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Dane Scag

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  • Dane Scag

    A recent post we had brought up a discussion that included Dane Scag, who co-founded Scag Mowers, Great Dane Mowers, and more.

    Since we really know so little about him on here and he has impacted this industry so much, I thought we should learn more about him and how he did all that he did!

    In the previous post a member of our forum said
    Scag is named for Dane Scag as he was the founder of the company and ran it till they supposedly pushed him out then he founded Great Dane.
    After some research, I found some information on the beginnings of Scag Mowers.

    From a lawsuit, we can learn about the beginnings of the company

    On August 30, 1979, Thomas Trecker filed a lawsuit. The defendants in the action were Dane T. Scag, Trecker's erstwhile business partner; Wisconsin Marine, Inc. ("WMI"), the business Trecker and Scag had founded together; and Ransomes, Sims and Jefferies, Ltd. ("Ransomes"), a British corporation that purchased a sizable interest in WMI in the summer of 1978. The gravamen of Trecker's suit was that these defendants had first failed to disclose, and later misrepresented, facts that would have altered Trecker's decision to sue in state court to have his shares in WMI redeemed. According to Trecker, no sooner had he been paid $402 a share for his stock in WMI than an almost identical number of shares was sold to Ransomes for nearly four times that amount.

    The origin of this dispute was Trecker's and Scag's decision to go into business together in 1971. Scag contributed $150,000 and Trecker $100,000 to buy the assets of a company that manufactured snow blowers, lawnmowers, and related equipment. They issued shares in the same ratio as they had contributed capital-600 shares to Scag and 400 to Trecker. They also drafted a stock buy-back agreement: it provided for either to have his shares redeemed by the corporation in the event of his death or voluntary or involuntary departure from the company. WMI began operations in January 1972, but it could not afford to employ Trecker full-time, as the parties had contemplated. In December 1973 Trecker asked to be bought out under the terms of the agreement. Scag "accepted Trecker's request with regret" (Scag App. 112), but no action was taken-and indeed no meetings of the three-man board of directors were held-until December 1976.

    In 1974 a fire damaged WMI's plant. Trecker, Scag, and their wives (who were sisters) guaranteed a $500,000 loan to rebuild. At least one of Trecker's motives was to protect his investment and restore the company to marketable condition (Trecker affidavit, Trecker App. 122). He and Scag agreed to sell the business, but their efforts in 1974, 1975, and early 1976 met with no success. In late 1975 or early 1976 the business began to prosper, and Scag changed his mind about selling. He made additional investments in the company and issued himself additional shares, diluting Trecker's interest from 40% to 34.2%.

    In December of 1976 the board of directors met to consider Trecker's renewed demand to be bought out and rejected it. Though WMI's plight had improved since 1973, it still had no cash to finance the redemption and all its assets were pledged as collateral for loans. However, when Trecker brought suit in state court a week later, seeking specific performance of the redemption agreement or the dissolution of the corporation, the company did not use its illiquidity as a defense or excuse. Instead it argued that Trecker had failed to tender his stock; that the agreement for the $500,000 rebuilding loan prohibited redemption; and that Trecker's continued participation in the business after his 1973 demand for redemption waived his rights. The state court ultimately found that: (1) Trecker had a right to have his stock redeemed and was entitled to specific performance (opinion of February 21, 1978); (2) his shares should be valued as of December 31, 1976, the end of the quarter closest to his 1976 demand (opinion of May 17, 1978); and (3) the company would be allowed to pay the money ($160,845 for the stock and $5,026 in interest) in three installments extending from May 23, 1978 to October 1979, to ease its cash-flow problems (id.). Judgment was entered on May 23, 1978.

    Meanwhile, while the state court action was pending Scag had initiated negotiations to sell WMI to Ransomes, a British firm with which WMI already had a distributorship agreement. Scag asserted, and the state and federal judges both believed, that he had taken this step because he anticipated that WMI would lose the state court action and need funds to pay Trecker. Scag wrote to Ransomes' management in December 1977, visited Ransomes' headquarters in Ipswich, England, in late January of 1978, and signed a letter of intent on February 24, 1978, just three days after the first state court decision. The final terms of the Ransomes-WMI deal, which were hammered out in the spring of 1978, were as follows:

    (1) Trecker's stock must be fully redeemed as a pre-condition.

    (2) Ransomes would pay $124,176 toward the expenses of the redemption and make a $500,000 contribution to WMI capital; it would receive shares equalling a 34.1% interest in WMI, and no additional shares would be issued to dilute its interest.

    (3) By September 1979 Ransomes would either exercise an option to acquire the balance of WMI's shares or cancel the deal and have its entire $624,176 refunded.

    (4) Scag would remain as president of WMI for five years.

    The parties disagree about whether Trecker had any right to know about these terms or the negotiations that preceded them, and they disagree, as we shall see, about the meaning of term (2). But it is undisputed that Trecker, who remained a nominal member of WMI's board of directors until the May 1978 state court judgment, had no actual knowledge of the negotiations or their great promise for WMI until after his state court action was over.

    On June 16, 1978, Scag informed the state court that he had found an "investor" who wanted to buy virtually all WMI's stock, and Scag sought permission to prepay the judgment that had been scheduled in installments less than a month earlier. A hearing was held on June 26, and Trecker objected vigorously to this whole turn of events. Although Scag's attorney had offered to let Trecker see the Ransomes contract before the hearing, provided no disclosure of the terms was made, Trecker's lawyer had declined the offer for fear that acceptance would create a waiver or estoppel against Trecker. Scag's attorney also resisted any disclosure of the contract terms to the state court judge, even in camera, arguing that the only issue before the court was Scag's prepayment request, and that the future prospects of WMI were outside the scope of the hearing. Trecker countered that the agreement was highly relevant to his contention, then awaiting review in the Wisconsin appellate court, that his stock should be valued as of the actual tender: the agreement would, he said, furnish excellent evidence of what the stock was in fact worth. Throughout the proceedings the defendants characterized the Ransomes deal as unrelated to the Trecker redemption, except in the sense that Ransomes wanted the Trecker dispute cleared away. Trecker, on the other hand, suspected that the sale had been put off until he was locked into the redemption action, so that his shares could be sold to Ransomes for substantially more than he would be paid for them. But so long as the deal consisted of a $500,000 contribution to capital and only $124,176 paid for the shares (which was Trecker's understanding of contract term (2) supra), he felt stymied: he was slated to receive some $160,000 from WMI and therefore could demonstrate no harm from the $124,000 sale. After a protracted and acrimonious hearing, the state court judge granted Scag's motion to alter the payment terms and refused Trecker's request to inquire into the terms of the Ransomes contract. The judge reasoned that Trecker had become a creditor, rather than a shareholder, of WMI in December 1976 and that he was therefore owed a debt, not a share in WMI's rising fortunes. WMI's liability to Trecker ($160,845.13 plus interest) was paid on June 28, 1978, and the Trecker shares released from escrow. Ransomes made its payments on June 30, 1978, and exercised its option to acquire the balance of WMI stock in September 1979.

    After the conclusion of the state trial court proceedings, Trecker continued to try to ascertain the terms of the Ransomes-WMI (Wisconsin Marine, Inc.) contract. Various inquiries in the business and brokerage communities were unproductive. Trecker finally purchased 100 shares of Ransomes stock in December 1978 in order to obtain the company's annual report. When he finally received the report in July 1979, it listed the acquisition of a 34.2% interest in WMI, at a cost of $624,176, as one of the company's 1978 transactions. Viewing this as the confirmation he needed, Trecker filed his Rule 10b-5 suit in federal court on August 30, 1979.

    The theory of the suit is that Scag defrauded Trecker by failing to inform him of the deal with Ransomes (which showed that Trecker's stock was worth more than Trecker knew), thereby inducing Trecker to redeem his stock for less than its true worth.
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