The opinion of the court was delivered by: PLATT
By order to show cause with affidavits annexed three separate individual plaintiffs, each presenting somewhat different circumstances, seek mandatory preliminary injunctions against the defendants enjoining them from taking any actions that would in any way interfere with
(i) plaintiffs' selling the shares of CopyTele Inc. ("CopyTele") stock that they own; and (ii) the transfer of the registered ownership of any of the shares of CopyTele stock owned by plaintiffs to a third party or, alternatively,
(iii) setting the closing price of CopyTele common stock on the NASDAQ National Market on December 5, 1984, as the price at which plaintiffs would have sold their stock had defendants not prevented them from doing so in order that plaintiffs' damages may be calculated with certainty.
CopyTele is a Delaware corporation with its principal place of business in Huntington Station, New York.
Denis A. Krusos ("Krusos") is a director and the Chairman of the Board and Chief Executive Officer of CopyTele.
Frank DiSanto ("DiSanto") is a director and the President of CopyTele.
Krusos and DiSanto each own 535,000 shares and members of their families each own respectively an additional 200,000 shares of CopyTele common stock and together Krusos and DiSanto own 38.22 percent of the outstanding shares of that stock and, as the Court understands it, together with their family members they own the majority of the outstanding shares of the stock. As of November 30, 1984, the market value of the stock held by Messrs. Krusos and DiSanto was in excess of thirty-three million dollars ($33,000,000).
Bradford Trust Company ("Bradford Trust") is the transfer agent for CopyTele stock.
From November 9 to November 30, 1982, CopyTele sold an aggregate of 390,000 shares of its common stock to individuals who were officers, employees and others at a price of ten cents a share, or $39,000 in the aggregate.
Plaintiff G. Thomas Catherines purchased 10,000 of these 390,000 shares.
Plaintiff Allan J. Hammer purchased 5,000 of these 390,000 shares.
Plaintiff Haskew Brantley, a State Senator from Georgia, purchased 10,000 of these 390,000 shares.
The stock certificates issued to Messrs. Catherines and Hammer and Senator Brantley did not contain any restrictive legend, and in fact, the words "fully paid and non-assessable" appear on the face of the stock.
The stock sold to plaintiffs was also unregistered. Absent any other restrictions it could be sold over a period of time after two years from the issuance thereof upon compliance with the provisions of Rule 144 under the Securities Act of 1933, as amended.
In October 1984, plaintiffs took action that would allow them to sell their CopyTele stock pursuant to Rule 144 when the holding period expired on November 30, 1984.
On November 30th, Senator Brantley submitted his stock to Bradford Trust for transfer. On December 5th Messrs. Catherines and Hammer submitted their stock to Bradford Trust to transfer. Bradford Trust refused to transfer any of the stock.
Theretofore, by letter dated November 12, 1984, addressed to Bradford Trust Company, Mr. Krusos had advised Bradford Trust that CopyTele takes:
The position that [Messrs. Catherines and Hammer] are not entitled to such shares inasmuch as they did not honor their employment commitments with the Company either by never becoming employed by the Company or by not remaining employed by the Company for any significant period of time. This commitment was a condition of their being issued the shares. We further take the position that all of the employees (including the above persons), and the officers and Directors of CopyTele, Inc., had agreed not to sell shares at this time.
Therefore, the Company's counsel will not issue any opinion under 144, and Bradford Trust Company should not permit transfer of these shares without either our consent or a final order of a Court of competent jurisdiction directing such transfers.
In a similar letter dated December 4, 1984, CopyTele advised Bradford that the shares of Senator Brantley "are restricted and should not be transferred" and "[a]s [heretofore indicated] all such transfers of restricted shares required the prior consent of CopyTele, Inc." (Ex. CC).
In his affidavit sworn to December 17, 1984, submitted in opposition to plaintiffs' motion and at the evidentiary hearing thereon, Mr. Krusos testified that all of the shares in question were sold to the three plaintiffs on November 30, 1982 at ten cents a share on the oral condition and understanding that the same might not be sold or otherwise transferred until CopyTele's "product" was "successfully developed and marketed" or when Mr. DiSanto or Mr. Krusos gave prior written consent to any such transfer.
At the hearing Mr. Krusos testified (and claimed that the plaintiffs knew) that "successfully marketed" meant that a binding order from Xerox for 5,000 units of its product at an ...