DISTRICT COURT, ARAPAHOE COUNTY
STATE OF COLORADO
CLASS ACTION COMPLAINT AND DEMAND FOR JURY TRIAL
JOHN NICEWONGER,
Plaintiff,
v.
JOHN JENKINS, ROBERT C. PEARSON, ROBERT L. COSTELLO, RICK L.
SCHLEUFER, KENNETH C. O'BRIEN, TAVA TECHNOLOGIES, INC. and REAL
SOFTWARE GROUP NV,
Defendants.
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INTRODUCTION
Plaintiff, by his attorneys, alleges upon information and belief, except with respect to his
ownership of Tava Technologies, Inc. ("TAVA" or the "Company") common stock as follows:
PARTIES
1.Plaintiff is the owner of common stock of TAVA.
2.TAVA is a Colorado corporation with executive offices at 7787 East Belleview Avenue,
Englewood, Colorado 80111. TAVA is a control systems integrator that provides
software applications, system design and configuration in the manufacturing process
control industry. As of April 21, 1999, TAVA had approximately 22 million shares of
common stock outstanding held by thousands of shareholders of record.
3.Defendant Real Software Group NV ("Real Software") is a Belgian incorporated,
information technology services and products company.
4.Defendant John Jenkins is Chief Executive Officer, President and Chairman of the Board
of TAVA
5.Defendants Robert C. Pearson, Robert L. Costello, Rick L. Schleufer and Kenneth C.
O'Brien are Directors of TAVA.
6.The foregoing individual directors of TAVA (collectively the "Director Defendants"),
owe fiduciary duties to TAVA and its shareholders.
CLASS ACTION ALLEGATIONS
1.Plaintiff brings this action on his own behalf and as a class action pursuant to C.R.C.P.
23, on behalf of all shareholders of defendant TAVA (except defendants herein and any
person, firm, trust, corporation or other entity related to or affiliated with any of the
defendants or their successors in interest,) who have been or will be adversely affected by
the conduct of defendants alleged herein.
2.This action is properly maintainable as a class action for the following reasons:
1.The class of shareholders for whose benefit this action is brought is so numerous
that joinder of all class members is impracticable. As of April 21, 1999, there were
thousands of common shareholders of record scattered throughout the United States.
2.There are questions of law and fact which are common to members of the Class and
which predominate over any questions affecting any individual members. The
common questions include, inter alia, the following:
1.Whether the Director Defendants have breached their fiduciary duties owed by
them to plaintiffs and members of the Class, and/or have aided and abetted in
such breach;
2.Whether the Director Defendants have wrongfully failed to act in the best
interests of TAVA and its shareholders; and
3.Whether plaintiff and the other members of the Class will be irreparably
damaged by the transactions complained of herein.
3.Plaintiff is committed to prosecuting this action and has retained competent counsel
experienced in litigation of this nature. The claims of plaintiff 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. Accordingly, plaintiff is an adequate representative of the Class and will
fairly and adequately protect the interests of the Class.
4.Defendants are acting or refusing to act on grounds generally applicable to the Class,
thereby making appropriate injunctive relief with respect to the Class as a whole.
5.The prosecution of separate actions by individual members of the Class could create a
risk of inconsistent or varying adjudications with respect to individual members of the
class which would establish incompatible standards of conduct of defendants or
adjudications with respect to individual members of the Class which would as a practical
matter be dispositive of the interests of the other members not parties to the
adjudications.
6.Plaintiff anticipates that there will not be any difficulty in the management of this
litigation.
7.For the reasons stated herein, a class action is superior to other available methods for the
fair and efficient adjudication of this action.
SUBSTANTIVE ALLEGATIONS
1.On April 21, 1999, the Company announced that it had entered into an Agreement and
Plan of Reorganization (the "Reorganization Plan") pursuant to which TAVA will be
acquired by a wholly owned subsidiary of defendant Real Software, Belgium's largest
software company. The company further announced that Real Software would pay
$8-a-share for 96% of the Company (the "Transaction"). The Transaction also provides
that defendant Jenkins and three other TAVA executives enter into employment
agreements with the private successor corporation.
2.The Reorganization Plan provides that certain TAVA executives will invest 50% of their
proceeds into the private successor corporation. After the 50% investment, the TAVA
executives will own 4% of the new corporation; thus, retaining an equity interest while
TAVA's public shareholders will have lost their equity interest.
3.Under such circumstances, the TAVA board of directors is subject to heightened
fiduciary responsibilities. The Directors Defendants are selling the Company and as such
are obliged to make every effort to obtain the best possible offer for their shareholders.
The Director Defendants have agreed to the Transaction without conducting any auction
process or market check.
4.Although TAVA's stock price has suffered of late, the Director Defendants have entered
into the Transaction at the agreed upon price in the face of extremely positive evidence
concerning the Company's potential for future growth and expansion. The TAVA
executives who have exchanged their 50% investment in TAVA for a 4% interest in the
successor corporation are clearly aware of this potential, as are Jenkins and the three
other TAVA executives who want to reap the rewards of this potential by entering into
employment agreements with the successor corporation.
5.Defendant Jenkins has of late been touting TAVA's great potential for growth. In fact,
only one week earlier on April 14, 1999, defendant Jenkins stated, as reported on Dow
Jones, that he expected the Company will be able to hold onto many of its year 2000
clients and that he saw no reason why the Company would not continue to be profitable
through 1999.
6.On February 9, 1999, PR Newswire reported the following comments from defendant
Jenkins regarding the Company's financial performance for its six months ending
December 31, 1998 when revenues doubled to $49,689,000 from $21,803,000:
The financial performance this quarter reflects the continued dedication and effort of our staff
in response to strong demand for the company's services and products. Revenue was up 51%
over last quarter and earnings per diluted share increased by 79%. Second quarter revenues
included $4,744,000 from product and license fees for the company's Plant Y2K One product
offering, an increase of 39% from the prior quarter. We are particularly pleased with these
results in a time when we are investing heavily in growing our total business scope and
opportunity. In addition to expanding our core business practices with new clients and
increasing geographical coverage, we are adding new product and practice elements at an
exciting pace and continue to build a solid infrastructure to support the company's growth.
1.Over the next several months TAVA, largely through defendant Jenkins, touted the
Company's alliances and strategic partnerships with various companies such as
i2Technologies, Litton PRC's Migration Solution Division, BioMedY2K, Sykes
Enterprises, Inc. and GTE Corporation. The Company additionally announced that it had
been selected by the United States Postal Service to support its year 2000 compliance
program.
1.On March 16, 1999, defendant Jenkins was reported on Dow Jones as stating that the
Company plans to add 200 more employees in 1999, increasing its workforce by nearly a
third. The same Dow Jones article reported that Jenkins stated at the 1999 Hanifen
Imhoff, Inc. Winter Conference that TAVA would increase its number of consultants
from 15 to 100 by the end of 1999. Defendant Jenkins also stated that TAVA's emphasis
on integrated enterprise solutions "from the factory floor to the boardroom" has had
"incredibly strong market response".
2.Jenkins further stated on March 16, 1999, that the Company had picked up 450 new
clients from Y2K work, which accounted for 65% of business during its fiscal second
quarter ended December 31, 1998.
3.Hanifen Imhoff analysts, adopting Jenkins' extremely positive comments, projected
earnings per share in fiscal year 2000 of 75 cents up from their 57 cents per share
estimate for Fiscal 1999 ending June 30, 1999.
4.As such, the Director Defendants, and Jenkins in particular, were well aware of the
extremely positive prospects for the Company, yet decided to eliminate the Company's
public shareholders from the Company's future growth prospects at an unfair and
inadequate price and without engaging in a full and thorough investigation of the
Company's value. Furthermore, the Director Defendants breached their fiduciary duties
by failing to subject the Company to a proper auction process or market check to test the
true value of the Company in the market place.
5.Belgian analysts who followed defendant Real Software were thrilled by the
announcement of the Transaction. Koen Van Uffelen, an analyst at Smeets Securities,
was reported on Bloomberg on April 22, 1999 as stating that "[I]ts gorgeous, it's perfect.
TAVA is just coming out of a turnaround and Real Software was able to buy it cheaply."
In fact, Real Software's stock rose 5.8% on the announcement, having already risen 17%
since April 1, 1999 on rumors of the Transaction. This is highly unusual as the acquiring
company's stock price normally drops on the announcement of an acquisition. The market
obviously knew that Real Software was getting TAVA cheap.
6.The Director Defendants' fiduciary duties to TAVA shareholders require the Director
Defendants to act affirmatively to protect the interests of the shareholders. The
Transaction will deprive TAVA shareholders of their stock for an inadequate
consideration that does not reflect the true value of the Company, while usurping such
value for the benefit of Real Software.
7.The Director Defendants are not acting in accordance with their fiduciary duties to
protect the interests of the shareholders. The Director Defendants are required to
undertake an appropriate evaluation of TAVA's worth as an acquisition candidate and to
conduct a fair and active bidding procedure or other mechanism for checking the market
to assure that the highest possible price is achieved.
8.Further, the Director Defendants must adequately ensure that no conflict of interest exists
between the Director Defendants' own interests and their fiduciary obligations to
maximize stockholder value or, if such conflicts exist, to ensure that all such conflicts
will be resolved in the best interests of the Company's shareholders. The Director
Defendants have breached their fiduciary duties by agreeing to the Transaction and failing
to take the above detailed actions to maximize stockholder value.
9.Plaintiff and other members of the Class have been and will be damaged in that they have
not and will not receive their fair proportion of the value of TAVA's assets and business,
and will be prevented from obtaining fair and adequate consideration for their shares of
TAVA common stock.
10.The consideration to be paid to class members in the proposed merger is unfair and
inadequate because, among other things:
1.The intrinsic value of TAVA's common stock is materially in excess of the amount
offered for those securities in the merger giving due consideration to the anticipated
operating results, net asset value, cash flow, and profitability of the Company;
2.The merger price is not the result of an appropriate consideration of the value of
TAVA because the TAVA Board approved the proposed merger without undertaking
steps to accurately ascertain TAVA's value through open bidding or at least a
"market check mechanism"; and
3.By entering into the agreement with Real Software, the Director Defendants have
allowed the price of TAVA stock to be capped, thereby depriving plaintiff and the
Class of the opportunity to realize any increase in the value of TAVA stock.
11.By reason of the foregoing, each member of the Class will suffer irreparable injury and
damages absent injunctive relief by this Court.
12.Defendant Real Software has knowingly aided and abetted the breaches of fiduciary duty
committed by the Director Defendants to the detriment of TAVA's public shareholders.
Indeed, the Transaction could not take place without the active participation of Real
Software. Furthermore, Real Software and its shareholders together with the Director
Defendants are the intended beneficiaries of the wrongs complained of herein and would
be unjustly enriched absent relief in this action.
13.The conduct of the Director Defendants is, and unless corrected, will continue to be,
wrongful, unfair and harmful to TAVA's public shareholders.
14.Because the Director Defendants (and those acting in concert with them) dominate and
control the business and corporate affairs of TAVA and because they are in possession of
private corporate information concerning TAVA's businesses and future prospects, there
exists an imbalance and disparity of knowledge and economic power between the
Director Defendants and the members of the Class.
15.Unless enjoined by this Court, the Director Defendants will continue to breach their
fiduciary duties owed to plaintiff and the Class, all to the irreparable harm of the Class.
16.Plaintiff has no adequate remedy at law.
WHEREFORE, plaintiff demands judgment as follows:
1.Declaring that this action may be maintained as a class action;
2.Enjoining preliminarily and permanently the Director Defendants to fulfill their
fiduciary duties to protect the TAVA shareholders, and not to take any action in
furtherance of the Transaction without adequate protection for TAVA shareholders;
3.In the event that the proposed transaction is consummated, rescinding it and setting it
aside, or awarding rescissory damages to the Class;
4.Requiring defendants to compensate plaintiff and the members of the Class for all
losses and damages suffered and to be suffered by them as a result of the wrongful
conduct complained of herein, together with prejudgment and post-judgment
interest;
5.Awarding plaintiff the costs and disbursements of this action, including reasonable
attorneys', accountants', and experts' fees; and
6.Granting such other and further relief as may be just and proper.
Plaintiff requests a trial by jury of all issues.
At Denver, Colorado this
____ day of May __ 1999
OF COUNSEL:
WOLF HALDENSTEIN ADLER FREEMAN
& HERZ LLP
270 Madison Avenue
New York, NY 10016
Telephone: (212) 545-4600
Telecopier: (212) 545-4653 |
