CapitalSource Inc.
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CapitalSource Inc. Securities Settlement
The lawsuit was settled for additional disclosures in the proxy statement mailed to shareholders. The following is a summary of the proceedings in the lawsuit: ‘On July 22, 2013, CapitalSource and PacWest announced the execution of an agreement and plan of merger (the Merger Agreement) pursuant to which CapitalSource would merge with and into PacWest, with PacWest continuing as the surviving entity (the Merger) and, immediately following the Merger, CapitalSource Bank, a wholly owned subsidiary of CapitalSource, would merge with and into Pacific Western Bank, a wholly owned subsidiary of PacWest, with Pacific Western Bank continuing as the surviving bank (the Bank Merger), with each share of CapitalSource common stock (other than treasury and dissenting shares) converted into the right to receive $2.47 in cash and 0.2837 of a share of PacWest common stock (together with the Merger and the Bank Merger, the Proposed Transaction). Following the announcement of the Proposed Transaction, several putative class action lawsuits challenging the Merger were filed in state courts in Delaware and California: Fosket v. Byrnes et al., C.A. No. 8765-CS (filed August 1, 2013); Bennett v. CapitalSource Inc. et al., C.A. No. 8770-CS (filed August 2, 2013); Chalfant v. CapitalSource Inc. et al., C.A. No. 8777-CS (filed August 6, 2013); Oliveira v. CapitalSource Inc. et al., C.A. No. 8779-CS (filed August 7, 2013); Desai v. CapitalSource Inc. et al., C.A. No. 8804-CS (filed August 13, 2013); Fattore v. CapitalSource Inc. et al., C.A. No. 8927-CS (filed Sep. 19, 2013); William Engel v. CapitalSource Inc. et al., Case No. BC516267 (filed July 24, 2013), Russell Miller v. Fremder et al., Case No. BC516590 (filed July 29, 2013); Sudheer Basu v. CapitalSource Inc. et al., Case No. BC516775 (filed July 31, 2013); Joseph Holliday v. PacWest Bancorp et al., Case No. BC517209 (filed August 5, 2013); and Iron Workers Mid-South Pension Fund v. CapitalSource Inc. et al., Case No. BC517698 (filed August 8, 2013). These putative class actions generally alleged, among other things, that the members of the CapitalSource board of directors (the Board) breached their fiduciary duties owed to CapitalSource stockholders in connection with the Proposed Transaction, and that CapitalSource and PacWest aided and abetted such breaches. Among other things, the class actions alleged that the Proposed Transaction included an unreasonably prohibitive deal protection device in the form of an option agreement (the CapitalSource Stock Option Agreement) that would have allowed PacWest to buy additional shares of CapitalSource equivalent to up to 19.9% of CapitalSourceâ outstanding share count, in the event that a third party made a superior offer. The class actions alleged that the CapitalSource Stock Option Agreement would have effectively precluded other parties from making superior offers for CapitalSource, since any such offer would trigger the CapitalSource Stock Option Agreement, requiring a superior bidder not only to offer more money per share, but to purchase additional shares of the CapitalSource equivalent to as much as 19.9% of CapitalSource share count, which plaintiffs contended would increase any such bidder costs. Further, the class actions alleged that the triggering of the CapitalSource Stock Option Agreement would have given PacWest a significant blocking position against any other bidder in the form of a large voting stake. On August 15, 2013, the Court consolidated the Delaware Stockholder Actions (except for Fattore v. CapitalSource Inc., which had not yet been filed); appointed Block & Leviton LLP as Plaintiffs Lead Counsel for the Delaware Plaintiffs; appointed Rigrodsky & Long, P.A., Faruqi & Faruqi, LLP and Levi & Korsinsky, LLP to Plaintiffs Executive Committee for the Delaware Plaintiffs; and ordered that the actions thereafter proceed under the caption In re CapitalSource Inc. Stockholder Litigation, Consolidated C.A. No. 8765-CS. On August 20, 2013, plaintiffs in the Delaware Stockholder Actions served the Defendants with document requests. On September 12, 2013, PacWest filed a preliminary registration statement on Form S-4 (the Preliminary S-4) with the SEC under the issuer name PacWest Bancorp, which, among other things, summarized the Merger Agreement; described the events leading up to the execution of the Merger Agreement; and summarized the valuation analyses conducted by J.P. Morgan Securities LLC (JPMorgan), the financial advisor to the CapitalSource board of directors and Jefferies LLC (Jefferies), the financial advisor to the PacWest board of directors. On September 17, 2013, the California Court consolidated the California Stockholder Actions, appointed Robbins Arroyo LLP and Robbins Geller Rudman & Dowd LLP as Co-Lead Counsel for the California Plaintiffs, appointed Glancy Binkow Goldberg LLP as Liaison Counsel for the California Plaintiffs, and ordered that the actions thereafter proceed under the caption In re CapitalSource Inc. Shareholder Litigation, Lead Case No. BC516267. On September 25, 2013, the Court consolidated Fattore v. CapitalSource Inc. et al. into In re CapitalSource Inc. Stockholder Litigation, Consolidated C.A. No. 8765-CS, and appointed Block & Leviton LLP and Wolf Popper LLP as Plaintiffs Co-Lead Counsel for the Delaware Plaintiffs. On September 25, 2013, the Delaware Plaintiffs filed a Verified Consolidated Amended Class Action Complaint alleging that, among other things, the Individual Defendants breached their fiduciary duties owed to the public stockholders of the Company in connection with the Proposed Transaction and that CapitalSource and PacWest aided and abetted these alleged breaches. On October 2, 2013, the California Plaintiffs filed an Amended Consolidated Complaint containing allegations and claims substantially similar to those in the Verified Consolidated Amended Class Action Complaint in the Delaware Action. On October 7, 2013, the Court entered a stipulation and order governing the production and exchange of confidential discovery materials among the Delaware Plaintiffs and Defendants; and, thereafter, the Delaware Plaintiffs and CapitalSource negotiated expedited discovery parameters concerning, among other things, email search terms, document custodians, and deponents. On October 23, 2013, the Court held a telephonic status conference regarding the Delaware Actions and California Actions during which the parties agreed that documentary and deposition discovery would proceed in the Delaware Action, with the California Plaintiffs participating, subject to certain terms and conditions. On October 28, 2013, PacWest filed a first amendment to the Preliminary S-4 with the SEC, which, among other things, summarized the Merger Agreement, described the events leading up the execution of the Merger Agreement, and summarized the valuation analyses conducted by JPMorgan and Jefferies. On November 20, 2013, PacWest filed a second amendment to the Preliminary S-4 with the SEC, which, among other things, summarized the Merger Agreement, described the event leading up the execution of the Merger Agreement, and summarized the valuation analyses conducted by JPMorgan and Jefferies. On or about December 6, 2013, PacWest filed a definitive proxy statement/prospectus under Rule 424(b)(3), and CapitalSource filed a definitive proxy statement on Schedule 14A (the Definitive Proxy Statement) with the SEC which, among other things, summarized the Merger Agreement, described the events leading up to the execution of the Merger Agreement, and summarized the valuation analyses conducted by JPMorgan and Jefferies. The Plaintiffs reviewed over forty thousand pages of documents produced by Defendants on a confidential basis, including electronic communications, Board meeting minutes, and Board presentations, and took the depositions of a representative of JPMorgan, a director of the Company, and the CEO of the Company. Following such negotiations, on December 20, 2013, the Parties, by and through their counsel, executed a memorandum of understanding (the MOU) containing the terms for the Parties agreement-in-principle to resolve the Stockholder Actions. Among other things, the MOU set forth the Parties agreement-in-principle that, in consideration for the full and final settlement and dismissal with prejudice of the Stockholder Actions and the release of any and all Released Claims, Defendants agreed: to terminate the CapitalSource Stock Option Agreement dated as of July 22, 2013, and the PacWest Stock Option Agreement, dated as of July 22, 2013; to amend the Merger Agreement to provide for a $91 million termination fee payable by CapitalSource to PacWest, and a $59 million termination fee payable by PacWest to CapitalSource, each payable upon the occurrence of certain events; and to provide in a Form 8-K filing with the SEC and mailing to CapitalSource stockholders the additional disclosures. Plaintiffs concluded that the $91 million termination fee represented a substantially reduced barrier to the possibility of a third party bidder making a superior offer, as compared with the CapitalSource Stock Option Agreement, which plaintiffs believe created the equivalent of a termination fee of at least $460 million. The MOU also provided that Plaintiffs would have the opportunity to conduct additional discovery to confirm the fairness, adequacy and reasonableness of the Settlement. That discovery has now been completed and Plaintiffs have confirmed the fairness, adequacy, and reasonableness of the Settlement. On January 13, 2014, at a special meeting, the CapitalSource stockholders approved the Transaction. Following additional confirmatory discovery undertaken by the Plaintiffs, the Plaintiffs and their counsel confirmed the fairness of the proposed Settlement, and the parties set forth the terms and details of the Settlement in a Stipulation of Settlement and Release executed on June 12, 2014 (the Stipulation).’