IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
ANNETTE ROTI, )
)
Plaintiff, )
)
v. )
) Civil Action No. 19707-NC
OFFICIAL PAYMENTS CORPORATION, )
ANDREW COHAN, THOMAS R. EVANS, )
JOHN R. HAGGERTY, JOHN D. LEWIS, )
LEE E. MICKLES, BRUCE S. NELSON, )
TIER TECHNOLOGIES, INC. and )
KINGFISH ACQUISITION )
CORPORATION, )
)
Defendants. )
COMPLAINT
1. This is an action on behalf of the public stockholders of Official
Payments Corporation ("OPay" or the "Company"), seeking an injunction
and other relief for defendants' breach of fiduciary duty of
disclosure and violation of 8 Del. C.,ss.203 in connection with the
proposed acquisition of OPay by Tier Technologies, Inc. ("Tier"). Tier
is proposing to acquire OPay by means of a tender offer scheduled to
close on July 9, 2002 which will be followed by a second step merger.
THE PARTIES
2. Plaintiff is and has at all relevant times been a stockholder of OPay.
3. Defendant OPay, a Delaware corporation, is a leading provider of
electronic payment options to government entities. OPay has
approximately 23 million shares of stock outstanding which are traded
on NASDAQ. Comerica, Inc. ("Comerica"), Beranson Holdings Inc.
("Beranson") and Michaella Stern ("Stern") collectively own or control
more than 63% of OPay's outstanding shares. Comerica owns 12,000,000
shares (52%), Beranson (which is owned by Stern) owns 2,642,000 shares
and Stern, the widow of OPay's founder, individually holds options to
purchase another 199,252 shares.
4. Defendant Andrew Cohan has at all relevant times been a director of
OPay.
5. Defendant Thomas R. Evans ("Evans") has at all relevant times been the
Chairman of the Board of Directors and Chief Executive Officer of
OPay.
6. Defendant John D. Lewis has at all relevant times been a director of
OPay. In addition, since January 1994 he has been Vice Chairman and
Director of Comerica. Lewis is also the Vice Chairman of Comerica Bank
and has held that position since March 1995.
7. Defendant John R. Haggerty has at all relevant times been a director
of OPay. He is Executive Vice President of Comerica. He has worked for
Comerica since at least 1994.
8. Defendant Lee E. Mickles has at all relevant times been a director of
OPay.
9. Defendant Bruce S. Nelson has at all relevant times been a director of
OPay.
10. Defendant Tier is a California corporation.
11. Defendant Kingfish Acquisition Corporation ("Kingfish") is a Delaware
corporation. Kingfish is a wholly-owned subsidiary of Tier and was
formed for the sole purpose of acquiring on behalf of Tier all of the
outstanding shares of OPay's common stock.
FACTUAL ALLEGATIONS
12. In early May 2002, Tier made a preliminary offer to purchase OPay for
approximately $3 per share. That offer is an extremely low price. OPay
went public in November 1999 at a price of $15 per share. OPay
currently has cash and cash equivalents of more than $45 million (or
approximately $2 per share) and working capital of more than $40
million. The $3 per share offer effectively places the ridiculously
low value of approximately $20 million on OPay's business.
13. Tier was only willing to proceed with its low-ball deal if it could
"lockup" the shares owned by OPay's large stockholders, Comerica,
Beranson and Stern. In approximately mid-May, 2002, Tier sent a form
of stockholders agreement directly to Comerica, Beranson and Stern and
their representatives negotiated and reached an agreement, arrangement
or understanding with respect to that stockholders agreement prior to
May 30, 2002.
14. On May 30, 2002, OPay's board approved an Agreement and Plan of Merger
("Agreement") with Tier and its wholly-owned subsidiary Kingfish.
Pursuant to the Agreement, Kingfish commenced a cash tender offer to
purchase all of the outstanding shares of OPay's common stock at a
price of $3.00 per share. The Agreement further provides that assuming
at least 90% of OPay's shares are tendered, Tier and Kingfish will
engage in a short-form merger pursuant to which the remaining
outstanding shares of OPay will be cashed out for the same low price
of $3.00 per share.
15. On May 30, 2002, the OPay board also approved the stockholders
agreement that Tier, Comerica, Beranson and Stern had previously
agreed on pursuant to which the latter three agreed, inter alia, to
tender all of their shares to Kingfish pursuant to the tender offer.
16. On June 11, 2002, Tier and Kingfish commenced the tender offer and
filed form SC-TO-T with the Securities and Exchange Commission
("SEC"). On that same day, OPay filed its Schedule 14D-9 with the SEC.
The tender offer is currently scheduled to close on July 9, 2002.
17. Neither the SC-TO-T nor the 14D-9 include financial statements for
OPay. The SC-TO-T and 14D-9 disclose virtually no financial
information at all about OPay from which a reasonable stockholder
could make a fully informed investment decision. The 14D-9 does
indicate that OPay's board received a fairness opinion from an
investment banker, CIBC World Markets ("CIBC"), but does not disclose
anything about how CIBC reached its conclusion. The disclosures made
to the Class are deficient for these and other reasons discussed
below.
PLAINTIFF'S CLASS ALLEGATION
18. Plaintiff brings this action on behalf of herself and all other
persons who own common stock of OPay (the "Class") as a class action
pursuant to Delaware Chancery Court Rule 23.
19. This class action is properly maintained under Delaware Chancery Court
Rule 23.
20. The members of the Class are so numerous and geographically dispersed
that individual joinder is impracticable. OPay has approximately 23
million shares outstanding that are owned by shareholders living in
many states across the United States.
21. Common questions of law and fact exist as to all members of the Class.
These common questions predominate over any questions which affect
individual members of the Class and include, without limitation,
whether defendants breached their disclosure duties and otherwise
engaged in the violations of law alleged herein.
22. Plaintiff will fairly and adequately protect the interests of the
Class. Plaintiff has no interests adverse to the interests of the
Class members. Plaintiff has sufficient incentive to prosecute this
action diligently for herself and on behalf of the Class. Plaintiff
has retained counsel competent and experienced in class action
litigation and intend to pursue this action vigorously.
23. This class action is an appropriate method for the fair and efficient
adjudication of the claims asserted herein. Repetitive individualized
litigation would impose an unnecessary burden on Class members and the
court system. This class action is not expected to present any
significant management difficulties and focuses, by definition, on the
uniform and consistent action of the defendants.
COUNT I
(BREACH OF FIDUCIARY DUTY OF DISCLOSURE)
24. The foregoing allegations are repeated and reallegcd as if fully set
forth herein.
25. The individual defendants owe to plaintiff and the Class a fiduciary
duty which requires them to disclose all material facts to OPay's
stockholders in connection with the tender offer. Because of the way
this transaction has been structured, the 14D-1 communicates the
directors' approval and recommendation of the Agreement to the
Company's stockholders and is the only communication OPay's
stockholders have or will receive from their directors in connection
with this transaction. Delaware law requires that directors who
disclose such a recommendation also disclose such information about
the background of the transaction, the process followed by them to
maximize value in the sale, and their reasons for approving the
transaction so as to be materially accurate and complete. The
defendants are breaching their fiduciary duty of disclosure in at
least the following respects;
A. No financial information about OPay has been disclosed
to the Class in connection with the tender offer. No financial
statements or other organized presentations of financial
information are included in the 14D-9 or SC-TO-T. OPay is a
company with more than $45 million in cash and cash equivalents
($2 per outstanding share of OPay) and more than $40 million in
working capital. OPay just recently completed a restructuring.
Under the circumstances, a reasonable stockholder needs detailed
financial statements and up-to-date financial projections to be
able to make a fully informed investment decision as to whether to
tender into the $3 per share tender offer.
B. The disclosure of the reasons for the OPay board's
recommendation that the stockholders tender into the tender offer
are materially misleading and/or materially incomplete. The
purported "reasons" disclosed are actually just a list of topics
the board supposedly considered. What the stockholders need to
know and are entitled to know is why the board believes that $3
per share is a good deal, assuming they in fact believe that.
Instead of making that disclosure, the 14D-9 indicates, for
example, that "The Company Board also took into account that the
Company's current cash position and the continued low market price
of the Common Stock made it more expensive and difficult for the
Company to complete strategic acquisitions (including, with
respect to expansion of the Company's revenue base and attainment
of operational efficiencies)." (14D-9 at p. 5). That is misleading
without an explanation of what it was about the Company's "cash
position" that was deemed to be a problem. The Company has $45
million in cash and cash equivalents and $40 million in working
capital (facts that are not disclosed). The Company has plenty of
cash and is not going to run out of cash any time soon.
C. The 14D-9 indicates that CIBC opined that the $3 per
share offer is fair, but there is no disclosure of the
methodologies that CIBC employed in reaching that conclusion. The
14D-9 simply refers to the attached CIBC opinion letter which
merely states that the offer is "fair," subject to two pages of
qualifications. That letter does not explain why or how CIBC
concluded that the $3 per share offer is fair. Since the OPay
board disclosed that one of the primary factors they relied on in
recommending that stockholders tender was the CIBC opinion, and
since the offer is only slightly higher than the cash and cash
equivalents that the Company has on hand, an explanation of the
methodologies that CIBC employed in reaching its opinion is
material.
D. The 14D-9 fails to disclose what will happen to
Comerica's agreements with OPay following the acquisition. OPay
has agreements with Comerica pursuant to which Comerica is paid
millions of dollars per year ($8.2 million in 2001) for credit
card processing and settlement services. Therefore, Comerica is in
a very different situation from other OPay stockholders. Its
decision to sell its stock to a particular buyer is influenced by
its desire to continue its lucrative credit card processing
contracts. The 14D-9 fails to disclose what will become of those
agreements following the acquisition of the Company by Tier.
E. The 14D-9 states that: "The Company Board also
considered the information provided by CIBC World Markets and the
Company's management concerning discussions with other potential
acquirors and strategic investors since April 2001. The Company
Board noted that none of those discussions had resulted in
proposals to acquire the Company that were as favorable to the
Company and its stockholders as the Offer and the Merger." That
disclosure is materially incomplete. The board had a duty to
obtain the maximum value reasonably available in connection with
the sale of the Company. The stockholders are therefore entitled
to a full and fair summary of the process followed by the board,
including an explanation of any other offers that were received,
so that the stockholders can evaluate for themselves whether the
board acted reasonably to maximize value in the sale.
26. The omitted and misstated information discussed above is material
because a reasonable OPay stockholder needs that information to be
able to make a fully informed assessment of whether to tender his, her
or its shares pursuant to the tender offer.
27. Plaintiff and the Class will suffer irreparable harm as a result of
defendants' inadequate disclosures, and have no adequate remedy at law
for defendants' breaches of fiduciary duty.
COUNT II
(VIOLATION OF 8 DEL. C. ss.203)
28. The foregoing allegations are repeated and realleged as if fully set
forth herein.
29. Tier and Kingfish are violating 8 Del. C.ss.203.
30. Under ss.203, Tier and Kingfish are required to obtain the affirmative
vote of 66-2/3% of the disinterested stockholders before effecting a
"business combination" with OPay unless the OPay board approved Tier
and Kingfish becoming an interested stockholder prior to when they
became an interested stockholder.
31. Tier and Kingfish became an interested stockholder prior to May 30,
2002 when they reached an agreement, arrangement or understanding with
Comerica on the terms of the stockholders agreement. It was not the
formal execution of the stockholders agreement that caused Tier and
Kingfish to become an interested stockholder, it was the agreement,
arrangement and/or understanding that Tier, Kingfish and Comerica
reached prior to May 30 that agreement was acceptable to both parties
that caused Tier and Kingfish to become an interested stockholder. The
OPay board did not approve Tier and Kingfish becoming an interested
stockholder prior to May 30, 2002. Accordingly, the protections of
ss.203 apply and Tier and Kingfish are prohibited from affecting a
business combination with OPay for 3 years without first obtaining the
affirmative vote of 66-2/3 of OPay's disinterested stockholders.
PRAYERS FOR RELIEF
WHEREFORE, Plaintiff respectfully requests that the Court grant the
following relief:
1. Certify this action as a class action and plaintiff as the
representative of the Class and her attorneys as counsel for the
Class;
2. Enjoin the tender offer or award rescissory and/or monetary damages;
3. Order such other relief as the Court deems equitable and just,
including an award of attorneys' fees and costs.
PRICKETT, JONES & ELLIOTT, P.A.
By: /s/Ronald. A. Brown, Jr.
--------------------------------
Ronald A. Brown, Jr.
1310 King Street
P.O. Box 1328
Wilmington, DE 19899
(302) 888-6500
Attorneys for Plaintiffs
Of Counsel:
Arthur T. Susman
Charles R. Watkins
John R. Wylie
Susman & Watkins
Two First National Plaza, Suite 600
Chicago, Illinois 60603
(312) 346-3466
Dated: June 19, 2002