TLX Acquisition Corp. v. Telex Corp.

• Decision Date: 03 November 1987
• Docket Number: No. CIV-87-2056-R.,CIV-87-2056-R.
• Citation: 679 F. Supp. 1022
• Parties: TLX ACQUISITION CORPORATION, TLX Partners, Datapoint Corporation, and Intelogic Trace, Inc., Plaintiffs, v. The TELEX CORPORATION, Robert Henry, Attorney General of the State of Oklahoma, Jeanette B. Edmondson, Secretary of State of the State of Oklahoma, Susan Bryant, Administrator of the Department of Securities of the Oklahoma Securities Commission, Defendants.
• Court: U.S. District Court — Western District of Oklahoma

679 F. Supp. 1022

TLX ACQUISITION CORPORATION, TLX Partners, Datapoint Corporation, and Intelogic Trace, Inc., Plaintiffs, v. The TELEX CORPORATION, Robert Henry, Attorney General of the State of Oklahoma, Jeanette B. Edmondson, Secretary of State of the State of Oklahoma, Susan Bryant, Administrator of the Department of Securities of the Oklahoma Securities Commission, Defendants.

No. CIV-87-2056-R.

United States District Court, W.D. Oklahoma.

November 3, 1987.

James P. Linn and B.J. Rothbaum, Jr., Linn & Helms, Oklahoma City, Okl., and John S. Martin, Jr., Schulte, Roth & Zabel, New York City, for plaintiffs.

Joel L. Wohlgemuth, Norman, Wohlgemuth & Thompson, Tulsa, Okl., Robert H. Henry, Atty. Gen., and Robert A. Butkin, Asst. Atty. Gen., Oklahoma City, Okl., for defendants.

ORDER

DAVID L. RUSSELL, District Judge.

Before the Court is the application of Plaintiffs TLX Acquisition Corporation, TLX Partners, Datapoint Corporation and Intelogic Trace, Inc. (collectively "TLX et al.") for a temporary restraining order restraining Defendants The Telex Corporation ("Telex"), Robert Henry, Attorney General of the State of Oklahoma, and Jeannette B. Edmondson, Secretary of State of the State of Oklahoma and Susan Bryant, Administrator of the Department of Securities of the Oklahoma Securities Commission (collectively the "Government Defendants"), from attempting to apply, invoke or enforce the Oklahoma Control Shares Acquisition Act, 1987 Okla.Sess. Laws ch. 146, § 15 et seq., to be codified as Okla.Stat. tit. 18, § 1145 et seq. (sometimes referred to hereinafter as the "Oklahoma Control Shares Act" or "Control Shares Act").¹ The temporary restraining order sought is ancillary to Plaintiffs' action seeking a declaratory judgment declaring the Oklahoma Control Shares Act facially unconstitutional and as applied to Plaintiffs, their acquisition of Telex stock pursuant to their tender offer and/or to a merger of Telex and TLX Acquisition Corporation. Plaintiffs allege in their complaint that the Oklahoma Control Shares Act is unconstitutional both under the Commerce Clause and under the Supremacy Clause of the United States Constitution, under the latter clause by virtue of pre-emption by the Williams Act, 82 Stat. 454, as amended, 15 U.S.C. § 78m(d)-(e) and 78n(d)-(f). However, Plaintiffs confine their arguments concerning their likelihood of success on the merits supporting the application before the Court to the statute's infirmity under the Commerce Clause.

In addition to an order restraining Defendants from invoking the Control Shares Act, Plaintiffs seek an order restraining and enjoining Defendants from commencing an action in any other forum to invoke, apply or enforce that Act, to enjoin the acquisition or merger or to litigate any other issues related to Plaintiffs' acquisition, merger or the Control Shares Act.

The Oklahoma Control Shares Acquisition Act

The Oklahoma Control Shares Acquisition Act is the latest of a series of anti-takeover statutes enacted by the Oklahoma legislature, all but one² of which have been previously determined to be unconstitutional.³ The Act applies to acquisition of shares of stock in a public corporation where such acquisition is for the purpose of and would result in the acquisition of at least either one-fifth, one-third or a majority of the voting power of that corporation, see 1987 Okla.Sess.Laws ch. 146, §§ 15, 16, if the public corporation has one hundred or more shareholders; and has its principal place of business, its principal office or substantial assets in Oklahoma; and one of the three following conditions is met: 1) more than ten percent (10%) of the corporation's stockholders reside in Oklahoma; b) more than ten percent (10%) of its shares are owned by Oklahoma residents; or c) ten thousand shareholders resident in Oklahoma. 1987 Okla.Sess.Laws ch. 146, § 18. If the foregoing conditions are met, the Act applies and provides that unless the issuing corporation's certificate or bylaws provide otherwise prior to a "control share acquisition,"⁴ the control shares acquired by the acquiror will have only such voting rights as are granted by a resolution approved 1) by a majority of the votes within each voting group entitled to vote separately on the proposal, excluding all interested shares; and 2) if the proposed acquisition would, if consummated, result in any of the changes described in Okla.Stat. tit. 18, § 1077(B)(2), by a majority of the holders of outstanding shares of all classes that are entitled to vote as a class. 1987 Okla. Sess.Laws ch. 146, §§ 19 and 23. "Interested shares" for purposes of ascertaining how the requisite majority of stockholder approval under the first condition is determined, are shares of the corporation for which an acquiring person or group or any officer or employee who is also a director of the corporation may exercise or direct the exercise of attendant voting power of the corporation in the election of directors. 1987 Okla.Sess.Laws ch. 146, § 17. The shareholder vote on the resolution regarding the voting rights to be accorded the acquiror's control shares is not required to be taken until the next special or annual meeting of shareholders, unless the acquiring person delivers an "acquiring person statement,"⁵ requests a special meeting of stockholders and within ten days thereafter gives an undertaking to pay the corporation's expense of the special meeting. See 1987 Okla.Sess.Laws ch. 146, §§ 20, 21. In that event, the directors of the target corporation must call a special meeting of shareholders, to consider the voting rights to be accorded the shares acquired or to be acquired by the acquiror, within no more than fifty days after receipt of the request, and if the acquiror also so requests in writing at the time of delivery of the acquiring person statement, the required special meeting may not be held sooner than thirty days after receipt of the statement. 1987 Okla.Sess.Laws ch. 146, § 21.

The Parties' Arguments

Plaintiffs TLX et al. assert that the Control Shares Act is unconstitutional under the Commerce Clause because it purports to regulate the internal affairs of corporations, in this instance Telex, incorporated in states other than Oklahoma, and further, that it purports to regulate nationwide tender offers for the stock of "out-of-state" corporations. Plaintiffs assert that the United States Supreme Court's decisions in CTS Corporation v. Dynamics Corporation of America, 481 U.S. ___, 107 S.Ct. 1637, 95 L.Ed.2d 67 (1987) and in Edgar v. Mite Corporation, 457 U.S. 624, 102 S.Ct. 2629, 73 L.Ed.2d 269 (1982) compel this conclusion.

In addition to the foregoing arguments demonstrating Plaintiffs' likelihood of success on the merits, Plaintiffs contend that they are threatened with and will suffer irreparable harm in two ways if Defendants are permitted to enforce the Control Shares Act. First, "economic disincentives" of the Act threaten to preclude Plaintiffs from proceeding with their tender offer to their irreparable economic detriment and that of the shareholders of Telex who will be deprived of an opportunity to obtain a premium for their shares. Plaintiffs' Brief at 24. Alternatively, if Plaintiffs proceed with the tender offer but their shares are denied voting rights in a resolution pursuant to the Control Shares Act, the purpose of Plaintiffs' acquisition of a controlling interest — to direct the affairs of the corporation — will be defeated, Plaintiffs will be deprived of the real benefits of their stock ownership, and the acquisition will be rendered an economic disaster. See Plaintiffs' Brief at 24-25 and Affidavit of Asher B. Edelman in Support of Motion for Declaratory Judgment and Preliminary and Permanent Injunctive Relieve at ¶ 4. In the affidavit supporting the requested relief, Mr. Edelman states that it will not be possible to obtain financing for a tender offer unless the financing is conditioned upon a determination that the acquired shares will have voting rights free of any strictures of the Control Shares Act. Affidavit at ¶ 6. Acknowledging that before issuing the requested relief, the Court must be satisfied that the public interest will not be disserved thereby, Plaintiffs address no arguments specifically to this issue.

Defendant Telex asserts that the Oklahoma Control Shares Act is on its face identical to the Indiana Control Shares Acquisition statute which the Supreme Court upheld against a Commerce Clause challenge in CTS Corporation v. Dynamics Corporation of America, 481 U.S. ___, 107 S.Ct. 1637, 95 L.Ed.2d 67 (1987). Attempting, however, to circumvent the Supreme Court's focus, in the CTS decision, on the fact that the Indiana Act only applies to corporations incorporated in Indiana, Defendant Telex urges that the substantial nexus between Oklahoma, Telex, and Telex shareholders gives Oklahoma a sufficient interest in protecting resident shareholders to regulate a nationwide tender offer consistent with the CTS decision:

Plaintiffs have overlooked the fact that the Supreme Court upheld the Indiana statute not only because it purported to define a state's governance of its corporations, but because it also sought to shelter its resident shareholders. As the Court stated, "Congress has never questioned the need for regulation of these matters." Because the Oklahoma Act is narrowly tailored to protect the interests of its resident shareholders and does not interfere with interstate commerce, it should be upheld. Defendant Telex's Brief at 21 (citations and footnote omitted)

Defendant Telex asserts that the irreparable harm Plaintiffs claim they will sustain if the Control Shares Act applies is only hypothetical and insufficient to warrant preliminary injunctive relief. Moreover, it urges that the public and Telex shareholders would be disserved by delaying enforcement of legislation which was designed to protect shareholders from abusive take-over tactics.

The...