Opinion ID: 109604
Heading Depth: 1
Heading Rank: 1

Heading: facts

Text: The factual background of this complex contest for control, including the protracted litigation culminating in the cases now before us, is essential to a full understanding of the contending parties' claims. The three petitions present questions of first impression, arising out of a sophisticated and hard fought contest for control of Piper Aircraft Corp., a Pennsylvania-based manufacturer of light aircraft. Piper's management consisted principally of members of the Piper family, who owned 31% of Piper's outstanding stock. Chris-Craft Industries, Inc., a diversified manufacturer of recreational products, attempted to secure voting control of Piper through cash and exchange tender offers for Piper common stock. Chris-Craft's takeover attempt failed, and Bangor Punta Corp. (Bangor or Bangor Punta), with the support of the Piper family, obtained control of Piper in September 1969. Chris-Craft brought suit under § 14 (e) of the Securities Exchange Act of 1934 and Rule 10b-6 alleging that Bangor Punta achieved control of the target corporation as a result of violations of the federal securities laws by the Piper family, Bangor Punta, and Bangor Punta's underwriter, First Boston Corp., who together had sucessfully repelled Chris-Craft's takeover attempt. The struggle for control of Piper began in December 1968. At that time, Chris-Craft began making cash purchases of Piper common stock. By January 22, 1969, Chris-Craft had acquired 203,700 shares, or approximately 13% of Piper's 1,644,790 outstanding shares. On the next day, following unsuccessful preliminary overtures to Piper by Chris-Craft's president, Herbert Siegel, Chris-Craft publicly announced a cash tender offer for up to 300,000 Piper shares [1] at $65 per share, which was approximately $12 above the then-current market price. Responding promptly to Chris-Craft's bid, Piper's management met on the same day with the company's investment banker, First Boston, and other advisers. On January 24, the Piper family decided to oppose Chris-Craft's tender offer. As part of its resistance to Chris-Craft's takeover campaign, Piper management sent several letters to the company's stockholders during January 25-27, arguing against acceptance of Chris-Craft's offer. On January 27, a letter to shareholders from W. T. Piper, Jr., president of the company, stated that the Piper Board has carefully studied this offer and is convinced that it is inadequate and not in the best interests of Piper's shareholders. In addition to communicating with shareholders, Piper entered into an agreement with Grumman Aircraft Corp. on January 29, whereby Grumman agreed to purchase 300,000 authorized but unissued Piper shares at $65 per share. The agreement increased the amount of stock necessary for Chris-Craft to secure control and thus rendered Piper less vulnerable to Chris-Craft's attack. A Piper press release and letter to shareholders announced the Grumman transaction but failed to state either that Grumman had a put or option to sell the shares back to Piper at cost, plus interest, or that Piper was required to maintain the proceeds of the transaction in a separate fund free from liens. Despite Piper's opposition, Chris-Craft succeeded in acquiring 304,606 shares by the time its cash tender offer expired on February 3. To obtain the additional 17% of Piper stock needed for control, Chris-Craft decided to make an exchange offer of Chris-Craft securities for Piper stock. Although Chris-Craft filed a registration statement and preliminary prospectus with the SEC in late February 1969, the exchange offer did not go into effect until May 15, 1969. In the meantime, Chris-Craft made cash purchases of Piper stock on the open market until Mr. Siegel, the company's president, was expressly warned by SEC officials that such purchases, when made during the pendency of an exchange offer, violated SEC Rule 10b-6. [2] At Mr. Siegel's direction, Chris-Craft immediately complied with the SEC's directive and canceled all outstanding orders for purchases of Piper stock. While Chris-Craft's exchange offer was in registration, Piper in March 1969 terminated the agreement with Grumman man and entered into negotiations with Bangor Punta. Bangor had initially been contacted by First Boston about the possibility of a Piper takeover in the wake of Chris-Craft's initial cash tender offer in January. With Grumman out of the picture, the Piper family agreed on May 8, 1969, to exchange their 31% stockholdings in Piper for Bangor Punta securities. Bangor also agreed to use its best efforts to achieve control of Piper by means of an exchange offer of Bangor securities for Piper common stock. A press release issued the same day announced the terms of the agreement, including a provision that the forthcoming exchange offer would involve Bangor securities to be valued, in the judgment of First Boston, at not less than $80 per Piper share. [3] While awaiting the effective date of its exchange offer, Bangor in mid-May 1969 purchased 120,200 shares of Piper stock in privately negotiated, off-exchange transactions from three large institutional investors. All three purchases were made after the SEC's issuance of a release on May 5 announcing proposed Rule 10b-13, a provision which, upon becoming effective in November 1969, would expressly prohibit a tender offeror from making purchases of the target company's stock during the pendency of an exchange offer. The SEC release stated that the proposed rule was in effect, a codification of existing interpretations under Rule 10b-6, [4] the provision invoked by SEC officials against Mr. Siegel of Chris-Craft a month earlier. Bangor officials, although aware of the release at the time of the three off-exchange purchases, made no attempt to secure an exemption for the transactions from the SEC, as provided by Rule 10b-6 (f). The SEC, however, took no action concerning these purchases as it had with respect to Chris-Craft's open-market transactions. With these three block purchases, amounting to 7% of Piper stock, Bangor Punta in mid-May took the lead in the takeover contest. The contest then centered upon the competing exchange offers. Chris-Craft's first exchange offer, which began in mid-May 1969, failed to produce tenders of the specified minimum number of Piper shares (80,000). Meanwhile, Bangor Punta's exchange offer, which had been announced on May 8, became effective on July 18. The registration materials which Bangor filed with the SEC in connection with the exchange offer included financial statements, reviewed by First Boston, representing that one of Bangor's subsidiaries, the Bangor & Aroostock Railroad (BAR), had a value of $18.4 million. This valuation was based upon a 1965 appraisal by investment bankers after a proposed sale of the BAR failed to materialize. The financial statements did not indicate that Bangor was considering the sale of the BAR or that an offer to purchase the railroad for $5 million had been received. [5] In the final phase of the see-saw of competing offers, Chris-Craft modified the terms of its previously unsuccessful exchange offer to make it more attractive. The revised offer succeeded in attracting 112,089 additional Piper shares, while Bangor's exchange offer, which terminated on July 29, resulted in the tendering of 110,802 shares. By August 4, 1969, at the conclusion of both offers, Bangor Punta owned a total of 44.5%, while Chris-Craft owned 40.6% of Piper stock. The remainder of Piper stock, 14.9%, remained in the hands of the public. After completion of their respective exchange offers, both companies renewed market purchases of Piper stock, [6] but Chris-Craft, after purchasing 29,200 shares for cash in mid-August, withdrew from competition. [7] Bangor Punta continued making cash purchases until September 5, by which time it had acquired a majority interest in Piper. The final tally in the nine-month takeover battle showed that Bangor Punta held over 50% and Chris-Craft held 42% of Piper stock.