Petition — Rome v. Indian Head, Inc.
Supreme Court brief1977
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IN THE dy ‘=
Supreme Court of the Uniti tbe 22
October Term, 1977.
No. @7-1808
MORTON P. ROME and MARJORIE T. ROME,
Trustees Under a Trust Agreement,
Petitioners,
v.
THYSSEN-BORNEMISZA EUROPE, N.Y., et al.,
Respondents.
PETITION FOR A WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS FOR
THE SECOND CIRCUIT.
EpwIn P. Romer.
WiLLiAM E. TAYLor,
JEANNE P. WRoOBLESKI,
1100 Four Penn Center Plaza,
Philadelphia, PA 19103
Tel. (215) 569-370C
Attorneys for Petitioners.
Of Counsel:
BLANK, Rome, Kiaus & ComISskyY,
1100 Four Penn Center Plaza,
Philadelphia, PA 19103
Morton P. Rome,
204 Kent Road,
Wyncote, PA 19095
Bruce A. HECKER,
Ina POSTEL,
SHEA, GouLp, CLIMENKO & CASEY,
330 Madison Avenue,
New York, NY 10017
International Printing Co., 711 So. 50th St., Phila., Pa. 19143 — Tel. (215) 727-8711
Page
I ok ec cabhiiucs Wa eeRe EEOC ERS Coster 06 1
ED sited ck cic dbeuk Cua oe sen ce ceetkadabeesaes 2
QUESTION PRESENTED FOR REVIEW ................0000005: 2
CONSTITUTIONAL ProvisION, STATUTES AND RULES INVOLVED .. 4
I YW oe cack bcpceetccauuadudusescsas 5
REASONS FOR GRANTING THE WRIT .............0.ceeceee0s 13
I. This Court Should Resolve the Split of Authority
Existing Among the Courts of Appeals on Whether
Specific Findings in Support of a Class Action De-
termination Order Are Required to Be Made by a
Court. This Is Particularly Vital Where Actions Are
Ordered to Be Maintained as Class Actions for Pur-
poses of Settlement Only Involving Issues Concern-
ing Adequacy of Representation and Conflicting
Interests of the Representative Parties ............ 13
Il. The Validity of Rules 23(c)(2) and 23(c)(3) in
Compelling Non-Parties Described as Plaintiff Class
Members to Perform the Affirmative Act of Opting
Out or Be Bound by the Adjudication of a Court
Which Lacks Personal Jurisdiction Over Them Pre-
sents a Significant Question of Federal Law and
Juridical Administration Which Should Be Decided
EE iectesenikndsdeohanbesscdapewha ts 18
III. The Class Action Settlement Approved by the Courts
Below Misused the “Opt Out” Provisions of Rule 23
to Foreclose the Rights of Objecting and Silent Con-
vertible Debenture Owners Who by Their Debenture
Contracts Were Not Required Affirmatively to Re-
quest Exclusion to Protect Against Loss of Their
Rights to Convert Into Common Stock. If Not
Vacated, This Decision Will Be a Serious Threat to
the Entire National Market for Convertible Deben-
INDEX (Continued).
Page
APPENDIX A:
District Court Memorandum Opinion, Filed November
i Ct cls anushicek’ sob bunbe bade watehSadanda Al
District Court Judgment and Order Designating Class
Action, Filed November 18, 1976 ................ A42
APPENDIX B:
Order of the Court of Appeals Affirming Judgment, Filed
DRUM £6 Kcuden badaséddeuueacdeesdeecesess A50
APPENDIX C:
U. S. Constitution, Fifth Amendment ................. A53
Rules Enabling Act, 28 U. S. C. § 2072 ................ A53
Securities Exchange Act of 1934, Sec. 10(b), 15 U. S. C.
ds to Gaiety hides aaduedessadheuakertnkes A54
Securities and Exchange Commission Rule 10b-5, 17
pe eth sated be wcbseee tendons os A54
§ 259, Delaware General Corporation Law ............ A55
Federal Rules of Civil Procedure:
EEN ducal cogs > eGhGbss Dadiaweacebescadasay A57
SE use Wek Wikwed Ade kbee baad seabeds kedmnabbe A60
SE dit Cha hdedndiddenssochdbendebacene deed va A63
tN > “re
Oo hab adn
a
ah
TABLE OF CITATIONS.
Cases: Page
Bailey v. Patterson, 369 U. S. 31 (1962) ............-5eeee 17
Capital City Gas Company v. Phillips Petroleum Company,
SOS Fi. Se BED CS GR. TED cde cncdevecvedvnvsveces 28
City of Detroit v. Grinnell Corporation, 495 F. 2d 448 (2d
EE, 4 b0 FSR ReVEdeN NUON Reen dv eccecesebvecpedse 18, 28
East Texas Motor Freight System, Inc. v. Rodriguez, — U. S.
—, 45 LW 4524 (May 31, 1977) .............. ee eeeee 16
Eisen v. Carlisle & Jacquelin, 52 F. R. D. 253 (S. D. N. Y.
1971) Revd on other grounds, 479 F. 2d 1005 (2d Cir.
1973), Remanded with instructions to dismiss the class
action as so defined, 417 U. S. 156 (1974) ............. 14, 15
Eisen v. Carlisle & Jacquelin, 391 F. 2d 555 (2d Cir. 1968)
ERE GEE 6 GA Se dnd eek cece sé de sey dies nésesvocccisensé 15, 16
Gonzales v. Cassidy, 474 F. 2d 67 (5th Cir. 1973) .......... 16
Hall v. Beals, 306 U. S. 45 (10GB) ......ncccccccccccecsces 17
Hansberry v. Lee, 311 U. S. 32 (1940) ........... cee eee eee 16
Hanson v. Denckla, 357 U. S. 235 (1958) ...............5. 21, 23
Honeywell, Inc. v. Metz Apparatewerke, 509 F. 2d 1137 (7th
Ts ME spc cecncbawchediuetdes aveewebenss ckncves’ 22, 24
International Shoe Co. v. Washington, 326 U. S. 310 (1945)
19, 20, 21, 23
Interpace Corporation v. City of Philadelphia, 438 F. 2d 401
SMD Gocecces eteecscdsnnpusecessesecetcess 14
Kentucky Home Mut. Life Ins. Co. v. Duling, 190 F. 2d 797
RL ED ppe'es cccavessedacectessvieccescucses 16
Kremens v. Bartley, — U. S. —, 45 LW 4451 (May 16, 1977). .16, 18
Kusner v. First Pennsylvania Corporation, 531 F. 2d 1234 (3d
SME Sek deyhids bpenbedneheeddsensdexeoevens 27
McGee v. International Life Insurance Company, 355 U. S.
SE EE Wabid abe sdeedyandbenusteceseseneectesten 19, 21
Mississippi Pub. Corporation v. Murphree, 326 U. S. 438
SE cicpbhednetadetes od cone vevadenadsascdseseeee 24
Morris v. Burchard, 51 F. R. D. 530 (S. D. N. Y. 1971) ..... 14
TABLE OF CITATIONS (Continued).
Cases (Continued): Page
Nguyen Da Yen v. Kissinger, 70 F. R. D. 656 (N. D. Cal.
BOUB) oni csiv'ncwnev occ cwetdncr seaneeeneeeeeeee 13
Price v. Lucky Stores, Inc., 501 F. 2d 1177 (9th Cir. 1974) .. 13
Rosario v. Rockefeller, 410 U. S. 752 (1973) ............... 17
Rutledge v. Electric Hose & Rubber Company, 511 F. 2d 668
(Gt Cis. RUGR «ou .< + 0vuvchanxen tue 15
Santa Fe Industries, Inc. v. Green, — U. S. —, 45 LW 4317
(Dawes GA, BOUT) ccc ccvccccdcccccedeueckesameaseaes 26
Saylor v. Lindsley, 456 F. 2d 896 (2d Cir. 1972) ........... 28
Schlesinger v. Reservists Committee to Stop the War, 418
U. &. SEB CIPS) .c cice caccscicsceseadesseneseaeeeee 16-17
School District of Philadelphia v. Harper & Row Publishers,
Inc., 267 F. Supp. 1001 (E. D. Pa. 1967) .............. 19-20
Shaffer v. Heitner, — U. S. —, 45 LW 4849 (June 24, 1977)
2, 19, 23
Snyder v. Harris, 394 U. §. 332 (1969) .................00- 24
. Soona v. lown, G39 U. &. SEB CRGR) oc ccccacscccecseascesua 16
Van Gemert v. The Boeing Co., 520 F. 2d 1373 (2d Cir. 1975),
cert. denied, 423 U. S. 949 (1975) ...............00eee 27
West Virginia v. Chas. Pfizer & Co., 440 F. 2d 1079 (2d Cir.
1971), cert. denied, 404 U. S. 871 (1971) .............. 16
Constitutional Provision, Statutes and Rules Involved:
United States Constitution:
CY 4,19, 22, 24
15 U. S. C. § 78j(b), Sec. 10(b), Securities Exchange Act of
MRE .corccccccedecesegeveceseeceennaenneen 4, 26
28 U. S. C. § 2072, Rules Enabling Act ................20:. 4,24
VU. & GC. 6 REDAE) 0.0.2. cccvcssctncacwnsepaeneneee 2
State Statute:
§ 259, Delaware General Corporation Law .......... 4, 26, 27
Regulation:
17 C. F. R. § 240.10b-5, Securities and Exchange Com-
TABLE OF CITATIONS (Continued).
Page
Federal Rules of Civil Procedure:
Deets ling es eases « 2, 3, 4, 10, 13, 14, 15, 16, 17, 18,
19, 20, 23, 24, 25, 27, 28, 29
ee hae ces dudentepesedaseeeces 4,11
ete die dec ceheapeetsveyeeses ese es 4,19, 24
Other Authorities:
Advisory Committee Note, 39 F. R. D. 98 (1966) .......... 13
Current Problems in Federal Civil Practice, (P. L. I. 1975)
DP Urisenekeeidavectseseeevsscecccecceccece 25
Folk, The Delaware General Corporation Law—A Commen-
tary and Analysis (Little, Brown, 1972) Section 259/365-
Frankel, Amended Rule 23 From A Judge’s Point of View, 32
A. B. A. Antitrust L. J. 295 (1966) ................45. 27
Manual for Complex Litigation (1975) Part I, § 1.40, p. 25
i dei cbacbicdscesevoecsesecces 18
3B Moore's Federal Practice, § 23.45[1], p. 23-707 (1977) .. 14
7 Moore's Federal Practice, § 65.18[3], at 65-135-136 (1975) 28
7 Wright & Miller, Federal Practice & Procedure, § 1761 at
TT ied se eLMGus dow ed6cekGeknccrccyeccscebe 16
11 Wright & Miller, Federal Practice & Procedure, '§ 2941 at
atau akeslevectesesccetsccecs 28
Kaplan, Continuing Work of the Civil Committee: 1966
Amendments of the Federal Rules of Civil Procedure, 81
i CED ccc adedcvctovevscsosecece 13
IN THE
Supreme Court of the United States
OcrosER TERM, 1977
No.
MORTON P. ROME and MARJORIE T. ROME,
Trustees Under a Trust Agreement,
Petitioners,
0.
THYSSEN-BORNEMISZA EUROPE, N.V., ET AL.,
Respondents.
PETITION FOR A WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS FOR
THE SECOND CIRCUIT.
Petitioners, Morton P. Rome and Marjorie T. Rome,
trustees under a trust agreement made November 22, 1954,
for the benefit of Sally P. Rome, respectfully pray that a
writ of certiorari issue to review the judgment of the Court
of Appeals for the Second Circuit rendered in these pro-
ceedings on May 2, 1977.°
OPINIONS BELOW.
On November 16, 1976, the District Court issued a
Memorandum Opinion approving as fair and reasonable
the settlement of three actions ordered to be maintained
as class actions, for purposes of settlement only (A1).’
* The Respondents are too numerous to be included in the
caption. They are listed in the Order of the Court of Appeals
printed in the Appendix, infra, to this petition (A50-51).
1. Citations herein to “( A—)” are to the Appendix, infra, to this
ition. References to the Record in the Court of Appeals are
made by the designations: “(Vol. I a)”, “(Vol. II a)”, or “(Vol.
III a)”. The Appendix has been segregated for convenience into
Appendix A, B, and C.
2 Petition for a Writ of Certiorari
The Memorandum Opinion of the District Court is re-
ported at 424 F. Supp. 679. On November 18, 1976, the
District Court entered a Judgment and Order that the ac-
tions shall proceed as class actions (A42). This Order is
unreported. The Court of Appeals for the Second Circuit
affirmed the Judgment of the District Court in an Order,
dated May 2, 1977 (A50), which is unreported. The
Court of Appeals did not write an opinion.
JURISDICTION.
The judgment of the Court of Appeals was entered on
May 2, 1977 (A50). The jurisdiction of this Court is in-
voked under 28 U. S. C. § 1254(1).
QUESTIONS PRESENTED FOR REVIEW.
In Shaffer v. Heitner, — U. S. —, 45 LW 4849 (June
24, 1977), this Court struck down a Delaware se-
questration procedure which “coerces a defendant either
to submit to personal jurisdiction in a forum which could
not otherwise obtain such jurisdiction or to lose the se-
curities which have been attached.”
In this securities litigation, declared to be a class ac-
tion for settlement purposes only, the courts below, utiliz-
ing the mandatory “opt-out” provisions of Rules 23(c) (2)
and 23(c)(3) of the Federal Rules of Civil Procedure, co-
erced petitioners, convertible debenture holders who ob-
jected to the settlement, as absent, involuntary non-parties
(but described as class members in the settlement ), to sub-
mit to the personal jurisdiction of a forum which could not
otherwise have obtained personal jurisdiction over them,
or suffer, as a result of a “freeze-out” by short-form statu-
tory merger, the loss of their common stock conversion
ene ee
. Sart aes
Petition for a Writ of Certiorari 3
rights for a cash sum below the conversion price. If not
vacated, the decision of the courts below is a serious threat
to the entire national market for convertible debentures,
because it opens the door to a method by which a practi-
cal destruction of the entire underlying basis for converti-
ble debenture purchases may be effected.
The backdrop of this matter included a class action
determination in which no specific findings were made to
support the order, the representative designated in the
settlement and order to represent petitioners’ “class” was
not one of its members, and his attorneys and the repre-
sentatives for all classes. named as such in the settlement
and order had multiple and conflicting interests.
The questions presented are these:
1. Whether an order that three separate actions alleg-
ing federal securities and common law violations shall be
maintained as class actions, for purposes of settlement
only, was a fundamentally erroneous construction and ap-
plication of Rule 23 of the Federal Rules of Civil Proce-
dure violative of due process under the Fifth Amendment
to non-parties described as plaintiff class members:
(a) when entered without any specific findings
of the existence of the prerequisites, standards, and
criteria for class actions established by Rules 23(a)
and 23(b); and
(b) where the representative designated in the
settlement and order to represent a convertible de-
benture owner class was not one of its members, and
his attorneys and the designated representatives for
all classes established by the settlement and order ha?
multiple and conflicting interests.
4 Petition for a Writ of Certiorari
2. Whether the application of Rules 23(c)(2) and
23(c)(3) of the Federal Rules of Civil Procedure to non-
parties described as plaintiff class members violated their
Fifth Amendment due process rights, to the extent that a
judgment approving a settlement entered in class actions
is made binding upon such non-parties who are not other-
wise personally subject to the court’s jurisdiction.
3. Whether the utilization of Rules 23(c)(2) and (3)
of the Federal Rules of Civil Procedure in a class action
can properly bind, by a judgment approving the settle-
ment, objecting and silent non-parties described as plain-
tiff class members (convertible debenture owners whose
rights to convert were substantially altered by the settle-
ment ), unless they act affirmatively to opt out, where such
non-party convertible debenture owners had several con-
tract rights pursuant to the terms of their debentures which
provided that there would be no alteration or impairment
of their rights to convert into common stock without their
consent.
CONSTITUTIONAL PROVISION, STATUTES
AND RULES INVOLVED.
This case involves the Fifth Amendment to the Con-
stitution of the United States, the Rules Enabling Act, as
amended, 28 U. S. C. § 2072, Section 259 of the Delaware
General Corporation Law, Section 10(b) of the Securities
Exchange Act of 1934, 15 U. S. C. § 78j(b), Securities and
Exchange Commission Rule 10b-5, 17 C. F. R. § 240.10b-5,
and Rules 23, 65<.ad 82 of the Federal Rules of Civil Pro-
cedure, which are set forth herein at Appendix C , infra,
pp. A53 through A63.
Pera» :
Petition for a Writ of Certiorari 5
STATEMENT OF THE CASE.
In April, 1968, Indian Head Inc. (“Indian Head”), a
diversified Delaware corporation, issued and sold publicly
$25 million of its 5% percent convertible debentures due
April 15, 1993 (“Debentures”). The Debentures were
listed and traded on the New York Stock Exchange. By
the terms of the Debentures and the Indenture, each $1000
Debenture was convertible into 25.974 shares of Indian
Head common stock, or a conversion price of $38.50 per
share (Vol. II, 467a at 482a).
Beginning in October, 1973, Thyssen-Bornemisza
Group, N.V. (“TBG”), (the name of which was later
changed to Thyssen-Bornemisza Europe N.V.) (“TBE”),
a Netherlands international and industrial holding com-
pany, began to acquire Indian Head common stock at $27
per share, in cash, through a tender offer and direct pur-
chase from Indian Head. In August, 1974, Thyssen-
Bornemisza, Inc. (“TBI”), a Maryland corporation organ-
ized originally as a wholly-owned sudsidiary of TBE to
hold all securities of Indian Head, acquired additional
shares of Indian Head common stock at $27 per share in
cash through a second tender offer, bringing its holdings to
over 90%. As a result, the Indian Head common stock and
the Debentures were suspended from trading on the New
York Stock Exchange on August 30, 1974 and delisted on
September 24, 1974. Thereafter, the Debentures and com-
mon stock were traded only in the over-the-counter market.
On February 11, 1976, TBI, in a press release, an-
nounced plans to merge Indian Head into a newly formed
wholly-owned subsidiary of TBI, to be known as Thyssen-
Bornemisza Holdings, Inc. (“TBH”). Under this proposed
plan of merger, the Debentures would be assumed by
TBH. After the merger, however, the Debenture holders
6 Petition for a Writ of Certiorari
would no longer have the right to convert their Debentures
into common stock, but only might surrender them and
receive $779.22 in cash for each $1000 of Debentures they
held, or at the rate of $30 per share for 25.974 common
shares.
Three purposed class actions’? challenging various
aspects of the Thyssen-Indian Head transactions were in-
stituted in the Southern District of New York by holders
and former holders of the Debentures, holders of Indian
Head common stock, and holders of certain Indian Head
warrants. These actions challenged the two tender offers
and purchases of Indian Head securities on various
grounds, including federal securities and common law
violations, and sought both injunctive relief and damages.
On March 4, 1976, at the outset of a hearing on a re-
quest for injunctive relief to bar the merger plan an-
nounced by TBI in its press release of February 11, 1976,
the defendants withdrew the merger proposal.
After withdrawal of the merger plan, counsel for de-
fendants entered into settlement negotiations with counsel
for plaintiffs in the three actions. By July 20, 1976, these
negotiations resulted in a Stipulation and Agreement of
Settlement (“Settlement Agreement”) (Vol. I, 160a), en-
compassing two of the three actions.* On July 28, 1976,
an amendment to the Settlement Agreement brought the
third action within its scope (Vol. I, 186a).
Under the terms of the Settlement Agreement and
its amendment, the parties agreed, subject to the approval
of the court, that the three actions were to be maintained
as class actions, but for purposes of settlement only. Vari-
2. Brucker, et al. v. Thyssen-Bornemisza Europe, N.V., et al.,
74 Civ. 5755, filed December 31, 1974; Weinberger v. Powers, et all.,
jad 2 _ mem Hr, 1975; and Shamrock Corp., et al. v.
ian Head Inc., et al., iv. 1736, filed April 9, 1975 (Vol.
750a, 754a, 757a). , —-
3. The Brucker and Weinberger actions, supra, n. 2.
Tor Rese pore
Petition for a Writ of Certiorari 7
ous classes * of Indian Head present and former securities
holders were defined and class representatives and lead
counsel for all classes were designated, along with repre-
sentatives and co-counsel for each class.*
The Settlement Agreement included a provision for
consummation of a short-form statutory merger of Indian
Head into TBH, the newly formed Delaware subsidiary
of TBI. Under this merger, all publicly held common
stock of Indian Head and rights to acquire Indian Head
stock were to be eliminated, with TBH (whose name
would then be changed to Indian Head), to be the sole
remaining stockholder. Each public Indian Head com-
mon stockholder would be paid $32 in cash upon the
merger. The Debenture Owner Class, of which petitioners
were described members, would lose their rights to con-
vert into Indian Head common stock after the merger,
but a Debenture owner could (i) surrender his Deben-
tures after the merger and receive $844.16 in cash for each
$1000 Debenture (or at the rate of $32.50 for the 25.974
common shares into which the Debenture was otherwise
convertible, although the original conversion price was
$38.50): (ii) retain his Debentures until maturity on April
15, 1993; (iii) surrender his Debentures at any time after
the merger but prior to maturity in exchange for $831.17
in cash (or at the rate of $32 per share for the 25.974
common shares); or (iv) convert his Debentures into
common stock prior to the merger and seek appraisal
under Delaware law.
Subject to the court’s approval of the settlement and
merger, TBI agreed it would pay into a Fee Fund the
4. The classes established were: Common Stock; Debenture
Owners; Debenture Sellers A & B; Warrant Owners; and Warrant
Sellers A & B. Pg
5. Lead counsel for all classes was sole counsel for the -
mon Stock Class.
8 Petition for a Writ of Certiorari
amount of awards by the court for the fees and expenses
of plaintiffs’ attorneys and experts, not in excess of
$600,000.
Finally, the Settlement Agreement provided that all
actions, wherever and by whomever brought, arising out
of or relating to the subject matter of the three class ac-
tions being settled, were to be stayed and enjoined, in
any court other than the court before which the three class
actions were pending, until entry of a judgment and order
determining whether the proposed settlement was fair,
reasonable and adequate. In addition, if the settlement
was subsequently approved, all class members were to
be permanently enjoined from prosecuting any claims
arising out of or relating to the matters set forth in the
complaints of the three actions.
On August 2, 1976, the District Court entered an
Order which included, with the exception of the permanent
injunction provision, all of the terms of the Settlement
Agreement described above and was substantially identi-
cal to the form of Order submitted by the settling parties
(Vol. I, 148a). The Order directed that the three actions
were to be maintained as class actions for purposes of set-
tlement only, and designated the class representatives,
lead counsel and co-counsel for each of the classes previ-
ously selected by the parties.
The class action determination order was entered
even though it was clear from the record that certain of
the class representatives were not members of the classes
they were designated to represent, and there existed multi-
ple and conflicting interests of the named representatives
and their attorneys.
For example, the individuals designated to represent
all classes were only members of the Debenture Owner
Class, one of the 7 classes. The individual designated to
RPE ERT TL ET FR QUEEN eT Oe
Petition for a Writ of Certiorari 9
represent the Debenture Owner Class (of which peti-
tioners were described members), was not a member of
that class and not a member of the Debenture Seller Class
A, although he was named to represent the Debenture
Owner Class and the Debenture Seller Classes A and B.
(--As a member of the Debenture Seller Class B this “rep-
resentative” had claimed a loss of $213.43 in his class
suit (Vol. III, 754a at 755a, 06-04-75).—) The repre-
sentative designated for the Common Stock Class had in
fact only been added as a named plaintiff in a second
amended complaint, filed with the consent of the defend-
ants by the attorneys who had been designated in the
Settlement Agreement as lead counsel for all classes, six
days after the settlement bargain of July 20, 1976 had been
struck on behalf of the class he was named to represent
(Vol. I, 84a).
The lead counsei designated for all classes had origi-
nally represented only Debenture owners (Vol. I, 7a).
After the settlement agreement of July 20, 1976, in the
second amended complaint consented to by defendants
and filed July 26, 1976, added plaintiffs who were common
stock holders and warrant owners were then represented
by this lead counsel (Vol. I, 84a). Before becoming lead
counsel for all classes, these attorneys had not previously
represented the Debenture Seller Classes A and B or the
Warrant Seller Classes A and B.
The firm designated as co-counsel for the Debenture
Owner Classes and the Debenture Seller Classes A and B
had not previously represented any members of the De-
benture Owner Class or Debenture Seller Class A, but only
the representative of the Debenture Seller Class B who had
claimed a loss of $213.43 in his class suit.
The District Court Order also directed that notice of
the proposed settlement and the hearing thereon be given
to all identifiable class members. Pursuant to this provi-
10 Petition for a Writ of Certiorari
sion of the Order, petitioners, as holders of $25,000 of
Debentures, were mailed and received notice of the settle-
ment hearing. Although petitioners were residents of the
Eastern District of Pennsylvania and not personally subject
to the jurisdiction of the United States District Court for
the Southern District of New York, the notice commanded
them either to opt out of the Debenture Owner Class, in
accordance with the provisions of Rule 23(c)(2) and the
procedures established by the August 2 Order, or be bound
by the adjudication of the United States District Court for
the Southern District of New York (Vol. III, 579a at
582a). The notice to petitioners and other described
class members omitted to disclose the facts set forth above
concerning the positions of the class representatives and
their attorneys, and, indeed, did not even name the class
representatives.
Under the terms of the notice, petitioners, if they re-
quested exclusion, would not share in the benefits of the
settlement, would not be bound by any judgment entered
in the matter, and would only be able to pursue their indi-
vidual claims, if any. If petitioners failed to submit a re-
quest for exclusion the result would be, according to the
notice, that as a class member they would be bound by
the terms of any judgment or order in the matter, including
a judgment and order approving the proposed settlement.
If petitioners objected to the proposed settlement they
were invited to appear at the settlement hearing and show
cause why the proposed settlement should not be approved
and the action dismissed* (Vol. III, 579a at 582a and
586a ).
6. The stay and injunction against prosecution of any suits by
any person, arising out of or relating to the subject matter of any
of the pleadings in the actions being settled, the terms of the
Settlement Agreement or the merger, in any court other than the
Southern District Court, pending entry of a judgment and order
approving the settlement and merger, although set forth in the
Settlement Agreement and the District Court’s Order of August 2,
EPEAT SEP
PIM TPMT
- rece ee ae ae
BR Wr re ree
Petition for a Writ of Certiorari ll
Because petitioners concluded that these courses ef-
fectively confronted them with a Hobson’s choice, they
filed a notice of intention to appear and set forth various
grounds for their objections to approval of the proposed
settlement and merger (Vol. I, 193a). Petitioners did not
seek to intervene or become parties. After hearing. ( Vol.
I, 207a, Vol. II, 267a) the District Court rejected all of
petitioners’ contentions, filed its Memorandum Opinion
that the settlement was fair and reasonable, and approved
the merger contemplated therein (Al). Judgment and
Order was then entered that the three actions shall pro-
ceed as class actions on behalf of all members of each of
the seven classes who had not theretofore requested ex-
clusion (A42).
Before receipt of the District Court’s Memorandum
Opinion, petitioners, to comply with the injunction con-
tained in the August 2, 1976 Order (Vol. I, 148a at 156a-
157a) despite its questionable effect under Rule 65(b) of
the Federal Rules, along with another owner of Deben-
tures who had requested exclusion from the settlement,
filed on November 16, 1976 in the United States District
Court for the Southern District of New York, 76 Civ. 5129,
a separate class action complaint on behalf of themselves
and representatively on behalf of all other owners of De-
bentures who had not affirmatively consented to the settle-
ment, seeking primarily therein injunctive and declaratory
relief. This independent suit asserted some claims arising
out of or relating to the matters set forth in the complaint
of the settled actions (Vol. II, 402a at 407a).
The scope of the District Court’s permanent injunc-
tion included unidentified but described “class members”.
6. (Cont'd.)
1976 (Vol. I, 148a) did not appear in the Notice of Hearing on the
settlement. Nor did the proposed permanent injunction against
any suits by all class members, in the event of court approval of the
settlement, appear in the Notice of Hearing on the settlement ( Vol
III, 579a).
12 Petition for a Writ of Certiorari
As a result this separate class action suit of petitioners
could possibly be proscribed by the terms of the injunc-
tion, although petitioners were not parties to the actions
settled, but, as was their right, pursuant to the invitation
in the notice simply had objected and contested at the
hearing on the settlement the legality of the compromise
as it affected them and other owners of Debentures who
had not affirmatively consented to the settlement. In an
effort to effect dissolution of this permanent injunction is-
sued in the District Court Judgment and Order (A42 at
A48-49), petitioners timely filed a Motion to Alter or
Amend Judgment, pursuant to Rule 59(e) of the Federal
Rules of Civil Procedure (Vol. II, 402a). Petitioners also
filed an Application for Partial Stay of Judgment and Order
Pending Appeal (Vol. II, 413a), and Motion for an Order
Clarifying and Supplementing the Record (Vol. II, 427a).
These motions and application were denied by the District
Court on November 29, 1976 (Vol. II, 412a, 426a, 433a),
on which date petitioners filed a notice of appeal to the
Second Circuit from the Judgment and Order entered
November 18, 1976 (Vol. II, 465a).
Petitioners’ challenge of the settlement by appeal was
rejected by a panel of the Second Circuit on May 2, 1977,
which affirmed the judgment of the District Court {A50).
a
a eee een ieee eee
Petition for a Writ of Certiorari 13
REASONS WHY WRIT SHOULD BE GRANTED.
I. This Court Should Resolve the Split of Authority Ex-
isting Among the Courts of Appeals on Whether
Specific Findings in Support of a Class Action Deter-
mination Order Are Required to Be Made by a Court.
This Is Particularly Vital Where Actions Are Ordered
to Be Maintained as Class Actions for Purposes of
Settlement Only Involving Issues Concerning Ade-
quacy of Representation and Conflicting Interests of
the Representative Parties.
Although it appears that the draftsmen of amended
Rule 23 of the Federal Rules of Civil Procedure contem-
plated requiring the court to make specific findings in
support of a class action determination order both in the
language of the Rule, and in the notes,’ there is a conflict
among the Courts of Appeals on the necessity for making
such specific findings.
In Price v. Lucky Stores, Inc., 501 F. 2d 1177 (9th
Cir. 1974), the court held that Rule 23 implicitly required
the District Court to make specific findings on the ques-
tions of whether those provisions had been satisfied and
properly applied. In the absence of such findings, it was
held that reversal and remand was required. This hold-
ing of Price was followed in Nguyen Da Yen v. Kissinger,
70 F. R. D. 656, 661 (N. D. Cal. 1976), where the Court
stated:
“In determining whether a matter should proceed as
a class action the Court is required to make findings
7. Fed. R. Civ. P. 23(b)(3); Advis Committee Note, 39
F. R. D. 98, 103 (1966); See also Kaplan, Continuing Work of the
Civil Committee: 1966 Amendments of the Federal Rules of Civil
Procedure, 81 Harv. L. Rev. 356, 390 (1967).
14 Petition for a Writ of Certivrari
concerning each essential element of the class action
rule.”
The commentary expressed in 3B Moore’s Federal Prac-
tice, { 23.45 [1], p. 23-707 (1977) is consistent with that
of the 9th Circuit.
On the other hand, despite the widespread growth in
the use of the class action device, “so instinct with bene-
fits, (but) also fraught with mischievous effects”, Morris
v. Burchard, 51 F. R. D. 530, 536 (S. D. N. Y. 1971),
the Third Circuit, like the Second, is of the view that the
language in Rule 23 relating to findings” . . . refers merely
to the preliminary determination the court must make
before deciding the class action issue and does not require
an express, objective articulation of those determinations.”
Interpace Corporation-v. City of Philadelphia, 438 F. 2d
401, 404 (3d Cir. 1971).° In Eisen v. Carlisle & Jacquelin,
52 F. R. D. 253 (S. D. N. Y. 1971),° the Court made ex-
tensive findings of fact in determining that the suit was
maintainable as a class action. However, relying on
Interpace, it noted that its findings were not a “necessary
procedure” in every class action determination. 52 F. R. D.
at 256, n. 1.
In the present case, the District Court, in entering the
August 2, 1976 Order that the actions agreed to be settled
shall be maintained as class actions, made no findings
with respect to the criteria and standards set forth in Rules
8. But see the observation in the majority opinion in Interpace,
supra, 438 F. 2d at 404, in which it was conceded to be “a salutary
practice”, where conflicting positions are given to the District Court
in connection with the class action determination, for there to be
“at least a minimum articulation of the reasons for its decision.”
Cf. the dissent of Judge Adams in Interpace, supra, 438 F. 2d at
404-407
9. Rev'd on other grounds, 479 F. 2d 1005 (2d Cir. 1973), re-
manded with instructions to dismiss the class action as so defined,
417 U. S. 156 (1974).
ee ie Ein a ee ee ee
Fe mr or > em mem moe
Petition for a Writ of Certiorari 15
23 (a) and (b). The District Court merely accepted the
Settlement Agreement arrived at by the parties to the
actions and defined the classes and designated certain rep-
resentatives of each class, just as set forth in the Settle-
ment Agreement (Vol. I, 148a).
In the Memorandum Opinion approving the terms of
the settlement, the basis for the District Court's rejection
of petitioners’ objections as to the inadequacy of represen-
tation of the Debenture Owner Class was grounded on
the view that the settlement did not abridge petitioners’
substantive rights (Al at Al7). This conclusion was
reached despite the fact that the failure of any one of the
requirements of Rule 23 destroys the alleged class action.
Eisen v. Carlisle & Jacquelin, 391 F. 2d 555, 561 (2d Cir.
1968 ); Rutledge v. Electric Hose & Rubber Company, 511
F. 2d 668, 673 (9th Cir. 1975).
Accordingly, the disposition by the District Court of
petitioners’ objections concerning inadequacy of represen-
tation makes evident the dangers of error and abuse that
are encountered where there is a lack of specific finding by
the District Court concerning each essential element of
the class action rule.
By affirming the judgment of the District Court,
despite petitioners’ square attack on the adequacy of rep-
resentation and the presence of multiple and conflicting
interests of the representative parties and their attorneys,
the Court of Appeals approved this practice. The parties
to the settlement were thus allowed “to secure the benefit
of a class action without first satisfying the requirements
for it.” Eisen, supra, 417 U. S. at 177.
Although “Rule 23 speaks to notice as well as to ade-
quacy of representation and requires that both be pro-
vided”, Eisen, supra, 417 U. S. at 176, the District Court’s
Opinion, adopted by the Court of Appeals, erroneously
16 Petition for a Writ of Certiorari
treated a finding that “no substantive rights of debenture
holders are abridged by the settlement” (Al at Al7) as dis-
positive of the issues of inadequacy of representation and
multiple and conflicting interests.
It is well-settled that to be maintainable as a class
action a suit must meet all the requirements of Rule
23(a) and also fall within one of the subsections of 23(b).
Eisen v. Carlisle & Jacquelin, supra, 391 F. 2d at 561
( Eisen I1); West Virginia v. Chas. Pfizer & Co., 440 F. 2d
1079, 1089 (2d Cir. 1971), cert. denied, 404 U. S. 871
(1971).
Although a Court must consider each of the criteria
set forth in Rules 23(a) and (b), since the 1966 revision
particularly careful scrutiny must now be given to Rule
23(a)(4). Eisen II, supra, 391 F. 2d at 562; Gonzales v.
Cassidy, 474 F. 2d 67, 74-75 (5th Cir. 1973); see Hans-
berry v. Lee, 311 U. S. 32, 44 (1940); Kentucky Home
Mut. Life Ins. Co. v. Duling, 190 F. 2d 797, 802 (6th Cir.
1951).
Implicit in the requirements of Rule 23(a) (4) is that
the party seeking to represent the class must himself be a
member of that class. The rationale for this requirement
is that it is unlikely that a non-member of the class will
adequately defend the interests of the class. 7 Wright &
Miller, Federal Practice & Procedure, §1761 at 585
(1972).
This Court has continually held that a litigant must be
a member of the class which he seeks to represent at the
time the class action is certified by the District Court.
Otherwise, he lacks standing to assert the rights of class
members. East Texas Motor Freight System, Inc. v.
Rodriguez, — U. S. —, 45 LW 4524 (May 31, 1977);
Kremens v. Bartley, — U. S. —, 45 LW 4451, 4454, n. 12
(May 16, 1977); Sosna v. Iowa, 419 U. S. 393, 403 (1975);
Schlesinger v. Reservists Committee to Stop the War, 418
* Are Ko a0 UR Re CR ATEOF Te ERT
ieee -
Petition for a Writ of Certiorari 17
U. S. 208, 216 (1974); Rosario v. Rockefeller, 410 U. S.
752, 759, n. 9 (1973); Hall v. Beals, 396 U. S. 45, 49
(1969); Bailey v. Patterson, 369 U. S. 31, 32-33 (1962).
Implicit also, if not in reality explicit, in the require-
ments of Rule 23(a)(4) is that a representative cannot
have interests which might be antagonistic to other mem-
bers of that class. Such antagonism may arise as a result
of differences over economic interests or individual pre-
dilections. The principal relief sought must not be re-
pugnant to the interests of class members. If the relief or
new status accruing to class members as a consequence of
the representative’s actions is not in the interests of class
members, that, too, constitutes noncompliance with Rule
23(a)(4).
Petitioners’ rights to due process were clearly im-
paired by the District Court’s refusal to adhere to the
criteria set forth in Rules 23(a) and (b), and in particular
Rule 23(a)(4). In its Opinion, the District Court con-
cluded that because it believed the settlement was fair and
reasonable, any objections that went to the propriety of the
maintenance of a class action could be rejected. Peti-
tioners’ contentions were thus disposed of in a fashion
which allowed the ends to justify the means.
This case clearly presents an appropriate vehicle for
the Court to enunciate a uniform and salutary standard
that every class action determination must be supported
by specific findings of fact and conclusions of law, which
articulate the reasons for such decision and how each of
the criteria specified by Rules 23(a) and 23(b) have
been met.
In addition, to curb the potential abuses inherent in
class actions agreed to be maintained by parties for pur-
poses of settlement only, thereby preventing the sacrifice
of procedural and substantive fairness, this Court should
mandate that the practice of determining that actions shall
18 Petition for a Writ of Certiorari
be maintained as class actions “for purposes of settlement
only”, after the terms of a settlement had already been
bargained with defendants by plaintiffs, as undesignated
“class representatives”, and their counsel, is not merely
condemned, but permanently outlawed. Cf. Manual for
Complex Litigation (1975) Part I, § 1.40, p. 25 and § 1.46,
pp. 55-58; City of Detroit v. Grinnell Corporation, 495
F. 2d 448, 466 (2d Cir. 1974); Memorandum Opinion of
the District Court, dated November 16, 1976 (A1).
In class actions there is and can be no substitute for
fair and adequate representation, and specific findings
should articulate this. Just as this Court recently, in
Kremens v. Bartley, supra, 45 LW at 4455, thought it not
amiss to remind a district court that it is under obligation
“to ‘stop, look and listen’ before certifying a class in order
to adjudicate constitutional claims,” granting the writ
sought by petitioners will serve as a similar admonition of
the gravity involved in complying with the requirements
of Rule 23(a) before certifying class actions.
II. The Validity of Rules 23(c)(2) and 23(c)(3) in Compell-
ing Non-Parties Described as Plaintiff Class Members
to Perform the Affirmative Act of Opting Out or
Be Bound by the Adjudication of a Court Which
Lacks Personal Jurisdiction Over Them Presents a
Significant Question of Federal Law and Juridical Ad-
ministration Which Should Be Decided by This Court.
By their express terms, Rules 23(c)(2) and 23(c)(3)
make a judgment entered in a class action binding on all
non-party class members except those individuals who take
affirmative action and opt out of the class in accordance
with the provisions of Rule 23(c)(2)(A) and the specific
procedures established by the court in a particular case.
Petitioners contend that these provisions founded
solely upon a rule of court, which forces non-parties de-
Petition for a Writ of Certiorari 19
scribed as class members not otherwise personally subject
to a court’s jurisdiction to perform the affirmative act of
opting out or be bound by the adjudication of a court
which lacks personal jurisdiction over them, is unconsti-
tutional! because it deprives such non-parties of due process
guaranteed by the Fifth Amendment. Rule 82 of the
Federal Rules of Civil Procedure also prohibits the con-
struction of the rules to extend the jurisdiction of the dis-
trict courts.
Although this Court has often considered the juris-
dictional due process claims of non-residents defendants,
see, e.g., Shaffer v. Heitner, supra, 45 LW 4849 (June 24,
1977 ); McGee v. International Life Insurance Company,
355 U. S. 220 (1957); International Shoe Co. v. Washing-
ton, 326 U. S. 310 (1945), neither it nor the lower federal
courts have ever delineated the due process limitation on a
federal court’s personal jurisdiction over an individual or
entity in the position of an involuntary non-party plaintiff
as a result of being a described member of a class in an
action ordered to be maintained as a class action under
Rule 23 of the Federal Rules of Civil Procedure.
Somewhat over ten years ago, the District Court in
School District of Philadelphia v. Harper & Row Pub-
lishers, Inc., 267 F. Supp. 1001. 1005 (E. D. Pa. 1967),
expressed the following comment on the amended scope of
Rule 23:
“Although the new rule gives us no express power
to order a proposed member to join the class—if a
proposed member, over whom we previously had no
personal jurisdiction, simply ignores the notice,
whether by intention or by inadvertence, it becomes,
by inaction alone, a member of the class to be bound
by the judgment. Our ‘invitation’, thus extended, be-
comes, in effect, a ‘command’. Such a radical exten-
20 Petition for a Writ of Certiorari
sion by (sic of) this Court’s jurisdiction by the mere
inaction of a non-appearing, non-resident citizen is, in
our view, unprecedented.”*
By its silence, a proposed class member not only
forfeits its previously unfettered right to choose its
own forum and to initiate its own litigation, but ap-
parently waives any objections it might have concern-
ing the lack of personal jurisdiction and venue of this
Court.
We have some doubt, too, of the propriety of a
rule which extends the binding, substantive effect of a
judgment to absent, but ‘described’, class memhers as
well as to ‘identified’ class members.”
In footnote 14 (267 F. Supp. at 1005), the court
stated:
“Previously, any enlargement of the jurisdiction
and venue powers of the district courts by Congress
has been specifically conferred by statute. The Inter-
pleader Statutes 28 U. S. C. §§ 1335, 2361 and the
recent Habeas Corpus Amendment to 28 U. S. C.
§ 2441 are but several examples.”
There is a body of case law bearing on this question
now raised which casts serious doubt on the validity of the
“opt-out” provisions of Rules 23(c)(2) and 23(c)(3) to
the extent that they are made applicable to involuntary
non-parties described as plaintiff class members over whom
the court previously had no jurisdiction.
Traditionally, a court’s personal jurisdiction has at-
tached to a plaintiff, resident or non-resident, only when
the plaintiff voluntarily submits his claim for adjudication.
Beginning with International Shoe, supra, a case in-
volving a corporation, this Court has consistently adhered
ee ee
Pe A Be ee he pt
Petition for a Writ of Certiorari 21
to the rule that a state court may not exercise personal
jurisdiction over a defendant unless that defendant has
had:
“ _ . [c]ertain minimum contacts with [the] forum
such that the maintenance of the suit does not offend
traditional notions of fair play and substantial justice.”
326 U. S. at 316.
The same rule was followed in McGee v. International
Insurance Company, supra, 355 U. S. at 222.
The rule of International Shoe was extended to in-
dividual defendants in Hanson v. Denckla, 357 U. S. 235
(1958). After specifically noting “. . . [t]here is no
suggestion that the court failed to employ a means of
notice reasonably calculated to inform non-resident de-
fendants of the pending proceeding, or denied them an
opportunity to be heard . . .” (357 U. S. at 245) the
Court held:
“ ___ [The restrictions on the personal jurisdiction of
state courts] are more than a guarantee of immunity
from inconvenient or distant litigation. They are a
consequence of territorial limitations on the power of
the respective States. However minimal the burden
of defending in a foreign tribunal, a defendant may
not be called upon to do so unless he has had the
‘minimal contacts’ with that State that are a pre-
requisite to its exercise of power over him.” 357 U. S.
at 251. [Citation omitied.]
International Shoe, McGee and Hanson all dealt with the
power of state courts under the Fourteenth Amendment.
The lower federal courts have consistently held that
the personal jurisdiction of district courts is limited in the
same manner and to the same extent by the due process
22 Petition for a Writ of Certiorari
clause of the Fifth Amendment. The holdings in these
cases are summarized by the Seventh Circuit in Honey-
well, Inc. v. Metz Apparatewerke, 509 F. 2d 1137 (7th Cir.
1975). After acknowledging that the Supreme Court cases
on “minimum contacts” all related to the jurisdiction of
state courts under the Fourteenth Amendment, the Honey-
well Court held:
“. . « In this litigation, on the other hand, a federally
created right is at issue, and due process is properly
a matter for examination’in light of the Fifth Amend-
ment rather than the Fourteenth Amendment.
That is not to say, however, that the International
Shoe line of cases is irrelevant to our inquiry here.
The due process clause of the Fifth Amendment is
essentially a recognition of the principles of justice
and fundamental fairness in a given set of circum-
stances, Galvan v. Press, 347 U. S. 522, 530, 74 S. Ct.
737, 98 L. Ed. 911 (1954); Aetna Insurance Com-
pany v. Hartshorn, 477 F. 2d 97, 100 (5th Cir. 1973),
and, so viewed, on the facts of this case, we can per-
ceive no operative difference between the concept of
due process as applied to the states and as applied to
the federal government. This and other courts have
reached this result, explicitly or tacitly, and have ap-
plied the ‘minimum contacts’ standard to fedaral ques-
tion cases in which in personam jurisdiction was at
issue, and we deem it appropriate to do so here... .”
509 F. 2d at 1143. [Footnote and citations omitted. ]
Under the line of cases represented by Honeywell, the due
process clause of the Fifth Amendment prohibits a non-
resident defendant from being compelled to adjudicate his
rights in a district court in an action arising under federal
law unless he has had “minimum contacts” with the forum.
PRIN. ad IPO OE OE Ir
Petition for a Writ of Certiorari 23
Most recently, this Court in Shaffer v. Heitner, supra,
45 LW 4849 (June 24, 1977), declared the State of Dela-
ware’s assertion of jurisdiction over non-residents by a
sequestration order, based solely on the statutory presence
of securities in Delaware, was violative of due process, be-
cause that clause “does not contemplate that a state may
make binding a judgment . . . against an individual or cor-
porate defendant with which the state has no contacts, or
relations.” International Shoe, supra, 326 U. S. at 319.
By acquiring securities of a Delaware corporation, this
Court held that the defendants did not “surrender their
right to be brought to judgment only in states with which
they had ‘minimum contacts’.” Id., 45 LW at 4857.
Mr. Justice Stevens, concurring in the judgment,
noted:
“One who purchases shares of stock on the open
market can hardly be expected to know that he has
thereby become subject to suit in a forum remote
from his residence and unrelated to the transaction.”
Id., 45 LW at 4858.
The compulsion of Rules 23(c)(2) and (3) on non-
parties described as plaintiff class members, who had pur-
chased convertible debentures on the open market, to per-
form the affirmative act of opting out or be bound in a
class action settlement by the adjudication of a court which
lacks personal jurisdiction over them, is quite analogous to
the impermissible “surrender” of rights held by this Court
to be inconsistent with due process in the Shaffer case,
and, it is contended, equally impermissible constitutionally.
This compulsion of Rule 23 can also not be justified
on the basis of the minimal effort normally required to
“opt out” of a class. Hanson v. Denckla, supra, clearly
holds that no burden, no matter how minimal, can be con-
stitutionally imposed by a state court which lacks a con-
stitutional basis for asserting personal jurisdiction over a
24 Petition for a Writ of Certiorari
citizen. Based on Honeywell, supra, and the decisions
consistent with it, the same rule should be equally applica-
ble to district courts to strike down the coercive effect of
Rules 23(c)(2) and 23(c)(3) on objecting non-parties
who are described as plaintiff class members.
In addition to this contended inconsistency with the
Fifth Amendment, petitioners also submit that the effect
of Rules 23(c)(2) and 23(c)(3) represents an invalid ex-
pansion of the personal jurisdiction of district courts, con-
trary to the express provisions of the Rules Enabling Act
and Rule 82. To the extent this Court’s decisions in Mis-
sissippi Pub. Corporation v. Murphree, 326 U. S. 438
(1946), and Snyder v. Harris, 394 U.S. 332 (1969), appear
to have language contrary to these contentions concerning
the Rules Enabling Act and Rule 82, those expressions
should be reconsidered and declared inapplicable to the
present context. There is nothing in the Rules Enabling
Act or Rule 82 or their respective histories which indicates
that their proscriptions should be construed as being solely
limited to subject matter jurisdiction. Facially, both the
statute and the rule appear equally applicable to personal
jurisdiction and both appear to prohibit expansion of that
jurisdiction as is purported to be accomplished by Rule 23.
III. The Class Action Settlement Approved by the Courts
Below Misused the “Opt Out” Provisions of Rule 23
to Foreclose the Rights of Objecting and Silent Con-
vertible Debenture Owners Who by Their Debenture
Contracts Were Not Required Affirmatively to Re-
quest Exclusion to Protect Against Loss of Their
Rights to Convert Into Common Stock. If Not Va-
cated, This Decision Will Be A Serious Threat to the
Entire National Market for Convertible Debentures.
Since adoption in 1966 of amended Rule 23, there
has been a running controversy on the “opt out” reguire-
ee ae
Petition for a Writ of Certiorari 25
ments adopted in Rule 23, in contrast to “opt in.” Com-
pare Report of the Commission on Federal Courts of the
Association of the Bar of the City of New York, Class
Actions—Recommendations Regarding Absent Class Mem-
bers and Proposed Opt-In Requirements, 25 Record of
N. Y. C. B. A. 897 (1973), with the Report and Recom-
mendations of the American College of Trial Lawyers
Special Committee on Rule 23, pp. 31-34 (March 15,
1972)."
Stated in the terms of the Debentures involved in
this litigation, each of which is deemed to be a contract
made under and for all purposes to be construed in ac-
cordance with the laws of the State of New York, as pro-
vided in Sec. 16.09 of the Indenture pursuant to which
these Debentures were issued (Vol. II, 467a at 576a), is
the provision that:
«<<
. no... supplemental indenture shall . . . alter
or fenpals the right to convert the same into shares
of common stock at the rates and upon the terms
provided in the Indenture without the consent of the
holder of each Debenture so affected...” (Vol. II,
467a at 483a-484a ).
Petitioners’ contentions in the courts below included
the position that their Debenture contract prevented the
alteration or impairment of their separate and several con-
tracts rights to convert into common stock, without the
individual written consent of each holder. Therefore the
class action settlement could only bind those holders who
affirmatively opted in and could not bind those who did
not respond. As a result in the event of a merger, the
Debenture owners could not be forced to accept the
10. These reports appear in Current Problems in Federal Civil
Practice, (P. L. I. 1975) pp. 461-521.
26 Petition for a Writ of Certiorari
altered right to convert into money, instead of common
stock. Of course, because the Debentures were redeem-
able, Indian Head or any successor could redeem the De-
bentures. The District Court, however, interpreted the
Debenture contract and the Indenture as authorizing such
conversion alteration in the event of a merger (Al at
Al15-17).
The construction and interpretation of the nature of
the contract rights created by the Debentures is governed
by state law, that of New York, as specified in the Inden-
ture. The creditors of a corporation (the Debentures hav-
ing creditor status ), merged under the laws of Delaware,
become creditors of the corporation into which it has
been merged, with all rights unimpaired, and all liabilities
and duties of the merged constituent corporation become
attached to the surviving or resulting corporation. Sec.
259, Delaware General Corporation Law (A55). In
addition, this section of the Delaware statute provides that
such liabilities and obligations may be enforced against
the surviving or resulting corporation to the same extent
as if the liabilities have been incurred or contracted by
the surviving or resulting corporation. Thus, the creditors
of a merged constituent corporation under Delaware law
are automatically protected. See Folk, The Delaware
General Corporation Law—A Commentary and Analysis
( Little, Brown, 1972) Section 259/ 365-368.
In Santa Fe Industries, Inc. v. Green, — U. S. —, 45
LW 4317 (March 23, 1977), this Court held that in a
short-form statutory merger under Delaware law, the
policies and interests of the state forum are paramount,
and an expansion by federal judicial construction making
Sec. 10(b) and Rule 10b-5 of the Securities Exchange Act
of 1934 applicable is impermissible.
Therefore, petitioners contend, the settlement and
consummation of the merger with its concomitant de-
Petition for a Writ of Certiorari 27
struction of the rights to convert into common stock in-
fringed the Delaware statutory provision contained in
Sec. 259 of its General Corporation Law. All the sub-
stantive state-created rights of the Debenture owners were
not preserved unimpaired. See Van Gemert v. The Boeing
Co., 520 F. 2d 1373, 1382, n. 19 (2d Cir. 1975), cert.
denied, 423 U. S. 949 (1975); Kusner v. First Pennsylvania
Corporation, 531 F. 2d 1234, 1238 (3d Cir. 1976).
The class action settlement procedure approved by
the courts below perverted and misused the “opt out” pro-
visions of Rules 23(c)(2) and 23(c)(3) to foreclose the
rights of objecting and silent Debenture owners who by
their Debenture contracts were not required affirmatively
to request exclusion to protect against loss of their rights
to convert into common stock.
Petitioners contend that by the nature of their con-
tract, as well as by their not having been previously sub-
ject to the personal jurisdiction of the Court, they had the
right to be let alone, and the right to remain unclassified,
in the absence of some voluntary expression of choice.
See M. Frankel, Amended Rule 23 From a Judge's Point of
View, 32 A. B. A. Antitrust L. J. 295, 300 (1966).
As a further device to effect the foreclosure of rights
of objecting and silent debenture owners, the court-
approved settlement and merger authorized the issuance,
as part of the judgment (A42 at A48-49), of a permanent
injunction against all class members ‘rom prosecuting any
claims arising out of or relating to the matters set forth in
the complaints of the settled actions, including any claim
related to consummation of the merger, other than a pro-
ceeding for appraisal under Delaware law.
This permanent injunction was issued without prior
adequate notice, and without a trial on the merits, although
a permanent injunction can properly be issued only after a
28 Petition for a Writ of Certiorari
right thereto has been established at a trial on the merits.
11 Wright and Miller, Federal Practice and Procedure,
§ 2941 at 361 (1973); Capital City Gas Company v. Phillips
Petroleum Company, 373 F. 2d 128, 131 (2d Cir. 1967).
Yet the hearing on approval of the class action settlement
and merger was not a trial on the merits. City of Detroit
v. Grinnell Corporation, supra, 495 F. 2d at 456; Saylor v.
Lindsley, 456 F. 2d 896, 904 (2d Cir. 1972). In addition,
at the hearing on the settlement, no evidence was intro-
duced by the proponents of the compromise to establish
lack of adequacy of another remedy or any irreparable loss
or damage necessary to support the grant of this permanent
injunction. 7 Moore's Federal Practice { 65.18[3] at 65-
135-136 (1975). This permanent injunction made a nullity
of the provision in the Indenture pursuant to which the
Debentures were issued, which specifically provided in
Sec. 8.09:
“Anything in this Indenture to the contrary not-
withstanding, the holder of any Debenture without
reference to or the consent of either the Trustee or the
holder of any other Debenture, in his own behalf and
for his own benefit, may enforce, and may institute
and maintain any proceedings suitable to enforce, his
right to convert his Debenture into shares of Common
Stock as provided in Article Five.” (Vol. II, 467a at
537a )
The ultimate effect of the judgment and order of the
courts below, if not vacated, threatens to open the door to
and enable the forced elimination and destruction of the
right to convert into common stock of literally billions of
dollars of outstanding convertible debentures in the United
States.
Issuers and their controlling persons, through the
device of a statutory merger without the consent of con-
ee .
Petition for a Writ of Certiorari 29
vertible debenture owners, utilizing the mechanism of
settlement under Rule 23, with its “opt out” provisions
contained in Rules 23(c)(2) and 23(c)(3), can achieve
this result at discount prices below the face amount of the
debentures. The device utilized and approved by the
decisions below works a practical destruction of the under-
lying basis for convertible debenture purchases. If this
misuse of Rule 23, by the route of settlement and statutory
merger, is not vacated, the future underwriting and issu-
ance of convertible debentures in the capital markets of
the country by issuers whose common stock is expected to
rise, may well, for all practical purposes, be foreclosed.
No reasonable investor, who is made aware that his con-
version rights into common stock might thus be eliminated,
would purchase such securities. The continued sale of
convertible securities without specific advance warning
and notice of the eventuality of potential conversion right
destruction can work a major deceit on the investing
public.
30 Petition for a Writ of Certiorari
CONCLUSION.
For the foregoing reasons, petitioners submit that:
1. The judgment and order approving the settlement
and merger should be vacated in entirety, with instructions
to dissolve the order granting the permanent injunction
contained therein.
2. This case should be remanded to the District Court
with such appropriate directions as will prohibit alteration
or impairment of the conversion rights into common stock
of all Debentures owned by petitioners and other owners
thereof without the affirmative consent of each Debenture
owner affected.
Respectfully submitted,
Epwin P. Rome,
WILLIAM E. TaAyLor,
JEANNE P. WROBLESKI,
1100 Four Penn Center Plaza
Philadelphia, PA 19103
Tel. (215) 569-3700
Attorneys for Petitioners.
Of Counsel:
BLANK, Rome, Kiaus & Comisky,
1100 Four Penn Center Plaza,
Philadelphia, PA 19103
Morton P. Rome,
204 Kent Road,
Wyncote, PA 19095
Bruce A. HECKER,
IrnA POSTEL,
SHEA, GouLp, CLIMENKO & CASEY,
330 Madison Avenue,
New York, NY 10017
Dated: July 29, 1977
os ne = eee ew ee enone:
ee nse premntnne +--+ ree -o oe
APPENDIX A.
Memorandum Opinion #45364.
(Filed November 16, 1976)
UNITED STATES DISTRICT COURT
SOUTHERN District OF NEw YORK
74 Civ. 5755
EDWARD BRUCKER and DANIEL R. KAPLAN, as
Trustees under the Trust Agreement dated Novem-
ber 15, 1968, made by WILTRUD E. GADBOYS, as
Grantor, CECIL G. HUSKEY, W. T. STRATTON
and NORTE & CO., a partnership composed of
JOSEPH C. GALDI and RITA D. GALDI,
Plaintiffs,
—against—
THYSSEN-BORNEMISZA EUROPE N. V., THYSSEN-
BORNEMISZA, INC., THYSSEN-BORNEMISZA
HOLDINGS, INC., MARINE MIDLAND BANK,
INDIAN HEAD, INC., JAMES G. FERGUSON,
JAMES M. FLACK, ANDREW KALMAN, PAUL W.
McALISTER, JOHN E. OSULLIVAN, RICHARD
J. POWERS, JAMES E. ROBISON, ROBERT M.
SCHWARZENBACH, MARSHALL F. SMITH,
HERBERT E. BACHRACH, GERARD B. HUIS-
KAMP, WHITE, WELD & CO., INCORPORATED,
L. EMERY KATZENBACH, H. H. THYSSEN-
BORNEMISZA, R. L. GENILLARD and CHEMI-
CAL BANK,
Defendants.
(Al)
A2 Appendix A
75 Civ. 229
WILLIAM B. WEINBERGER,
Plaintiff,
—against—
RICHARD J. POWERS, JAMES M. FLACK, ANDREW
KALMAN, PAUL W. McALLISTER, JOHN E.
O’SULLIVAN, JAMES E. ROBISON, ROBERT M.
SCHWARZENBACH, MARSHALL F. SMITH,
JAMES G. FERGUSON, THYSSEN-BORNEMISZA,
INC. and INDIAN HEAD, INC.,
Defendants.
75 Civ. 1736
SHAMROCK CORPORATION, individually and on be-
half of all holders of Common Stock and Warrants
of Indian Head, Inc., similarly situated,
Plaintiffs,
—against—
INDIAN HEAD, INC.. THYSSEN-BORNEMISZA
GROUP N. V., THYSSEN-BORNEMISZA, INC.,
WHITE, WELD & CO: INCORPORATED, et al.,
Defendants.
Memorandum.
STEWART, District Judge:
Before the Court is an application pursuant to Rule
23 of the Federal Rules of Civil Procedure for approval
of a proposed settlement. Counsel for both plaintiffs and
defendants have submitted -well documented papers in
Appendix A A3
support of the proposed settlement. Objectors have pre-
sented papers in response, and have been heard at hear-
ings before this Court on October 13 and 18, 1976. Upon
a detailed review of the arguments and documents sub-
mitted by all parties, it is the Court’s conclusion that the
settlement is fair and reasonable and should be approved.
Indian Head is a diversified American company which
in 1973 had approximately 5,425,000 shares of common
stock outstanding.’ The common stock was listed on the
New York Stock Exchange. Warrants were issued and
outstanding pursuant to a 1965 agreement, and were
listed on the American Stock Exchange.’* $25,000,000 of
5%% convertible subordinated debentures due April 15,
1993 (in denominations of $1,000), were also issued and
outstanding subject to the terms and conditions of an In-
denture dated April 15, 1968, between Indian Head and
Marine Midland Grace and Trust Company of New York
as Trustees [“Indenture”}.
Thyssen-Bornemisza Europe, N. V. [“TBE”] is an in-
ternational industrial holding company with headquarters
in the Netherlands. In September, 1973, pursuant to a
Memorandum of Understanding between TBE and Indian
Head,? TBE made a tender offer at $27 a share, and
1. It also had 649,000 shares reserved for issuance to the con-
vertible debenture holders pursuant to their conversion rights, and
111,667 shares reserved for the conversion of preferred shares.
1A. “Each Warrant is issued Poe to the Warrant Agree-
ment with the Chemical Bank of New York as Warrant Agent
(“CuemicaL” ), and entitles the holders through May 15, 1990 to
purchase one share of common stock, or an aggregate of 400,000
shares, at the following exercise prices: $20 per share if exercised
before the close of business on May 15, 1970; $25 per share to May
15, 1975; $30 per share to May 15, 1980; $35 per share to May 15,
1985; and $40 per share to May 14, 1990;” Plaintiffs’ affidavit p. 23.
2. Indian Head agreed in the Memorandum of Understanding
to 1) sell TBE 750,000 shares of Indian Head's authorized but un-
issued common stock at $27 per share; 2) ate with TBE in
the first tender offer; 3) elect to the Indian Head Board of Directors
A4 Appendix A
acquired approximately 33.9% of the common stock;°
although initially it had offered to buy only between 26%
and 32%.
Prior to the tender offer, the New York Stock Ex-
change had indicated to Indian Head and TBE that owner-
ship by TBE of over 32% would probably result in delisting
the common stock. This information was included in the
statutory notice to shareholders.‘ In paragraph 9 of this
same notice to shareholders, TBE disclaimed any present
intention to acquire control of Indian Head.
2. (Cont’d.)
Huiskamp (Chairman of TBE’s Board of Management) and
Bachrach ( a member of TBE’s Board of Management and director
of its Corporate Planning and Development), and to make one a
member of the Executive Committee and one a member of the
Finance Committee. TBE a to buy from the Directors of
Indian Head up to 50,000 of their shares, and to name Robison
Ace Head's former president) to the TBE Supervisory Board
which makes TBE policy), if the tender offer succeeded.
3. TBE’s initial offer was to hase from the public between
750,000 and 1,100,000 shares of common stock, be addition to
750,000 to nad ue ng directly from Indian Head's authorized but
unissued st This would have given them 26% to 32% of the
stock. At the expiration of the offer 1,213,619 shares had been
tendered, and ye this was slightly in excess of the number of
shares TBE sought, TBE states that it agreed to purchase all shares
tendered in order not to disappoint the cendindan stockholders
( Defendants _Joint Memorandum in Support of Proposed Settle-
ment, p. 3) [“Defendants’ Memorandum in Support”).
4. “. . . if the ownership by TBG (later changed to TBE) of
Indian Head common stock should arise above 32% (30%, if 30% or
less is purchased _— to this offer and the agreement referred
to above) such additional ownership might ultimately result in the
delisting of Indian Head common stock from the Exchange. TBG
has expressed to Indian Head its commitment that it will consult
with Indian Head before taking any action, other than the trans-
actions described in this offer, which would increase TBG’s owner-
ship of Indian Head common stock beyond 30% of the outstandin
shares. Delisting could also result if the number of persons hold-
ing at least 100 shares of Indian Head common stock (approxi-
mately 4,000 at the present time) should fall below 1,200.” (Plain-
ad be in support of settlement, Exhibit 24, { 13) [“Plaintiffs’
its”].
Appendix A A5
Except to the extent described above, it is not the
present intention of TBE to attempt to acquire control
of Indian Head by means of these transactions, nor in
its capacity as a major stockholder of Indian Head
does TBE now have or intend to develop plans or
proposals to liquidate Indian Head, to sell its assets
or to merge it with any other person or to make any
change in its business, management or corporate
structure. TBE does intend to vote its shares in a
manner which is intended to benefit all of the stock-
holders of Indian Head, including TBE. ( Plaintiffs’
Exhibit 24. )
Indian Head’s management made no recommendation
to its shareholders with respect to this first tender offer—
though it did state in the notice that it cooperated with
TBE in making the offer (it made available a list of share-
holders ).
No notice of this first tender offer or of the possible
delisting of the common stock was sent to the debenture
holders, warrant holders or preferred share holders. How-
ever, the 1973 Annual Report did refer to the tender offer
and the resulting acquisition of the stock.
In July, 1974, TBE made a second tender offer to buy
all remaining Indian Head common stock, (again at $27 a
share ), and all outstanding warrants at $2.25 per warrant.
This second tender offer was financed by a $50,000,000
long-term revolving credit agreement with the Chase
Manhattan Bank, N. A. and fourteen other banks located
outside the United States. Plaintiffs claim that these
financial arrangements were made just nine weeks after
the first tender offer (although the second tender offer was
not to take place for 7 more months), and thus supports
an inference that TBE’s statement ‘in its first tender offer
that it did not intend to liquidate Indian Head, sell it, or
AG Appendix A
merge it, was false and misleading. The defendants dis-
pute this claim.
The notice to shareholders of the second tender offer
disclosed, among other things: the financing arrangements
for the offer ( Plaintiffs’ Exhibit 45, § 11); the fact that
Indian Head's Board of Directors and management made
no recommendation, although they had cooperated with
TBG (later changed to TBE) (Id. § 12); the number of
shares each member of the Indian Head Board was going
to tender or retain (Id.); the fact that as a result of the
1974 tender offer the common stock might no longer meet
the requirements of the New York Stock Exchange for
continued listing and the Exchange might delist the shares
(Id. { 13); that TBG intended to acquire control of Indian
Head, but did not have any present plans to sell its assets
or merge. The notice also stated:
TBG expects to purchase a substantial majority of the
common stock as a result of this offer and thereby
acquire control of the Company. TBG believes the
Company to be well managed and to present an at-
tractive long-term investment opportunity. TBG
presently does not have any plans or proposals to
make any major changes in the Board of Directors,
management, corporate structure, operating policies
or business of the Company or to suggest its liquida-
tion, the sale of its assets or a merger with any other
person. However, it reserves the right to make
changes in the future should it determine that the
best interests of the Company and its stockholders are
served thereby. (Id. § 9).
No copy of this notice was sent to the registered con-
vertible debenture owners.
As a result of this second tender offer, TBE’s total
ownership of common stock increased to approximately
Appendix A A7
90.6%. They also obtained about 8% of the outstanding
warrants. Shortly after the tender offer, the New York
Stock Exchange delisted Indian Head’s common stock and
convertible debentures, and thereafter they were traded
over the counter.
The three class action lawsuits involved in this settle-
ment were brought, as a result of these two tender offers,
against TBE, Indian Head, TBI,° Marine Midland, Trus-
tee for the Debentures, Chemical Bank, warrant agent,
White, Weld & Co., Inc., Indian Head’s investment ad-
visor, and various individual defendants who are or were
officers and directors of Indian Head. The Complaints in
all three actions alleged violations of the Williams Act
§ 14(d) and (e) * and § 10b of the Securities Act of 1934 *
and Rule 10b-5 promulgated thereunder. The convertible
debenture owners claim that the failure to send them notice
was a violation of the Act and that this prevented them
from favorably exercising their conversion rights. They
also claim that TBE’s acquisition of control constituted a
constructive merger in violation of the Indenture. The
warrant owners claim the tender offers were false and mis-
leading. Both the Brucker and Shamrock Complaints also
allege a common law breach of fiduciary obligations.
The defendants moved either for dismissal of the Com-
plaints or for summary judgment, and the plaintiffs cross-
5. A Maryland corporation which is a wholly-owned subsidi
of TBE, formed for the express purpose of acquiring Indian Head's
stock and warrants.
6. Edward Brucker, et al. v. Thyssen-Bornemisza Europe,
N. V., et al., 74 Civ. 5755 [“Brucker”] and William Weinberger v.
Powers, et al., 75 Civ. 229 [“Weinberger”] were originally brought
on behalf of convertible debenture owners of Indian Head. Sham-
rock Corporation v. Indian Head, et al., 75 Civ. 1736 [“Shamrock”]
was brought on behalf of all holders of common stock and warrants
of Indian Head.
7. 15 U. S. C. 78n et seq.
8. 15 U. S. C. 78j(b).
A8 Appendix A
moved for summary judgment. These motions were sub
judice on February 12, 1976, when TBE announced a pro-
posed “short-form” merger * of Indian Head into a TBE
affiliate which was to take place on March 19, 1976."°
The Brucker plaintiffs moved to enjoin the merger
through an amended class action complaint,"’ which was
filed on behalf of all owners of warrants and common
stock, as well as the debenture holders previously repre-
sented. On March 4, at the opening of the preliminary
injunction hearing, the defendants announced that they
were withdrawing the merger plan.
Subsequent to the announcement of the proposed
merger, but prior to its withdrawal, the Court of Appeals
for the Second Circuit issued opinions in Marshel v. AWF
Fabric, 533 F. 2d 1277 (2d Cir.), vacated, 45 U. S. L. W.
3272 (Oct. 12, 1976), and Green v. Santa Fe Industries,
Inc., 533 F. 2d 1283 (2d Cir. ), cert. granted, 45 U. S. L. W.
3220 (Oct. 5, 1976), which considerably changed the law
as to short-form mergers, and left many questions for
future litigation. This uncertainty in the law led defend-
ants to withdraw their merger proposal, and to negotiate
with the plaintiffs, Transcript, First Settlement Hearing
on October 13, 1976, at 22 [“Ist Tr.”].
A Stipulation and Agreement of Settlement was
reached and signed by all the parties in late July. The
9. Under § 253 of the Delaware Corporation Law.
10. Under the proposed merger, the common shareholders
would be paid $30 cash per share (compared to the $27 price of
the tender offers ), the convertible debentures could be surrendered
for $779.22 cash, the conversion value at $30 per share (compared
to the $701.30 tender offer conversion value) or held until maturity
earning the regular interest payments but without the right to con-
vert. The warrant owners were to receive nothing.
11. The amended complaint claimed that the merger plan con-
stituted a = pn ee and thus the debenture holders were entitled
oo the redemption price, rather than the conversion price of
Appendix A A9
Court then ordered, among other things, that the three
actions should be maintained as class actions for purposes
of settlement only, that a settlement hearing be held on
October 13, and that a notice of this hearing and of the
settlement terms be sent to all the members of the various
classes, so that those who wanted to be excluded could
opt out, and those who wanted to object could do so.
Two objectors appeared at the settlement hearings,
Morton P. and Marjorie T. Rome, trustees of a trust which
owns 25 debentures, and Morris Shuldenrein,’* owner of
7,500 warrants. Since most of the Romes’ objections go to
the scope of the settlement, and not its actual terms, we
will defer discussion of their objections for the moment,
and first discuss the fairness of the actual terms of the
settlement.
The settlement agreement provides for the merger of
Indian Head into a subsidiary of Thyssen-Bornemisza, Inc.,
[“TBI’]. Under the terms of the 32 million dollar settle-
ment, the common stockholders will receive $32 a share
upon the merger. The owners of the 54% convertible sub-
ordinated debentures due in 1993,’* have a number of
options: 1) hold on to the debentures and collect the in-
terest until 1993, at which time they can collect the $1000,
2) convert now at $32.50 a share, and receive $844.16 per
$1000 debenture,"* or 3) convert any time between the
merger and 1993 and receive $32 per share (or $831.17
per $1000 debenture), a fixed cash sum. In addition,
12. Although Mr. Shuldenrein did not properly file his objec-
tion, the Feat heard his statement, and has considered his ob-
jection.
13. The convertible debentures are issued in face amounts of
$1000 or integral multiples thereof, and are convertible into 25.974
shares of common stock per $1000 in principle amount.
14. This applies only to debenture owners who were owners on
August 2, 1976 and who still own on the date of the merger.
15. As is apparent, those debenture holders who convert as
part of the s maeat will receive $.50 more per share than those
Al0 Appendix A
former owners of Indian Head convertible debentures who
held them on September 27, 1973,"* and sold on or before
July 1, 1974,” will receive up to $50 per debenture.
Former owners of debentures who held them on July 2,
1974 and sold between July 12, 1974** and August 2,
1976,” will receive up to $100 per debenture, the exact
amount determined by the sales price.
As to the warrant holders, those who have owned war-
rants continuously from July 12, 1974 to the date of the
merger will receive $4.00 per warrant. As to the warrant
holders who have not owned their warrants continuously:
owners on August 2, 1976, who still own on the date of the
merger will receive $2.50 per warrant; owners of warrants
on July 2, 1974, who sold their warrants between July 12,
1974, and August 2, 1976, will receive $1.50 per warrant.
There will be no payment for any warrant sold between
August 1, 1973, and July 1, 1974. In addition to the
above amounts, TBI will pay all the expenses of adminis-
tering the settlement and will pay up to $600,000 for
counsel fees and expenses as awarded by the Court.
Plaintiffs’ attorneys agree to accept an award not to exceed
$600,000.
15. (Cont'd. )
who convert later. The difference is due to the fact that the Inden-
ture requires the debenture holder to receive what the common
stockholders receive (here, $32 a share) in the case of a merger.
od rp Second Settlement Hearing on October 18, 1976, p. 68
r. J}.
16. Date of the first tender offer.
17. On July 1, 1974, Indian Head requested i
ae Lae its stock. Trading was supentied from July cat Ful
18. July 12, 1974, was the date of the second tender offer.
19. August 2, 1976, is the date the Order in the instant case
signed.
was
Appendix A All
The general principles which guide the Court in
assessing the fairness, reasonableness and adequacy of a
class action settlement are clear.
... the role of a court in passing upon the propriety
of the settlement of a. . . class action is a delicate
one . . . since ‘[t]he very purpose of a compromise is
to avoid the trial of sharply disputed issues and to
dispense with wasteful litigation, the court must not
turn the settlement hearing ‘into a trial or a rehearsal
of the trial.’ Rather . . . it must reach ‘an intelligent
and objective opinion of the probabilities of ultimate
success should the claim be litigated’ and ‘form an
educated estimate of the complexity, expense, and
likely duration of such litigation . . . and all other
factors relevant to a full and fair assessment of the
wisdom of the proposed compromise. Newman v.
Stein, 464 F. 2d 689, 691-92 (2d Cir.), cert. den., 409
U. S. 1039 (1972); (citations omitted).
Levin v. Mississippi River Corp., 59 F. R. D. 353, 361
(S. D. N. Y. 1973). Some of the factors considered “rele-
vant to a full and fair assessment” of the proposed settle-
ment by the District Court, and approved by the Court of
Appeals in City of Detroit v. Grinnell Corporation, 495
F. 2d 448, 463 (2d Cir. 1972), were: 1) the complexity,
expense and likely duration of the litigation; 2) the reac-
tion of the class to the settlement; 3) the stage of the pro-
ceedings and the amount of the discovery completed;
4) the risks of establishing liability; 5) the risks of estab-
lishing damages; 6) the risks of maintaining the class
action through the trial; 7) the ability of the defendants
to withstand a greater judgment; 8) the range of reason-
ableness of the settlement fund in light of the best possible
recovery; 9) the range of reasonableness of the settlement
Al2 Appendix A
fund to a possible recovery in light of all the attendant
risks of litigation. At the heart of the analysis the Court
must evaluate the strength of the plaintiffs’ case, consid-
ering both the likelihood of establishing liability and the
consequent probable reward in damages. It must con-
sider these factors in light of the terms of the settlement.
In the instant case, there are complicated questions
of law on both the issues of liability and damages. While
the role of a Court in determining the fairness of a settle-
ment is not to decide these issues, the Court should, and
here does, take note of the fact that these complex ques-
tions of law are unresolved, thus making this case an
appropriate one for settlement. One of the primary unre-
solved legal questions involves the interpretation and ap-
plication of Marshel, supra, Green, supra, and Merit v.
Libby, McNeill and Libby, 533 F. 2d 1310 (2d Cir. 1976)
to the attempted short-form merger in this case, particu-
larly in light of the fact that the Indian Head merger is
distinguishable on its facts from each of the above cases.
Thus the Court does not agree with the objectors’ assertion
that a liability is clear with respect to issues arising from
the short-form merger. This case also presents complex
legal and factual questions on a variety of other issues,
among them: whether or not the 1973 and 1974 tender
offers were false and misleading in failing to disclose that
TBE would merge Indian Head into an affiliate: whether
or not under Van Gemert v. Boeing, 520 F. 2d 1373 (2d
Cir.), cert. den., 423 U. S. 947 (1975), Indian Head was
obligated to send notice of the tender offers to the regis-
tered debenture owners.
In determining the reasonableness of the amount of
the settlement in relation to the amount of a possible re-
covery after trial, the Court has considered the expert
opinions submitted to the Court by Martin Whitman of
Appendix A Al3
M. J. Whitman & Co., and Robert Winston, of Winston
Perry Financial Corporation, the evaluation by counsel,
and the cost of litigating the aforementioned legal issues.
The Court has also noted the favorable reaction of the
classes to the settlement.” In light of these factors, we
find the settlement fair and reasonable.”
The Romes raise a number of objections to the pro-
posed settlement; most of them going to the scope of the
settlement, and not the fairness of its terms. First they
object to the designation of the suits as class actions for
purposes of settlement only, on the grounds that this is
unauthorized by Rule 23 and is violative of the provisions
of the Manual for Complex Litigation, which advises
against “a tentative determination of a class action request
for the purpose of settlement.” * The Second Circuit has
stated in Grinnell, supra, that the Manual recommenda-
tions “were not meant to be intractable rules,” and that
the major concern of the Manual may be satisfied where,
as here, the settlement provides “for notice of a hearing
20. The plaintiff wrote in his. affidavit in support of the pro-
posed settlement, that:
Out of $14,295,000 convertible debentures, the owners of
$1,240,000 communicated with us. The owners of $1,212,000
(including L. F. Rothschild & Co.) indicated acceptance, the
owners of $27,000 opted out (not including $25,000 of the
Rome objectants referred to hereafter). The owner of $1,000
said she would not sell a $1,000 bond for $844.16. [The ac-
ceptance of an additional $172,000 was noted at the hearing,
Ist Tr. at 18.]
Out of 585,386 shares of publicly held common stock, the
owners of 4,851 shares communicated with us, with the owners
of 701 shares indicating acceptance, the owners of 3,271 shares
opting out, and one owner of 1,050 shares objecting.
Out of 349,467 publicly held warrants, the owners of 9,070
communicated with us, all of whom indicated acceptance.
[Plaintiffs affidavit at 9-10].
91. Thus we find no merit in Mr. Shuldenrein’s claim.
22. Manual for Complex Litigation § 1.40 (1975).
Al4 Appendix A
and an opportunity to challenge the fairness or any other
aspect of the proposed settlement,” Grinnell, 495 F. 2d
at 466. In addition, Grinnell stated that the Manual’s ob-
jectives may be satisfied where, as here, the settlement was
not negotiated in the early stages of the dispute, but rather
after the parties had engaged in considerable litigation and
were able to assess the risks of success, and where, as here,
there were not different counsel vying to be class repre-
sentatives before the settlement agreement was reached
and publicized, thus not presenting a situation such as in
Ace Heating and Plumbing Co. v. Crane Co., 453 F. 2d 30
(3d Cir. 1971). Therefore, the designation of these ac-
tions as class actions for purposes of settlement only was
proper in this case.
The objectors also claim that there is an abuse of the
use of Rule 23 as it is applied in this case to the converti-
ble debenture holders. They note that the Rules Enabling
Act ** under which the Federal Rules of Civil Procedure
were promulgated, specifically provided that the Rules
should not abridge or modify any substantive rights. The
abuse to which the objectors point is the proposed settle-
ment, which they contend will abridge the substantive
conversion rights of the debenture holders. We do not
agree that the settlement abridges any substantive rights
of the debenture holders (see pp. 16-18 infra). Further,
we find that the Rule 23 procedures were properly fol-
lowed. Full notice was given to all members of the
classes, and their rights to appear and object, or to opt
out, were fully explained. Thus the Rule 23 procedures
have protected the substantive rights of the individual
debenture holders.
The Romes also challenge the adequacy of the notice
of the proposed settlement. The notice complied with
23. 28 U. S. C. 2074, as amended November 6, 1966, Pub. L.
89-773, § 1, 80 Stat. 1323.
<7 Oo
— =,
Appendix A Al5
23(c)(2) and clearly advised the class members of the
nature of the pending action and the general terms of the
settlement, and indicated where more detailed informa-
tion was obtainable and where objections could be heard.
All material facts were included.
Many of the Romes’ objections arise out of an asser-
tion that the Indenture prevents any class action settle-
ment involving debenture owners, as the Court can in no
way alter “. . . the creditors [debenture holders] . . . sepa-
rate and several contract rights . . .” * without the indi-
vidual written consent of each holder. They claim that
the setthment can only bind those holders who affirma-
tively opt in and cannot bind those who do not respond.
They also claim that the Indenture agreement prevents a
forced conversion into money in the event of a merger,
and requires either that Indian Head redeem the deben-
tures * or that Indian Head respect the absolute right to
convert into common stock.
An analysis of these arguments requires an interpre-
tation of the Indenture agreement, particularly Sections
5.06, 12.02, 13.01, and 13.02 (Articles 5, 12 and 13 of the
Indenture are set out in Appendix A). Objectors argue
that § 12.02, which provides for approval by two-thirds of
the outstanding debentures when the issuer wishes to
change or modify the Indenture itself, and requires con-
sent of each debenture holder when the right to convert
is altered or imparied, should be interpreted in this case
to require the written consent of each debenture holder,
since an attempt is being made to alter or impair the con-
version right (2d Tr. at 6-10).
The plaintiffs and defendants argue in response that
the voting requirements of § 12.02 do not apply in the
24. Reply Brief of Objectors, p. 3.
25. At the current redemption price of $1,033 (103.302).
Al6 Appendix A
case of a merger. Rather, they state that § 5.06, § 13.01
and § 13.02 (which do not call for individual consent or a
two-thirds vote) should govern the merger,” since these
sections specifically discuss what is to occur in case of a
merger (Defendants’ Memorandum in Response to Ob-
jectors’ Brief at 20; 2d Tr. at 2-10). § 5.06 provides that:
In case of any . . . merger into another corporation
. . such successor . . . shall execute and deliver to
the Trustee a supplemental indenture . . . providing
that the holder of each debenture then outstanding
shall have the right thereafter to convert such deben-
ture into the kind and amount of shares of stock and
other securities and property receivable upon such . . .
merger . . . by a holder of the number of shares of
common stock of the company into which such de-
benture might have been converted immediately prior
to such... merger....
First, we agree that §5.06 should control here be-
cause it contains a detailed and specific provision as to
what the debenture holders’ rights are in a merger while
§ 12.02 deals with their rights in a general context.
In the case of a merger, § 5.06 requires that the sup-
plemental Indenture contain the right to convert into
whatever form of property the shareholders receive in the
merger. Thus the debenture holders have never had an
absolute right to convert into Indian Head stock in a
merger, but only the right to convert into whatever form
of “property” the shareholders would receive. Defendants
26. The debenture holders were alerted to the applicability of
these sections by the debenture itself, which stated that “. . . the
holder . . . has the right . . . to convert this debenture into fully
paid and non-assessable shares of Common Stock of the Company
. subject to such adjustment, if any, of the conversion rate and
the securities or other property issuable upon conversion as may be
required by the provisions of the Indenture.”
Appendix A Al7
argue that cash is “property” within the meaning of § 5.06.
We agree that cash is within the scope of the term “prop-
erty” as used in § 5.06, and note that it has been so inter-
preted in Broenen v. Beaunit, 440 F. 2d 1244 (7th Cir.
1970). Here, as a result of the proposed merger, the In-
dian Head shareholders will receive only cash for their
stock. Thus the provision in the settlement agreement
allowing for conversion of the debentures into cash only is
proper under § 5.06 because this is all the shareholders are
receiving. In addition, § 5.06 does not require the indi-
vidual written consent of each debenture holder when
conversion rights are altered pursuant to a merger, so we
conclude that the settlement abridges no rights of the
debenture holders and can properly bind all debenture
holders who do not opt out.
Since we find that no substantive rights of the deben-
ture holders are abridged by this settlement, this dis-
penses with the following objectors’ claims: 1) that rep-
resentation of the class was not adequate since class
representatives cannot assert rights running individually
and severally to each holder (Objectors’ Brief in Support
of Objections to Proposed Settlement at 15-16, 23-25);
2) that their constitutional rights under the Fifth and
Fourteenth Amendments and Article One, Section 10 were
violated (Id. at 16-17); 3) that the class is not sufficiently
numerous, since not a sufficient number assented in writ-
ing (Id. at 23); and 4) that the settlement violates rights
of all non-assenting convertible debenture owners under
Delaware law (Id. at 40), New York law (Id. at 41), and
Pennsylvania law (Id. at 43).
The Rome objectors also claim that the settlement
agreement violates various sections of the Securities Act
of 1933, 15 U. S. C. § 77a et seq. [“1933 Act”], the Secu-
Al8 Appendix A
rities Exchange Act of 1934, 15 U. S. C. §78a et seq.
[“1934 Act”], and the Trust Indenture Act of 1939, 15
U.S.C. § 77aaa et seq.
Objectors claim that §5(c) of the 1933 Act” has
been violated since the proposed settlement and notice of
settlement is an “offer to sell” as well as an “offer to buy”
securities, and as such the parties have not complied with
the registration requirements of the Act. The settlement
agreement is clearly not an offer by TBE to sell a security.
While the settlement may be interpreted to encompass an
“offer to buy,” we find that the registration requirements
of §5(c) were not meant to apply to offers of an issuer
or controlling stockholder of an issuer, to acquire for cash
the issuer’s outstanding securities.
When the issuer itself is making an offer to buy its
own securities—at least when the offer goes to a sub-
stantial number of security holders-—§5(c) would
seem literally to apply in the sense that there is no
specific exemption or exclusion; for that is an offer
(and hence a transaction ) “by an issuer.” On the other
hand, however tempting it might have been before the
special legislation of 1968 to reenforce Rule 10b-5
under the 1934 Act by using §5(c) to attack the
problems of inadequate disclosure by issuers in public
tender offers . . » not merely the legislative history of
§ 5(c) but the whole registration structure of the 1933
Act is utterly inconsistent with any concept of issuers
registering public offers to buy as distinct from public
offerings to sell. 4 Loss, Securities Regulation 2317-8
(Supplement to 2d Ed., 1969).
Rather, Loss found that the provision “was originally in-
serted solely for the purpose of preventing dealers from
27. 15 U.S.C. § 77e.
Appendix A A19
making offers to buy from underwriters during the waiting
period.” 1 Loss, Securities Regulation 212 (2d Ed., 1961).
Even if the requirements of § 5(c) were held to apply
to offers by an issuer to buy its own stock, plaintiffs and
defendants claim that §3(a)(10)** would exempt the
settlement from the registration requirements.” Section
3(a)(10) states:
Sec. 3(a) Except as hereinafter expressly provided
the provisions of this title shall not apply to the fol-
lowing classes of securities:
(10) Any security which is issued in exchange for one
or more bona fide outstanding securities, claims or
property interests, or partly in such exchange and
partly for cash, where the terms and conditions of
such issuance and exchange are approved, after a
hearing upon the fairness of such terms and condi-
tions at which all persons to whom it is proposed to
issue securities in such exchange shall have the right
to appear, by any court, or any official or agency of
the United States, or by any State or Territorial bank-
ing or insurance commission or other governmental
authority expressly authorized by law to grant such
approval... .
According to the objectors, the Supplemental Inden-
ture with modified conversion rights which will be issued
as a consequence of the settlement to debenture holders
28. 15 U.S. C. § 77c(a) (10).
29. 3(a)(10) has been applied to judicially approved settle-
ments, see LIN Broadcasting Corp. [1972-73 Transfer Binder] CCH
Fed. Sec. L. Rep. § 79,154 at 82,512; VTR Inc. [1971-72 Transfer
Binder] CCH Fed. Sec. L. Rep. { 78,518 at 81,117.
A20 Appendix A
who do not convert, is a “security” within the meaning of
§5(c) (Objectors’ Brief at 31). They contend, therefore,
that the provisions of § 5(c) are applicable. If so, it would
seem to follow that § 3(a)(10) would also apply to exempt
the transaction, since there would be an issuance of a secu-
rity (Supplemental Indenture ) in exchange for “bona fide
outstanding securities” (the Indenture ).*° The objectors
argue further, nevertheless, that there is no exemption be-
cause the required judicial hearing was held after the
issuance of the security, not before (2d Tr. at 32-34).
This view is predicated on the assumption that
the notice of settlement was an issuance of a security. The
Court does not hold that view because the terms of the
settlement do not become effective until approved by
the Court. The hearing on the fairness of the terms and
conditions of the settlement at which all persons affected
had an opportunity to appear and be heard, was held on
October 13 and 18, 1976. Thus the hearing fully complied
with the requirements of § 3(a)(10).
30. Because the issuance of the Supplemental Indenture is not
a specific term of the settlement, but is activated by the terms of
the prior Indenture (which require such a Supplemental Indenture
in the case of a merger), it could be argued that the settlement it-
self is purely a cash exchange, whereby TBE is issuing cash onl
for Indian Head securities. While under this view §3(a)(10
would seem not to be directly on point (since no security is bein
issued ), it might be held to be applicable in light of the purpose o
the registration sections. The purpose of requiring registration is
to place the facts before the public, and to protect against fraud
and misrepresentation, 1 Loss, Securities Regulation 178-181 (2d
Ed., 1961). Section 3(a)(10) provides an exception to this re-
uirement where the facts have been disclosed and the fairness of
the terms and conditions have been passed on by a Court. While
this section only applies when securities are issued, the same pw
considerations would seem to apply to transactions where cash only
is being offered in exchange for an outstanding security. Thus an
exemption from §5(c) should be allowed for offers to buy out-
standin securities with cash which have been judicially approved
after a hearing.
ee ee
Appendix A A21
The objectors also claim the class notice omitted cer-
tain material facts * in violation of §17(a) of the 1933
Act, and sections 10(b) and 14(e) of the 1934 Act. We
find the notice in this case more than adequate, and that
these sections have not been violated. Since wwe also have
concluded that no terms or rights under the Indenture are
violated by the settlement, [see pp. 15-18 supra], no ac-
tion will lie under the Trust Indenture Act.
In addition, the objectors claim that the notice of set-
tlement violates sections 13(d), 13(e), 14(d), and 14(e)
of the 1934 Act * and the Rules promulgated under these
sections. They claim that the notice constitutes a “tender
offer,” and as such the defendants have failed to comply
with the filing requirements of the Act. While the settle-
ment agreement d»es contemplate what might technically
be described as a tender offer,** we think that these sec-
tions were not meant to apply to judicially approved set-
tlement agreements, particularly in light of the legislative
history.
Congress principal concern was to assure the share-
holder substantial timely disclosure ... Congress de-
termined that the shareholder should have the ‘rele-
vant facts’ so he can make an informed decision on
whether to sell his holdings or to maintain his invest-
ment in a company that might be changing hands
and undergoing significant transformation. Note, 86
Harv. L. Rev. 1250, 1256 (1973).
31. Objectors’ Brief at 25 and 32.
32. 15 U. S. C. § 78m et seq. and § 78n et seq., passed in 1968
and commonly known as the “Williams Act.”
33. The term “tender offer” is not defined in the statute, regu-
lations, or legislative history. Thus Courts have found that they
have latitude to apply the provisions of 9 14 in light of the factual
context. Nachman Corporation v. Halfred, Inc., [1973-74 Transfer
ig73) CCH Fed. Sec. L. Rep. { 94,445 at 95,589, 590 (N. D. IIL,
1 ,
A22 Appendix A
As noted by the Seventh Circuit:
. . . the overriding purpose of Congress in enacting
this legislation was to protect the individual investor
when substantial shareholders or management under-
take to acquire shares in a corporation for the purpose
of solidifying their own position in a contest over how
or by whom the corporation should be managed. In
the words of Senator Williams: ‘[The bill] is designed
solely to require full and fair disclosure for the bene-
fit of investors’. . . Bath Industries, Inc. v. Blot, 427
F. 2d 97, 109 (7th Cir. 1970). See also Electronic
Specialty Co. v. International Controls Corp., 409
F. 2d 937, 945 (2d Cir. 1969); 113 Cong. Rec. 24664
(1967).
That the purpose was to protect the individual investor
can also be seen from looking at what the Act requires to
be disclosed. It requires disclosure of, among other
things, the identity and background of the person or group
making the tender offer; the size of the holdings of the
person or group; the source of funds to be used and the
financing arrangements for these funds; the purpose of
the tender offer, and the plans of the offerer (to liquidate,
sell, merge, etc.); and the price, terms, and conditions of
the offer.
We find that the individual investors have been more
than adequately protected by the procedures followed in
the instant judicially-approved settlement, where the in-
dividual investor has had full notification of the terms of
the offer, the people or group involved, the purpose of the
offer and the plans of the offeror. Thus we conclude that
the filing requirement of the Williams Act does not pre-
clude this settlement.”
34. In addition, 14(d)(8)(b) poy that there is an exemp-
tion from the filing requirements of 14(d) for “any offer for or re-
quest or invitation for tenders of any security . . . by the issuer of
such security.”
rr
“se
ee ee, ed
th eee ee ee ee ee a ree
Appendix A A23
___ Accordingly, the Court concludes that the settlement
is fair and reasonable, and should be approved.
So ORDERED.
CuHarLEs E. Stewakr, J.
United States District Judge
DatTep: New York, New York
November 15, 1976.
AQ4 Appendix A
APPENDIX A
[to District Court Memorandum Opinion]
ARTICLE FIVE
CONVERSION OF DEBENTURES
Section 5.01. The holder of any Debenture or
Debentures shall have the right at any time prior to ma-
turity, at his option, to convert, subject to the terms and
provisions of this Article Five, the principal amount of any
such Debenture or Debentures (or any portion of the prin-
cipal amount thereof which is an integral multiple of
$1000) into fully paid and non-assessable shares of Com-
mon Stock at the conversion rate of 25.974 shares of Com-
mon Stock for each $1,000 principal amount of Debentures,
subject in each case to any adjustments in such conversion
rate pursuant to the provisions of Section 5.04 (except that
with respect to any Debenture or Debentures which shall
be called for redemption such right shall terminate at the
close of business on the second business day next preceding
the date fixed for redemption of such Debenture or
Debentures, unless the Company shall default in payment
due upon redemption thereof), upon surrender of the
Debenture or Debentures, the principal of which is so to
be converted, to the Company at any time during usual
business hours at the office or agency to be maintained by
it in accordance with the provisions of Section 6.02, and,
if so required by the Company, accompanied by a written
instrument or instruments of transfer in form satisfactory
to the Company and the Trustee duly executed by the
holder or his duly authorized agent or legal representative.
Prior to delivery of any certificate or certificates represent-
ing shares of Common Stock into which the principal of
ee et ee ee
ee
© ete Ba weedy as teeme erie | eos a er
ME ie tite erties om -
Appe xdix A A25
such Debenture or Debentures is so to be converted, the
Company shall have received a written notice at its said
office or agency from the holder of the Debenture or
Debentures so surrendered specifying the name or names
(with address) in which said certificate or certificates are
to be issued. For convenience, the conversion of all or a
portion, as the case may be, of the principal of any
Debenture into Common Stock is hereinafter sometimes
referred to as the conversion of such Debenture. All
Debentures surrendered for conversion shall, if surrendered
to the Company or any conversion agent, be delivered to
the Trustee for cancellation and cancelled by it or, if sur-
rendered to the Trustee, shall be cincelled by it, and no
Debentures shall be issued in lieu thereof. The Trustee
within a reasonable time shall upon request return can-
celled Debentures to the Company.
In case any Debenture shall be surrendered for con-
version of only a portion of the principal amount thereof,
the Company shall execute and the Trustee shall authen-
ticate and deliver to the holder of such Debenture, at the
expense of the Company, a new Debenture or Debentures
in principal amount equal to the unconverted portion of
the Debenture so surrendered.
In case of the surrender of any Debenture for con-
version (in whole or in part) on a date after the record
date (as defined in Section 2.03) for the payment of any
interest on Debentures and before the date for payment
of such interest, such Debenture shall be accompanied by
funds in an amount equal to the amount of interest which
would have been payable on such interest payment date in
respect of the principal represented by the Debenture (or
portion thereof) so surrendered for conversion had the
same not been so surrendered for conversion; provided,
however, that no such funds need be deposited in the case
of any Debenture (or portion thereof) which has been
A26 Appendix A
duly called for redemption prior to such payment date.
The funds so deposited shall be paid on the interest pay-
ment date to the person in whose name such Debenture
(or the Debenture or Debentures in exchange or substi-
tution for which such Debenture shall have been issued )
was registered on such record date; provided, however,
that if the Company shall default in the payment of interest
due on the Debentures on such interest payment date, such
funds shall be repaid to the person who deposited the
same.
Section 5.02. As promptly as practicable after the
surrender, as herein provided, of any Debenture or De-
bentures for conversion, the Company shall deliver or
cause to be delivered at the office or agency to be main-
tained by it in accordance with the provisions of Section
6.02 to or upon the written order of the holder of the De-
benture or Debentures so surrendered a certificate or
certificates representing the number of fully paid and non-
assessable shares of Common Stock into which such De-
benture or Debentures (or portion thereof) shall have been
converted in accordance with the provisions of this Article
Five. Prior to delivery of such certificate or certificates,
the Company shall have received at its said office or agency
from the holder of the Debenture or Debentures so sur-
rendered the written notice referred to in Section 5.01
with respect to the name or names (with address ) in which
said certificate or certificates are to be issued. Subject to
the following provisions of this Section and of Section 5.04,
such conversion shall be deemed to have been made im-
mediately prior to the close of business on the date that
such Debenture or Debentures shall have been surrendered
for conversion, so that the rights of the holder of such De-
benture or Debentures (or the portion thereof being con-
verted ) as a Debentureholder shall cease at such time, and
Oe a ee en eee
Baie
Appendix A A27
the person or persons entitled to receive the shares of Com-
mon Stock upon conversion of such Debenture or De-
bentures shall be treated for all purposes as having become
the record holder or holders of such shares of Common
Stock at such time, and such conversion shall be at the
conversion rate in effect at such time; provided, however,
that no such surrender on any date when the stock transfer
books of the Company shall be closed shall be effective to
constitute the person or persons entitled to receive the
shares of Common Stock upon such conversion as the
record holder or holders of such shares of Common Stock
on such date, but such surrender shall be effective to con-
stitute the person or persons entitled to receive such shares
of Common Stock as the record holder or holders thereof
for all purposes at the time immediately prior to the close
of business on the next succeeding day on which such stock
transfer books are open, and such conversion shall be at
the conversion rate in effect at such time on such next
succeeding day.
Section 5.03. ‘No adjustments in respect of accrued
interest or dividends shall be made upon the conversion of
any Debenture or Debentures.
SecTION 5.04. The conversion rate from time to time
in effect shall be subject to adjustment as follows:
(a) In case the Company shall (i) pay a divi-
dend in shares of its capital stock, (ii) subdivide its
outstanding shares of Common Stock, (iii) combine
its outstanding shares of Common Stock into a smaller
number of shares, or (iv) issue by reclassification of
its shares of Common Stock any shares of the Com-
pany, the conversion rate in effect immediately prior
thereto shall be adjusted retroactively as provided be-
low so that the holder of any Debenture thereafter
surrendered for conversion shall be entitled to receive
A28
Appendix A
the number of shares of the Company which he would
have owned or have been entitled to receive after the
happening of any of the events described above had
such Debenture been converted immediately prior to
the happening of such events. An adjustment made
pursuant to this subsection (a) shall become effective
retroactively immediately after the record date in the
case of a dividend and shall become effective imme-
diately after the effective date in the case of a sub-
division, combination or reclassification.
(b) In case the Company shall issue rights or
warrants to all holders of its Common Stock entitling
them (for a period expiring within 45 days after the
record date mentioned below) to subscribe for or
purchase shares of Common Stock at a price per share
less than the current market price per share of Com-
mon Stock (as defined in subsection (d) below) at
the record date mentioned below, the number of
shares of Common Stock into which each $1,000 prin-
cipal amount of Debentures shall thereafter be con-
vertible shall be determined by multiplying the num-
ber of shares of Common Stock into which such
principal amount of Debentures was theretofore con-
vertible by a fraction, the numerator of which shall
be the number of shares of Common Stock outstand-
ing on the date of issuance of such rights or warrants
plus the number of additional shares of Common
Stock offered for subscription or purchase, and the
denominator of which shall be the number of shares
of Common Stock outstanding on the date of issuance
of such rights or warrants plus the number of shares
which the aggregate offering price of the total number
of shares so offered would purchase at such current
market price. Subject to subsection (e), such adjust-
ment shall be made whenever such rights or warrants
~~ er OO eye
état ate sendin ds OR ee cw a
Appendix A A29
are issued and shall become effective retroactively
immediately after the record date for the determina-
tion of stockholders entitled to receive such rights
or warrants.
(c) In case the Company shall distribute to all
holders of its Common Stock evidences of its in-
debtedness or assets (excluding cash dividends or dis-
tributions) or rights to subscribe or warrants to
purchase (excluding those referred to in subsection
(b) above), then in each such case the number of
shares of Common Stock into which each $1,000 prin-
cipal amount of Debentures shall thereafter be con-
vertible shall be determined by multiplying the num-
ber of shares of Common Stock into which such
principal amount of Debentures was theretofore con-
vertible by a fraction, the numerator of which shall be
the current market price (as defined in subsection (d)
below) per share of Common Stock on the date of
such distribution, and the denominator of which shall
be such current market price per share of the Com-
ion Stock, less the then fair market value (as deter-
mined by the Board of Directors, whose determination
shall be conclusive, and described in a statement filed
with the Trustee) of the portion of the assets or evi-
dences of indebtedness so distributed or of such sub-
scription rights or warrants applicable to one share of
the Common Stock. Subject to subsection (e), such
adjustment shall be made whenever any such distribu-
tion is made and shall become effective retroactively
immediately after the record date for the determina-
tion of stockholders entitled to receive such distribu-
tion.
(d) For the purpose of any computation under
subsections (b) and (c) above, the current market
A30
Appendix A
price per share of Common Stock at any date shall be
deemed to be the average of the daily closing prices
for the 30 consecutive business days commencing 45
business days before the day in question. The closing
price for each day shall be the last reported sales
price regular way or, in case no such reported sale
takes place on such day, the average of the reported
closing bid and asked prices regular way, in either
case on the New York Stock Exchange, or, if the Com-
mon Stock is not listed or admitted to trading on such
Exchange, on the principal national securities ex-
change on which the Common Stock is listed or ad-
mitted to trading, or if not listed or admitted to trad-
ing on any national securities exchange, the average
of the closing bid and asked prices as furnished by
any New York Stock Exchange firm selected from time
to time by the Company for the purpose.
(e) No adjustment in the conversion rate shall
be required unless such adjustment would require an
increase or decrease of at least 1% in such rate; pro-
vided, however, that any adjustments which by reason
of this subsection (e) are not required to be made
shall be carried forward cumulatively and taken into
account in any subsequent adjustment which ear
ing such -forward) requires an increase or de-
ro of erg os 1%. All calculations under this
Article Five shall be made to the nearest cent or to
the nearest one-thousandth of a share, as the case
may be.
(f) Whenever the conversion rate is adjusted, as
herein provided, the Company shall promptly file
with the Trustee a certificate of a firm of independent
public accountants selected by the Board of Direc-
tors (who may be the regular accountants employed
by the Company) setting forth the conversion rate
Lee ee
De NTE a A rm nr ele Re ee Abe ne Ae Rs oa ee Re RO yutle
ba Nenana meee
35 tales nc
=e
Appendix A A31
applicable after such adjustment and setting forth a
brief statement of the facts requiring such adjustment.
Such certificate shall be conclusive evidence of the
correctness of such adjustment. Promptly after re-
ceipt of such certificate, the Trustee, in the name of
the Company and as its agent, shall mail a notice
specifying such adjustment to each Debentureholder
at his last address appearing on the registration books
of the Company. The Trustee shall not at any time
be under any duty or responsibility to any Deben-
tureholder to determine whether any facts exist which
may require any adjustment of the conversion rate.
(g) In the event that at any time, as a result of
an adjustment made pursuant to subsection (a) of
this Section, the holder of any Debenture thereafter
surrendered for conversion shall become entitled to
receive any shares of the Company other than shares
of its Common Stock, thereafter the number of such
other shares so receivable upon conversion of any
Debenture shall be subject to adjustment from time
to time in a manner and on terms as nearly equivalent
as practicable to the provisions with respect to the
Commoen Stock contained in subsections (a) to (f),
inclusive, of this Section, and the provisions of Sec-
tions 5.02 and 5.05 to 5.09, inclusive, with respect to
the Common Stock shall apply on like terms to any
such other shares.
SEcTION 5.05. No fractional shares or scrip represent-
ing fractional shares shall be issued upon the conversion
of any Debenture or Debentures. If more than one De-
benture shall be surrendered for conversion at one time
by the same holder, the number of full shares issuable
upon conversion thereof shall be computed on the basis
of the aggregate principal amount of the Debentures so
A32 Appendix A
surrendered. If the conversion of any Debenture or De-
bentures results in a fraction, an amount equal to such
fraction multiplied by the closing price (determined as
provided in Section 5.04(d) ) of the Common Stock on the
day of conversion shall be paid to such holder in cash by
the Company.
SEcTION 5.06. In case of any consolidation of the
Company with or merger of the Company into another
corporation, or in case of any sale or other disposition of
all or substantially all the property of the Company as an
entirety to any person, the corporation resulting from such
consolidation or such successor or acquiring person, as the
case may be, shall execute and deliver to the Trustee a
supplemental indenture, in form satisfactory to the Trus-
tee, providing that the holder of each Debenture then
outstanding shall have the right thereafter to convert such
Debenture into the kind and amount of shares of stock and
other securities and property receivable upon such con-
solidation, merger, sale, lease or other disposition by a
holder of the number of shares of Common Stock of the
Company into which such Debenture might have been
converted immediately prior to such consolidation, merger,
sale or other disposition. Such supplemental indenture
shall provide for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments pro-
vided for in this Article Five. The provisions of this Sec-
tion shall similarly apply to successive consolidations,
mergers, sales or other dispositions. Notice of the execu-
‘tion of such a supplemental indenture shall be given in
accordance with the provisions of Section 12.02.
The Trustee shall not be under any responsibility to
determine the correctness of any provisions contained in
any such supplemental indenture relating either to the
kind or amount of shares of stock or securities or property
tele waite wAtNT 6 rae
wee ee =, oe a.
Appendix A A33
receivable by Debentureholders upon the conversion of
their Debentures after any such consolidation, merger,
sale, lease or other disposition or to any such adjustment,
but, subject to the provisions of Section 9.01, may accept
as conclusive evidence of the correctness of any such pro-
visions, and shall be protected in relying upon, an Opinion
of Counsel with respect thereto.
Section 5.07. The Company covenants that it will
at all times reserve and keep available out of its author-
ized Common Stock, solely for the purpose of issuance
upon conversion of Debentures as herein provided, such
number of shares of Common Stock as shall then be issu-
able upon the conversion of all outstanding Debentures.
The Company covenants that all shares of Common Stock
which shall be so issuable shall, when issued, be duly and
validly issued and fully paid and non-assessable.
The Company covenants that, upon conversion of
Debentures as herein provided, there will be credited to
Common Stock capital account, from the consideration
for which the shares of Common Stock issuable upon such
conversion are issued, an amount per share of Common
Stock so issued as determined by the Board of Directors,
which amount shall not be less than the amount required
by law and by the Certificate of Incorporation of the
Company, as amended, as in effect on the date of such
conversion. For the purposes of this covenant the prin-
cipal amount of the Debentures converted, less the amount
of cash paid in lieu of the issuax.ce of fractional shares on
such conversion, shall be deemed to be the amount of
consideration for which the shares of Common Stock
issuable upon such conversion are issued.
SECTION 5.08. The Company covenants that if any
shares of Common Stock required to be reserved for pur-
poses of conversion of Debentures hereunder require regis-
A34 Appendix A
tration with or approval of any governmental authority
under any Federal or State law before such shares may be
issued upon conversion, the Company will in good faith
and as expeditiously as possible endeavor to cause such
shares to be duly registered or approved, as the case may
be. The Company further covenants that, at any time
when the Common Stock of the Company is listed on the
New York Stock Exchange or any other national securities
exchange, the Company will, if permitted by the rules of
such exchange, list and keep listed on such exchange, upon
official notice of issuance, all shares of Common Stock
issuable upon conversion of Debentures.
SEecTION 5.09. The issuance of certificates for shares
of Common Stock upon the conversion of Debentures shall
be made without charge to the converting Debenture-
holders for any tax in respect of the issuance of such certifi-
cates, and such certificates shall be issued in the respective
names of, or in such names as may be directed by, the
holders of the Debentures converted; provided, however,
that the Company shall not be required to pay any tax
which may be payable in respect of any transfer involved
in the issuance and delivery of any such certificate in a
name other than that of the holder of the Debenture con-
verted, and the Company shall not be required to issue or
deliver such certificates unless or until the person or per-
sons requesting the issuance thereof shall have paid to the
Company the amount of such tax or shall have established
to the satisfaction of the Company that such tax has been
paid.
SEcTION 5.10. In case the Company proposes to take
any action (other than actions of the character described
in clauses (i), (ii) or (iii) of subsection (a) of Section
5.04) which would require an adjustment of the conversion
rate pursuant to Section 5.04 or proposes to take any action
Appendix A A35
of the type specified in Section 5.06, the Company shall
give notice to the holders of Debentures at their last ad-
dresses as they shall appear upon the register or registers
provided for in Section 2.05 at least ten days prior to the
applicable record date in the case of action which would
require an adjustment of the conversion rate pursuant to
Section 5.04 and at least ten days prior to the taking of
any action described in Section 5.06, which notice shall
state (i) in the case of action requiring an adjustment of
the conversion rate pursuant to Section 5.04, the record
date as of which such action is to be taken and (ii) in the
case of action specified in Section 5.06, the date on which
such action is to become effective, and in each case such
notice shall describe the action to be taken and, to the
extent such effect may be known at the date of such notice,
the effect of such action on the conversion ratio and the
number, or kind, or class of shares or other securities or
property obtainable upon conversion of the Debentures.
Failure to give such notice or any defect therein shall not
affect the legality or validity of any such action.
SECTION 5.11. The Trustee shall not be accountable
with respect to the validity or value (or the kind or amount)
of any shares of Common Stock or of any securities or
property which may at any time be issued or delivered
upon the conversion of any Debentures; and it makes no
representation with respect thereto. The Trustee shall not
be responsible for any failure of the Company to make any
cash payment or to issue, transfer or deliver any shares of
Common Stock or stock certificates or other securities or
property upon the surrender of any Debenture for the pur-
pose of conversion, or to comply with any of the covenants
of the Company contained in this Article Five, all subject
to Section 9.01.
A36 Appendix A
ARTICLE TWELVE
SUPPLEMENTAL INDENTURES
SEcTION 12.01. In addition to any supplemental in-
denture that may be entered into pursuant to the pro-
visions of Section 5.06, the Company, when authorized by
a resolution of its Board of Directors, and the Trustee may
from time to time and at any time enter into an indenture
or indentures supplemental hereto (which shall conform
to the provisions of the Trust Indenture Act of 1939 as
then in effect) for one or more of the following purposes:
(a) to evidence the succession of another corpo-
ration to the Company, or successive successions, and
the assumption by the successor corporation of the
covenants, agreements and obligations of the Com-
pany pursuant to Article Thirteen;
(b) to add to the covenants and agreements of
the Company in this Indenture contained such further
covenants and agreements thereafter to be observed
and to surrender any right or power herein reserved
to or conferred upon the Company;
(c) to cure any ambiguity or to correct or supple-
ment any defective or inconsistent provision contained
in this Indenture or in any supplemental indenture;
and
(d) to make such provisions with respect to
matters or questions arising under this Indenture as
may be necessary or desirable and not inconsistent
with this Indenture; provided, however, that such
actions shall not adversely affect the interests of the
holders of any of the Debentures.
The Trustee is hereby authorized to join with the
Company in the execution of any supplemental indenture
Appendix A A37
authorized or permitted by the terms of this Indenture,
and to make any further appropriate agreements and
stipulations which may be therein contained, but the
Trustee shall not be obligated to enter into any such sup-
plemental indenture which affects the Trustee’s own rights,
duties or immunities under this Indenture or otherwise.
Any supplemental indenture authorized by the pro-
visions of this Section may be executed by the Company
and the Trustee without the consent of the holders of any
of the Debentures at the time outstanding.
SecTION 12.02. With the consent (evidenced as pro-
vided in Section 10.01) of the holders (or persons entitled
to vote or to give consents respecting the same ) of not less
than 66%% in aggregate principal amount of the Deben-
tures at the time outstanding, the Company, when author-
ized by a resolution of its Board of Directors, and the
Trustee may from time to time and at any time enter into
an indenture or indentures supplemental hereto (which
shall conform to the provisions of the Trust Indenture Act
of 1939 as then in effect) for the purpose of adding any
provisions to or changing in any manner or eliminating
any of the provisions of this Indenture or of any supple-
mental indenture or of modifying in any manner the rights
and obligations of the holders of the Debentures and of the
Company; provided, however, that no such supplemental
indenture shall (i) extend the fixed maturity of any Deben-
tures, or reduce the principal amount thereof, or reduce
the rate or extend the time of payment of interest thereon.
or reduce any premium payable upon the redemption
thereof, or alter or impair the right to convert the same into
shares of Common Stock at the rates and upon the terms
provided herein, without the consent of the holder of each
Debenture so affected, or (i) reduce the aforesaid per-
centage of Debentures, the holders of which are required
A38 Appendix A
to consent to any such supplemental indenture, without
the consent of the holders of all Debentures then out-
standing. |
Upon the request of the Company, accompanied by
a copy of a resolution of its Board of Directors certified by
the Secretary or an Assistant Secretary of the Company
authorizing the execution of any such supplemental inden-
ture, and upon the filing with the Trustee of evidence of
the consent of Debentureholders as aforesaid, the Trustee
shall join with the Company in the execution of such sup-
plemental indenture unless such supplemental indenture
affects the Trustee’s own rights, duties or immunities under
this Indenture or otherwise, in which case the Trustee may,
in its discretion, but shall not be obligated to, enter into
supplemental indenture.
_ shall not be necessary for the consent of the De-
bentureholders under this Section to approve the particu-
lar form of any proposed supplemental indenture, but it
shall be sufficient if such consent shall approve the sub-
ce thereof.
4 Promptly after the execution by the Company and the
Trustee of any supplemental indenture pursuant to the
provisions of this Section, the Company shall mail, first
class postage prepaid, to the holders of Debentures at their
last addresses as they shall appear upon the register or
registers a notice setting forth in general terms the sub-
stance of such supplemental indenture. Any failure of the
Company to mail such notice, or any defect therein, shall
not, however, in any way impair or affect the validity of
any such supplemental indenture.
SEcTION 12.03. Upon the execution of any supple-
mental indenture pursuant to the provisions of this Article
Twelve or of Sections 5.06 and 13.01 this Indenture shall
be and be deemed to be modified and amended in ac-
Appendix A A39
cordance therewith and the respective rights, limitation of
rights, obligations, duties and immunities under this In-
denture of the Trustee, the Company and the holders of
Debentures shall thereafter be determined, exercised and
enforced hereunder subject in all respects to such modifi-
cations and amendments, and all the terms and conditions
of any such supplemental indenture shall be and be
deemed to be part of the terms and conditions of this In-
denture for any and all purposes.
SEcTION 12.04. Debentures authenticated and deliv-
ered after the execution of any supplemental indenture
pursuant to the provisions of this Article Twelve or of Sec-
tions 5.06 and 13.01, or after any action taken at a Deben-
tureholders’ meeting pursuant to Article Eleven, may bear
a notation in form approved by the Trustee as to any
matter provided for in such supplemental indenture or as
to any action taken at any such meeting; and, in such case,
suitable notation may be made upon outstanding Deben-
tures after proper presentation and demand. If the Com-
pany c the Trustee shall so determine. new Debentures
so modified as to conform, in the opinion of the Trustee
and the Board of Directors, to any modification of this
Indenture contained in any such supplemental indenture.
or to any action taken at any such meeting, may be pre-
pared by the Company, authenticated by the Trustee and
delivered in exchange for the Debentures then outstand-
ing, upon demand of, and without cost to, the holders
thereof, upon surrender of such Debentures.
SECTION 12.05. The Trustee, subject to the provisions
of Section 9.01, may receive an Opinion of Counsel as
conclusive evidence that any supplemental indenture ex-
ecuted pursuant to this Article Twelve is authorized or
permitted by the terms of this Indenture and that it is not
inconsistent therewith.
A40 Appendix A
ARTICLE THIRTEEN
CONSOLIDATION, MERGER AND SALE
SecTION 13.01. The Company will not consolidate
with, merge into or sell or otherwise dispose of all or
substantially all the property of the Company as an en-
tirety to, any person unless (a) the successor formed by
or resulting from such consolidation or merger or the
person to which such sale or other disposition shall have
been made shall be a corporation organized under the laws
of the United States of America or any State, district or
territory thereof, and (b) such successor corporation
(other than the Company) shall expressly assume, by in-
denture supplemental hereto satisfactory in form to the
Trustee, executed and delivered to the Trustee by the cor-
poration formed by such consolidation or into which the
Company shall have been merged or by the corporation to
which such sale or other disposition shall have been made,
the due and punctual payment of the prinicpal of and
interest (and premium, if any) on the Debentures accord-
ing to their tenor, and the due and punctual performance
and observance of all the terms, covenants and conditions
of this Indenture and the Debentures to be performed or
observed by the Company. The Company will not so
consolidate or merge, or make any such sale or other dis-
position, or permit any corporation to merge into the Com-
pany, unless immediately after such consolidation, merger,
sale or other disposition the Company or such successor
corporation, as the case may be, shall not be in default
in the performance of any of the covenants, agreements or
conditions contained in this Indenture or in the Deben-
tures. Subject to the foregoing provisions of this Section,
nothing contained in this Indenture or in any of the De-
bentures shall prevent any consolidation or merger of the
Company with or into any other corporation or corpora-
tions (whether or not affiliated with the Company), or
Appendix A A41
successive consolidations or mergers to which the Com-
pany or its successor or successors shall be a party or par-
ties, or shall prevent any sale or other disposition (or suc-
cessive sales or disposition) of all or substantially all the
property and assets of the Company (or its successor or
successors) ‘1s an entirety, to any other corporation
(whether or not affiliated with the Company) lawfully
entitled to acquire and operate the same. In the event of
any such sale or disposition, the predecessor company may
. dissolved, wound up and liquidated at any time there-
ter.
SEcTION 13.02. In case of any such consolidation,
merger, sale or other disposition and upon the execution
by the successor corporation of an indenture supplemental
hereto, as provided in Section 13.01, and upon compliance
by such successor corporation with all applicable provi-
sions of Section 5.06, such successor corporation shall suc-
ceed to and be substituted for the Company, with the
same effect as if it had been named herein as a party; and
any order, certificate, statement, request, instructions, ad-
vice or resolutions of the Board of Directors or officers of
the Company provided for in this Indenture may be made
by like officials of such successor corporation.
Nothing contained in this Indenture or in any of the
Debentures shall prevent the Company from acquiring by
purchase or by merger or consolidation in which the Com-
pany is the surviving corporation, or otherwise, all or any
part of the property of any other corporation (whether or
not affiliated with the Company).
SEcTION 13.03. The Trustee, subject to the provisions
of Section 9.01, may receive an Opinion of Counsel as con-
clusive evidence that any such consolidation, merger, sale
or other disposition, and any such assumption and supple-
mental indenture, complies with the provisions of this
Article Thirteen.
A42 Appendix A
Judgment and Order Designating Class Action.
(Filed November 18, 1976)
UNITED STATES DISTRICT COURT
SOUTHERN District oF NEw YORK
74 Civ. 5755 (CES)
EDWARD BRUCKER and DANIEL R. KAPLAN, as
Trustees under the Trust Agreement dated November
15, 1968, made by WILTRUD E. GADBOYS, as
Grantor, CECIL G. HUSKEY, W. T. STRATTON
and NORTE & CO., a partnership composed of
JOSEPH C. GALDI and RITA D. GALDI,
Plaintiffs,
— against —
THYSSEN-BORNEMISZA EUROPE N. V., THYSSEN-
BORNEMISZA, INC., THYSSEN-BORNEMISZA
HOLDINGS, INC., MARINE MIDLAND BANK,
INDIAN HEAD INC., JAMES G. FERGUSON,
JAMES M. FLACK, ANDREW KALMAN, PAUL W.
McALISTER, JOHN E. OSULLIVAN, RICHARD
J. POWERS, JAMES E. ROBISON, ROBERT M.
SCHWARZENBACH, MARSHALL F. SMITH,
HERBERT E. BACHRACH, GERARD B. HUIS-
KAMP, WHITE, WELD & CO. INCORPORATED,
L. EMERY KATZENBACH, H. H. THYSSEN-
BORNEMISZA, R. L. GENILLARD and CHEMI-
CAL BANK,
Defendants.
Appendix A A43
75 Civ. 229 (CES)
WILLIAM B. WEINBERGER,
Plaintiff,
— against —
RICHARD J. POWERS, JAMES M. FLACK, ANDREW
KALMAN, PAUL W. McALISTER, JOHN E.
O’SULLIVAN, JAMES E. ROBISON, ROBERT M.
SCHWARZENBACH, MARSHALL F. SMITH,
JAMES G. FERGUSON, THYSSEN-BORNEMISZA,
INC. and INDIAN HEAD INC.,
Defendants.
75 Civ. 1736 (CES)
SHAMROCK CORPORATION, individually, and on be-
half of all holders of Common Stock and Warrants of
Indian Head Inc., similarly situated,
Plaintiffs,
— against —
INDIAN HEAD INC.; THYSSEN-BORNEMISZA
GROUP N. V.; THYSSEN-BORNEMISZA, INC.;
WHITE, WELD & CO. INCORPORATED;
RICHARD J. POWERS; JAMES E. ROBISON,
HERBERT E. BACHRACH; GERARD B. HUIS-
KAMP; L. EMERY KATZENBACH; MARSHALL F.
SMITH; H. H. THYSSEN-BORNEMISZA; R. L.
GENILLARD; THYSSEN-BORNEMISZA HOLD-
INGS, INC. and CHEMICAL BANK,
Defendants.
A44 Appendix A
Judgment and Order.
The proposed settlement of these actions came on to
be heard on October 13 and 18, 1976 before the Honorable
Charles E. Stewart, Jr., in accordance with the Order of
*the Court entered August 2, 1976. Upon consideration of
the papers submitted and the oral argument by counsel,
and a memorandum opinion having been rendered and
filed by the Court, November 16, 1976, it is hereby
ORDERED, ADJUDGED AND DECREED THAT:
1. These actions shall proceed as class actions on be-
half of all members of each class designated as follows
who have not heretofore requested exclusion in accordance
with the Order of this Court entered August 2, 1976:
(i) Common Stock Class. All owners, bene-
ficially or of record, of $1.00 par value common stock
(“Common Stock”) of Indian Head as of August 2,
1976 who continue to own such Common Stock on the
date of the merger (the “Merger Date” ) to be effected
as provided in the Settlement Agreement;
(ii) Debenture Owner Class. All owners, bene-
ficially or of record, of 54% convertible subordinated
debentures due April 15, 1993 of Indian Head (“De-
bentures” ) as of August 2, 1976 who continue to own
such Debentures on the Merger Date;
(iii) Debenture Seller Classes. Former owners,
beneficially or of record, of Debentures,
Debenture Seller Class A. All such owners
on September 27, 1973 who sold such Debentures
between September 27, 1973 and July 1, 1974,
inclusive;
Debenture Seller Class B. All such owners
on July 2, 1974 who sold such Debentures be-
tween July 12, 1974 and August 2, 1976, inclusive;
Appendix A A45
(iv) Warrant Owner Classes. Owners, bene-
ficially or of record, of warrants issued pursuant to the
Warrant Agreement dated as of May 15, 1965 be-
tween Indian Head and Chemical Bank (“Warrants” ),
as follows:
Warrant Owner Class A. All such owners
as of August 2, 1976 who continue to own such
Warrants on the Merger Date;
Warrant Owner Class B. All members of
Warrant Owner Class A who were owners of such
Warrants on July 2, 1974;
(v) Warrant Seller Classes. Former owners,
beneficially or of record, of Warrants as follows:
Warrant Seller Class A. All such owners on
July 2, 1974 who sold such Warrants between
July 12, 1974 and August 2, 1976, inclusive;
Warrant Seller Class B. Alli such owners
who sold such Warrants between August 1, 1973
and July 1, 1974, inclusive.
2. The terms and conditions of the settlement and
merger as set forth in the Stipulation and Agreement of
Settlement dated July 20, 1976, as amended by the Amend-
ment to Stipulation and Agreement of Settlement dated
July 28, 1976 (the “Settlement Agreement”), the original
of which has been filed with the Court, are in all respects
fair, reasonable and adequate, and are hereby approved
by this Court, and shall be consummated as provided in
the Settlement Agreement.
3. The three above-captioned actions, the complaints
therein and all claims asserted or which might have been
asserted therein are hereby dismissed without costs, with
prejudice and on the merits against plaintiffs and class
A46 Appendix A
members and in favor of all named defendants, whether
or not served with a summons and complaint, including
their successors and assigns.
4. Within ten (10) business days after the Merger
Date, TBI shall cause to be mailed at its expense, by
United States mail, postage prepaid, to each and every
member of the Debenture Owner Class and Warrant
Owner Classes Transmittal Letters substantially in the
form of Exhibit “E” annexed to the Settlement Agreement.
5. Each brokerage firm and financial institution which
is or was or whose nominee is or was the record owner of
Common Stock, Debentures or Warrants so as to be a
member of the Common Stock Class, Debenture Owner
or a Warrant Owner Class shall transmit any Transmittal
Letters received to the beneficial owners of such Common
Stock, Debentures or Warrants who are members of such
classes and shall request such additional Transmittal Let-
ters as are necessary to comply with this order.
6. In order to assert a claim to the Debenture Settle-
ment Fund or Warrant Settlement Fund, respectively,
provided for in the Settlement Agreement, a member of
the Debenture Owner Class or of a Warrant Owner Class
shall mail to the Clerk cf the United States District Court
for the Southern District of New York, P. O. Box 1046,
New York, New York 10005, a Transmittal Letter with all
attachments required thereby in the manner provided for
therein within sixty (60) days after the Merger Date.
7. Marine Midland Bank (“Marine”) and Chemical
Bank (“Chemical”) are hereby appointed to review all
Proofs of Claim and Transmittal Letters (together with all
documents required thereby) submitted by all members
of the Debenture Owner Class and Debenture Seller
Appendix A A47
Classes and by all members of the Warrant Owner Classes
and Warrant Seller Classes, respectively, and the follow-
ing terms and conditions shall govern:
(a) Marine and Chemical shall, within ninety
(90) days after the Merger Date, or such further
time as the court may allow, give written notice to
Shearman & Sterling and to Austrian, Lance &
Stewart, P. C. as to (i) which Proofs of Claim and
Transmittal Letters they accept for purposes of pay-
ment hereunder and the amount of such payment,
(ii) which Proofs of Claim and Transmittal Letters,
accepted for payment, have been submitted by per-
sons who, according to written advice from Shearman
& Sterling pursuant to subparagraph 4(h) of the Set-
tlement Agreement, have filed or are participating in
an appeal or have sought or obtained or are partici-
pating in seeking or obtaining an extension of time
to appeal from this Judgment and Order or are en-
gaged in any action, suit or proceeding challenging
this Judgment and Order and (iii) which Proofs of
Claim and Transmittal Letters they do not accept for
payment and the reasons therefor;
(b) Marine and Chemical shall make available
continuously as received all Proofs of Claim and
Transmittal Letters to Shearman & Sterling and Aus-
trian, Lance & Stewart, P. C., for their inspection,
and shall fully cooperate with both firms in any in-
quiries they may make;
(c) Within thirty (30) days after receipt of
notice pursuant to subparagraph (a) above, Shear-
man & Sterling and Austrian, Lance & Stewart, P. C.,
shall confer with Marine and Chemical and with each
other in an attempt to resolve any dispute that may
A48 Appendix A
arise concerning such Proofs of Claim or Transmittal
Letters and, in the event that such dispute cannot be
so resolved within such thirty (30) day period, the
objecting party shall submit such objection to the
Court for resolution;
(d) As to all Proofs of Claim and Transmittal
Letters to which no objection is made in the manner
provided above, within ten (10) days after the con-
ference referred to in subparagraph (c) above, but
in any event not longer than forty (40) days after the
date of notice pursuant to subparagraph (a) above,
Marine and Chemical shall make payment in ac-
cordance with the provisions of the Debenture Es-
crow Agreement and Warrant Escrow Agreement,
respectively, to all class members whose Proofs of
Claim and/or Transmittal Letters are accepted for
payment and shall withhold payment to any and all
persons described in subparagraph 7(a)(ii) hereof
until they receive written advice from Shearman &
Sterling pursuant to subparagraph 4(h) of the Set-
tlement Agreement, and shall, from time to time,
promptly make payment to those persons whose
Proofs of Claim and/or Transmittal Letters are no
longer the subject of dispute (i) pursuant to written
advice to such effect by Shearman & Sterling and
Austrian, Lance & Stewart, P. C. or (ii) pursuant to
a duly entered order of the Court resolving such a
dispute.
8. All plaintiffs and class members and their heirs,
executors, administrators, personal representatives, suc-
cessors and assigns are hereby permanently enjoined from
prosecuting any individual, class or derivative claims aris-
ing out of or relating to the matters set forth in the com-
Appendix A A49
plaints, including any claim related to the consummation
of the merger, other than a proceeding for appraisal pur-
suant to Section 262 of the Delaware General Corporation
Law, against any of the named defendants whether or not
served with a summons and complaint, their personal
representatives, trustees, heirs and assigns and, as to the
corporate defendants, in addition, their predecessors, suc-
cessors, parents, subsidiaries, affiliates and present or
former directors, officers, employees, attorneys and agents
or against any other person; and permanently enjoining all
members of the Common Stock Class from prosecuting any
derivative claims arising out of or relating to said matters.
9. Jurisdiction is hereby retained by this Court for the
purpose of entering such further orders as may be neces-
sary or appropriate in administering or effectuating the
provisions of the Settlement Agreement, including the ap-
plication by the attorneys for the classes for attorneys’ fees
and disbursements as set forth in the Settlement
Agreement.
Dated: New York, New York
November 18, 1976
Cares E. STewakt, JR.
U.S. D. J.
JUDGMENT ENTERED
November 18, 1976
RAYMOND F.. BuRGHARDT
Clerk
A50 Appendix B
APPENDIX B.
UNITED STATES COURT OF APPEALS
For THE SECOND CIRCUIT
At a stated Term of the United States Court of Ap-
peals for the Second Circuit, held at the United States
Courthouse in the City of New York, on the second day
of May, one thousand nine hundred and seventy-seven.
Present: Hon. WiLuiAM H. TIMBERS
Hon. ELLSwortuH A. VANGRAAFEILAND
Circuit Judges
Hon. RicHarp OwEN
District Judge
76-7578
Edward Brucker and Daniel R. Kaplan, as Trustees under
the Trust Agreement dated November 15, 1968 made
by Wiltrud E. Gadboys, as Grantor, Cecil G. Huskey,
E. T. Stratton and Norte & Co., a partnership com-
posed of Joseph C. Galdi and Rita D. Galdi,
' Plaintiffs,
o.
Indian Head, Inc., Thyssen-Bornemisza Europe N. V.,
Thyssen-Bornemisza, Inc., Thyssen-Bornemisza Hold-
ings, Inc., Marine Midland Bank, James G. Ferguson,
James M. Flack, Andrew Kalman, Paul W. McAlis-
ter, John E. O'Sullivan, Richard J. Powers, James E.
Robison, Robert M. Schwarzenbach, Marshall F.
Appendix B A51
Smith, Herbert E. Bachrach, Gerard B. Huiskamp,
White, Weld & Co., Incorporated, L. Emery Katzen-
bach, H. H. Thyssen-Bornemisza, R. L. Genillard
and Chemical Bank,
Defendants.
William B. Weinberger,
Plaintiff,
vo.
Richard J. Powers, James M. Flack, Andrew Kalman, Paul
W. McAlister, John E. O'Sullivan, James E. Robison,
Robert M. Schwarzenbach, Marshall F. Smith, James
G. Ferguson, Thyssen-Bornemisza, Inc., and Indian
Head, Inc.,
Defendants.
Shamrock Corporation, individually and on behalf of all
holders of Common Stock and Warrants of Indian
Head, Inc., similarly situated,
Plaintiffs,
v.
Indian Head, Inc., Thyssen-Bornemisza Group N. V.,
Thyssen-Bornemisza, Inc., White, Weld & Co., In-
corporated, Richard J. Powers, James E. Robison,
Herbert E. Bachrach, Gerard B. Huiskamp, L. Emery
Katzenbach, Marshall F. Smith, H. H. Thyssen-Bor-
nemisza, R. L. Genillard, Thyssen-Bornemisza Hold-
ings, Inc., and Chemical Bank,
Defendants.
Morton P. Rome and Marjorie T. Rome, trustees under
Trust Agreement made November 22, 1954 for the
benefit of Sally P. Rome,
Objectors-Appellants.
A52 Appendix B
AppEAL FROM THE Unirep States Districr Court
FOR THE SOUTHERN District oF New YORK.
Order.
This cause came on to be heard on the transcript of
record from the United States District Court for the
Southern District of New York, and was argued by counsel.
On ConsiDERATION WuHEREOF, it is now hereby or-
dered, adjudged, and decreed that the judgment of said
District Court be and it hereby is affirmed with costs to be
taxed against the appellant.
A. DANIEL FUSARO,
Clerk.
by ArTHUR HELLER,
Arthur Heller,
Deputy Clerk.
Appendix C A53
APPENDIX C.
Fifth Amendment to the Constitution of the United States.
No person shall be held to answer for a capital, or
otherwise infamous crime, unless on a presentment or
indictment of a Grand Jury, except in cases arising in the
land or naval forces, or in the Militia, when in actual
service in time of War or public danger; nor shall any
person be subject for the same offence to be twice put in
jeopardy of life or limb; nor shall be compelled in any
criminal case to be a witness against himself, nur be de-
prived of life, liberty, or property, without due process of
law; nor shall private property be taken for public use,
without just compensation.
The Rules Enabling Act, 28 U. S. C. § 2072.
The Supreme Court shall have the power to prescribe
by general rules, the forms of process, writs, pleadings, and
motions, and the practice und procedure of the district
courts of appeals of the United States in civil actions, in-
cluding admiralty and maritime cases, and appeals therein,
and the practice and procedure in proceedings for the re-
view by the courts of appeals of decisions of the Tax Court
of the United States and for the judicial review or enforce-
ment of orders of administrative agencies, boards, com-
missions, and officers.
Such rules shall not abridge, enlarge or modify any
substantive right and shall preserve the right of trial by
jury as at common law and as declared by the Seventh
Amendment to the Constitution.
Such rules shall not take effect until they have been
reported to Congress by the Chief Justice at or after the
i
A54 Appendix C
beginning of a regular session thereof but not later than
the first day of May, and until the expiration of ninety days
after they have been thus reported.
All laws in conflict with such rules shall be of no fur-
ther force or effect after such rules have taken effect.
Nothing in this title, anything therein to the contrary not-
withstanding, shall in any way, limit, supersede, or repeal
any such rules heretofore prescribed by the Supreme
Court.
Section 10(b) of the Securities Exchange Act of 1934;
15 U. S. C. § 78j(b).
Manipulative and deceptive devices
It shall be unlawful for any person, directly or in-
directly, by the use of any means or instrumentality of
interstate commerce or of the mails, or of any facility of
any national securities exchange—
(b) To use or employ, in connection with the pur-
chase or sale of any security registered on a national secu-
rities exchange or any security not so registered, any
manipulative or deceptive device or contrivance in contra-
vention of such rules and regulations as the Commission
may prescribe as necessary or appropriate in the public
interest or for the protection of investors.
Rule 10b-5—17 C. F. R. § 240.10b-5.
Employment of Manipulative and Deceptive Devices
It shall be unlawful for any person, directly or in-
directly, by the use of any means or instrumentality of
interstate commerce, or of the mails, or of any facility of
any national securities exchange,
Appendix C A55
(a) to employ any device, scheme, or artifice to de-
fraud,
(b) to make any untrue statement of a material fact
or to omit to state a material fact necessary in order to
make the statements made, in the light of the circum-
stances under which they were made, not misleading, or
(c) to engage in any act, practice, or course of busi-
ness which operates or would operate as a fraud or deceit
upon any person, in connection with the purchase or sale
of any security.
General Corporation Law of the State of Delaware,
Del. Code Ann. Tit. 8, § 259
§ 259. Status, rights, liabilities, etc., of constituent and
surviving or resulting corporations following merger
or consolidation
(a) When any merger or consolidation shall have be-
come effective under this chapter, for all purposes of the
laws of this State the separate existence of all the con-
stituent corporations, or of all such constituent corporations
except the one into which the other or others of such con-
stituent corporations have been merged, as the case may
be, shall cease and the constituent corporations shall be-
come a new corporation, or be merged into one of such
corporations, as the case may be, possessing all the rights,
privileges, powers and franchises as well of a public as of
a private nature, and being subject to all the restrictions,
disabilities and duties of each of such corporations so
merged or consolidated; and all and singular, the rights,
privileges, powers and franchises of each of said corpora-
tions, and all property, real, personal and mixed, and all
debts due to any of said constituent corporations on what-
ever account, as well for stock subscriptions as all other
A56 Appendix C
things in action or belonging to each of such corporations
shall be vested in the corporation surviving or resulting
from such merger or consolidation; and all property, rights,
privileges, powers and franchises, and all and every other
interest shall be thereafter as effectually the property of
the surviving or resulting corporation as they were of the
several and respective constituent corporations, and the
title to any real estate vested by deed or otherwise, under
the laws of this State, in any of such constituent corpora-
tions, shall not revert or be in any way impaired by reason
of this chapter; but all rights of creditors and all liens upon
any property of any of said constituent corporations shall
be preserved unimpaired, and all debts, liabilities and
juties of the respective constituent corporations shall
thenceforth attach to said surviving or resulting corpora-
tion, and may be enforced against it to the same extent as
if said debts, liabilities and duties had been incurred or
contracted by it.
(b) In the case of a merger of banks or trust com-
panies, without any order or action on the part of any
court or otherwise, all appointments, designations, and
nominations, and all other rights and interests as trustee,
executor, administrator, registrar of stocks and bonds,
guardian of estates, assignee, receiver, trustee of estates of
persons mentally ill and in every other fiduciary capacity,
shall be autoinatically vested in the corporation resulting
from or surviving such merger; provided, however, that any
party in interest shall have the right to apply to-an ap-
propriate court or tribunal for a determination as to
whether the surviving corporation shall continue to serve
in the same fiduciary capacity as the merged corporation,
or whether a new and different fiduciary should be
appointed.
Appendix C A57
Rule 23—Federal Rules of Civil Procedure.
Cass ACTIONS.
(a) Prerequisites to a Class Action. One or more
members of a class may sue or be sued as representative
parties on behalf of all only if (1) the class is so numerous
that joinder of all members is impracticable, (2) there are
questions of law or fact common to the class, (3) the
claims or defenses of the representative parties are typical
of the claims or defenses of the class, and (4) the repre-
sentative parties will fairly and adequately protect the
interests of the class.
(h) Class Actions Maintainable.. An action may be
maintained as a class action if the prerequisites of sub-
division (a) are satisfied, and in addition:
(1) the prosecution of separate actions by or against
individual members of the class would create a risk of
(A) inconsistent or varying adjudications with
respect to individual members of the class which
would establish incompatible standards of conduct
for the party opposing the class, or
(B) adjudications with respect to individual
members of the class which would as a practical
matter be dispositive of the interests of the other
members not parties to the adjudications or substan-
tially impair or impede their ability to protect their
interests; or
(2) the party opposing the class has acted or re-
fused to act on grounds generally applicable to the class,
thereby making appropriate final injunctive relief or cor-
responding declaratory relief with respect to the class as
a whole; or
A58 Appendix C
(3) the court finds that the questions of law or fact
common to the members of the class predominate over
any questions affecting only individual members, and that
a class
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