UNITED STATES DISTRICT COURT
DISTRICT OF DELAWARE
- ------------------------------------------X
:
FIRST BANK SYSTEM, INC. AND ELEVEN :
ACQUISITION CORP., :
:
Plaintiffs, : COMPLAINT FOR
: INJUNCTIVE RELIEF
- against - :
: No.
WELLS FARGO & COMPANY, :
:
Defendant. :
:
- ------------------------------------------X
Plaintiffs First Bank System, Inc. ("First Bank") and
Eleven Acquisition Corp. ("Eleven Corp."), by and through their
attorneys, Potter, Anderson & Corroon, for their complaint
against Wells Fargo & Company ("Wells"), allege as follows, on
knowledge as to themselves and their own acts, and on information
and belief as to all other matters except as indicated otherwise:
SUMMARY OF THE COMPLAINT
1. This action arises out of Wells' unlawful conduct
in manipulating its stock price, violating the proxy rules and
disseminating false and misleading information to the public
about the pending merger between First Bank and First Interstate
Bancorp ("First Interstate").
2. On November 5, 1995, the board of directors of
First Interstate unanimously rejected an unsolicited offer from
Wells and approved a strategic partnership between First
Interstate and First Bank (the "FBS/FI Merger").
3. Wells was intensely frustrated by First
Interstate's decision, as Wells' internal planning for a
considerable period has assumed that Wells would acquire First
Interstate. Wells has been unable to achieve substantial growth
in its principal market, California, from its own operations; its
plans therefore made it "imperative," as Wells has admitted, that
it acquire First Interstate both to eliminate an important
competitor and to cannibalize its assets as Wells' preferred
means of achieving substantial growth in the California market.
4. Determined to acquire First Interstate despite
First Interstate's merger agreement with First Bank, Wells
embarked upon a campaign of deception and manipulation to
sabotage the alliance between First Bank and First Interstate.
5. Beginning with the announcement on November 13,
1995 of its hostile tender offer for First Interstate's stock
(the "Hostile Offer") and its intent to solicit proxies from
First Interstate's stockholders in opposition to the FBS/FI
Merger, Wells has poisoned the marketplace with false and
misleading information about both the FBS/FI Merger and its
Hostile Offer, and has purposefully manipulated its stock price
to make the Hostile Offer appear more attractive ("Wells
Misinformation Scheme"). Among Wells' repeated violations of the
federal securities laws are the following:
(a) Wells has disseminated false and deceptive
analyses of the relative economic benefits of the
FBS/FI Merger and the Hostile Offer;
(b) Wells has misled investors by claiming
consistently that its Hostile Offer can be consummated
on the same timetable as the FBS/FI Merger, concealing
the time-consuming obstacles to regulatory approval
that are unique to the Hostile Offer;
(c) At a highly unusual meeting with securities
analysts held by Wells in the midst of the distribution
process, Wells purposefully manipulated the price of
its stock -- conduct squarely prohibited by SEC Rule
10b-6;
(d) At the same meeting, Wells issued wholly unfounded
earnings projections that inflated the price of its
stock; and
(e) Wells falsely represented to the public that it
could purchase shares of First Interstate after it
announced its Hostile Offer, despite the prohibition
against such purchases by SEC Rule 10b-13.
6. Through its Misinformation Scheme, Wells has
sought to inflate artificially its stock price and create a sense
of momentum for its Hostile Offer based on distorted information.
Wells' factual manipulation and misstatements have been designed
to interfere with the ability of First Interstate's shareholders
to assess fairly and accurately the merits of the FBS/FI Merger.
7. This complaint seeks to put a stop to the Wells
Misinformation Scheme and to purge Wells' poison from the
marketplace. First Bank seeks injunctive relief requiring Wells
to disclose publicly its clear and continuing violations of the
federal securities laws, enjoining Wells from pursuing its
Hostile Offer until it reports its actual results for the future
performance Wells illegally estimated during its distribution
period, enjoining Wells from committing further violations, and
requiring Wells to correct its numerous misstatements concerning
the FBS/FI Merger and the Hostile Offer.
JURISDICTION AND VENUE
8. This Court has subject matter jurisdiction over
this action pursuant to Section 27 of the Securities Exchange Act
of 1934 ("Exchange Act"), 15 U.S.C. Section 78aa, and 28 U.S.C.
Section 1331. The claims alleged herein arise under Sections
14(a) and 14(e) of the Exchange Act and the rules and regulations
promulgated thereunder by the Securities and Exchange Commission
("SEC"). In connection with the unlawful conduct complained of
herein, Wells has directly and indirectly used the means and
instrumentalities of interstate commerce and of the mails.
9. Venue is proper in this district, under Section 27
of the Exchange Act, 15 U.S.C. Section 78aa, because Wells
transacts its affairs in the District of Delaware, where it is
incorporated.
THE PARTIES
10. Plaintiff First Bank is a Delaware corporation and
a bank holding company registered under the Bank Holding Company
Act of 1956, as amended. It is headquartered in Minneapolis,
Minnesota. Through its subsidiaries, First Bank provides
commercial and agricultural finance, consumer banking, trust,
capital markets, treasury management, investment management, data
processing, leasing, mortgage banking and brokerage services. As
of September 30, 1995, First Bank and its subsidiaries had
consolidated assets of $33 billion, consolidated deposits of
$21.9 billion and shareholders' equity of $2.7 billion.
11. Plaintiff Eleven Corp. is a Delaware corporation
created as a vehicle to facilitate the FBS/FI Merger.
12. Defendant Wells is a Delaware corporation with its
principal place of business in California and a bank holding
company registered under the Bank Holding Company Act of 1956, as
amended.
BACKGROUND
A. The FBS/FI Merger and the Hostile Offer
13. Wells first expressed interest in First Interstate
long before its announcement of the Hostile Offer. On February
11, 1994, Wells delivered an unsolicited letter to First
Interstate offering an exchange of stock pursuant to which each
First Interstate shareholder would receive Wells common stock,
which at the time was valued at $90.
14. In the fall of 1995, Wells renewed its efforts to
acquire First Interstate. Paul Hazen, Wells' Chairman of the
Board and Chief Executive Officer, told William Siart, First
Interstate's Chairman and Chief Executive Officer, that a merger
with First Interstate was a strategic "imperative" for Wells and
was essential to maximize Wells' shareholder value. On October
17, 1995, Hazen delivered a letter to First Interstate proposing
a merger of Wells and First Interstate. The proposal was made
public the next day.
15. While Wells' shareholders could benefit from a
merger with First Interstate, its Hostile Offer is not in the
best interests of First Interstate and its shareholders. Wells
has branches only in California, in contrast to First Interstate
whose branches span 13 states. Wells' business strategy has
included "leaving what other banks see as growth areas" and
opting instead to initiate lending to "high-risk borrowers whose
creditworthiness it screens by computer." Saul Hansell, Seeking
the Next Gold Rush: Merger or Not, Wells Bets on Electronic
Banking, N.Y. Times, November 22, 1995. Wells' approach to
banking has left "revenues flat" and its recent increases in
reported earnings have been attributed exclusively to its
decision not to replenish its loan-loss reserves. Indeed, Wells
"is pushing so far, so fast -- with so little overall growth --
that other bankers find its strategy disconcerting." Id.
Consistent with Wells' approach, Wells has admitted that its plan
for First Interstate is to close most of First Interstate's 457
California branches.
16. First Interstate's board recognized that the
combination proposed by Wells would be disadvantageous for its
shareholders and chose a strategic alliance with First Bank, a
high-growth institution recognized for its sound management,
extraordinarily efficient operations and sophisticated multi-
state banking experience. Pursuant to the FBS/FI Merger, each
First Interstate shareholder will receive 2.6 shares of First
Bank stock for each share of First Interstate stock. The FBS/FI
Merger is subject to the approval of First Interstate's
shareholders. First Bank is engaged in the proxy solicitation
process with respect to obtaining First Interstate's
shareholders' approval, although no proxy cards have yet been
distributed.
17. As the First Interstate Board recognized, the
FBS/FI Merger offers substantial economic benefits to First
Interstate's stockholders that are indisputably not available
from the Hostile Offer. Among the benefits of the FBS/FI Merger
to First Interstate's stockholders are:
-- The FBS/FI Merger, which will be accounted for
as a pooling-of-interests, will not create
goodwill and will therefore maximize future
shareholder earnings and value. A Wells/First
Interstate combination, in contrast, would rely on
purchase accounting and would create more than $8
billion in additional goodwill and other
intangibles, the annual amortization of which
would dramatically reduce reported earnings for up
to 25 years.
-- The FBS/FI Merger will not cause any
substantial loss of revenue, because the cost
savings will be achieved primarily by
consolidation of "back office" and operations
systems. A combination of Wells with First
Interstate, in contrast, would result in sizable
revenue losses due to the large number of
shutdowns of California branches, massive layoffs
of personnel involved in revenue-generating
corporate banking and trust activities, and the
large number of branch divestitures necessary to
avoid antitrust violations.
-- The FBS/FI Merger will lead to substantial
increases in reported earnings per share ("EPS")
for First Interstate stockholders in 1996 while a
Wells/First Interstate union, by contrast, would
result in an EPS decrease in the same period.
-- The FBS/FI Merger will reduce the percentage of
First Interstate's California assets from over 40%
to less than 30%. A combination with Wells would
lead to excessive concentration in the California
market, where 70% of the combined company's total
assets would be located, and a resulting increased
risk profile.
-- First Interstate's shareholders will own 58% of
the combined FBS/FI entity. Those same
shareholders would own only 52% of a combined
Wells/First Interstate entity.
B. Wells' Campaign of Deception and Manipulation
18. Aware that its Hostile Offer is unlikely to
prevail on a fair assessment of its merits, Wells has resorted to
its Misinformation Scheme to inflate artificially the value of
its Hostile Offer and to mislead First Interstate's shareholders
about the terms of the FBS/FI Merger and the Hostile Offer. The
Scheme has been far-reaching: Wells' fraudulent statements
permeate its Registration Statement on Form S-4, filed on
November 27, 1995 ("Wells S-4"), its Preliminary Proxy Material,
filed December 5, 1995 ("Wells Preliminary Proxy"), its press
releases, and its widely-reported presentations to securities
analysts.
1. False and Misleading Statements Regarding the
Relative Benefits of the FBS/FI Merger and Hostile
Offer
a. Cost Savings
19. Wells has repeatedly made false and misleading
statements about the projected cost savings it expects to realize
from an acquisition of First Interstate pursuant to the Hostile
Offer.
20. False Statement: In its S-4, Preliminary Proxy
and in meetings with analysts on November 13, 1995 and December
6-7, 1995, Wells has asserted that it will be able to cut
expenses at First Interstate by $500 million more than First Bank
can cut such expenses. This translates into a claim of $1
billion in expense cuts from First Interstate's total anticipated
1996 expenses of $2.3 billion, or about 44% of First Interstate's
expense base. Wells S-4 at 18-19. Wells implies that the $500
million of additional cost reductions beyond First Bank's that it
claims it will achieve will come principally from reducing First
Interstate's expenses in California. As stated by Wells' Chief
Financial Officer to securities analysts on November 13:
If 500 is the right number for First Bank, then the
right number for Wells Fargo is a billion dollars. Now
most of you know that, right? Think about it, Wells
Fargo is sitting in California with half of First
Interstate there. The major parts of the rest of the
franchise are right across the border of California.
21. Wells knows that its claims to achieve an
additional $500 million in cost reduction because of its
California overlap with First Interstate are untrue, since First
Interstate's California branch and business line expenses total
only $495 million. It would be economically impossible for Wells
to cut anything approaching $495 million of those expenses even
if Wells were to shut every single First Interstate facility in
the State, which even Wells does not purport to do, without
incurring enormous additional revenue losses.
22. False Statement: To make its specious cost
savings claim seem plausible, Wells in its S-4 falsely
characterizes its proposed combination with First Interstate as
an "in-market" transaction -- that is, a transaction between
entities located in and primarily serving the same market,
thereby creating far greater opportunities for consolidation
efficiencies and cost reductions than are available in out-of-
market or "market extension" transactions. Wells S-4 at 20. Yet
First Interstate has only about 44% of its deposits and only
about 37% of its branches in California, and less than one-
quarter of its expenses are attributed to that State.
23. Deception: Wells purposefully compares its
projected cost savings to cost savings achieved in true "in-
market" transactions to make it appear that its projected cost
savings -- about 44% of First Interstate's base expenses -- are
reasonable (because such a high level of savings can plausibly be
achieved in true "in-market" mergers). Wells' comparison appears
in a chart prepared and published in its preliminary prospectus,
Wells S-4 at 20, which was in turn published in the American
Banker on November 30, 1995, as follows:
Rose Colored Glasses?
Wells Fargo & Co. used this chart in its federal filing Monday to
argue its numbers were more realistic than First Bank System's
figures
Savings
as a
% of Time to
Major smaller achieve
1995 market Value company's all cost
extension in operating savings
transactions Date billions expenses in months
- ------------ ---- -------- -------- ---------
U.S. Bancorp/ May 8 $1.6 23% 12-15
West One
First Union/ June 19 5.6 18 24
First Fidelity
First Chicago/ July 12 5.1 15 6-12
NBD
Boatmen's/ Aug. 25 1.2 24 21
Fourth
Financial
National City/ Aug. 28 2.1 21 6
Integra
Average 20 14-16
First Bank/ Nov. 6 10.3 42 6
Interstate
Major 1995
in-market
transactions
- ------------
Fleet/ Feb. 21 $3.6 44% 15
Shawmut
PNC/Midlantic July 10 3.0 30 12
Chemical/Chase Aug. 28 9.9 35 21
UJB/Summit Sept. 11 1.1 48 9
CoreStates/ Oct. 10 3.2 35 6
Meridian
Average 38 13
Wells Fargo/ Nov. 13 10.9 37 18
Interstate
Source: Wells Fargo & Co.
In contrast to the facts of a Wells/FI combination,
involving an overlap of only 44% of deposits and about 37% of
branches, the true "in-market" transactions Wells selected to
compare itself with involved 99% deposit/branch overlap in the
case of Fleet/Shawmut, 100% overlap for UJB/Summit, 82%/73%
deposit/branch overlap for Corestates/Meridian, 90%/77% overlap
for Chemical/Chase, and 62%/70% for PNC/Midlantic. Wells'
presentation is patently deceptive.
24. Deception: Wells' deceitful presentation of the
cost savings issue is not limited to the misleading comparisons
to its own offer. In the very same chart Wells purposefully
misleads the public about the feasibility of First Bank's cost
savings projections for the FBS/FI Merger. For the actual
"market-extension transactions" on its chart to which it compares
the FBS/FI Merger, Wells reports the percentage of cost savings
for each transaction as a percentage of the acquired entity's
anticipated total stand-alone expenses. Yet, Wells purposefully
presents First Bank's projected cost savings for the FBS/FI
Merger as a percentage of First Bank's expenses, not of First
Interstate's expenses.
25. The effect of Wells' mathematic manipulation is to
make First Bank's projected cost savings appear unreasonably
large when compared to other comparable transactions. Wells'
sleight of hand misleadingly suggests that First Bank is
projecting savings of 42%, far in excess of the 15-24% range of
other market-extension transactions. Thus, Wells claims in its
Preliminary Proxy that FBS' estimated cost reduction estimate is
"two to three times those projected in comparable transactions."
Wells Preliminary Proxy at 9. In fact, if FBS' cost savings are
properly expressed as a percentage of First Interstate's expenses
the resulting figure -- 22% -- is well within the range.
b. Revenue Projections
26. False Statement: Wells has knowingly and
deliberately understated the projected revenue loss it will
suffer from slashing First Interstate's operations. In its S-4
and Preliminary Proxy Materials, and during meetings with
analysts, Wells claims that a proposed Wells/First Interstate
combination will result in First Interstate revenue losses in
California of only $100 million -- a loss of only 7% of First
Interstate's California-based revenue, even though Wells plans to
shut 85% of First Interstate's California branches. Wells S-4 at
21; November 13, 1995 Analyst Meeting. First Interstate's
revenue depletion will vastly exceed $100 million. Wells'
knowing and deliberate understatement of the expected revenue
loss is demonstrated by Wells' own experience with its merger
with Crocker National Bank in 1986. There, Wells suffered an
attrition rate in demand deposits of 28.1% when it closed 62% of
Crocker National's branches.
27. Deception: Wells' discussion of the Crocker
experience in its S-4 understates its revenue loss in that
acquisition, since it fails to disclose that other California
banks' deposits went up significantly in the same time period
that Crocker's were declining.
28. Deception: Remarkably, despite projecting $100
million in revenue loss, Wells misleadingly calculates its
projected earnings per share ("EPS") to mask this. Wells
achieves this in its S-4 by appropriating First Bank's projected
figures for First Interstate's 1996-1997 revenue and mismatching
them against First Interstate's estimated 1995 expenses. Wells
S-4 at 22. By this contrivance, Wells manufactures approximately
$200 million in additional annual, pre-tax earnings out of thin
air.
c. Accounting Methods and Impact on
Shareholders
29. Because of the effect under accounting rules of
Wells' extensive repurchases of its own stock in recent years,
Wells is required to account for its proposed acquisition of
First Interstate under the "purchase" method of accounting,
rather than under the more advantageous "pooling of interests"
accounting technique. The purchase accounting Wells is forced to
utilize will cause it to record more than $8,000,000,000 (Eight
Billion Dollars) in additional goodwill and other intangibles.
That remarkable sum, which must be amortized against Wells/FI's
reported earnings for up to 25 years, will significantly depress
those earnings. In addition, it reduces Wells' financial
flexibility in a downturn, potentially limits its ability to do
future acquisitions, and may raise regulatory problems.
30. Under the "pooling-of-interests" method to be used
by First Bank, the FBS/FI entity will not record any additional
goodwill, and therefore will avoid these severe disadvantages.
31. Deception: Despite the obvious advantage of
pooling accounting, Wells has falsely asserted that "there is no
meaningful difference between purchase accounting and pooling of
interests accounting." Wells Preliminary Proxy at 11.
32. Deception: Aware that First Bank's ability to use
the pooling method gives it a substantial advantage over Wells,
Wells has attempted to deceive the public into believing that
purchase accounting will have no impact on First Interstate's
shareholders, by claiming that its future "cash earnings per
share", which are calculated before any deduction for goodwill,
are what is important, as opposed to actual reported earnings per
share. Indeed, in its S-4, Wells states that its "projected
accretion in cash earnings per share" is most comparable to
"FBS's projected accretion in reported earnings per share."
Wells S-4 at 21. Yet it is only reported earnings that are
required, and in some circumstances even permitted, to be
included in SEC filings.
33. False Statement: Wells has falsely questioned
First Bank's ability to use the pooling technique. On November
22, 1995, Rodney Jacobs, Wells' Vice Chairman and Chief Financial
Officer, stated: "Our accounting firm, Peat Marwick, has said
they don't see how First Bank can do a pooling transaction."
Daniel Kaplan and Barton Crockett, Accounting Becomes Crucial In
Battle to Buy First Interstate, American Banker, November 22,
1995. This statement is false.
34. Wells has continued to question First Bank's
ability to use the pooling method, Wells Preliminary Proxy at 6,
even after Ernst & Young, the independent auditor to First Bank
and First Interstate, issued a letter, dated December 4, 1995,
stating that the FBS/FI Merger will qualify for pooling-of-
interests accounting treatment.
35. Deception: At its meeting with analysts on
December 6-7, 1995, Wells attempted to suggest that First Bank
itself believes the Hostile Offer is in the interests of First
Interstate's shareholders. Thus, Wells asserted that Rick Zona,
the Chief Financial Officer of First Bank, stated: "Wells'
proposal is clearly a great deal for their shareholders." This
statement is patently misleading because it suggests that Rick
Zona believes the Hostile Offer would be beneficial to First
Interstate's shareholders. In fact, and as Wells certainly
knows, Zona was commenting that Wells shareholders -- and not
First Interstate shareholders -- would benefit from a potential
Wells/First Interstate combination. The Dow Jones News Service
reported Zona as saying: "Wells' proposal is clearly a great
proposal - for their (Wells') shareholders," . . . "However, it
is inferior to ours when compared to the impact on First
Interstate shareholders." First Bank: Wells Fargo Bid for First
Interstate Inferior, Dow Jones News Service, November 17, 1995.
d. Wells' Stock Repurchase Plans
36. Wells has also sought to inflate the value of its
stock and generate momentum for the Hostile Offer by claiming
during its November 13, 1995 presentation to analysts that it
will repurchase $7.5 billion worth of its stock over the next
five years while meeting its projected level of earnings.
37. False Statement: Wells knows that it cannot
achieve this stated goal. Given its other assumptions -- overall
base growth of 5%, projected EPS of $30 by the year 2000 and a
stock price-to-earnings ratio of 12.5 -- Wells' stock price would
have to be stagnant to permit it to buy the quantity of shares
necessary to achieve its projected EPS for the $7.5 billion it is
prepared to spend. Conversely, if Wells does not repurchase the
number of shares projected, then Wells will not be able to meet
its EPS projections. In either case, the First Interstate
shareholders would be left with shares valued at considerably
less than the amount represented by Wells.
e. The Timetable for the Hostile Offer
38. Wells has made false and misleading statements
about its ability to obtain regulatory approval for the Hostile
Offer on the same timetable as the FBS/FI Merger. The timing of
each potential combination is a critical fact.
39. False Statement: In its Preliminary Proxy
Materials, Wells stated that "it will be able to obtain the
necessary regulatory approvals . . . no later than the date on
which FBS would be able to obtain the necessary regulatory
approvals for the FIB/FBS Merger." Wells Preliminary Proxy at 4.
Wells made an identical representation in its S-4, at 3, 16, and
Wells' chairman states on the second page of his letter to First
Interstate stockholders as part of the Wells proxy statement that
"there is no timing advantage to the FBS Proposal." These
assertions are misleading, because they fail to disclose that
Wells must overcome significant obstacles to regulatory approval
that are not at issue in the FBS/FI Merger.
40. Since Wells' entire franchise is in California,
and First Interstate is one of its principal competitors there,
consummation of the Hostile Offer raises serious antitrust
concerns under the federal antitrust law and banking laws. In
contrast, there is no such problem with the FBS/FI Merger. Wells
has also significantly understated the amount of deposits it will
need to divest to win regulatory approval for an acquisition of
First Interstate. These large divestitures will lead inevitably
to a lengthening of the approval process.
41. False Statement: Wells has also knowingly and
willfully used alleged regulatory approval under the Hart-Scott-
Rodino Antitrust Improvement Act ("HSR") in a misleading attempt
to build momentum for the Hostile Offer. In a press release on
November 17, 1995, just four days after it announced its Hostile
Offer, Wells claimed that it had received HSR clearance, enabling
it to purchase up to 5% of the shares of First Interstate.
Wells' press release explicitly claimed that Wells can purchase
the shares "any time after today by means of open market or
privately negotiated purchases."
42. Under SEC Rule 10b-13, however, a party who has
publicly disclosed the intention to commence a tender offer, such
as Wells' Hostile Offer, cannot engage in any purchases of
securities that are the subject of the offer. Wells' statement
to the contrary was plainly false.
2. Price Manipulation in Violation of SEC Rule
10b-6
43. Wells is blatantly violating SEC Rule 10b-6 by
promoting its stock during a distribution of that stock. Wells
conducted what has been accurately reported in the press as
"Wells' most elaborate presentation in years for Wall Street
banking analysts," marked by the unusual step of personal
appearances in New York on December 6, and 7, 1995 by its
Chairman and Chief Executive Officer, its President and its Vice
Chairman and Chief Financial Officer at a meeting for more than
200 people. Thomas S. Mulligan, Paul Hazen Seeks to Sell Future
of Bank to Wall Street, The Los Angeles Times, December 7, 1995.
44. At this meeting, Wells issued new and
unprecedented projections. It claimed that its 1996 revenue,
without giving effect to a transaction with First Interstate,
will increase by 8%, its net interest income will increase by 5%
and its non-interest expense will grow by 2-3%, and non-interest
income will increase by 12%. These projections translate into a
12% increase in pre-tax, pre-provision earnings. Wells informed
the group that these estimates meant that Wells' 1996 earnings
would be in the mid-$20 range.
45. These dramatic new disclosures, in the middle of
the distribution period for the Wells stock to be used to effect
the Hostile Offer, had the inevitable effect Wells intended for
them: the analysts immediately raised their estimates of Wells'
1996 performance, and Wells stock price went up accordingly. The
following table illustrates the immediate impact of Wells'
illegal presentation:
Prior New Date of
Analyst Estimate Estimate Revision
- ------- -------- -------- ----------
Bear Stearns $20.00 $23.50 December 7,
1995
Bernstein $17.20 $18.45 December 8,
1995
Dean Witter $20.00 $21.15 December 7,
1995
Deutsche $21.55 $22.00 - 23.00 December 8,
Morgan 1995
Grenfell/C.J.
Lawrence
Keefe, $22.00 $23.00 December 7,
Bruyette & 1995
Woods
Lehman $20.50 $21.75 December 8,
Brothers 1995
Merrill Lynch $21.75 $23.00 December 8,
1995
Oppenheimer $22.35 $24.25 December 7,
1995
Smith Barney $22.00 $22.50 December 8,
1995
46. The substance of the analyst presentation was
misleading and manipulative. Wells projected 8% revenue growth
in 1996, even though it experienced adjusted average annual
growth of less than 2.5% over the last two years. The 8% revenue
growth projection, which is based partly on a projected 5% growth
of net interest income, is highly implausible, given that Wells
had no net interest income growth in the last two years and other
factors, such as deposit pricing pressures and increasingly
competitive loan pricing, are affecting net interest income.
47. As James Rosenberg of Lehman Brothers reported:
"Wells is smart. Before the First Interstate battle, it was in
their interest to conservatively report earnings to permit share
buybacks at lower prices. Now reverse goals are in force, and
earnings may be aggressively reported to raise the stock price."
Wells: Let's Put Upbeat Meeting in Perspective; 1996 Estimate
Up, December 8, 1995.
48. But even if the substance of the presentation were
not misleading, Wells' manipulation of its stock constitutes a
clear violation of SEC Rule 10b-6, which provides that it is
unlawful for an issuer or other person on whose behalf a
distribution of securities is made to attempt to induce any
person to purchase any security which is the subject of such
distribution. The purpose of this rule, as stated by the SEC, is
to "prevent participants in a distribution from artificially
conditioning the market for the securities in order to facilitate
the distribution." Release 34-22510 (October 10, 1985). Both
the timing and content of Wells' sales pitch were carefully
calculated to induce market participants to purchase Wells' stock
and thus cause the price of its stock to rise and result in an
increased perceived value of the Hostile Offer. Unlike issuer
stock repurchases, which are permitted until two trading days
prior to the mailing of the prospectus, there is no similar
cooling-off period concept that would permit Wells' illegal
artificial conditioning of the market.
3. Violation of Rule 14a-3(a)
49. Wells' various public statements, including its S-
4, proxy, press releases and analyst presentations, constitute
proxy solicitations to First Interstate's shareholders in
violation of SEC Rule 14a-3(a). This rule provides that a party
cannot make a solicitation unless "each person solicited is
concurrently furnished or has previously been furnished with a
publicly-filed preliminary or definitive written proxy statement
containing the information specified in Schedule 14A ([Rule] 14a-
101) or with a preliminary or definitive written proxy statement
included in a registration statement filed under the Securities
Act of 1933 on Form S-4. . . ."
50. Contrary to Rule 14a-3(a), Wells did not provide
First Interstate's shareholders with a preliminary or definitive
written proxy statement prior to, or concurrently with, making
its solicitations.
51. Wells cannot avail itself of the exceptions set
forth in Rules 14a-11 and 14a-12. Rule 14a-11 permits
solicitation prior to furnishing a preliminary or definitive
proxy statement only "for the purpose of opposing a solicitation
subject to this regulation by any other person or group of
persons with respect to the election or removal of directors at
any annual meeting or special meeting of security holders."
Since no other person has made a solicitation regarding the
election or removal of directors, Wells' improper solicitations
are not rescued by Rule 14a-11.
52. Nor can Wells justify its solicitations under Rule
14a-12. This rule permits solicitations prior to furnishing a
proxy statement only in opposition to "a prior solicitation or an
invitation for tenders or other publicized activity, which if
successful, could reasonably have the effect of defeating the
action proposed to be taken at the meeting." Rule 14a-12 plainly
applies only to the proponents of the action to be considered at
the meeting to which the solicitations relate -- here, the FBS/FI
Merger -- and not to an insurgent like Wells. While First Bank
and First Interstate can avail themselves of Rule 14a-12, Wells
cannot. As such, Wells solicitations plainly violate Rule 14a-
3(a).
FIRST CLAIM
(For Violation of Section 14(e))
53. First Bank and Eleven Corp. repeat and re-allege
each and every allegation in Paragraphs 1 through 52 as if fully
set forth herein.
54. Section 14(e) of the Exchange Act, 15 U.S.C.
Section 78n(e), makes it unlawful for any person:
to make any untrue statement of a material fact or
omit to state any material fact necessary in order to
make the statements made, in the light of the
circumstances under which they are made, not
misleading, or to engage in any fraudulent,
deceptive, or manipulative acts or practices, in
connection with any tender offer or request or
invitation for tenders.
55. In connection with its Hostile Offer, Wells has
caused to be disseminated to First Interstate shareholders and
analysts statements of material fact, which were, at the time and
in the light of the circumstances under which they were made,
false and misleading, and omitted to state material facts
necessary in order to make these statements not false or
misleading, all as described above.
56. Moreover, Wells has engaged in other fraudulent,
deceptive and manipulative acts and practices, in contravention
of Section 10(b) of the Exchange Act and Rule 10b-6 thereunder,
all as described above.
57. Wells' many false and misleading statements and non-
disclosures, along with its fraudulent, deceptive and
manipulative acts and practices, as described herein violated
Section 14(e) of the Exchange Act.
SECOND CLAIM
(For violation of Section 14a and Rule 14a-9)
58. First Bank and Eleven Corp. repeat and re-allege each
and every allegation in Paragraphs 1 through 52 and 54 through 57
as if fully set forth herein.
59. Section 14(a) of the Exchange Act, 15 U.S.C. Section
78n(a), makes it unlawful for any person:
in contravention of such rules and regulations as the
Commission may prescribe as necessary or appropriate in
the public interest or for the protection of investors, to
solicit or to permit the use of his name to solicit any
proxy or consent or authorization in respect of any
security (other than an exempted security) registered
pursuant to section 78l of this title.
Rule 14a-9, promulgated pursuant to Section 14(a) of the Exchange
Act, provides:
No solicitation subject to this regulation shall be made
by means of any proxy statement, form of proxy, notice of
meeting or other communication, written or oral,
containing any statement which, at the time and in the
light of the circumstances under which it is made, is
false and misleading with respect to any material fact, or
which omits to state any material fact necessary in order
to make the statements therein not false or misleading or
necessary to correct any statement in any earlier
communication with respect to the solicitation of a proxy
for the same meeting or subject matter which has become
false or misleading.
60. In connection with its Hostile Offer, Wells has
caused to be disseminated to First Interstate shareholders and
analysts proxy statements and other materials, and made oral
solicitations, which were, at the time and in the light of the
circumstances under which they were made, false and misleading,
and omitted to state material facts necessary in order to make
these statements not false or misleading, all as described above.
61. Moreover, Wells has engaged in other fraudulent,
deceptive and manipulative acts and practices, in contravention
of the securities laws, all as described above.
62. Wells' many false and misleading statements and non-
disclosures, along with its fraudulent, deceptive and
manipulative acts and practices, as described herein violated
Section 14(a) of the Exchange Act and Rule 14a-9 promulgated
thereunder.
THIRD CLAIM
(For violation of Section 14a and Rule 14a-3)
63. First Bank and Eleven Corp. repeat and re-allege each
and every allegation in Paragraphs 1 through 52, 54 through 57,
and 59 through 62 as if fully set forth herein.
64. Section 14(a) of the Exchange Act, 15 U.S.C. Section
78n(a), makes it unlawful for any person:
in contravention of such rules and regulations as the
Commission may prescribe as necessary or appropriate in
the public interest or for the protection of investors, to
solicit or to permit the use of his name to solicit any
proxy or consent or authorization in respect of any
security (other than an exempted security) registered
pursuant to section 78l of this title.
Rule 14a-3, promulgated pursuant to Section 14(a) of the Exchange
Act, provides:
No solicitation subject to this regulation shall be made
unless each person solicited is concurrently furnished or
has previously been furnished with a publicly-filed
preliminary or definitive written proxy statement
containing the information specified in Schedule 14A
([Rule] 14a-101) or with a preliminary or definitive
written proxy statement included in a registration
statement filed under the Securities Act of 1933 on Form
S-4 or F-4, or Form N-14, and containing the information
specified in such Form.
65. In connection with its Hostile Offer, Wells has
caused to be disseminated to First Interstate shareholders and
analysts proxy statements and other materials, and made oral
solicitations, without concurrently furnishing or having
previously furnished to First Interstate's shareholders a
publicly-filed preliminary or definitive written proxy statement
as required by Rule 14a-3.
66. Wells' failure to furnish Wells' shareholders with
publicly-filed preliminary or definitive written proxy statements
fraudulent, deceptive and manipulative acts and practices, as
described herein, violated Section 14(a) of the Exchange Act and
Rule 14a-9 promulgated thereunder.
IRREPARABLE INJURY
Unless Wells is enjoined from disseminating further
false and misleading information, required to correct its
numerous misstatements and enjoined from pursuing its Hostile
Offer until the estimates disseminated at the December 6-7, 1995
meeting can be verified or disproved through the reporting of
actual earnings, First Bank will be deprived of the opportunity
to present an honest and accurate picture of the FBS/FI Merger,
First Interstate shareholders will be denied an honest and fair
opportunity to evaluate the FBS/FI Merger as compared to the
Hostile Offer, and the federal securities laws will continue to
be flouted by Wells. Monetary damages are inadequate to redress
this injury.
PRAYER FOR RELIEF
WHEREFORE, plaintiffs respectfully request that this
Court enter an order and judgment:
(a) entering judgment in favor of plaintiffs;
(b) enjoining Wells from pursuing its Hostile Offer
until such time in 1996 as the 1996 earnings and other estimates
disseminated by Wells at the December 6-7, 1995 meeting can be
verified or disproved through the reporting of actual earnings;
(c) requiring Wells to disclose publicly its clear and
continuing violation of the federal securities laws as a material
consideration of the Hostile Offer;
(d) enjoining Wells from engaging in similar
violations in the future;
(e) requiring Wells to rescind and correct the
numerous false and misleading statements it has made in
connection with the FBS/FI Merger and Hostile Offer;
(f) awarding plaintiffs their reasonable costs and
expenses; and
(g) granting such other relief as the Court deems just
and proper.
POTTER ANDERSON & CORROON
By /s/ Stephen Norman
------------------------
Michael D. Goldman
Stephen C. Norman
P.O. Box 951
350 Delaware Trust Building
Wilmington, Delaware 19899
(302) 984-6000
Attorneys for Defendants,
First Bank System, Inc. and
Eleven Acquisition Corp.
Of Counsel:
Cleary, Gottlieb, Steen & Hamilton
Edwin B. Mishkin
Richard Ziegler
Bernadette Miragliotta
One Liberty Plaza
New York, New York 10006
(212) 225-2000
Dated: December 14, 1995