Texas International Airlines sued Continental Airlines yesterday, charging Continental with violating the nation's securities, tax and labor laws by attempting to create an employe stock purchase plan designed specifically to prevent TI from taking control of the Los Angeles-based airline.
TI, which as a 48 1/2 percent interest in Continental, is awaiting a Civil Aeronautics Board decision on its application to acquire Continental. c
In a suit filed in U.S. District Court in Los Angeles, TI charged that Continental's plan to issue 15.4 million shares of its stock to its employes who would acquire a controlling interest in the airline was "an unlawful . . . scheme undetaken to entrench existing Continental management.
"This entrenchment scheme, undertaken without any valid business purpose and in blatant disregard of the rights of existing shareholders, has resulted in gross mismanagement and a waste of corporate assets," the suit charged.
TI asked the court for an injunction to keep Continental from taking any steps to effectuate the plan and issueing any stock in an attempt to transfer control of the airline. It also asked that Continental's top officers and directors be requird to compensate the airline company for "the waste of corporate assets" while they were creating the plan.
Under the Continental plan outlined in the suit, Continental would form an Employe Stock Ownership Plan by establishing a trust. The airline then would more than double the number of its shares outstanding by issuing about 15.4 million new shares and selling them to the trust at the market price of Continental on the day the trust is established. The $185 million believed necessary to buy the stock is to be financed from bank loans to the trust arranged guaranteed by Continental. The loans are to be repaid out of funds contributed to the trust by Continental -- funds it would have because of employe pledges to give up a portion of their future wages. The trust, in control of Continental, would retain its current management.
The suit alleged that Continental's top officers and directors, in breach of their fiduciary duty, were proposing a scheme that would have a "devasting impact" on existing shareholders:
They would be deprived of any say in corporate affairs because the issuance and sale of the new shares would result in a transfer of absolute control to the trust, enabling it to elect all the directors.
Their equity would be diluted immediately and severely because the number of shares outstanding would be doubled.
The value and marketability of their stock would be affected adversely because the stock would be delisted from the New York Stock Exchange. The exchange required that a listed company obtain shareholder approval for any corporate action that results in a change of control of the company, the suit says.Continental officials said they had no plans to ask for shareholder approval; with TI holding 48 1/2 percent of the stock, the outcome would be obvious.
Continental yesterday called the suit "an apparent attempt by TI to negate the efforts initiated by Continental employes to control their own destinies" and denied it was breaking any laws.
In a related development, TI made public a letter sent by Frank Lorenzo, chairman of TI's executive committee, to Continental President A.L. Feldman, accusing Feldman of making misleading statements to the press and Continental employes about TI's acquisition plans and its financial status. Lorenzo also criticized Feldman for scaring Continental's employes by repeatedly suggesting that TI had plans to liquidate part of Continental. Lorenzo said Feldman knew TI had no plans to sell Continental Airlines is to sell the $6.5 million corporate het the company purchased last June and utilized, as we understand it, primarily for top officers' travel."