Appendix — Edgar v. MITE Corp.

O0—4-2-0Q—es ss

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JAK

sm ce 15 1980

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Supreme Court of the Anited States

Octoser Term, 1980

JAMES EDGAR,

Appellant,

Vv.

MITE CORPORATION and MITE

HOLDINGS, INC.,

Appellees.

On APPEAL FROM THE UNITED STATES

Court OF APPEALS FOR THE SEVENTH CIRCUIT

APPENDIX

Tyrone C. FAHNER

Attorney General of Illinois

160 North LaSalle Street

Suite 900

Chicago, Illinois 60601

(312) 793-3500

Attorney for Appellant.

Pau J. BARGIEL

Russe_t C. Grimes, Jr.

Assistant Attorneys General

160 North LaSalle Street, Suite 800

Chicago, Illinois 60601

(312) 793-5635

Of Counsel.

Printed by the Authority of the State of Hliaois— 1-81-40

INDEX

Opinion of the Seventh Circuit Court of Appeals............. la

Opinion of the District Court for the Northern District

of Illinois, Eastern Division ..................... 32a

Order of the Seventh Circuit Court of Appeals entered

October 17, 1980 42a

Notice of Appeal to the Supreme Court of the United

States filed January 5, 1981, in the Seventh Circuit

Court of Appeals 43a

Illinois Business Take-Over Act (Ill.Rev.Stat. 1979, ch.

121 1/2, § 137.51 et seq.) . 4Sa

Williams Act, 15 U.S.C. § 78(m), 78n(d) (1976).......... 65a

| tf

Anited States Court of Appeals

Bar the Seventh Cterutt

No. 79-1267

Mitre CORPORATION AND MITE HO pincs, INCc.,

Plaintiffs-Appellees,

ALAN J. Dixon,

Defendant-Appellant.

Appeal from the United States District Court for the

Northern District of Ilinois, Eastern Division.

No. 79-C-200—John Powers Crowley, Judge.

ARGUED NOVEMBER 9, 1979—Decipep Octoser 17, 1980

Before SprecHeR and Cupany, Circuit Judges, and

DuMBAULD, Senior District Judge.*

Cupany, Circuit Judge. The possibility—and perhaps

probability—that different levels of government will take quite

dissimilar approaches to similar problems is inherent in feder-

alism. But these divergences are not necessarily dysfunctional;

the states in our federal system have long served as laboratories

of social experiment—free, within limits, to evolve strategies of

their own to meet pressing problems. State prerogatives,

however, must remain necessarily circumscribed by the unifying

requirements of the national authority as fixed in the Con-

stitution. When Congress has spoken definitively (within its

constitutional sphere), state legislatures may not act to obstruct

or unsettle the congressional design.

* The Honorable Edward Dumbauld, Senior District Judge of

the Western District of Pennsylvania, is sitting by designation.

2a

The appeal in the instant case presents the enduring

‘problem of defining the limits of state power within the

constraints of national legislation—here invoiving securities

regulation. Specifically, the question before us is whether the

Illinois Business Take-Over Act, Ill. Rev. Stat. ch. 121%,

§ 137.51 et seg. (1979) (the “Illinois Act” or the “Act”), both

facially and as applied, may stand under the supremacy and

commerce clauses of the United States Constitution and the

Securities Exchange Act of 1934 (the “1934 Act”), 15 U.S.C.

§ 78a ef seg. (1976), as amended by the Williams Act.’ The

district court held the Illinois Act to be unconstitutional. We

affirm.

l. FACTS

The basic facts relevant to this appeal though lengthy are

undisputed. Plaintiffs-appellees MITE Corporation and MITE

Holdings, Inc., are Delaware corporations with their principal

executive offices in New Haven, Connecticut. MITE Holdings,

Inc. is a wholly-owned subsidiary of MITE Corporation ( collec-

tively, “MITE”). Defendant-appellant Alan J. Dixon is the

Secretary of State of Illinois and is charged with the adminis-

tration and enforcement of the Illinois Act. Chicago Rivet &

Machine Co. (“Chicago Rivet”), a defendant below but not a

party to this appeal, is a publicly-held Illinois corporation with

its principal executive offices in Bellwood, Illinois. Chicago

Rivet has 866,264 shares of common stock outstanding and

2,181 shareholders of record. Of those shareholders, $89 are

residents of Illinois, and they collectively own 377,395 common

shares. Chicago Rivet’s common stock is traded on the

American Stock Exchange.

The scenario for the ensuing legal confrontations opens on

January 19, 1979, with MITE preparing to commence a cash

‘Pub. L. No. 90-439, 82 Stat. 454 (codified at 15 U.S.C.

§§ 78m(d)-(e), 78n(d)-(f) (1976)).

3a

tender offer? for all outstanding shares of Chicago Rivet

common stock. Pursuant to Section 14(d)(1) of the Williams

Act, 15 U.S.C. § 78n(d)(1) (1976), and Regulation 14D

promulgated thereunder, MITE filed a Schedule 14D-1 with the

Securities and Exchange Commission (the “SEC”). The

Schedule 14D-1 indicated MITE’s willingness to pay $28.00 per

share for all shares of Chicago Rivet common tendered to it, a

premium of more than $4.00 per share over the market price in

the period immediately preceding announcement of the offer.

The same day it filed its Schedule 14D-1 with the SEC,

MITE also commenced the instant action in the disinct court,

secking to have the Illinois Act declared null and void on its

face becasue it violated the supremacy and commerce clauses of

the United States Constitution. In addition, MITE sought a

temporary restraining order, a preliminary injunction and a

permanent injunction prohibiting Secretary of State Dixon and

Chicago Rivet from enforcing the Illinois Act against it in

connection with the proposed tender offer.

The scene then shifted to the courts of Pennsylvania. On

January 22, 1979, Chicago Rivet filed a complaint in equity in

the Court of Common Pleas of Blair County, Pennsylvania,

seeking to enjoin MITE from proceeding with its proposed

tender offer because MITE was purportedly in violation of the

Pennsylvania Takeover Disclosure Law, 70 Pa. Cons. Stat.

Ann. tit. 70, § 71 ef seg. (Purdon Supp. 1978) (the “Pennsylva-

nia Act”). Chicago Rivet alleged that MITE’s proposed tender

offer was subject to the Pennsylvania Act because Chicago

Rivet had its principal place of business and substantial assets

in Pennsylvania. The court granted Chicago Rivet the relief it

requested, issuing an ex parte order enjoining MITE from

proceeding with the tender offer pending a further hearing on

January 26, 1979.

2“A tender offer has been conventionally understood to be a

publicly made invitation addressed to all shareholders of a corpo-

ration to tender their shares for sale at a specified price.” Note, The

Developing Meaning of “Tender Offer” Under the Securities Exchange

Act of 1934, 86 Harv. L. Rev. 1250, 1251 (1973).

4a

' In addition to initiating its action in Blair County on

January 22, 1979, Chicago Rivet that same day also filed a

complaint before the Pennsylvania Securities Commission,

requesting that that Commission enforce the Pennsylvania Act

against MITE. Meanwhile, back in the Northern District of

Illinois, still on January 22, Chicago Rivet moved the district

court in the instant action to dismiss MITE’s challenge to the

Illinois Act on the ground that no case or controversy existed

between the parties. Chicago Rivet represented to the court

that it had no present intention of invoking the Illinois Act, and

Secretary of State Dixon represented that he had not decided

whether MITE’s offer should be exempt from the Act. Pursuant

to those representations and by the consent of the parties, the

district court ordered that neither Chicago Rivet nor Secretary

Dixon would be allowed to initiate any action against MITE

under the Illinois Act without first indicating a written intention

to do so at least two business days before the proposed action

was to be instituted. The district court further ordered that

MITE’s requests for injunctive relief were to be continued until

further notice.

The following day, January 23, 1979, the action once more

moved to Pennsylvania. MITE removed the action Chicago

Rivet had filed in the Court of Common Pleas of Blair County

to the United States District Court for the Western District of

Pennsylvania, and on January 24 MITE filed its own complaint

' im the latter forum seeking to have the Pennsylvania Act

declared unconstitutional and to have its enforcement by either

Chicago Rivet or the Pennsylvania Securities Commission

enjoined. Those two actions were consolidated by the federal

district court in Pennsylvania.

On January 31, 1979, the Pennsy!vania Securities Commis-

sion determined that it would not enforce the Pennsylvania Act

against MITE’s proposed tender offer, and on February | the

District Court for the Western District of Pennsylvania denied

Chicago Rivet’s motion for a temporary restraining order.

Apparently sensing that the tide of battle in Pennsylvania had

Sa

turned, defendants then quickly moved to proceed again under

the Illinois Act. On February 1, 1979, defendant Dixon issued

a temporary cease and desist order and notice of hearing

regarding the proposed tender offer. Dixon concluded that

MITE was about to violate the Illinois Act by commencing its

offer. He notified MITE that he intended to issue an order to it

to “cease and desist all further action to make a tender offer”

. for Chicago Rivet. This order, together with the accompanying

“notice, was to be served on February 5.

On February 2, 1979, Chicago Rivet notified MITE by

letter that it would file suit in the Circuit Court of Cook County,

Illinois, to restrain the proposed tender offer because MITE was

violating the Illinois Act.

In response to defendants’ decisions to invoke the Illinois

Act, MITE renewed its request for relief before the district

court. Judge Crowley entered an order on February 2 prelimi-

narily enjoining defendant Dixon from issuing a cease and

desist order or notice of hearing, or from otherwise enforcing

the Illinois Act against MITE. MITE then published its tender

offer in the national edition of the Wall Street Journal on

February 5. The tender offer, which represented a proposed

transaction in interstate commerce in excess of $23,000,000, was

made to all of the shareholders of Chicago Rivet residing

throughout the United States, including those residing in Il-

linois.

The district court entered its final judgment order in the

instant action on February 9, 1979. The order declared the

Illinois Act to be null and void because it was preempted by the

Williams Act and because it created an undue burden on

interstate commerce in violation of the commerce clause. The

district court also permanently enjoined enforcement of the

Illinois Act against MITE in connection with its proposed

tender offer. From the judgment of the district court, defendant

Dixon now appeals.

6a

MITE withdrew its February 5, 1979 tender offer, and the

record does not indicate whether MITE intends to make

another tender offer for Chicago Rivet's shares. Nevertheless, if

this court were to reverse the judgment of the district court,

MITE would face both criminal and civil liability for making

the February 5, 1979 offer in violation of the Illinois Act. See

Illinois Rev. Stat. ch. 121%, §§ 137.63-137.65 (1979). Since

the Secretary has indicated that he intends to enforce the Act

against MITE, the issues before us are not moot.

Il. PREEMPTION

The determination whether a challenged state statute is

void under the supremacy clause is notoriously complicated.

“No simple formula can capture the complexities of this

determination; the conflicts which may develop between state

and federal action are as varied as the fields to which congres-

sional action may apply.” Goldstein v. California, 412 U.S. 546,

561 (1973). Prior cases do not always furnish precise guide-

lines in resolving a particular controversy, “for each case turns

on the peculiarities and special features of the federal regu-

latory scheme in question.” City of Burbank vy. Lockheed Air

Terminal, Inc., 411 U.S. 624, 638 (1973). Nonetheless, over

the years the general tests to be applied in adjudicating

questions of preemption have become reasonably well estab-

lished. As the Fifth Circuit noted in Great Western United

Corp. v. Kidwell, 577 F.2d 1256, 1274 (1978), rev'd on venue

grounds sub nom. Leroy v. Great Western United Corp., 443

U.S. 173 (1979), those tests were summarized by the Supreme

Court in Jones v. Rath Packing Co., 430 U.S. 519, 525-26

(1977): ‘

The first inquiry is whether Congress, pursuant to its power

to regulate commerce, U.S. Const., Art. 1, § 8, has prohib-

ited state regulation of the particular aspects of commerce

involved in this case. .. . [W]hen Congress has “unmistak-

ably ... ordained,” Florida Lime & Avocado Growers, Inc.

v. Paul, 373 U.S. 132, 142 (1963), that its enactments

alone are to regulate a part of commerce, state laws

regulating that aspect of commerce must fall. This result is

compelled whether Congress’ command is explicitly stated

7a

in the statute’s language or implicitly contained in its

structure and purpose. City of Burbank v. Lockheed Air

Terminal, Inc., 411 U.S. 624, 633 (1973); Rice v. Santa Fe

Elevator Corp., (331 U.S. 218,} 230 [1947].9

Congressional enactments that do not exclude all state

legislation in the same field nevertheless override state

laws with which they conflict. U.S. Const., Art. VI. The

criterion for determining whether state and federal laws

are so inconsistent that the state law must give way if

firmly established in our decisions. Our task is “to

determine whether, under the circumstances of this

particular case, [the State's] law stands as an obstacle to

the accomplishment and execution of the full purposes and

objectives of Congress.” Hines v. Davidowitz, 312 U.S. 52,

67 (1941). Accord, De Canas v. Bica, 424 U.S. 351, 363

(1976); Perez v. Campbell, 402 U.S. 637, 649 (1971);

Florida Lime & Avocado Growers, Inc. v. Paul, supra, at

141; id, at 165 (White, J., dissenting). This inquiry

requires us to consider the relationship between state and

federal laws as they are interpreted and applied, not

merely as they are written. See De Canas v. Bica, supra, at

363-365; Swift & Co. v. Wickham, 230 F. Supp. 398, 408

(S.D.N.Y. 1964), appeal dismissed, 382 U.S. 111 (1965),

aff'd on further consideration, 364 F.2d 241 (CA2 1966),

cert. denied, 385 U.S. 1036 (1967).

® With respect to the possibility of implicit preemption, the Fifth

Circuit observed in Great Western United Corp. v. Kindwell, supra,

577 F.2d at 1274, n.38, that

In Rice, the [Supreme] Court discussed some circumstances that

show an implicit Congressional desire to preempt all state

regulation in a given field:

The scheme of federal regulation may be so pervasive as to

make reasonable the inference that Congress left no room

for the state to supplement it. ... Or the Act of Congress

may touch a field in which the federal interest is so

dominant that the federal system will be assumed to

preclude enforcement of state laws on the same subject... .

Likewise, the object sought to be obtained by the federal

law and the character of obligations imposed by it may

reveal the same purpose.

Rice v. Santa Fe Elevator Corp., 1947, 331 U.S. 218, 230.

Accord, Pennsylvania v. Nelson, 1956, 350 U.S. 497, 502-05.

Congress has not chosen in the Securities Exchange Act of

1934 expressly to bar the states from regulating tender offers.

Indeed, the Supreme Court has noted that § 28(a) of the 1934

Act* “was plainly intended to protect, rather than to limit, state

authority.” Leroy v. Great Western United Corp., supra, 443

U.S. at 182.° Nor is the federal scheme of regulating tender

offers so pervasive that an implicit congressional intent to

preempt parallel state legislation may fairly be inferred. As

discussed infra, the Williams Act is essentially a minimum

disclosure statute. It is not analogous, for example, to the

detailed and comprehensive scheme of federal regulation of

aircraft noise which led to a finding of preemption in City of

Burbank v. Lockheed Air Terminal, Inc., 411 U.S, 624 (1973).®

Of course, even federal legislation that is not pervasive will

preempt supplemental state enactments if Congress has legisla-

ted in an area of paramount federal importance. In the realms

of national security and foreign affairs, state legislation has

been held implicitly preempted because both areas are of

“Section 28(a), as set forth in 15 U.S.C. § 78bb(a) (1976),

provides in pertinent part:

Nothing in this chapter shall affect the jurisdiction of the

securities commission (or any agency or officer performing like

functions) of any State over any security or any person insofar as

it does not conflict with the provisions of this chapter or the rules

and regulations thereunder.

* Section 28 was primarily designed, however, to preserve state

Blue Sky laws. Kidwell, supra, $77 F.2d at 1275, 0.39. See

Langevoort, State Tender-Offer Legislation: Interests, Effects, and

Political Competency, 62 Cornell L.Rev. 213, 247 (1977) (hereinafter

“Langevoort”).

® See supra n.5, at 248. But see, Wilner and Landy,

The Tender Trap: State Takeover Statutes and Their Constitutionality,

45 Fordham L. Rev. 1, 29 (1976); Note, Commerce Clause Limita-

tions upon State Regulation of Tender Offers, 47 8. Cal. L. Rev. 1133,

1163-66 (1974); Note, The Effect of the New SEC Rules on the

Constitutionality of State Takeover Statutes, 8 Fordham Urb. L. J.

913, 930-31 (1979-80) (suggesting that the Williams Act constitutes a

pervasive scheme of federal regulation if considered together with the

new SEC tender offer rules, discussed infra).

9a

unquestionably vital significance to the nation as a whole. See

Pennsylvania v. Nelson, 350 U.S. 497 (1956) (national secu-

rity); Hines v. Davidowitz, 312 U.S. 52 (1941) (foreign af-

fairs). But federal securities regulation is not of equivalent

paramountcy, as an area of federal onncern, to the security of

the nation or to the conduct of its international relations. On

the contrary, the absence of an exclusive federal interest in the

field of securities regulation is persuasively demonstrated by the

historically coordinate role of state regulation, in the field.’

Thus, in the absence of explicit or implicit preemption, our

task is to determine whether the Illinois Act conflicts with the

Williams Act, to ascertain “whether, under the circumstances of

this particular case, [the S.ate’s] law stands as an obstacle to

the accomplishment and execution of the full purposes and

objectives of Congress.” Hines v. Davidowitz, 312 U.S. 52, 67

(1941); Ray v. Atlantic Richfield Co., 435 US. 151, 158

(197%); Jones v. Rath Packing Co., 430 U.S. 519, 526 (1977).

Accora, De Canas v. Bica, 424 U.S. 351, 363 (1976); Perez v.

Campbell, 402 U.S. 637, 649 (1971); Florida Lime & Avocado

Growers, Inc. v. Paul, 373 U.S. 132, 141; id., at 165 ( White, J.,

dissenting). A careful comparison of the terms of the Williams

Act with the Illinois Act is accordingly requisite. Cf. Perez v.

Campbell, 402 U.S. 637, 644 (1971).

The Williams Act is a product of the economic boom of the

1960's. During that period of business growth and corporate

acquisition by conglomerates and others, the cash tender offer

first came into vogue as a favored method for corporate

takeovers. Piper v. Chris-Craft Industries, Inc., 430 U.S. 1, 22

(1977). Passage of the Williams Act was designed to close the

gap in the disclosure requirements of the federal securities laws

by bringing cash tender offers, which theretofore stood virtually

unregulated, within the ambit of federal securities regulation.

Id®

7“Congress, in the securities field, has not adopted a regulation

system wholly apart from and exclusive of state regulation.” Merrill

Lynch, Pierce, Fenner & Smith, Inc. y. Ware, 414 U.S. 117, 137

(1973). :

® See generally 8. Rep. No. 550, 90th Cong., Ist Sess. 2-4

(1967); H.R. Rep. No. 1711, 90th Cong., 2d Sess., 2-4 (1968).

10a

The dominant theme of the Williams Act is the protection

of investors. Piper v. Chris-Craft Industries, Inc., supra at 29.

As the Su »reme Court remarked in Piper:

In introducing the [ Williams Act] on the Senate floor,

the sponsor, Senator Williams, stated:

“This legislation will close a significant gap in

investor protection under the Federal securities laws by

requiring the disclosure of pertinent information fo

stockholders when persons seek to obtain control of a

corporation by a cash tender offer or through open

market or privately negotiated purchases of secu-

rities.” 113 Cong. Rec. 854 (1967) (emphasis sup-

plied [by the Supreme Court]. )

430 U.S. at 26.

Investors are protected under the Williams Act through

what has been termed a “market approach.” “The function of

federal regulation is to get information to the investor by

allowing both the offeror and the incumbent managers of a

target company to present fully their arguments and then fo let

the investor decide for himself.” Kidwell, supra, 577 F.2d at

1276 (emphasis supplied ).

The principal disclosure provisions of the Williams Act are

sections 13(d) and 14(d). 15 U.S.C. §§ 78m(d), 78n(d)

(1976). Section 13(d) requires that a purchaser of any equity

security registered pursuant to Section 12 of the 1934 Act file a

Schedule 13D® with the SEC within 10 days after its purchases

have exceeded 5% of the outstanding shares of the security.

The Schedule 13D mandates disclosure, inter alia, of the

background and identity of the purchaser, the source and

amount of funds for the purchase, the number of shares owned

and of any plans to materially alter the target corporation’s

business or corporate structure (if the intent of the purchases is

to obtain control). Section 14(d), more immediately relevant

to the instant case, is designed to insure informed shareholder

decisionmaking in the face of a tender offer by requiring that a

tender offeror file a Schedule 14D-1*° with the SEC and furnish

*17 C.F.R. § 240.13d-101 (1979).

17 C.F.R. § 240.14d-100 (1979).

to the target's shareholders all material information which it

contains. The disclosures required in a Schedule 14D-1 are

essentially similar to those required by a Schedule 13D.

The Williams Act also contains a number of substantive

protections for stockholders who elect to tender their shares.

First, tendering shareholders are given the right to withdraw

their tender of stock within the first seven days of an offer and,

if the offeror has not yet purchased their shares, at any time

after 60 days from the date the offer commenced. 15 U.S.C.

§ 78n(d)(5) (1976)."' Second, if the total number of shares

tendered exceeds the number sought, those shares tendered

during the first ten days of the offer must be taken up pro rata

by the offeror. 15 U.S.C. § 78n(d)(6) (1976). Finally, if the

initially offered consideration is later increased during the

course of the offer, all tendering shareholders must receive the

higher price. 15 U.S.C. § 78n(d)(7) (1976).

Turning to the Illinois Act, even the most cursory perusal

reveals that it contains a number of provisions which are not to

be found in the Williams Act. From the fact that the two

statutes differ, MITE suggests at least by implication that a

preemptive conflict must necessarily exist. That argument is

simplistic; mere differences between state and federal regulation

of the same subject are not conclusive of preemption. No one

disputes that the two statutes differ. But the crucial inquiry is

whether the Illinois Act differs from the Williams Act in such a

way that achievement of the congressional objective of investor

protection is frustrated. Hines v. Davidowitz, supra.

In this regard the most troublesome portion of the Illinois

Act is a provision contained in the hearings section of the Act,

§ 137.57.E, which provides:

If the Secretary [of State] finds that the take-over

offer fails to provide full and fair disclosure to the offerees

of all material information concerning the take-over offer,

or that the take-over offer is inequitable or would work or

tend to work a fraud or deceit upon the offerees, or that the

" The initial seven day withdrawal period contained in the

Williams Act was recently extended to fifteen business days by the

SEC. 17 C.F.R. § 240.14d-7 (1979).

12a

take-over offer will not be made to all offerees in this State

on substantially equal terms, or that the take-over offer

would violate this Act, the Secretary shall by order deny

the registration of the take-over offer’? or condition its

registration upon certain changes or modifications. If the

Secretary finds that the take-over offer provides full and

fair disclosure to the offerees of all material information

concerning the take-over offer, and that the take-over offer

is made to all offerees in this state on substantially equal

terms and the Secretary does not find that the offer is

inequitable or would work or tend to work a fraud or deceit

upon offerees in this State, or would violate this Act, the

Secretary shall by order register the take-over offer. Regis-

tration of the take-over offer does not constitute approval

of the offer by the Secretary (emphasis supplied ).

Ill. Rev. Stat. ch. 121% § 137.57.E (1979).

The Illinois Act thus empowers the Secretary of State to

pass upon the substantive fairness of a tender offer and to

prohibit it from going forward, if, in his sole opinion, he judges

the offer “inequitable.” Dixon defends this provision on the

ground that “allowing for review by a neutral state adminis-

trator while the securityholders have time to consider the offer”

will not result in unnecessary delay. Appellant's Brief at 17.

This defense, however, is inadequate because it responds to the

wrong challenge. Illinois’ substitution of the judgment of its

Secretary of State for an investor’s own assessment of the

equitability of a tender offer is patently inconsistent with the

’ Williams Act, but not primarily because the state statutory

process may unduly slow the progress of tender offers. Rather,

this approach to investor protection by “benevolent bureauc-

racy” is preempted by the conflicting approach of the Wiiliams

Act, which contemplates unfettered choice by well-informed

investors. Both the House and Senate Reports observed that

“[t)his bill is designed to make the relevant facts known so that

shareholders have a fair opportunity to make their decision.”

H.R. Rep. No. 1711, 90th Cong., 2d Sess. 3 (1968); S. Rep.

% Any person publishing an unregistered take-over offer is

subject to criminal prosecution. Ill. Rev. Stat. ch. 121%, §§ 137.54,

137.63 (1979).

13a

No. 550, 90th Cong., Ist Sess. 3 (1967); [1968] U.S. Cope

Conc. & Ap. News at 2813 (emphasis supplied )."9

The state thus offers investor protection at the expense of

investor autonomy—an approach quite in conflict with that

adopted by Congress. Congress contemplated only that in-

vestors be protected from acting in ignorance, not from their

own well-informed choice. Thus, to the extent that Illinois has

chosen to rely upon its Secretary of State’s judgment rather

than upon investors’ own judgment after full disclosure of the

relevant facts, its regulatory scheme stands in fundamental

conflict with federal law and is therefore unconstitutional. C7.

Kidwell, supra at 1279."4

Because it potentially affords the target company’s man-

agement a powerful weapon to stymie indefinitely a takeover,

3 Federal disclosure legislation employing “market” approach

does not necessarily preempt other state statutes incorporating rcgu-

latory approach, e.g. Blue Sky laws. See note 5 supra; Langvoort,

supra note 5 at 247. In this connection, our finding that the Illinois

Act is preempted by the Williams Act finds support, inter alia, in the

enactment of the Williams Act prior to the Illinois Act and in the

extraterritorial impact of the Illinois Act. See part III infra.

4 When the Williams Act was under consideration, even the SEC

did not suggest that it be granted the authority to weigh the

substantive fairness of a tender offer. As then SEC Chairman Cohen

stated:

We do not wish to imply... that the Commission should have

power or responsibility to pass on the merits of a particular

acquisition or proposal. As in most other areas entrusted to it,

the Commission's responsibility should be limited to requiring

appropriate disclosures.

Hearings on §.510 Before the Subcomm. on Securities of the

Senate Comm. on Banking and Currency, 90th Cong., Ist Sess. 33

(1967).

See also Securities and Exchange Commission, The Work of the

Securities and Exchange Commission 2 (1974); Note, The Indiana

Business Takeover Act, 51 Ind. L. J. 1051, 1096-97 (1976).

l4a

another provision of the Illinois Act relating to hearings is also

unacceptable.'5 This provision forms an additional obstacle to

the congressionally-mandated purpose that shareholders be

free within a rcasonable time'® to accept a tender offer they

deem fair (after full disclosure). Thus, Section 137.57.A

provides:

The Secretary shall call,a hearing if the Secretary

deems necessary for the protection of offerees in this State

or if within 15 business days after the date of filing the

registration statement a written request for a hearing is

submitted to the Secretary, by a majority of the directors of

the target company who are not officers or employees of

the target company or by a person or persons who are

located in this State as determined by post office address as

shown on the records of the target company and who hold

of record or beneficially, or both, at least 10% of the

outstanding shares of any class of equity securities which is

the subject of the take-over offer.

Ill. Rev. Stat. ch. 121%, § 137.57.A (1979).

Although Illinois apparently did not intend to accord

incumbent management the right to require the holding of

hearings, the effort to disarm management is not realistically

assured of success. It still seems likely that in a significant

number of cases management will be able to use the provision,

either through its ability to influence outside directors, or

because it will, directly or indirectly, exercise some (or a great

deal of) control over the required number of outstanding

shares. Since the interests of the target company’s management

at the time of a tender offer are likely to be adverse to those of

the offeror (and conceivably the shareholders),'’? anything

which suggests delegation to management of the right to call

8 For a discussion of the objectives of maintaining a balance

between the target company’s management and the offeror in the

context of investor protection, see infra.

% The Act does not fix any time within which hearings must be

completed. Presumably they might be extended indefinitely. ii). Rev.

Stat. ch. 121%, § 137.57 (1979).

7 See Note, Securities Law and the Constitution: State Tender

Offer Statutes Reconsidered, 88 Yale L. J. 510, 531 (1979) (here-

inafter “ Tender Offer Statutes Reconsidered”).

15a

hearings (of potentially indefinite duration) does not further

the congressional goal of insuring freedom of action of in-

formed stockholders. It may be acceptable in some way, and

with appropriate justification, to require hearings on the request

of persons other than a public official. But in general, any

delegation of the right to call hearings to private parties

potentially (but realistically) subject to management influence

or direction must be regarded as suspect.'®

The hearing provision, together with the Act’s 20-day pre-

effective filing requirement,'® are also subject to more general

attack on the ground that they may result in unacceptable delay

(which, in the case of hearings, might be interminable). This

delay will allegedly enhance incumbent management's ability

to defeat a tender offer, to the detriment of investors. Two

schools of thought have emerged with respect to the relation-

ship among state takeover statutes as engines of delay, the

possible inhibition or withdrawal of tender offers ( primarily as

a result of delay), and preemptior under the Williams Act. On

the one hand, most courts, including the Fifth Circuit in

Kidwell, have reasoned along the following lines: the Williams

Act was designed both to protect shareholders and to preserve a

neutral balance between incumbent management and offeror.

Because state takeover statutes hinder the successful completion

of tender offers by providing management with a powerful

weapon of delay, such statutes “[disrupt] the neutrality in-

dispensable for the proper operation of the federal market

18 We are, of course, addressing here only requests which would

mandatorily trigger hearings. Mere precatory requests are quite

distinguishable and, in and of themselves, acceptable.

19 Tilinois Act § 137.54, which provides in pertinent part:

E. A take-over offer shall become registered [and thereby

effective ] 20 business days after the date of filing the registration

statement or an amendment thereto with the Secretary, unless

accelerated by order or delayed by writien notification, or unless

prior thereto the Secretary calls a hearing with respect to the

offer.

Ill. Rev. Stat. ch. 121%, § 137.54.E (1979).

l6a

approach,” and therefore “[stand] as ... obstacle[s] to the

accomplishment and execution of the full purposes and objec-

tives’ of the Williams Act.” Kidwell, supra at 1279-80.20

On the other hand, at least one court, and several com-

mentators, have taken issue with the Fifth Circuit’s approach.?'

They argue, citing the Supreme Court, that “the sole purpose of

the Williams Act was the protection of investors. .. .” Piper v.

Chris-Craft, supra at 35. Hence they reject the further con-

tention that Congress sought to legislate affirmative regulatory

neutrality between the combatants in a tender offer situation.

In this conclusion, they rely, inter alia, on an observation of the

Supreme Court in Piper, that “Congress was indeed committed

to a policy of neutrality in contests for control, but its purpose of

evenhandedness does not go ... to the purpose of the legisla-

tion.... Neutrality is, rather, but one characteristic of legisla-

tion directed toward a different purpose—the protection of

investors.” 430 U.S. at 29. One commentator has summarized

this position as follows:

Any balance that emerged from the Williams Act was

neither a “purpose” nor an “objective” of its draftsmen,

but rather a byproduct of the congressional desire to

“require full and fair disclosure for the benefit of in-

vestors.” The fact that the state statutes may alter this

balance is therefore an inappropriate basis for statutory

preemption. Only if state regulation of tender offers

20 Accord, Telco Marketing Services, Inc. v. Hospital Finance

Corp., No. 79-C-2343 (N.D. Ill. June #1, 1979); Brascan Lid. v.

Lassiter, No. 79-1253 (E.D. La. May 3, 1979); Dart Industries Inc. v.

Conrad, 462 F. Supp. 1 (S.D. Ind. 1978); Daylin v. Uarco, No. 78-C-

4246 (N.D. Ill. Nov. 27, 1978). See also, Note, The Indiana Business

Takeover Act, supra n.13, at 1092.

21 See AMCA International Corp. v. Krouse, 482 F. Supp. 929

(S.D. Ohio 1979); cf Telvest, Inc. v. Bradshaw, 618 F.2d 1029 (4th

Cir. 1980). See also Note, Preemption and the Constitutionality of

State Tender Offer Legislation, 54 Notre Dame Law. 725, 734-35

(1979); Note, The Constitutionality of State Takeover Statutes: A

Response to Great Western, $3 N.Y.U.L. Rev. 872, 914-15 (1978)

(hereinafter “A Response to Great Western”).

17a

conflicts with the true purpose and objective of the Wil-

liams Act—investor protection—should the state laws be

held to be preempted ( footnotes omitted ).

Tender Offer Statutes Reconsidered, supra n.16, at 522-23.

But the inadequacy in this point of view seems to lie in its

implicit assumption that the “goals” of investor protection and

evenhanded regulation are necessarily distinct and, to a signifi-

cant degree, unrelated. It does not seem to us that they are.

Rather, inhibitions on tipping the regulatory balance, particu-

larly on tilting toward incumbent management, are important

because maintenance of an equitable balance between the

contending sides is perceived as a principal means of investor

protection. For if the weapons in management's arsenal are

drastically augmented, the vigor of the tender offer device will

at some point be impaired, denying protection to stockholders

in an obvious dimension: the right to tender their shares at a

premium. Thus, in its concern for investors, Congress was

necessarily committed to maintaining, where appropriate, the

basic capability of offerors to make successful tender offers (as

well as, of course, maintaining the free flow of information to

stockholders both from offerors and from management ).?2

22 The legislative history of the Williams Act is replete with

references to the necessity of avoiding undue interference with tender

offers (so as not to injure investors). The following interchange

between Senators Javits and Williams on the Senate floor is particu-

larly revealing.

Mr. Javits. One other question 1 should like to ask the

Senator: There is no intendment in the measure, or in the fact

that the measure is offered, to in any way condemn the practice

of making tenders, is there? Sometimes stockholders do very well

because of tenders, especially competitive tenders.

Mr. Wii.iams of New Jersey. There is no intention in any

way to prohibit tender offers. As a matter of fact, I think it might

encourage them. Through this legislation people will have more

information, and will be able to intelligently decide whether to

accept a tender offer and sell their shares to a group which may

wish to obtain a controlling interest.

113 Cong. Rec. 24665 se a Senator Javits also later remark-

ed in the same discussion:

(Footnote continued on foliowing page )

Turning again to the Illinois Act, any conclusion as to the

actual effect it has had, or may have, on tender offers in Illinois

would be purely speculative because the record is devoid of

evidence on that subject. It is obvious from the face of the

statute, however, that tender offers subject to the Act may

proceed at a much slower pace than if they were regulated

exclusively under the Williams Act. As indicated, the Illinois

Act provides that a tender offer does not become effective until

20 business days after ihe offeror has filed a registration

(Footnote continued from preceding page)

I gather that the point of the Senator from New Jersey [Senator

Williams] and the Senator from California [Senator Kuchel] is

that this is at least a beginning in keeping up with getting

adequate representation and adequate information on the part of

the stockholder, who could conceivably be imposed upon, with-

out denying him the opportunities which result from the com-

petitive bidding for a block of stock of a given company.

113 Cong. Rec. 24665-66 (1967) (emphasis supplied ).

In‘a similar vein, Senator Williams observed on an earlier

occasion that

This measure is not aimed at obstructing legitimate

takeover bids. In some instances, a change in management

will prove a welcome boon for shareholder and employee,

and in a few severe situations it may be necessary if the

company is to survive.

I have taken extreme care with this legislation to

balance the scales equally to protect the legitimate interests

of the corporation, management, and shareholders without

unduly impeding cash takeover bids. Every effort has been

made to avoid tipping the balance of regulatory burden in

favor of management or in favor of the offeror. The

purpose of this bill is to requive full and fair disclosure for

the benefit of stockholders while at the same time providing

the offeror and management equal opportunity to fairly

present their case... .

With this in mind, I am certain that this amendment to

the Securities Exchange Act will benefit the interests of

America’s more than 20 million shareholders and will not

serve as a device to protect an inefficient management from

a legitimate takeover bid.

113 Cong. Rec. 854-55 (1967).

19a

statement concerning the offer with the Secretary of State. See

n.18, supra. By contrast, the Williams Act contains no such

prenotification requirement. Indeed, Congress has repeatedly

rejected a series of prenotification proposals.?9

The Illinois Act also prevents a tender offer from going

forward until after completion of a hearing, in the likely event

that one is requested. See p. 17, supra. A request for a hearing

need not be made until 15 business days after the offeror’s

registration statement has been filed, need not commence until

10 business days after the hearing request was received, and

may last indefinitely. Ill. Rev. Stat. ch. 121%, § 137.57 (1979).

Once the hearing has been concluded, the Secretary of State is

accorded an additional 15 business days to make a decision,

which he may extend. Jd. By contrast, no hearings are

contemplated or required under the Williams Act.

Extended delay potentially threatens the viability of the

tender offer device in two related ways. First, if time is of the

essence, delay increases the possibility that an offer, once made,

23In 1965, Congress rejected a proposed twenty-day pre-

notification requirement. See 111 Cong. Rec. 28257-28259 (1965).

In 1967, Congress rejected a five-day prenotification requirement. S.

Rep. No. 550, 90th Cong., Ist Sess. 4 (1967); Hearings on S. 510

Before the Subcomm. on Securities of the Senate Comm. on Banking

and Currency, 90th Cong., Ist Sess. 72-75, 87-89, 98, 105, 139-40, 151,

163, 245 (1967); Hearings on H.R. 14475 and S. 510 Before the

Subcomm. on Commerce and Finance of the House Comm. on

Interstate and Foreign Commerce, 90th Cong., 2d Sess. 44-46, 50-54

(1968). In 1970, Congress rejected yet another prenotification

proposal. See Hearings on H.R. 4285, S. 3431 and S. 336 Before the

Subcomm. on Commerce and Finance of the House Comm. on

Interstate and Foreign Commerce, 91st Cong., 2d Sess. 6-7 (1970).

A prenotification requirement is less defensible than required

delays after a tender offer has been made, because implementation of

a successful defensive strategy by management before an offer

becomes effective, ¢.g., the arrangement of a defensive merger, might

entirely deprive stockholders of the chance to sell their shares at a

premium. See infra. See also Tender Offer Statutes Reconsidered,

supra n.16, at 531-32. Moreover, a number of commentators have

identified prenotification provisions as particularly detrimental to

successful takeovers. See, ¢.g., Langevoort, supra n.5, at 226-29.

20a

will not be successfully completed. This is because delay

eliminates the element of surprise, and affords incumbent

management, whose jobs are likely to be imperiled, an opportu-

nity to resort to a variety of defensive maneuvers to thwart the

attempted takeover.2* Second, the specter of delay may serve to

dissuade potential offerors from initiating offers at all. See

Kidwell, supra at 1278 (and sources cited therein).

Both of these propositions regarding delay have been the

subject of lively debate in the literature. Delay has been said to

benefit rather than injure investors, primarily by permitting the

emergence of competitive suitors (and arbitrageurs), thereby

creating an “auction market” in which the target's stockholders

will ultimately receive a higher premium for their shares.

Tender Offer Statutes Reconsidered, supra n.20, at 524. See

also A Response to Great Western, supra n.20, at 901-02, 913.

Arguably, stockholders may also benefit from the opportunity

to weigh for an extended period an offer as to which there

might otherwise be a requirement to promptly tender their

shares. Tender Offer Statutes Reconsidered, supra n.16, at 524.

Moreover, as an empirical matter, despite the proliferation of

state takeover statutes, there is no clear indication that ‘those

endeavoring to obtain corporate control have curtailed their use

of the tender offer mechanism. See AMCA International Corp.

v. Krouse, 482 F. Supp. 929 (S.D. Ohio 1979); Tender Offer

Statutes Reconsidered, supra n.16, at 523; A Response to Great

Western, supra n.20, at 902-03, 913.

As indicated, however, there is no evidence in the record

about what the actual effect of the potential for delay, inherent

in the Illinois Act, has been. In the absence of such evidence,

we ought not to second-guess Congress’ judgment that delay

*% Frequently employed defensive tactics include, ¢.g., arranging

a defensive merger, exhorting shareholders not to tender their shares,

increasing dividends and abolishing cumulative voting. See generally,

Schmults & Kelly, Cash Take-over Bids— Defensive Tactics, 23 Bus.

Law. 115 (1967); Note, Defensive Tactics Employed by Incumbent

Managements in Contesting Tender Offers, 21 Stan. L. Rev. 1104

(1969).

2la

grossly in excess of that contemplated by the Williams Act

redounds to the detriment of stockholders by substantially

deterring the making of tender offers. As the Fifth Circuit

noted in Kidwell, that assessment was reaffirmed by Congress

during consideration of the Hart-Scott-Rodino Antitrust Im-

provements Act of 1976, 15 U.S.C. § 18a (1976).

The House Report stated

it is clear that this short waiting period [referring to

the 10 days required by the Williams Act] was

founded on congressional concern that a longer delay

might unduly favor the target firm's management and

permit them to frustrate many pro-competitive cash

tenders. This 10-day waiting period, thus underscored

the basic purpose of the Williams Act—to maintain a

neutral policy toward cash tender offers, by avoiding

lengthy delay that might discourage their chances for

success.

H.R. Rep. No. 94-1373, 94th Cong., 2d Sess. 12 (1976);

U.S. Cope Conc. & ApmIN. News 1976, pp. 2572, 2644.

Congressman Rodino explained to the House:

Lengthy delays will give the target firm plenty of time

to defeat the offer, by abolishing cumulative voting,

arranging a speedy defensive merger, quickly in-

corporating in a State with an antitakeover statute, or

negotiating costly lifetime employment contracts for

incumbent management. And the longer the waiting

period, the more the target’s stock may be bid up in

the market, making the offer more costly—and less

successful. Should this happen, it will mean that

shareholders of the target firm will be effectively

deprived of the choice that cash tender offers give to

them.... Generally, the courts have construed the

Williams Act so as to maintain these two options for

the target cortpany’s shareholders, and the House

— contemplate that the courts will continue to

$0.

122 Cong. Rec. 30877 (1976) (emphasis added [by the

Fifth Circuit} ).

Kidwell, Supra at 1277-78.

22a

We therefore conclude, purely in light of the congressional

judgment and analysis, that tender offers may not be unduly

hindered (by grossly extended delay under state law) to the

detriment of investors. We reiterate that we possess no

independent insight, based on evidence or research, about what

the effect of slight or interminable delay may be. But we think

the perspectives informing congressional legislation are reason- -

ably clear and are binding upon us. Therefore, we conclude

that the Illinois Act is preempted by the Williams Act because

the former (1) tends inordinately to substitute regulatory

control for investor autonomy, (2) provides for hearings the

institution of which may be indirectly delegated to incumbent

management and which are potentially interminable in length,

(3) provides for other delays and mechanisms for delay which

are potentially grossly in excess of the delay mandated by

Congress and deemed by Congress to be appropriate to the

protection of investors and (4) provides for lenghtly pre-

notification delay, a requirement Congress specifically re-

jected.25

25 The Illinois Act also differs from the Williams Act in certain

other particulars. The Illinois Act requires somewhat more extensive

disclosure by an offeror than does the Williams Act, and the Illinois

Act requires that acceptances of a partial offer be pro rated for the

entire period of the offer, whereas the Williams Act requires proration

only of those acceptances made during an offer’s initial ten days,

although that ten day period may be extended by the offeror. C/. Ill.

Rev. Stat. ch. 121%, §§ 137.54 and 137.59.D (1976) with 15 U.S.C.

§ 78n(d) (1976) and 17 C.F.R. § 240.14d-8 (1979). (The Illinois

Act also grants to stockholders a longer period to withdraw their

tenders than originally provided for in the Williams Act (17 calendar

days v. 7 days), cf. Ill. Rev. Stat. ch. 121%, § 137.59.C (1979) with 15

U.S.C. § 78n(d)(5) (1976), but this requirement does not differ

markedly from the 15 business day requirement contained in the new

‘SEC tender offer rules, 17 C.F.R. § 240.14d-7 (1979), discussed

below. Similarly, the Illinois Act’s 20 calendar day minimum offering

period, Ill. Rev. Stat. ch. 121%, § 137.59.B (1979), is almost identical

to the 20 business day period prescribed by the SEC. 17 C.F.R.

§ 240.14e-1 (1979)). Aside from the extent to which these differing

(Footnote continued on following page)

23a

(Footnote continued from preceding page)

requirements of the Illinois Act may exhibit the constitutional in-

firmities discussed supra, we express no opinion as to whether the

Williams Act preempts them.

We also take note that, on December 6, 1979, the SEC promul-

gated new rules governing tender offers. 17 C.F.R. § 240-14d-1 ef seg.

(1979). Those rules, most glaringly Rule 14d-2(b), directly conflict

with the Illinois Act. As the SEC observed:

Under Rule 14d-2(b) a bidder's public announcement

through a press release, newspaper advertisement or public

statement of certain material terms of a cash tender offer causes

the bidder's tender offer to commence under Section 14(d) of

the [1934] Act....

Some commentators noted that there is a direct conflict

between Rule 14d-2(b) and state anti-takover statutes with the

effect that such statutes are preempted. These statutes typically

require a publication of or a public filing which includes the

material terms of the tender offer prior to the time the offer may

be commenced [The Illinois Act requires a public filing at least

20 days prior to the time an offer may begin. See n.17, supra. ]}

These requirements of the state statutes will trigger the com-

mencement of the tender offer under Rule 14d-2(b) despite the

fact that the state statutes do not permit the offer to commence

until the conclusion of any applicable waiting period and hearing

process. Moreover, by deeming commencement to occur on the

date of the publication or filing required by these statutes, the

minimum periods, best price, and withdrawal and pro rata rights

provided under these statutes could not function since they are

usually predicated on the effective date of the tender offer which

cannot occur until after the conclusion of the waiting period and

hearing process.

Thus, the conflict between Rule 14d-2(b) and such state

statutes is so direct and substantial as to make it impossible to

comply with both sets of requirements as they presently exist.

While recognizing its long and beneficial partnership with the

states in the regulation of securities transactions, the Commission

nevertheless believes that the state takeover statutes presently in

effect frustrate the operation and purposes of the Williams Act

and that, based upon the abuses in current tender offer practice

discussed above, Rule 14d-2(b) is necessary for the protection of

investors and to achieve the purposes of the Williams Act

(footnotes omitted ).

(Footnote continued on following page)

24a

Ill. THE COMMERCE CLAUSE

The commerce clause provides that “(t]he Congress shall

have Power... [t]o regulate Commerce . . . among the several

States. .. .” U.S. Const., Art. I, § 8, cl. 3. “Although the Clause

thus speaks in terms of powers bestowed upon Congress, the

{Supreme} Court long has recognized that it also limits the

power of the States to erect barriers against interstate trade.”

Lewis v. BT Investment Managers, Inc., 100 S. Ct. 2009, 2015

(1980). It remains true, however,

that much state legislation, designed to serve legitimate

state interests and applied without discrimination against

interstate commerce, does not violate the Commerce

Clause even though it affects commerce. ... “[I]n areas

where activities of legitimate local concern overlap with the

national interests expressed by the Commerce

Clause—where local and national powers are con-

current—the Court in the absence of congressional guid-

ance is called upon to make ‘delicate adjustment of the.

conflicting state and federal claims,’ H.P. Hood & Sons,

Inc. v. Du Mond, [336 U.S. 525, 553 (1949)] (Black, J.,

dissenting). ...” Great A & P Tea Co. v. Cottrell, [424

U.S. 366, 371 (1976)]; see Hunt v. Washington Apple

Advertising Comm'n, 432 U.S. 333, 350 (1977).2

Raymond Motor Transportation, Inc. v. Rice, 434 U.S. 429, 440

(1978).

(Footnote continued from preceding page)

44 Fed. Reg. 70329-30 (1979).

Our finding of preemption in the instant case, however, does not

rely on the new SEC rules, because those rules do not apply to tender

offers made prior to their effective date, as is the case with the tender

offer here. 44 Fed. Reg. 70326 (1979), Cf AMCA International

Corp. v. Krouse, 482 F. Supp. 929, 933-34, n.4 (S.D. Ohio 1979).

26 Congress may, if it chooses, affirmatively authorize state

regulation that would otherwise contravene the commerce clause.

See, ¢.g., Southern Pacific Co. v. Arizona, 325 U.S. 761, 769 (1945).

In the instant case, defendant Dixon has not argued that Congress has

consented to state takeover statutes without regard to their impact

upon interstate commerce. C/. Kidwell, supra at 1281-82.

25a

The test to be applied in making the “delicate adjustment”

of state and federal claims is set forth in Pike v. Bruce Church,

Inc., 397 U.S. 137, 142 (1970):

Where the statute regulates evenhandedly to effectuate a

legitimate local public interest, and its effects on interstate

commerce are only incidental, it will be upheld unless the

burden imposed on such commerce is clearly excessive in

relation to the putative local benefits. Huron Cement Co. v.

Detroit, 362 U.S. 440, 443. If a legitimate local purpose is

found, then the question becomes one of degree. And the

extent of the burden that will be tolerated will of course

depend on the nature of the local interest involved, and on

whether it could be promoted as well with a lesser impact

on interstate activities.

Accord, Lewis v. BT Investment Managers, Inc., supra at 2015-

16; Hughes v. Oklahoma, 441 U.S. 322, 336 (1979); Raymond

Motor Transportation, Inc. v. Rice, supra at 441-42; Great A &

P Tea Co. v. Cottrell, 424 U.S. 366, 371-72 (1976); Huron

Portland Cement Co. v. Detroit, 362 U.S. 440, 443 (1960).

Also relevant is the Supreme Court's statement in Hughes v.

Oklahoma, supra at 336, that “when considering the purpose of

a challenged statute, this Court is not bound by ‘[t}he name,

description or characterization given it by the legislature or the

courts of the State,’ but will determine for itself the practical

impact of the law. Lacoste v. Louisiana Dept. of Conservation,

263 U.S. 545, 550 (1924). ...”

Dixon maintains that the state sought to further two

legitimate local interests through enactment of the Illinois Act.

First, Illinois assertedly acted to protect resident security hold-

ers, primarily by insuring that they possess adequate time and

information to review the merits of a tender offer before

deciding whether to tender their shares. Protecting resident

investors is indisputably a legitimate state objective. Yet, as set

forth above, the Williams Act itself protects Investors by

requiring disclosure, withdrawal rights, pro rata purchases and

equal consideration for all shares taken up. Therefore, the

benefit of the Illinois Act is limited to the marginal increase in

26a

information, time and other benefits that Illinois shareholders

may gain as a result of the Act’s operation. But, as we noted in

the context of preemption, the potentially prolonged delay

required by the Act may, in some circumstances at least, be

detrimental to the interests of the shareholders. It has also been

argued (with respect to a state’s interest in its own investors)

that additional disclosures, rather than allowing shareholders to

make a more informed decision, may actually serve to confuse

them and to obscure relevant information. See Kidwell, supra

at 1280-81 (and sources cited therein). Thus, the benefits

flowing to Illinois shareholders from the Act are, to a significant

degree, speculative.

And, of course, the strength of the state’s interest varies

with the number of shareholders that are Illinois residents. In

this case, some 27% of Chicago Rivet’s shareholders, holding

approximately 43% of Rivet’s outstanding shares, were Illinois

residents. It is fortuitous that this relatively substantial number

lived in Illinois. The Act would have applied even if none of

Rivet’s shareholders were Illinois residents and all the stock

sales had occurred elsewhere, since the Act reaches every tender

offer made for any corporation that meets, inter alia, two of the

following conditions:

(a) has its principal executive office in [ Illinois];

(b) is organized under the laws of [Illinois];

(c) has at least 10% of its stated capital and paid-in

surplus represented in [Illinois].

Ill. Rev. Stat. ch. 121%, § 137.52-10 (1979). Thus, the Act

grants jurisdiction to the Secretary of State over tender offers

that would not affect a single Illinois shareholder.2”

The second interest Dixon asserts on the state’s behalf is an

interest in regulating the internal affairs of a corporation

incorporated under Illinois law. A tender offer is argued to be

27 The Act also applies to tender offers made for corporations for

which 10% of the outstanding shares are held by Illinois residents. Il.

Rev. Stat. ch. 121%, § 137.52-10 (1979).

27a

functionally equivalent to a variety of other methods designed

to effect changes in corporate control, ¢.g., proxy contests and

mergers, which have traditionally been subject to regulation by

the state of incorporation. See Shipman, Some Thoughts About

the Role of State Takeover Legislation: The Ohio Takeover Act,

21 Case W. Res. L. Rev. 722, 741-45 (1970); A Response to

Great Western, supra n.19, at 931-34.

The contention that sales of securities made pursuant to a

tender offer are properly analyzed (as “internal affairs”) in

terms of their cumulative potential to shift control of a corpo-

resion, rather than simply as sales of stock from one investor to

another, is another proposition which has been extensively

debated in the literature.2® But assuming arguendo that a state

has an interest in regulating transfers of control of locally

incorporated corporations, defendant has not set forth any

specific interest that Illinois has in asserting regulatory authority

over the tender offer in this case. There is no reason to believe

that Illinois’ interest in regulating shifts in control, as affected

here, is especially weighty. The state has not argued, for

example, that MITE was intent on looting Chicago Rivet to the

2 Cf, e.g., Shipman, Some Thoughts About the Role of State

Takeover Legislation: The Ohio Takeover Act, 21 Case W. Res. L.

Rev. 722, 741-45 (1970); A Response to Great Western, supra n.19, at

931-34 (both arguing that a tender offer is an internal corporate

transaction) with Wilner and Landy, The Tender Trap: State Take-

over Statutes and Their Constitutionality, 45 Fordham L. Rev. 1, 16-

17 and Note, Commerce Clause Limitations upon State Regulation of

Tender Offers, 47 S. Cal. L. Rev. 1133, 1153-55 (1974) (suggesting

that a tender offer is merely the aggregate of numerous individual

sales of securities). The Fifth Circuit has concluded that a tender

offer is not properly classifiable under the internal affairs doctrine.

Kidwell, supra at 1280, n.53.

28a

detriment of state interests.2° We also note that, although the

instant tender offer was made for an Illinois corporation, the

Illinois Act applies, inter alia, to tender offers for any corpo-

ration of which 10% of the outstanding class of equity securities

is held by Illinois residents. Ill. Rev. Stat. ch. 121%, § 137.52-

10 (1979). Thus, the Act applies to corporations that are

incorporated in another state and have their principal place of

business outside of Illinois. Illinois clearly has no interest in

regulating the internal affairs of such corporations.

Having generally identified the weight and nature of

Illinois’ regulatory concerns, we must now examine the burden

imposed by the Illinois Act on interstate commerce. The impact

of the Act on the sale of securities in interstate commerce is in

many respects at least potentially weighty. The Act’s most

obvious burdens result from its global impact. Once the Act has

been invoked, all purchases, or offers to purchase by the

offeror, of the target company’s stock pursuant to a tender offer

may be halted, including transactions to be executed entirely

outside the boundaries of Illinois. The Illinois Act thus

possesses a significant potential to cause commercial dis-

ruption.%° For example, had the Secretary of State not been

29 Since Chicago Rivet is an Illinois corporation, the instant case

does not directly raise the question whether a state not the state of

incorporation has a valid interest in transfers of control (through

tender offers for stock). The Illinois Act, for example, seems to be

based on the assumption that the state has a recognizable interest in

transfers of control if substantial assets and/or the corporation's

principal place of business is located in Illinois. See generally

Shipman, Some Thoughts About the Role of State Takeover Legisla-

tion: The Ohio Takeover Act, 21 Case W. Res. L. Rev. 722, 751-55

(1970); A Response to Great Western, supra n.20 at 934-39.

As 2 practical matter, the state wherein employees or operations

are located may have a greater interest in transfer of control

(presumably under the “internal affairs” doctrine) than the state of

incorporation (if these states are not the same). These possibly

disparate bases for local regulation of control transfers do, however,

threaten to impair the certainty and uniformity of regulation.

% See, e.g., Wilner and Landy, The Tender Trap: State Takeover

Statutes and Their Constitutionality, 45 Fordham L. Rev. 1, 19-21

(1976).

29a

enjoined from going forward in the instant case, over 23 million

dollars of interstate commerce would presumably have been

affected. Illinois law would have determined when, if ever,

purchases of, or offers to purchase, securities would be per-

mitted under a tender offer. Moreover, the disruptive effects of

the Illinois Act could be duplicated by other states seeking

simultaneously to assert jurisdiction over a tender offer. In the

case at bar, Chicago Rivet argued at various times that both the

Illinois and Pennsylvania Acts applied to MITE’s proposed

tender offer. Where a number of states on various bases claim

authority over a tender offer, any single state would have

effective veto power over the offer even if it received the

enthusiastic endorsement of all the other states.3"

We think that Illinois’ tenuous interest in protecting resi-

dent shareholders and regulating control transfers cannot con-

stitutionally justify the Illinois Act’s burdensome impact on

free-flowing commerce. The Illinois Act’s primary burden,

interference with securities transactions throughout the nation,

inheres in the Act itself and seems relatively concrete, whereas

the local impact of changes in corporate control, and the actual

protection investors may receive through additional disclosure

and delay, are often, as in the case before us, quite speculative.

3 This criticism is somewhat muted with respect to the Illinois

Act because of the Act’s comity provision, Ill. Rev. Stat. ch. 121%,

§ 137.53 (1979), which provides:

The registration and filing requirements of . . . this Act shall

not apply to a take-over offer if the Secretary has determined

that another jurisdiction has, or other jurisdictions have, statutes

or rules, which are applicable and are being applied and which

afford protection to securityholders located in this State substan-

tially equal to that afforded such securityholders by this Act.

State takeover statutes have also been said to burden interstate

commerce by preventing the removal of local business out of state.

See Kidwell, supra at 1282. Dixon denies that the Illinois Act was

intended to have such an effect, and MITE has not argued that the Act

is so economically protectionist as to be illegal per se. Cf. Philadelphia

v. New Jersey, 437 U.S. 617, 623-24 (1978); Pike v. Bruce Church,

Inc., 397 U.S. 137, 145 (1970). There is no evidence in the record as

to what the actual effect of the Act in this regard has been.

30a

Indeed, as we noted in the context of preemption, in some

instances at least, grossly prolonged delay may redound to the

stockholders’ detriment. Thus, because it substantially ob-

structs interstate commerce, without countervailing local ben-

efit, the Illinois Act violates the commerce clause, and is

therefore unconstitutional.

IV. CONCLUSION

Try as we may, we have been unable to square the Illinois

Act with the Williams Act and with the constitutional prohibi-

tion against burdens on interstate commerce. We do not

believe that all state legislation in this field, which imposes

requirements going beyond the Williams Act, is uncon-

stitutional merely because it is different. But we simply are of

the view that state legislation must conform, inter alia, to the

Congressional premise that too long extended delay may

operate to discourage offers. We are of the further view that the

Illinois Act burdens interstate commerce in a manner which is

substantial, clear and present, and which is not offset by the

speculative protection afforded local shareholders or that state’s

interest in regulating control changes, which have, at least as

argued here, only prospective and uncertain impact. It may

very well be possible to draft state takeover legislation to

supplement (rather than to contradict) the Williams Act and

the congressional premises and purposes which it incorporates.

Although the new SEC tender offer rules may provide crucial

constraints, we perceive no inherent reason why the Williams

Act may not be validly complemented and investor protection

furthered by state legislation. Suffice to say that under the

instant circumstances, Illinois had not succeeded in enacting

such an unexceptionable statute.

3la

The judgment is therefore

AFFIRMED.

A true Copy:

Teste:

Clerk of the United States Court of

Appeals for the Seventh Circuit

32a

IN THE

UNITED STATES DISTRICT COURT

For THE NORTHERN District oF ILLINOIS

EASTERN DIVISION

MITE CORPORATION and MITE )

HOLDINGS, INC., -

Plaintiffs,

vs. > NO. 79 C 200

ALAN. J. DIXON and CHICAGO

RIVET & MACHINE CO.,

Defendants.

JUDGMENT ORDER

Joun Powers Crow ey, District Judge

This matter having come before this Court for a hearing on

a permanent injunction upon Count I of the Second Amended

Complaint, the Parties’ Stipulation, the Parties’ Stipulation as to

Documents, the exhibits admitted into evidence, the memo-

randa of the parties, and the arguments of the parties, by their

respective counsel, in open court and the Court, being duly

advised in the premises, finds and concludes:

1. This Court has subject matter jurisdiction over the

claims asserted in the Second Amended Complaint and

personal jurisdiction over MITE Corporation, MITE Hold-

ings, Inc., Alan J. Dixon and Chicago Rivet & Machine Co.

2. Venue is proper in this district pursuant to Section

27 of the Securities Exchange Act of 1934, 15 U.S.C.

§ 78aa and 28 U.S.C. § 1391(b).

33a

3. Plaintiffs, MITE Corporation and MITE Holdings,

Inc., are corporations duly organized and existing under

the laws of the State of Delaware.

4. The common stock of Chicago Rivet & Machine

Co. is registered with the Securities and Exchange Com-

mission pursuant to Section 12(g) of the Securities Ex-

change Act of 1934 and is traded on the American Stock

Exchange, which is a national securities exchange.

5. Chicago Rivet & Machine Co. presently has Eight

Hundred Sixty-Six Thousand Two Hundred Sixty-Four

( 866,264) shares of Common stock issued and outstanding

and has Two Thousand One Hundred Eighty-One (2,181)

shareholders of record. Five Hundred Eighty-Nine (589)

shareholders owning Three Hundred Seventy-Seven Thou-

sand Three Hundred Ninety-Five (377,395) shares of

Chicago Rivet & Machine Co.’s common stock have

addresses of record in Illinois and One Thousand Five

Hundred Ninety-Two (1,592) shareholders owning Four

Hundred Eighty-Eight Thousand Eight Hundred Sixty-

Nine (488,869) shares have addresses of record outside

Illinois.

6. On January 19, 1979 MITE Holdings, Inc. filed a

Schedule 14D-1 with the Securities Exchange Commission

pursuant to Section 14(d)(1) of the Securities Exchange

Act and Rule 14D-1 promulgated thereunder with respect

to proposed cash tender offers.

7. Under the Williams Act, a cash tender offer may

commence immediately upon filing a Schedule 14D-1.

The offer must remain open for at least seven days.

8. On or about January 19, 1979, MITE Holdings,

Inc., a wholly-owned subsidiary of MITE Corporation,

proposed to make a tender offer to purchase any and all of

the outstanding shares of the common stock of Chicago

Rivet & Machine Co. at Twenty-Eight Dollars ($28.00)

34a

per share, a premium of more than Four Dollars ($4.00)

per share over the market price in the period immediately

preceding the announcement of the offer.

9. The proposed tender offer presents a transaction in

interstate commerce of more than Twenty-Three Million

Dollars ($23,000,000 ).

10. MITE Holdings, Inc.’s proposed offer to purchase

the common stock of Chicago Rivet & Machine Co. was

intended to comply with the requirements of the Williams

Act and would have been made to all of the shareholders

of Chicago Rivet & Machine Co. throughout the United

States, not just shareholders residing in Illinois.

11. For purposes of the Illinois Act, Chicago Rivet &

Machine Co. is a “target company” because Chicago Rivet

& Machire Co. has its principal executive office in Illinois

and is organized under the laws of Illinois (Illinois Act

§ 2.10(2)(a) and (b)). The Illinois Act, therefore, pur-

ports to regulate MITE Holdings, Inc.’s proposed tender

offer for any and all shares of Chicago Rivet & Machine

Co. common stock.

12. On January 22, 1979, Chicago Rivet & Machine

Co. filed a Complaint in Equity alleging that MITE

Corporation and MITE Holdings, Inc. were in violation of

the Pennsylvania Takeover Law. Chicago Rivet & Ma-

chine Co. sought an ex parte order from the Court of

Common Pleas of Blair County, Pennsylvania to enjoin

MITE Corporation and MITE Holdings, Inc. from pro-

ceeding with the proposed cash tender offer. The Honor-

able Eugene J. lanuzzi granted Chicago Rivet & Machine

Co.’s request and enjoined MITE Corporation and MITE

Holdings, Inc. from proceeding with their proposed cash

tender offer pending-a further hearing which the Court set

for January 26, 1979.

13. On January 22, 1979, Chicago Rivet & Machine

Co. also filed a Complaint before the Pennsylvania Secu-

rities Commission alleging that MITE Corporation and

35a

MITE holdings, Inc. were in violation of the Pennsylvania

Takeover Law. Chicago Rivet & Machine Co. requested

the Pennsylvania Securities Commission to enforce the

Pennsylvania Takeover Law against MITE Corporation

and MITE Holdings, Inc.

14. On January 23, 1979 MITE Corporation and

MITE Holdings, Inc. removed the action filed in the Court

of Common Plea: of Blair County, Pennsylvania, to the

United States District Court for the Western District of

Pennsylvania.

15. On January 24, 1979 MITE Corporation and

MITE Holdings, Inc. filed a Complaint in the United States

District Court for the Western District of Pennsylvania

seeking to have the Pennsylvania Takeover Law declared

uncynstitutional and seeking to enjoin its application or

enforcement by Chicago Rivet & Machine Co. or by the

Pennsylvania Securities Commission as applied to the

proposed tender offer. On January 26, 1979 this action was

consolidated with the removed action already pending in

the Western District Court of Pennsylvania.

16. On January 25, 1979 the Western District Court of

Pennsylvania entered a status quo order by consent of the

parties and continued the matters pending before it until

January 30, 1979.

17. On January 31, 1979 the Pennsylvania Securities

Commission entered a Final Order determining that the

Commission would not seek to invoke or enforce the

Pennsylvania Takeover Law against MITE Corporation’s

or MITE Holdings, Inc.’s proposed cash tender offer.

18. On February 1, 1979 the Western District Court

of Pennsylvania denied Chicago Rivet & Machine Co.’s

motion to extend the status quo order previously entered

by the Court and denied Chicago Rivet & Machine Co.’s

motion for a temporary restraining order.

36a

19. On February 1, 1979 Chicago Rivet & Machine

Co. filed a Petition for Review with the Commonwealth

Court of Pennsylvania. The petition challenged the Penn-

sylvania Securities Commission’s decision not to invoke or

enforce the Pennsylvania Takeover Law as applied to

MITE Corporation’s and MITE Holdings, Inc.’s proposed

cash tender offer.

20. On February 1, 1979, Alan J. Dixon executed a

Temporary Cease and Desist Order and Notice of Hearing

finding that the matter is properly within the jurisdiction of

the Secretary of State and that the provisions of Section

4.A of the Illinois Act are about to be violated and

ordering MITE Corporation and MITE Holdings, Inc.,

among other matters, to “cease and desist all further action

to make a tender offer to security holders of the Chicago

Rivet & Machine Co.” Alan J. Dixon notified plaintiffs that

he intended to serve this order and notice on plaintiffs on

February 5, 1979.

21. On February 2, 1979 Chicago Rivet & Machine

Co. gave plaintiffs a letter stating that it would bring suit in

the Circuit Court of Cook County, Illinois, seeking a

temporary restraining order against MITE Holdings, Inc.’s

proposed tender offer because MITE Holdings, Inc. was

violating the Illinois Act.

22. On February 2, 1979 this Court entered an order

preliminarily enjoining Alan J. Dixon from serving and

issuing any cease and desist order or notice of hearing or

from otherwise invoking, applying, or enforcing the Illinois

Business Take-Over Act or any orders, rules or regulations

issued pursuant to it, against MITE Corporation or MITE

Holdings, Inc. or any officer, director, agent, employee or

financial, business or legal advisor of either plaintiff or

those acting on their behalf in connection with plaintiffs’

proposed tender offer for the shares of Chicago Rivet &

Machine Co. Pursuant to the request of Alan J. Dixon and

Chicago Rivet & Machine Co., the Court entered its order

37a

as a preliminary injunction. This Court denied Chicago

Rivet & Machine Co.’s request for a stay in order to appeal

this Court’s decision to the Seventh Circuit Court of

Appeals by February 5, 1979. Chicago Rivet & Machine

Co. has not appealed to or requested a stay from the

Seventh Circuit, although the time within which it may do

either has not expired.

23. On February 5, 1979 MITE Holdings, Inc.

published in the national edition of the Wall Street Journal

its offer to purchase any and all of the outstanding shares

of Chicago Rivet & Machine Co. at a price of Twenty-

Eight Dollars ($28.00) per share.

24. The offer to purchase the common stock of

Chicago Rivet & Machine Co. will be made to all its

shareholders throughout the United States, not just share-

holders residing in Illinois.

25. The Illinois Act clearly interferes with the pur-

poses and objectives of the Williams Act. Provisions

requiring advance notice of the tender offer, requirements

concerning the duration of the offer and pro rata purchase

and withdrawal provisions, among others, of the Illinois

Act explicitly conflict with comparable provisions of the

Williams Act and constitute obstacles to the accom-

plishment of objectives of the Williams Act.

26. The Illinois Act contravenes the purpose and spirit

of the Williams Act by upsetting the carefully balanced

neutrality of the federal provisions and by providing,

contrary to the Congressional scheme, substantial advan-

tages to the target corporation to defeat or delay a tender

offer and by imposing, likewise contrary to Congressional

intent, substantial obstacles to the ability and right of

shareholders to accept tender offers which fully comply

with federal requirements.

27. The Illinois Act as a whole and in particular

provisions conflicts with the Williams Act. These provi-

sions include among others the following:

38a

(a) a required minimum twenty (20) business

day waiting period before a tender offer can be

commenced (Illinois Act § 4E), a concept explicitly

rejected by Congress;

(b) a mandatory indefinite delay of a tender

offer if a majority of the target company’s “outside”

directors or an Illinois shareholder or group of share-

holders holding beneficially or of record 10% of the

shares of the target request a hearing, which must then

be held (Illinois Act § 7), whereas the Williams Act

provides for no pre-tender offer hearings;

(c) a mandatory indefinite delay of a tender offer

if the Illinois Secretary of State unilaterally orders a

hearing because he determines, in his sole judgment,

that such delay is necessary for the protection of

Illinois shareholders of the target company ( Illinois

Act § 7.A.), whereas the Williams Act provides for no

pre-tender offer hearings;

(d) an indefinite delay of the commencement of

an offer in the event a hearing is requested, pending a

decision by the Illinois Secretary of State (Illinois Act

§ 7A, C, D), whereas the Williams Act permits the

offer to commence immediately;

(e) a required twenty (20) day period for a

tender offer to remain open ( Illinois Act § 9B), where-

as the Williams Act permits a tender offer to be

completed within seven (7) days of announcement

(ten (10) days in the case of a partial offer);

(f) withdrawal rights at any time within sev-

enteen (17) days (Illinois Act § 9C), which differs

substantially from and is in conflict with the seven (7)

day provision under the Williams Act;

(g) denial of effectiveness of a proposed tender

offer if, in the sole opinion of the Illinois Secretary of

State, (i) the offer is “inequitable,” even though

39a

federal law requires the marketplace to decide upon

the fairness of the offer, or (ii) the offer fails to

provide full and fair disclosure to the offerees under

Illinois law (Illinois Act § 7E), even though the offer

is in compliance with federal disclosure standards;

(h) proration of acceptances of a partial offer for

the entire period of the offer (Illinois Act § 9D),

whereas the Williams Act requires proration of only

those acceptances made during the initial ten (10)

days of the offer;

(i) pre-tender offer disclosures (Illinois Act

§ 4B), which cause substantial disruptions in national

securities markets, a requirement which was explicitly

rejected by Congress;

(j) burdensome disclosure of speculative and

immaterial information (Illinois Act § 4C), not re-

quired to be disclosed under the Williams Act, with

the effect of further delaying a tender offer; and

(k) prohibition of tender offers which are not

made to shareholders of the target company who are

residents of Illinois on the same terms as to share-

holders elsewhere (Illinois Act § 9A), the effect of

which is that the Illinois Act competes with the

Williams Act as a national system of regulation.

28. By impeding plaintiffs’ cash tender offer for

Chicago Rivet & Macine [sic.] Co., the Illinois Act

imposes a substantial burden on interstate commerce in

violation of the Commerce Clause of the Constitution of

the United States.

29. The Illinois Act violates the Securities Exchange

Act of 1934, including, but not limited to, Section 28,

which preempts state regulation that conflicts with the

provisions of the Securities Exchange Act of 1934.

40a

30. The Illinois Act violates the Constitution of the

United States because it conflicts with, and stands as an

obstacle to the accomplishment of, the objectives of Con-

gress expressed in the Williams Act amendments to the

Securities Exchange Act of 1934 and pursuant to the

Supremacy Clause contained in Article IV, Clause 2, of the

United States Constitution therefore is preempted.

31. The Illinois Act violates the Commerce Clause,

Article I, Section 8, Clause 3, of the Constitution of the

United States because the Illinois Act imposes a substan-

tial, direct and adverse burden on interstate commerce and

serves no legitimate local interest adequate to justify the

clearly excessive burden on interstate commerce which it

imposes.

32. The Illinois Act is null and void on its face and as

applied to MITE Corporation’s and MITE Holdings, Inc.’s

cash tender offer for any and all shares of Chicago Rivet &

Machine Co. because the Illinois Act violates the Com-

merce Clause of the Constitution of the United States and

is preempted by the Williams Act provisions of the Secu-

rities Exchange Act of 1934.

33. Denial of a permanent injunction against enforce-

ment of the Illinois Act would cause plaintiffs irreparable

injury by depriving them of their federal statutory rights,

by imposing on them lengthy delays and giving undue

advantage to the management of the “target company” by

using these delays to frustrate the tender offer.

34. The injury which would be suffered by plaintiffs if

the permanent injunction were denied outweighs any

possible injury to defendants caused by the issuance of the

injunction. The public interest is served by the issuance of

the injunction. There is no good cause to deny plaintiffs’

request for a permanent injunction at this time.

35. Plaintiffs would have no remedy at law against

Chicago Rivet & Machine Co. or Alan J. Dixon for

attempting to enforce the Illinois Act.

4la

36. The Court further fully adopts its oral findings of

facts and conclusions of law as stated in open court on

February 2, 1979 and February 8, 1979 and incorporates

them in this order as if fully set forth herein.

It Is Now, THEREFORE

Orperep that the Illinois Take-Over Act (as amended,

effective September 8, 1978) is declared to be null and void and

of no force and effect because it violates the Commerce Clause

of the United States Constitution and is preempted by the

Williams Act provisions of the Security Exchange Act of 1934;

and it is further

OrpereD that Alan J. Dixon, his successors, agents, ser-

vants, and attorneys and all persons in active concert or

participation with him be, and they are, permanently enjoined

from serving or issuing any cease and desist order or notice of

hearing or from otherwise invoking, applying, or enforcing the

Illinois Business Take-Over Act or any orders, rules or regu-

lations issued pursuant to it, against plaintiffs or any officer,

director, agent, employee or financial, business or legal advisor

of either plaintiff or those acting on their behalf in connection

with plaintiffs’ proposed tender offer for the shares of Chicago

Rivet & Machine Co.

John Powers Crowley

United States District Judge

Datep: February 9, 1979.

42a

Opinion by Judge Cudahy

JUDGMENT—ORAL ARGUMENT

UNrTeD STaTes Court OF APPEALS’

For the Seventh Circuit

Chicago, Illinois 60604

October 17, 1980

Before

Hon. Rosert A. Sprecuer, Circuit Judge

Hon. RicwarpD D. Cupany, Circuit Judge

Hon. Epwarp DumMBAULD, Senior District Judge*

DME IRC. sedi ht Appeal from the United States

District Court for the North-

Plaintiffs-Appellees, ern District of Illinois, East-

No. 79-1267 | ra Diveton

VS. No. 79-C-200

ALAN J. DIXON, sages = syntain

Defendant-Appellant. |

This cause was heard on the record from the United States

District Court for the Northern District of Illinois, Eastern

Division, and was argued by counsel.

On consideration whereof, IT IS ORDERED AND AD-

JUDGED by this Court that the judgment of the said District

Court in this cause appealed from be, and the same hereby

AFFIRMED, with costs, in accordance with the opinion of this

Court filed this date.

* The Honorable Edward Dumbauld, Senior District Judge of

the Western District of Pennsylvania, sitting by designation.

43a

IN THE

UNITED STATES COURT OF APPEALS

For THE SEVENTH CIRCUIT

ALAN J. DIXON,

Appellant,

vs. NO. 79-1267

MITE CORPORATION and MITE

HOLDINGS, INC.,

Appellees.

NOTICE OF APPEAL TO THE SUPREME COURT

OF THE UNITED STATES

NOTICE IS HEREBY GIVEN that ALAN J. DIXON, the

appellant above-named, hereby appeals to the Supreme Court

of the United States from the final order, affirming the judg-

ment of the district court that the Illinois Business Take-Over

Act (Ill. Rev.Stat., 1979, ch. 121%, § 137.51) is unconstitutional,

entered in this action on October 17, 1980.

This appeal is taken pursuant to 28 U.S.C. § 1254(2).

Respectfully submitted,

TYRONE C. FAHNER

Attorney General

State of Illinois.

By: Russet C. Grimes, Jr.

RUSSELL C. GRIMES, JR.

Assistant Attorney General

160 North LaSalle Street

Suite 800

Chicago, Illinois 60601

(793-5635)

Counsel for Appellant.

44a

PROOF OF SERVICE

STATE OF ILLINOIS }

SS.:

County or Cook

GERI BRESNAHAN, being first duly sworn, on oath

deposes and states that she served a copy of the attached Notice

of Appeal to the Supreme Court of the United States upon:

Mr. Jero_p S. SoLovy

Jenner & Block

One IBM Plaza

Chicago, Illinois

by depositing same postpaid and addressed as above at the

United States Post Office box located’ at 160 North LaSalle

Street, (lobby), Chicago, Illinois 60601, on the Sth day of

January, 1981, before the hour of 5:00 p.m. All parties required

to be served have been served. Such service is in compliance

with Rule 33(c) of the Rules of the Supreme Court of the

United States.

__ GERI BRESNAHAN

SUBSCRIBED AND SWORN to

before me this 5th day

of January, 1981.

NOTARY PUBLIC

45a

ILLINOIS BUSINESS TAKE-OVER ACT

AN ACT to regulate take-over offers involving business firms

organized in Illinois or doing business in Illinois and to

amend a certain Act in connection therewith. P.A. 80—1421,

approved and eff. Sept. 8, 1978.

137.51. Short title

§ 1. Short Title. This Act shall be known as “The Illinois

Business Take-Over Act”.

137.51-1. Findings and purpose

§ 1.1. Findings and purpose. In recent years numerous

companies have been subjected to take-over offers in which

equity securities were acquired suddenly by means of tender

offers. Many of these tender offers have been made without

advance notice and without giving securityholders of the ac-

quired company adequate time to consider the offer and

without giving management of the acquired company adequate

time to evaluate alternatives so that they might recommend a

course of action that would be in the best interests of all

securityholders. The purpose of this Act shall be to protect the

interests of Illinois securityholders of companies having a close

connection with this State without unduly impeding take-over

offers, and this Act shall be interpreted so as to strike a balance

that does not favor either management of a target company or

an offeror.

137.52. Definitions

§ 2. Definitions. As used in this Act, unless the context

requires otherwise, the terms defined in Sections 2.01 through

2.10’ shall have the meanings ascribed to them in those

Sections.

' Paragraphs 137.52-1 through 137.52-10 of this chapter.

137.52-1. Affiliate defined

§2.01. “Affiliate” of, or a person “affiliated” with, a

specified person, means a person that directly, or indirectly

through one or more intermediaries, controls, or is controlled

by, or is under common control with, the person specified.

137.52-2. Control defined

§ 2.02. “Control” (including the terms “controlling”,

“controlled by” and “under common control with”) means the

possession, direct or indirect, of the power to direct or cause the

direction of the management and policies of a person, whether

through the ownership of voting securities, by contract, or

otherwise.

137.52-3. Equity security defined

§ 2.03. “Equity security” means any stock or other security

carrying, at the time of the take-over offer, the right to vote for

directors or persons performing substantially similar functions.

Equity security also includes any security presently convertible

or exercisable into an equity security; any warrant, option or

right to purchase an equity security; any security carrying any

warrant, option or right to purchase an equity security; any

limited partnership interest; and any other security which for

the protection of investors is deemed an equity security

pursuant to rule or order of the Secretary.

137.52-4. Offeree defined

§ 2.04. “Offeree” means a beneficial owner of equity

securities which an offeror proposes or offers to acquire or

acquires in connection with a take-over offer.

137.52-5. Offeror defined

§ 2.05. “Offeror” means a person who makes or in any

way participates in making a take-over offer, and includes all

affiliates of that person. The term does not include a financial

47a

institution or dealer loaning funds, or extending credit to any

offeror in the ordinary course of its business, or any accountant,

attorney, financial institution, dealer, soliciting dealer, news-

paper or magazine of general circulation, consultant, or other

person, furnishing information, services, or advice to, or per-

forming ministerial or administrative duties for, an offeror and

not otherwise participating in the take-over offer.

137.52-6. Person defined

§ 2.06. “Person” means a natural person, corporation,

association, partnership, trust, group, syndicate or other entity.

137.52-7. Secretary defined

§ 2.07. “Secretary” means the Secretary of State of

Illinois.

137.52-8. Securities Commissioner defined

§ 2.08. “Securities Commissioner” means the adminis-

trator appointed by the Secretary to administer the Securities

Department.

137.52-9. Take-over offer defined

§ 2.09. “Take-over offer” means the offer to acquire or the

acquisition of any equity security of a target company, pursuant

to a tender offer or request or invitation for tenders, if after

acquisition the offeror would be, directly or indirectly, a benefi-

cial owner of more than 5% of the class of the outstanding

equity securities of the target company which is the subject of

the take-over offer. The term does not include an offer to

acquire or acquisition of any equity security of a target com-

pany pursuant to:

(1) An offer effected by or through a dealer in the

ordinary course of its business without solicitation of offers

to sell that class of equity securities of the target company;

48a

(2) An offer made to owners of a class of equity

securities of a target company if the number of record

owners of that class of equity securities of the target

company does not exceed 100 at the time of the offer; -

(3) An offer, if the acquisition by the offeror of such

security, together with all other acquisitions by the offeror

of equity securities of the same class during the preceding

12 months, would not exceed 2% of that class of out-

standing equity securities of the target company;

(4) An offer by an issuer to purchase or otherwise

acquire its own securities;

(5) An offer determined by rule or drder of the

Secretary to be a take-over offer for which regulation under

this Act is not necessary for the protection of securityhol-

ders of the target company in this State; or

(6) An offer determined by rule or order of the

Secretary to be a take-over offer that is not made for the

purpose of, and does not have the effect, of changing or

influencing the control of a target company.

137.52-10. Target company defined

§ 2.10. “Target company” means a corporation or other

issuer of securities (1) of which 10% of the outstanding

securities of the class of its equity securities which is the subject

of a take-over offer is held of record by securityholders located

in this State as determined by post office address as shown on

the records of the issuer, or (2) which meets any two of the

following conditions:

(a) has its principal executive office in this State;

(b) is organized under the laws of this State;

(c) has at least 10% of its stated capital and paid-in

surplus represented in this State.

49a

137.53. Comity

§ 3. Comity. The registration and filing requirements of

Sections 4, 5 and 6 of this Act' shall not apply to a take-over

olier if the Secretary has determined that another jurisdiction

has, or other jurisdictions have, statutes or rules, which are

applicable and are being applied and which afford protection to

securityholders located in this State substantially equal to that

afforded such securityholders by this Act.

' Paragraphs 137.54, 137.55 and 137.56 of this chapter.

137.54. Registration requirements

§ 4. Registration requirements. A. It is unlawful for any

person to make a take-over offer unless the take-over offer is

registered under this Act, or is exempted therefrom by rule or

order of the Secretary, or unless the provisions of Section 3 or

19° apply.

B. Before a take-over offer becomes registered under this

Act, the offeror shall file with the Secretary and deliver by

certified mail to the target company at its principal office a

registration statement containing the information prescribed in

subsection C of this Section, and shall, not later than the date of

filing of the registration statement, publicly disclose the intent

to make a take-over offer and the material terms of the

proposed take-over offer.

C. The registration statement shall be filed on forms

prescribed by the Secretary, shall be accompanied by a consent

by the offeror to service of process, all solicitation materials

then required to be filed by this Act and the filing fee specified

in this Act, and shall contain the following information and

such additional information as the Secretasy by rule or order

prescribes:

(1) The identity of and material information con-

cerning the offeror, including:

(a) If the offeror is a corporation or other entity

but not a natural person, information concerning its

organization, including the year and jurisdiction of its

50a

organization, a description of each class of its equity

securities and long-term debt, a description of the

business done by the offeror and its affiliates and any

material changes therein during the past three years, a

description of the location and character of the princi-

pal properties of the offeror and its affiliates, a descrip-

tion of any material legal or administrative proceed-

ings during the last 5 years in which the offeror or any

of its affiliates is or was a party, or an; criminal

convictions or penalties (other than traffic violations

and similar misdeameanors) during the last 5 years,

the names of all directors and executive officers of the

offeror and their material business activities and affi-

liations during the past three years, and audited

financial statements of the offeror and its affiliates for

its three most recent annual accounting periods and

unaudited interim financial statements for the offeror’s

most recent period practicable if the date of the

audited financial statement precedes the date of filing

by more than 90 calendar days.

(b) If the offeror is a natural person, material

information concerning the background of that per-

son, including business activities and affiliations dur-

ing the past three years, a description of any material

legal or administrative proceeding during the last 5

years in which that person is or was a party, or any

criminal convictions or penalties (other than traffic

violations and similar misdeameanors) during the last

5 years, and such financial statements as the Secretary

may prescribe by rule or order.

(2) The source and amount of funds or other consid-

eration used or to be used in acquiring the equity securities,

including a statement describing any securities which are

being offered in exchange for the equity securities of the

target company, and if any part of the acquisition price is

or will be represented by borrowed funds or other consid-

Sla

eration, a description of the transaction and the names of

all the parties, all material terms of such borrowing and

any plans or arrangements to finance or repay such

iocidhe

(3) The purpose or purposes of the take-over offer

including a statement of any plans or proposals which

relate to or which would result in an extraordinary corpo-

rate transaction involving the target company, such as

liquidating the target company, selling a material amount

of its assets, effecting a merger or consolidation, or making

any other material change in its business, corporate struc-

ture, management, or personnel.

(4) The number of shares or units of any equity

security of the target company of which the offeror or any

affiliate of the offeror is the record or beneficial owner or

which the offeror or any affiliate of the offeror has a right to

acquire or direct the vote of, directly or indirectly.

(5) Information as to any contracts, arrangements, or

understandings with any person with respect to any equity

security of the target company, including transfers of any

equity security, joint ventures, loan or option arrange-

ments, puts and calls, guarantees of loans, guarantees

against loss, guarantees of profits, division of losses or

profits, or the giving or withholding of proxies, naming the

persons with whom those contracts, arrangements or un-

derstandings have been enieied into.

(6) Information as to any contracts, arrangements or

understandings with any person who is an officer, director,

or a person holding a similar position, or a record or

beneficial owner of equity securities of the target company

with respect to the tender of any equity securities of the

target company, the purchase by the offeror of any equity

securities owned by that person otherwise than pursuant to

the take-over offer, the retention of any person in its

present position or in any other management position or

52a

with respect to that person giving or withholding a favor-

able recommendation regarding the take-over offer.

(7) Information as to any material transaction or

negotiations regarding any material transaction, during the

last 3 years, between the offeror or any affiliate of the

offeror and the target company or any affiliate of the target

company.

(8) A description of the provisions made or to be

made for providing all material information concerning the

take-over offer to offerees, including a copy of the pro-

posed take-over offer in the form proposed to be pub-

lished, sent or given to offerees.

D. The Secretary may accept, in lieu of the registration

statement meeting the requirements of subsection C of this

Section, a registration statement form or other filing required by

a federal or state government agency or approved by an

association of state regulatory agencies which the Secretary has

determined by rule or order to encompass disclosure require-

ments substantially equivalent to those contained in subsection

C of this Section.

E. A take-over offer shall become registered 20 business

days after the date of filing the registration statement or an

amendment thereto with the Secretary, unless accelerated by

order or delayed by written notification, or unless prior thereto

the Secretary calls a hearing with respect to the offer.

' Paragraphs 137.53 or 137.69 of this chapter.

137.55. Filing of solicitation materials

$5. Filing of solicitation materials. Copies of the initial

public disclosure of the intent to make a take-over offer and all

advertisements, ciculars, letters or other materials published,

sent or given by the offeror or the target company or an affiliate

of the target company, soliciting or requesting the acceptance or

rejection of the take-over offer, shall be filed with the Secretary

and delivered to the target company or offeror at its principal

executive office before the time copies of the materials are first

published, sent or given to offerees or otherwise used.

53a

137.56. Amendments

§6. Amendments. If any material change occurs in any

information required to be filed pursuant to this Act prior to the

termination of the take-over offer, an amendment shall be filed

promptly with the Secretary, who may delay, terminate, condi-

tion, suspend or prohibit the reigstration of the take-over offer

or who may allow the proposed registration or registration of

the take-over offer to be withdrawn if the Secretary, finding the

withdrawal consistent with the public interest and the protec-

tion of offerees in this State, consents thereto.

137.57. Hearings

§ 7. Hearings. A. The Secretary shall call a hearing if the

Secretary deems it necessary for the protection of offerees in this

State or if within 15 business days after the date of filing the

registration statement a written request for a hearing is sub-

mitted to the Secretary, by a majority of the directors of the

target company who are not officers or employees of the target

company or by a person or persons who are located in this State

as determined by post office address as shown on the records of

the target company and who hold of record or beneficially, or

both, at least 10% of the outstanding shares of any class of

equity securities which is the subject of the take-over offer.

B. Any request for a hearing shall be accompanied by the

filing fee and a statement of the reasons for the request. If a

hearing is called, the take-over shall not become registered until

so declared by order of the Secretary.

C. Any hearing called by the Secretary under this Section

shall be commenced before the Securities Commissioner or a

person designated by the Secretary within 10 business days

following the date the hearing request is received by the

Secretary, with notice to the offeror and target company, unless

the date for the hearing is extended by the Secretary for the

convenience of the parties or for the protection of offerees in

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this State. The expenses reasonably attributable to any hearing

held under this Act shall be charged ratably to the parties

exclusive of the Secretary.

D. A determination shall be made by the Secretary in

writing within 15 business days after the conclusion of the

hearing, unless such time is extended by order of the Secretary

as being in the interest of offerees in this State.

E. If the Secretary finds that the take-over offer fails to

provide full and fair disclosure to the offerees of all material

information concerning the take-over offer, or that the take-

over offer is inequitable or would work or tend to work a fraud

or deceit upon the offerees, or that the take-over will not be

made to all offerees in this State on substantially equal terms, or

that the take-over offer would violate this Act, the Secretary

shall by order deny the registration of the take-over offer or

condition its registration upon certain changes or modifications.

If the Secretary finds that the take-over offer provides full and

fair disclosure to the offerees of all material information

concerning the take-over offer, and that the take-over offer is

made to all offerees in this State on substantially equal terms

and the Secretary does not find that the offer is inequitable or

would work or tend to work a fraud or deceit upon offerees in

this State, or would violate this Act, the Secretary shall by order

register the take-over offer. Registration of the take-over offer

does not constitute approval of the offer by the Secretary.

137.58. Fraudulent and deceptive practices

§ 8. Fraudulent and deceptive practices. It is unlawful for

any person to engage in any fraudulent, deceptive or manipula-

tive acts or practices in connection with a take-over offer.

Fraudulent, deceptive and manipulative acts or practices in-

clude, without limitation, the following:

(1) Solicitation of any offeree for acceptance or

rejection of a take-over offer, or acquisition of any equity

security of a target company pursuant to a take-over offer,

that is not registered or exempt under this Act, except that

the target company may communicate with its security-

55a

holders as permitted by the Securities Exchange Act of

1934' and the rules thereunder, as amended from time to

time, or by rule or order of the Secretary.

(2) Making any untrue statement of a material fact or

omitting to state a material fact necessary in order to make

the statements made, in light of the circumstances under

which they were made, not misleading.

(3) Sale by any officer, director or affiliate of a target

company of all or any part of their equity securities at a

price higher than that to be paid to other offerees pursuant

to the offer, unless the sales are made at the then existing

market price.

(4) Acquisition by the offeror, after initial public

disclosure of the intent to make a take-over offer and prior

to its termination, of equity securities of the target com-

pany otherwise than pursuant to the take-over offer.

115 US.CA. § 78a et seq.

137.59. Limitations on offerors

§ 9. Limitations on offerors. A. No offeror may make a

take-over offer in this State to offerees who are domiciled in this

State unless the offer is made on substantially equal terms to

those made to offerees who are domiciled outside this State.

B. The take-over offer shall remain open for a minimum

offering period of 20 calendar days from the time it is first made

or from the time its terms are materially changed.

C. An offeror shall provide that any equity securities of a

target company deposited or tendered pursuant to a take-over

offer may be withdrawn by or on behalf of any offeree at any

time during the first 17 calendar days after the time the take-

over offer is first made or the time its terms are materially

changed and after 60 calendar days from the time the take-over

offer is first made.

56a

D. If an offeror makes a take-over offer for less than all the

outstanding equity securities of any class, and if the number of

securities deposited or tendered pursuant thereto is greater than

the number the offeror is bound or willing to accept and pay

for, the securities shall be accepted pro rata, disregarding

fractions, according to the number of securities deposited or

tendered by each offeree.

E. If an offeror varies the terms of a take-over offer before

its expiration date by increasing or decreasing the consideration

offered to the offerees, the offeror shall pay for all equity

securities accepted the highest consideration paid for any of

such securities, whether the securities have been accepted by

the offeror before or after the variation in the terms of the offer.

F. No offeror shall make a take-over offer at any time

when an administrative or injunctive proceeding has been

brought by the Secretary against the offeror for violation of this

Act or The Illinois Securities Law of 1953, as amended,’ which

proceeding has not been finally determined.

G. No offeror may acquire, remove or exercise control,

directly or indirectly, over any assets of a target company

located in this State pursuant to a take-over offer unless the

offer is registered, exempted or excluded under this Act, except

that an offeror shall not be deemed to be precluded from

acquiring, removing or exercising control over assets of a target

company if such acquisition, removal or exercise of control is

not related directly or indirectly to a take-over offer or as

otherwise permitted by rule or order of the Secretary.

‘ Paragraph 137.1 et seq. of this chapter.

137.60. Rules and administration

$10. Rules and administration. A. This Act shall be

administered by the Secretary who may promulgate rules as

may be necessary to carry out the provisions of this Act

including rules defining fraudulent, deceptive, and manipula-

tive acts and practices, and defining any terms, whether or not

used in this Act, insofar as the definitions are not inconsistent

57a

with the provisions of this Act. Among other things, the

Secretary shall have authority, for the purposes of this Act, to

prescribe the form or forms in which required information shall

be set forth, accounting practices, and the items or details to be

shown in financial statements. The rules adopted by the

Secretary under this Act shall be effective in the manner

provided for in “The Illinois Administrative Procedure Act”,

approved September 22, 1975, as amended.' No provisions of

this Act imposing any liability or penalty shall apply to any act

done or omitted in good faith in conformity with any rule or

order of the Secretary under this Act, notwithstanding that such

rule or order may, after such act or omission be amended or

rescinded or be determined by judicial or other authority to be

invalid for any reason.

B. Whenever it shall appear to the Secretary, either upon

complaint or otherwise, that any provision of this Act, or of any

rule or order issued under authority thereof, has been or is

about to be violated, the Secretary has the discretion to require

or permit such person to file with the Secretary a statement in

writing under oath, or otherwise, as to all the facts and

circumstances concerning the subject matter which the Secre-

tary believes to be in the public interest to investigate, and may

investigate such facts and issue orders and notices, including

cease and desist orders and notices.

C. The Secretary by rule or order may require the offeror

or the target company to file any additional documents, exhibits

and information that is material to the take-over offer and may

permit by rule or order the omission of any of the information

specified by this Act if the Secretary determines that the

information is not required for the protection of the offerees.

D. For the purpose of all investigations which, in the

opinion of the Secretary, are necessary and proper for the

enforcement of this Act, the Secretary, or a person designated

by the Secretary, is empowered to administer oaths and affir-

mations, subpoena witnesses, take evidence and require the

production of any books, papers, or other documents which are

deemed relevant or material to the inquiry.

58a

E. The Secretary shall have the discretion to issue

interpretive opinions upon receipt of a written request, contain-

ing the relevant facts and legal issues, and the filing fee

therefor.

F. In no case shall the Secretary, the Securities Commis-

sioner or any person designated by the Secretary, in the

administration of this Act, incur any official or personal liability

by instituting an injunction or other proceeding or by register-

ing or denying registration to, or conditioning or suspending or

terminating the registration of a take-over offer or consenting to

the withdrawal of the proposed registration or registration of

the take-over offer.

* Chapter 127, 1 1001 et seq.

137.61. Fees

§ 11. Fees. The filing fee for a registration statement filed

pursuant to this Act by an offeror shall be $1,250. The filing fee

for a hearing pursuant to this Act shall be $500. The filing fee

for an interpretive opinion shall be $250. In no event shall

these fees be returnable.

137.62. Injunctions

§ 12. Injunctions. A. In addition to all other remedies, the

Secretary through the Office of the Attorney General may bring

an action in any court of competent jurisdiction in the name and

on behalf of the State of Illinois against any person or persons,

who appear to have engaged in, or be about to engage in, an

act or practice constituting a violation of this Act, to enjoin

those persons from continuing or doing any act in violation of

this Act, or to enforce compliance with this Act. In any court

proceedings the Secretary may apply for, and on due showing

be entitled to have, the court’s subpoena requiring the appear-

ance of any defendant and its employees or agents and the

production of documents, books and records, as may appear

necessary for the hearing of the petition, to testify and give

evidence concerning the acts or conduct or things complained of

59a

in the action. The fees of subpoenaed witnesses under this Act

for attendance and travel shall be the same as fees of witnesses

before the Circuit Courts of this State, such fees to be paid

when the witness is excused from further attendance, provided

such witness is subpoenaed at the instance of the Secretary; and

payment of such fees shall be made and audited in the same

manner as other expenses of the Secretary. Whenever a

subpoena is issued at the request of a complainant or respon-

dent or defendant as the case may be, the Secretary may require

that the cost of service and the fee of the witness shall be borne

by the party at whose instance the witness is summoned. The

Secretary shall have the discretion to require a deposit to cover.

the cost of such service and witness fees and the payment of the

legal witness fee and mileage to the witness served with

subpoena. A subpoena issued under the provisions of this Act

shall be served in the same manner as a subpoena issued out of

a court of record. Upon a proper showing, the court may grant

a temporary restraining order or preliminary injunction or

permanent injunction or may order rescission of any sales,

tenders for sale, purchases, or tenders for purchase of equity

securities determined to be unlawful under this Act or any rule

or order of the Secretary. ;

B. Whenever it shall appear that any person has engaged

in or is about to engage in any act or practice constituting a

violation of this Act, any offeror, target company, security

holder of an offeror or target company, or any other party in

interest may bring an action in any court of competent jurisdic-

tion, including any court of competent jurisdiction in the county

or district in which the party in interest resides, or where the

person has its principal office or registered office or where any

part of the transaction has or will take place, to enjoin that

person from continuing or doing any act or practice constituting

a violation of or to enforce compliance with this Act. Upon a

proper showing, the court shall grant a permanent or prelimi-

nary injunction or temporary restraining order or rescission of

any sales, tenders for sale, purchases, or tenders for purchase of

60a

equity securities determined to be a violation of this Act. A

copy of the complaint shall be served upon the Office of the

Secretary of State within 24 hours of filing. This may be done

by personal service or certified mail.

137.63. Criminal prosecution

§ 13. Criminal prosecution. A. Any person who, in

connection with a take-over offer, willfully makes or causes to

be made to the Secretary any statement of a material fact which

the person knows to be false, or willfully withholds or causes to

be withheld from the Secretary any information the disclosure

off which such person knows is necessary, in light of the

circumstances, to make not misleading other statements of

material facts made or caused to be made by such person to the

Secretary, commits a Class 4 felony and upon conviction shall

be subject to such punishment as provided by law.

B. Any person who, in connection with a take-over offer,

willfully publishes or causes to be published any statement of a

material fact which the person knows to be false, or willfully

omits to publish information which the person knows is neces-

sary, in light of the circumstances, to make not misleading other

statements of material facts published or caused to be published

by it, commits a Class 4 felony and upon conviction shall be

subject to such punishment as provided by law.

C. Any person who willfully violates any provisions of this

Act for which a specific criminal penalty is not otherwise

provided shall be guilty upon conviction of a Class A mis-

demeanor, except that the fine therefor shall not exceed $10,000

per offense.

D. Nothing herein shall limit the power of the State to

punish any person for conduct which constitutes a crime under

any other statute.

E. Each of the acts specified shall constitute a separate

offense and a prosecution or conviction for any one of such

offenses shall not bar prosecution or conviction for any other

offense.

6la

F. Any person who shall be adjudicated guilty of a second

or any subsequent offense specified in this Act, commits a Class

4 felony and shall be subject to such punishment as provided by

law, except that the fine therefor shall not exceed $25,000 for

such second or subsequent offense.

G. The Secretary may refer such evidence as is available

concerning violations of this Act or of any rule or order

hereunder to the Attorney General.

H. The Attorney General, with such assistance as may

from time to time be requested of the State’s Attorneys in the

several counties, shall investigate suspected criminal violations

of this Act and shall commence and try prosecutions under this

Act. Prosecutions under this Act may be commenced by

information or indictment. With respect to the commencement

and trial of such prosecutions, the Attorney General shall have

all of the powers and duties vested by law in State’s Attorneys

with respect to criminal prosectutions generally.

I. All prosecutions under this Act or based upon any

provisions of this Act must be commenced within 3 years after

the act or transaction constituting the violation upon which such

prosecution is based.

137.64. Civil remedies

§ 14. Civil remedies. A. Any person who violates any

provision of this Act in connection with a take-over offer or

directly, materially and knowingly participates in such a viola-

tion shall be jointly and severally liable to any person suffering

losses caused by such violation for:

(1) Damages in the amount of such loss (together

with interest from the date of such loss); or

(2) Any equitable remedy, including but not limited

to rescission, which any court of competent jurisdiction

shall determine in its discretion to be just and equitable

62a

under the circumstances. In any such suit the court may, in

its discretion, assess reasonable costs, including reasonable

attorneys’ fees, against any party.

B. Every person who is found liable for damages may

recover in contribution, as in cases of contract, from other

persons who, if joined in the original suit, would have been

liable to pay the same damages.

C. A person shall not be liable under this Section 14 if

such person proves that such person did not know or, after

inquiry, had reasonable gounds not to know of the existence of

the facts upon which liability is alleged to exist.

D. The rights and remedies under this Act are in addition

to any other rights or remedies that may exist at law or in

equity.

137.65. Civil penalties

§ 15. Civil penalties. The Secretary through the Office of

the Attorney General may bring an action in the name and on

the behalf of the people of this State against any person, or

agent of such person, domestic or foreign, to recover a penalty

in a sum not to exceed $10,000 per violation for the commission

of any act herein deemed illegal.

137.66. Period of limitation

§ Period of limitation. No action shall be maintained to

enforce any liability or penalty created under this Act unless

brought before the expiration of 3 years after the act or

transaction constituting the violation. No cause of action

barred under existing law on the effective date of this Act shall

be revived by this Act. Every cause of action under this Act

survives the death of any person who might have been a

plaintiff or defendant.

137.67. Certifications

§ 17. Certifications. In any civil or criminal action brought

under this Act, a certificate under the seal of this State, signed

by the Secretary, stating the presence or the absence of a filing

63a

pursuant to the provisions of this Act, shall constitute prima

facie evidence of a filing or the absence thereof pursuant to this

Act and shall be admissible in any such action. Such certificate

shall be furnished by the Secretary upon written request

therefor and the payment of a certification fee of $2.

137.68. Service of process

§ 18. Service of process. A. A consent to service of

process shall be in the form prescribed by the Secretary, shall

be irrevocable, and shall provide that actions arising out of or

founded upon any alleged violation of this Act may be com-

menced against the person executing such consent in any court

of competent jurisdiction and proper venue within this State, by

the service of process upon the Secretary.

Service of any process or pleading in any action against a

person who has filed hereunder a consent to service of process

upon the Secretary shall, if made on the Secretary, be in

duplicate copies, one of which shall be filed in the Office of the

Secretary of State and the other immediately forwarded by the

Secretary by registered or certified mail to such person at its

latest address on file in the Office of the Secretary of State.

B. (1) A take-over offer made to offerees in this State,

whether effected by mail or otherwise, by any person (unless

such offer is exempted or excluded) shall be equivalent to and

shall constitute an appointment by such person of the Secretary,

or successors in office, to be the true and lawful attorney for

such person upon whom may be served al! lawful process in

any action or proceeding against such person, arising out of the

take-over offer.

(2) Service of process under this subsection B shall be

made by serving a copy upon the Secretary or any employee of

that Office designated to accept such service, provided notice of

such copy of the process is, within 10 calendar days thereafter,

sent by certified mail by the plaintiff to the defendant, at the

last known address of the defendant, and the plaintiff's affidavit

64a

of compliance, in substantially such form as the Secretary may

by rule prescribe, is appended to the summons. The Secretary

shall keep a record of all such processes which shall show the

date and hour of such service.

137.69. Exclusions from the Act

§ 19. Exclusions from the Act. A. If the target company is

an insurance company or an insurance holding company, or a

railroad or public utility holding or operating company or

person, or any public carrier of passengers or freight, or a state-

chartered bank or a national banking association, or a bank

holding company with 90% or more of its consolidated assets

comprised of assets of its bank subsidiary or subsidiaries, or a

savings and loan association, subject to regulation by a federal

or state agency and the change of control of such company is

subject to approval by that agency, this Act shall not apply.

B. This Act shall not apply to any offer involving a vote by

shareholders of the target company, pursuant to its articles of

incorporation or the applicable corporation statute, on a merg-

er, consolidation or sale of corporate assets or sale of its

securities in exchange for cash or securities of another corpo-

ration, or both.

137.70. Application of the Act

§ 30. Application of the Act. A. All of the provisions of

The Illinois Securities Law of 1953, as amended,' which are not

in conflict with this Act shall apply to any take-over offer.

B. This Act shall be liberally construed to effect the

purposes thereof.

C. In any proceeding under this Act, the burden of

proving an exclusion, exemption or exception shall be upon the

party alleging such matter or raising it as a defense.

D. If any provision or provisions of this Act shall be held

invalid, the remainder of this Act shall not be affected thereby.

E. This Act shall not apply to any take-over offer that has

been made to securityholders of a target company prior to the

effective date of this Act unless the offeror elects to make such

take-over offer subject to this Act.

* Paragraph 137.1 et seq. of this chapter.

65a

15 U.S.C. § 78m(d):

(d)(1) Any person who, after acquiring directly or in-

directly the beneficial ownership of any equity security of a

class which is registered pursuant to section 78/ of this title, or

any equity security of an insurance company which would have

been required to be so registered except for the exemption

contained in section 78/(g)(2)(G) of this title, or any equity

security issued by a closed-end investment company registered

under the Investment Company Act of 1940, is directly or

indirectly the beneficial owner of more than 5 per centum of

such class shall, within ten days after such acquisition, send to

the issuer of the security at its principal executive office, by

registered or certified mail, send to each exchange where the

security is traded, and file with the Commission, a statement

containing such of the following information, and such addi-

tional information, as the Commission may by rules and

regulations, prescribe as necessary or appropriate in the public

interest or for the protection of investors—

(A) the background, and identity, residence, and

citizenship of, and the nature of such beneficial ownership

by, such person and all other persons by whom or on

whose behalf the purchases have been or are to be

effected;

(B) the source and amount of the funds or other

consideration used or to be used in making the purchases,

and if any part of the purchase price is represented or is to

be represented by funds or other consideration borrowed

or otherwise obtained for the purpose of acquiring, hold-

ing, or trading such security, a description of the transac-

tion and the names of the parties thereto, except that where

a source of funds is a loan made in the ordinary course of

business by a bank, as defined in section 78c(a)(6) of this

title, if the person filing such statement so requests, the

name of the bank shall not be made available to the

public;

66a

(C) if the purpose of the purchases or prospective

purchases is to acquire control of the business of the issuer

of the securities, any plans or proposals which such persons

may have to liquidate such issuer, to sell its assets to or

merge it with any other persons, or to make any other

major change in its business or corporate structure;

(D) the number of shares of such security which are

beneficially owned, and the number of shares concerning

which there is a right to acquire, directly or indirectly, by

(i) such person, and (ii) by each associate of such person,

giving the background, identity, residence, and citizenship

of each such associate; and

(E) information as to any contracts, arrangements, or

understandings with any person with respect to any secu-

rities of the issuer, including but not limited to transfer of

any of the securities, joint ventures, loan or option arrange-

ments, puts or calls, guaranties of loans, guaranties against

loss or guaranties of profits, division of losses or profits, or

the giving or withholding of proxies, naming the persons

with whom such contracts, arrangements, or under-

standings have been entered into, and giving the details

thereof.

(2) If any material change occurs in the facts set forth in

the statements to the issuer and the exchange, and in the

statement filed with the Commission, an amendment shall be

transmitted to the issuer and the exchange and shall be filed

with the Commission, in accordance with such rules and

regulations as the Commission may prescribe as necessary or

appropriate in the public interest or for the protection of

investors.

(3) When two or more persons act as a partnership,

limited partnership, syndicate, or other group for the purpose of

acquiring, holding, or disposing of securities of an issuer, such

syndicate or group shall be deemed a “person” for the purposes

of this subsection.

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(4) In determining, for purposes of this subsection, any

percentage of a class of any security, such class shall be deemed

to consist of the amount of the outstanding securities of such

class, exclusive of any securities of such class held by or for the

account of the issuer or a subsidiary of the issuer.

(5) The Commission, by rule or regulation or by order,

may permit any person to file in lieu of the statement required

by paragraph (1) of this subsection or the rules and regulations

thereunder, a notice stating the name of such person, the

number of shares of any equity securities subject to paragraph

(1) which are owned by him, the date of their acquisition and

such other information as the Commission may specify, if it

appears to the Commission that such securities were acquired

by such person in the ordinary course of his business and were

not acquired for the purpose of and do not have the effect of

changing or influencing the control of the issuer nor in con-

nection with or as a participant in any transaction having such

purpose or effect.

(6) The provisions of this subsection shall not apply to—

(A) any acquisition or offer to acquire securities made

or proposed to be made by means of a registration

statement under the Securities Act of 1933;

(B) any acquisition of the beneficial ownership of a

security which, together with all other acquisitions by the

same person of securities of the same class during the

preceding twelve months, does not exceed 2 per centum of

that class;

(C) any acquisition of an equity security by the issuer

of such security;

(D) any acquisition or proposed acquisition of a

security which the Commission, by rules or regulations or

by order, shall exempt from the provisions of this subsec-

tion as not entered into for the purpose of, and not having

68a

the effect of, changing or influencing the control of the

issuer or otherwise as not comprehended within the pur-

poses of this subsection.

15 U.S.C. § 78n(d):

(d) (1) It shall be unlawful for any person, directly or

indirectly, by use of the mails or by any means or in-

strumentality of interstate commerce or of any facility of a

national securities exchange or otherwise, to make a tender

offer for, or a request or invitation for tenders of, any class of

any equity security which is registered pursuant to section 78/ of

this title, or any equity security of an insurance company which

would have been required to be so registered except for the

exemption contained in section 78/(g) (2) (G) of this title, or

any equity security issued by a closed-end investment company

registered under the Investment Company Act of 1940, if, after

consummation thereof, such person would, directly or in-

directly, be the beneficial owner of more than 5 per centum of

such class, unless at the time copies of the offer or request or

invitation are first published or sent or given to security holders

such person has filed with the Commission a statement contain-

ing such of the information specified in section 78m(d) of this

title, and such additional information as the Commission may

by rules and regulations prescribe as necessary or appropriate

in the public interest or for the protection of investors. All

requests or invitations for tenders or advertisements making a

tender offer or requesting or inviting tenders of such a security

shall be filed as a part of such statement and shall contain such

of the information contained in such statement as the Commis-

sion may by rules and regulations prescribe. Copies of any

additional material soliciting or requesting such tender offers

subsequent to the initial solicitation or request shall contain

such information as the Commission may by rules and regu-

lations prescribe as necessary or appropriate in the public

interest or for the protection of investors, and shall be filed with

the Commission not later than the time copies of such material

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are first published or sent or given to security holders. Copies

of all statements, in the form in which such material is furnished

to security holders and the Commission, shall be sent to the

issuer not later than the date such material is first published or

sent or given to any security holders.

(2) When two or more .persons act as a partnership,

limited partnership, syndicate, or other group for the purpose of

acquiring, holding, or disposing of securities of an issuer, such

syndicate or group shall be deemed a “person” for purposes of

this subsection.

(3) In determining, for purposes of this subsection, any

percentage of a class of any security, such class shall be deemed

to consist of the amount of the outstanding securities of such

class, exclusive of any securities of such class held by or for the

account of the issuer or a subsidiary of the issuer.

(4) Any solicitation or recommendation to the holders of

such a security to accept or reject a tender offer or request or

invitation for tenders shall be made in accordance with such

rules and regulations as the Commission may prescribe as

necessary or appropriate in the public interest or for the

protection of investors.

(5) Securities deposited pursuant to a tender offer or

request or invitation for tenders may be withdrawn by or on

behalf of the depositor at any time until the expiration of seven

days after the time definitive copies of the offer or request or

invitation are first published or sent or given to security holders,

and at any time after sixty days from the date of the original

tender offer or request or invitation, except as the Commission

may otherwise prescribe by rules, regulations, or order as

necessary or appropriate in the public interest or for the

protection of investors.

(6) Where any person makes a tender offer, or request or

invitation for tenders, for less than all the outstanding equity

securities of a class, and where a greater number of securities is

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deposited pursuant thereto within ten days after copies of the

offer or request or invitation are first published or sent or given

to security holders than such person is bound or willing to take

up and pay for, the securities taken up shall be taken up as

nearly as may be pro rata, disregarding fractions, according to

the number of securities deposited by each depositor. The

provisions of this subsection shall also apply to secufities

deposited within ten days after notice of an increase in the

consideration offered to security holders, as described in para-

graph (7), is first published or sent or given to security holders.

(7) Where any person varies the terms of a tender offer or

request or invitation for tenders before the expiration thereof by

increasing the consideration offered to holders of such secu-

rities, such person shall pay the increased consideration to each

security holder whose securities are taken up and paid for

pursuant to the tender offer or request or invitation for tenders

whether or not such securities have been taken up by such

person before the variation of the tender offer or request or

invitation.

(8) The provisions of this subsection shall not apply to any

offer for, or request or invitation for tenders of, any security—

(A) if the acquisition of such security, together with

all other acquisitions by the same person of securities of the

same class during the preceding twelve months, would not

exceed 2 per céntum of that class;

(B) by the issuer of such security; or

(C) which the Commission, by rules or regulations or

by order, shall exempt from the provisions of this subsec-

tion as not entered into for the purpose of, and not having

the effect of, changing or influencing the control of the

issuer or otherwise as not comprehended within the pur-

poses of this subsection.