
intrinsic value of the equity of the Company is materially greater than the
consideration proposed, taking into account, INTER ALIA, Mycogen's asset
value, liquidation value, expected growth, full extent of its future earnings
potential, expected increase in profitability, strength of its business, its
revenues, cash flow, and earnings power.
8
38. The defendants willingness to entertain the proposed transaction
requires them to take all reasonable steps to assure the maximization of
stockholder value, including the implementation of a bidding mechanism to
foster a fair auction of those shares not held by Dow to the highest bidder or
the exploration of strategic alternatives which will return greater or
equivalent short-term value to the plaintiff and the Class.
39. Defendants, knowing all of the above, have failed to take the
necessary and appropriate steps to obtain the maximum value realizable for
the public shareholders of Mycogen.
40. There is no indication that defendants have taken any steps to
ensure that the interests of Mycogen's minority shareholders, in maximizing
the value of their holdings, are being protected from Dow's control.
Defendants have not conducted an auction for those Mycogen shares not held by
Dow, solicited other offers, or otherwise sought out other potential
purchasers. Nor have defendants explored strategic alternatives which will
obtain the highest possible price for Mycogen's stockholders or return
greater or equivalent value to the plaintiff and the class.
41. Further, if defendants accept Dow's proposal without seeking out
other purchasers, defendants have inhibited the chances of receiving competing
offers. If the proposed transaction is consummated, Mycogen's shareholders
will be deprived of the opportunity for substantial gains which the Company
may have realized.
42. By reason of all of the foregoing, defendants herein have willfully
participated in unfair dealing toward plaintiff and the other members of the
Class and have engaged in and substantially assisted and aided and abetted
each other in breach of the fiduciary duties owed by them to the Class.
43. Defendants have violated fiduciary and other common law duties owed
to the plaintiff and the other members of the Class in that they have not and
are not exercising independent business judgment, and have acted and are
acting to the detriment of the Class.
44. As a result of the actions of defendants, plaintiff and the Class
have been and will be damaged in that they are not receiving the fair value
of their Mycogen shares.
45. Unless enjoined by this Court, defendants will continue to breach
their fiduciary duties owed to plaintiff and the Class and will succeed in
excluding the Class from its fair proportionate share of Mycogen's assets and
businesses, all to the irreparable harm of the Class.
9
46. Plaintiff and the Class have no adequate remedy of law.
FIRST CAUSE OF ACTION
AGAINST ALL DEFENDANTS
FOR BREACH OF FIDUCIARY DUTIES OF CARE, CANDOR, AND LOYALTY
-----------------------------------------------------------
47. Plaintiff hereby incorporates by reference paragraphs 1 through 46
above as though fully set forth herein.
48. By virtue of plaintiff's purchase of Mycogen's common stock, and
the defendants' positions as directors and/or officers and majority
shareholder of the Company, and because plaintiff reposed trust and
confidence in them, the defendants owed to plaintiff fiduciary duties of
care, candor and loyalty of the highest good faith, integrity and fair
dealing.
49. In taking and/or failing to take the actions hertofore alleged,
defendants violated their fiduciary obligations to plaintiff.
50. As a proximate result of defendants' aforesaid conduct, plaintiff
was damaged by injury to his property, lost profits, loss of future income,
and other general and specific damages.
WHEREFORE, plaintiff prays for judgement and relief as follows:
(1) declaring that this lawsuit is properly maintainable as a
class action and certifying plaintiff as representative of the Class;
(2) declaring that the defendants and each of them have committed
or aided and abetted in a breach of their fiduciary duties to plaintiff and
the other members of the Class;
(3) declaring the proposed transaction to be a nullity;
(4) preliminary and permanently enjoining defendants and all
persons acting under, in concert with, or for them, from proceeding with,
consummating or closing the proposed transaction;
(5) in the event the proposed transaction is consummated
rescinding it and setting it aside;
(6) ordering defendants, jointly and severally, to account to
plaintiff and the Class for all profits realized and to be realized by them
as a result of the proposed transaction complained of and, pending such
accounting, to hold such profits in a constructive trust for the benefit of
plaintiff and other members of the Class;
10
(7) ordering defendants to permit a stockholders' committee
comprised of class members and their representatives only to ensure a fair
procedure, adequate procedural safeguards, and independent input by
plaintiff and the Class in connection with any proposed transaction for the
shares of Mycogen;
(8) awarding compensatory damages against defendants, jointly and
severally, in the amount to be determined at trial, together with prejudgment
interest at the maximum rate allowable by law;
(9) awarding plaintiff and the Class their costs and disbursements
and reasonable allowances for plaintiff's counsel and experts' fees and
expenses; and
(10) granting such other further relief as may be just and proper.
Dated: May 15, 1998
KEVIN J. YOURMAN
VAHN ALEXANDER
WEISS & YOURMAN
By: VAHN ALEXANDER
-----------------------------------
Vahn Alexander
10940 Wilshire Blvd., 24th Floor
Los Angeles, CA 90024
(213) 208-2800
Attorneys for Plaintiff
11
JURY DEMAND
Plaintiff demands a trial by jury of all issues so triable.
Dated: May 15, 1998
KEVIN J. YOURMAN
VAHN ALEXANDER
WEISS & YOURMAN
By: VAHN ALEXANDER
-----------------------------------
Vahn Alexander
10940 Wilshire Blvd.
24th Floor
Los Angeles, CA 90024
(213) 208-2800
Attorneys for Plaintiff
12