The opinion of the court was delivered by: SWEET
Plaintiff Camelot Industries Corporation ("Camelot") has moved the court to enjoin a tender offer for Camelot shares made on March 15, 1982 by defendant Vista Resources, Inc. ("Vista"). Vista has cross-moved to enjoin Camelot from holding its annual meeting of April 7, 1982, from implementing any of the management proposals to be presented at the meeting, from voting certain shares and from entering into any transactions to frustrate the tender offer. Both motions will be granted in part on the basis of the findings of fact and conclusions of law set forth below.
In addition, Camelot has by letter expanded its preliminary injunction motion to bar a subsequent proxy solicitation by Vista. This aspect of Camelot's motion will be granted unless curative amendments are undertaken.
Prior Proceedings and Jurisdiction
The complaint in this action was filed on March 16, 1982, the day following the publication of the tender offer. It alleges violations of Sections 10(b), 13(d), 14(a), 14(d), and 14(e) of the Securities Exchange Act of 1934 (the "1934 Act"), 15 U.S.C. 78j(b), 78m(d), 78n(a), 78n(d), and 78n(e) and the rules and regulations of the Securities Exchange Commission ("SEC") promulgated thereunder. Jurisdiction is conferred on this court by Section 27 of the 1934 Act, 15 U.S.C. 78aa, and by the provisions of 28 U.S.C. § 1331. The amount in controversy, exclusive of interests and costs, exceeds $ 10,000. Many of the acts alleged have been carried out by use of various means and instrumentalities of interstate commerce, including the mails. Venue is proper in this district pursuant to the provisions of Section 27 of the 1934 Act, 15 U.S.C. § 78aa, since certain of the acts and transactions set forth below took place in this district and the defendants are found in and transact business in this district.
The same day the complaint was filed, the Camelot motion for a preliminary injunction was made, followed on March 18, 1982 by the filing of a counterclaim by Vista and its cross-motion for injunctive relief. Expedited discovery was held. A hearing was conducted on March 24, 1982 at which the defendant Arnold A. Saltzman ("Saltzman"), defendant Lawrence Goldstein ("Goldstein") and counterclaim defendant Salvatore Macera ("Macera") testified and depositions and exhibits were admitted into evidence.
Camelot is a Delaware corporation with its principal place of business at One Burlington Woods Drive, Burlington, Massachusetts. It is engaged in the business of designing, manufacturing and distributing eyeglasses, vision aids and other precision optical products. Camelot was formerly a subsidiary of Itek Corporation. The 1,345,449 outstanding shares of Camelot were distributed to Itek shareholders in December 1981 in a "spin-off" transaction.
Vista is a Delaware corporation with its principal offices at 350 Fifth Avenue, New York, New York. Vista is engaged in, among other things, the business of manufacturing and selling leather and related products. In 1981 Vista had net earnings of $ 1,898,976 and cash on hand (and cash equivalents) of approximately $ 14 million. Vista's liquid assets consist principally of the proceeds of the September 1980 sale of the assets of Vista's predecessor in interest, the Seagrave Corporation. A suit for rescission of this transaction is presently pending in the Supreme Court, New York County and other litigation against Vista has been set forth in the record.
Goldstein is a vice-president of Drexel Burnham Lambert Inc. ("Drexel Burnham") and has acted as broker to Saltzman and Vista. Macera is chairman of the board and chief executive officer of Camelot and also a member of the board of directors of Itek Corporation. Counterclaim defendant Robert P. Henderson ("Henderson") is an uncompensated member of the board of directors of Camelot and is also chairman of the board and chief executive officer of Itek Corporation. Counterclaim-defendant Robert B. Johnson ("Johnson") is president and chief operating officer of Camelot and is a member of Camelot's board of directors.
The offer to purchase for cash 650,000 shares of Camelot stock at $ 7 a share ("Tender Offer") was made by Vista on March 15, 1982. The Tender Offer was conditioned upon the tender of 650,000 shares and the rejection by the shareholders of the amendments proposed to the Camelot certificate of incorporation and the incentive stock option plan, both to be voted upon at the April 7 meeting of the shareholders.
The Tender Offer revealed that Vista owns 72,733 shares of Camelot stock, approximately 5.41% of the amount outstanding and that the price of the stock, traded over the counter since December 24, 1981, ranged from bids of 31/2 to 5 up to just before the making of the Tender Offer. The proration date of the Tender Offer is April 1, 1982, the date for the withdrawal of shares is April 2, and the Tender Offer expires at midnight on April 9, 1982 unless extended.
On March 4 and 5, 1982 Camelot mailed a proxy statement and notice of special meeting of stockholders dated March 3, 1982, calling for a stockholders meeting for April 7, 1982. Proxies were requested to vote in favor of amendments to Camelot's certificate of incorporation to include provisions
"(i) that the written request of more than 50% of the stockholders of the Company entitled to vote generally in the election of directors is required for stockholders to call a special meeting of stockholders,
(ii) that the stockholders may remove any director or the entire Board of Directors only for cause and only upon the affirmative vote of the stockholders of more than 50% of the outstanding shares of capital stock of the Company at a meeting of stockholders called for that purpose, and
(iii) that the affirmative vote of the holders of more than two-thirds (or, under certain circumstances, 90%) of the outstanding shares of capital stock of the Company entitled to vote generally in the election of directors is required to approve certain business combinations involving the Company if such business combinations have not been unanimously approved by the Company's Board of Directors."
The proxies also included approval of a proposed incentive stock option plan.
Pursuant to the direction of the SEC the amendments were labelled as "antitakeover" provisions. The proxy statement also stated that "management has no knowledge of any planned or threatened take-over offer."
On March 22, 1982 Vista issued a proxy solicitation urging the defeat of the management proposals.
Events Leading to the Tender Offer
Camelot was organized in August 1981 as a wholly-owned subsidiary of Itek, which included many of the assets and liabilities of Itek's former domestic Vision Care Division. All of Camelot's present officers with the exception of Newton, were officers of Itek's vision care division before the formation of Camelot. Macera was the chief executive officer, and Johnson was the chief operating officer of Itek's vision care division. The duties being performed by Macera, Johnson and the other Camelot officers on behalf of Camelot are similar to the duties that each of them performed on behalf of Itek's vision care division. Pursuant to a prospectus dated December 15, 1981, all of the issued and outstanding capital stock of Camelot was distributed by Itek to the holders of record of Itek's common stock as of the close of business on December 31, 1981. The pro forma adjusted book value of Camelot stock at the time of the "spin-off" was between $ 24.37 and $ 30.11 per share.
Since January 1, 1982, Camelot has been operating as an independent, publicly-held company, and its shares are traded in the over-the-counter market through the National Association of Securities Dealers Automated Quotation System ("NASDAQ").
The December 15, 1981 Camelot prospectus disclosed the intent of the Camelot board of directors, consisting of Henderson, Macera and Johnson, to hold a special meeting of the Camelot stockholders in the spring of 1982 to consider, inter alia, "the stockholder vote required to approve a merger or consolidation, a sale of substantially all of Camelot's assets or a plan of liquidation, the number of shares required to be owned in order to call a special meeting of Camelot's stockholders and ... an incentive stock option plan covering Camelot's executive officers and certain key employees."
On January 11, 1982, the Camelot board of directors adopted resolutions providing that holders of more than 50% of the stock of Camelot may call a special meeting of stockholders, (previously Camelot's original by-laws provided this right on a request by the holders of 25% of the stock), that directors may be removed only for cause and only upon the vote of more than 50% of the outstanding shares and that a vote of more than two-thirds (or, under certain circumstances, 90% of the outstanding shares) be required for stockholder approval of certain business decisions, such as mergers, consolidations, combinations, etc. Resolutions were also accepted providing for an incentive stock option plan for officers and key employees, a management incentive compensation plan; and approving employment agreements (i) for Macera and Johnson which provide, inter alia, for payment of their annual base salaries and bonus awards for three years in the event of termination of their employment without cause and (ii) for other employees of Camelot which provide, inter alia, that their employment be extended for two years in the event of changes in Camelot's control.
In January, 1982, Goldstein, having reviewed the Camelot prospectus, requested George Lasky, a Drexel Burnham trader, to become a market maker in Camelot stock. Around February 1, 1982, Goldstein talked to Saltzman for the first time about Camelot. Goldstein knew Saltzman as the chairman of the board of a company that had recently sold substantially all of its assets, and possessed substantial cash. ...