APOLLO MANAGEMENT VI, L.P., § IN THE DISTRICT COURT
§ ______ JUDICIAL DISTRICT
EGL, INC., JAMES R. CRANE, MILTON §
CARROLL, JAMES C. FLAGG, FRANK §
J. HEVRDEJS, PAUL HOBBY, §
MICHAEL JHIN, NEIL E. KELLEY and §
SHERMAN WOLFF, §
§ OF HARRIS COUNTY, TEXAS
PLAINTIFF’S ORIGINAL PETITION
Plaintiff Apollo Management VI, L.P. (“Apollo”), by its undersigned attorneys,
alleges on information and belief, except for its own acts, as follows:
1. This lawsuit is intended to be conducted as a level 3 case under TEX. R.
CIV. P. 190.
NATURE OF THE ACTION
2. This action is brought to remedy the serious and blatant breaches of
fiduciary duty committed by the directors of defendant EGL, Inc. (“EGL” or the “Company”).
On March 19, 2007, EGL announced that it had entered into an Agreement and Plan of Merger
(the “Merger Agreement”) with acquisition vehicles owned by James R. Crane (“Crane”) and
two private equity firms, Centerbridge Partners, L.P. (“Centerbridge”) and The Woodbridge
Company Limited (“Woodbridge” and, collectively, “Crane’s Second Group”), providing for the
sale of the Company at $38 per share. As alleged herein, the Merger Agreement was the product
of a sham process, controlled and manipulated by Crane, with the tacit or express connivance of
the remaining defendants, in order to allow Crane to reap significant financial benefit from a
coerced, self-dealing transaction.
3. Crane is EGL’s Chief Executive Officer and Chairman of EGL’s board of
directors, and is therefore a self-interested participant in this transaction, due to his 51%
participation in the investment vehicle that will, if the Merger Agreement is consummated,
acquire EGL. Crane would be the controlling shareholder, Chief Executive Officer and
Chairman of the new company. Throughout the sale process, Crane has abused his position and
influence over the board and management of the Company to prevent any third party from
making a competitive offer for EGL and to preclude fair consideration by the board of EGL and
its Special Committee of third-party bidders for EGL in order to secure his own acquisition of
the Company at the lowest possible price.
4. The Merger Agreement is the result of a seriously flawed process and
significant breaches of duty by Crane and the other EGL directors who voted to approve the
Merger Agreement. Although EGL and Crane knew that Apollo was enthusiastically interested
in buying EGL, and indeed had earlier submitted its own $38 per share bid, Crane and the board
preferred to deal with Crane’s Second Group, and therefore kept Apollo in the dark about the
bidding process. They did this out of personal self-interest and despite the fact that their conduct
would bring the bidding process to a premature conclusion. Accordingly, despite Apollo’s
entering into a customary confidentiality agreement in early February 2007, defendants for more
than two months have denied Apollo customary and necessary information concerning the
Company that had already been provided to Crane and his two separate groups of equity
investors, and two debt financing groups. EGL and its advisors also affirmatively misled Apollo
during the bidding process — including instructing the Special Committee’s investment bankers
to mislead Apollo about the timing and status of EGL’s sale process (which they stated would
continue for another eight days) when they were on the verge of signing a deal with Crane’s
Second Group in order to manipulate the process to forestall Apollo from putting a higher bid on
the table and to permit Crane to make the lowest possible bid he needed to make in order to
obtain a signed merger agreement.
5. Having delivered EGL to the favored bidder, defendants then attempted to
“lock up” the deal by including an unconscionable break-up fee and other onerous “deal
protections” in the Merger Agreement. For example, any bid higher than Crane’s Second
Group’s is subject to an approximately 2% penalty “termination fee,” approximately one-half of
which is to be received personally by Crane. This payment is improper because, at the time the
board agreed to sell EGL to Crane’s Second Group, Apollo had nearly one week earlier offered
$38 per share, the same price at which the board determined to sign a deal with Crane, and had
also indicated a willingness to increase its bid, and Apollo in fact offered $40 per share promptly
upon learning that the Company intended to sign a deal with Crane’s Second Group, which the
Company did without even contacting Apollo to inquire whether it would increase its bid.
Accordingly, the board was in no position to grant any termination fee or similar deal protections
to Crane’s Second Group.
6. The directors of EGL, in considering a sale of the Company, owe a duty to
structure the sale process in a manner reasonably calculated to result in the shareholders
obtaining the best possible price and terms. They further owe a duty to provide a “level playing
field” to bona fide, financially capable bidders. In particular, the individual director defendants
here had a duty to ensure that Crane, who was self-interested and conflicted, did not exert
improper influence over EGL’s management during their consideration of acquisition proposals,
thereby steering the bidding process in his favor. Here, the board stood by and permitted Crane
to use his control of senior management to browbeat these individuals into exclusively allying
themselves with his bid; they have informed Apollo that they will not work for any other buyer
of EGL. By doing nothing to prevent Crane from abusing his CEO position in this manner, the
entire board has breached its duty to sell EGL only after a fair and reasonable process. Crane has
separately breached his fiduciary duties as CEO of EGL by manipulating the bidding process to
advantage himself, by using confidential Company information for his own personal benefit and
by exerting undue and illegal pressure on other members of management.
7. On March 27, 2007, Apollo has again affirmed that it remains ready,
willing and able to beat the existing bid, by further increasing its offer to $41 per share
(assuming no break-up fee is payable) — over $120 million higher in aggregate and $3 higher
per EGL share — than the $38 per share accepted by the board in the current Merger Agreement.
Apollo accordingly respectfully seeks relief from this Court to, among other things, (a) enjoin the
Company and Crane from committing further violations of their fiduciary duties in the sale
process, including by enjoining any party to the Merger Agreement from taking any further steps
to implement the Crane merger; (b) require EGL to negotiate on a level playing field with
Apollo, including establishing a bidding process protected from the influence and manipulation
of Crane; (c) require EGL to supply Apollo with all necessary and customary information
required to make an informed bid, including any information the Company has provided or will
provide to Crane’s Second Group, as well as access to EGL’s management without the influence
and manipulation of Crane; Apollo understands that EGL’s management is critical to the
Company’s business and that it needs to be able to establish a relationship with management
during Apollo’s evaluation of the Company; and (d) declare invalid the break-up fee.
JURISDICTION AND VENUE
8. This Court has jurisdiction over each of the defendants because they
conduct business in, reside in and/or are citizens of Texas. EGL is incorporated under the laws
of the State of Texas, and its principal place of business is located at 15350 Vickery Drive,
Houston, Texas. Moreover, many of the defendants reside in this county and the conduct at issue
took place in this county. Further, the amount in controversy exceeds the minimum
jurisdictional limits of the Court.
9. Venue of this matter is proper in Harris County, Texas pursuant to TEX.
CIV. PRAC. & REM. CODE §§ 15.002(a)(1) and 15.002(a)(3) because a substantial part of the
events giving rise to Apollo’s claims occurred in Harris County.
10. Plaintiff Apollo is a global private equity firm with over $25 billion in
capital under management. Apollo is headquartered in New York City and has offices in the
United States and England.
11. Defendant EGL is a corporation, incorporated under the laws of Texas,
with its principal executive offices at 15350 Vickery Drive, Houston, Texas. EGL engages
primarily in the business of domestic and international freight transportation, customs brokerage,
global logistics, supply chain management and information services for commercial and
industrial customers. Defendant EGL may be served with process c/o CSC-Lawyers
Incorporating Service Company at 701 Brazos Street, Suite 1050, Austin, Texas.
12. Defendant Crane is, and at all relevant times was, Chief Executive Officer
and Chairman of the board of directors of EGL. Mr. Crane has been a director since 1984.
Defendant Crane may be served with process at 1702 North Blvd., Houston, Texas 77098.
13. Defendant Milton Carroll has served as a director of EGL since 2003.
Defendant Carroll may be served with process at 43 Cheshire Bend Drive, Sugar Land, Texas
14. Defendant James C. Flagg has served as a director of EGL since 2003.
Defendant Flagg may be served with process at 5710 Paint Trail, College Station, Texas 77845.
15. Defendant Frank J. Hevrdejs has served as a director of EGL since 1995.
Defendant Hevrdejs may be served with process at 8 Greenway Plaza, Suite 702, Houston, Texas
16. Defendant Paul Hobby has served as a director of EGL since 2001.
Defendant Hobby may be served with process at 3980 Del Monte Drive, Houston, Texas 77019.
17. Defendant Michael Jhin has served as a director of EGL since 2002.
Defendant Jhin may be served with process at 3716 Darcus Street, Houston, Texas 77005.
18. Defendant Neil E. Kelley has served as a director of EGL since 1995, and
as Lead Director since 2002. Defendant Kelley may be served with process at 3105 Ella Lee
Lane, Houston, Texas 77019.
19. Defendant Sherman Wolff has served as a director of EGL since August
2006. Pursuant to TEX. CIV. PRAC. & REM. CODE § 17.044, defendant Wolff may be served with
process by serving the Texas Secretary of State via certified mail, return receipt requested at
Secretary of State, Statutory Documents Section (Citation Unit), 1019 Brazos, Austin, Texas
78701, with process forwarded by the Secretary of State via registered or certified mail, return
receipt requested, to the home of Mr. Wolff at 20770 Meadow Lane, Deer Park, Illinois 60010.
Pursuant to TEX. R. CIV. P. 108, Mr. Wolff also may be served with process by registered or
certified mail directed to his home at 20770 Meadow Lane, Deer Park, Illinois 60010.
20. The defendants in paragraphs 12-19 are collectively referred to herein as
the “Individual Defendants.”
21. The Individual Defendants, as directors of EGL, have a fiduciary
relationship with the public shareholders of EGL and owe them the highest obligations of good
faith, fair dealing, loyalty and due care.
22. On January 2, 2007, EGL announced that it had received a proposal from
Crane and General Atlantic LLC (“General Atlantic,” collectively with Crane, “Crane’s First
Group”) to acquire the Company at $36 per share. Crane is the founder of EGL and has been
EGL’s Chief Executive Officer and Chairman of EGL’s board of directors for over twenty years.
Crane is also EGL’s largest shareholder, owning approximately 18% of the Company. In these
positions, Crane dominated and controlled both EGL’s management as well as EGL’s board of
directors. Crane’s January bid was timed to take advantage of recent declines in EGL’s stock
price, which traded at over $50 per share as recently as July 2006.
23. After receiving the $36 per share offer from Crane’s First Group, EGL
formed a Special Committee to evaluate the takeover proposal. The Special Committee engaged
legal and financial advisors, including Deutsche Bank Securities Inc. (“Deutsche Bank”), to aid
in its assessment of the proposal. The Special Committee process was tainted from the outset.
All of the members of the Special Committee were handpicked by Crane, who dominates and
controls the members of the Special Committee by virtue of his position as Chairman of the
board of directors and EGL’s leading shareholder. Moreover, several members of the board have
strong social ties to Crane, in particular Milton Carroll (Chair of the Special Committee) and
Neil E. Kelley, both of whom belong to the same exclusive, private golf club as Crane,
Lochinvar Golf Club in Houston, Texas. Director Frank Hevrdejs (also a member of the Special
Committee) is a longtime business colleague of Crane’s. Crane, Mr. Carroll and Mr. Kelley also
have longstanding relationships with other EGL directors. Crane serves on the board of directors
of HCC Insurance Holdings, Inc. with James C. Flagg, another EGL director. Mr. Carroll serves
as Chairman of the board of Health Care Service Corporation, of which Sherman Wolff, recently
added to the EGL board, was an executive until retirement in 2006. Mr. Kelley and Paul Hobby
are both founding partners of Genesis Park, a Houston-based private equity firm.
24. Crane’s initial bid of $36 per share was preliminary in nature. Indeed,
while Crane’s First Group had received letters from certain financing sources that they were
“highly confident” that they could obtain debt financing, Crane’s First Group’s financing was not
fully committed. Notwithstanding this fact, and rather than establish a process of arms’-length
negotiations with Crane as well as quickly moving to identify other third-party bidders so that
Crane’s First Group would be in a competitive process, EGL’s board allowed Crane, his
investment partners, and his financing sources to use, on an exclusive basis, Company
information and resources to help them finalize their bid, while denying any other bidder access
to any Company information for nearly two months (the Company first provided an information
memorandum, substantially all of which was derived from publicly available information, to
Apollo on February 23, 2007).
25. Shortly after EGL announced Crane’s First Group’s preliminary bid,
Apollo approached Deutsche Bank to express its interest in pursuing an acquisition of EGL.
Deutsche Bank indicated that Apollo would be a welcome participant in the bidding process for
the Company. In reality, defendants and Deutsche Bank had no intention of providing, and to
this day have not provided, Apollo with a fair opportunity to make an informed bid for EGL.
Deutsche Bank and the defendants used Apollo’s presence in the bidding process to create the
superficial appearance of a true auction for EGL, while taking affirmative steps to ensure that
Crane acquired the Company. On information and belief, at least one other major private equity
firm dropped out of the bidding process, in part due to frustration with Crane’s behavior.
26. After these initial conversations with Deutsche Bank, Apollo negotiated a
confidentiality agreement with the Special Committee’s financial and legal advisors to allow
Apollo to have access to EGL’s nonpublic information. Notwithstanding Apollo’s signing of the
confidentiality agreement, the Special Committee refused to provide Apollo with customary and
necessary information concerning EGL to make a bid for the Company, including by failing to
respond to Apollo’s specific information requests. At the same time, defendants and Deutsche
Bank continued to provide Crane, his equity partners and financing sources with substantial
amounts of confidential information on the Company in order to aid Crane’s takeover of the
27. Immediately after making his preliminary offer for the Company, Crane
used his influence as CEO and Chairman of EGL to lock up management support for his
takeover proposal, with the tacit or explicit approval of the other defendants. On January 22,
2007, Crane and E. Joseph Bento (President of North America and Chief Marketing Officer of
EGL), Ronald E. Talley (Chief Operating Officer and President, the Select Carrier Group, of
EGL), Gregory Weigel (Executive Vice President, Global Transportation of EGL), Keith
Winters (Executive Vice President of EGL), and Vittorio Favati (President-International of EGL)
(collectively, the “13D Filers”) jointly filed a Schedule 13D announcing Crane’s and General
Atlantic’s proposal to acquire EGL at $36 per share. The 13D Filers expressed their intent to
support the takeover proposal by Crane and General Atlantic. In addition to Crane, all of the
13D Filers are senior executives of EGL and therefore work under the authority and direction of
Crane. Moreover, all of the 13D Filers have access to confidential, nonpublic information
concerning EGL, and their unbiased cooperation in due diligence by any other bidder for the
Company is essential for a fair understanding of the Company and its prospects. Crane thus used
his power and influence over EGL’s other executives to ensure that management would not
facilitate potential offers from any other bidders for EGL. The other defendants either approved
or allowed these actions and have not taken any steps to undo them. In contrast, during this same
period of time, defendants refused to provide Apollo with access to EGL’s management or to
critical Company information.
28. On February 7, 2007, EGL issued a press release announcing that General
Atlantic had withdrawn its intent to participate in a takeover of EGL due to an expected shortfall
in EGL’s fourth quarter results. That same day, the EGL common stock dropped 19.5%. Crane
also indicated that he would seek other equity partners to make a bid for the Company. On
February 8, 2007, the 13D Filers amended their Schedule 13D to disclose this development. The
board allowed Crane to use confidential Company information to shop for new partners without
imposing any restrictions or limitations on his conduct, including that he agree to participate in
the same process as Apollo was asked to accept.
29. On February 16, 2007, Apollo sent a letter to the Special Committee
expressing its continued interest in pursuing an acquisition of EGL and its confidence that,
subsequent to final due diligence by Apollo, Apollo would be able to provide a superior proposal
to shareholders relative to Crane’s $36 per share offer. Apollo noted that it was well-positioned
to create enhanced value for EGL by creating strategic opportunities between EGL and CEVA
Group plc (the second largest global logistics company), which Apollo already owns. Apollo
also indicated that it had received strong support from multiple financing sources concerning a
potential acquisition of EGL. Apollo indicated that it would be pleased to have Crane participate
in its proposed transaction, but that Crane’s participation was in no way a condition to Apollo’s
offer. In its letter, Apollo also expressed its concerns regarding the Special Committee’s process
over the preceding six weeks for assessing bids for EGL. The letter stated, in relevant part:
As you may know, shortly after the January 2 announcement, we
expressed to the Company and its advisors our strong interest in
pursuing a transaction with EGL. We were told in early January
that our interest was noted and that we would be welcome in the
Board’s process. Since that time, we have received no information
regarding the Company, despite being notified nearly two weeks
ago that our confidentiality agreement was concluded. Through
various phone calls and emails, we have reached out to both
Deutsche Bank and Andrews & Kurth, advisors to the Special
Committee, to re-confirm our strong interest in the business and
willingness to dedicate significant resources (both internal and
external) to move expeditiously to finalize our diligence and enter
into definitive documentation.
Meanwhile, at least since January and likely before then, we
believe that both the CEO’s equity sponsor, as well as his
financing sources, have had substantial access to the Company, its
books and records and various members of management. We
believe this bidding group (with or without General Atlantic) has a
substantial, and unnecessary, advantage in the bidding process.
We are also concerned that the CEO has enlisted other members of
management to participate in his transaction, as evidenced by
publicly filed Reports on Schedule 13D. We, therefore, are
concerned that the net result is that all other bidders have been
unfairly, and unnecessarily, disadvantaged – we will not benefit
from the unbiased input of management, which is an essential
element of any third-party review of the business, and we currently
face an ever expanding information delay of approximately 6
30. The Special Committee ignored Apollo’s continuing objection to the
unfairness and lack of competition in the bidding process. Even though Crane’s First Group
collapsed, causing direct harm to the Company’s stockholders and damaging the Company, the
Committee permitted Crane to shop for a second set of investors and financing sources, once
again providing them exclusive access to Company information, personnel and advisors, while
all third-party bidders, who would be essential to ensuring the integrity of the otherwise-
conflicted Crane bid, were prevented from completing any real work to improve their bids and
obtain committed financing. In short, defendants allowed Crane, for the second time, to compete
in a one-person race.
31. On February 27, 2007, EGL and Deutsche Bank sent a process letter to
Apollo, inviting Apollo to submit a formal, preliminary proposal to acquire EGL. The letter
indicated that any such proposal for an acquisition of the Company must be received no later
than March 14, 2007 (the “Preliminary Bid Deadline”). The purpose of this process was to force
Apollo to disclose its initial bid for the Company to allow an opportunity for Crane to match
whatever bid Apollo offered.
32. As part of this process, EGL provided Apollo with certain confidential
Company information and access to an online “Data Room.” However, the “Data Room”
provided minimal information concerning the Company and lacked customary and necessary
information for Apollo to make an informed bid for the Company, including relevant tax and
other business information concerning the Company. Apollo needed access to such information
to compete effectively with Crane’s Second Group and their new financing sources, which, with
the support of senior management, already had access to substantial confidential information
concerning EGL as well as access to EGL management. In fact, at the same time that defendants
were withholding key information from Apollo, they had set up a completely separate “Data
Room” that only Crane and his bidding group had access to, which provided Crane and his
bidding group with substantial confidential information concerning the Company, most of which
was not made available to Apollo despite Apollo’s specific requests. Indeed, the project name
for Crane’s “Data Room,” Project Talon, was entirely different from the project name for the
“Data Room” that all other bidders had access to, Project Englewood. Most of the information
provided to Crane’s hand-picked partners and financing sources in this “Data Room” was
withheld from Apollo. Because Crane commenced negotiations with the Special Committee
before Apollo and also was privy to substantially more confidential Company information than
Apollo, defendants provided Crane with a distinct advantage throughout the bidding process.
Apollo was also denied any access to Company management or the Company’s accountants.
33. On March 1, 2007, the 13D Filers disclosed in an amended Schedule 13D
that Crane had partnered with Centerbridge and Woodbridge to make an offer for EGL of $36
34. Thereafter, Deutsche Bank requested that Apollo provide an update as to
its intention to make a preliminary bid for EGL. As requested, on March 7, 2007, Apollo
reiterated in writing its interest in acquiring EGL and expressed continued confidence that it
could provide a superior alternative to the proposal being offered by Crane’s Second Group.
Apollo indicated that it expected to submit an acquisition proposal for EGL on March 12, two
days prior to the March 14 Preliminary Bid Deadline.
35. On March 12, 2007, two days before the March 14 Preliminary Bid
Deadline, Apollo submitted a preliminary offer to acquire all outstanding shares of EGL for $38
per share in cash, $2 per share above the proposal being offered by Crane’s Second Group.
Apollo’s bid included a summary of open due diligence items and information requests, all of
which were customary for a public company transaction and most of which Apollo had been
requesting since early February. Apollo submitted its bid two days before the Preliminary Bid
Deadline at the request and urging of Deutsche Bank.
36. On March 12, 2007, EGL announced that its CFO, Charles H. Leonard,
had abruptly resigned from the Company, effective a few days earlier. The Company also
announced that Crane had promoted several members of EGL’s management to new executive
positions, including the appointment of a new Chief Operating Officer, Chief Accounting Officer
and Chief Administrative Officer. Two of these people are included among the 13D Filers
(which never included Mr. Leonard). Crane used Leonard’s departure, as well as these
promotions, to lock up further support for his proposal and to ensure that these members of
management would not facilitate any third-party bids for the Company.
37. On March 15, 2007, Deutsche Bank sent Apollo a bid process letter
indicating that any final, binding proposals to acquire EGL should be submitted by March 26,
38. On March 16, 2007, Apollo submitted a letter indicating that it could
increase its offer price, already $38 per share, subject to the completion of customary due
diligence, the same diligence it had been requesting since early February. Apollo continued to
express concerns regarding the Special Committee’s process in reviewing proposals to acquire
EGL. In particular, Apollo noted that it had been consistently rebuffed by the Special
Committee and its advisors in its attempts to gain access to the information necessary to make a
final bid for EGL, including being precluded from meeting with EGL’s management,
accountants and outside advisors. Apollo expressed particular concern with its lack of access to
critical information concerning EGL, given the Special Committee’s unnecessary and unrealistic
deadline of March 26, 2007 to submit a final offer for EGL, and the fact that Crane’s Second
Group was not being treated similarly and instead was being provided exclusive access to the
Company, its management, confidential information, accountants and other advisors. In fact, by
blocking Apollo from obtaining necessary information regarding EGL to make an informed bid,
the Special Committee purposefully put Apollo at a significant disadvantage to Crane’s Second
Group (which was supported by EGL’s senior management), which had continuous access to
nonpublic information of EGL. The letter noted that the Special Committee process appeared
designed to allow Crane to acquire EGL at a deficient price. The letter stated, in relevant part:
We received Deutsche Bank’s letter yesterday regarding the
proposed process for final bids with respect to EGL, Inc. (“EGL”
or the “Company”). As you know, we have already submitted a
highly-credible offer at $38/share (with relatively no diligence
access), providing $2.00 in cash per EGL share of superior value to
the only other known offer for the Company at the time. We have
done this despite our very strong concerns, noted to the Special
Committee’s advisors on several occasions . . . that the Company’s
special committee process announced in January is not reasonable
and has not produced, and it appears is not intended to produce, a
fair and level playing field for all bidders.
In reading this letter, please keep in mind one basic point: we will,
if permitted to complete the reasonable and customary work
we have requested (which we believe with cooperation from the
board and management can be completed in a very expedited
time frame), and provided that such work validates our
assumptions and work to date, increase our offer to a price
that, we have no doubt, exceeds any credible, certain price the
CEO and his new group can offer – particularly given the
potential synergy and strategic value to our portfolio company,
CEVA Logistics. We do not make that statement lightly; it is a
certainty, given Apollo’s resources, industry expertise and strategic
position versus Mr. Crane’s bid. Our goal is not litigation; our sole
interest is in being provided the fair opportunity to help the
Committee to achieve its presumed goal of maximizing
shareholder value in a timely and certain way.
Given the conviction noted above, we are extremely discouraged
by the process letter we received because we do not believe we are
being afforded any reasonable opportunity to complete our work.
In a traditional process run by an independent Special Committee,
we would expect at this stage to be welcomed by the Company into
the process and have every effort be made to level the playing
field, so that the Company can create a competitive dynamic
between all interested parties, maximize the value to shareholders
and preclude the CEO from further tipping the scale in his favor at
the expense of stockholders. Instead, we are not being afforded a
reasonable amount of time to conduct customary due diligence (we
have been offered 7 business days of diligence compared to a 4+
month headstart by the CEO’s bidding group) and are being treated
as if the Company has no intention of allowing us the access
required to purchase the Company, even if we have the resources,
strategic interest and every intention to offer the highest price.
39. After receiving Apollo’s preliminary bid of $38 per share for the
Company, one or more defendants (or a representative of one such defendant) communicated the
amount of Apollo’s bid to Crane. Deutsche Bank, we believe at the direction of the Special
Committee, deliberately requested Apollo’s bid prior to the March 14 Preliminary Bid Deadline
so that it could be conveyed to Crane’s Second Group, either by Deutsche Bank or one of the
other defendants (in violation of Apollo’s confidentiality agreement). Once Crane had
knowledge of Apollo’s current bid of $38 per share, Crane’s Second Group matched Apollo’s
bid of $38 per share. Crane’s Second Group put pressure on the board by making an
“exploding” offer, threatening to remove its bid unless it was promptly accepted by the board.
Crane’s “exploding” offer was a direct attempt to preclude Apollo from making any other bids
for the Company. The board had no realistic basis to think that Crane was honest or sincere in
threatening to refuse to keep his offer open, since Crane had been committed to buying EGL for
months. Crane’s “exploding” offer was a transparent ruse.
40. The Special Committee and board should not have been surprised that
Crane served up an “exploding” offer. By holding Apollo at bay for almost two months and by
denying Apollo normal and necessary access to Company information needed to finalize its bid,
the Special Committee put Crane in a position to threaten the Company. There is no legitimate
reason why this situation should have been permitted to occur, given Apollo’s high level of
interest in pursuing a transaction since early January 2007, its commitment to work on an
expedited basis to submit a definitive proposal and the more than two months which the Board
allowed to transpire without providing Apollo any meaningful diligence. The information that
Apollo needed to finalize its bid was readily available and was, in fact, being provided to Crane’s
Second Group on a preferential and exclusive basis. In short, the sale process was designed from
its inception to provide a false aura of legitimacy to the board’s acceptance of an inadequate
offer from its preferred bidder.
41. Neither the Company nor Deutsche Bank conveyed to Apollo any change
in the March 26 bid deadline. In fact, Apollo was deliberately misled into believing that such
deadline had not changed.
42. On March 18, 2007, Apollo spoke with Deutsche Bank to discuss the bid
process moving forward, and, in particular, to formalize a plan for providing Apollo with
necessary information on the Company to complete its due diligence. During this call, the senior
managing director of Deutsche Bank engaged by the Special Committee affirmatively misled
Apollo concerning the timing of the sale process by assuring it that the Special Committee was
not at that time going to finalize a deal with Crane’s Second Group. In fact, detailed contractual
negotiations with Crane’s Second Group had been ongoing prior to March 18 and were
scheduled to be concluded on March 18.
43. Notwithstanding Deutsche Bank’s assurances, and the previously set
March 26 final bid deadline, that very same day Apollo became aware that the Special
Committee indeed was finalizing an agreement to sell EGL to Crane’s Second Group at $38 per
share, the price that Apollo had offered one week earlier. Apollo had been in touch with
Deutsche Bank daily since March 15 to discuss the sale process, and Apollo promptly made a
number of attempts to contact the Special Committee and its advisors, including submitting a
formal letter to the Special Committee raising its offer to $40 per share and indicating its
willingness to immediately finalize due diligence and conclude negotiations for its acquisition of
EGL. Apollo did not receive any response from these repeated attempts to contact Deutsche
Bank and the Special Committee.
44. On March 19, 2007, after repeatedly misleading Apollo, denying Apollo
fair access to Company information that was made available over a period of several months to
Crane’s two bidding groups and two sets of financing sources, preventing management from
having any objective dialogue with Apollo, ignoring Apollo’s repeated and specific requests for
customary due diligence and refusing to negotiate in good faith, EGL’s board announced that it
had entered into a Merger Agreement with an investment vehicle controlled by Crane for the
acquisition of EGL for $38 per share, only confirming that the Special Committee process had
been designed, from its inception in early January, merely to legitimize a transaction with Crane.
45. Defendants, directly and through Deutsche Bank, deliberately and
affirmatively misled Apollo throughout the sale process. First, Deutsche Bank set a deadline for
“final offers” of March 26, 2007, leading Apollo to believe that it had until that time to complete
its due diligence and final consideration of the Company, and that EGL’s board would only make
a final decision concerning the acquisition proposals after that date. This deadline turned out to
be illusory: the Special Committee, without any negotiations with any other party, locked up the
deal with Crane’s Second Group a week before the already rushed deadline at a price $2 per
share less than the current offer by Apollo and a price that Apollo had indicated nearly one week
earlier would not be Apollo’s final offer. Second, on the very day that EGL’s board signed a
deal with Crane’s Second Group, Deutsche Bank assured Apollo that the board was not in the
process of finalizing a deal with Crane.
46. In short, by misleading Apollo about timing, by forestalling a higher bid
from Apollo, and by succumbing to the pressure tactics of an “exploding” bid, defendants
conducted a sham, unfair process.
47. Notwithstanding the fact that at the time it signed the deal with Crane’s
Second Group, Apollo had offered $2 per share more for EGL and had nearly one week earlier
offered the very same price that Crane now demanded the board accept in his “exploding” offer,
the Special Committee took several steps to lock up the sale to Crane’s Second Group through
numerous “deal protection” devices, including: (a) a termination fee of $30,000,000 payable to
the investment vehicle owned by Crane, Centerbridge and Woodbridge, with approximately one-
half of the fee payable personally to Crane, if the Company accepts a superior proposal from any
third-party bidder for EGL; (b) an expense reimbursement provision of up to $15,000,000
payable if, among other things, EGL’s board or Special Committee adversely modifies or
withdraws its recommendation of the acquisition or recommends an alternative acquisition; (c) a
no-shop/no-talk provision that precludes the Company from facilitating proposals from other
bidders, unless it first determines that any such proposal may lead to a superior proposal for the
Company; and (d) an onerous “last look” provision that provides Crane’s Second Group up to
five business days to match any third-party bid. All of these deal protections are designed to
discourage third parties and to further advantage Crane, already the beneficiary of a
handicapped, sham auction process in which the most likely superior bidder, Apollo, was never
permitted to participate on an equal level with the CEO. These “deal protections” are an
egregious breach of defendants’ fiduciary duties because, among other things:
a. The Special Committee was aware of Apollo’s continued interest
in acquiring EGL at prices above the $38 per share acquisition price;
b. The Special Committee aborted its own auction process to strike a
deal with Crane’s Second Group well before the deadline for the submission of final bids for
c. There existed little danger of Crane walking away from the bid
process without such protections, given his role with the Company and his significant EGL
shareholdings, and the fact that he had already put together two separate bidding groups to
acquire the Company.
48. Subsequent to the announcement of the EGL acquisition, Apollo,
notwithstanding its frustration at the Special Committee’s process, submitted a letter to the
Special Committee reaffirming its desire to acquire EGL at $40 per share, $2 per share above the
price agreed to with Crane’s Second Group. The letter stated, in relevant part:
We see from the media this morning that you elected to sign up an
agreement to sell EGL, Inc. (“EGL” or the “Company”) to its
CEO, at a price per share that is equal to the price we proposed one
week ago, on very limited diligence. As you know, yesterday,
having heard rumors that the Company was about to sign a
definitive agreement with the CEO, we attempted to reach you, the
Special Committee’s counsel at Andrews & Kurth and the Special
Committee’s investment bankers at Deutsche Bank, to deliver an
improved, and clearly superior, all-cash offer of $40.00 per EGL
While we sent numerous emails and left voicemails stating our
higher offer, we received no reply.
It is clear that your previously announced process (pursuant to the
public statement made by the Company on February 12th) was not
intended to obtain superior value for shareholders. Rather, it was
designed to “legitimize” a transaction with Mr. Crane by soliciting
bids from third parties (specifically Apollo) without providing
them with adequate or customary information to fully value the
Company. To this end you have chosen, for more than 2 months,
to grant exclusive, meaningful access to the Company, its
information, accountants and advisors only to your CEO, his two
bidding groups and their two financing groups. Our most basic
requests for ordinary diligence, or customary meetings, have been
ignored along with several formal letters indicating our strong
interest, our superior financial resources (including our strategic
asset CEVA Logistics) and our intention to move with all possible
speed towards a definitive agreement.
We note that the last communication from the Special Committee
to us was on Thursday, March 15, when you advised us, in writing,
that “best and final” bids would be due on March 26. Having
already bid $38.00 per share (a $2/share increase over Mr. Crane’s
first two offers), and having indicated to you, in writing, that we
believed we could further increase our offer upon completion of
brief confirmatory diligence, we were prepared to come to
Houston, the next day, to finish our work. Instead, you have
elected to accept a deficient price to the detriment of your
shareholders. Additionally, we note that as late as 10:30am eastern
time on Sunday morning, we were told by your financial advisor
(Deutsche Bank) that there was no imminent transaction and that
we could potentially meet the following day to map out an
expedited diligence process for meeting the Special Committee’s
March 26th deadline. We wonder what urgency the Company saw
in cutting this process short (without informing us or giving us a
chance to exceed the CEO’s bid), or in suddenly negotiating a deal
at an inferior price and with, we suspect, breakup fees and other
deal protections for the benefit of the CEO. That would not seem
in the best interests of your shareholders, other than Mr. Crane
49. On March 20, 2007, the Special Committee conceded that Apollo’s latest
proposal for EGL of $40 per share represented an alternative proposal for EGL that may be
reasonably expected to result in a superior proposal for EGL. Pursuant to the terms of the
Merger Agreement, defendants purported to establish a process to allow Apollo additional due
diligence on the Company, which defendants assured Apollo would provide it with a fair
opportunity to evaluate and make a bid for the Company.
50. However, defendants have continued to set forth a deficient process
designed to frustrate, rather than facilitate, Apollo’s bid for the Company. Defendants continue
to withhold vital information on the Company from Apollo, preventing Apollo from making an
informed bid for the Company. The due diligence process last week confirmed that Apollo’s
“Data Room” includes substantially less information than the “Data Room” to which Crane and
his bid groups have had access. Apollo continues to be put at an information disadvantage to
Crane’s bid groups. Nor has Apollo been provided any meaningful access to EGL management.
51. Moreover, the due diligence process continues to be closely controlled by
Crane. The Special Committee has failed to exercise any discipline or control over Crane, who
is self-interested and conflicted in the transaction, and has allowed him to dominate other
management personnel, to co-opt them into his two bidding groups before any other bidder was
permitted to have access to them and to use his position as Company CEO to give promotions to
his preferred 13D Filers. All of these members of management are working under the
domination and control of Crane.
52. As part of the recent due diligence process, on March 23, 2007, Apollo
was permitted one day of meetings with certain members of EGL’s management. These
meetings were presented to Apollo as intended to provide Apollo, for the first time during the
bidding process, access to EGL’s executives. However, Crane explicitly instructed several
members of EGL’s management team to refuse to meet with Apollo during these critical
meetings. Moreover, members of management who did meet with Apollo were under the
domination and control of Crane. This became apparent on March 23, 2007, when nearly every
member of management with whom Apollo was allowed to meet delivered a nearly identical
speech regarding their determination to leave the Company if Crane’s bid does not prevail.
Crane forced members of EGL’s management team to tell this to Apollo. Some of these
members of management are the same persons that Crane promoted to new executive positions
on March 12, 2007.
53. Moreover, Crane has provided false information concerning Apollo’s
intentions with regard to its acquisition to EGL’s management team. This, too, became apparent
on March 23, 2007, when members of management indicated that they had heard, among other
things, that Apollo intended to lay off significant numbers of personnel, that Apollo might “break
up” the Company and that the financing used by Apollo would have adverse effects on the
Company. All of this information was false and inaccurate. The source for these questions was
clearly misinformation being spread by Crane.
54. Notwithstanding that Crane has attempted to misinform and manipulate
management during the sale process, Apollo understands that members of management are
critical to EGL’s business. Apollo has attempted, during its evaluation of the Company, to
establish a relationship with management, both to gather critical information concerning the
Company as part of the due diligence process and to build a relationship with management going
forward for Apollo’s proposed acquisition of the Company.
55. Despite Apollo’s request that one of Crane’s delegates (a 13D Filer) be
excluded from meetings with Apollo because he is a hostile influence on other members of
management and acts as Crane’s enforcer, this individual was permitted to monitor any
discussion Apollo had with any member of management on Friday, March 23, 2007.
56. This same individual likewise single-handedly, and contrary to the
instructions of Deutsche Bank and Andrews & Kurth, removed information from a data book
that was to be delivered to Apollo. The Special Committee has not disciplined this individual
nor instructed him to cooperate and cease his conduct, which is detrimental to shareholders and
in violation of his fiduciary duties to EGL shareholders.
57. Without access to all relevant information concerning the Company,
including reasonable and unbiased access to EGL’s management, Apollo cannot secure financing
commitments to make a fully-financed, informed bid for the Company. Crane continues to use
his power and influence as EGL’s CEO and Chairman to thwart any alternative bids for EGL.
Defendants continue to breach their fiduciary duties by failing to establish a process that will
maximize value for EGL’s shareholders, and in particular by allowing Crane to use his power
and influence to manipulate the bidding process.
58. On March 27, 2007, notwithstanding defendants’ refusal to establish a sale
process that provides Apollo with a fair opportunity to evaluate the Company, Apollo again
raised its bid for EGL to $41 per share (assuming no break-up fee is payable). As a result,
Apollo has now exceeded Crane’s then-current bid three times and still has been denied
reasonable diligence and access to EGL management.
59. The Crane’s Second Group’s deficient $38 per share acquisition of EGL is
a direct result of the flawed process undertaken by the Special Committee in assessing bids for
EGL. While the Special Committee went through the motions of inviting an acquisition proposal
from Apollo, it repeatedly refused to provide Apollo with essential information concerning EGL
(already provided to the Crane groups and two sets of financing sources for the Crane groups)
necessary for Apollo to make an informed offer for EGL, declined to negotiate in good faith with
Apollo and deliberately misled Apollo as to the Special Committee’s intentions, which were to
sign a deal with Crane at any price and to create a fictitious, sham process to justify their illegal
60. The Special Committee’s process for assessing bids for EGL was never
designed to maximize value for EGL’s shareholders. Instead, the Special Committee, while
pretending to hold a true auction, constructed a sham process that was designed to lock up a
transaction with Crane at a deficient price, and that was intended to mislead Apollo and prevent
it from having the opportunity to make a superior offer for the Company. Moreover, Crane has
taken every opportunity to use his domination and control of both the board of directors and
management to ensure that he takes control of the Company. Defendants have taken no effective
action to minimize Crane’s control over the bid process.
61. This unfair process has prevented EGL’s shareholders from receiving
maximum value for their shares. By effectively excluding Apollo from the bidding process for
EGL and accepting an inferior purchase price, defendants have breached their fiduciary duties to
(Claim for Breach of Fiduciary Duty
Against EGL and the Individual Defendants)
62. Plaintiff repeats and realleges each and every allegation as if set forth fully
63. By virtue of their positions as directors of EGL, defendants owe fiduciary
duties of care, loyalty and good faith to EGL and its shareholders. This requires defendants to,
among other things, conduct the affairs of EGL with due care; base material decisions on
adequate information and deliberation; act in the best interests of EGL’s shareholders, including
trying to maximize shareholder value in any sale of the Company; act in good faith (by, among
other things, not violating any laws or consciously and intentionally disregarding duties); and
communicate with shareholders with forthrightness and candor.
64. The defendants failed to act reasonably or in good faith and to maximize
Company and shareholder value. Instead, defendants took actions designed to rubber-stamp a
takeover of EGL by the preferred bid group led by the Company’s Chairman and CEO.
65. Defendants have violated their fiduciary duties by failing to give
reasonable and good-faith consideration to third-party offers for the Company, and to take the
necessary steps to maximize Company and shareholder value. The Individual Defendants
refused to provide a level playing field for third-party bidders and, in particular, to negotiate in
good faith with Apollo, which has already made a superior offer for the Company. In particular,
defendants have breached their fiduciary duties by giving preferential treatment to Crane’s bid
groups, including by providing Crane with access to Company information denied to other
bidders for EGL, including Apollo.
66. Moreover, defendants have breached their fiduciary duties by allowing
Crane to dominate and control the bid process. Defendants allowed Crane to lock up
management support for his bid early in the bid process, putting third-party bidders at significant
disadvantage by effectively cutting off any access to EGL’s management. Defendants have also
allowed Crane or those members of management who work for him to direct the due diligence
process, which has deprived Apollo of critical Company information. Defendants have a duty to
prevent Crane and any other self-interested or conflicted members of management from
interfering with, or influencing, the bid process — defendants have failed to do so. Accordingly,
Apollo has not been afforded a level playing field in its attempt to acquire the Company.
67. Defendants also breached their fiduciary duties by entering into a
definitive Merger Agreement containing unlawful deal protection devices under the
circumstances, including a $30,000,000 termination fee, designed to lock up the transaction for
EGL’s CEO at a time when a more credible, and higher, bidder was ready, willing and able to
conclude a superior transaction. These deal devices will only serve to block potential third-party
bidders for EGL, in particular Apollo, which are willing to make superior bids for the Company,
and to enrich Crane and his chosen partners.
68. By reason of the foregoing acts, practices and course of conduct, the
defendants have failed to exercise care and diligence in the exercise of their fiduciary obligations
toward EGL and its shareholders.
69. Moreover, defendants have denied Apollo a level playing field to compete
with the Crane Group for the opportunity to acquire EGL, thereby wrongfully depriving Apollo
of a unique and valuable business opportunity — the acquisition of EGL.
70. Apollo seeks injunctive relief from this Court pursuant to both equitable
principles and TEX. CIV. PRAC. & REM. CODE § 65.011. Apollo has no adequate remedy at law.
Unless enjoined by this Court, defendants will continue to breach their fiduciary duties, violate
Texas law and public policy and continue to engage in a process that inhibits maximization of
the Company and shareholder value, resulting in immediate and irreparable harm to Apollo and
(Claim for Breach of Fiduciary Duty
71. Plaintiff repeats and realleges each of the foregoing allegations as if fully
set forth herein.
72. As CEO and Chairman of the Company, Crane has a duty to act fairly and
honestly to EGL’s shareholders.
73. Throughout the bid process, Crane has had access to confidential
Company information, and has dominated and controlled EGL’s board and senior management.
Crane has abused his positions in the Company and his influence over management for his own
self-interest and gain by manipulating the bid process to ensure his acquisition of EGL. Crane
has, with respect to two separate bidding groups, misused Company information,
misappropriated Company property, and taken advantage of a decrease in EGL’s stock price in
order to consummate a transaction with EGL to his benefit.
74. Moreover, by locking up support for his initial bid from senior
management, and then for his second bid, and directing management to impede Apollo during
the due diligence process, Crane has ensured on multiple occasions, over the course of several
months, that EGL’s shareholders will be deprived of a fair and level auction process. Indeed,
Crane has used Company resources in the form of executive promotions to ensure that members
of management support his bid and take steps to impede other bids for the Company. By using
his position to distort the bid process in his favor, as well as his various other actions taken to
preclude credible third-party bidders from succeeding (at higher prices), Crane has breached his
fiduciary duties to EGL’s shareholders and prevented shareholders from receiving maximum
value for their shares.
75. Apollo seeks injunctive relief from this Court pursuant to both equitable
principles and TEX. CIV. PRAC. & REM. CODE § 65.011. Apollo has no adequate remedy at law.
Unless enjoined by this Court, Crane will use his influence and position to block a true auction
for EGL and ensure that he acquires EGL at an inferior price, resulting in immediate and
irreparable harm to Apollo and EGL’s shareholders.
REQUEST FOR JURY TRIAL
76. Apollo hereby makes demand for trial by jury in this lawsuit. The jury fee
has been paid.
PRAYER FOR RELIEF
WHEREFORE, Apollo respectfully requests that the Court:
a) Declare and decree that defendants’ conduct, including defendants’
agreement to the proposed acquisition, has been in breach of the fiduciary duties of the
defendants, and order defendants to comply with said fiduciary duties;
b) Direct defendants to refrain from advancing their own interests at the
expense of EGL and its shareholders and to exercise their fiduciary duties to act reasonably and
to respond in good faith to offers which are in the best interest of EGL and its shareholders,
including negotiating in good faith with Apollo and making available to Apollo all information
provided to Crane’s Second Group;
c) Direct defendants to establish a fair and level bid process, including
preventing any self-interested and conflicted members of management, including but not limited
to Crane, from participating in, or influencing, the process of evaluating third-party proposals for
EGL, including Apollo’s evaluation of the Company;
d) Direct Crane to refrain from using his position and control over the board
and management to participate in, or influence, the process of evaluating third-party proposals
e) Enjoin defendants, their agents, counsel, employees and all persons acting in
concert with them from acting to consummate Crane’s Second Group’s acquisition of EGL,
unless and until they remove all improper barriers to higher offers and adopt and implement a
procedure or process to obtain the highest possible price for EGL’s shareholders;
f) Invalidate the termination fee in the Merger Agreement; and
g) Grant Apollo such other and further relief as the Court deems equitable, just
Dated: March 27, 2007
CUNNINGHAM, WELSH, DARLOW &
H. Ronald Welsh
State Bar No. 21167600
600 Travis, Suite 1700
Houston, Texas 77002
Telephone: (713) 255-5500
Facsimile: (713) 255-5555
WACHTELL, LIPTON, ROSEN & KATZ
51 West 52nd Street
New York, New York 10019
Telephone: (212) 403-1000
Facsimile: (212) 403-2000
Attorneys for Apollo Management VI, L.P.