SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 4
TO
SCHEDULE 14D-9
Solicitation/Recommendation Statement
Pursuant to Section 14(d)(4) of the
Securities Exchange Act of 1934
FIRST INTERSTATE BANCORP
(Name of Subject Company)
FIRST INTERSTATE BANCORP
(Name of Person Filing Statement)
COMMON STOCK, PAR VALUE $2.00 PER SHARE
(INCLUDING THE ASSOCIATED COMMON STOCK PURCHASE RIGHTS)
(Title of Class of Securities)
320548100
(CUSIP Number of Class of Securities)
WILLIAM J. BOGAARD, ESQ.
EXECUTIVE VICE PRESIDENT AND GENERAL COUNSEL
FIRST INTERSTATE BANCORP
633 WEST FIFTH STREET
LOS ANGELES, CA 90071
(213) 614-3001
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON
AUTHORIZED TO RECEIVE NOTICE AND COMMUNICATIONS
ON BEHALF OF THE PERSON FILING STATEMENT)
COPY TO:
FRED B. WHITE III, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM
919 THIRD AVENUE
NEW YORK, NEW YORK 10022
(212) 735-3000
First Interstate Bancorp ("First Interstate") hereby
amends and supplements its statement on Schedule 14D-9
initially filed with the Securities and Exchange
Commission on November 20, 1995, as amended by Amendments
No. 1 through No. 3 thereto (the "Schedule 14D-9").
Unless otherwise indicated herein, each capitalized term
used but not defined herein shall have the meaning
assigned to such term in the Schedule 14D-9.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
The information set forth in the "Litigation"
subsection of Item (8) of the Schedule 14D-9 is hereby
amended and supplemented by the following information:
On December 12, 1995 the plaintiffs in the Delaware
Consolidated Action were granted leave to file a Third
Amended and Supplemental Class Action Complaint (the
"Third Amended Complaint"). In addition to the claims
previously alleged in the Second Amended Complaint, the
Third Amended Complaint alleges that the First Interstate
Board, during its evaluation of potential strategic
partners, failed to consider adequately that FBS'
repurchases of its own stock "artificially inflated or
supported" the market price of FBS' common stock and
therefore effected negatively the fairness of the
consideration offered in the Merger. The Third Amended
Complaint also alleges that First Interstate's Schedule
14D-9, press release and letter to shareholders, all
dated and filed with the SEC on November 20, 1995,
contain untrue statements of material facts and omit
other material facts. In addition to the relief
previously requested, the Third Amended Complaint
requests, among other things, an order compelling the
defendants to make supplemental disclosure of the
allegedly omitted facts. The defendants intend to defend
vigorously against these new claims.
On December 18, 1995 First Interstate filed suit
against Wells in the Federal District Court in Delaware
(the "Delaware Federal Action"). In its complaint, First
Interstate alleges that Wells has embarked upon a
campaign of deceit and manipulation designed to undermine
the Merger and force the First Interstate Board to accept
the Wells Offer. First Interstate alleges that Wells'
campaign has included non-disclosure and
misrepresentation of numerous material facts in violation
of Sections 14(a) and 14(e) of the Securities Exchange
Act of 1934, as amended. First Interstate requests,
among other things, injunctive relief ordering Wells to
publicly disclose and correct its violations of the
securities laws. First Interstate also requests an order
enjoining Wells from pursuing the Wells Offer until such
time in 1996 as the 1996 earnings and other estimates
disseminated by Wells can be verified or disproved
through the reporting of actual earnings. First
Interstate intends to pursue vigorously these claims.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
The following Exhibits are filed herewith:
Exhibit 45: Third Amended and Supplemental Class
Action Complaint in In re First Interstate
Bancorp Shareholder Litig. (Delaware
Chancery Court).
Exhibit 46: Complaint in First Interstate Bancorp v.
Wells Fargo & Company, et al. (Delaware
Chancery Court).
SIGNATURE
After reasonable inquiry and to the best of its
knowledge and belief, the undersigned certifies that the
information set forth in this statement is true, complete
and correct.
FIRST INTERSTATE BANCORP
By: /s/ William J. Bogaard
William J. Bogaard
Executive Vice President
and General Counsel
Dated: December 19, 1995
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
- - - - - - - - - - - - - - - - - x
: Consolidated
IN RE FIRST INTERSTATE BANCORP C.A. No. 14623
SHAREHOLDER LITIGATION, :
THIRD AMENDED AND
: SUPPLEMENTAL CLASS
ACTION COMPLAINT
- - - - - - - - - - - - - - - - - x
Plaintiffs allege upon information and belief
except as to paragraph 1, which is alleged on knowledge, as
follows:
THE PARTIES
1. Plaintiffs are and have been at all relevant
times, the owners of shares of the common stock of First
Interstate Bancorp ("First Interstate" or the "Company").
2. First Interstate is a bank holding company
organized and existing under the laws of the State of
Delaware. First Interstate operates approximately 1,000
offices in 13 states. It has approximately 76 million
shares of common stock issued and outstanding, held by
approximately 25,000 shareholders of record. Its shares are
traded on various stock exchanges, including the New York
Stock Exchange.
3. (a) Defendant Edward M. Carson ("Carson") is
and was at all relevant times Chairman of the Board of
Directors of First Interstate.
(b) Defendant William S. Randall ("Randall")
is and was at all relevant times a Director and Executive
Vice President and Chief Operating Officer of First
Interstate.
(c) Defendant William E.B. Siart ("Siart")
is and was at all relevant times a Director and President
and Chief Executive Officer of First Interstate.
(d) Defendants John E. Bryson ("Bryson"),
Jewel Plummer Cobb ("Cobb"), Ralph P. Davidson ("Davidson"),
Myron Du Bain ("Du Bain"), Don C. Frisbee ("Frisbee"),
George M. Keller ("Keller"), Thomas L. Lee ("Lee"), William
F. Miller ("Miller"), Steven B. Sample ("Sample"), Forrest
N. Shumway ("Shumway"), Richard J. Stegemeier ("Stegemeier")
and Daniel M. Tellep ("Tellep") (together with defendants
Carson, Randall and Siart "the Individual Defendants") are
and were at all relevant times directors of the Company.
4. The Individual Defendants are in a fiduciary
relationship with plaintiffs and the other public
stockholders of First Interstate and owe to plaintiffs and
other members of the class (as hereinafter defined) the
highest obligations of good faith, fair dealing and full and
candid disclosure.
5. Defendant First Bank System, Inc. ("First
Bank") is a Delaware bank holding corporation headquartered
in Minneapolis, Minnesota. First Bank is named herein as an
aider and abettor to the breaches of fiduciary duty alleged
herein.
6. Defendant Eleven Acquisition Corporation is a
Delaware corporation formed by First Bank for the purpose of
effecting the First Bank Merger (defined below).
CLASS ACTION ALLEGATIONS
7. Plaintiffs bring this case on their own
behalf and as a class action, pursuant to Rule 23 of the
Rules of the Court of Chancery, on behalf of all record and
beneficial holders of First Interstate common stock as of
October 17, 1995, and their successors in interest.
Excluded from the class are defendants and any person, firm,
trust, corporation, or other entity related to or affiliated
with any of the defendants.
8. This action is properly maintainable as a
class action.
9. The class is so numerous that joinder of all
members is impracticable. There are approximately 25,000
stockholders of record located throughout the United States.
10. There are questions of law and fact which are
common to the class and which predominate over questions
affecting any individual class member, including whether the
Individual Defendants have breached their fiduciary duties
owed to plaintiffs and other members of the class.
11. Plaintiffs are committed to prosecuting this
action and have retained competent counsel experienced in
litigation of this nature. The claims of plaintiffs are
typical of the claims of other members of the class and
plaintiffs have the same interests as the other members of
the class. Accordingly, plaintiffs are adequate
representatives of the class and will fairly and adequately
protect the interests of the class.
12. The prosecution of separate actions by
individual members of the class would create the risk of
inconsistent or varying adjudications with respect to
individual members of the class which would establish
incompatible standards of conduct for defendants, or
adjudications with respect to individual members of the
class which would as a practical matter be dispositive of
interests of the other members not parties to the
adjudications or substantially impair or impede their
ability to protect their interests.
13. The defendants have acted, or refused to act,
on grounds generally applicable to, and causing injury to,
the class and, therefore, preliminary and final injunctive
relief on behalf of the class as a whole is appropriate.
BACKGROUND AND CLAIM FOR RELIEF
THE ORIGINAL WELLS FARGO PROPOSAL
14. Wells Fargo & Company ("Wells Fargo") is a
Delaware corporation with executive offices at 420
Montgomery Street, San Francisco, California. Wells Fargo
is a bank holding company with subsidiaries that perform
commercial banking operations, investment advisory services,
international and mortgage banking services, credit card
services and other related financial activities.
15. Wells Fargo has long been interested in
acquiring First Interstate. In February 1994, Wells Fargo
offered to purchase the Company, which offer was rebuffed by
First Interstate. Paul Hazen ("Hazen"), Chairman of Wells
Fargo, met with defendant Siart in or around the first two
weeks of October, 1995 to discuss a possible transaction,
and was once again rebuffed.
16. On or about October 17, 1995, Hazen
telephoned Siart and informed him that Wells Fargo intended
to deliver a letter concerning a merger proposal to the
Company and would like to meet with Siart to discuss it.
Siart indicated that he saw no reason to meet with Hazen.
Later that day, Wells Fargo's written merger proposal was
delivered to the Company.
17. On or about October 18, 1995, Wells Fargo
announced in a press release that it had submitted an
unsolicited merger proposal to First Interstate to acquire
100 percent of the Company's common stock (the "original WF
proposal"). Pursuant to the terms of the original WF
proposal, First Interstate shareholders would receive .625
of a share of Wells Fargo stock, representing a value of
$133.50 for each First Interstate share based on the then-
current trading price of Wells Fargo stock. The
transaction, valued at approximately $10 billion,
contemplated a merger of First Interstate and Wells Fargo
into a new company.
18. The reaction of the investment community to
the original WF proposal was positive. Analysts noted that
the proposal was nearly three times First Interstate's book
value, and that most recent bank mergers were priced closer
to 2 to 2-1/2 times book value. Analysts referred to the
proposal as "a knockout bid" (Bert Ely, an Alexandria,
Virginia banking consultant); an "excellent" potential
combination (Jeff Simons of Mackay Shields Financial Corp.,
which owns 1.4 million Company shares); and a "super deal"
(Paul McKey of Dean Witter Reynolds). It was further
reported that Kohlberg Kravis Roberts & Co., which owns
approximately 9% of the Company's stock, supported the
original WF proposal.
19. In response to Wells Fargo's announcement on
October 18, 1995, the Company's stock price soared from $106
per share to over $140 per share. Additionally, the price
of Wells Fargo stock increased immediately after the
announcement of the original WF proposal approximately 7%,
to $229 per share.
FIRST INTERSTATE'S RESPONSE AND THE FIRST BANK MERGER
20. In contrast to the positive reaction of the
investment community, the Company promptly reacted
negatively to the original WF proposal. On October 18,
1995, defendant Siart stated "I am deeply disappointed that
Wells Fargo would take this uninvited action." Siart
reportedly also stated that it was in First Interstate's
best interest to take six months to consider the Company's
other options.
21. Thereafter, and prior to November 6, 1995,
Wells Fargo offered to increase its offer to .65 shares of
Wells Fargo common stock per each First Interstate share
(the "amended WF proposal") . In response, the First
Interstate Board initiated an active bidding process seeking
to sell First Interstate. First Interstate met and shared
confidential information with at least three banks,
including First Bank, Norwest Corporation and Banc One
Corporation. However, in breach of fiduciary duties to First
Interstate's public shareholders, the First Interstate Board
wrongfully failed duly to explore, consider and evaluate the
available alternatives, and to proceed in good faith to
negotiate with respect to the alternatives to obtain the
best transaction reasonably available for First Interstate
shareholders.
22. Less than three weeks later, on or about
November 6, 1995, First Interstate announced that it had
agreed to be acquired by First Bank ("First Bank Merger") in
a transaction which would give the First Interstate
stockholders lower consideration than in the original WF
proposal. Pursuant to the terms of the First Bank Merger,
First Bank will exchange 2.6 shares of its common stock for
each First Interstate share of common stock, purportedly
valuing the Company's stock at $129.68 per share, for a
total value of $10.05 billion.
23. In connection with the First Bank Merger,
First Interstate and First Bank agreed to a $100 million
termination fee in the event a third party offer were
accepted by First Interstate. Moreover, as a condition to
the First Bank Merger, First Interstate and First Bank
entered into reciprocal stock option agreements as of
November 5, 1995 pursuant to which First Interstate granted
First Bank an option to purchase up to 15,073,106 shares of
the Company's common stock at a price of $127.75 per share
and First Bank granted First Interstate an option to
purchase up to 25,829,983 shares of First Bank common stock
at a price of $50.875 per share. First Bank could reap
profits of as much as $100,000,000 from the option granted
to it. As a consequence of the termination fee and option
agreement, Wells Fargo or any other interested bidder might
have to pay First Bank as much as $200,000,000 if the First
Bank Merger were terminated.
24. As a special enticement to the Individual
Defendants to accept the First Bank Merger, First Bank
agreed that the combined company would be called First
Interstate and, although it would maintain principal offices
in Minneapolis, its "core businesses" would be run from
California, an obvious effort to placate First Interstate
executives. Thus, the First Bank Merger assures that
defendant Siart (who will be second in command in the
combined company) and other First Interstate executives will
maintain their positions and the valuable perquisites which
flow therefrom. In addition, the Board of Directors of the
combined entity will be evenly divided between First Bank
and First Interstate directors. Not surprisingly, as a
result, one analyst labeled the First Bank Merger as "a
senior management job preservation act" for First Interstate
executives.
25. In addition, the Individual Defendants, in
agreeing to the First Bank Merger, failed to effectively
conduct a fair bidding contest for the sale of the Company.
Indeed, they agreed to the First Bank Merger to thwart
spirited bidding by Wells Fargo or anyone other than First
Bank desirous of acquiring First Interstate in a value
maximizing transaction. The Individual Defendants failed to
take all steps to ensure that First Interstate's
shareholders had the benefit of the most advantageous
transaction, including but not limited to, failing to
negotiate for Wells Fargo's highest and best offer.
Moreover, it has been reported that other potential First
Interstate bidders, including Norwest Corp. or Banc One
Corp., might have offered a higher bid, but did not because
of Siart's and the other Individual Defendants' requirements
that First Interstate keep its name and California
headquarters.
26. Executives at First Bank and First Interstate
quickly sought to justify the attractiveness of the deal,
asserting that the companies would be able to save $500
million in expense reductions through overlapping
operations. However, the only overlap between the companies
is in Montana, Colorado and Wyoming. If the First Bank
Merger were consummated, elimination of this redundancy
would generate a mere one-time $80 million in savings. In
contrast, a merger between Wells Fargo and First Interstate
would create dozens of duplicate branches, which, when
eliminated, would contribute substantially to the $800
million cost cuts forecast by Wells Fargo.
27. When announced, the consideration offered by
the First Bank Merger was lower than that offered in the
original and amended WF proposals. In an effort to bolster
its stock price and thereby create the appearance that the
First Bank Merger provided consideration competitive to that
offered Company shareholders in the original and amended WF
proposals, beginning on or about November 7, 1995, First
Bank, through its broker, Donaldson, Lufkin & Jenrette
("DLJ"), began secretly purchasing large amounts of its
common stock in connection with a previously announced
repurchase program. As a result, the market price of First
Bank's stock at relevant times (i.e., shortly after the
announcement of the First Bank Merger and at the time the
Wells Fargo Offer (described below) was considered by the
Individual Defendants) was artificially inflated or
supported. Certain valuations and analyses considered by
the Individual Defendants relating to the First Bank Merger
and Wells Fargo Offer were therefore erroneous and
inaccurate.
28. Evidencing the fact that the Individual
Defendants acted precipitously and recklessly in agreeing to
the First Bank Merger with knowledge that other and higher
bids were available, on or about November l3, 1995, Wells
Fargo announced that it would commence a tender offer (the
"Offer") for First Interstate stock. Pursuant to the terms
of its Offer, Wells Fargo will give First Interstate
stockholders two-thirds of a share of Wells Fargo common
stock for each First Interstate share. Based upon the
closing price of Wells Fargo on November 10, 1995, the value
of the Offer is $143.58 per First Interstate share, or
approximately $10.9 billion in total.
29. In addition, Wells Fargo also announced on
November 13, 1995 that it intended to file preliminary proxy
materials with the SEC in connection with the solicitation
of First Interstate shareholders to vote against approval of
the First Bank Merger, and announced that it would file with
the SEC preliminary materials to solicit written consents
from First Interstate stockholders to remove the First
Interstate board and replace it with Wells Fargo nominees
who are committed to removing any impediments to the
consummation of the acquisition of First Interstate by Wells
Fargo. Moreover, on November 13, 1995, Wells Fargo filed
suit in this Court seeking declaratory and injunctive relief
against First Interstate and its Board, and First Bank and
Eleven Acquisition Corporation.
30. On or about November 20, 1995, the Individual
Defendants caused First Interstate to file its Schedule 14D-
9 (the "14D-9") with respect to the Offer. In the 14D-9,
the Company represented that it was committed to completing
the First Bank Merger and recommended that the Company's
stockholders not tender their shares in the Offer. In
reaching these decisions, and in violation of their
fiduciary obligations, the Individual Defendants failed to
adequately consider First Bank's repurchase of its shares
and the effect that had on the fairness of the consideration
offered in the First Bank Merger.
31. The l4D-9 was false and misleading, and
failed to provide sufficient information to Company
shareholders to enable them to make an informed decision as
to whether or not to tender their shares into the Offer, in
at least the following respects:
(a) First Bank's Repurchase Program. The
14D-9 failed to disclose that shortly after the announcement
of the First Bank Merger, First Bank, through DLJ, purchased
large amounts of its common stock pursuant to the repurchase
program described above; that the market value of First
Bank's stock at relevant times was thereby artificially
inflated or supported by those purchases; and that as a
result, certain valuations and analyses relating to the
fairness of the First Bank Merger consideration and the
Individual Defendants' recommendation to reject the Offer
referred to in the 14D-9 were erroneous and inaccurate. As
a result, First Interstate shareholders are unable to obtain
an accurate reading of the value of the First Bank Merger
consideration, or to meaningfully compare the value of that
transaction with that of the Offer.
(b) Failure to Disclose Comparative Implied
Purchase Prices of the Offer and First Bank Merger. In
order to compare the respective benefits of the Offer and
First Bank Merger, shareholders should have been given
information in the 14D-9 concerning the comparative purchase
prices implied by the respective transactions (i.e.,
identifying the respective implied purchase prices of the
Offer compared to the First Bank Merger at certain relevant
dates such as the date of the First Bank Merger agreement
and the date of the 14D-9), and the extent to which the
Individual Defendants relied upon such information. In
fact, such information is not included in the 14D-9.
(c) Failure to Disclose that First
Interstate Concurred With Wells Fargo's Cost Savings
Estimates. As noted in the 14D-9, one of the factors relied
upon by the Individual Defendants in approving the First
Bank Merger and rejecting the Offer was the comparative cost
savings and operating efficiencies available from a First
Bank-Company merger versus a Wells Fargo-Company
combination. In that regard, although the 14D-9 discloses
that Hazen and Siart considered Wells Fargo's cost savings
estimates resulting from a First Interstate-Wells Fargo
merger at meetings held by them on October 26 and 31, 1995,
it fails to disclose that according to Wells Fargo, Siart
stated at those meetings that First Interstate agreed with
Wells Fargo's cost savings estimates.
(d) Failure to Accurately Disclose
Information Relating to the Decision of the Individual
Defendants to Approve the First Bank Merger and Recommend
Rejection of the Offer. The 14D-9 cites a series of
"material factors" considered by the Individual Defendants
in approving the First Bank Merger and recommending
rejection of the Offer. These are false and misleading for
the reasons described below:
(i) The 14D-9 states that the Company
has a "longstanding desire to achieve greater geographic
diversification." In fact, four out of its five most recent
significant acquisitions have been in California, and the
company has sold its operations in Oklahoma and part of its
operation in New Mexico.
(ii) The 14D-9 states that a Wells
Fargo-Company merger would create a materially increased
exposure to real estate lending which "is inconsistent with
First Interstate's credit philosophy." In fact First
Interstate's internal policy has been and continues to be to
increase its real estate loan portfolio.
(iii) The 14D-9 states that the
Company's Board had "concerns" that the trading price of
Wells Fargo common stock in relation to book value and
earnings is "among the highest in the banking industry,"
which might not be sustained. However, it fails to disclose
the First Bank's stock price, which was considered by the
Individual Defendants in rejecting the Offer, was
artificially inflated or sustained as a result of First
Bank's repurchase of shares described above and could not be
sustained; and as a result, the First Bank stock price to
book value and earnings ratios considered by the Individual
Defendants were inaccurate;
32. Also on or about November 20, 1995, the
Individual Defendants caused First Interstate to disseminate
a press release (the "Nov. 20 press release") and letter to
its shareholders (the "letter to shareholders") which
described the Individual Defendants' recommendation to
reject the Offer and reaffirm the First Bank Merger. These
documents were false and misleading since they failed to
disclose First Bank's post November 5, 1995 repurchase of
shares and other related matters referred to above.
33. First Interstate also has in place a
shareholder rights plan (commonly known as a "poison pill")
which makes an unwelcome takeover of the Company
prohibitively expensive. The poison pill is triggered by
the acquisition of 20% or more of First Interstate's common
stock by a group or persons unfavored by First Interstate's
management. The poison pill effects a fundamental shift of
power from the shareholders of First Interstate to the
Individual Defendants. The poison pill permits the
Individual Defendants to act as the prime negotiators of --
and, in effect, totally to preclude -- any and all
acquisition offers which they disfavor through their power
to redeem or to refuse to redeem the rights.
34. Further, By-law 4(b) of First Interstate's
By-laws (the "By-Law") requires that notice of a nomination
of a candidate for director be "delivered to or mailed and
received at the principal executive offices of the
Corporation not less than thirty days nor more than sixty
days prior to the meeting ...". The By-law further states
that "[o]nly persons who are nominated in accordance with
[such] procedures shall be eligible for election as
directors of [First Interstate]. The By-law wrongfully
purports to restrict the power of First Interstate
stockholders to act by written consent to elect or remove
directors.
35. This fundamental shift of control of the
Company's destiny from the hands of its shareholders to the
hands of the Individual Defendants results in a heightened
fiduciary duty on their part to consider, in good faith, a
third-party bid, and further requires the Individual
Defendants to pursue a third-party's interest in acquiring
the Company and to negotiate in good faith on behalf of the
Company's shareholders with a bidder such as Wells Fargo.
In violation of their heightened fiduciary duties, the
Individual Defendants have used the poison pill to favor one
bidder -- First Bank -- over another -- Wells Fargo. The
First Bank Merger is exempt from the poison pill, whereas
the poison pill still bars Wells Fargo from proceeding with
its offer without the consent of the Individual Defendants.
FIRST CLAIM FOR RELIEF FOR BREACH OF
FIDUCIARY DUTY AND AIDING AND ABETTING
AGAINST ALL DEFENDANTS
36. Plaintiffs repeat and reallege paragraphs 1
through 35 as if fully set forth herein.
37. The Individual Defendants are obligated to
carefully consider, in a timely fashion and on an informed
basis, bona fide proposals from third parties to engage in
transactions which will maximize value for First Interstate
shareholders; not to place their own self-interests and
personal considerations ahead of the interests of the public
stockholders; and to make corporate decisions in good faith.
38. The Individual Defendants' fiduciary
obligations require them to:
(a) undertake an appropriate evaluation of
all bona fide offers, and take appropriate steps to consider
all potential bids for the Company or its assets or explore
strategic alternatives, in order to maximize shareholder
value;
(b) act independently, including appointing
a disinterested committee so that the interests of First
Interstate's public stockholders will be protected;
(c) adequately ensure that no conflicts of
interest exist between the Individual Defendants' own
interests and their fiduciary obligations to the public
stockholders of First Interstate;
(d) utilize the poison pill in a manner
designed to maximize shareholder value; and
(e) avoid implementing any procedures which
would impede the maximum bona fide offer for First
Interstate.
39. In effect, the Individual Defendants have
initiated a process which has placed the Company up for
sale, including initiating an active bidding contest seeking
to sell the Company, obligating them to maximize shareholder
value. Nevertheless, the Individual Defendants necessarily
and inherently suffer from a conflict of interest between
their own personal desires to retain their offices in First
Interstate, with the emoluments and prestige which accompany
those offices, and their fiduciary obligation to maximize
shareholder value in a transaction. Because of such
conflict of interest, the Individual Defendants have been
and remain unable to represent the interests of First
Interstate's public stockholders with the impartiality that
their fiduciary duties require, nor have they been able to
ensure that their conflicts of interest will be resolved in
the best interests of First Interstate's public
stockholders.
40. By virtue of the acts and conduct alleged
herein, the Individual Defendants have breached their
fiduciary duties owed to plaintiffs and other class members
by carrying out a preconceived plan and scheme to entrench
themselves in office and to protect and advance their own
parochial interests at the expense of First Interstate's
public shareholders. The Individual Defendants have not
exercised and are not exercising independent business
judgment and have acted and are acting to the detriment of
the class. The Individual Defendants' negative response to
Wells Fargo, the hasty acceptance of the First Bank Merger
which currently provides less consideration than the WF
original and amended proposals, their failure to adequately
consider other offers, including Wells Fargo's Offer, and
their failure to adequately consider the effect of First
Bank's repurchases of its own stock on the fairness of the
First Bank Merger was an uninformed knee-jerk reaction
designed to advance their own interests and was made without
adequate information as to what a third party would be
prepared to offer in a fully negotiated transaction.
41. The Individual Defendants have refused to
take the steps necessary to ensure that the Company's public
shareholders will receive maximum value for their shares of
First Interstate common stock. The Individual Defendants'
agreement to the inferior First Bank Merger rather than
meaningfully responding to Wells Fargo's proposals or
pursuing a value maximizing transaction with other bona
fide, potential offerors is clearly motivated by the desire
of the Individual Defendants to protect their own
substantial salaries, perquisites and prestigious positions
with the Company.
42. As a result of the foregoing, the Individual
Defendants have breached their fiduciary duties owed to
First Interstate's stockholders and have used and are using
First Interstate as an instrumentality to effect those
breaches of fiduciary duties.
43. Defendants First Bank and Eleven Acquisition
Corporation have knowingly and substantially participated in
and are benefiting by the breaches of fiduciary duties by
the Individual Defendants and, therefore, are liable as
aiders and abettors thereof. Indeed, the First Bank Merger
could not proceed without the willing and active
participation of First Bank and Eleven Acquisition
Corporation. First Bank's active and knowing participation
in the Individual Defendants' wrongdoing includes First
Bank's undisclosed repurchases of its stock described above
designed to artificially inflate the market price of its
stock, and support the purported fairness of the First Bank
Merger.
44. Unless enjoined by this Court, defendants
will continue to breach their fiduciary duties owed to
plaintiffs and the other members of the Class and/or aid and
abet such breaches in order to benefit themselves at the
expense and to the irreparable harm of the Class.
45. Plaintiffs and the other members of the Class
have no adequate remedy at law.
SECOND CLAIM FOR RELIEF AGAINST
THE INDIVIDUAL DEFENDANTS
46. Plaintiffs repeat and reallege paragraphs 1
through 45 as if fully set forth herein.
47. The statements contained in the 14D-9, the
Nov. 20, 1995 press release and letter to shareholders
contained untrue statements of material fact and omitted to
state material facts necessary in order to make the
statements made, in light of the circumstances under which
they were made, not misleading.
48. By reason of the foregoing, the Individual
Defendants have violated their fiduciary duties to
plaintiffs and members of the Class by failing to deal with
the Company's stockholders with complete candor.
WHEREFORE, plaintiffs demand judgment as follows:
1. declaring this to be a proper class action;
2. enjoining the First Bank Merger until all
value maximizing alternatives are fully explored;
3. in the event the First Bank Merger is
consummated, rescinding it or awarding rescissory damages to
the class;
4. declaring null and void the termination fee
and stock option agreements in the First Bank Merger
agreement and by-law 4(b) to the extent it obstructs
shareholders action by written consent;
5. ordering the Individual Defendants to carry
out their fiduciary duties to plaintiffs and the other
members of the Class by:
(a) cooperating fully with any person or
entity having a bona fide interest in proposing a
transaction which would maximize shareholder value;
(b) undertaking an appropriate evaluation of
First Interstate's worth as a merger/acquisition candidate;
(c) taking all appropriate steps to enhance
First Interstate's value and attractiveness as a
merger/acquisition candidate;
(d) taking all appropriate steps to
effectively expose First Interstate to the marketplace in an
effort to create an active auction for First Interstate;
(e) acting independently so that the
interests of First Interstate's public stockholders will be
protected; and
(f) adequately ensuring that no conflicts of
interest exist between the Individual Defendants' own
interests and their fiduciary obligation to maximize
stockholder value or, if such conflicts exist, ensuring that
all conflicts are resolved in the best interests of First
Interstate's public stockholders;
6. ordering the defendants, after fully
considering First Bank's repurchases of its shares and their
impact upon the market price of First Bank's stock to
reconsider their decision to (i) complete the First Bank
Merger and (ii) recommend that Company shareholders not
tender their shares into the Offer;
7. ordering defendants, jointly and severally,
to account to plaintiffs and the other members of the Class
for all damages suffered and to be suffered by them as a
result of the wrongs complained of herein;
8. enjoining First Bank or anyone affiliated
with it or any of the defendants from making any further
purchases of First Bank stock during the pendency of the
Offer or any other transaction involving the acquisition of
First Interstate, its assets or its stock;
9. compelling the Individual Defendants to
disclose all pertinent information regarding First Bank's
repurchases of its shares;
10. compelling defendants to make supplemental
disclosures of all other material information necessary to
enable First Interstate shareholders to make an informed
decision with respect to the Offer and the First Bank
Merger;
11. directing the Individual Defendants to employ
the poison pill in a manner consistent with maximizing
shareholder value;
12. awarding plaintiffs the costs and
disbursements of this action, including a reasonable
allowance for plaintiffs' attorneys' and experts' fees; and
13. granting such other and further relief as
this Court may deem to be just and proper.
CHIMICLES, JACOBSEN & TIKELLIS
_______________________________
Pamela S. Tikellis
James C. Strum
Robert J. Kriner Jr.
One Rodney Square
P.O. Box 1035
Wilmington, DE 19899
(302) 656-2500
CO-LEAD AND CO-LIAISON COUNSEL FOR
PLAINTIFFS
ROSENTHAL MONHAIT GROSS
& GODDESS, P.A.
_______________________________
Joseph P. Rosenthal
First Federal Plaza, Suite 214
Box 1070
Wilmington, DE 19899
(302) 656-4433
CO-LIAISON COUNSEL FOR PLAINTIFFS
OF COUNSEL:
ABBEY & ELLIS
212 East 39th Street
New York, New York 10016
(212) 889-3700
GOODKIND LABATON RUDOFF
& SUCHAROW LLP
100 Park Avenue
New York, New York 10017
(212) 907-0700
CO-LEAD COUNSEL FOR PLAINTIFFS
BERNSTEIN LIEBHARD & LIFSHITZ
274 Madison Avenue
New York, New York 10016
(212) 779-1414
FARQUI & FARQUI
415 Madison Avenue
New York, New York 10017
(212) 779-1414
CHARLES PIVEN, ESQ.
The Legg Mason Tower
Suite 2700
Baltimore, MD 21202
ROBERT C. SUSSER, P.C.
6 East 43rd Street
New York, New York 10017
(212) 808-0298
WECHSLER HARWOOD HALEBIAN
& FEFFER, LLP
805 Third Avenue
New York, New York 10022
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
FIRST INTERSTATE BANCORP, a :
Delaware corporation, : No.
:
Plaintiff, :
:
v. :
:
WELLS FARGO & COMPANY, a :
Delaware corporation, PAUL HAZEN, :
H. JESSE ARNELLE, WILLIAM R. :
BREUNER, WILLIAM S. DAVILA, :
RAYBURN S. DEZEMBER, ROBERT K. :
JAEDICKE, ELLEN M. NEWMAN, PHILIP :
J. QUIGLEY, CARL E. REICHARDT, :
DONALD B. RICE, SUSAN G. SWENSON, :
CHANG-LIN TIEN, JOHN A. YOUNG and :
WILLIAM F. ZUENDT, :
:
Defendants. :
COMPLAINT FOR PRELIMINARY AND
PERMANENT INJUNCTIVE AND DECLARATORY RELIEF
First Interstate Bancorp ("First Interstate" or
the "Company"), by its attorneys, for its Complaint
alleges on knowledge as to itself and upon information
and belief as to all other matters as follows:
Nature of the Claims
1. The claims alleged herein arise out of
Wells Fargo & Company's and the individual defendant
directors' (collectively referred to as "Wells")
violations of the federal securities laws in connection
with its unsolicited offer for the securities and control
of First Interstate (the "Hostile Offer").
2. Wells has long desired to achieve
substantial growth in California, its primary market, but
has been unable to achieve that growth through its own
operations. Consequently, Wells devised a strategy by
which it would grow through an acquisition of First
Interstate. This strategy would also enable Wells to
eliminate an important competitor in California.
3. Wells has anticipated acquiring First
Interstate for a considerable period of time. Wells has
publicly admitted that an acquisition of First Interstate
was "imperative" to achieving its financial strategy.
Wells proposed to acquire First Interstate on October 17,
1995 and publicly announced its Proposal (the "Wells
Proposal") on October 18, 1995. Wells proposed
converting each share of First Interstate common stock
into 0.625 shares of Wells common stock.
4. Following its receipt of the Wells
Proposal, the First Interstate board of directors (the
"Board") carefully considered the Proposal and other
alternatives available to the Company.
5. On November 5, 1995, the First Interstate
Board met to consider the Wells Proposal as well as a
proposal for a strategic merger with First Bank System,
Inc. ("First Bank"). After carefully considering the
merit of these strategic alternatives and their findings
regarding other alternatives, the First Interstate Board
voted to reject the Wells Proposal and to approve a
strategic merger with First Bank (the "FI/FB Merger").
6. Wells was intensely frustrated by First
Interstate's decision to merge with First Bank rather
than Wells. On November 13, 1995, Wells announced that
it intended to commence its Hostile Offer for all of
First Interstate's outstanding stock. Subsequently,
Wells embarked upon a campaign of deceit and manipulation
(the "Campaign") designed to undermine the FI/FB Merger
and force the First Interstate Board to accept Wells'
Hostile Offer.
7. Beginning with its public announcement of
the Hostile Offer, Wells has injected into the
marketplace misleading information about the FI/FB Merger
and the Hostile Offer and has purposely manipulated its
stock price to make its Hostile Offer appear more
attractive.
8. As set forth in detail below, Wells'
Campaign, manifested by Wells' non-disclosure and
misrepresentation of numerous material facts, was
conducted in violation of Sections 14(a) and 14(e) of the
Securities Exchange Act of 1934 (the "Exchange Act") and
the rules promulgated thereunder. Among Wells' repeated
violations of the federal securities laws are the
following:
a. Wells has disseminated false and
deceptive analyses of the relative economic benefits of
the FI/FB Merger and the Hostile Offer. These analyses
overstate the benefits of the Hostile Offer and
understate the benefits of the FI/FB Merger;
b. Wells has falsely claimed that its
Hostile Offer can be consummated on the same timetable as
the FI/FB Merger, thus concealing various obstacles to
regulatory approval unique to its Hostile Offer;
c. In violation of Rule 10b-6, Wells held
meetings with securities analysts at which meetings Wells
made statements with the intent of manipulating the price
of its stock; and
d. In violation of Rule 10b-13, Wells
falsely represented to the public that it could purchase
First Interstate shares after its announcement of the
Hostile Offer, notwithstanding that Rule's prohibition
against such purchases.
9. Wells' Campaign is intended to interfere
with the ability of First Interstate's shareholders to
fairly and accurately evaluate the merits of the FI/FB
Merger.
10. As intended, Wells' Campaign has deprived
First Interstate's shareholders and the investing public
of the ability to exercise their right to make informed
decisions as to whether to buy, sell or hold First
Interstate stock, and how to vote on the FI/FB Merger.
First Interstate's shareholders and the investing public
are being forced to make important decisions in a market
distorted by the defendants' illegal conduct and false
and misleading statements.
11. Accordingly, by its Complaint, First
Interstate seeks injunctive relief requiring Wells to
fulfill its obligations under the federal securities laws
by correcting its false and misleading statements, and
disclosing all material information so that First
Interstate shareholders can make informed decisions about
the FI/FB Merger and the Hostile Offer. Absent such
relief, First Interstate and its shareholders will be
irreparably deprived of the full and accurate information
guaranteed by federal law to allow them to make informed
investment decisions and, thus, they may lose the unique
opportunity presented by the FI/FB Merger.
12. Unless enjoined, Wells will continue to
cause serious irreparable injury to First Interstate, its
shareholders, and the investing public.
13. With this Complaint, First Interstate
requests that this Court enjoin Wells from pursuing its
Campaign, and enter an order:
a. declaring that Wells has conducted its
Campaign in violation of the federal securities laws;
b. requiring Wells to publicly disclose
its violations of the securities laws;
c. requiring Wells to correct its
numerous misstatements concerning the FI/FB Merger and
the Hostile Offer;
d. enjoining Wells from pursuing its
Hostile Offer until it reports its actual results for the
future performance Wells illegally estimated during its
distribution period; and
e. enjoining Wells from committing
further violations.
JURISDICTION AND VENUE
14. This Court has subject matter jurisdiction
over this action pursuant to Section 27 of the Exchange
Act, 15 U.S.C. SECTION 78aa, and 28 U.S.C. SECTION 1331.
The claims alleged herein arise under Sections 14(a) and
14(e) of the Exchange Act and the rules and regulations
promulgated thereunder by the Securities and Exchange
Commission ("SEC"). In connection with the unlawful
conduct complained of herein, Wells has directly and
indirectly used the means and instrumentalities of
interstate commerce and of the mails.
15. Venue is proper in this district, under
Section 27 of the Exchange Act, 15 U.S.C. SECTION 78aa, because
Wells transacts its affairs in the District of Delaware,
where it is incorporated.
THE PARTIES AND RELEVANT NON-PARTIES
16. Plaintiff, First Interstate, is a Delaware
corporation and bank holding company. Through its
subsidiaries, First Interstate provides banking services
and banking-related financial services in California and
13 other western states.
17. Defendant, Wells, is a Delaware
corporation and a bank holding company registered under
the Bank Holding Company Act of 1956, as amended, with
its principal place of business in California.
18. First Bank, not a party to this action, is
a Delaware corporation headquartered in Minneapolis,
Minnesota. First Bank is a bank holding company, which,
through its subsidiaries, provides complete financial
services to individuals and institutions through 8 banks,
a savings association and other financial companies with
366 offices, located primarily in the 11 states of
Minnesota, Colorado, North Dakota, South Dakota, Montana,
Illinois, Wisconsin, Iowa, Kansas, Nebraska and Wyoming.
19. Defendant, Paul Hazen, has been, at all
relevant times, the Chairman and Chief Executive Officer
of Wells.
20. William F. Zuendt, H. Jesse Arnelle,
William R. Breuner, William S. Davila, Rayburn S.
Dezember, Robert K. Jaedicke, Ellen M. Newman, Philip J.
Quigley, Carl E. Reichardt, Donald B. Rice, Susan G.
Swenson, Chang-Lin Tien, and John A. Young are directors
of Wells and have been directors of Wells at all relevant
times.
FACTUAL BACKGROUND
A. Background of the Wells Proposal
21. Wells first indicated its interest in
acquiring First Interstate as far back as February 1994,
when it sent an unsolicited letter to First Interstate
proposing a merger of the two companies. First
Interstate's board of directors considered Wells'
proposal and determined to decline to pursue a merger
with Wells in favor of pursuing other strategies aimed at
enhancing shareholder value with First Interstate
remaining as an independent company.
22. Wells renewed its unsolicited efforts to
acquire First Interstate in the fall of 1995. In August
1995, Wells' Chairman and Chief Executive Officer, Paul
Hazen, told William Siart, First Interstate's Chairman
and Chief Executive Officer, that the acquisition of
First Interstate was a strategic "imperative" for Wells.
On October 17, 1995, Mr. Hazen delivered a letter to
First Interstate proposing a merger of Wells and First
Interstate.
23. Wells made its proposal public on
October 18, 1995. Later that day, three large regional
bank holding companies, including First Bank, contacted
First Interstate to express their interest in initiating
discussions to assess the merits of a strategic
partnership. First Interstate's senior management,
together with First Interstate's financial advisors,
Goldman Sachs & Co. ("Goldman Sachs") and Morgan Stanley
& Co. ("Morgan Stanley"), at the direction of the First
Interstate Board, then engaged in preliminary discussions
concerning potential strategic partnerships with the
three large regional bank holding companies that had
contacted First Interstate, and they continued to
evaluate the options of remaining independent and a
possible transaction with Wells.
24. On October 26, 1995, Mr. Siart met with
Mr. Hazen to discuss the possibility of pursuing a merger
of First Interstate and Wells. Among other things, they
discussed the possible advantages of a combination of
First Interstate and Wells, with particular attention
being paid to the cost savings and operating efficiencies
which could be achieved in a merger.
25. Messrs. Siart and Hazen were joined later
that day by Mr. William Bogaard, First Interstate's
General Counsel, Mr. George Roberts of Kohlberg Kravis
Roberts & Co. ("KKR"), First Interstate's largest
shareholder, Mr. Rodney L. Jacobs, the Vice Chairman and
Chief Financial Officer of Wells, and Mr. Warren Buffett,
Chairman and Chief Executive Officer of Berkshire
Hathaway Inc., the largest shareholder of Wells.
Extensive dialogue ensued concerning the two companies
and their respective strategies, potential cost savings,
operating efficiencies and reductions in revenue, and the
consolidation of a substantial number of First
Interstate's and Wells' respective California branch
offices and the revenue loss associated therewith. Mr.
Siart asserted that the reductions in revenue which would
result from the transaction would significantly exceed
those estimated by Wells.
26. Mr. Buffett stated that he had studied
both companies in some detail and stated, among other
things, that the exchange ratio of .625 made sense to
him.
27. Mr. Roberts stated that, given the other
attractive strategic alternatives available to First
Interstate, the substantial risk created by a merger of
the two companies due to the increased concentration of
assets in California, and the tremendous value of the
First Interstate franchise, a minimum exchange ratio of
.70 shares was required in order to make the transaction
equitable.
28. During these discussions, Mr. Hazen stated
that although Wells might consider increasing the
exchange ratio, the maximum exchange ratio it might be
prepared to offer was .650. However, he emphasized that
he and Mr. Buffett viewed an exchange ratio of .625 as
fair to each company's shareholders. Mr. Roberts
indicated that the possible increase of the exchange
ratio to .650 seemed inadequate to him. Mr. Hazen told
Mr. Siart that in no way should their conversation be
construed as meaning Wells had raised its offer.
29. On October 31, 1995, Messrs. Siart and
Hazen met again. Extensive discussions concerning
potential cost savings, operating efficiencies and
revenue losses also took place, with Mr. Siart voicing
various concerns of the First Interstate Board in this
regard. Mr. Hazen stated that he believed that the $100
million in revenue losses estimated by Wells were on the
high side. Mr. Siart stated that First Interstate might
consider further exploratory discussions concerning the
value to First Interstate's shareholders of a potential
merger with Wells if Wells would offer an exchange ratio
of approximately .680. Mr. Hazen then excused himself
from the meeting. Upon his return, he stated that he had
consulted with Mr. Buffett, reiterated that the maximum
exchange ratio that Wells and its major shareholder would
consider was .650 and stated that Mr. Buffett fully
concurred with this decision.
30. On November 1, 1995, Messrs. Siart and
Hazen spoke by telephone. Mr. Siart asked Mr. Hazen if
he had reconsidered his position. Mr. Hazen stated that
his position remained unchanged and that .650 was the
maximum exchange ratio that Wells would consider.
B. The FI/FB Merger
31. On November 5, 1995, after considering and
rejecting the Wells Proposal, the First Interstate Board
considered and approved a proposed strategic alliance
with First Bank, a high-growth institution widely
recognized for its sound management, extraordinarily
efficient operations and sophisticated multi-state
banking experience. The FI/FB Merger offers substantial
economic benefits to First Interstate's shareholders that
are not available from the Hostile Offer. Among these
expected benefits are:
a. The FI/FB Merger, which will be
accounted for as a pooling-of-interests, will not create
goodwill and will, therefore, maximize future shareholder
earnings and value. A Wells/First Interstate
combination, in contrast, would rely on purchase
accounting and would create more than $8 billion in
additional goodwill and other intangibles, the annual
amortization of which would dramatically reduce reported
earnings for up to 25 years.
b. The FI/FB Merger will not cause any
substantial loss of revenue, because the cost savings
will be achieved primarily by consolidation of "back
office" and operations systems. A combination of Wells
with First Interstate, in contrast, would result in
sizable revenue losses due to the large number of
shutdowns of California branches, massive layoffs of
personnel involved in revenue-generating corporate
banking and trust activities, and the large number of
branch divestitures expected to be necessary to avoid
antitrust violations.
c. The FI/FB Merger is expected to lead
to substantial increases in reported earnings per share
("EPS") for First Interstate shareholders in 1996, while
a Wells/First Interstate union, by contrast, would result
in an EPS decrease in the same period.
d. The combined FI/FB entity will reduce
the percentage of First Interstate's California assets
from over 40% to less than 30%. A combination with Wells
would lead to excessive concentration in the California
market, where 70% of the combined companies' total assets
would be located, and a resulting increased risk profile.
e. First Interstate's shareholders will
own 58% of the combined FI/FB entity but would own only
52% of a combined Wells/First Interstate entity.
32. After the First Interstate Board approved
the FI/FB Merger, First Interstate entered into an
Agreement and Plan of Merger dated as of November 5, 1995
(the "Merger Agreement") to combine, in a strategic
merger of equals, with First Bank. The FI/FB Merger was
announced to the Public on November 6, 1995.
33. Pursuant to the Merger Agreement, each
holder of First Interstate common stock will receive 2.6
First Bank shares for each share of First Interstate
common stock. Also pursuant to the Merger Agreement, the
FI/FB Merger is subject to the approval of First
Interstate's shareholders. After the FI/FB Merger, the
new institution, which will retain the First Interstate
name, will have $92.4 billion in assets, $7.3 billion in
shareholders' equity and the largest service territory
west of the Mississippi.
C. Wells' Hostile Offer
34. On November 13, 1995, Wells announced that
it intended to commence a hostile exchange offer for all
outstanding shares of common stock of First Interstate.
Pursuant to that Hostile Offer, Wells stated its intent
to offer to exchange two-thirds of a share of Wells
common stock for each outstanding share of First
Interstate common stock.
35. Also on November 13, 1995, Wells announced
its intent to file preliminary proxy materials with the
SEC for use in connection with the solicitation of First
Interstate shareholders to vote against the approval of
the FI/FB Merger at any meeting of shareholders of First
Interstate to be called to consider the FI/FB Merger.
36. Concurrently, Wells announced that it
would file with the SEC preliminary materials for the
solicitation of written consents from shareholders of
First Interstate to remove First Interstate's current
board of directors and to replace them with nominees of
Wells who are committed to removing any impediments to
the consummation of the acquisition of First Interstate
by Wells.
D. Wells' Campaign of Deceit and Manipulation
37. Wells, aware that its Hostile Offer is
unlikely to prevail based upon a fair assessment of its
merits relative to the merits of the FI/FB Merger, has
resorted to its Campaign of deceit and manipulation
designed to artificially inflate the value of the Hostile
Offer. To wage this Campaign, Wells has knowingly and
willfully made false statements in the Registration
Statement on Form S-4 it filed on November 27, 1995
("S-4"), its Preliminary Proxy Materials filed on
December 5, 1995 ("Preliminary Proxy Materials"), its
press releases and in its widely reported representations
to securities analysts.
Wells' Exaggeration of Its Cost Savings
38. Wells has repeatedly made false and
misleading material statements about the projected cost
savings it expects to realize from its acquisition of
First Interstate pursuant to the Hostile Offer.
39. In its S-4, Preliminary Proxy Materials,
and at its meetings with securities analysts, Wells has
asserted that it will be able to cut expenses at First
Interstate by $500 million more than First Bank. This
translates into a claim that Wells will reduce
approximately 44% of First Interstate's expense base, or
cut $1 billion from First Interstate's anticipated 1996
expenses of $2.3 billion.
40. Wells has implied that the $500 million in
cost reductions beyond First Bank's will be realized
principally by reducing First Interstate's expenses in
California.
41. Wells has made statements to this effect
in its S-4, Preliminary Proxy Materials and to securities
analysts, notwithstanding its knowledge that it cannot
use the California overlap to reduce First Interstate's
expenses by $500 million because First Interstate's
California branch and business line expenses total only
$495 million. Even by closing every one of First
Interstate's California facilities -- which Wells does
not purport to intend to do -- Wells could not cut
$500 million in expenses.
42. In an effort to make its $500 million cost
savings plan appear plausible, Wells, in its S-4, falsely
characterizes its proposed combination with First
Interstate as an "in market" transaction, i.e., a
transaction between entities located in and serving the
same market, thereby creating far greater opportunities
for consolidation and cost reductions than are available
in out-of-market or "market extension" transactions. (S-
4 at 20) Yet, as Wells well knows, First Interstate has
only about 44% of its deposits and 37% of its branches in
California, and less than one-fourth of First
Interstate's expenses are attributed to California.
43. Wells purposely compares its projected
cost savings to cost savings achieved in true "in-market"
transactions to make it appear that its projects' cost
savings -- about 44% of First Interstate's base
expenses -- are reasonable. Wells' comparison appears in
a chart in its S-4. That chart was subsequently
published in the American Banker on November 30, 1995
(the "Chart").
44. While a Wells/First Interstate combination
would involve an overlap of only 44% of deposits and 37%
of branches, the true "in-market" transactions Wells
chose to compare itself with in the Chart involved (a)
99% deposit/branch overlap (Fleet Shawmut), (b) 100%
overlap (UJB/Summit), (c) 82%/73% (Corestates/Meridian),
(d) 90%/70% (Chemical/Chase), and (e) 62%/70%
(PNC/Midlantic). Thus, Wells' Chart was intended to be,
and is, patently deceptive.
45. While exaggerating its own expense
savings, Wells, in the Chart, also intentionally misleads
First Interstate's shareholders and the public about the
feasibility of the savings projections for the FI/FB
Merger. For each of the "market extension" transactions
on the Chart, Wells reported the percentage of cost
savings for each transaction as a percentage of the
acquired entity's anticipated stand-alone expenses. Yet,
Wells presents the cost savings for the FI/FB Merger as a
percentage of First Bank's expenses, not of First
Interstate's expenses. This manipulation was intended to
make the cost savings projected by First Bank -- 42% --
appear to be unreasonably large when compared to the 15-
24% range achieved in other comparable transactions. In
its Preliminary Proxy Materials, Wells uses this
manipulation to attack First Bank's projected cost
savings for the FI/FB Merger as "two to three times those
projected in comparable transactions." (Preliminary
Proxy Materials at 9) In fact, as Wells knows, when
properly expressed as a percentage of First Interstate's
expenses, the resulting figure -- 22% -- is within the
range of cost savings achieved in other transactions.
Wells' Grossly Understated
Revenue Loss Estimates
46. In addition to intentionally exaggerating
the projected expense cuts attainable in a Wells/First
Interstate merger, Wells has intentionally understated
the projected revenue losses it will suffer from its
announced slashing of First Interstate's operations.
47. Wells has publicly stated that the
measures necessary to achieve $1 billion in cost savings
in a merger between Wells and First Interstate will
result in revenue losses of only $100 million in
California. This amounts to a loss of only 7% of First
Interstate's California-based revenue, even though Wells
has admitted that it intends to close 85% of First
Interstate's California branches.
48. Wells knows that a merger between First
Interstate and Wells will result in revenue losses well
in excess of $100 million. That Wells' understatement of
revenue loss was knowing and deliberate is evidenced by
Wells' own experience in its 1986 merger with Crocker
National Bank ("Crocker"). In connection with that
merger, Wells suffered an attrition rate in demand
deposits of 28.1% when it closed 62% of Crocker's
branches. While Wells discusses its Crocker experience
in its S-4 (see S-4 at 21), the S-4 understates the
revenue loss in that transaction because it fails to
disclose that other California banks' demand deposits
increased during the same period that Crocker's were
declining.
49. In order to mask its understatement of the
revenue losses attendant to a Wells/First Interstate
merger, Wells, in its S-4, manipulates the projected EPS
resulting from such a transaction. In its S-4, Wells
appropriates First Bank's projections for First
Interstate's 1996-97 revenue and then mismatches them
with First Interstate's estimated 1995 expenses. (S-4 at
22) Through this contrivance, Wells conjures up
approximately $200 million in additional annual pre-tax
earnings.
Wells' Misrepresentations Regarding
Accounting Methods
50. Wells' extensive repurchases of its own
stock in recent years has forced Wells to account for its
proposed acquisition of First Interstate under the
"purchase" method of accounting rather than under the
more advantageous "pooling-of-interests" accounting
rules. Under purchase accounting rules, Wells would be
forced to record more than $8 billion in additional
goodwill and other intangibles for an acquisition of
First Interstate. Purchase accounting rules require that
this $8 billion sum be amortized against reported
earnings for up to 25 years, which will significantly
depress those earnings. In addition, purchase accounting
rules will reduce Wells' financial flexibility by
potentially limiting Wells' ability to engage in future
acquisitions, and those same rules may raise regulatory
problems for Wells.
51. First Bank, on the other hand, will be
able to record the FI/FB Merger under the "pooling-of-
interests" accounting method, under which the FI/FB
entity will not record any additional goodwill, and,
therefore, will avoid the severe disadvantages which
Wells would encounter if it combined with First
Interstate.
52. Aware that First Bank's ability to use the
pooling method makes the FI/FB Merger substantially more
attractive than the Hostile Offer, Wells has attempted to
deceive First Interstate's shareholders and the public
into believing that purchase accounting will have no
impact on First Interstate's shareholders.
53. Despite the obvious advantages of pooling
accounting, Wells, in its Preliminary Proxy Materials,
falsely asserted that "there is no meaningful difference
between purchase accounting and pooling of interests
accounting." (Wells Preliminary Proxy at 11; see also
S-4 at 23)
54. Belying its claim that there is no
meaningful difference between the purchase and pooling
accounting methods, however, Wells has falsely questioned
First Bank's ability to use the pooling-of-interests
technique. On November 22, 1995, Wells' Chief Financial
Officer reported that Wells' accounting firm stated that,
"they don't see how First Bank can do a pooling
transaction." Daniel Kaplan and Barton Crokett,
"Accounting Becomes Crucial In Battle to Buy First
Interstate," American Banker, November 22, 1995. Wells
has continued to question First Bank's ability to use the
pooling method, Wells Preliminary Proxy Materials at 6,
notwithstanding the fact that Ernst & Young, the
independent auditor to First Bank and First Interstate,
issued a letter dated December 4, 1995, stating that the
FI/FB Merger will qualify for pooling-of-interests
treatment.
Wells' Misrepresentations Regarding
First Bank's Stock Repurchases
55. Wells has falsely stated that First Bank's
repurchase program has had the effect of artificially
raising the price of First Bank stock, thereby denying
First Interstate's shareholders an accurate reading of
the market value of the FI/FB Merger.
56. Wells has falsely and misleadingly
insinuated in various public filings and public
statements that First Bank's purchases of its own stock
was done as a clandestine, recently-conceived merger-
related tactic. What Wells has omitted to disclose is
that First Bank has had a continuing, publicly-announced
stock repurchase program throughout 1993, 1994 and 1995.
57. For example, as publicly reported in its
Reports on Forms 10-K for 1993 and 1994, First Bank
repurchased 6.2 million and 6.3 million shares in 1993
and 1994, respectively. On January 19, 1995 and February
15, 1995, First Bank announced programs to repurchase
2 million and 14 million shares, respectively, by the end
of 1996.
58. First Bank further publicly announced that
it expected to repurchase up to 24.3 million shares
during 1995 and 1996 as a result of these previously
announced repurchase programs.
59. The repurchase programs were reconfirmed
at the November 6, 1995 analysts' meeting in connection
with the announcement of the merger of First Bank and
First Interstate and described in the joint press release
announcing the merger, which was also filed as an exhibit
to First Bank's Report on Form 8-K filed November 13.
First Bank's Form 10-Q filed with the SEC on November 13,
1995, and the First Bank Registration Statement on Form
S-4 filed on November 20, 1995, each also contains
references to such repurchase programs.
60. As publicly reported in First Bank's 1995
quarterly reports on Form 10-Q, First Bank repurchased
1,040,475, 2,644,410 and 4,306,620 shares in the first,
second and third quarters, respectively.
61. First Bank's management implemented these
programs long before First Interstate and First Bank ever
engaged in merger negotiations.
62. Wells also knows that federal rules
prohibit repurchases by First Bank during a period of at
least one month prior to the shareholder vote on the
merger.
63. Despite these public filings and Wells'
knowledge of the federal rules which prohibit repurchase
prior to any merger, Wells continues to make false and
misleading statements with respect to the First Bank
repurchase program. These false and misleading
statements are intentionally designed to divert attention
from the fact that the FI/FB Merger is superior to the
Wells' Hostile Offer.
Wells' Misleading Statements Regarding
the Reciprocal Fees and Options
64. In its S-4, Wells misleadingly
characterizes various provisions, including the
reciprocal termination fees and the reciprocal options
that were agreed upon in connection with the FI/FB Merger
as "obstacles." This is highly misleading since Wells'
Hostile Offer is not conditioned upon the elimination or
invalidation of these agreements.
Wells' Misrepresentations Regarding Who
Could Benefit From Its Hostile Offer
65. At its meeting with analysts on
December 6-7, 1995, Wells attempted to suggest that First
Bank itself believes the Hostile Offer is in the
interests of First Interstate's shareholders. Thus,
Wells asserted that Rick Zona, the Chief Financial
Officer of First Bank, stated: "Wells' proposal is
clearly a great deal for their shareholders." This
statement is patently misleading because it suggests that
Rick Zona and First Bank believe the Hostile Offer would
be beneficial to First Interstate's shareholders. In
fact, and as Wells certainly knows, Mr. Zona was
commenting that Wells' shareholders -- not First
Interstate's shareholders -- would benefit from a
potential Wells/First Interstate combination. The Dow
Jones News Service reported Mr. Zona as saying: "Wells'
proposal is clearly a great proposal - for their (Wells')
shareholders," ... "However, it is inferior to ours when
compared to the impact on First Interstate shareholders."
"First Bank: Wells Fargo Bid for First Interstate
Inferior," Dow Jones News Service, November 17, 1995.
Mr. Hazen's False and Misleading Statements
66. Mr. Hazen has attempted to mislead the
investing public by, among other things, advising the
public, without any reasonable basis, of the future price
of Wells' stock.
67. For example, Mr. Hazen is reported in a
November 14, 1995 article appearing in The Los Angeles
Times as stating that if shareholders could be certain
that the Wells deal would happen, the stock would bounce
back to the high of $230.25 that it hit when Wells made
the unsolicited public offer.
68. This highly misleading speculation, made
without any reasonable basis, was intended solely to
mislead the investing public and the First Interstate
shareholders.
Wells' Misrepresentations Concerning
the Timetable for the Hostile Offer
69. As Wells knows, the timing of the FI/FB
Merger is a critical fact. Wells has made false and
misleading statements about its ability to obtain
regulatory approval for the Hostile Offer on the same
timetable as the FI/FB Merger.
70. In its Preliminary Proxy Materials, Wells
stated that "it will be able to obtain the necessary
regulatory approvals ... no later than the date on which
First Bank would be able to obtain the necessary
regulatory approvals for the FI/FB Merger." (Preliminary
Proxy Materials at 4) Wells made an identical
representation in its S-4, at pages 3 and 16, and Wells'
Chairman states on the second page of his letter to First
Interstate shareholders, as part of the Wells Proxy
Statement, that "there is no timing advantage to the FBS
Proposal." These assertions are misleading, because they
fail to disclose that Wells must overcome significant
obstacles to regulatory approval that are not at issue in
the FI/FB Merger.
71. Wells knows, for example, that because
Wells' entire franchise is in California, and First
Interstate is one of its principal competitors there,
consummation of the Hostile Offer raises serious
antitrust concerns under the federal antitrust law and
banking laws. Wells also knows that there is no such
problem with the FI/FB Merger. Wells has also
significantly understated the amount of deposits it will
need to divest to win regulatory approval for an
acquisition of First Interstate. These sizable
divestitures will inevitably prolong the approval
process.
Wells' Misrepresentations Concerning Its
Ability to Purchase First Interstate Shares
72. Wells has also knowingly and willfully
used alleged regulatory approval under the Hart-Scott-
Rodino Antitrust Improvement Act ("HSR") in a misleading
attempt to build momentum for the Hostile Offer. In a
press release dated November 17, 1995, just four days
after it announced its Hostile Offer, Wells issued a
press release claiming that it had received HSR
clearance, enabling it to purchase up to 5% of the shares
of First Interstate. Wells' press release explicitly
claimed that Wells can purchase the shares "any time
after today by means of open market or privately
negotiated purchases."
73. Under SEC Rule 10b-13, however, a party
which has publicly disclosed the intention to commence a
tender offer, such as Wells' Hostile Offer, cannot engage
in any purchases of securities that are the subject of
the offer. Wells' statement to the contrary was plainly
false.
E. Wells' Manipulation of the Price of Its
Stock in Violation of SEC Rule 10b-6
76. Wells is also blatantly violating SEC Rule
10b-6 by promoting its stock during a distribution of
that stock. Wells broadcast its manipulated stock prices
at what has been accurately reported in the press as
"Wells' most elaborate presentation in years for Wall
Street banking analysts." This presentation was marked
by the unusual step of personal appearances in New York
on December 6 and 7, 1995 by Wells' Chairman and Chief
Executive Officer, its President and its Vice Chairman
and Chief Financial Officer at a meeting for more than
200 people. Thomas S. Mulligan, "Paul Hazen Seeks to
Sell Future of Bank to Wall Street," The Los Angeles
Times, December 7, 1995.
77. At this meeting, Wells issued new and
unprecedented projections. It claimed that its 1996
revenue, without giving effect to a transaction with
First Interstate, will increase by 8%, its net interest
income will increase by 5% and its non-interest expense
will grow by 2-3%, and non-interest income will increase
by 12%. These projections translate into a 12% increase
in pre-tax, pre-provision earnings. Wells informed its
audience that these estimates meant that Wells' 1996
earnings would be in the mid-$20 range.
78. These dramatic new disclosures, in the
middle of the distribution period for the Wells stock to
be used to effect the Hostile Offer, had precisely the
effect Wells intended for them: the analysts immediately
raised their estimates of Wells' 1996 performance, and
Wells' stock price went up accordingly.
79. The substance of the analyst presentation,
however, was misleading and manipulative. Wells
projected 8% revenue growth in 1996, even though it
experienced adjusted average annual growth of less than
2.5% over the last two years. The 8% revenue growth
projection, which is based partly on a projected 5%
growth of net interest income, is highly implausible,
given that (a) Wells had no net interest income growth in
the last two years; and (b) other factors, such as
deposit pricing pressures and increasingly competitive
loan pricing, are affecting net interest income.
80. As one analyst observed, "Wells is smart.
Before the First Interstate battle, it was in their
interest to conservatively report earnings to permit
share buybacks at lower prices. Now reverse goals are in
force, and earnings may be aggressively reported to raise
the stock price." James Rosenberg, Lehman Bros., Wells:
Let's Put Upbeat Meeting in Perspective: 1996 Estimate
Up, December 8, 1995.
81. Even if the substance of the presentation
were not misleading, Wells' manipulation of its stock
constitutes a clear violation of SEC Rule 10b-6, which
provides that it is unlawful for an issuer or other
person on whose behalf a distribution of securities is
made to attempt to induce any person to purchase any
security which is the subject of such distribution. The
purpose of this rule, as stated by the SEC, is to
"prevent participants in a distribution from artificially
conditioning the market for the securities in order to
facilitate the distribution." Release 34-22510
(October 10, 1985). Both the timing and content of
Wells' sales pitch were carefully calculated to induce
market participants to purchase Wells' stock and thus
cause the price of its stock to rise, resulting in an
increase in the perceived value of the Hostile Offer.
Unlike issuer stock repurchases, which are permitted
until two trading days prior to the mailing of the
prospectus, there is no similar cooling-off period
concept that would permit Wells' illegal artificial
conditioning of the market.
FIRST CLAIM
(For Violation of Section 14(e))
82. First Interstate repeats and realleges the
allegations contained in each of the preceding paragraphs
as if fully set forth herein.
83. Section 14(e) of the Exchange Act, 15
U.S.C. SECTION 78n(e), makes it unlawful for any person:
to make any untrue statement of a material fact
or omit to state any material fact necessary in
order to make the statements made, in the light
of the circumstances under which they are made,
not misleading, or to engage in any fraudulent,
deceptive, or manipulative acts or practices,
in connection with any tender offer or request
or invitation for tenders.
84. In connection with its Hostile Offer,
Wells has caused to be disseminated, in its S-4,
Preliminary Proxy Materials, press releases and at
analysts' meetings, to First Interstate shareholders, the
public and analysts, statements of material fact, which
were, at the time and in light of the circumstances under
which they were made, false and misleading. Wells has
also omitted to state material facts necessary in order
to make these statements not false or misleading, all as
described above.
85. Wells has engaged in other fraudulent,
deceptive and manipulative acts and practices, in
contravention of Section 10(b) of the Exchange Act and
Rule 10b-6 thereunder, all as described above.
86. Wells' many false and misleading
statements and non-disclosures, along with its
fraudulent, deceptive and manipulative acts and
practices, as described herein, violated Section 14(e) of
the Exchange Act.
SECOND CLAIM
(For Violation of Section 14(a) and Rule 14a-9)
87. First Interstate repeats and realleges the
allegations contained in each of the preceding paragraphs
as if fully set forth herein.
88. Section 14(a) of the Exchange Act, 15
U.S.C. SECTION 78n(a), makes it unlawful for any person:
in contravention of such rules and regulations
as the Commission may prescribe as necessary or
appropriate in the public interest or for the
protection of investors, to solicit or to
permit the use of his name to solicit any proxy
or consent or authorization in respect of any
security (other than an exempted security)
registered pursuant to section 781 of this
title.
Rule 14a-9, promulgated pursuant to Section 14(a) of the
Exchange Act, provides:
No solicitation subject to this regulation
shall be made by means of any proxy statement,
form of proxy, notice of meeting or other
communication, written or oral, containing any
statement which, at the time and in the light
of the circumstances under which it is made, is
false and misleading with respect to any
material fact, or which omits to state any
material fact necessary in order to make the
statements therein not false or misleading or
necessary to correct any statement in any
earlier communication with respect to the
solicitation of a proxy for the same meeting or
subject matter which has become false or
misleading.
89. In connection with its Hostile Offer,
Wells has caused to be disseminated to First Interstate
shareholders, the public and analysts proxy statements
and other materials, and made oral solicitations, which
were, at the time and in the light of the circumstances
under which they were made, false and misleading, and
omitted to state material facts necessary in order to
make these statements not false or misleading, all as
described above.
90. Wells has engaged in other fraudulent,
deceptive and manipulative acts and practices, in
contravention of the securities laws, all as described
above.
91. Wells' many false and misleading
statements and non-disclosures, along with its
fraudulent, deceptive and manipulative acts and
practices, as described herein, violated Section 14(a) of
the Exchange Act and Rule 14a-9 promulgated thereunder.
IRREPARABLE INJURY
Unless Wells is enjoined from disseminating
further false and misleading information, required to
correct its numerous misstatements and enjoined from
pursuing its Hostile Offer until the estimates
disseminated at the December 6-7, 1995 meeting can be
verified or disproved through the reporting of actual
earnings, (a) First Interstate shareholders will be
deprived of their right to evaluate the FI/FB Merger
based upon accurate information; (b) First Interstate
shareholders will be denied an honest and fair
opportunity to evaluate the FI/FBS Merger as compared to
the Hostile Offer; (c) First Bank will be deprived of the
opportunity to present an honest and accurate picture of
the FI/FB Merger; and (d) the federal securities laws
will continue to be violated by Wells. Monetary damages
are inadequate to redress this injury.
PRAYER FOR RELIEF
WHEREFORE, plaintiff respectfully requests that
this Court enter an order and judgment:
a. entering judgment in favor of
plaintiff;
b. declaring that, by its conduct, Wells
has violated the federal securities laws;
c. enjoining Wells from pursuing its
Hostile Offer until such time in 1996 as the 1996
earnings and other estimates disseminated by Wells at the
December 6-7, 1995 meeting can be verified or disproved
through the reporting of actual earnings;
d. requiring Wells to disclose publicly
its clear and continuing violation of the federal
securities laws as a material consideration of the
Hostile Offer;
e. enjoining Wells from engaging in
similar violations in the future;
f. requiring Wells to rescind and correct
the numerous false and misleading statements it has made
in connection with the FI/FB Merger and Hostile Offer;
g. awarding plaintiff its reasonable
costs and expenses; and
h. granting such other relief as the
Court deems just and proper.
_____________________________
Steven J. Rothschild (#659)
Karen L. Valihura (#2638)
Robert S. Saunders (#3207)
Herbert W. Mondros (#3308)
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM
One Rodney Square
P.O. Box 636
Wilmington, Delaware 19899
(302) 651-3000
Attorneys for Plaintiff First
Interstate Bancorp
DATED: December 18, 1995
