Texas International Airlines lost its bid to get a shareholder vote on Continental Airlines' proposal to create an employe stock ownership plan when its motion was ruled out of order by Continental President A. L. Feldman at the airline's annual meeting today.
Feldman's ruling was greeted by cheers and applause from hundreds of Continental employes who packed the ballroom here at the fashionable Brown Palace Hotel.
Feldman said the motion, presented by Philip J. Bakes, senior vice president of Texas Air Corp., was inconsistent with the company's articles of incorporation and Nevada law. The motion "improperly infringes" upon the authority granted to the board of directors, he said.
Had it been able to get a vote, Texas International, a subsidiary of Texas Air Corp., would have voted its 48 1/2 percent holding in Continental against the employe stock plan. Under the plan, which was designed to thwart TI's takeover bid for Continental, the Los Angeles-based airline would issue 15.4 million new shares of stock -- more than double the amount currently outstanding -- to its employes, who thus would gain control of the airline.
As presented by Bakes, TI's motion would have barred Continental's board of directors from creating or issuing any shares to an employe stock ownership plan or issuing any stock in excess of 20 percent of the present outstanding voting stock of the company without first obtaining the approval of the company's stockholders.
Texas International had received specific permission yesterday from the Civil Aeronautics Board to try to introduce and vote on proposals on the ESOP issue at today's meeting TI's 7.45 million shares in Continental were placed in a CAB-approved nonvoting trust earlier this year to prevent the company from exercising any control of Continental while its application to acquire the airline is pending at the CAB.
The takeover battle now will shift to the courts where TI has challenged the legality of the ESOP plan.
After the meeting, Bakes said he was not surprised that his resolution was ruled out of order. "But we're very disappointed that Continental's management didn't see fit to let shareholderss express their will on this extraordinary proposal," Bakes added. He also took issue with the description of a potential merger with TI that Feldman included in his president's report to shareholders.
Feldman said TI's plan for consolidating the two companies would leave the resulting airline "an unsound business proposition." He said the plan would require the new company to pay off the debt TI incurred to buy its Continental stock, leaving the new company so debt-ridden that "it would most likely unable to meet its obligations. . . . We would have a deal with TI, but we would not have a company worth having," Feldman said.
"We think he's very articulate and very inaccurate," Bakes said after the meeting. He said Continental never was given a firm or written offer and that Continental has "mischaracterized" the discussions that were held. Many merger concepts were discussed "but not the one he described," Bakes said. The range of possibilities included buying all shares for cash and contributing $60 million to Continental to help the airline out of its "dire financial straits.
"We're a money-making company, they are not," Bakes said. "We are capable of handling our own debt and, it we merge, [we] could handle some of theirs, too."
At today's meeting, Feldman announced that Continental suffered one of its worst quarters in the January-to-March period, losing $25.8 million compared with a 1980 first-quarter loss of $5.1 million. Feldman said the first-quarter results reflect the continuing cost of restructing the airline and the lingering effects of a strike by its flight attendants late last year.
"I don't anticipate another quarter that bad," Feldman said after the meeting. "Hopefully this summer we'll find we made the right strategic moves . . . and we'll begin to see the benefits of it."
[In a related development, Texas Air Corp. today reported a first-quarter profit of $1.1 million (15 cents a share), down from $1.5 million (22 cents) in last year's period. TAC's figures include operations of both TI and New York Air. The latter yesterday reported a loss of $1.6 million in the first quarter, the first full quarter of its operations.]
Although he described the ESOP proposal in glowing terms -- calling the idea "simple and elegant" -- Feldman announced at today's meeting that the board of directors had established a special committee of its outside members to evaluate the plan and make recommendations to the full board. Outside director Joe M. Kilgore, an Austin, Tex., attorney, will be chairman.
Kilgore said later that the committee has hired its own legal counsel -- the Los Angeles law firm of Kindel and Anderson -- and an independent investment banking firm -- Bear, Stearns -- to help in the evaluation.