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April 4, 1983

PROTECTIVE CLOSURES CO., INC., MARK IV INDUSTRIES, INC., CHARLES PERCIVAL and NEIL R. FARMELO, Individually and as President and Secretary, respectively, of PROTECTIVE CLOSURES CO., INC., and as Trustees of a certain Trust of Stock in PROTECTIVE CLOSURES CO., INC., for the benefit of MASON WINFIELD, JR., and others, and R. C. WINFIELD, as Trustee of a certain Trust of Stock in PROTECTIVE CLOSURES CO., INC., for the benefit of MASON C. WINFIELD, JR., and others, and MANUFACTURERS HANOVER, N.A., Defendants

John T. Curtin

The opinion of the court was delivered by: CURTIN


Pending before the court is the application of Astronics Corporation for a preliminary injunction. On January 5, 1983, the court heard extensive argument and denied plaintiffs' motion for a preliminary injunction. At the request of the plaintiffs and pursuant to Rule 62(c) of the Federal Rules of Civil Procedure, the court provided a temporary stay until 12 p.m. on Friday, January 7, 1983, in order to give plaintiffs an opportunity to make application to the United States Court of Appeals.

 Because of the shortness of time, the facts in this matter may only be briefly sketched by the court.

 Both plaintiff Astronics Corporation [Astronics] and defendant Mark IV Industries, Inc. [Mark IV] are publicly held corporations, and their securities are registered with the Securities and Exchange Commission, pursuant to section 12(g) of the Securities Exchange Act of 1934. Protective Closures Co., Inc. [Protective Closures], the target of the proposed acquisition, is a privately held corporation, having 12,446 shares of capital stock held by about 41 record shareholders. It has been in business for about 34 years and was founded by Harry Winfield, who died without children, leaving his wife, Mabel Winfield. Many of the stockholders are related to the Winfields. The company has never made a public offering of any securities and has not been required to file any reports under the Federal Securities Act as a public company.

 To understand the present motion, a brief recital of the events in the case of Protective Closures Co., Inc. v. Astronics Corporation, Civ. 82-1174C, is important. On December 23, 1982, Protective Closures made an application for a temporary order restraining defendant Astronics from continuing with an option of solicitation to obtain options on Protective Closures stock. The facts, according to the Protective Closures view, are set forth in the affidavit of Charles Percival, Jr., Docket Item 2 in Civ. 82-1174C. Mr. Percival, President of Protective Closures, related that on December 15, 1982, he became aware of an offer by Astronics to obtain options to purchase shares of Protective Closures. This offer was made in a letter dated December 13, 1982, Docket Item 2, Exhibit A. Astronics had sent the letter to all Protective Closures shareholders, giving an option price of $5 per share, with a total purchase price of $650 per share. The option agreement provided that it had to be returned to Astronics not later than January 1, 1983. It also stated that Marine Midland Bank, as trustee of estates holding 2,500 shares of stock, had given Astronics an option for its shares without disclosing the terms of that option agreement. The letter also said that Astronics had an option at that time for about 30 percent of the outstanding shares of Protective Closures.

 According to Mr. Percival, the offer failed to disclose the source of funds to be used to purchase the shares, the plans of Astronics concerning the future of the company, whether it would exercise some but not all of the options, and that it failed to set forth its plan to protect plaintiffs' employees and their rights. Newspaper reports about the solicitation appeared in several editions of Buffalo and area newspapers on December 16, 1982. Percival claimed that these reports were false, because one newspaper article made it appear that the acquisition was a completed act rather than a solicitation of options. He also claimed that the article falsely stated that Percival and Neil R. Farmelo would be expected to continue to manage the company.

 Because the Protective Closures Board believed that the offer was not a good one, a letter was sent to shareholders by Mr. Farmelo on December 17, 1982 (Exhibit E to Percival Affidavit), advising the shareholders that the Board believed that the proposal should be rejected. Based upon the information contained in the Percival affidavit and other information brought to my attention on December 23, 1982, I issued a temporary restraining order and set a hearing on the application of Protective Closures for a preliminary injunction for December 29, 1982.

 Due to subsequent events, no hearing was held on the application of Protective Closures for a preliminary injunction. During informal meetings held early in the week of December 25, 1982, the court explained to counsel for Astronics that they were free to make another offer if they desired. During that week and continuing to the present, Astronics has represented that it desires to make another offer but has not done so as yet.

 The question of the validity of the temporary restraining order in the Astronics case is not before me at the present time. It was entered after discussion with the lawyers about the facts related in the affidavits and reliance upon Wellman v. Dickinson, 475 F. Supp. 783, (S.D.N.Y. 1979) aff'd 682 F.2d 355 (2d Cir. 1982).

 Defendant Mark IV entered the fray on December 23, 1982, when a stock purchase memorandum was executed between Mark IV and certain principal shareholders of Protective Closures. Astronics then filed the instant action, naming Mark IV and Protective Closures as defendants. Astronics has made an application for a temporary restraining order and preliminary injunction prohibiting the execution of the Mark IV stock purchase memorandum agreement. Astronics primarily claims that the transaction between the defendants is a tender offer, containing material misstatements and omissions, and therefore, the execution of the agreement should be restrained, pursuant to section 14(e) of the Securities Exchange Act of 1934 as amended.

 The facts on the present application are set forth in the affidavit of Kevin Keane, President of Astronics, the affidavit of Sal H. Alfiero, Chairman of the Board of Mark IV, and exhibits which are attached to the memoranda filed by Astronics and Mark IV. According to Mr. Alfiero, preliminary discussions were held with Protective Closures officers and him concerning the possible acquisition of Protective Closures, but nothing came of these meetings. However, when Mr. Alfiero saw a newspaper article on December 16, 1982, about the Astronics-Protective Closures takeover bid, he contacted Mr. Farmelo to tell him that Mark IV would be interested in making an amicable acquisition of Protective Closures' stock. When Farmelo told him that he believed that the Astronics offer was grossly inadequate, Alfiero met with his associates in Mark IV, and these conversations resulted in a series of meetings between Mark IV and Protective Closures representatives. At the same time, he arranged a financing commitment with a bank to provide capital of about $10 million to complete the acquisition of Protective Closures.

 During the evening of December 23, a firm agreement was reached between Mark IV and some of the principal shareholders of Protective Closures for the purchase of a minimum of 51 percent of the 12,440 outstanding shares of Protective Closures, at $800 a share. This agreement is set forth as Exhibit E to Astronics' submission on the motion. In addition to agreeing to pay the shareholders $800 a share, the agreement also provided that if the transaction closed on or before January 10, 1983, Mark IV agreed to make an offer to purchase all remaining Protective Closures shares at the same price and terms. Later, this offer to purchase to outside shareholders was extended to March 3, 1983, if necessary.

 All of the directors of Protective Closures were at the December 23 meeting with counsel, and Mark IV released the terms of the agreement to the Buffalo News on December 24 and 27, 1982. The shareholders who executed the agreement consisted of Harold Farber, a director who was not a member of the Winfield family group, and, essentially, four family groups represented by Neil Farmelo, Charles Percival, Jr., Robert E. Babcock, Dr. Robert H. Evans, Jr., and Paul Dray. An analysis of the relationships between the directors and the Winfield family members who held stock is set forth at pages 5 - 7 of the Mark IV memorandum.

 Turning to the various claims presented by the parties, there are several matters which are only briefly considered. It appears that a losing tender offeror in the position of Astronics does not have a private cause of action for damages against the successful bidder on the target company. Piper v. Chris-Craft Industries, Inc., 430 U.S. 1, 51 L. Ed. 2d 124, 97 S. Ct. 926 (1977). The United States Supreme Court held in Piper that a defeated tender offerer was not within the category of those that the statute was intended to protect. Perhaps plaintiff Mason Winfield, as an individual shareholder, may assert a cause of action for damages, but this action could also be taken up in a proceeding subsequent to the completion of the Mark IV transaction. Under the authority of cases like Mobil Corp. v. Marathon Oil Co., 669 F.2d 366 (6th Cir. 1982), there may be a cause of action by Astronics to obtain an injunction. However, the analysis used by the court in Marathon, based upon the United States Supreme Court's decision in Cort v. Ash, 422 U.S. 66, 45 L. Ed. 2d 26, 95 S. Ct. 2080 (1975), is subject to serious question in light of more recent cases decided by the Supreme Court and other courts. Indeed, even the right to a claim of injunctive relief may not be appropriate. See, e.g., Marshall Field & Co. v. Icahn, 537 F. Supp. 413, 422 (S.D.N.Y. 1982).

 It appears also that Astronics does not have cause under section 10(b) of the Securities Exchange Act of 1934 and Rule 10(b)(5), Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 44 L. Ed. 2d 539, 95 S. Ct. 1917 (1975), since the provisions of Rule 10(b)(5) apply only to purchasers and sellers of securities. See also Iroquois Industries, Inc. v. Syracuse China Corp., 417 F.2d 963 (2d Cir. 1969). This analysis would also apply to plaintiff Winfield, since there is a no-purchaser sale at this time by Mark IV.

 Concerning plaintiff's request for a preliminary injunction, in attempted corporate takeover cases such as this, the standard requires the ...

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