Dissident Signal Holders Win Round in Court : Judge Bars Payments to Company’s Executives

Within hours after shareholders of Signal Cos. and Allied Corp. on Wednesday approved a merger that would form the nation’s 16th-largest industrial company, dissident Signal stockholders won a temporary restraining order that prohibits their company’s executives from receiving more than $8 million in executive compensation payable before Feb. 1 of next year.

The order, by Superior Court Judge Jack Levitt, was issued pending an Oct. 2 preliminary injunction hearing requested by attorneys for those Signal shareholders who last month filed a class-action lawsuit against the company.

The lawsuit alleged that La Jolla-based Signal and its executives would receive a “windfall” of as much as $100 million because of accelerated stock option plans and so-called golden parachute clauses in the event of an unfriendly takeover of the merged company in the future.

‘Preliminary Skirmish’

A Signal spokesman described the court action as “a preliminary skirmish, but we still maintain that the suit is without merit.”

The court action came after shareholders overwhelmingly gave their consent to a $5-billion merger that would create a New Jersey-based company to be called Allied-Signal Inc. If results of Signal had been consolidated last year with Morristown, N.J.-based Allied, the new company would have earned nearly $800 million on $17 billion in sales. Assets would have totaled $13.5 billion, of which $1.4 billion would have been cash.

The merger was supported by 86% of Signal’s shareholders and 83% of Allied’s shareholders.

At special shareholder meetings Wednesday, both Allied Chairman Edward L. Hennessy Jr. and Signal Chairman Forrest N. Shumway defended their executive compensation packages.

Shumway said the stock option plan being attacked in the shareholder suit was adopted two years ago to reassure “key employees” who had grown “very nervous” by possible takeover attempts.

Dissident shareholders who brought the suit are “assuming a lot of negatives, not positives,” Signal President Michael Dingman said. “I call (the package) prudent judgment because you have to ensure that the proper people are protected.”

The packages have “generated an emotional response among some people,” said Hennessy, who added that Allied’s stock benefits package was needed to bring company executives in line with Signal’s compensation package.

The merger will bring some “realignment and readjustment,” said Dingman, who will become president of Allied-Signal. “That’s to be expected when you create the nation’s 16th-largest industrial company.”

That readjustment will begin after Oct. 15, when the new company receives a pair of reports being prepared by Allied and Signal’s top managers and two outside consulting firms. McKinsey & Co.

Times staff writer Paul Richter, in Morristown, N.J., also contributed to this article.