Law School Case Brief
Katz v. Oak Indus., Inc. - 508 A.2d 873 (Del. Ch. 1986)
In order to demonstrate an entitlement to the provisional remedy of a preliminary injunction it is essential that a plaintiff show that it is probable that his claim will be upheld after final hearing; that he faces a risk of irreparable injury before final judgment will be reached in the regular course; and that in balancing the equities and competing hardships that preliminary judicial action may cause or prevent, the balance favors plaintiff.
Plaintiff securities holders filed an application for a preliminary injunction in their action, alleging that an exchange offer and consent solicitation made by defendant Oak Industries, Inc. to holders of various classes of its long-term debt was coercive and constituted a breach of contract. Plaintiff entered into acquisition and stock purchase agreement with an interested buyer. The securities holders sought to enjoin the consummation of the exchange offers, contending that they benefitted the common stockholders at the expense of the debt securities holders, forced the exchange of the debt instruments at an unfair price, and forced the debt holders to consent to the elimination of certain protective covenants.
Does the exchange offers made by Oak Industries of its long-term debt securities constitute breach that warrant injunction?
The court held (1) the company did not breach the implied covenant of good faith because its conduct did not violate the reasonable expectations of those who negotiated the indentures on behalf of the securities holders, and (2) injunctive relief was inappropriate because the securities holders failed to demonstrate a likelihood of success on the merits and the company was in perilous financial condition.
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