IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
---------------------------------------X
IRVING S. HOOK, :
:
Plaintiff, :
:
v. : C.A. No. 14704
:
EDWARD M. CARSON, WILLIAM E. SIART, :
WILLIAM F. RANDALL, JOHN E. BRYSON, :
JEWEL PLUMMER COBB, RALPH P. DAVIDSON, :
MYRON DUBAIN, DON C. FRISBEE, GEORGE M. :
KELLER, THOMAS L. LEE, WILLIAM F. :
MILLER, FORREST M. SHUMWAY, STEVEN B. :
SAMPLE, RICHARD N. STEGEMEIER, DANIEL :
L. TELLEP, FIRST INTERSTATE BANCORP., :
FRIST BANK SYSTEM, INC. AND ELEVEN :
ACQUISITION CORPORATION. :
:
Defendants. :
---------------------------------------X
CLASS ACTION COMPLAINT Plaintiff alleges upon
information and belief except as to paragraph 1, which is
alleged on knowledge, as follows:
THE PARTIES
1. Plaintiff is and has 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 plaintiff and the other
public stockholders of First Interstate and owe to
plaintiff 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. Plaintiff brings this case on his 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 plaintiff and other
members of the class.
11. Plaintiff is committed to prosecuting this
action and has retained competent counsel experienced in
litigation of this nature. The claims of plaintiff is
typical of the claims of other members of the class and
plaintiff has the same interests as the other members of
the class. Accordingly, plaintiff is an adequate
representative 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 Company'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
Defendant's 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 the 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.
26. 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.
29. 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.
27. 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.
30. 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.
28. 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 the 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
29. 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.
30. 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.
31. 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.
32. By virtue of the acts and conduct alleged
herein, the Individual Defendants have breached their
fiduciary duties owed to plaintiff 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.
33. 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.
34. As a result of the foregoing, the
Individual Defendants have breached their fiduciary
duties owed to First Interstate's stockholders.
35. 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.
36. Unless enjoined by this Court, defendants
will continue to breach their fiduciary duties owed to
plaintiff 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.
37. Plaintiff and the other members of the
Class have no adequate remedy at law.
WHEREFORE, plaintiff demands 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 plaintiff 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 plaintiff and the other members
of the Class for all damages suffered and to be suffered
by them 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 plaintiff the costs and
disbursements of this action, including a reasonable
allowance for plaintiff's attorneys' and experts' fees;
and
9. granting such other and further relief as
this Court may deem to be just and proper.
ROSENTHAL MONHAIT GROSS
& GODDESS, P.A.
____________________
Joseph A. Rosenthal
First Federal Plaza, Suite 214
Box 1070
Wilmington, DE 19899
(302) 656-4433
Attorney for Plaintiff
OF COUNSEL:
LOWEY DANNENBERG BEMPORAD &
SELINGER, P.C.
747 Third Avenue
New York, NY 10017