Executive Report

Business takeovers

A NEW Illinois law to regulate business takeovers cannot be applied to a key test case due to intervention by a federal district court for the Northern District of Illinois on November 27. The court held in a preliminary injunction that regulatory control granted the secretary of state under the new Illinois Business Takeover Act, P.A. 801421, may not be used in the case of Uarco, Inc. v. Daylin, Inc.

On December 2 Daylin, a Los Angeles based firm, published in the Chicago Tribune an offer to take over Uarco, a Barrington firm, whose directors have repeatedly rejected Daylin's offers. The way was cleared for the offer when U.S. Supreme Court Justice John Paul Stevens declined to hear the case on appeal.

A constitutional challenge to the Illinois law is still pending in the U.S. northern district court of Judge John Powers Crowley, but a takeover of Uarco by Daylin may

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well be finished before the court can rule.

Under the new law, which went into effect September 8, a company may not take over an Illinois-based company without first filing extensive financial information with the secretary of state. A hearing may then be requested by the secretary's office, a majority of outside directors, or by a stockholder owning 10 per cent of the threatened company's outstanding shares.

The new statute was passed to replace one approved the year before in an attempt to resolve conflicts with federal laws, accoding to David Hart Wunder, director of the securities division under the Illinois secretary of state.

Critics say takeover laws on the books in 36 states are superseded by the federal Williams Act of 1970-71, part of the Securities and Exchange Act of 1934. The Williams Act allows for target company investors to decide whether or not to allow a takeover.

The Illinois statute has a 15 working day delay between the time takeover information must be filed and when the target company must decide whether or not to ask for a hearing. The delay may be used by a target company to seek methods of preventing a takeover — either by changing company by-laws or by selling a large block of shares to an anti-takeover shareholder.

Business law experts say such laws interfere with interstate commerce and violate a raider company's due process rights.

Supporters of the new Illinois law say it will protect shareholders and the public from losses due to unexpected, unfair or unwarranted mergers.

Merger activity may accelerate in the near future, experts say, due to rumors of new federal Securities and Exchange Commission rules that would make takeovers more difficult, and due to a reduction in federal capital gains taxes.

"We anticipate Illinois will have more takeovers than most states," Wunder says.

Workman's comp rates

The Illinois Insurance Department on November 30 denied a requested 36.8 per cent increase in workman's compensation insurance rates. The Insurance Services Office, which asked for the increase on behalf of most Illinois companies writing workman's comp insurance, asked for a hearing on the denial December 5.

Most of the reasons given for the rate denial were technical accounting omissions, "apart from the point that they may have exceeded voluntary wage and price guidelines," according to Mark Kramp, legal services expert with the Illinois Insurance Department. Kramp said that while the request was prepared over a period of months by the National Council on Compensation Insurance, with the aid of many actuaries, the department had just 10 days and one actuary available to review the request before it would go into effect.

Pontiac deadlock, investigation

DIRECTOR of the Illinois Department of Corrections Charles J. Rowe has set January 1 as the deadline for complete removal of the Pontiac prison deadlock, in spite of warnings by prison guards that they may strike if asked to lift the deadlock before tough guard safety measures are implemented.

Both Cook County Circuit Court Judge John F. Hechinger and Federal District Court Judge John Powers Crowley refused on November 30 to block state plans to case the deadlock at Pontiac in effect since the July 22 riot when three guards died. Attorneys for the prison guards' union argued without success in separate cases that guard safety will be jeopardized by lifting the deadlock January 1.

Guard union leaders have demanded several security improvements, but director Rowe says the union's demands for new locks on cells and for two new guard towers within prison walls cannot be met until April because state funds will not be available until then.

Improvement of visibility from two existing guard towers and reconstruction of the prison kitchen could begin as soon as the Capital Development Board approves the work, according to Rowe. But Pontiac guards are wary of lifting the deadlock because the keys to hundreds of cells are missing, and inmates have reportedly threatened to kill more guards when the deadlock is lifted.

Larry Marquardt, an official of the American Federation of State, County, and Municipal Employees, which represents prison guards, says guards will not take any action to end the deadlock until further security precautions are taken. "The guards are scared," Marquardt says.

Meanwhile there are indications from Livingston County State's Attorney C. David Vogel that evidence against inmates responsible for the July 22 murders, arson, assaults and other crimes could reach a grand jury by January. Three special assistants have been added to Vogel's staff to work on the investigations.

Attorney General Opinions

Bail deposits, S-1390: A bail deposit put up by a defendant who has used a county-funded legal service may be used to reimburse the county for providing that service or to pay a judgment for fines and court costs. The payment of the judgment for fines and court costs, however, takes precedence.

State finance, S-1391: No state agency may incur debt beyond its appropriation unless authorized specifically by law(///. Rev. Stat. 1977, Ch. 127, sec. 166). While the state is not obligated to honor any debt incurred in excess of an agency's appropriation, the General Assembly may authorize payment of such debts (1975 111. Atty. Gen. Op. 246).

30/ January 1979/ Illinois Issues