TERRENCE BUEHLER
ATTORNEY AT LAW
120 NORTH LASALLE STREET
SUITE 1150
CHICAGO, ILLINOIS 60602
(312) 345-2004
FAX (312) 345-2005
November 6, 2000
VIA FACSIMILE TRANSMISSION
& CONFIRMATION VIA U.S. MAIL
Mr. Christopher Austin
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, NY 10006
Facsimile: (212) 225-3999
Re: United Technologies Corp. Proposed Merger with Specialty Equipment
Dear Mr. Austin:
I write to you on behalf of my client, Ms. Virginia Noerr, a Specialty
shareholder, who is prosecuting both class and derivative claims on behalf of
herself and others in connection with the Company's adoption of a stock
incentive plan. Briefly stated, the basis for Ms. Noerr's claims are that the
defendants (the officers and directors of Specialty in June, 1993) knowingly
gave themselves 4.2 million stock options exercisable at a dollar per share, a
price substantially below fair market value, and did so by soliciting
shareholder approval with a proxy statement that falsely stated that defendants
believed the value of Specialty stock was "not greater than $1 per share." As
set forth in Vice Chancellor Jacobs' opinion denying defendants' motions to
dismiss, the defendants had a duty to disclose the purported basis of their
opinion that the stock was worth "no more than $1 per share." I also note that
Vice Chancellor Jacobs held, among other things, that because the defendants
were on both sides of this transaction, they "bear the burden of demonstrating
the entire fairness of the transaction." (Opinion, p. 25). (For your convenience
I have attached a copy of the opinion). Given the status of Ms. Noerr's suit,
the proposed transaction between United Technologies and Specialty raises the
following important issues:
1. Whether the tender offer document to the shareholders is misleading
in that it fails to mention the pending litigation;
2. Whether United Technologies is assuming a contingent liability of as
much as $120 million, based upon its agreement to indemnify the
officers and directors of Specialty;
3. Whether the merger price is fair to the shareholders, given that, if
Ms. Noerr is successful and the options are voided, the impact of
that result would be to raise the price per share;
4. Whether Specialty can meet the showing required of them under
Delaware law if, arguendo, the merger terminates the derivative
claim. Specialty must be prepared to demonstrate that "the
corporation's interest and not simply the personal interests of the
defendants was served by the termination of the derivative
litigation and that the merger price was fair considering the value
of the pending derivative claims to the corporation." (Merritt v.
Colonial Foods, Inc., 505 A.2d 757, 765-66 (Del. Ch. 1986)(Ch.
Allen). I do not believe --- that Specialty can meet that burden.
Please be advised that we are moving seasonably to seek Court
assistance to have the tender offer disclosures corrected. Also please be
advised that we believe that the merger price does not pass the entire fairness
test, and we also will be seeking court assistance in that regard. In Delaware:
"What is inflexible in our corporate law is the requirement that self-dealing
fiduciaries deal with the corporation and its shareholders only on terms that
are entirely fair." Merritt, 505 A.2d at 765. We do not believe that the actions
taken by the defendants in 1993 and today in 2000 meet this standard.
Very truly yours,
/s/ Terrence Buehler
Terrence Buehler
TB/fb
