Monogram Industries, Inc. v. Royal Industries, Inc.

• Decision Date: 18 February 1977
• Citation: 372 A.2d 171
• Parties: MONOGRAM INDUSTRIES, INC., a Delaware Corporation, Defendant below, Appellant, v. ROYAL INDUSTRIES, INC., a Delaware Corporation, Plaintiff below, Appellee.
• Court: Supreme Court of Delaware

Page 171

372 A.2d 171

MONOGRAM INDUSTRIES, INC., a Delaware Corporation, Defendant below, Appellant, v. ROYAL INDUSTRIES, INC., a Delaware Corporation, Plaintiff

below, Appellee.

Supreme Court of Delaware.

Submitted Nov. 30, 1976.

Decided Dec. 3, 1976.

Opinion Feb. 18, 1977.

Upon appeal from the Court of Chancery. Reversed.

Rodman Ward, Jr., James L. Holzman, and John H. Small, of Prickett, Ward, Burt & Sanders, Wilmington, and Skadden, Arps, Slate, Meagher & Flom, New York City, of counsel, for defendant below, appellant.

S. Samuel Arsht, Lewis S. Black, Jr., Lawrence C. Ashby, of Morris, Nichols, Arsht & Tunnell, Wilmington, for plaintiff below, appellee.

Before HERRMANN, Chief Justice, DUFFY and McNEILLY, Justices.

HERRMANN, Chief Justice.

This appeal requires construction of the following underlined provisions of the recently amended Delaware Corporation Law pertaining to tender offers, 8 Del.C. § 203:

' § 203. Tender Offers.

'(a) No offeror shall make a tender offer unless:

'(1) Not less than 20 nor more than 60 days before the date the tender offer is to be made, the offeror shall deliver to the corporation whose equity securities are to be subject to the tender offer, at its registered office in this State or at its principal place of business, a written statement of the offeror's intention to make the tender offer. The statement shall include the name and address of the offeror and of each director and principal officer of the offeror; a description of the equity securities to be purchased and the consideration to be offered; the duration of the offer; The date on which the offeror may first purchase tendered securities; the amount or number of equity securities to be purchased or the manner in which such number or amount will be determined; whether the offeror will unconditionally accept all or any part of the equity securities tendered and, if not, upon what conditions acceptance will be made; the number or amount of any equity securities of the corporation owned beneficially by the offeror and any associate of the offeror as of the date of the delivery of the statement; a description of any contract, agreement or understanding to which the offeror or any associate of the offeror is a party with respect to the ownership, voting rights or any other interest in any equity security of the corporation; And, if the offeror permits the purchase of less than all the outstanding equity securities issued by the corporation, copies of a balance sheet of the offeror as of the end of its last fiscal year and of its income statements for the 3 fiscal years preceding the offer.' (effective May 1, 1976)

Monogram Industries, Inc. made a tender offer proposing to purchase from stockholders of Royal Industries, Inc., for cash, up to 3,200,000 shares (approximately 55%) of the common stock of Royal. Both companies are Delaware corporations. Royal brought suit to enjoin Monogram for proceeding with the proposed tender offer, alleging noncompliance by Monogram with the underlined requirements of § 203.

The Court of Chancery held that the consolidated balance sheet and income statements of Monogram and its subsidiary companies, furnished to Royal in connection with the tender offer, did not constitute compliance with the § 203 requirement that the balance sheet and income statements 'of the offeror' be furnished; that the 'precise financial statements specified in the statute' consisted of the balance sheet and income statements of the 'parent-only' type because 'the papers specified in the statute are those required to establish the lawfulness of a dividend, the propriety of the purchase or redemption of shares of stock and the establishment of the existence of a surplus'; and the Court of Chancery concluded, therefore, that Monogram must be restrained from going forward with its tender offer until there was compliance by furnishing such 'parent-only' financial documents.

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