SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
(Amendment No. 6)
Under the Securities Exchange Act of 1934
CARVER BANCORP, INC.
- --------------------------------------------------------------------------------
(Name of Issuer)
COMMON STOCK, PAR VALUE $0.01 PER SHARE
- --------------------------------------------------------------------------------
(Title of Class of Securities)
146875109
- --------------------------------------------------------------------------------
(CUSIP Number)
Robert W. Forman
Shapiro Forman & Allen LLP
380 Madison Avenue
New York, New York 10017
212-972-4900
-------------------------------------------------------------------------------
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
February 11, 2000
- --------------------------------------------------------------------------------
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box |__|.
Check the following box if a fee is being paid with the statement |__|.
Page 1 of 55 pages
<PAGE>
CUSIP No. 146875109 Page 2 of 55 Pages
Pages
________________________________________________________________________________
1 NAME OF REPORTING PERSONS
BBC CAPITAL MARKET, INC.
I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS
04-3072694
________________________________________________________________________________
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) [_]
(b) [_]
________________________________________________________________________________
3 SEC USE ONLY
________________________________________________________________________________
4 SOURCE OF FUNDS
WC
________________________________________________________________________________
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) OR 2(e) [_]
________________________________________________________________________________
6 CITIZENSHIP OR PLACE OF ORGANIZATION
MASSACHUSETTS
________________________________________________________________________________
7 SOLE VOTING POWER
NUMBER OF 170,700
SHARES _________________________________________________________________
8 SHARED VOTING POWER
BENEFICIALLY
-0-
OWNED BY
_________________________________________________________________
EACH 9 SOLE DISPOSITIVE POWER
REPORTING 170,700
PERSON _________________________________________________________________
10 SHARED DISPOSITIVE POWER
WITH
-0-
________________________________________________________________________________
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
170,700
________________________________________________________________________________
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
[_]
________________________________________________________________________________
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
7.38%
________________________________________________________________________________
14 TYPE OF REPORTING PERSON
CO
________________________________________________________________________________
<PAGE>
CUSIP No. 146875109 Page 3 of 55 Pages
________________________________________________________________________________
1 NAME OF REPORTING PERSONS
THE BOSTON BANK OF COMMERCE
I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS
04-2764211
________________________________________________________________________________
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) [_]
(b) [_]
________________________________________________________________________________
3 SEC USE ONLY
________________________________________________________________________________
4 SOURCE OF FUNDS
WC
________________________________________________________________________________
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) OR 2(e) [_]
________________________________________________________________________________
6 CITIZENSHIP OR PLACE OF ORGANIZATION
MASSACHUSETTS
________________________________________________________________________________
7 SOLE VOTING POWER
NUMBER OF 170,700
SHARES _________________________________________________________________
8 SHARED VOTING POWER
BENEFICIALLY
-0-
OWNED BY
_________________________________________________________________
EACH 9 SOLE DISPOSITIVE POWER
REPORTING 170,700
PERSON _________________________________________________________________
10 SHARED DISPOSITIVE POWER
WITH
-0-
________________________________________________________________________________
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
170,700
________________________________________________________________________________
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
[_]
________________________________________________________________________________
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
7.38%
________________________________________________________________________________
14 TYPE OF REPORTING PERSON
BK
________________________________________________________________________________
<PAGE>
CUSIP No. 146875109 Page 4 of 55 Pages
________________________________________________________________________________
1 NAME OF REPORTING PERSON
KEVIN COHEE
I.R.S. IDENTIFICATION NO. OF ABOVE PERSONS
________________________________________________________________________________
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) [_]
(b) [_]
________________________________________________________________________________
3 SEC USE ONLY
________________________________________________________________________________
4 SOURCE OF FUNDS
OO
________________________________________________________________________________
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) OR 2(e) [_]
________________________________________________________________________________
6 CITIZENSHIP OR PLACE OF ORGANIZATION
USA
________________________________________________________________________________
7 SOLE VOTING POWER
NUMBER OF -0-
SHARES _________________________________________________________________
8 SHARED VOTING POWER
BENEFICIALLY
170,700
OWNED BY
_________________________________________________________________
EACH 9 SOLE DISPOSITIVE POWER
REPORTING -0-
PERSON _________________________________________________________________
10 SHARED DISPOSITIVE POWER
WITH
170,700
________________________________________________________________________________
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
170,700
________________________________________________________________________________
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
[_]
________________________________________________________________________________
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
7.38%
________________________________________________________________________________
14 TYPE OF REPORTING PERSON
IN
________________________________________________________________________________
<PAGE>
CUSIP No. 146875109 Page 5 of 55 Pages
________________________________________________________________________________
1 NAME OF REPORTING PERSON
TERI WILLIAMS
I.R.S. IDENTIFICATION NO. OF ABOVE PERSONS
04-2764211
________________________________________________________________________________
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) [_]
(b) [_]
________________________________________________________________________________
3 SEC USE ONLY
________________________________________________________________________________
4 SOURCE OF FUNDS
OO
________________________________________________________________________________
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) OR 2(e) [_]
________________________________________________________________________________
6 CITIZENSHIP OR PLACE OF ORGANIZATION
USA
________________________________________________________________________________
7 SOLE VOTING POWER
NUMBER OF -0-
SHARES _________________________________________________________________
8 SHARED VOTING POWER
BENEFICIALLY
170,700
OWNED BY
_________________________________________________________________
EACH 9 SOLE DISPOSITIVE POWER
REPORTING -0-
PERSON _________________________________________________________________
10 SHARED DISPOSITIVE POWER
WITH
170,700
________________________________________________________________________________
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
170,700
________________________________________________________________________________
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
[_]
________________________________________________________________________________
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
7.38%
________________________________________________________________________________
14 TYPE OF REPORTING PERSON
IN
________________________________________________________________________________
<PAGE>
CUSIP No. 146875109 Page 5 of 55 Pages
STATEMENT FOR SCHEDULE 13D
This Amendment No. 6 to Schedule 13D relates to the common
stock, par value $.01 per share, of Carver Bancorp, Inc. ("Carver"). This
Amendment No. 6 amends the initial statement on Schedule 13D filed by BBC
Capital Market, Inc. ("BBC Capital") and The Boston Bank of Commerce ("BBOC")
with the Securities and Exchange Commission on March 18, 1999 (the "Initial
Statement"), as amended by Amendment Nos. 1, 2, 3, 4 and 5 filed with the
Securities and Exchange Commission on March 29, 1999, April 2, 1999, November
19, 1999, January 19, 2000, and January 28, 2000, respectively. Capitalized
terms used but not defined below shall have the meanings ascribed to them in the
Initial Statement. The Initial Statement, as previously amended, is further
amended as follows:
Item 4. Purpose of Transaction.
On February 8, 2000, BBC Capital filed, in the Court of
Chancery of the State of Delaware, New Castle County, its brief (the "Brief") in
support of its motion for a preliminary injunction to enjoin Carver from
counting the votes of Morgan Stanley and Provender Opportunities Fund, L.P. with
respect to the Preferred Stock issued to those parties on January 11, 2000. As
previously reported, BBC's complaint alleges that the true purpose of the
issuance of those shares on the record date for Carver's Annual Meeting (the
"Meeting") was to obtain votes for Carver's nominees at the Meeting. BBC has
nominated two candidates, Kevin Cohee and Teri Williams, for two of Carver's
eight board seats. A copy of the Brief is filed herewith as Exhibit 99.4.
<PAGE>
CUSIP No. 146875109 Page 6 of 55 Pages
Item 7. Material to be Filed as Exhibits.
99.4 Plaintiff's Opening Brief In Support of
Motion for Preliminary Injunction
<PAGE>
CUSIP No. 146875109 Page 7 of 55 Pages
SIGNATURES
After reasonable inquiry and to the best of his knowledge and belief,
the undersigned certifies that the information set forth in this statement is
true, complete and correct.
Dated: February 11, 2000
BBC CAPITAL MARKET, INC.
By: /s/Kevin Cohee
---------------------------------
Kevin Cohee,
President
THE BOSTON BANK OF COMMERCE
By: /s/Teri Williams
---------------------------------
Teri Williams,
Senior Vice President
/s/Kevin Cohee
---------------------------------
KEVIN COHEE
/s/Teri Williams
---------------------------------
TERI WILLIAMS
CUSIP No. 146875109 Page 8 of 55 Pages
EXHIBIT 99.4 PLAINTIFF'S OPENING BRIEF IN SUPPORT OF MOTION FOR
PRELIMINARY INJUNCTION
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
BBC CAPITAL MARKET, INC., )
)
Plaintiff, )
)
v. ) Civil Action No. 17743
)
CARVER BANCORP, INC., a Delaware )
corporation, DEBORAH C. WRIGHT, )
DAVID N. DINKINS, LINDA H. )
DUNHAM, ROBERT J. FRANZ, )
PAZEL G. JACKSON, JR., HERMAN )
JOHNSON, DAVID R. JONES, ) FILED UNDER SEAL
FREDERICK O. TERRELL, )
MORGAN STANLEY & CO. INC., a )
Delaware corporation, and PROVENDER )
OPPORTUNITIES FUND, L.P., a )
Delaware limited partnership, )
)
Defendants. )
PLAINTIFF'S OPENING BRIEF IN SUPPORT OF
MOTION FOR PRELIMINARY INJUNCTION
Andre G. Bouchard
Joel Friedlander
BOUCHARD MARGULES & FRIEDLANDER
222 Delaware Avenue, Suite 1102
Wilmington, DE 19801
(302) 573-3500
Attorneys for Plaintiff
OF COUNSEL:
Stuart L. Shapiro
SHAPIRO FORMAN & ALLEN LLP
380 Madison Avenue
New York, NY 10017
(212) 972-4900
DATED: February 7, 2000
<PAGE>
CUSIP NO. 146875109 Page 9 of 55 pages
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
TABLE OF AUTHORITIES.............................................................................................ii
NATURE AND STAGE OF PROCEEDINGS...................................................................................1
STATEMENT OF FACTS................................................................................................2
ARGUMENT.........................................................................................................29
I. OVERWHELMING EVIDENCE DEMONSTRATES THAT
CARVER ISSUED SHARES TO WRIGHT'S ANTI-
TAKEOVER ADVISORS FOR THE IMPROPER PURPOSE OF
THWARTING A PROXY CONTEST BY BBC CAPITAL.......................................................29
A. Carver Issued Stock to the Most Friendly of Hands
-- Wright's Long-Time Personal Advisors and
Committed Allies.............................................................31
B. Wright Cut Corners, Gave a Deadline to Morgan
Stanley and Convinced Terrell to Cease Due
Diligence to Get Stock Issued by the Record Date.............................32
C. Morgan Stanley and Provender Accommodate
Carver By Entering into Voting Restrictions..................................34
D. Wright's Memos and Morgan Stanley's Conduct
Are Direct Evidence of an Intent to Thwart a
Proxy Contest................................................................35
II. WRIGHT AND HER ADVISORS DEFRAUDED
A SUPINE BOARD.................................................................................36
III. A PRELIMINARY INJUNCTION IS THE ONLY
REMEDY THAT WILL AFFORD AN UNTAINTED
ELECTION CONTEST...............................................................................39
CONCLUSION.......................................................................................................42
</TABLE>
<PAGE>
CUSIP NO. 146875109 Page 10 of 55 pages
TABLE OF AUTHORITIES
<TABLE>
<CAPTION>
CASES PAGE
- ----- ----
<S> <C>
Abajian v. Kennedy,
- ------------------
C.A. No. 11425, 1992 Del. Ch. LEXIS 6 (Jan. 17, 1992).........................................................35
Allen v. Prime Computer, Inc.,
- -----------------------------
Del. Supr., 540 A.2d 417 (1988)...........................................................................29, 39
Blasius Industries, Inc. v. Atlas Corp.,
- ---------------------------------------
Del. Ch., 564 A.2d 651 (1988).............................................................................29, 30
Commonwealth Assocs. v. Providence Health Care, Inc.,
- ----------------------------------------------------
C.A. No. 13135, 1993 Del. Ch. LEXIS 231 (Oct. 22, 1993)...............................................31, 32, 39
Glazer v. Zapata,
- ----------------
Del. Ch., 658 A.2d 176 (1993).............................................................................31, 34
Kidsco Inc. v. Dinsmore,
- -----------------------
Del. Ch., 674 A.2d 483 (1995).................................................................................30
Mills Acquisition Co. v. MacMillan, Inc.,
- ----------------------------------------
Del. Supr. 559 A.2d 1261 (1989).......................................................................36, 37, 38
Packer v. Yampol,
- ----------------
C.A. No. 8432, 1986 Del. Ch. LEXIS 413 (Apr. 18, 1986).................................................32, 39, 40
Paramount Communications Inc. v. QVC Network Inc.,
- -------------------------------------------------
Del. Supr., 637 A.2d 34 (1993)............................................................................... 29
Schnell v. Chris-Craft Industries, Inc.,
- ---------------------------------------
Del. Supr., 285 A.2d 437 (1971)...............................................................................29
Speiser v. Baker,
- ----------------
Del. Ch., 525 A.2d 1001(1987)..................................................................................35
Stahl v. Apple Bancorp, Inc.,
- ----------------------------
Del. Ch., 579 A.2d 1115 (1990)................................................................................30
Stockbridge v. Investment Partners, Inc. v. Amserv Healthcare, Inc.,
- -------------------------------------------------------------------
Del. Ch., C.A. No. 14330, Allen, C. (Aug. 23, 1995)...........................................................35
ii
<PAGE>
CUSIP NO. 146875109 Page 11 of 55 pages
Viele v Devaney,
- ---------------
Del. Ch., 679 A.2d 993 (1996).................................................................................31
WNH Investments, LLC v. Batzel,
- ------------------------------
C.A. No. 13931, 1995 Del. Ch. LEXIS 47 (Apr. 28, 1995)................................................31, 32, 35
</TABLE>
iii
<PAGE>
CUSIP NO. 146875109 Page 12 of 55 pages
NATURE AND STAGE OF PROCEEDINGS
On January 19, 2000, plaintiff BBC Capital Market, Inc. ("BBC
Capital") filed a Verified Complaint for Injunctive and Declaratory Relief and a
Motion for a Preliminary Injunction in which it seeks, among other things, to
enjoin defendant Carver Bancorp, Inc. ("Carver" or the "Company") from treating
any stock issued by Carver to Morgan Stanley & Co. Incorporated ("Morgan
Stanley") and Provender Opportunities Fund, L.P. ("Provender") as validly issued
for purposes of voting and to enjoin all defendants from taking any action to
impede BBC Capital's proxy solicitation.
Carver had issued shares on January 11, 2000, the record date
for the annual meeting of stockholders that will take place on February 24,
2000. On January 12, 2000, Morgan Stanley threatened to "crush" BBC Capital's
principals if they did not cease their solicitation to place two directors on
Carver's board.
On January 25, 2000, this Court authorized expedited discovery
and scheduled a preliminary injunction hearing for February 16, 2000.
Over the past two weeks, the parties have engaged in expedited
discovery. Certain depositions and document productions by third parties are
scheduled to take place later this week. This is the plaintiff's opening brief
in support of its motion for a preliminary injunction.
<PAGE>
CUSIP NO. 146875109 Page 13 of 55 pages
STATEMENT OF FACTS
A. The Parties.
------------
Plaintiff BBC Capital is a subsidiary of The Boston Bank of
Commerce ("BBOC"), the first African-American owned and managed interstate bank
in the country, with offices in Boston and Miami. (Cohee 6-7; Ex. 56 at MK3)1
BBOC's two controlling shareholders and senior officers -- Kevin Cohee and Teri
Williams, who are husband and wife -- have been nominated by BBC Capital for
election to the board of directors of defendant Carver. BBC Capital owns 170,700
shares, or approximately 7.4%, of Carver common stock. (Cohee 7; Ex. 56 at MK3)
Carver is the parent of Carver Federal Savings Bank, which is
based in Harlem and is the nation's largest African-American managed bank.
Carver's classified board of directors is comprised of defendants Deborah C.
Wright, David N. Dinkins, Linda H. Dunham, Robert J. Franz, Pazel G. Jackson,
Jr., Herman Johnson, David R. Jones and Frederick O. Terrell. (Ex. 55 at 18)
Wright was appointed Carver's Chief Executive Officer in June
1999, after Carver experienced substantial losses and fired its previous Chief
Executive Officer. Directors Dinkins and Board Chairman Jones are standing for
re-election on February 24,2000, the date when Carver is holding its
long-delayed annual meeting of stockholders for the fiscal year ended March 31,
1999. (Ex. 55)
- --------
1 The exhibits cited herein are contained in the accompanying
Appendix to Affidavit of Joel Friedlander. Deposition
transcripts, which are cited by the name of deponent, will be
lodged with the Court.
<PAGE>
CUSIP NO. 146875109 Page 14 of 55 pages
On January 11, 2000, the record date for the annual meeting,
Carver issued a total of 100,000 shares of convertible preferred stock to
defendants Morgan Stanley and Provender, which have been serving as Wright's
anti-takeover advisors since early 1999 and which are run by Wright's close
personal friends and committed allies, William Lewis and Frederick O. Terrell.
Carver issued 40,000 shares of Series A Convertible Preferred
Stock to defendant Morgan Stanley, an affiliate of Morgan Stanley Dean Witter
Co. (also defined as "Morgan Stanley"). (Ex. 46) Carver also issued 60,000
shares of Series B Convertible Preferred Stock to defendant Provender, a private
equities fund founded and managed by Terrell. (Ex. 46; Terrell 6-7)
As Wright admitted in her contemporaneous memorandum, the
shares were issued to get "Friendly votes for [the] upcoming shareholders'
meeting." (Ex. 39 at C231) Morgan Stanley and Provender have contractually
agreed not to grant proxies without the prior approval of Carver's board. (Ex.
46ss.5.03(c) at PR67) The two blocks of preferred stock carry a total of 208,333
votes, or 8.3% of the total votes outstanding. (See Ex. 55 at 6, 10 ) ---
B. Terrell Coaches Wright for Her Interviews to Become Chief Executive
Officer of Carver.
For ten years, Terrell and Wright, who are "very good
friends," had talked about Carver. (Terrell 14, 17; Wright 12, 42) In January
1999, they saw an opportunity for her to be hired as Carver's Chief Executive
Officer. (Terrell 17) Carver's board had just fired its Chief Executive Officer
after reporting a record $5.7 million loss for the
<PAGE>
CUSIP NO. 146875109 Page 15 of 55 pages
prior quarter and being forced to shut down its consumer lending subsidiary. It
was universally recognized that Carver needed new management and a dramatic
turn-around. (Ex. 9 at M6169; Ex. 13 at M3540; Ex. 14 at M6171; Ex. 15 at
B409-11)
Wright turned to Terrell for help in landing the CEO job.
Terrell assigned his Provender partners to coach Wright for her job interviews.
(Terrell 6-7, 25-26) This was no small undertaking. Wright was an unlikely
candidate. She had never worked for a commercial bank. Her experience was
principally in the not-for-profit sector and as a government bureaucrat, most
recently as head of the Upper Manhattan Empowerment Zone, a government-funded
entity. (Wright 7-9)
Raymond Walsh, Terrell's partner with expertise in banking,
examined Wright's plans and concluded that they read like "a Banking 101
cookbook presented in a shotgun format." (Ex. 4 at PR141) Terrell himself
admitted that Wright was not up to speed on the mechanics of banking. (Terrell
23-24)
In February and March 1999, Terrell and his partners worked
numerous hours briefing Wright on the basic principles of banking. (Terrell 26)
They provided her with financial analyses of Carver, its peers and its industry.
They drafted an outline of major issues that a bank's board would expect its CEO
to know. (Ex. 2) They even drafted a "Carver Turnaround Action Plan" identifying
key steps that a crisis manager would be expected to implement. (Ex. 4 at
PR138-402)
C. Carver Rejects BBOC's Merger Proposals and Hires Wright as CEO.
---------------------------------------------------------------
Meanwhile, Kevin Cohee and BBOC were purchasing their stake in
Carver and proposing that Carver's board agree to a stock-for-stock merger
between
<PAGE>
CUSIP NO. 146875109 Page 16 of 55 pages
Carver and BBOC. Cohee made a presentation to Carver directors Jones and Jackson
in February 1999, which highlighted his proven track record as someone who had
turned around a failing bank. (Cohee 81; Ex. 1) Cohee then made a written merger
proposal on March 1 and a revised merger proposal on March 31. (Cohee 80-94;
Exs. 3, 6) On March 22, 1999, BBOC nominated Cohee and Williams for election as
directors of Carver. (Cohee 92-93; Ex. 5)
Cohee's revised merger proposal contemplated a stock-for-stock
merger in which each bank would be valued at its tangible book value at the time
closing. Such a valuation represented a 54% premium to Carver's market price.
Cohee's proposal further contemplated that BBOC's management team would run the
combined enterprise. Cohee recommended that Carver's board not hire a new CEO
prior to exploring a proposed merger with BBOC. (Ex. 6 at B1506)
Carver's board did not meet with Cohee, even though their
financial advisor, Keefe, Bruyette & Woods, Inc. ("Keefe, Bruyette"), wrote that
BBOC's proposal was "reasonable from a financial perspective." (Ex. 8 at M2670)
Director Linda Dunham confessed that she did not have the experience to evaluate
BBOC's proposal and that she knew nothing about Cohee or the record of BBOC.
(Dunham 15-18) Director Herman Johnson did not like what he read in the
newspapers about BBOC, but did not feel it necessary to find out the facts first
hand. (Johnson 34-37, 41) Former New York City Mayor David Dinkins testified
that he did not "know whether [BBOC's merger proposal] was fair or unfair to
Carver." (Dinkins 43) He rejected BBOC's proposal
<PAGE>
CUSIP NO. 146875109 Page 17 of 55 pages
because Carver's Chairman Jones opposed it, apparently because people from
Boston would be running their bank. (Dinkins 43)
Provender's coaching of Wright had worked. Carver's board,
either fooled by Wright's appearance of knowing how to implement a strategic
vision for the bank or indifferent to her lack of qualifications, hired her in
April to become the new CEO, effective June 1, 1999. Because Cohee vowed to
continue his effort to elect new directors at Carver, one of Wright's first acts
was to line up her anti-takeover defenses.
D. Wright Turns to Her "Good Friends" to Ward Off BBOC.
----------------------------------------------------
Wright's strength is her connections. As reported in Fortune
magazine, Wright could "count on the support of an influential network that
includes Henry Kravis; William Lewis, co-head of Morgan Stanley Dean Witter's
worldwide M&A department; and Richard Parsons, Wright's mentor and the president
of Time Warner . . . ." (Ex. 9 at M6170) After having helped her get hired,
Wright's good friends closed ranks to fend off BBOC.
Upon the announcement of Wright's hiring, Terrell attempted to
persuade BBOC to drop its proxy contest. On April 16, 1999, Terrell called BBOC
director Kenneth Edelin and told him that he had known Wright for 20 years, that
he supported Wright and that "Carver did not need anyone from Boston coming down
to New York to tell us how to run our bank." (Edelin Aff. P. 5; see also Terrell
27-30) Edelin's contemporaneous handwritten notes quote Terrell as falsely
representing that Wright has "a strategic plan" and as playing the role of
Wright's heavy: "no incentive on Debbie's
<PAGE>
CUSIP NO. 146875109 Page 18 of 55 pages
part to compromise. Kevin must back down -- . . . He must back off." (Edelin
Aff. P. P. 4- 5 and Ex. A thereto)
Even before she formally started her job, Wright sought advice
from William Lewis, the head of corporate finance in Morgan Stanley's investment
banking division (Parr 43), on defeating Cohee and BBOC in a proxy contest. (Ex.
7 at M6172) Lewis had been a "good friend" of Wright's at Harvard College, where
they first met, and he has remains a "good friend" of Wright's to this day.
(Wright 11) Lewis is also a "good friend" of Fred Terrell. (Terrell 14-15)
Lewis advised Wright about proxy strategy. (Ex. 7 at M6172) In
one meeting, he suggested that in a proxy contest Wright should portray herself
as "part of the club" and portray Cohee as a "carpet bagger." (Ex. 10 at C3506;
Wright 68)
In the summer and fall, Lewis helped arrange strategy sessions
at Morgan Stanley at which he, his colleagues and other friends of Wright
plotted strategy. Wright's shadow board consisted of the following persons: Bill
Lewis and a team of others at Morgan Stanley; Fred Terrell of Provender; James
Benkard of Davis Polk & Wardwell, a friend who had hired Wright as a summer
associate in law school; Ruth Pachman of the public relations firm Kekst &
Company, which was representing Carver at a reduced rate at the request of Henry
Kravis; and Kathy Wylde, a former supervisor of Wright's who runs the New York
City Investment Corporation Fund, which is affiliated with Henry Kravis. (Ex.
18; Ex. 19 at M271; Wright 11-12, 48-49, 53-54; Terrell 88)
The memoranda from before and after those meetings leave no
doubt as to the attendees' motives and agendas. As articulated in a June 24
e-mail from Lewis to
<PAGE>
CUSIP NO. 146875109 Page 18 of 55 pages
Wright, the first meeting would be directed to the proxy threat posed by Cohee
and BBOC:
Debbie, I will try to have Kirk Wilson who is the co-head of our bank
group at the meeting. The issues will be straightforward: 1)
articulation of the various profiles of your shareholders? Do you have
a proxy solicitor who could help you with this? 2) Average cost basis
of most shareholders. Are they underwater? 3) Summary of recent
conversations with shareholders? 4) Your plan and progress toward
goals (particularly hiring goals. 5) Cohee's achillees heel? 6) What
flexibility do your by-laws provide, i.e. can you put in a pill if you
don't have one? 7) What is your proposed slate? Don't make it easy for
Kevin.
(Ex.12 at M2686)
Wright had obtained a report on the mood of Carver's
institutional stockholders that clearly showed that if an election of directors
was held soon, the incumbents would lose. (Ex. 11) Carver's largest stockholder,
Third Avenue Value Fund, controlled by value investor Martin Whitman, was
reportedly "losing patience" with Carver. BBOC, the owner of 7% of Carver's
stock, was openly hostile. Koch Asset Management, controlled by Don Koch, was
reportedly "[d]issatisfied" with the stock's performance. First Manhattan Co., a
3% stockholder, was "[e]xpressing dissatisfaction" with Carver's performance.
The various professional investors who each owned between 1% and 3% of Carver
"range[d] from frustrated to outraged." (Ex. 11) Not a single professional
investor was reported to be supportive of Wright.
As recorded in a subsequent memorandum, Carver's management
had presented Wright's kitchen cabinet with a bleak picture at the July 6
strategy session:
At our meeting on July 6th, members of the Carver team presented the
state of affairs: new CEO; limited strength on senior management team;
<PAGE>
CUSIP NO. 146875109 Page 20 of 55 pages
financial losses due to poorly performing consumer loan portfolio,
branch reconciliation problems upon conversion to new in-house
technology system, and weak new business effort; disenchanted
shareholder base.
(Ex. 19 at M271)
E. Wright Delays the Annual Meeting to Avoid Losing the Election.
-------------------------------------------------------------
The strategy that came out of these meetings was simple.
Wright would delay holding an annual meeting until she could draft and implement
a strategic plan, energize her shareholder base and seek out new stockholders
who would vote for her candidates.
On July 6, Wright's shadow board had discussed the threat of a
proxy contest and recommended delaying the annual meeting until "a time that
enables new management to develop growth strategy and coherent message." (Ex. 19
at M271; Parr 16) When asked why Carver delayed scheduling a meeting, Wright
answered: "We weren't ready." (Wright 71)
As of July 6, Carver had no business plan and neither she nor
her staff had the capacity to develop one that would satisfy Carver's irate
institutional stockholders or potential new investors. On August 2, 1999, Wright
sent a note to her mentor, Richard Parsons, entitled "UPDATE and the usual PLEA
FOR HELP!" in which sought advice about "a new strategic plan" as well as
"hostile shareholder proposals."(Ex. 16 at C1839)
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CUSIP NO. 146875109 Page 21 of 55 pages
On September 10, Wright said she would soon distribute "a 'mini' plan" for
comments. (Ex. 18 at M6163)
As of October 26, Wright's staff had only "put together a
rough draft of how to grow Carver." (Ex. 19 at M272) At their October 28
meeting, the group advised that, in order "to counter Kevin's campaign," Wright
needed to "[d]raft a credible business plan to define management's strategy and
persuade shareholders that value creation will emerge without a BBC merger."
(Ex. 20) Morgan Stanley agreed to help Wright draft a business plan. (Ex. 20;
Ex. 26 at M4221) Provender and KPMG Peat Marwick also pitched in to help with
the strategic plan. (Wright 53; Terrell 91) To this day, however, a strategic
plan has not been completed, reviewed in detail by Carver's board or adopted by
Carver's board. (Dinkins 32-33; Dunham 8-9; Johnson 11-13; Wright 51-53)
In the absence of a strategic plan, Wright set out to launch
promotional gimmicks "to energize our 'base' in advance of the annual
shareholders meeting." (Ex. 19 at M273) Carver also implemented a direct stock
purchase plan, an effort to shift Carver's shareholder profile away from
sophisticated investors, by encouraging "community residents who don't have
brokerage accounts to buy our stock." (Ex. 19 at M273) In addition, Carver put
out a press release announcing the hiring of new senior managers, without
disclosing that two of these key managers are only "on loan" from other banks,
with one such "loan" scheduled to expire in March. (Wright 45-46)2
- --------
2 The two persons "on loan" are Benny Joseph and Margaret Peterson.
(Wright 45) Carver's proxy statement lists their titles as Senior
Vice President and Chief Lending Officer and Senior Vice
President and Chief Administrative Officer,
<PAGE>
CUSIP NO. 146875109 Page 22 of 55 pages
F. Wright and Morgan Stanley Discuss Putting Stock in "Friendly"
Hands as a Defense to the Contested Election.
On October 29, the two mid-level employees at Morgan Stanley
who attended the October 28 strategy session wrote a memo to managing directors
Bill Lewis, Kirk Wilson and Gary Parr in which they reported that Carver
management was "concerned about shareholder response if Kevin Cohee . . .
executes his threat to initiate a proxy battle." (Ex. 20 at M3011) The memo also
reported that Carver was looking to place stock in friendly hands:
The Bank intends to approach a select group of 'friendly' investors who
may be interested in taking positions in Carver.
(Ex.20) Two days later, Gary Parr distributed an e-mail to the Morgan
Stanley team saying that he had talked to Debbie Wright and that he
wanted "to discuss the possibility of [Morgan Stanley Dean Witter]
investing in Carver." (Ex. 21 at M5382)
G. BBC Capital Files Suit to Compel an Annual Meeting.
---------------------------------------------------
On November 9, 1999, BBC Capital sued in this Court to compel
Carver to hold an annual meeting of stockholders. (Ex. 22) Since no annual
meeting had been held since August 14, 1998, liability was assured.
- --------------
respectively, without disclosing their temporary status. (Ex. 55
at 16) Due to her inability to hire permanent staff, Wright
sought to borrow employees through March 31, 2000, "to at least
get candidates past the takeover hurdle and year end bonuses."
(Ex. 18 at C844)
<PAGE>
CUSIP NO. 146875109 Page 23 of 55 pages
Immediately after the lawsuit was filed, Carver's board met
telephonically and scheduled the annual meeting for February 24, 2000, with a
record date of January 11, 2000. (Ex. 23 at M5383) Wright so advised Lewis and
the Morgan Stanley team by e-mail on November 12. (Id.) ---
On December 7, Carver and BBC Capital entered into a
Stipulated Order in which Carver stipulated that the annual meeting would be
held on February 24, 2000, with a record date of January 11, 2000, and that BBC
Capital's two nominees -- Kevin Cohee and Teri Williams -- were validly
nominated. (Ex. 25)
H. Wright Testifies Falsely About Her Strategy to
Place Stock in Friendly Hands Before the Record Date.
-----------------------------------------------------
In her testimony, Wright denied that it was her objective to
place stock in friendly hands:
Q. So would it be fair to say that one of Carver's objectives in
getting these investments made was to get stock in friendly hands
for the upcoming annual meeting?
A. Well, no. I mean the objective was to send a signal, first of
all, to the people who already own stock that a couple of
sophisticated investors had scrubbed Carver, came away from it
believing in the team and the strategy, believing in it so much
that they would invest.
* * *
<PAGE>
CUSIP NO. 146875109 Page 24 of 55 pages
Q. But I take it that was not an important objective, getting stock
in friendly hands so they would vote for you; is my understanding
of your testimony correct?
A. It didn't drive the deal is what I'm saying. At the end of the
day, Morgan Stanley had legal limitations as to ownership of
stock and wasn't enough involved to drive the vote one way or the
other.
* * *
Q. Isn't that a fact, the first of Carver's objectives was to get
vote[s] in friendly hands for the upcoming proxy battle?
A. No, not at all. We think they are in unfriendly hands.
(Wright 33-37) Wright also denied that the timing of the transaction
was driven by or tied to the record date. (Wright 23-24)
Contemporaneous documents written by Wright and by Morgan
Stanley personnel establish beyond any reasonable doubt that Wright's testimony
was intentionally false. A draft memo written by Wright and addressed to her
board of directors, dated January 6, 2000, describes the proposed investments by
Morgan Stanley and Provender, and then reads as follows:
CNY [Carver] Objectives
o Friendly votes for upcoming shareholders' meeting
<PAGE>
CUSIP NO. 146875109 Page 25 of 55 pages
o Tier One capital for growth
o Vote of confidence targeting institutional shareholders
(Ex. 39 at C231)(emphasis added)
Every aspect of what Morgan Stanley did in putting the private
placement together was driven by the deadline of completing the transaction by
the record date of January 11.
An internal Morgan Stanley e-mail dated December 16 noted that
"we are on a short time frame" and need "to see what we can do to expedite the
process." (Ex. 27) A draft timeline was distributed to the Morgan Stanley team
the next day, which observed that "we should be able to complete the investment
transaction by Apollo's [Carver's] target date." (Ex. 28) A Morgan Stanley Vice
President who received that e- mail made sure that everyone knew when the deal
had to close:
As we all know, not making the investment deadline of the record date
is not an option.
(Ex. 29)(emphasis added) No consideration was ever given to closing the
transaction after the record date. (Parr 60)
A subsequent Morgan Stanley e-mail asked whether "the legal
teams [are] fully aware that our deadline for completing the transaction is Jan.
10", and sought
<PAGE>
CUSIP NO. 146875109 Page 26 of 55 pages
confirmation that the security would have voting rights as of
January 10 if the transaction was completed on that date. (Ex. 35 at M5296)
There is no question that Carver expected the transaction to
be completed by the record date. A Morgan Stanley e-mail observed: "As a
reminder, our timetable is very tight and we need to draft and execute the
securities documents by next week in order to meet the Company's time schedule."
(Ex. 37 at M5295) (emphasis added)
In recognition of the impropriety of Wright's record date
requirement, Morgan Stanley's presentation books disguise the fact that the
record date was the deadline driving the deal. The timeline in the books sets a
deadline of January 10 and declares: "MSDW will be in a position to meet the
Ex-Dividend deadline." (Ex. 36 at M2574) In fact, Carver had no regularly
scheduled dividend and thus no ex-dividend date. (See Ex. 19 at M273) Since
Morgan Stanley was getting a security with its own semi-annual dividend,
which was not tied to a dividend on the common stock, the so- called ex-dividend
date had no relevance to the timing of the transaction, as Morgan Stanley
director Gary Parr admitted at deposition. (Parr 76)
I. The Parties Agree to Voting Restrictions.
-----------------------------------------
In negotiating the private placement, the parties agreed to
include a section in the Securities Purchase Agreement providing that the
purchasers of the preferred stock (and their successors and assigns) cannot:
<PAGE>
CUSIP NO. 146875109 Page 27 of 55 pages
(a) make, or take any action to solicit, initiate or encourage . . .
any offer or proposal for, or any indication of interest in, a
merger or other business combination involving [Carver] . . .;
(b) make, or in any way participate in, any "solicitation" of
"proxies" to vote . . ., solicit any consent or become a
"participant" in any "election contest" . . .;
(c) grant any proxies with respect to any Preferred Stock or Common
Stock to any Person (other than as recommended by the Board of
Directors of [Carver]) or deposit any such securities in a voting
trust or enter into any other arrangement or agreement with
respect to the voting thereof . . .; or
A. initiate, support or otherwise solicit stockholders for the
approval of one or more stockholder proposals with respect to
[Carver] . . . (other than as recommended by the Board of
Directors of [Carver]) . . . .
(Ex. 46 at PR67)
J. Morgan Stanley and Wright Did Not Negotiate at Arms Length.
-----------------------------------------------------------
The demand to complete the transaction by the record date
required that Carver cut corners. In order to "expedite matters significantly,"
Morgan Stanley sought and Wright agreed to use Morgan Stanley's "standard forms"
for structuring the security
<PAGE>
CUSIP NO. 146875109 Page 28 of 55 pages
and to use Morgan Stanley's regular counsel, Davis
Polk & Wardwell, to represent both Carver and Morgan Stanley. (Ex. 28 at M3515,
Ex. 33; Ex. 35 at M5295)
Morgan Stanley explained that Davis Polk's extraordinary
willingness to take on such a patently conflicted representation was due to "the
size and nature of the investment." (Ex. 35 at M5295) While Wright acceded to
that arrangement, the Carver board was not informed of it and was unable to draw
the obvious implication that this was not an arms' length transaction. (Wright
30; Dunham 35)
K. Because Wright Was Desperate to Win the Election, She Negotiated
and Evaluated Morgan Stanley's Price Terms on Minimal Notice,
Even though the Terms Were Less Favorable than Wright Had
Expected.
Wright had virtually no time to negotiate and evaluate the
pricing of the transaction. And when Wright was finally presented with terms to
review, they were far less favorable than Morgan Stanley had initially
indicated. Nevertheless, Wright agreed to the terms over the weekend prior to
the Monday January 10 board meeting, because she was desperate to complete the
deal before the record date to win the upcoming election.
On December 21, Carver sent an e-mail to Morgan Stanley asking
when Carver could expect to receive a draft term sheet so that work could begin
on a fairness opinion. (Ex. 33)
An internal Morgan Stanley e-mail from December 21 stated that
a term sheet and supporting analysis had been distributed internally and that
following Gary
<PAGE>
CUSIP NO. 146875109 Page 29 of 55 pages
Parr's approval, "we can forward the information to the client so
that they can receive necessary approvals and begin to prepare the fairness
opinion." (Ex. 32 at M5335)(emphasis added) A December 23 e-mail observed that
delivery of a fairness opinion by a third party "is going to be the biggest
headache as their opinion will be based on pricing that has not taken place
yet." (Ex. 35 at M5297)
A December 27 e-mail from a subordinate to Gary Parr observed
that "our timetable is very tight," that Debbie Wright wanted to engage a firm
to do a fairness opinion, that "we need to allow them a few days to prepare the
analysis," and implored that within "the next day or so" Morgan Stanley should
be "in a position to provide [Wright] with more definitive pricing." (Ex. 37 at
M5295)
Parr held up pricing until a due diligence review was
completed, which did not occur until January 5, 2000. (Ex. 38 at M769; Parr 81,
86-87) Parr also insisted that the security be marketable, meaning that its
terms had to be "within a range of what a market participant might see as an
appropriate investment." (Parr 82, 83) As of Friday, January 7, 2000, Parr had
not yet conveyed to Carver proposed dividend and conversion premium rates. (Parr
91-92)
On Thursday January 6, 2000, Wright sent a memo to the Carver
board stating that the pricing of the proposed Morgan Stanley investment was
still being negotiated, but the dividend would be within a range of 6-7.5% and
the conversion premium would be in the range of 15-25%. (Ex. 40 at C999)
Parr and Wright personally negotiated the price terms by
telephone on Friday January 7 and Saturday, January 8. (Parr 103-04, 107; Wright
28-29) They
<PAGE>
CUSIP NO. 146875109 Page 30 of 55 pages
agreed to a security with a 7.88% dividend and a conversion ratio at
a 21.2% premium to Carver's closing price on January 7. (Ex. 42 at C654)
Handwritten notes apparently written by Wright the day she
negotiated with Parr betray her primary purpose. Under a chart showing the
financial terms of the negotiations, Wright's notes discuss how she subordinated
concern over the financial terms to her "#1 Goal":
#1 Goal = Win on Feb 24: make shareholders happy
--Deal Proposed
Runs Risk of Making them Unhappy
o conversion price = 8.7% premium current trading price
Discount Book 22% discount
o signal not much upside in the stock
o coupon priced at market - high current income and limited
stock appreciation
o Not favorable Pricing
(Ex. 43 at C519)
L. Wright Encourages Terrell to Buy Voting Stock Before the Record Date.
In December 1999, Wright asked Terrell if Provender would be
interested in investing in Carver. (Terrell 55-56) Terrell later told John Duffy
of Keefe, Bruyette that Provender was contemplating making an investment in the
form of notes and warrants. (Terrell 45-47, 50-51)
<PAGE>
CUSIP NO. 146875109 Page 31 of 55 pages
On January 5, 2000, when Terrell and others from Provender had
a follow- up conversation, Duffy and Wright told Provender that Carver wanted
Provender to buy a voting convertible secured security and not debt. (Terrell
12-13, 47-49)
Terrell testified that Provender had completed its due
diligence by January 7 and negotiated the terms of the security with Wright and
Duffy over the weekend before the board meeting. (Terrell 38) That testimony was
not accurate.
On January 7, Provender submitted a formal term sheet to
Carver for a $1.5 million investment in Carver convertible preferred stock,
subject to the completion of due diligence by the end of January with a closing
by February 1. (Ex. 41 at PR118) The term sheet contemplated reference checks
the following week, legal due diligence to commence the week of January 24 plus
accounting due diligence. (Ex. 41 at PR118)
In short, on January 7, Terrell needed several weeks of due
diligence before closing. Terrell's term sheet also proposed that Provender's
stock not vote generally for the election of directors, but vote as a class only
to elect one director to represent Provender. (Ex. 41 at PR121; Terrell 41-42)
Over the weekend of January 8-9, Wright convinced Terrell to
abandon his intended due diligence and invest immediately in the same voting
preferred security that Morgan Stanley was getting, with Terrell being appointed
to the board of directors. (Wright 28-29; Terrell 10-11, 38, 40-41) Provender
thus obtained voting rights before the record date, even though Terrell had
originally sought to purchase non-voting securities after the record date.
<PAGE>
CUSIP NO. 146875109 Page 32 of 55 pages
M. Wright Deceives Her Board About the Purpose of the Investments.
In her draft memo to the board of January 6, Wright had
written that Carver's principal objective was to get "Friendly votes for
upcoming shareholders' meeting." (Ex. 39 at C231) Wright showed the draft to her
lawyer, Kofi Appenteng of Thacher Proffitt & Wood. (Wright 32) No doubt acting
on her counsel's advice, Wright deleted disclosure of the patently improper
purpose from the memo she sent to the board. (Ex. 40 at C999)
The board's approval of the Morgan Stanley and Provender
investments proceeded without any knowledge of the background or true purpose of
the issuances. The outside directors were unaware that Carver was issuing stock
to Wright's anti- takeover advisers, that the transaction was designed to be
completed by the record date, that Davis Polk & Wardwell had represented both
sides of the transaction, that Morgan Stanley and Provender had agreed not to
grant a proxy without board approval, or that Provender had sought a preferred
security that would not vote generally in the election of directors. (Dunham
21-22, 25, 35; Dinkins 20, 22-23, 47; Johnson 14-16) The draft board minutes of
January 10, 2000 do not indicate that any lawyer advised the board as to its
fiduciary duties.3 (Ex. 44)
The economic merits of the securities were addressed at the
board meeting by John Duffy of Keefe, Bruyette. Although Duffy's deposition
could not be arranged
- --------
3 Throughout discovery, plaintiff has repeatedly requested the
final version of the minutes of the January 10 board meeting,
as well as any notes taken at that meeting. (Wright 80-81)
Although Wright testified that an "intern" had taken
handwritten notes for the minutes, neither that person's notes
nor the notes of any other attendee other than Wright have
been produced. (Wright 76)
<PAGE>
CUSIP NO. 146875109 Page 33 of 55 pages
before the submission of this brief4, certain facts regarding the
inadequacy of Keefe, Bruyette's analysis are apparent. Keefe,
Bruyette only had time to prepare a four-pagewritten analysis.
(Ex. 42) None of those four pages support Keefe, Bruyette's oral
opinion at the meeting that the proposed transactions were fair.
The first page merely described the conversion terms of the
securities and calculated how long it would take for the dividends to equal the
putative conversion premium. But the conversion premium was illusory. Parr and
Terrell had expected that Carver's stock would rise immediately following the
announcement of the transactions, which it soon did by 20%, thereby eliminating
the conversion "premium." (Parr 29-30; Terrell 81-82) There is no evidence that
the Board was made aware of Parr's and Terrell's expectations. The Board
believed there was a real conversion premium embedded in the security.
The second page of Duffy's materials merely showed the impact
on earnings of paying the dividends required by the security. The final two
pages merely compared Carver's financial performance to other local thrifts --
all of which had materially better financial performance. (Ex. 42 at C656-57)
There is no evidence that Duffy discussed the terms of
convertible preferred securities at banks comparable to Carver. The draft
minutes disclose no such discussion. The directors' testimony discloses no such
discussion and Wright's notes reflect no such discussion.
- -------------------
4 Keefe, Bruyette is scheduled for deposition on February 10.
<PAGE>
CUSIP NO. 146875109 Page 34 of 55 pages
N. Wright's Post-Closing Declaration Demonstrate
This Was No Mere Capital-Raising Experience.
On January 11, 2000, when the Securities Purchase Agreement
was signed, the Certificates of Designation were filed, and the funds were wired
to Carver, Wright did not act as might be expected of a CEO who had just raised
a modest amount of capital at market rates. Wright was in a far more celebratory
mood, befitting her belief that the result of the upcoming shareholders meeting
was now a foregone conclusion.
Upon hearing that the funds were about to be wired, Wright
sent the following e-mail to a Morgan Stanley employee:
WOW!!!!!!!!!!!!!! I JUST PRINTED YOUR E-MAIL FOR MY MEMOIRS (the perils
of debbie; debbie does harlem; or what's a girl like you doing in a
place like this----smiles-). I guess you can tell that my brain is now
totally deprived of air!
(Ex. 45)
When the money arrived later that afternoon, Wright thanked
the Morgan Stanley team by e-mail and added this post-script: "LET'S HAVE A
PARTY!" (Ex. 47)
The reason for Wright's partying mood was revealed in an e-mail Wright sent to
the Morgan Stanley team shortly before this suit was filed:
Re: celebratory dinner do you guys want to get together before or
after the shareholders meeting (Feb 24th)? Don't say never.
(Ex. 51) When Wright learned about this action, she sent a follow-up e-mail:
"Michael, given today we may need to push dinner back to post annual meeting.
More later. D" (Ex. 52 at M5323)
<PAGE>
CUSIP NO. 146875109 Page 35 of 55 pages
O. Carver Trumpets Non-Existent "Strategic Alliances"
--------------------------------------------------
Before the opening of trading on Wednesday, January 12, 2000,
Carver issued a press release announcing that it had "entered into strategic
alliances with Morgan Stanley Dean Witter & Co., a pre-eminent global financial
services firm, and Provender Capital Group, L.L.C. . . . under which Carver has
received $2.5 million in new capital."
(Ex. 48 at M1339)
The press release ascribes no content to these "strategic
alliances" and for good reason. Morgan Stanley told Carver not to mention any
specifics about a strategic alliance between them "in light of the fact that
they hadn't been fully defined and agreed." (Parr 100) Parr was not aware of any
specific arrangements having been negotiated. (Parr 101) Terrell could not
identify any content to a Carver-Provender strategic alliance other than
Provender "being a fairly hands on strategic investor." (Terrell 92)
P. Lewis Directs a Subordinate to Threaten Cohee
Lest there be any doubt of the purpose of Morgan Stanley's
investment, on the morning of the press release, Bill Lewis called David Grain,
a friend of Cohee's who sold junk bonds for Morgan Stanley (Grain 5), and told
Grain to deliver a message to Cohee. Cohee testified about the message Grain
delivered that morning:
[Grain] said that Morgan Stanley had made an investment in Carver; and
that now the firm's money was at risk; and that John Mack and Bill
Lewis had called him and told him to call me and to tell me that I
better leave Debbie alone; and that I needed to make sure that I didn't
let my balls get in the way of my brains on this one; and that I better
think this thing very carefully because they had told me three months
ago to get out of the situation; and that Morgan Stanley was going to
use their M&A department and their PR firm to crush me if I didn't get
out of the situation; and that I, you know, better think about my
future business dealings when I'm making a decision as to what to do;
and that what I
<PAGE>
CUSIP NO. 146875109 Page 36 of 55 pages
needed to do was to take credit for the investment that
it made - been made by Morgan Stanley and move on; and that, you know,
they had talked to [Donald] Rice about the thing. And that - you know,
that was the essence of it.
(Cohee 181-82) Cohee took contemporaneous handwritten notes that squarely
corroborate his testimony. (Ex. 49; Cohee 191, 222-23)
"[S]tunned" and "frightened" from the threat Grain delivered,
Cohee immediately called Robert Cooper, BBOC's general counsel, and Teri
Williams. (Cohee 192) Cooper called Williams out of a board committee meeting to
take the "urgent" phone call:
A. I was sitting at a board committee meeting, and Bob Cooper
came in with a note - a stick-um saying that Kevin was on the
phone and it was urgent. I looked at Bob, like, can it wait
because I was at a board committee meeting. And he said, no,
he told me to come get you.
I got up and I went to his assistant's office and picked up
the phone. And I said hi, what's urgent? And he said, David
Grain just called me and said that John Mack - Mack, I don't
remember if the first name is John - and Bill Lewis called him
to tell us and - to call - I don't know if he said us or me to
tell us that we better sell our stock - that we better sell
our stock - no. Well, that Morgan Stanley now has money in the
deal with Carver and that we better sell our stock and leave
Debbie alone or they were going to crush us.
Q. Did he say anything else - "he" meaning your husband - to you
on that phone call?
A. I said, what? And he said, that's what he said. And I said, I
have to call you back, I'm in a board meeting. And I remember
hesitating because I could tell he was afraid.
<PAGE>
CUSIP NO. 146875109 Page 37 of 55 pages
(Williams 123-24)
Upon returning to the board committee meeting, Williams
reported her conversation with Cohee to the two other directors present, Walter
Prince and Syvalia Hyman. (Williams 125-26) Prince and Hyman both corroborate
Williams' account.
(Prince Aff.P. 4; Hyman Aff.P. 4)
After speaking to Cooper and Williams, Cohee called Donald
Rice, a principal in his own municipal finance firm who owns about 2.5% of
Carver's outstanding common stock and had previously nominated himself for
election to the Carver board. (Cohee 28, 192; Ex. 17) Rice told Cohee that he
had also received a threatening call from Grain:
He said, yes, [David Grain] called. And that Morgan Stanley had
threatened him; and that he was scared; and that there were so many
ways these people could get him. And he specifically mentioned, you
know, transactions he was working on; and said that, if these people
got involved in these transactions, they could mess up his transaction;
and that this deal, you know, was not worth getting - fighting Morgan
Stanley about.
(Cohee 194)5
On January 19, the day this action was filed, Grain called
Williams and told her he had just heard about the lawsuit. Williams recounted
the conversation as follows:
A. Yes.I picked up the phone. And he said, so does this mean that
we're not going on vacation together in March because your
F'ing suing me?
I said, David, we're not suing you. Yes, you are. You're F'ing
suing me. I got a call from the Daily news that said I'm in
some
- --------
5 Mr. Rice is scheduled to be deposed by the defendants on
February 10.
<PAGE>
CUSIP NO. 146875109 Page 38 of 55 pages
lawsuit. I'm going to kill your husband. I'm going to kill
your husband. I know you tried to talk him out of this.
I didn't say anything.
You didn't, you didn't try to talk him out of this. I'm going
to kill him. I know I should have had him talk to Bill Lewis
directly and stayed out of this. Well, what do you suggest I
do?
I said, David, I think you should seek counsel or a sage or
someone you could talk to.
Seek counsel? Personally? Well, what's your husband's cell
phone number? He's the one I usually call for counsel.
I said, maybe at some point in the future we can sit down with
your mother and talk about what happened.
My mother? Why are you bringing my mother into this?
I said, well, I just think Dora is wise.
Yes, she is wise. She usually says stuff I don't want to hear.
Well I'm glad my bon[us] cleared. Or I'm glad - yeah, I'm glad
my bon[us] cleared. Well what's really important to me is that
you all recognize that this is business and not personal.
And I said, David, I recognize this is business.
You do? Well, because that's what's really important. Do you
think your husband does, too?
And I said, yeah, I think Kevin does. And he said something
about he's turning it over to his legal - or he directed the
news to his legal people. And then we hung up the phone.
(Williams 146-48) In that conversation, Grain did not deny having threatened
Cohee at Lewis's direction. Immediately after the call, Williams took notes on
what Grain had said. (Williams 152; Ex. 53)
<PAGE>
CUSIP NO. 146875109 Page 39 of 55 pages
Grain admits that Lewis called him on the morning of January
12 to talk about Morgan Stanley's investment in Carver and that Lewis told him
he had a message for Cohee and Rice. (Grain 7-9) Grain further admits having
called Cohee and Rice shortly after speaking to Lewis that morning. (Grain
21-22) Grain also admits calling Williams on January 19 immediately after
getting a call from The Daily News, beginning that conversation by asking if
they would still be going on vacation together and closing that conversation by
exclaiming that he was glad that his bonus check had cleared. (Grain 36, 40)
Obviously fearing for the loss of his bonus and his job, Grain
excises from his various conversations those aspects that are damaging to Morgan
Stanley. According to Grain, Lewis told Grain (and Grain in turn told Cohee and
Rice) that the Carver transaction had the support of the upper levels of Morgan
Stanley, including Chief Executive Officer Phil Purcell and President John Mack,
and that Cohee should be happy and that Cohee could "take credit" for it. (Grain
8-9, 16, 22-23, 27) Why Lewis would make such an opaque remark to Grain, why
Grain would spontaneously pass it on to Cohee and Rice, and how and why Cohee
and Williams would make up and transcribe everything else, is left unexplained.
L. Carver Pretends There Is No Proxy Contest.
------------------------------------------
Apparently confident that Cohee and Williams would get the
message and abandon their proxy contest, Carver's preliminary proxy statement
filed on January 12, 2000 pretended that the upcoming election was uncontested.
The preliminary proxy statement did not mention that BBC Capital had nominated
Cohee and Williams
<PAGE>
CUSIP NO. 146875109 Page 40 of 55 pages
(Ex. 50), even though BBC Capital had filed suit to compel
the annual meeting and had secured a stipulation that Cohee and Williams were
validly nominated. (Ex. 25)
R. Carver's Board Makes No Investigation.
-------------------------------------
In the aftermath of this lawsuit, the conduct of Carver's
board is as disquieting as that of Morgan Stanley and reminiscent of the supine
Macmillan board. Each of the five directors who were deposed had received a copy
of the Complaint, and the attached handwritten notes of Kevin Cohee. Each
professed concern for whether or not the allegations were true. Yet none of the
directors have taken any steps to inquire of anyone whether Grain made the
threats that are attributed to him or even discuss among themselves what should
be done. (Dinkins 13-14; Dunham 20; Johnson 7-8; Terrell 68-70; Wright 15-16,
19-20) Wright, who has seen Lewis and Grain socially since the lawsuit was
filed, testified that it would be "inappropriate" to ask Grain about it. (Wright
14-15) Wright's supreme indifference to the conduct of her patrons, to whom she
is eternally indebted, speaks volumes about how she has betrayed her fiduciary
responsibilities and allowed the corporate governance processes at Carver to
have been corrupted.
<PAGE>
CUSIP NO. 146875109 Page 41 of 55 pages
ARGUMENT
A preliminary injunction will issue if the plaintiff
demonstrates a reasonable probability of success on the merits, that irreparable
harm will occur absent the injunction, and that the harm the plaintiff would
suffer absent an injunction outweighs the harm to the defendant if relief is
granted. Allen v. Prime Computer, Inc., Del. Supr., 540 A.2d 417, 419 (1988).
Preliminary injunctive relief is particularly appropriate when a plaintiff makes
a showing that a board of directors has interfered with the stockholder
franchise. See id. at 421. --- ---
I. OVERWHELMING EVIDENCE DEMONSTRATES THAT CARVER
ISSUED SHARES TO WRIGHT'S ANTI-TAKEOVER ADVISORS
FOR THE IMPROPER PURPOSE OF THWARTING A PROXY
CONTEST BY BBC CAPITAL.
-----------------------
"Because of the overriding importance of voting rights, [the
Delaware courts] have consistently acted to protect stockholders from
unwarranted interference with such rights." Paramount Communications Inc. v. QVC
Network Inc., Del. Supr., 637 A.2d 34, 42 & n.11 (1993) (collecting cases). The
seminal case is Schnell v. Chris- Craft Industries, Inc., Del. Supr., 285 A.2d
437 (1971), in which the Delaware Supreme
<PAGE>
CUSIP NO. 146875109 Page 42 of 55 pages
Court decreed that board action taken for "the purpose of obstructing the
legitimate efforts of dissident stockholders in the exercise of their rights to
undertake a proxy contest" is "inequitable" and "may not be permitted to stand."
Id. at 439. ---
More recently, in Blasius Industries, Inc. v. Atlas Corp.,
Del. Ch., 564 A.2d 651 (1988), this Court articulated the applicable rule. A
board of directors bears "the heavy burden of demonstrating a compelling
justification" whenever it has taken action "for the primary purpose of impeding
the exercise of stockholder voting power." Id. at 661. ---
Here, there were none of the hypothetical "extreme
circumstances" in which a board could conceivably justify interfering with a
vote. Id. at 662 n.5. BBC Capital was not threatening to act in a coercive
manner. It is only seeking to convince a plurality of stockholders to elect
Cohee and Williams as minority directors to Carver's staggered board.
Blasius applies here in its "free standing" form. Kidsco Inc.
v. Dinsmore, Del. Ch., 674 A.2d 483, 495 (1995). Carver cannot claim that it was
defending against anything other than an imminent vote. But as Chancellor Allen
observed in Stahl v. Apple Bancorp, Inc., Del. Ch., 579 A.2d 1115, 1124 (1990),
"the prospect of losing a validly conducted shareholder vote cannot, in my
opinion, constitute a legitimate threat to a corporate interest" justifying
defensive action.
<PAGE>
CUSIP NO. 146875109 Page 44 of 55 pages
On several occasions, this Court has been asked to evaluate
whether a board of directors issued stock for the sole or primary purpose of
impeding the effective exercise of stockholder action. By every measure applied
in those cases to divine a board's true purpose, Wright's collaboration with
Lewis and Terrell to engineer the record-date issuance of stock to Morgan
Stanley and Provender cannot stand.
A. Carver Issued Stock to the Most Friendly of Hands -- Wright's
Long-Time Personal Advisors and Committed Allies.
When stock has been issued to friendly hands, this Court has
not hesitated to find an improper purpose. See Viele v Devaney, Del. Ch., 679
A.2d 993, 997 (1996) ("[T]he fact that the recipients of the newly issued stock
were the defendants, their relatives, an Atlas employee loyal to Devaney, and a
trust that Devaney controlled, only further confirms that the contested stock
issuance had no independent business purpose."); WNH Investments, LLC v. Batzel,
C.A. No. 13931, 1995 Del. Ch. LEXIS 47 (Apr. 28, 1995) (setting aside issuance
of stock to directors and management); Commonwealth Assocs. v. Providence Health
Care, Inc., C.A. No. 13135, 1993 Del. Ch. LEXIS 231 at *26-27 (Oct. 22, 1993)
("a preliminary assessment of the record is radically inconsistent with the
interpretation that Mr. Cummings happened to negotiate the sale of 20% of
Providence stock into friendly hands"). Cf. Glazer v. Zapata, Del. Ch., 658 A.2d
<PAGE>
CUSIP NO. 146875109 Page 45 of 55 pages
176, 184 (1993) (noting that entrenchment can be inferred from "social facts
that may run deeper (and be less observable than) formal legal rights and
duties").
Wright admitted in her draft January 6 memo to the board that
the principal objective of the issuances was to place stock in "friendly" hands.
Terrell and Lewis were more than "good friends." Terrell had orchestrated the
hiring of Wright by having his colleagues at Provender coach her so that she
would appear to be a plausible candidate to be Carver's CEO. Now they were
continuing their project, by sitting on her kitchen cabinet, helping draft
Carver's strategic plan and staving off a challenge to her control. Terrell
himself had previously attempted to ward off BBOC. Lewis was Wright's principal
advisor for takeover defense. He had gathered a team at Morgan Stanley to assist
Carver for free. When it came time to procure votes, Wright knew that her
friends would not let her down.
B. Wright Cut Corners, Gave a Deadline to Morgan Stanley and
Convinced Terrell to Cease Due Diligence to Get Stock Issued by
the Record Date.
The frantic effort to issue stock by the record date is a
telling indicator that stock has been issued for an improper purpose. WNH
Investments, 1995 Del. Ch. LEXIS 47 at *17-18 ("I cannot accept the contention
that the timing and effect of the dilutive issuance was coincidental. . . .
Defendants did too much too soon with too little disclosure to justify a
contrary conclusion.") (internal quotation omitted); Commonwealth Associates,
1993 Del. Ch. LEXIS 231 at *27 ("Plainly the effect that stock placement had on
the consent solicitation was not collateral or secondary but was the main,
principal, indeed probably the sole reason to acquire immediately, and for
Providence stock, a larger interest in NuMed that had only days earlier been
thought a contingent future proposition."); Packer v. Yampol, C.A. No. 8432,
1986 Del. Ch. LEXIS 413 at *47-49 (Apr. 18, 1986) ("The period of negotiations
and document preparation occupied no more than two weeks, and the preferred
stock was issued on March 25, 1986, i.e., in time to be eligible to be voted at
the stockholders' meeting which had a record date of April 15, 1986. . . . [N]o
reason has been shown why, at the very least, the transaction could not have
been made conditional upon the Preferred not being voted until after the May 13,
1986 election of directors.").
Here, two separate transactions were rushed to completion in
the nick of time. Multiple Morgan Stanley internal e-mails attest to the urgency
the Morgan Stanley team felt to complete due diligence, get documents drafted
and secure board approval prior to the Company-imposed record-date deadline. As
one such e-mail stated: "As we all know, not making the investment deadline of
the record date is not an option." (Ex. 29) To save time, Morgan Stanley and
Carver even used the same law firm.
<PAGE>
CUSIP NO. 146875109 Page 46 of 55 pages
Wright's conduct shows she was driven to issue shares by the
record date of January 11. On December 21, Wright had requested a term sheet
from Morgan Stanley so that Carver's financial advisor could analyze its terms
and deliver a fairness opinion. Yet when Morgan Stanley finally initiated
pricing negotiations on Friday January 7, and did so at terms outside the range
Wright had given her board the previous day, Wright plowed forward, wrapping up
the negotiations within 24 hours. Keefe, Bruyette, Carver's putative independent
advisor, had no time to provide any substantive, written analysis to Wright or
the Carver board.
The pace and result of Wright's negotiations with Terrell
would be downright comical were it not so disquieting. Provender initially
sought non-voting notes and warrants. On January 7, Terrell delivered a term
sheet expressing interest in purchasing convertible preferred stock that did not
vote generally in the election of directors. Provender's targeted closing date
was February 1, 2000, after Provender completed its "Remaining Due Diligence,"
which consisted of reference checks to be completed during the second week of
January, legal due diligence to begin during the week of January 24, and a
review of Carver's internal accounting records. (Ex. 41 at PR118) Yet without
conducting any additional due diligence, Provender agreed over the weekend of
January 8-9 to buy preferred stock that carried voting rights. (Terrell 38-41)
There was only one reason why the parties cut corners to
complete the transactions by January 11 - to put shares in the hands of friends
who would vote for Carver's incumbent directors.
<PAGE>
CUSIP NO. 146875109 Page 47 of 55 pages
C. Morgan Stanley and Provender Accommodate Carver By Entering into
Voting Restrictions.
To ascertain a board's purpose in issuing shares, this Court
examines whether incumbent directors control in any respect how the stock is
voted, or whether the recipients of the stock have covenanted "not to vote
against incumbents or the proposals they endorse, or not to run a proxy contest
or be part of a group for that purpose." Glazer, 658 A.2d at 183.
Such terms are present here. Section 5.03 of the Securities
Purchase Agreement expressly prohibits Morgan Stanley and Provender (and their
successors and assigns) from encouraging a business combination, participating
in a solicitation of proxies, granting any proxies other than as Carver's board
recommends, or supporting stockholder proposals other than as Carver's board
recommends. (Ex. 46 ss. 5.03 at PR67)
Voting restrictions of this type are deeply suspect, and are
voided in equity, where they reflect an effort by corporate boards "to control
the vote of their own shares." Stockbridge v. Investment Partners, Inc. v.
Amserv Healthcare, Inc., Del. Ch., C.A. No. 14330, Allen, C., trans. at 35 (Aug.
23, 1995); see also Abajian v. Kennedy, C.A. No. 11425, 1992 Del. Ch. LEXIS 6 at
*18-23 (Jan. 17, 1992); Speiser v. Baker, Del. Ch., 525 A.2d 1001, 1008 (1987).
As Chancellor Allen stated in a similar circumstance where parties acted
brazenly to secure votes:
The issuing of stock and granting of an irrevocable proxy to
management is something that's hard for me to think that sophisticated
corporate lawyers really approved of before it was done. Perhaps they
are high risk takers. But it is not an appropriate course of action
ordinarily, in my view. But in all events, it was done here.
Stockbridge, trans. at 35.
- -----------
Here, the voting restrictions are further evidence of Wright's
entrenchment purpose. Without informing the board (Dinkins 47; Johnson 16; see
Dunham 25), Wright entered into an agreement with friendly parties who were
willing to accommodate her
<PAGE>
CUSIP NO. 146875109 Page 48 of 55 pages
interest in maintaining control by contracting away their power to take or
support any hostile action.
D. Wright's Memos and Morgan Stanley's Conduct Are Direct Evidence
of an Intent to Thwart a Proxy Contest.
This is a rare case. Not only is there "direct evidence that
the stock was issued to keep control," WNH Investments, 1995 Del. Ch. LEXIS 47
at *19, such evidence is abundant. It is found in Wright's writings and in
Morgan Stanley's actions.
Wright's writings make clear that her principal objective in
issuing stock was to garner the votes needed to prevail at the annual meeting.
In her draft memo to the board on January 6, the first of three bullet points
listing Carver's objectives reads as follows: "Friendly votes for upcoming
shareholders' meeting." (Ex. 39 at C231) Wright's handwritten notes on the very
page she recorded her price negotiations with Morgan Stanley and Provender make
clear what was uppermost in her mind: "#1 Goal = Win on Feb. 24.: make
shareholders happy." (Ex. 43 at C519) Once the deals closed, Wright was ready to
celebrate with Morgan Stanley impending victory at the shareholders meeting.
(Ex. 51)
The threat Lewis instructed Grain to deliver to Cohee and Rice
is perhaps the best evidence of the transaction's true objective -- to stop the
proxy contest dead in its tracks. Lewis was the person who authored Carver's
anti-takeover strategy. He
<PAGE>
CUSIP NO. 146875109 Page 49 of 55 pages
marshaled a team at Morgan Stanley to help Wright retain control. Lewis's
thuggery -- which is more than amply corroborated by the entirety of the record
- -- is inseparable from Morgan Stanley's motive to protect Wright's job by buying
an equity stake in Carver.
II. WRIGHT AND HER ADVISORS DEFRAUDED A SUPINE BOARD.
-------------------------------------------------
In Mills Acquisition Co. v. MacMillan, Inc., Del. Supr. 559
A.2d 1261 (1989), the Delaware Supreme Court enunciated principles designed to
protect stockholders who rely on the proper functioning of a board's evaluative
and deliberative processes.
First, the Court declared that inside directors "may not use
superior information or knowledge to mislead others in the performance of their
own fiduciary obligations" and that "those who join in such misconduct,"
including advisors, "are equally tainted." Id. at 1283 & 1284 n.33.
Second, the Court declared that outside directors breach their
duties of loyalty and care when they abandon their oversight functions and
create an environment in which insiders can act freely and improperly. Id. at
1284 n.32. The Court chastised the MacMillan board for being "torpid, if not
supine" in placing a decision-making process in the hands of an inside director
and his chosen advisors, and thereby
<PAGE>
CUSIP NO. 146875109 Page 50 of 55 pages
"materially contributed to the unprincipled conduct of those upon whom it looked
with a blind eye." Id. at 1280
Third, the Court provided a remedy for such misconduct,
declaring that when a board is deceived, the protections of the business
judgment rule vanish and the decisions reached by the board "are voidable at the
behest of innocent parties to whom a fiduciary duty was owed and breached, and
whose interests were thereby materially and adversely affected." Id. at 1284.
Each of these principles is applicable here.
Wright chose not to advise the board that it was Carver's
objective to place votes in friendly hands. (Johnson 15; Dinkins 20; Dunham 25)
Carver's lawyer, Kofi Appenteng, knew of that objective, but said nothing. Nor
did Wright disclose any of the basic facts that made that objective apparent.
The outsiders did not know they were being asked to issue shares to Wright's
anti-takeover advisors (Dunham 21-22), that both transactions were rushed to
completion so that they would close by the record date (Johnson 16; Dinkins 22;
Dunham 25), or that Morgan Stanley and Provender had agreed not to grant a proxy
without board approval (Johnson 16; Dinkins 47).
The board has allowed Wright and her advisors to run roughshod
over them. Wright has hired a public relations firm and a financial advisor
without retention
<PAGE>
CUSIP NO. 146875109 Page 51 of 55 pages
agreements. (Wright 54-56) Without the board's knowledge, Wright allowed Davis
Polk & Wardwell to represent both sides of the transaction between Carver and
its antitakeover advisor, Morgan Stanley. (Dunham 35) No member of the
nominating committee interviewed Terrell prior to his appointment to the board.
(Dunham 33) When Wright's principal advisor at Morgan Stanley was accused of
unconscionable wrongdoing, the board did not even inquire into, let alone
investigate, and disavow, Morgan Stanley's crude threats.
The board relied on a so-called independent advisor, Keefe,
Bruyette, who through its partner Duffy was complicit in the rush to get voting
shares issued to Wright's advisors before the record date and then gave an
uninformed and patently unreliable oral "expert" opinion that the transaction
was fair, without providing the board with any truly comparable transactions,
without any written analysis that supported his opinion and without any apparent
serious questioning from the board.6
In ignorance, the board approved transactions that were no
less harmful to BBC Capital than the disparate treatment in MacMillan was
harmful to Maxwell. The outside directors were misled to believe Carver was
simply raising capital, when
- --------
6 This is the same board whose members admitted they earlier had
rejected a BBOC merger proposal in the face of advice it was
"reasonable from a financial perspective" (Ex. 8 at M2670),
claiming that they did not have the capacity to judge its
fairness (Dunham 15-18; Dinkins 43), because Carver's Chairman
opposed the proposal (Dinkins 43), and because of newspaper
reports, the veracity of which went untested. (Johnson 34-37,
41)
<PAGE>
CUSIP NO. 146875109 Page 52 of 55 pages
Wright and her advisers knew that the stock issuances were the culmination of
months of anti-takeover strategy.
III. A PRELIMINARY INJUNCTION IS THE ONLY REMEDY THAT WILL
AFFORD AN UNTAINTED ELECTION CONTEST.
Where a strong showing has been made that a board of directors
has interfered with the stockholder franchise, a preliminary injunction is
recognized to be the appropriate remedy. Two of the reasons were articulated in
Allen v. Prime Computer, Inc., Del. Supr., 540 A.2d 417 (1988). The deprivation
of voting rights is an injury not reasonably compensable in damages, and a
strong showing on the merits may compensate for even a weak showing of
irreparable harm. Id. at 421.
In cases involving improper issuances of stock, this Court has
expounded on the irreparable injury flowing from a thwarted election contest:
If one concludes that Section 228 creates a right in corporate
shareholders to take effective action and that the duty of loyalty
ought to bar those in control of the corporation from taking action
designed solely or primarily to thwart effective exercise of that
right, then I conclude that it follows that the bare-bone facts not in
dispute show that it is quite likely that a wrong has been done here.
More to [the] point, that violation of statute and
<PAGE>
CUSIP NO. 146875109 Page 53 of 55 pages
fiduciary duty and breach of contract will cause injury that is
difficult or impossible to quantify. In these circumstances the
violation of duty shown supports findings of irreparable injury.
Commonwealth Assoc. v. Providence Health Care, Inc., C.A. No. 13135, 1993 Del.
Ch. LEXIS 231 at *27-28 (Oct. 22, 1993).
A few years earlier, in Packer v. Yampol, C.A. No. 8432, 1986
Del. Ch. LEXIS 413 (Apr. 18, 1986), this Court explained why preliminary
injunctive relief restraining the voting of illegally issued preferred stock is
the only sensible remedy:
It has been established, at least for present purposes, that the
supervoting Preferred will, at the very least, substantially influence
the outcome of the election and will have a chilling effect on the
plaintiffs' proxy solicitation. If the May 13, 1986 election went
forward and the Preferred stock were thereafter found to be valid, then
admittedly the Preferred would have no actionable impact on the
election. However, if the Preferred were ultimately found to be
invalid, the election would have been prejudicially tainted, would have
to be invalidated, and a new election, free of any tainting influence,
would have to be held. A course that might yield such an undesirable
result should be avoided of possible. No authority is cited which would
require such an approach.
In this case, a preliminary adjudication in advance of the
shareholders' meeting appears to be the more sensible way to proceed.
The harm threatened here is to the corporate electoral process, a
process which carries with it the right of shareholder to a meaningful
exercise of
<PAGE>
CUSIP NO. 146875109 Page 54 of 55 pages
their voting franchise and to a fair proxy contest with an informed
electorate. Harm of that nature must be prevented before a
shareholders' meeting in case where, as here, any post-meeting
adjudication might come too late.
For the foregoing reasons, I am satisfied that plaintiffs have
met the criteria for establishing irreparable harm.
Id. at *31-33 (citations omitted).
The overwhelming record evidence demonstrates that Carver
strove to issue stock to Morgan Stanley and Provender when they did because they
believed such issuances would have a decisive impact on any proxy contest. As
Morgan Stanley put it, "As we all know, not making the investment deadline of
the record date is not an option." (Ex. 29) As Wright put it in her
contemporaneous writing, her objective in issuing the stock was: "Friendly votes
for upcoming shareholders' meeting." (Ex. 39 at C231)7
Defendants have no equity in preserving their ill-gained
advantages, which would serve to taint the upcoming election.
Equally, there can be no justification or excuse for Morgan
Stanley's unconscionable conduct. Threats to do harm to the business of a proxy
contestant if he
7 That Wright later testified falsely about this objective
demonstrates her knowledge that what she and her advisors was
doing was unlawful and that their interference with the
stockholder franchise was intentional.
<PAGE>
CUSIP NO. 146875109 Page 50 of 55 pages
does not withdraw, such as were made here, cannot be tolerated if Delaware
corporate franchise rights are to be preserved. An injunction against Morgan
Stanley should issue so that it, and any other Wall Street behemoth which thinks
this type of behavior is acceptable in a Delaware election contest, will know
the consequences of such thuggery.
For the foregoing reasons, plaintiff respectfully requests
that its motion for a preliminary injunction be granted, so that the plaintiff
and the public stockholders will have the benefit of a full and fair contest to
elect directors at Carver.
/s/ Andre G. Bouchard
---------------------
Andre G. Bouchard
Joel Friedlander
BOUCHARD MARGULES & FRIEDLANDER
222 Delaware Avenue, Suite 1102
Wilmington, DE 19801
(302) 573-3500
Attorneys for Plaintiff
OF COUNSEL:
Stuart L. Shapiro
SHAPIRO FORMAN & ALLEN LLP
380 Madison Avenue
New York, NY 10017
(212) 972-4900
DATED: February 7, 2000
