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Jim Scheidt v. Drs Technologies

February 27, 2012

JIM SCHEIDT, PLAINTIFF-APPELLANT,
v.
DRS TECHNOLOGIES, INC., IRA ALBOM, CHARLES G. BOYD, DONALD C. FRASER, WILLIAM F. HEITMANN, STEVEN S. HONIGMAN, C. SHELTON JAMES, MARK N. KAPLAN, MARK S. NEWMAN, STUART F. PLATT, DENNIS J. REIMER, ERIC J. ROSEN, AND NINA L. DUNN, DEFENDANTS-RESPONDENTS.



On appeal from Superior Court of New Jersey, Chancery Division, Morris County, Docket No. C-11-08.

The opinion of the court was delivered by: Payne, P.J.A.D.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

APPROVED FOR PUBLICATION

Argued October 25, 2011 -

Before Judges Payne, Reisner and Hayden.

The opinion of the court was delivered by PAYNE, P.J.A.D.

In May 2008, plaintiff, Jim Scheidt, a shareholder in defendant, DRS Technologies, Inc., an American defense contractor, filed a direct action against the company, its Board of Directors*fn1 and its General Counsel*fn2 alleging that each engaged in self-dealing and breached applicable fiduciary duties by entering into an agreement and plan of merger with the Italian defense contractor Finmeccanica, SpA. On January 12, 2010, after shareholder approval of the merger, the granting of all regulatory approvals, and consummation of the transaction, the court dismissed plaintiff's amended complaint pursuant to Rule 4:6-2(e). Plaintiff has appealed, and we affirm.

I.

Our review of a dismissal of a complaint for failure to state a claim upon which relief can be granted is conducted de novo, following the same standard employed by the trial court. Donato v. Moldow, 374 N.J. Super. 475, 483 (App. Div. 2005). We therefore consider, and accept as true, the facts alleged in the complaint in order to ascertain whether they set forth a claim against the corporate and individual defendants. Ibid. Nonetheless, we recognize that, in conducting our review, the essential facts supporting plaintiff's cause of action must be presented in order for the claim to survive; conclusory allegations are insufficient in that regard. Printing Mart-Morristown v. Sharp Elec. Corp., 116 N.J. 739, 768 (1989).

In a "summary of the action" preceding the allegations of his amended complaint, plaintiff states that he seeks to hold defendants and certain DRS officers accountable for: (a) their exclusive pursuit of the Finmeccanica deal, and related personal benefits, in furtherance of their own interests and at the expense of DRS shareholders' rights and interests; (b) their failures to adequately and properly explore, analyze, and evaluate alternatives to the Finmeccanica deal; (c) their knowing participation in a scheme to deprive DRS shareholders of the benefit of pursuing other higher-value offers; (d) misleading proxy statements and other communications made and unlawful steps taken to solicit and otherwise facilitate and secure DRS shareholder approval of the transaction; and (e) benefits obtained by defendants in violation of certain fiduciary duties to DRS shareholders.

Plaintiff claims that defendants violated their fiduciary duties of loyalty, diligence, candor and good faith in failing to take steps to ensure that they had obtained the best value reasonably available for DRS shareholders. Additionally, plaintiff alleges that certain defendants aided and abetted those breaches.

Plaintiff supports his position with the following allegations. Beginning in June 2007, defendant Mark S. Newman, DRS's Chief Executive Officer (CEO), President and Chairman of the Board, engaged in discussions regarding joint potential business opportunities with Pier Francesco Guarguaglini, Chairman and CEO of Finmeccanica, including the possibility of a "combination transaction." On June 27, 2007, Guarguaglini sent Newman a letter indicating his interest in continuing those discussions. On October 16, 2007, Finmeccanica's counsel telephoned defendant Nina L. Dunn, DRS's General Counsel, to follow up on that expression of interest, and in a meeting later that month, Finmeccanica's counsel requested a meeting between senior management of the two companies. Such meetings between Guarguaglini, his consultant, Newman, and Dunn occurred in December and January 2008.

On January 30, 2008, Finmeccanica signed a nondisclosure agreement so as to enable it to review nonpublic information furnished by DRS. In early February 2008, DRS retained Skadden, Arps, Slate, Meagher & Flom L.L.P. as its legal advisor in connection with any proposed transaction with Finmeccanica. At the time, defendant Mark N. Kaplan, a Board member, served "Of Counsel" to the law firm.

On February 7, 2008, after a presentation by defendant Newman, the Board discussed Finmeccanica's acquisition interest and authorized Newman to continue discussions regarding the terms of a potential proposal by it. In February and March, Newman and Dunn proceeded to meet and discuss with senior representatives of Finmeccanica DRS's "expectations in connection with price and terms."

On March 6, 2008, Newman received a letter from another foreign corporation in the industry, designated by plaintiff as "Company X," expressing an interest in a business combination with DRS. Defendants failed to explore Company X's interest at that time.

On March 18, 2008, DRS received a non-binding indication of interest from Finmeccanica to purchase all outstanding shares of DRS common stock for $75 in cash per share. Upon receipt of the offer, and without exploring Company X's interest, Newman sought the authorization of the Board to proceed to a definitive merger agreement. On March 24, 2008, the Board authorized Newman to conduct detailed discussions with Finmeccanica. On March 25, 2008, DRS retained Bear, Stearns & Co., Inc. to act as financial advisor to it in connection with any transaction with Finmeccanica. Later, it also retained Merrill, Lynch, Pierce, Fenner & Smith, Inc. to also act as a financial advisor and to provide a fairness opinion to the Board in connection with the proposed transaction.

During March and April 2008, DRS assembled nonpublic information about the company's business operations and prospects, as well as its current and projected financial condition, and it made that information available to Finmeccanica. Additionally, meetings occurred between the senior management of both companies to discuss DRS's business, operations, plans, budgets, and forecasts, and to answer questions occasioned by Finmeccanica's due diligence investigation.

On April 17, 2008, Finmeccanica's counsel delivered a draft merger agreement between a Finmeccanica subsidiary and DRS. In the next few weeks, DRS and its advisors exchanged drafts of the merger agreement and engaged in discussions with Finmeccanica and its advisors regarding proposed terms.

On May 7, 2008, before an agreement was reached, DRS received a letter from a United States corporation in the industry, designated "Company Y," expressing an interest in a business combination. DRS did not explore that interest, and DRS's proxy statement allegedly contained no reasonable basis for the Board's decision not to pursue that business opportunity.

On May 8, 2008, DRS issued a press release stating that it was engaged in discussions contemplating a potential strategic transaction. On the following day, Company X reiterated its interest in a business combination with DRS, proposing a potential cash payment of $85 per share or higher.

On May 10, 2008, Newman updated the Board on the status of the discussions with Finmeccanica and on the second letter from Company X. Also, at that meeting, the Board reviewed the proposed terms of a post-acquisition employment agreement between Finmeccanica and Newman. During the May 10 meeting, the Board discussed "(i) the price per share referenced by Company X; (ii) the lack of information in the letter as to financing plans and conditions generally; (iii) the risk that Company X might lower the price offered upon completion of due diligence (even though Finmeccanica agreed to increase its bid based on its own due diligence); (iv) the relative risks associated with obtaining governmental approvals in connection with a transaction with Company X, as compared to a transaction with Finmeccanica, and the lack of specific information in the May 9 letter as to how Company X would propose ...


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