Exhibit (a)(43)
COMMONWEALTH OF MASSACHUSETTS
SUFFOLK, ss. SUPERIOR COURT DEPARTMENT
OF THE TRIAL COURT
BUSINESS LITIGATION SESSION
CIVIL ACTION NO. _____________
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BADLANDS TRUST COMPANY, LLC, an Alaska limited liability
company, as trustee for MILDRED B. HOREJSI TRUST, an
irrevocable Alaska trust,
Plaintiff,
v.
PUTNAM CALIFORNIA INVESTMENT GRADE MUNICIPAL TRUST, a
Massachusetts business trust, JOHN A. HILL, Chairman,
JAMESON ADKINS BAXTER, Vice Chairman,
GEORGE PUTNAM, III, CHARLES B. CURTIS, MYRA R. DRUCKER,
CHARLES E. HALDEMAN, JR., PAUL L. JOSKOW, ELIZABETH T. KENNAN,
W. THOMAS STEPHENS, RICHARD B. WORLEY, KENNETH R.
LEIBLER and ROBERT E. PATTERSON, Trustees,
Defendants.
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VERIFIED COMPLAINT OF BADLANDS TRUST COMPANY, LLC
as trustee for MILDRED B. HOREJSI TRUST
Plaintiff Badlands Trust Company, LLC ("Badlands,") as trustee for the
Mildred B. Horejsi Trust (the "Mildred Trust"), for its Verified Complaint
against Putnam California Investment Grade Municipal Trust ("PCA") and its
Trustees, alleges as follows:
1. This Verified Complaint is filed to stop and enjoin the wrongful conduct
of PCA and its Board of Trustees. On March 19, 2007, the Board of Trustees of
PCA announced that "the Board determined that the immediate liquidation of the
Fund is in the best interests of all shareholders." See Exhibit 1, a true and
accurate copy of which is attached hereto. The Board's announcement stated that
the dissolution would begin promptly. In addition, the Board's announcement
indicated that on Monday, March 26, 2007, the share transfer books of PCA will
be closed, and trading of PCA's shares on the American Stock Exchange will be
suspended. But such dissolution is illegal under the governing Agreement And
Declaration Of Trust, which provides, as more fully stated below, that
dissolution may not occur without a vote of two-thirds of the shareholders,
which vote has neither been scheduled nor held. In addition, the members of the
Board breached their fiduciary duties in resolving to liquidate PCA.
2. Unless PCA's unlawful and wrongful devices and actions are stopped by
the Court, PCA's stockholders, including the Mildred Trust, will be deprived of
their rights under the Agreement And Declaration Of Trust.
THE DEFENDANTS ARE
A MASSACHUSETTS BUSINESS TRUST AND ITS TRUSTEES
3. PCA is a Massachusetts Business Trust formed under an Agreement And
Declaration Of Trust (hereafter, the "Trust Declaration") in 1992.
4. Defendants John A. Hill, Jameson Adkins Baxter, George Putnam, III,
Charles B. Curtis, Myra R. Drucker, Charles E. Haldeman, Jr., Paul L. Joskow,
Elizabeth T. Kennan. W. Thomas Stephens, Richard B. Worley, Kenneth R. Leibler,
and Robert E. Patterson are the trustees of PCA (hereafter, the "Trustees").
Messrs. Hill and Baxter are the Chairman and Vice Chairman, respectively. They
are sued in their capacity as trustees of PCA.
5. PCA has its principal place of business at One Post Office Square,
Boston, Massachusetts, 02109. The Trustees also have their principal place of
business at that address.
6. PCA operates as a registered investment company under the federal
Investment Company Act of 1940. It is structured as a "closed-end" mutual fund.
7. PCA is part of a family or complex of dozens of mutual funds that use
the "Putnam" name, known as the Putnam Funds complex. The funds in the Putnam
Funds complex are advised and managed by Putnam Investment Management, LLC, a
registered investment advisor.
8. Under a "Management Contract" dated January 1, 2006, Putnam Investment
Management, LLC acts as the investment adviser to PCA. PCA's shareholders,
including the Plaintiff, pay a fee for these services.
THE MILDRED B. HOREJSI TRUST
9. Mildred B. Horejsi Trust (the "Mildred Trust") is an irrevocable grantor
trust domiciled and administered in the State of Alaska. The business address of
the Mildred Trust is c/o Badlands Trust Company, LLC, 3301 C Street, Suite 100,
Anchorage, Alaska 99003.
10. The trustor, the late Mildred B. Horejsi, was the mother of Stewart R.
Horejsi ("Mr. Horejsi"). Mr. Horejsi is a financial consultant to the Mildred
Trust and is a private investor and the portfolio manager for two registered
investment advisers, Boulder Investment Advisers, LLC ("BIA") and Stewart West
Indies Trading Company, Ltd., doing business as Stewart Investment Advisers
("SIA").
11. The Mildred Trust is the record owner of 100 PCA shares, beneficially
owns an additional 9,000 PCA shares held in a brokerage account, and has
commenced a tender offer in compliance with federal tender offer rules to
acquire any and all of the PCA shares at a price of $15 per share, which exceeds
the value of the Trustees' liquidation proposal.
12. Badlands Trust Company, LLC is an Alaska limited liability company
authorized under Alaska law to act as a trustee.
JURISDICTION AND VENUE
13. This action arises, inter alia, under Mass. Gen. Laws Ann. ch. 182
providing for business trusts, and under Mass. Gen. Laws Ann. ch 231A providing
for declaratory judgments.
14. Mass. Gen. Laws Ann. ch 231A, ss. 1 grants jurisdiction to this Court
to issue binding declarations of right, duty, status and other legal relations
in cases of actual controversy between parties. Declaratory relief is necessary
to afford the Mildred Trust relief from uncertainty, insecurity and controversy
arising from the illegal nature of PCA's proposed liquidation and dissolution
described below.
15. Mass. Gen. Laws Ann. ch. 182 ss. 6 provides for suits against business
trusts.
16. This Court has personal jurisdiction over PCA because PCA is a
Massachusetts business trust with its principal place of business in Boston,
Massachusetts.
17. Venue is proper in this court because PCA is located in this County and
because the acts complained of occurred in this County.
FACTUAL BACKGROUND
The PCA Trust Declaration
18. PCA was created by Trust Declaration dated October 5, 1992 and filed
with the Secretary of State on October 8, 1992.
19. The Trust Declaration stated in Art. IX, Section 4 that "the Trust may
be terminated at any time by vote of Shareholders holding at least two-thirds of
the Shares entitled to vote ... or by the Trustees by written notice to the
Shareholders." (Emphasis added). The Trust Declaration stated in Art. IX,
Section 5 that the "Trust may ... liquidate or dissolve when and as authorized
by the affirmative vote of the holders of not less than two-thirds of the Shares
entitled to vote...." A true and accurate copy of the original Trust Declaration
is attached hereto as Exhibit 2.
20. As written in 1992, the Trust Declaration was ambiguous since it stated
in Sections 4 and 5 that termination or dissolution was subject to a two-thirds
vote of the shareholders, except when the trustees decided under the "or"
language in Section 4 not to hold such a vote.
21. The Registration Statement and Prospectus for PCA's shares filed with
the SEC resolved that ambiguity by stating that a two-thirds vote was required
for liquidation or dissolution and by stating that the Trustees had determined
in the exercise of their fiduciary duties that "the two-thirds voting
requirement[s], ... which are greater than the minimum requirements under the
[federal Investment Company Act of 1940], are in the best interests of the Fund
and its shareholders":
The Agreement and Declaration of Trust and Bylaws include provisions
that could have the effect of limiting the ability of other entities
or persons to acquire control of the Fund, or to cause it to engage in
certain transactions or to modify its structure. The affirmative vote
of at least two-thirds of the outstanding Common Shares ... is
required to authorize any of the following actions: ... (3 liquidation
or dissolution of the Fund....
The Trustees have determined that the two-thirds voting requirement[s]
described above, which are greater than the minimum requirements under
the [federal Investment Company Act of 1940], are in the best
interests of the Fund and its shareholders generally.
Prospectus, at p. 35. A true and accurate copy of the relevant portions of the
Prospectus is attached hereto as Exhibit 3.
22. On July 13, 2001, PCA filed Amendment No. 1 to its Trust Declaration
(the "2001 Trust Amendment") with the Secretary of State. The 2001 Trust
Amendment purported to resolve the ambiguity in Sections 4 and 5 by removing the
voting requirement for liquidation or dissolution from Section 5, while leaving
Section 4 to state that a vote might or might not be held regarding dissolution
or termination. A true and accurate copy of the 2001 Trust Amendment is attached
hereto as Exhibit 4.
23. The 2001 Trust Amendment was never filed with the SEC and was never
disclosed in any way to shareholders, who continued to rely on the
interpretation of the Trust Declaration's voting requirements for dissolution or
termination set forth in the Prospectus. The Prospectus was never amended
either.
The Mildred Trust Tender Offer and PCA's Response
24. On January 22, 2007, the Mildred Trust announced and filed with the
United States Securities and Exchange Commission ("SEC") a tender offer to
purchase up to 100% of the shares of PCA. The price offered was $14.16 per
share, which was above the market price of the shares at the time of the offer.
A true and accurate copy of Schedule TO filed by the Mildred Trust with the SEC
is attached hereto as Exhibit 5.
25. On February 5, 2007, PCA filed Schedule 14D-9 with the SEC, providing
its Board's recommendation to shareholders in response to the Mildred Trust's
tender offer. The Board recommended to shareholders that they not tender shares
to the Mildred Trust. Simultaneously, PCA issued a press release and a letter to
its shareholders announcing this recommendation not to tender and recommending,
instead, that PCA be merged with an open-end fund in the Putnam Fund complex
that also invested in California municipal securities. A true and accurate copy
of the February 5, 2007 PCA Press Release, as filed with the SEC, is attached
hereto as Exhibit 6.
26. Subsequently, the Mildred Trust announced on February 8, 2007, in an
amendment to its tender offer, that it would not vote its shares in favor of the
proposed merger. A true and accurate copy of the February 8, 2007 Amended Offer
to Purchase as filed with the SEC is attached hereto as Exhibit 7. See numbered
paragraph 6 at page 4 of 8.
27. On February 16, 2007, the Mildred Trust raised its offer price from
$14.16 per share to $14.75, a price that was 27(cent) per share above the
highest price that PCA shares had traded at during 2007. The $14.75 per share
price was also equal at that time to about 99% of the net asset value of PCA's
shares. The Mildred Trust reiterated its intention to vote its shares against
the proposed merger of PCA into another Putnam fund. A true and accurate copy of
the February 16, 2007 Amendment No. 3 to the tender offer as filed with the SEC
is attached hereto as Exhibit 8.
28. On February 27, 2007, the Board of PCA reiterated its opposition to the
tender offer of the Mildred Trust, even at the increased price, and stated that
it believed "the possible outcomes for current shareholders under the tender
offer would be inferior to those under the proposed merger" and "continue[d] to
recommend the merger of PCA into" the previously identified alternate Putnam
California fund. A true and accurate copy of PCA's February 27, 2007 letter to
shareholders as filed with the SEC is attached hereto as Exhibit 9.
29. On March 9, 2007, the Mildred Trust again raised its offer price, from
$14.75 per share to $15.00 per share, a price equal at that time to 100% of the
net asset value of PCA's shares and a price 21(cent) above the highest price of
PCA shares at any time during 2007. It would also be the highest price paid for
PCA shares in over five years. The Mildred Trust reiterated its intention to
vote its shares against the proposed merger of PCA into another Putnam fund,
noted that even at the lower $14.75 price it had received tenders for
approximately 20% of the shares of PCA, and noted that approval of the merger
would require a favorable vote of 50% of the outstanding shares. A true and
accurate copy of the Mildred Trust's press release announcing the amendment,
filed on March 9, 2007 with the SEC, is attached hereto as Exhibit 10.
30. On Monday, March 19, 2007, PCA abruptly changed course. In a Press
Release issued at 9:08 a.m. that morning, PCA declared that it would no longer
propose to merge PCA into another Putnam California fund. Noting that the
Mildred Trust had received tenders of over 20% of the shares of PCA, the PCA
Board stated that because "the proposed merger would require the affirmative
vote of a majority of the Fund's outstanding common shares, the Board believes
that it is no longer practical to pursue the merger." See Exhibit 1.
31. Instead, PCA announced that it would immediately commence liquidation
of the assets of the fund. Despite the statements in its Prospectus that it
interpreted the Trust Declaration to require a shareholder vote to dissolve or
terminate the Fund, and despite the statement in the Prospectus that the Board
believed "the two-thirds voting requirement[s] ... are in the best interests of
the Fund and its shareholders generally," and despite the fact that PCA had
never disclosed the 2001 Trust Amendment to the shareholders, PCA now announced
that it believed that "pursuant to the Fund's Declaration of Trust, the Board
may authorize [immediate liquidation of the Fund] without a shareholder vote."
See Amendment No. 2 to Schedule 14D-9, at Item 7, filed with the SEC on March
19, 2007. A true and correct copy of PCA's Amendment No. 2 to Schedule 14D-9 is
attached hereto as Exhibit 11.
32. Moreover, PCA deliberately timed the liquidation to thwart the
execution by the Mildred Trust of the tender offer and to block its shareholders
who had tendered from receiving the tender offer price. According to the March
19 PCA Press Release, see Exhibit 1, "The Fund has fixed the close of business
on [Monday,] March 26, 2007 as the record date for determining the shareholders
entitled to receive liquidating distributions. As of that time, the share
transfer books of the Fund will be closed, and trading of the Fund's shares on
the American Stock Exchange will be suspended." (Emphasis added.) The Stock
Exchange closes at 4:00 p.m., and PCA's usual close of business is not later
than 5:00 p.m. Eastern Time. PCA is aware from the Mildred Trust's March 9 SEC
filings (see Exhibit 7) that the Mildred Trust's tender offer was set to expire
at 5:30 p.m. Eastern time on Tuesday, March 27, 2007, only one day after the
time that PCA has now chosen as the time at which "the share transfer books of
the Fund will be closed, and trading of the Fund's shares on the American Stock
Exchange will be suspended."
33. As a result of PCA's plan of liquidation, the closing of the transfer
books of PCA on March 26, and suspension of trading on the American Stock
Exchange, the Mildred Trust will be unable to acquire any shares under the
tender offer, even if those shares have been validly tendered as of the March 27
expiration of the tender offer on that day. As a result, PCA shareholders will
be deprived of their ability to tender their shares to the Mildred Trust.
COUNT ONE
(Declaratory Judgment That Shareholder Vote
Is Required Terminate The Trust)
34. The facts set forth in the preceding paragraphs are incorporated herein
by reference as if set forth in full.
35. The parties have an actual and real dispute regarding the
interpretation of the Trust Declaration and its meaning. It is the Mildred
Trust's belief, based on its own reading and based on statements of PCA in the
Prospectus, that a shareholder vote is required in the case of any proposed
liquidation or termination. In its March 19 Press Release, PCA contradicted its
prior interpretation of the Trust Declaration and said such a vote was not
required.
36. Prior to the 2001 Trust Amendment the Trust Declaration was ambiguous
and contradictory as to whether a shareholder vote is required prior to
dissolution, liquidation or termination.
37. Even assuming the 2001 Trust Amendment -- which amended Art. IX,
Section 5 despite the language in Art. IX, Section 9 stating that "an amendment
amending or affecting the provisions of ... Section ... 5 of this Article [IX]
.... shall require the vote of Shareholders holding two-thirds of the Shares
entitled to vote" -- was valid, the Trust Declaration is still ambiguous because
Art. IX, Section 4 still states that a shareholder vote may or may not be held
regarding any decision to liquidate, dissolve or terminate the trust.
38. PCA itself has construed this language in its Prospectus as requiring
an "affirmative vote of at least two-thirds of the outstanding Common Shares ...
to authorize ... (3) liquidation or dissolution of the Fund...." See Exhibit 3.
Moreover, the Trustees have stated that such a construction of Art. IX, Section
4 is "in the best interests of the Fund and its shareholders generally." Id.
39. A shareholder vote is required under the Trust Declaration prior to
implementation of any proposed liquidation, dissolution or termination of the
trust.
COUNT TWO
(Breach of Fiduciary Duty)
40. The facts set forth in the preceding paragraphs are incorporated herein
by reference as if set forth in full.
41. The trustees determination to liquidate and terminate the Fund,
announced on March 19, 2007, is a violation of their fiduciary duties to the
shareholders.
42. The trustees themselves had previously acknowledged that on matters as
important as liquidation, dissolution and termination of the trust that a
shareholder vote "in the best interests of the Fund and its shareholders
generally." See Exhibit 3.
43. The trustees initially decided to propose a merger of PCA into another
Putnam fund. When the Mildred Trust raised the price of the offer to $15.00 per
share (which exceeds the per share net asset value of the fund by 8 cents per
share as of the date of this Complaint) and announced that 20% of the
shareholders had already tendered their shares, the trustees announced that a
merger was "no longer practical" and stated that they would dissolve the fund
and "provide an opportunity to [shareholders to] invest all or a portion of
their liquidating distributions in ... other Putnam funds ... without paying an
initial sales load." See Exhibit 1.
44. The trustees' determination to liquidate and terminate the Fund in the
face of the Mildred Trust's offer to purchase 100% of the shares at $15.00 per
share wrongfully denied the shareholders the ability to recognize the full value
of their shares and, in fact, if the trustee's proposal were permitted to take
place, would reduce the amount shareholders receive by 8 cents per share.
45. At each step of its response to the Mildred Trust's tender offer, PCA's
trustees acted with the sole purpose of attempting to cause the shareholders to
remain invested in Putnam-managed funds, first by way of merger with another
Putnam fund, and later by transferring their liquidating distributions to other
Putnam funds without "load" (initial sales charge).
46. The PCA trustees' determined to force liquidation on PCA's shareholders
despite the fact that the PCA shareholders are likely to receive less money upon
liquidation than the price offered by the Mildred Trust and will receive that
money later than pursuant to the Mildred Trust's tender offer. Even if PCA's
assets can successfully be sold at net asset value, net asset value per share
will be reduced, as conceded by the trustees in their March 19, 2007 press
release, by costs of the liquidation, which will be paid by PCA's shareholders,
further reducing their realized value from the trustee's proposal. As a result,
the liquidation proceeds will likely be less than the Mildred Trust's $15.00 per
share offer. In addition, the PCA trustees proposed to pay the liquidation
proceeds "during the month of April" rather than promptly following expiration
of the Mildred Trust's tender offer (scheduled for March 27, 2007), as the
Mildred Trust would do.
47. The PCA trustees' actions harmed the shareholders by, inter alia, (i)
not letting the shareholders enjoy a sales price above net asset value; (ii) not
letting shareholders enjoy a sales price above the price that shares were
trading on the market; (iii) incurring liquidation costs that otherwise are not
necessary; (iv) selling illiquid stocks or bonds quickly in a manner that may
result in less than a fair price; (v) incurring a sales commission on sales of
bonds that might otherwise be held to maturity and redeemed without commission;
(vi) causing shareholders to incur a commission on their PCA purchases,
including purchases since the Mildred Trust tender offer was announced, which
will now be wasted; and (vii) triggering capital gains taxes on the liquidation
sales, likely both short-term and long-term, which are not exempt from
California income tax, which was a primary reason some investors initially
purchased the PCA shares, and (vii) forcing the fund's shareholders to assume
the costs of liquidating the leveraged assets of the preferred shares of the
fund which could further reduce the per share value realized by the fund's
shareholders as proposed by the trustees.
WHEREFORE, plaintiff Mildred Trust prays that the Court shall enter a
judgment (i declaring that liquidation and termination of PCA Trust shall not
occur without a two-thirds vote of the shareholders and (ii declaring that the
trustees of PCA have violated their fiduciary duties to the shareholders in
their response to the Mildred Trust tender offer, particularly in the
determination to liquidate and terminate the trust announced March 19, 2007, and
the determination to close PCA's transfer books and suspend trading of PCA
shares on March 26, 2007.
JURY DEMAND
Plaintiff demands a trial by jury on all issues raised in the Complaint so
triable.
Respectfully Submitted,
BADLANDS TRUST COMPANY,
LLC, AS TRUSTEE FOR THE MILDRED B.
HOREJSI TRUST
By their attorneys,
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John Foskett, BBO#175540
Robert D. Hillman/BBO# 552637
Deutsch Williams Brooks DeRensis & Holland, P.C.
99 Summer Street
Boston, MA 02110-1213
Tel: (617) 951-2300
Fax:(617-951-2323
Of Counsel:
James H. Hulme
Donald B. Mitchell, Jr.
ARENT FOX, LLP
1050 Connecticut Avenue, NW
Washington, D.C. 20036-5339
Dated: March 21, 2007 Tel: (202) 857-6000
VERIFICATION
I, Stephen C. Miller, President, Badlands Trust Company, LLC, do depose and
state under oath that (i I am a member of the Bar of the State of Colorado; (ii
that I am the President of the Plaintiff Badlands Trust Company, LLC; (iii that
I am familiar with the facts and circumstances set forth in the foregoing
Verified Complaint and that I know the contents of this Complaint, and (iv that
as to all matters of fact herein stated, the same are true and accurate to the
best of my knowledge and belief and based upon the business records of
plaintiff, and as to all matters therein stated on information and belief, I
believe them to be true.
SIGNED under the pains and penalties of perjury on this ___ day of March,
2007.
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Stephen C. Miller