The opinion of the court was delivered by: SAROKIN
Kennecott Corporation is a New York corporation with its principal executive offices located at Stamford, Connecticut. Kennecott is an integrated producer of metals (including copper, molybdenum, lead, zinc, iron, titanium, silver and gold), other minerals and various metal and industrial products. KC Development Inc. is a Delaware corporation organized for the purpose of purchasing and holding shares of Curtiss-Wright Corporation stock; it has engaged in no other activity and owns no other assets, other than cash in New York bank accounts. KC Development Inc. is a wholly-owned subsidiary of plaintiff Kennecott Corporation.
Curtiss-Wright Corporation ("Curtiss-Wright") is a Delaware corporation with its principal executive offices located at Wood-Ridge, New Jersey. Curtiss-Wright operates principally in five business segments: engineering, production, sale and service of process equipment for treatment of suspended solids; research into and the production, sale and service of electrical generating equipment; production and sale of other industrial products; design, manufacture and sale of products for use in nuclear facilities; and production and sale of various products used in the aerospace industry. Curtiss-Wright's common stock is registered under Section 12 of the Securities Exchange Act of 1934 ("Exchange Act"), 15 U.S.C. § 78l, and is listed for trading on the New York Stock Exchange.
Curtiss-Wright and its wholly owned subsidiaries have substantial assets within the state, including facilities in Wood-Ridge, Fairfield, Paramus and Carlstadt, New Jersey. Approximately 1600 people are currently employed in the State of New Jersey by Curtiss-Wright or its wholly-owned subsidiaries. An additional 400 people are currently employed in the state by partially-owned subsidiaries of Curtiss-Wright. Curtiss-Wright and its wholly and partially-owned subsidiaries employ in excess of 4800 people outside the State of New Jersey. (Exhs. DCW-6 & 7) It maintains substantial pension, retirement, health and welfare benefit programs for its employees. Since its employees are, on the average, fairly advanced in age and length of service to the company, they are particularly vulnerable to the termination of their employment or their employment benefits. (Exhs. DCW-10, 11, 12 & 13) Federal law would not guarantee the continuation of the health and welfare benefits (e.g., life insurance, hospital insurance, medical insurance) of its employees in the event that Kennecott acquired and terminated those benefit programs. The Curtiss-Wright Pension Program is an employer-funded pension program maintained for the benefit of the company's union employees. That program currently has an unfunded actuarial liability of approximately $ 41 million. In the event that Kennecott acquired control of Curtiss-Wright and terminated the Pension Program, the Pension Benefit Guarantee Corporation ("PBGC") would guarantee the pensions of all employees whose rights thereto have vested. The PBGC could then levy upon Curtiss-Wright's assets, up to 30 per cent thereof, to satisfy the amount of any unfunded actuarial liability. (Exh. DCW-9)
II. EVENTS GIVING RISE TO THIS ACTION
On November 21, 1980, Kennecott issued a press release announcing its intention to commence a cash tender offer for up to 4.1 million shares of common stock of Curtiss-Wright at a price of $ 40 net per share. Kennecott's Board of Directors had authorized the offer by a unanimous vote of 14 directors (with four directors abstaining) on the same day.
Kennecott's offer was extended to all of Curtiss-Wright's shareholders, who then numbered approximately 35,706 and who are found throughout the United States. The aggregate value of Kennecott's offer exceeded $ 160 million. As of December 8, 1980, Curtiss-Wright had 2,239 record shareholders who resided within the State of New Jersey.
III. COURSE OF PROCEEDINGS
Kennecott filed this action on November 21, 1980, naming Smith, Degnan and Curtiss-Wright as defendants, and seeking (1) a declaratory judgment that the New Jersey Takeover Law was unconstitutional as applied to Kennecott's tender offer for shares of Curtiss-Wright and (2) preliminary and permanent injunctive relief restraining enforcement of the New Jersey Takeover Law against the Kennecott offer. At the time it filed its complaint, Kennecott secured a temporary restraining order prohibiting Curtiss-Wright from attempting to enforce the New Jersey Takeover Law. At the same time, Smith agreed not to take any steps to enforce the statute until a decision on Kennecott's motion for a preliminary injunction.
On November 25, 1980, this court denied Kennecott's motion for a preliminary injunction and vacated its existing temporary restraining order, concluding that Kennecott had failed to meet its burden of showing a probability of success on the merits or irreparable harm if the injunction were not granted. Following this court's order of November 25, 1980, the defendants took steps to enforce the New Jersey Takeover Law. Smith, in his capacity as the Chief of the New Jersey Bureau of Securities, issued a cease and desist order on November 26, 1980 that directed Kennecott not to commence the tender offer before the expiration of the 20-day waiting period prescribed by N.J.Stat.Ann. § 49:5-3 or otherwise to violate the New Jersey Act. On the same day Kennecott filed a notice of appeal from that order with the Appellate Division of the Superior Court of New Jersey.
On November 28, 1980, Kennecott published a summary advertisement containing the essential terms of the offer in the national financial press. On the same day Kennecott also filed a disclosure statement on Schedule 14D-1 with the Securities and Exchange Commission ("SEC"). (Exh. P-7) On December 1, 1980, Smith applied to the Appellate Division for an order vacating the stay effected by Kennecott's appeal from its November 26 order, and enjoining Kennecott from engaging in any acts in furtherance of the tender offer, including any solicitation of offerees in favor of the offer. The presiding judge of the Appellate Division granted the motion for temporary relief. Following a hearing on December 9, 1980, a panel of the Appellate Division continued the restraints against Kennecott by enforcing the cease and desist order.
On December 1, 1980, Curtiss-Wright formally requested that defendant Smith hold a hearing on Kennecott's offer pursuant to N.J.Stat.Ann. § 49:5-4. On December 11, 1980, the day that the 20-day waiting period prescribed by N.J.Stat.Ann. § 49:5-3 expired, Smith announced that he would hold a hearing to determine whether (1) Kennecott's alleged plans for material changes in Curtiss-Wright's corporate structure would be in the best interests of Curtiss-Wright's remaining shareholders and employees, (2) the terms of a proposed second step merger between Kennecott and Curtiss-Wright were fair and (3) Kennecott's tender offer would adversely affect the pension rights of Curtiss-Wright employees. Smith prohibited Kennecott from going forward with its tender offer during the pendency of the hearing, but advised Kennecott that he would narrow the scope of the hearing to include only issue (1) if Kennecott undertook to engage an independent investment banking firm to pass upon the fairness of the proposed merger and provided Smith with certain assurances regarding the pension rights of Curtiss-Wright employees.
On December 1, 1980, Curtiss-Wright also commenced an action in the New Jersey Superior Court, Chancery Division, seeking injunctive relief against Kennecott's tender offer and the voting of any shares that Kennecott acquired thereby. Curtiss-Wright's complaint relied on the sections of the New Jersey Takeover Law that delay commencement of tender offers. On November 26, 1980, Kennecott appealed this court's order denying preliminary relief to the United States Court of Appeals for the Third Circuit. On December 17, 1980, a panel of that Court reversed and remanded.
On December 19, 1980, this court enjoined defendants "from taking any steps to enforce any provisions of the New Jersey Takeover Bid Disclosure Law against (Kennecott's) ... tender offer ... that would interfere with the continuation of such tender offer as prescribed by the Williams Act and the regulations promulgated thereunder...." This court further enjoined defendants from opposing an application by Kennecott to the Appellate Division of the New Jersey Superior Court for dissolution of that Court's orders of December 1 and 9 to the extent that said orders were inconsistent with the federal injunction. On December 19, 1980, the Appellate Division of the New Jersey Superior Court vacated its orders entered on December 1 and 9 and stayed the Bureau Chief's cease and desist order of November 26, 1980 to the extent such order was inconsistent with the federal injunction and the Appellate Division's December 19, 1980 order.
On December 22, 1980, the defendants appealed from this court's injunction on the ground that it was broader than contemplated by the Court of Appeal's decision, and prohibited the Bureau Chief from conducting a hearing, pursuant to the New Jersey Takeover Law, prior to the consummation of Kennecott's tender offer. Defendants also sought a stay of the injunction pending appeal. On December 23, 1980, the Court of Appeals denied defendants' motion for a stay but granted their motion for an expedited appeal, scheduling argument for the week of February 23, 1981. On December 24, 1980, Curtiss-Wright again sought a stay of the district court's injunction from the Court of Appeals pending appeal to the Supreme Court, which was denied. On December 25, 1980, Curtiss-Wright filed a petition for a stay pending appeal in the Supreme Court. On December 26, 1980, Justice Brennan denied the stay.
On December 29, 1980, Kennecott purchased approximately 2,000,000 shares of Curtiss-Wright common stock. On December 30, 1980, Kennecott extended its offer at the same price until January 9, 1981. Kennecott has purchased for $ 40 per share all of the shares tendered by Curtiss-Wright shareholders prior to the original December 26, 1980 termination date of its tender offer. Curtiss-Wright announced a tender offer for 1,000,000 of its own shares, and on January 2, 1981 it announced that it would pay $ 46 per share.
Prior to this case, the New Jersey Bureau of Securities had asserted jurisdiction over five tender offers. No public hearing has ever been held pursuant to the New Jersey Act. Prior to Kennecott's tender offer for Curtiss-Wright, the sole tender offer subject to the New Jersey Act in which a hearing was requested and ordered was United Technologies Corporation's tender offer for The Babcock & Wilcox Company. The Bureau Chief cancelled the hearing and gave United Technologies Corporation permission to proceed with its offer upon its representation that it would comply with the Bureau Chief's interpretation of withdrawal rights set forth in Section 9 of the New Jersey Act.
In an attempt to harmonize New Jersey law with the requirements of SEC Rule 14d-2, in April 1980 the Bureau of Securities amended its regulations to provide that an offeror need not make public those facts that "trigger" the commencement of its offer under SEC Rule 14d-2(b). The language of the amended New Jersey rule, N.J.A.C. 13:47A-26.2 which permits an offeror to withhold public disclosure of the amount of shares sought and the consideration to be offered therefor repeats verbatim the language of the SEC's "safe harbor" provision, SEC Rule 14d-2(d). Said regulations define the "material terms" of an offer (for purposes of N.J.Stat.Ann. 49:5-3) to include, but not be limited to, the following: the identity of the offeror, the identity of the target and a statement that the offeror intends to make an offer for an unspecified amount and class of securities of the target (N.J.A.C. 13:47A-26.2). The New Jersey Takeover Law requires disclosure of the price offered and amount of shares sought to the target company, which under the rules of the New York Stock Exchange must disclose that information. Once the terms of the offer were disclosed to the market, a situation would exist which is inconsistent with continued use of the "safe harbor" provisions of Rule 14d-2(b).
In this case, and in every prior assertion of jurisdiction over a tender offer, the Bureau of Securities has taken the position that the offer could not go forward until expiration of the 20-day waiting period prescribed by N.J.Stat.Ann. § 49:5-3. The Bureau Chief has taken the position that, assuming that the pre-commencement portions of the New Jersey Act are invalid, those portions of the Act may be severed and the remainder of the Act can still be given reasonable effect. The severance proposed by the Bureau Chief the deletion of certain portions of Sections 3a and 8a of the New Jersey Act would permit the Bureau Chief to, inter alia, hold a public hearing following the commencement of an offer and prior to its consummation. The Bureau also has taken the position that the offer could not commence until the Bureau Chief granted his permission pursuant to N.J.Stat.Ann. § 49:5-4; and that if a hearing were called under N.J.Stat.Ann. § 49:5-4, the offer could not commence until the hearing was concluded and the Bureau Chief permitted the offer to proceed.
In this case, the Bureau took the position that the Bureau Chief could not waive the statutory requirement, contained in N.J.Stat.Ann. § 49:5-4, that Kennecott's offer could not proceed until a hearing was concluded and the Bureau Chief permitted the offer to proceed.
On December 19, 1980, at a hearing before the Appellate Division of the Superior Court, the Bureau sought to maintain in place so much of the Appellate Division's orders of December 1 and 9 as would restrain Kennecott from consummating its offer, and purchasing any Curtiss-Wright shares, pending a conclusion of a hearing held pursuant to N.J.Stat.Ann. § 49:5-4. The Appellate Division denied the request. Neither the legislative history nor the past administration of the New Jersey Takeover Law supports a construction of the statute that would permit a hearing under N.J.Stat.Ann. § 49:5-4 after a tender offer has commenced.
N.J.Stat.Ann. § 49:5-4(b), as interpreted by the Bureau Chief, requires that the offeror and the target company be given at least 20 days' notice of the convening of a hearing. The statute permits the Bureau Chief to give longer notice. Although subject to the aforesaid discretion of the Bureau Chief, the statute permits a target company to participate in and present witnesses at a hearing called pursuant to that section, and imposes no limitation on the number of witnesses that a target company may present at a hearing convened pursuant to N.J.Stat.Ann. § 49:5-4. Nor has the Bureau adopted any regulations imposing such a limitation. In its Basis Statement supporting a request for a hearing, Curtiss-Wright proposed to call 22 witnesses at a hearing on Kennecott's offer. (Exh. DCW-1) The statute enables target companies to cross-examine witnesses at a hearing convened pursuant to that section; and it imposes no limitation on the length of time that a target company can cross-examine witnesses at a hearing convened.
The Bureau Chief must permit interested members of the public to intervene in a hearing called pursuant to that section, which may include stockholders of the target company, its employees, the employees' union, civic groups in communities where the target company has industrial facilities, suppliers of the target company and the target company's customers, according to the Bureau Chief's interpretation of the statute.
It permits an intervenor to present and cross-examine witnesses at a hearing convened pursuant to that section. The statute imposes no limitation on the number of witnesses an intervenor may call. Nor has the Bureau adopted any regulations imposing such a limitation.
The statute, as interpreted by the Bureau Chief, permits the Bureau to inquire into the following matters at a hearing convened to consider whether a tender offer will be permitted:
(i) the financial condition of the offeror, the effect of the acquisition on the financial stability of the target company and the effect of the takeover on security holders or employees not affiliated with the offeror by reason of financial instability of the offeror or the target;
(ii) the fairness of the terms of the offer, which terms may include price, withdrawal rights, pro rata rights, the character of the consideration and the fairness of any subsequent merger between the target company and the offeror;
(iii) plans of the offeror, if any, to alter the target company's business or corporate structure, which plans may include closure of the target's New Jersey operations; and
(iv) the economic integrity and competence of the individuals who would control the target company if the offer were successful.
If, after a hearing called under N.J.Stat.Ann. § 49:5-4, the Bureau Chief determined that an offeror's financial condition is such that it might jeopardize the financial stability of the target or prejudice the interest of the target's security holders or employees, the Bureau Chief would prohibit the offer from going forward, unless there were a way to remedy the offeror's financial condition. However, in this matter, the financial condition of Kennecott was not presented by Curtiss-Wright as a grounds for convening a public hearing herein, and the Bureau Chief did not base his determination to hold a hearing on such ground. (Exh. DCW-5) If, after a hearing, the Bureau Chief determined that a tender offer's terms were unfair or inequitable, the Bureau Chief would prohibit the offer from going forward, unless such terms were satisfactorily changed.
If the Bureau Chief determined that a tender offeror intended to alter a target company's business in a way that would prejudice its remaining shareholders or employees, the Bureau Chief would prohibit the offer from going forward. For this purpose, the Bureau Chief would deem the target company's employees to be adversely affected if the offeror intended to close down healthy business operations of the target in New Jersey, discharge employees working in such operations and move such operations out of state. Whether or not such a decision would actually be made would depend upon the exact facts and circumstances developed at an evidentiary hearing conducted pursuant to the New Jersey Act.
If the Bureau Chief determined that the competence or integrity of a tender offeror's management were such that they would prejudice the target company's remaining shareholders or employees, the Bureau Chief would prohibit the offer from going forward. If he determined that a tender offer was in violation of any of the standards set forth in N.J.Stat.Ann. § 49:5-4, he would prohibit the offer even though full and fair disclosure had been made to offerees and the offer was otherwise in compliance with all applicable federal law. In such an event, the New Jersey Takeover Law, as interpreted by the Bureau Chief, would render it unlawful to proceed with the offer in any part of the United States.
Allegations of inadequate disclosure, standing alone, are not sufficient grounds for convening a hearing under N.J.Stat.Ann. § 49:5-4. The sole purpose of a hearing under N.J.Stat.Ann. § 49:5-4 is to determine whether the substantive standards of that section have been met. Disclosure statements filed pursuant to N.J.Stat.Ann. § 49:5-3 are kept confidential by the Bureau Chief, and are used for the sole purposes of determining whether to convene a hearing pursuant to N.J.Stat.Ann. § 49:5-4 and whether there are any egregious disclosure problems relating to the offer.
The Act does not require the Bureau Chief to reach a decision regarding the permissibility of a tender offer until 60 days after the conclusion of a hearing called pursuant to that section. If, after the Bureau Chief permits a tender offer to go forward, the Bureau Chief's order is stayed pursuant to N.J.Stat.Ann. § 49:5-17, the offer may not go forward. In the case of the takeover of The Babcock and Wilcox Company in 1977, United Technologies Corporation's tender offer was restrained for more than two months on the basis of ...