IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
- - ----------------------------------------------------------x Consolidated C.A.
: No. 14623
:
IN RE FIRST INTERSTATE BANCORP : SECOND AMENDED AND
SHAREHOLDER LITIGATION : SUPPLEMENTAL CLASS
: ACTION COMPLAINT
:
- - ----------------------------------------------------------x
Plaintiffs allege upon information and belief except as to
paragraph 1, which is alleged on knowledge, as follows:
THE PARTIES
1. Plaintiffs are and have been at all relevant times, the
owners of shares of the common stock of First Interstate Bancorp ("First
Interstate" or the "Company") .
2. First Interstate is a bank holding company organized and
existing under the laws of the State of Delaware. First Interstate operates
approximately 1,000 offices in 13 states. It has approximately 76 million
shares of common stock issued and outstanding, held by approximately 25,000
shareholders of record. Its shares are traded on various stock exchanges,
including the New York Stock Exchange.
3. (a) Defendant Edward M. Carson ("Carson") is and was at
all relevant times Chairman of the Board of Directors of First Interstate.
(b) Defendant William S. Randall ("Randall") is and was
at all relevant times a Director and Executive Vice President and Chief
Operating Officer of First Interstate.
(c) Defendant William E.B. Siart ("Siart") is and was at
all relevant times a Director and President and Chief Executive Officer of First
Interstate.
(d) Defendants John E. Bryson ("Bryson"), Jewel Plummer
Cobb ("Cobb"), Ralph P. Davidson ("Davidson"), Myron Du Bain ("Du Bain"), Don C.
Frisbee ("Frisbee"), George M. Keller ("Keller"), Thomas L. Lee ("Lee"), William
F. Miller ("Miller"), Steven B. Sample ("Sample"), Forrest N. Shumway
("Shumway"), Richard J. Stegemeier ("Stegemeier") and Daniel M. Tellep
("Tellep") (together with defendants Carson, Randall and Siart "the Individual
Defendants") are and were at all relevant times directors of the Company.
4. The Individual Defendants are in a fiduciary relationship
with plaintiffs and the other public stockholders of First Interstate and owe to
plaintiffs and other members of the class (as hereinafter defined) the highest
obligations of good faith, fair dealing and full and candid disclosure.
5. Defendant First Bank System, Inc. ("First Bank") is a
Delaware bank holding corporation headquartered in Minneapolis, Minnesota.
First Bank is named herein as an aider and abettor to the breaches of fiduciary
duty alleged herein.
6. Defendant Eleven Acquisition Corporation is a Delaware
corporation formed by First Bank for the purpose of effecting the First Bank
Merger (defined below).
CLASS ACTION ALLEGATIONS
7. Plaintiffs bring this case on their own behalf and as a
class action, pursuant to Rule 23 of the Rules of the Court of Chancery, on
behalf of all public stockholders of First Interstate, and their successors in
interest, who are or will be threatened with injury arising from defendants'
actions as more fully described herein. Excluded from the class are defendants
herein and any person, firm, trust, corporation, or other entity related to or
affiliated with any of the defendants.
8. This action is properly maintainable as a class action.
9. The class is so numerous that joinder of all members is
impracticable. There are approximately 25,000 stockholders of record located
throughout the United States.
10. There are questions of law and fact which are common to the
class and which predominate over questions affecting any individual class
member, including whether the Individual Defendants have breached their
fiduciary duties owed to plaintiffs and other members of the class.
11. Plaintiffs are committed to prosecuting this action and
have retained competent counsel experienced in litigation of this nature. The
claims of plaintiffs are typical of the claims of other members of the class and
plaintiffs have the same interests as the other members of the class.
Accordingly, plaintiffs are adequate representatives of the class and will
fairly and adequately protect the interests of the class.
12. The prosecution of separate actions by individual members
of the class would create the risk of inconsistent or varying adjudications with
respect to individual members of the class which would establish incompatible
standards of conduct for defendants, or adjudications with respect to individual
members of the class which would as a practical matter be dispositive of the
interests of the other members not parties to the adjudications or substantially
impair or impede their ability to protect their interests.
13. The defendants have acted, or refused to act, on grounds
generally applicable to, and causing injury to, the class and, therefore,
preliminary and final injunctive relief on behalf of the class as a whole is
appropriate.
BACKGROUND AND CLAIM FOR RELIEF
The Original Wells Fargo Proposal
14. Wells Fargo & Company ("Wells Fargo") is a Delaware
corporation with executive offices at 420 Montgomery Street, San Francisco,
California. Wells Fargo is a bank holding company with subsidiaries that
perform commercial banking operations, investment advisory services,
international and mortgage banking services, credit card services and other
related financial activities.
15. Wells Fargo has long been interested in acquiring First
Interstate. In February 1994, Wells Fargo offered to purchase the Company,
which offer was rebuffed by First Interstate. However, Paul Hazen, Chairman of
Wells Fargo, met with defendant Siart in or around the first two weeks of
October, 1995 to discuss a possible transaction, and was once again rebuffed.
16. On or about October 18, 1995, Wells Fargo announced in a
press release that it had submitted an unsolicited merger proposal to First
Interstate to acquire 100 percent of the Company's common stock (the "original
WF proposal"). Pursuant to the terms of the original WF proposal, First
Interstate shareholders would receive .625 of a share of Wells Fargo,
representing a value of $133.50 for each First Interstate share based on the
then-current trading price of Wells Fargo stock. The transaction, valued at
approximately $10 billion, contemplated a merger of First Interstate and Wells
Fargo into a new company.
17. The reaction of the investment community to the original WF
proposal was positive. Analysts noted that the proposal was nearly three times
First Interstate's book value, and that most recent bank mergers were priced
closer to 2 to 2-1/2 times book value. Analysts referred to the proposal as "a
knockout bid" (Bert Ely, an Alexandria, Virginia banking consultant); an
"excellent" potential combination (Jeff Simons of Mackay Shields Financial
Corp., which owns 1.4 million Company shares); and a "super deal" (Paul McKey of
Dean Witter Reynolds). It was further reported that Kohlberg Kravis Roberts &
Co., which owns approximately 9% of the Company's stock, supported the original
WF proposal.
18. In response to Wells Fargo's announcement on October 18,
1995, the Co-mpany's stock price soared from $106 per share to over $140 per
share. Additionally, the price of Wells Fargo stock increased immediately after
the announcement of the original WF proposal approximately 7%, to $229 per
share.
First Interstate's Response and The First Bank Merger
19. In contrast to the positive reaction of the investment
community, the Company promptly reacted negatively to the original WF proposal.
On October 18, 1995, defendant Siart stated "I am deeply disappointed that Wells
Fargo would take this uninvited action." Siart reportedly also stated that it
was in First Interstate's best interest to take six months to consider the
Company's other options.
20. Moreover, in response to Wells Fargo's offer to increase
its proposal to .65 shares of Wells Fargo stock per First Interstate share, the
First Interstate Board initiated an active bidding process seeking to sell First
Interstate. First Interstate met and shared confidential information with at
least three banks, including First Bank, Norwest Corporation and Banc One
Corporation. However, in breach of fiduciary duties to First Interstate's
public shareholders, the First Interstate Board wrongfully failed duly to
explore, consider and evaluate the available alternatives, and to proceed in
good faith to negotiate with respect to the alternatives to obtain the best
transaction reasonably available for First Interstate shareholders.
21. Nevertheless, less than three weeks later, on or about
November 6, 1995, First Interstate announced that it had agreed to be acquired
by First Bank ("First Bank Merger") in a transaction which would give the First
Interstate stockholders lower consideration than in the original WF proposal.
Pursuant to the terms of the First Bank Merger, First Bank will exchange 2.6
shares of its common stock for each First Interstate share of common stock,
valuing the Company's stock at $129.68 per share, for a total value of $10.05
billion.
22. Prior to November 6, 1995, Wells Fargo had offered to
increase its offer to .65 shares of Wells Fargo common stock per First
Interstate share. Based on the closing price of Wells Fargo common stock on
November 3, 1995, the last trading date prior to announcement of the First Bank
Merger, the .65 shares of Wells Fargo stock had an implied value of $137.96 per
First Interstate share.
23. In connection with the First Bank Merger, First Interstate
and First Bank agreed to a $100 million termination fee in the event a third
party offer were accepted by First Interstate. Moreover, as a condition to the
First Bank Merger, First Interstate and First Bank entered into reciprocal stock
option agreements as of November 5, 1995 pursuant to which First Interstate
granted First Bank an option to purchase up to 15,073,106 shares of the
Company's common stock at a price of $127.75 per share and First Bank granted
First Interstate an option to purchase up to 25,829,983 shares of First Bank
common stock at a price of $50.875 per share. First Bank could reap profits of
as much as $100,000,000 from the option granted to it. As a consequence of the
termination fee and option agreement, Wells Fargo or any other interested bidder
might have to pay First Bank as much as $200,000,000 if the First Bank Merger
were terminated.
24. As a special enticement to the Individual Defendants to
accept the First Bank Merger, First Bank agreed that the combined company would
be called First Interstate and, although it would maintain principal offices in
Minneapolis, its "core businesses" would be run from California, an obvious
effort to placate First Interstate executives. Thus, the First Bank Merger
assures that defendant Siart (who will be second in command in the combined
company) and other First Interstate executives will maintain their positions and
the valuable perquisites which flow therefrom. In addition, the Board of
Directors of the combined entity will be evenly divided between First Bank and
First Interstate directors. Not surprisingly, as a result, one analyst labeled
the First Bank Merger as "a senior management job preservation act" for First
Interstate executives.
25. In addition, the Individual Defendants, in agreeing to the
First Bank Merger, failed to effectively conduct a fair bidding contest for the
sale of the Company. Indeed, they agreed to the First Bank Merger to thwart
spirited bidding by Wells Fargo or anyone other than First Bank desirous of
acquiring First Interstate in a value maximizing transaction. The Individual
Defendants failed to take all steps to ensure that First Interstate's
shareholders had the benefit of the most advantageous transaction, including but
not limited to, failing to negotiate for Wells Fargo's highest and best offer.
Moreover, it has been reported that other potential First Interstate bidders,
including Norwest Corp. or Banc One Corp., might have offered a higher bid, but
did not because of Siart's and the other Individual Defendants' requirements
that First Interstate keep its name and California headquarters.
26. In response to the announcement of the First Bank Merger,
the prices of the common stock of both First Bank and First Interstate both
declined.
27. Executives at First Bank and First Interstate quickly
sought to justify time attractiveness of the deal, asserting that the companies
would be able to save $500 million in expense reductions through overlapping
operations. However, the only overlap between the companies is in Montana,
Colorado and Wyoming. If the First Bank Merger were consummated, elimination of
this redundancy would generate a mere one-time $80 million in savings. In
contrast, a merger between Wells Fargo and First Interstate would create dozens
of duplicate branches, which, when eliminated, would contribute substantially to
the $800 million cost cuts forecast by Wells Fargo.
28. As announced, the consideration offered by the First Bank
Merger on its face is lower than that offered even in the original WF proposal.
29. Evidencing the fact that the Individual Defendants acted
precipitously and recklessly in agreeing to the First Bank Merger with knowledge
that other and higher bids were available, on or about November 13, 1995, Wells
Fargo announced that it would commence a tender offer for First Interstate
stock. Pursuant to the terms of its tender offer Wells Fargo will give First
Interstate stockholders two-thirds of a share of Wells Fargo common stock for
each First Interstate share. Based upon the closing price of Wells Fargo on
November 10, 1995, the value of the exchange offer is $143.58 per First
Interstate share, or approximately $10.9 billion in total.
30. In addition, Wells Fargo announced that it intends to file
preliminary proxy materials with the SEC in connection with the solicitation of
First Interstate shareholders to vote against approval of the First Bank Merger,
and announced that it will file with the SEC preliminary materials to solicit
written consents from First Interstate stockholders to remove the First
Interstate board and replace it with Wells Fargo nominees who are committed to
removing any impediments to the consummation of the acquisition of First
Interstate by Wells Fargo. Moreover, on November 13, 1995, Wells Fargo filed
suit in this Court seeking declaratory and injunctive relief against First
Interstate and its Board, and First Bank and Eleven Acquisition Corporation.
31. First Interstate also has in place a shareholder rights
plan (commonly known as a "poison pill") which makes an unwelcome takeover of
the Company prohibitively expensive. The poison pill is triggered by the
acquisition of 20% or more of First Interstate's common stock by a group or
persons unfavored by First Interstate's management. The poison pills effects a
fundamental shift of power from the shareholders of First Interstate to the
Individual Defendants. The poison pill permits the Individual Defendants to act
as the prime negotiators of -- and, in effect, totally to preclude -- any and
all acquisition offers which they disfavor through their power to redeem or to
refuse to redeem the rights.
32. Further, By-law 4(b) of First Interstate's By-laws require
that notice of a nomination of a candidate for director "delivered to or mailed
and received at the principal executive offices of the Corporation not less than
thirty days nor more than sixty days prior to the meeting. . . ". The By-law
further states that "[o]nly persons who are nominated in accordance with [such]
procedures shall be eligible for election as directors of [First Interstate]."
The By-law wrongfully purports to restrict the power of First Interstate
stockholders to act by written consent to elect or remove directors.
33. This fundamental shift of control of the Company's destiny
from the hands of its shareholders to the hands of the Individual Defendants
results in a heightened fiduciary duty on their part to consider, in good faith,
a third-party bid, and further requires the Individual Defendants to pursue a
third-party's interest in acquiring the Company and to negotiate in good faith
on behalf of the Company's shareholders with a bidder such as Wells Fargo. In
violation of their heightened fiduciary duties, the individual Defendants have
used the poison pill to favor one bidder -- First Bank -- over another -- Wells
Fargo. The First Bank Merger is exempt from the poison pill, whereas the
poison pill still bars Wells Fargo from proceeding with its superior offer
without the consent of the Individual Defendants.
CLAIM FOR RELIEF
34. The Individual Defendants are obligated to carefully
consider, in a timely fashion and on an informed basis, bona fide proposals from
third parties to engage in transactions which will maximize value for First
Interstate shareholders; not to place their own self-interests and personal
considerations ahead of the interests of the public stockholders; and to make
corporate decisions in good faith.
35. The Individual Defendants' fiduciary obligations require
them to:
(a) undertake an appropriate evaluation of all bona
fide offers, and take appropriate steps to consider all potential bids for the
Company or its assets or explore strategic alternatives, in order to maximize
shareholder value;
(b) act independently, including appointing a
disinterested committee so that the interests of First Interstate's public
stockholders will be protected;
(c) adequately ensure that no conflicts of interest
exist between the Individual Defendants' own interests and their fiduciary
obligations to the public stockholders of First Interstate;
(d) utilize the poison pill in a manner designed to
maximize shareholder value; and
(e) avoid implementing any procedures which would
impede the maximum bona fide offer for First Interstate.
36. In effect, the Individual Defendants have initiated a
process which has placed the Company up for sale, including initiating an active
bidding contest seeking to sell the Company, obligating them to maximize
shareholder value. Nevertheless, the Individual Defendants necessarily and
inherently suffer from a conflict of interest between their own personal desires
to retain their offices in First Interstate, with the emoluments and prestige
which accompany those offices, and their fiduciary obligation to maximize
shareholder value in a transaction. Because of such conflict of interest, the
Individual Defendants have been and remain unable to represent the interests of
First Interstate's public stockholders with the impartiality that their
fiduciary duties require, nor have they been able to ensure that their conflicts
of interest will be resolved in the best interests of First Interstate's public
stockholders.
37. By virtue of the acts and conduct alleged herein, the
individual Defendants have breached their fiduciary duties owed to plaintiffs
and other class members by carrying out a preconceived plan and scheme to
entrench themselves in office and to protect and advance their own parochial
interests at the expense of First Interstate's public shareholders. The
Individual Defendants have not exercised and are not exercising independent
business judgment and have acted and are acting to the detriment of the class.
The Individual Defendants' negative response to Wells Fargo, the hasty
acceptance of the First Bank Merger which provides less consideration than the
WF initial and amended proposals, and their failure to adequately consider other
offers, was an uninformed knee-jerk reaction designed to advance their own
interests and was made without adequate information as to what a third party
would be prepared to offer in a fully negotiated transaction.
38. The Individual Defendants have refused to take the steps
necessary to ensure that the Company's public shareholders will receive maximum
value for their shares of First Interstate common stock. The Individual
Defendants' agreement to the inferior First Bank Merger rather than meaningfully
responding to Wells Fargo's proposals or pursuing a value maximizing transaction
with other bona fide companies is clearly the result of a desire by the
Individual Defendants to protect their own substantial salaries, perquisites and
positions with the Company.
39. As a result of the foregoing, the Individual Defendants
have breached their fiduciary duties owed to First Interstate's stockholders.
40. Defendants First Bank and Eleven Acquisition Corporation
have knowingly and substantially participated in and are benefiting by breaches
of fiduciary duties by the Individual Defendants and, therefore, are liable as
aided and abettors thereof. Indeed the First Bank Merger could not proceed
without the willing and active participation of First Bank and Eleven
Acquisition Corporation.
41. Unless enjoined by this Court, defendants will continue to
breach their fiduciary duties owed to plaintiffs and the other members of the
Class and/or aid and abet such breaches in order to benefit themselves at the
expense and to the irreparable harm of the Class.
42. Plaintiffs and the other members of the Class have no
adequate remedy at law.
WHEREFORE, plaintiffs demand judgment as follows:
1. declaring this to be a proper class action;
2. enjoining the First Bank Merger until all value maximizing
alternatives are fully explored;
3. in the event the First Bank Merger is consummated,
rescinding it or awarding rescissory damages to the class;
4. declaring null and void the termination fee and stock option
agreements in the First Bank Merger agreement and bylaw 4(b) to the extent it
obstructs shareholders action by written consent;
5. ordering the Individual Defendants to carry out their
fiduciary duties to plaintiffs and the other members of the Class by:
(a) cooperating fully with any person or entity having
a bona fide interest in proposing a transaction which would maximize shareholder
value;
(b) undertaking an appropriate evaluation of First
Interstate's worth as a merger/acquisition candidate;
(c) taking all appropriate steps to enhance First
Interstate's value and attractiveness as a merger/acquisition candidate;
(d) taking all appropriate steps to effectively expose
First Interstate to the marketplace in an effort to create an active auction for
First Interstate;
(e) acting independently so that the interests of First
Interstate's public stockholders will be protected; and
(f) adequately ensuring that no conflicts of interest
exist between the Individual Defendants' own interests and their fiduciary
obligation to maximize stockholder value or, if such conflicts exist, ensuring
that all conflicts are resolved in the best interests of First Interstate's
public stockholders;
6. ordering defendants, jointly and severally, to account to
plaintiffs and the other members of the Class for all damages suffered and to be
suffered by then as a result of the wrongs complained of herein;
7. directing the Individual Defendants to employ the poison
pill in a manner consistent with maximizing shareholder value;
8. awarding plaintiffs the costs and disbursements of this
action, including a reasonable allowance for plaintiffs attorneys' and experts'
fees; and
9. granting such other and further relief as this Court may
deem to be just and proper.
CHIMICLES, JACOBSEN & TIKELLIS
-------------------------------
Pamela S. Tikellis
James C. Strum
Robert J. Kriner, Jr.
One Rodney Square
P.O. Box 1035
Wilmington, DE 19899
(302) 656-2500
Co-Lead and Co-Liaison
Counsel for Plaintiffs
ROSENTHAL MONHAIT GROSS
& GODDESS, P.A.
-------------------------------
Joseph A. Rosenthal
First Federal Plaza
Suite 214
Box 1070
Wilmington, DE 19899
(302) 656-4433
Co-Liaison Counsel for Plaintiffs
OF COUNSEL:
ABBEY & ELLIS
212 East 39th Street
New York, New York 10016
(212) 889-3700
GOODKIND LABATON RUDOFF
& SUCHAROW LLP
100 Park Avenue
New York, New York 10017
(212) 907-0700
BERNSTEIN LIEBHARD & LIPSHITZ
274 Madison Avenue
New York, New York 10016
(212) 779-1414
FARQUI & FARQUI
415 Madison Avenue
New York, New York 10017
(212) 779-1414
CHARLES PIVEN, ESQUIRE
The Legg Mason Tower
Suite 2700
Baltimore, MD 21202
ROBERT C. SUSSER, P.C.
6 East 43rd Street
New York, New York 10017
(212) 808-0298
WECHSLER HARWOOD HALEBIAN
& FEFFER, LLP
805 Third Avenue
New York, New York 10022