UNITED STATES DISTRICT COURT
Plaintiff, the United States Securities and Exchange Commission (the "Commission"), alleges the following:
1. During August and September 1999, defendants Charles N. Parker Sr. and Danny H. Harris, Sr. purchased the common stock of Worthington Foods, Inc. ("Worthington") while in possession of, and/or using, material, nonpublic information regarding the Kellogg Company's ("Kellogg") acquisition of Worthington. In total, defendants received profits of approximately $107,000.
2. Defendant William D. Parker, who at all relevant times was a member of the Board of Directors of Worthington, disclosed material non-public information regarding Kellogg's acquisition of Worthington to at least his brother Charles N. Parker, Sr. and his friend Danny H. Harris, Sr., prior to each of their purchases of Worthington common stock.
3. Defendants, directly and indirectly, have engaged and, unless enjoined, will continue to engage in acts, practices, and courses of business which constitute or will constitute violations of Sections 10(b) of the Securities Exchange Act of 1934 (the "Exchange Act") (15 U.S.C. §§78j(b)), and Rule 10b-5 (17 C.F.R. §240.10b-5) promulgated thereunder.
4. The Commission brings this action, in part, to enjoin such acts, practices and courses of business pursuant to Sections 21(d) and 21(e) of the Exchange Act (15 U.S.C. §§78u(d) and 78u(e)).
JURISDICTION AND VENUE
5. The Court has jurisdiction of this action pursuant to Sections 21 and 27 of the Exchange Act (15 U.S.C. §§78u and 78aa).
6. Defendants, directly and indirectly, have made use of the: (1) means and instruments of transportation and communication in interstate commerce; (2) means and instrumentalities of interstate commerce; (3) mails; or (4) the facilities of a national securities exchange in connection with the transactions, acts, practices, and courses of business alleged herein within the jurisdiction of this Court and elsewhere.
7. Defendant William D. Parker ("W. Parker") is a resident of Somerset, Ohio and West Palm Beach, Florida. Presently retired, he was a member of the board of directors of Worthington ("Board") from 1996 to 1999. Prior to that, defendant W. Parker was the president of a marketing region for The Kroger Company, a grocery chain.
8. Defendant Charles N. Parker, Sr. ("C. Parker") is a resident of Nashville, Tennessee. He is a certified public accountant and partner with the accounting firm of Parker, Parker & Stickel in Goodlettsville, Tennessee. Defendant W. Parker is his brother.
9. Defendant Danny H. Harris, Sr. ("Harris") is a resident of Memphis, Tennessee. He is the CEO of Empire Food Brokers, Inc., a food brokerage company that he owns with his sons. Defendant Harris is a long-time personal friend of defendant W. Parker.
10. Worthington is a wholly owned subsidiary of Kellogg with production facilities in Worthington and Zanesville, Ohio. It produces meat alternative food products made from soy and wheat proteins. Worthington was a publicly traded corporation headquartered in Worthington, Ohio until November 29, 1999 when it merged with Kellogg. Worthington's securities were registered under Section 12(g) of the Securities Exchange Act of 1934. Its common stock was traded on the Nasdaq National Market and its options were traded on the Philadelphia Stock Exchange. From August 1 to September 30, 1999, Worthington's stock traded in the $11 15/16 to $14 3/8 range.
11. In September 1999, Worthington had a policy that prohibited employees and directors from trading in Worthington securities while in possession of material, non-public information. Worthington's policy also prohibited employees and directors from using material non-public information for personal benefit. In addition, Worthington required all executives and directors to seek approval prior to engaging in transactions in Worthington securities. As a member of the Board, defendant W. Parker was bound by, and aware of, these policies.
12. Kellogg, a Delaware corporation headquartered in Michigan, and its subsidiaries manufacture and market ready-to-eat cereal and convenience food products. The company's products are generally marketed under the Kellogg name and are sold to the grocery trade for resale to consumers.
13. On July 8, 1999, Kellogg's representatives approached Worthington's Chairman, President and Chief Executive Officer, Dale Twomley, to discuss the possibility of a business combination. On July 16, 1999, top Kellogg officials met with Twomley and other Worthington officials to execute a confidentiality agreement. On July 20, 1999, during a regularly scheduled Board meeting, Twomley informed the Board of the ongoing discussions with Kellogg. At that meeting, the Board authorized management to engage an investment banker. Defendant W. Parker attended this and all meetings of the Board in July, August and September, appearing either in person or by telephone.
14. On August 10, 1999, Twomley and Worthington officials discussed pricing the deal at .76 Kellogg share per Worthington share ($26.08 per Worthington share). On August 11, 1999, during a special telephonic meeting, the Board authorized the negotiation of a definitive merger agreement. Soon thereafter, Worthington formally engaged U.S. Bancorp Piper Jaffray as its investment banker. On August 24, 1999, Worthington began its due diligence process.
15. On August 26, 1999, during a special telephonic meeting, the Board authorized management to pursue an all cash transaction. On August 30, 1999, Kellogg delivered to Worthington an initial draft of the merger agreement. On September 8, 1999, the Board met with legal counsel to review the merger agreement. On September 23, 1999, Twomley and Kellogg officials agreed to a price of $24 per share for Worthington stock. The next day, on September 24, 1999, the Board held a special meeting during which the directors authorized management to complete the definitive agreement. Copies of the merger agreement were sent to the Worthington directors on September 27, 1999. On September 29, 1999,the Board met and approved the merger agreement. The parties executed the merger agreement by the end of the day on September 30, 1999. On the morning of October 1, 1999, the parties issued a press release announcing the merger agreement in which Kellogg would pay $24 for each share of Worthington stock. Worthington's stock price closed on October 1, 1999, at $23 1/16, up $8.75 or 61.4% from the prior day's closing.
THE IMPROPER CONDUCT
16. Defendant W. Parker was aware of Worthington's well-established policy and prohibitions against insider trading. He also knew that as a director of the Board, he was prohibited from providing to others material non-public information about Worthington.
17. Defendant W. Parker told defendant C. Parker, his brother, about Worthington's anticipated merger with Kellogg before its was publicly disclosed for the limited purpose of seeking tax advice. However, defendant W. Parker breached his duty of trust and confidence to Worthington when he told his close friend defendant Harris about Worthington's anticipated merger with Kellogg before it was publicly disclosed. Moreover, defendant W. Parker improperly benefited by disclosing that information. Furthermore, both defendant C. Parker and defendant Harris improperly benefited by trading on that information.
Charles N. Parker, Sr.
18. In 1999, defendant C. Parker prepared defendant W. Parker's tax returns and counseled him on tax matters. On or about September 15, 1999, defendant W. Parker informed defendant C. Parker of the proposed merger between Worthington and Kellogg in order to obtain tax advice and to determine what his obligations under his divorce decree would be if he obtained income from exercise of his Worthington stock options after the merger. Defendant W. Parker specifically informed defendant C. Parker of the number of options and proposed price figures to use in calculating their value after the merger. Defendant W. Parker told defendant C. Parker that the information was confidential and should not be used for trading. Defendant W. Parker also told him that the transaction was not finalized and that due diligence was still being conducted.
19. On or about September 15, 1999, in violation of the duty of trust and confidence he owed to his brother, defendant C. Parker misappropriated the information concerning the merger and used it, purchasing 1000 shares of Worthington common stock. He purchased another 2,000 shares on September 22, 1999, and another 3,000 shares on September 28, 1999. Using the October 1, 1999 closing price of Worthington stock, defendant C. Parker made approximately $64,801 on those trades.
Danny H. Harris, Sr.
20. Defendant Harris and his wife were social guests of defendant W. Parker at his Somerset, Ohio home from August 14 through August 16, 1999. During the night of August 14, defendant W. Parker told defendant Harris of the merger discussions between Worthington and Kellogg. In fact, defendant W. Parker told defendant Harris that it would be a good time to buy Worthington stock because of the possible merger. Defendant Harris understood that the information was confidential.
21. The next morning, on August 15, 1999, defendant Harris called his stockbroker from defendant W. Parker's home and placed an order to buy 5,000 shares of Worthington stock. Defendant Harris made that purchase in reliance on the information that defendant W. Parker had provided him concerning the merger. Defendant Harris sold all his shares of Worthington stock on October 5, 1999, for a profit of $42,546.90.
Violations of Section 10(b) of the Exchange Act
22. Paragraphs 1 to 21 are realleged and incorporated by reference herein.
23. By the conduct alleged above, defendants, in connection with the purchase of securities by the use of the means and instrumentalities of interstate commerce, by the use of the mails, or by the use of the facilities of a national securities exchange, directly and indirectly: employed devices, schemes, and artifices to defraud; made untrue statements of material facts and omitted to state material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; and engaged in acts, practices and courses of business which would and did operate as a fraud and deceit upon the purchasers and sellers of securities.
24. The defendants acted with scienter when they engaged in the conduct alleged in paragraphs 1 to 21, above.
25. By reason of the activities alleged above, the defendants violated Section 10(b) of the Exchange Act, 15 U.S.C. § 78k(b), and Rule 10b-5, 17 C.F.R. § 240.10b-5, promulgated thereunder.
PRAYER FOR RELIEF
THEREFORE, the Commission respectfully requests that this Court:
Find that the defendants committed the violations alleged above.
Grant a Final Judgment Order of Permanent Injunction, Civil Penalties, and Other Equitable Relief ("Final Judgment"), in a form consistent with Rule 65(d) of the Federal Rules of Civil Procedure, enjoining the defendants, their agents, servants, employees, assigns, attorneys, and those persons in active concert or participation with them who receive actual notice of the Final Judgment by personal service or otherwise, and each of them, from, directly or indirectly, engaging in acts, practices, and courses of business, in violation of Section 10(b) of the Exchange Act (15 U.S.C. §§78j(b)), and Rule 10b-5 (17 C.F.R. §240.10b-5) promulgated thereunder.
Grant an Order requiring defendants to pay to the registry of this Court disgorgement of their ill-gotten gains plus prejudgment interest.
Grant an Order requiring defendants to pay civil penalties pursuant to Section 21A of the Exchange Act (15 U.S.C. §78u-1).
Retain jurisdiction of this action in accordance with the principles of equity and the Federal Rules of Civil Procedure in order to implement and carry out the terms of all orders and decrees that may be entered or to entertain any suitable application or motion for additional relief within the jurisdiction of this Court.
Grant an Order for such further relief as the Court may deem appropriate.
Dated: January 21, 2003 Respectfully Submitted,
ATTORNEYS FOR PLAINTIFF