# Appendix — First Boston Corp. v. Chris-Craft Industries, Inc. > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385607_0737%3A4 ## Record - **Collection:** Supreme Court brief - **Document type:** Appendix - **Published:** January 1, 1973 - **Citation:** 414 U.S. 910 ## Text 1.2022 eso + ro. a No. 73-___- JUL 20 1973 ICHAEL RODAK, JR_.CLE T3832] 52 : — me In THE : Supreme Court of the United States October Term, 1973 Tue Fist Boston Corporation, Petitioner, v. Curis-Crart Inpusrriks, Inc., — 23-15 Bancor Punta Corporation, Nicotas M. Saco anp Davy W. Wa.uace, Petitioners, v. Curis-Crart Inpustries, Inc., Re dent. ; m 4 esponden Howarp Piper, Tuomas F. Piper anp Wiiu1am T. Piper, JR., Petitioners, v. Curis-Crart Inpvustrisrs, Inc., Respondent. JOINT APPENDICES TO PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT Counsel listed on First Page. WET eRe Ree Joun F, Arnine Cuartes W. SuLiivan 48 Wall Street, New York, New York 10005. Counsel for Petitioner The First Boston Corporation Suttivan & CROMWELL, Of Counsel. James V. Ryan f C. Kennern Suang, Jr. : One Rockefeller Plaza, F New York, New York 10020. Counsel for Petitioners Bangor Punta Corporation, Nicolas M. Salgo and David W. Wallace WessterR SHEFFIELD FLEISCHMANN Hircucock & BrooxkFieE.p, Of Counsel. Pavut G. PennoyeEr, JR. Epwarp C. McLean, Jr. ZacHaRY SHIMER 25 Broadway, New York, New York 10004. Counsel for Petitioners Howard Piper, Thomas F. Piper and William T. Piper, Jr. CHADBOURNE PARKE Wuitesie & Wo.rr Of Counsel. July 20, 1973. Decrees: 5 Copan kB INDEX Opinion of Judge Charles H. Tenney of the United States District Court of the Southern District of New York in Chris- Craft Industries, Inc. v. Piper Aircraft Corporation et al., dated August 19, 1969 Opinion of the Second Circuit Court of Appeals. Sitting in banc in Chris-Craft Industries, Inc. v. Bangor Punta Cor- poration and David W. Wallace, dated BON TE, TAR ci ene nemneennceen Opinion of Judge Milton Pollack of the United States District Court of the Southern District of New York in Securities and Exchange Commission v. Bangor Punta Corporation, dated BE Bs BEE ekeknuie cea nninenens Memorandum Opinion of Judge Milton Pollack of the United States District Court of the Southern District of New York in Securities and Exchange Com- mission v. Bangor Punta Corporation, dated September 17, 1971 ___----_____-_ Memorandum of Settlement of Judgment of Judge Milton Pollack of the United States District Court of the Southern District of New York in Securities and Exchange Commission v. Bangor Punta Corporation, dated November 17, 1971 Opinion of Judge Milton Pollack of the United States District Court of the Southern District of New York in Bangor Punta Corporation v. Chris-Craft Indus- tries, Inc. et al., dated December 10, 1971 co OC Aamo 8 i a AR Appendix A Appendix B Appendix C Appendix D Appendix EK Appendix F ii Opinion of Judge Milton Pollack of the United States District Court of the Southern District of New York in Chris- Craft Industries, Inc. v. Piper Aircraft Corporation, et al., dated December 10, SE io wank Seactscinioe ane e ea aewiamalls Opinion of the Second Circuit Court of Appeals in Chris-Craft Industries, Inc. v. Piper Aircraft Corporation et al.; Bangor Punta Corporation vy. Chris- Craft Industries, Inc.; and Securities and Exchange Commission v. Bangor Punta Corporation, dated March 16, 1973 Order of Second Cireuit Court of Appeals, Denying Petition for Rehearing, dated SEE Ts TEE weicinitnptneeinnnas Orders of Second Cireuit Court of Appeals, Denying Petition for Rehearing, in banc, URGE RTE Wy BOE ein ttieincecncce Appendix @ Appendix H Appendix I Appendix J APPENDIX A Opinion of Judge Charles H. Tenney of the United States District Court of the Southern District of New York in Chris-Craft Industries, Inc. v. Piper Aircraft Corporation et al., dated August 19, 1969 A-1 Judge Tenney’s Opinion CHRIS-CRAFT INDUSTRIES, INC., Plaintiff, v. PIPER AIRCRAFT CORPORATION et al., Defendants. No. 69 Civ. 2227. United States District Court S. D. New York. Aug. 19, 1969. Paul, Weiss, Goldberg, Rifkind, Wharton & Garrison, New York City, Arthur L. Liman, Sidney S. Rosdeitcher, Joseph J. Ackell, Alan L. Schlosser, New York City, of counsel, for plaintiff. Chadbourne, Parke, Whiteside & Wolff, New York City, Donald L. Deming, Richard B. Leather, Zachary Shimer, New York City, of counsel, for defendant Piper Aircraft Corp. and individually named members of Piper family. Webster, Sheffield, Fleischmann, Hitchcock & Brookfield, New York City, James V. Ryan, New York City, William L. D. Barrett, Nancy Pasley, of counsel, for Bangor-Punta Corp. OPINION TENNEY, District Judge. The instant suit arises out of the protracted and often bitter contest between plaintiff Chris-Craft Industries, Ine. (hereinafter referred to as ‘**Chris-Craft’’) and defendant A-2 Judge Tenney’s Opinion Bangor Punta Corporation (hereinafter referred to as ‘Bangor Punta’’) to gain control of defendant Piper Air. eraft Corporation (hereinafter referred to as ‘‘Piper’’), Alleging various violations by defendants of the Securities Act of 1933 and the Securities Exchange Act of 1934 and the Rules promulgated with respect to each such Act, Chris. Craft seeks an injunction pendente lite restraining Bangor Punta from: (1) accepting 107,574 shares of Piper common stock tendered by the public shareholders of Piper to Bangor Punta pursuant to the terms of Bangor Punta’s General Exchange Offer of July 18, 1969. Chris-Craft urges that these shareholders be given the opportunity to rescind their tenders after a ‘‘full and fair disclosure’’ has been made of the terms of Bangor Punta’s exchange offer; (2) acquiring additional shares of Piper; (3) effecting a merger or consolidation of Bangor Punta and Piper; and (4) voting 120,200 shares of Piper purchased in May 1969 by Bangor Punta in five large cash transactions, effected neither on a securities exchange nor from or through a broker or dealer. Piper is a publicly-held Pennsylvania corporation whose capital stock consists of 5,000,000 authorized shares of $1.00 par value common stock, of which approximately 1,641,890 shares are issued and outstanding. The Piper family, three of whom are members of Piper’s Board of Directors and defendants herein, own approximately 501,090 of the 1,641, 890 outstanding shares. Piper’s stock has been listed on the New York Stock Exchange (hereinafter referred to as ‘‘the Exchange’’) since 1957. Chris-Craft is a diversified manufacturer whose com- mon and preferred stock and convertible debentures are traded on the Exchange. Bangor Punta is a publiely-held diversified corporation whose stock and bonds are also listed on the Exchange. A-3 Judge Tenney’s Opinion In January 1969 Chris-Craft, in an effort to gain control of Piper, began acquiring shares of Piper on the open market. On January 23, 1969, Chris-Craft publicly an- nounced its interest in Piper and made a public tender offer for up to 300,000 shares of Piper stock at $65.00 per share with the ‘‘right to purchase excess shares.’’ Piper’s Board of Directors, by letter dated January 27, 1969, advised Piper stockholders that in their opinion Chris- Craft’s offer was inadequate and not in the best interests of Piper shareholders. Unsatisfied with the history of Chris-Craft’s management, Piper’s management and Board of Directors decided that the best interests of Piper and its shareholders required them to resist this attempted takeover. On January 30, 1969, the Board of Directors of Piper and the Grumman Aircraft Engineering Corporation (here- inafter referred to as ‘‘Grumman’’) approved an agree- ment whereby Piper would sell 300,000 of its authorized but unissued shares to Grumman for $65.00 per share, in con- templation of thereafter exploring the possibility of a merger with Grumman. This agreement, although never realized, adversely affected Chris-Craft’s cash tender offer, which expired on February 3, 1969. On February 27, 1969, Chris-Craft filed a proposed registration statement and prospectus with the Securities and Exchange Commission (hereinafter referred to as ‘‘the SEC’’) in which it proposed to offer to exchange certain Chris-Craft securities for up to 300,000 shares of Piper. Pursuant to its continuing efforts, on March 24, 1969 Piper issued 320,000 shares of its authorized but unissued common stock in exchange for all the outstanding stock of the United States Concrete Pipe Company of Florida, a subsidiary of a publicly-held investment company listed COP LmOAES A-4 Judge Tenney’s Opinion on the Exchange. At the same time, Piper exchanged 149,199 shares of its authorized but unissued common stock for approximately 9914 percent of the outstanding shares of Southply, Inc., a closely-held Louisiana corporation. The Board of Governors of the Exchange, with whom listing applications covering the issued shares were filed, felt that the distribution of almost 30 percent of Piper’s authorized stock violated the Exchange’s listing criteria. Accordingly, trading in Piper stock was suspended and delisting pro- ceedings authorized. When Piper’s management agreed to rescind these transactions, trading in Piper stock was re- sumed. While Piper’s prolonged efforts to fend off Chris-Craft raise serious questions as to the propriety of such conduct, this action has little relevance to the instant proceedings. For the issues raised herein relate solely to Bangor Punta’s exchange offer of July 18, 1969 and its purchases, for cash, of Piper stock in May 1969. In early January 1969, defendant First Boston Corpo- ration (hereinafter referred to as ‘‘First Boston’’), an in- vestment banking firm which serves as financial adviser to Piper, inquired whether Bangor Punta was interested in a possible acquisition of Piper. Although Bangor Punta responded affirmatively, nothing developed at that time. At a meeting convened on February 24, 1969, Bangor Punta explained that it would not consider attempting such an acquisition unless the Piper family sold their 501,090 shares to Bangor Punta. This condition was finally accepted by the Piper family on April 22, 1969. On May 7, 1969, Chris-Craft publicly announced the terms of its then pending registration statement which pro- posed an exchange offer of Chris-Craft stock for 300,000 to 400,000 shares of Piper. The following day, after pro- A-5 Judge Tenney’s Opinion tracted discussions with Piper’s representatives, a final agreement was entered into pursuant to which the Piper family agreed to exchange their shares for specified Bangor Punta securities. Additionally, the agreement provided that Bangor Punta would use its best efforts to acquire more than 50 percent of the outstanding shares of Piper stock. As part of those best efforts, Bangor Punta agreed to make an exchange offer to all other holders of Piper stock ‘‘under which such holders will be entitled to exchange each share of Piper common stock held by them for Bangor Punta securities and/or cash having a value, in the written opinion of The First Boston Corporation, of $80 or more.’’ The agreement further provided that if Bangor Punta succeeded in acquiring more than 50 percent of the outstanding Piper shares, and if, in the written opinion of First Boston, the value of the shares offered to the members of the Piper family was less than $80.00 on the opening day of the exchange offer, Bangor Punta would deliver to the mem- bers of the Piper family securities and/or cash with a value “equal to the difference between $80 and the Exchange Offer Value.’? No agreement had been reached at that time as to the components of the proposed package of Bangor Punta securities to be offered to the public Piper shareholders. Later that same day, Bangor Punta and Piper issued identical press releases announcing that they had reached an agreement under which Bangor Punta would acquire the Piper family’s interest in Piper and that: ‘Bangor Punta has agreed to file a registration state- ment with the SEC covering a proposed exchange offer for any and all of the remaining outstanding shares of Piper Aircraft for a package of Bangor Punta securi- ties to be valued in the judgment of the First Boston Corporation at not less than $80 per Piper share.’’ A-6 Judge Tenney’s Opinion At that time, Piper stock was selling on the Exchange at approximately sixty dollars.’ On May 26, 1969, the SEC instituted an action against Bangor Punta and Piper in the United States District Court for the District of Columbia. Therein, the SEC charged that the May 8th press release was ‘‘gun-jumping”’ in viola- tion of Section 5(c) of the Securities Act of 1933, as amended, 15 U.S.C. § 77e(e),? and SEC rule 135. Without admitting any of the allegations of the complaint, Bangor Punta and Piper consented to the entry of a final judgment of permanent injunction which enjoined them, infer alia, from offering to sell or from selling either of their securities until a registration statement was filed with the SEC as to such securities. Bangor Punta filed its registration statement with the SEC covering its exchange offer on May 29, 1969. Included in the filing, as an exhibit to the registration statement, was a copy of the agreement of May 8, 1969. Preliminary prospectuses in the form contained in the registration statement were sent by Bangor Punta to all Piper share- holders of record on the same day the registration state- ment was filed. It became effective on July 18, 1969 and ex- pired on July 29, 1969. Bangor Punta now owns 728,864 shares of Piper, or 44.4 percent of its outstanding stock. As a result of its ! Affidavit of John E. Flick, dated August 4, 1969, at 10. 2Section 5(c) of the Securities Act of 1933, as amended, 15 U.S.C. § 77e(c), provides: “It shall be unlawful for any person, directly or indirectly * * * to offer to sell or offer to buy through the use or medium of any prospectus or otherwise any security, unless a registration statement has been filed as to such security * * *.” A-7 Judge Tenney’s Opinion most recent exchange offer, which terminated on August 4. 1969, Chris-Craft has now acquired a total of at least 654,000 shares of Piper, or approximately 39.8 percent of its outstanding shares. With approximately 259,026 shares of Piper still in the hands of the public, it would appear that at this time neither Chris-Craft nor Bangor Punta has succeeded in gaining control of Piper. {1] Chris-Craft argues that the May 8th identical press releases of Bangor Punta and Piper constituted flagrant violations of Section 5(¢) of the Securities Act of 1933, as amended, 15 U.S.C. § 77e(c) and SEC Rule 135, 17 C.F.R. § 230.135, in that no registration statement had been filed with the SEC prior thereto. Until the actual execution of the May 8th agreement, only top management personnel and their confidential ad- visors had been advised of the negotiations with Piper. Upon execution, however, it became necessary to involve a great many other persons in the arrangements, such as an indenture trustee, independent auditors, printers, outside counsel and stenographers. Maintenance of security against premature disclosure of the terms of agreement heeame virtually impossible? Since the $80.00 figure set by the terms of the agreement was substantially above the market price for a share of Piper stock, the opportunity for stock manipulations and unfair dealings in Piper stock by those who may have learned of the agreement prior to its becoming public knowledge was apparent. The May 8th press release would therefore appear both desirable and consonant with the directives of Securities & Exch. Comm’n v. Texas Gulf Sulphur Co., 401 F.2d 833 (2d Cir. 1968), cert. denied, Coates v. Securities & Exch. Comm’n, 394 US. 976, 89 S.Ct. 1454, 22 L.Ed.2d 756 (1969). Further, ee 3 Supra note 1 at 9. A-8 Judge Tenney’s Opinion the guidelines for press releases issued by the Exchange on July 19, 1968 support this policy of timely disclosure, ‘‘Negotiations leading to acquisitions and mergers, stock splits, the making of arrangements preparatory to an exchange, or tender offer, * * * are the type of developments where the risk of untimely and inadvert- ent disclosure of corporate plans is most likely to occur, Frequently, these matters require discussion and study by corporate officials before final decisions can be made, Accordingly, extreme care must be used in order to keep the information on a confidential basis. ‘‘Where it is possible to confine formal or informal discussions to a small group of the top management of the company or companies involved and their individ ual confidential advisors where adequate security can be maintained, premature public announcement may properly be avoided. * * * ‘*At some point it usually becomes necessary to involve other persons to conduct preliminary studies or assist in other preparations for contemplated trans- actions, e. g., business appraisals, tentative financing arrangements, attitude of large outside holders, avail- ability of major blocks of stock, engineering studies, market analyses and surveys, ete. Experience has shown that maintaining security at this point is virtu- ally impossible. Accordingly, fairness requires that the Company make an immediate public announcement as soon as confidential disclosures relating to such in- portant matters are made to ‘outsiders.’ ‘‘The extent of the disclosures will depend upon the stage of discussion, studies, or negotiations. So far as possible, public statements should be definite as to price, ratio, timing and/or any other pertinent information A-9 Judge Tenney’s Opinion necessary to permit a reasonable evaluation of the mat- ter. As a minimum, they should include those dis- closures made to ‘outsiders’.’? (Emphasis added.) New York Stock Exchange Company Manual at A-19 (July 19, 1968). Section 5(c) of the Securities Act of 1933 makes it unlaw- ful for any person directly or indirectly, to offer to sell or offer to buy any security unless a registration statement has been filed as to such security. The May 8th press release, however, merely asserts that Bangor Punta has agreed to file a registration statement with the SEC covering a pro- posed exchange offer for any and all of the remaining out- standing shares of Piper for a package of Bangor Punta securities. On its face, this press release cannot itself be construed as an offer to sell or buy securities. This view is supported by SEC Rule 135, which, in pertinent part, provides: ‘“*(a) For the purposes only of Section 5 of the Act, the following notices sent by an issuer in accordance with the terms and conditions of this rule shall not be deemed to offer any security for sale: ‘“*(2) A notice to any class of security holders of such issuer or of another issuer advising them that it proposes to offer its securities to them in exchange for other securities presently held by such security holders * * *.” (Emphasis added.) Chris-Craft argues further than in addition to Section d(c) and Rule 135, Rules 10b-5, 17 C.F.R. § 240.10b-5, and 10b-6, 17 C.F.R. § 240.10b-6, forbid a person making an ex- change offer from placing a value on the securities being A-10 Judge Tenney’s Opinion offered, since any opinion as to value might be self-serving and misleading. SEC Rule 135 provides that ‘‘(a) notice to any class of security holders * * * advising them that it proposes to offer its securities to them in exchange for other securities presently held by such security holders * * * — shall con. tain * * * the name of the issuer and the title of the securities to be surrendered in exchange for the securities to be offered, [and] the basis upon which the exchange is pro- posed tobe made * * *.”’ Since, as previously noted, the precise components which were to comprise the package of Bangor Punta securities to be offered for each share of Piper had not been deter- mined at the time of the May 8th press release, Bangor Punta and Piper could do no more than set forth the basis upon which the exchange offer was proposed in the same terms as contained in the May 8th agreement. Additionally, since the Exchange’s guidelines for press releases pre- scribed that ‘‘[s]o far as possible, public statements should be definite as to price, ratio, timing and/or any other pertinent information necessary to permit a reasonable evaluation of the matter’’, the reference to the $80.00 figure cannot be deemed unjustified. Nor ean it be said, as Chris-Craft urges, that Piper and Bangor Punta have, by means of the May 8th press release and the latter’s preliminary and final prospectuses, deliber- ately misled the public into believing that Bangor Punta would, in exchange for each share of Piper, tender securities immediately salable for $80.00, in violation of Sections 9, 10(b) and 14(e) of the Securities Exchange Act of 193+ as amended 15 U.S.C. § 78i, 15 U.S.C. § 78j(b), 15 U.S.C. §78n (e), respectively, and of the rules promulgated with respect to each such Act. A-11 Judge Tenney’s Opinion On July 18, 1969, First Boston rendered a formal opinion to Bangor Punta and Piper that based on the market and other conditions existing prior to the opening of business on July 18, 1969, the combination of securities provided for in the general exchange offer outlined in the registration statement had a value of not less than $80.00. Such a determination, of course, is normally not a me- chanical task but is essentially a matter of judgment. This evaluation was arrived at by a committee of eleven experi- enced and knowledgeable personnel. In reaching its col- lective judgment, the committee met on two different occa- sions to consider all the facts they deemed relevant. Additionally, over six weeks were spent in preparing the material upon which the committee relied.4 No persuasive argument has been presented to the effect that the value placed on the package of Bangor Punta securities by First Boston was not reached in good faith. Surely, there is no basis for implying from the May 8th press release that such value would endure for the duration of the exchange offer, or be immediately realizable on any particular day. The vagaries of the marketplace belie such a construction. The value placed on the package may vary from buyer to buyer and from day to day. With this in mind, Bangor Punta specified at two places in its final prospectus, at the in- sistence of the SEC, that: ‘‘No guarantee of, or representation as to, the value of the securities offered by Bangor Punta pur- suant to the Exchange Offer is or can be made.’’ ‘Clear misleading statements need be shown * * * be- fore this court ean enjoin a tender offer. * * * In the in- stant case the plaintiffs have failed to show clear mislead- * Affidavit of John S. Buckley, dated August 4, 1969, at 2. A-12 Judge Tenney’s Opinion ing representations in the tender offer or the absence of statements in the tender offer which in combination with other representations would lead to a conclusion that fraud was being perpetrated upon unsuspecting shareholders.” Jacobsen Mfg. Co. v. Sterling Precision Corp., 282 F.Supp. 598, 603 (E.D.Wis.1968); Fleischer and Mundheim, Cor. porate Acquisition by Tender Offer, 115 Penn.L.Rev. 317, 338 (1967). [2] Chris-Craft’s contention that the letters of June 4 and June 20, 1969, sent to all Piper shareholders by W. T. Piper, Jr., Chairman of the Board of Directors and Presi- dent of Piper, urging acceptance of the Bangor Punta ex- change offer, violated Section 14(e) of the Securities Ex- change Act of 1934, as amended, 15 U.S.C. § 7Sn(e), in failing to disclose that the Piper family might obtain addi- tional securities if Bangor Punta was successful in gaining control of Piper, is unsound. This adjustment, provided for in the agreement of May 8th, was designed to compen- sate the Piper family for having fixed its exchange package more than two months prior to the effective date of the ex- change offer and at a lower value than the initial package offered to the public. Simply put, it merely provided pro- tection for the Piper family should the market value of the securities they were to receive be less than the value of the securities offered to other Piper shareholders. Realisti- eally, I cannot say that there is a substantial likelihood that but for this omission in the letters of June 4 and June 20, 1969, a Piper shareholder would have accepted the Chris- Craft exchange offer rather than the Bangor Punta ex- change offer. See General Time Corp. v. Talley Indas, Inc., 403 F.2d 159, 162 (2d Cir. 1968), cert. denied, 393 US. 1026, 89 S.Ct. 631, 21 L.Ed.2d 570 (1969). A copy of the agreement of May 8th, which contained this provision, was filed with the SEC on May 29, 1969, as (7122 App. A) A-13 Judge Tenney’s Opinion an exhibit to the registration statement. Further, James J. Rochlis and C. Leonard Gordon, officers and directors of Chris-Craft, explained this provision in detail in a letter sent to all Piper shareholders prior to the issuance of Bangor Punta’s final prospectus. At the suggestion of the SEC, reference to the possibility that the Piper family’s package might be increased in the event Bangor Punta ob- tained control of Piper was printed on the cover page of Bangor Punta’s final prospectus.. ‘Surely stockholders, once informed of the facts, have a right to make their own decisions in matters pertaining to their economic self- interest, Whether consonant with or contrary to the advice of others, whether such advice is tendered by management or outsiders or those motivated by self-interest.’’? Ameri- ean Crystal Sugar Co. v. Cuban-American Sugar Co., 276 F.Supp. 45, 50 (S.D.N.Y.1967). [3] Rule 10b-6, 17 C.F.R. § 240.10b-6, provides that it shall constitute a ‘‘manipulative or deceptive device or con- trivance’’ under Section 10(b) of the Securities Exchange Act of 1954, 15 U.S.C. § 78j(b), for an underwriter to pur- chase securities while he is still participating in their distri- bution.” R.A. Holman & Co. v. Securities & Exch. Comm’n, 566 F.2d 446 (2d Cir. 1966), opinion amended on rehearing, 377 F.2d 665 (2d Cir.), cert. denied, 389 U.S. 991, 88 S.Ct. 73, 19 L.Ed.2d 482 (1967), rehearing denied, 389 U.S. 1060, 88 S.Ct. 767, 19 L.Ed.2d 867 (1968). Manipulation was one of the basie evils with which Congress was concerned in enacting statutes to regulate the securities market. See * Affidavit of John J. Martin, dated August 4, 1969, at 4-5. ®“Distribution” comprises “the entire process by which in the course of a public offering the block of securities is dispersed and ultimately comes to rest in the hands of the investing public.” Lewisohn Copper Corp., 38 S.E.C. 226, 234 (1958). A-14 Judge Tenney’s Opinion Section 2(3) of the Securities Exchange Act of 1934, 15 U.S.C. §78b(3). Manipulation was often accomplished by those about to sell securities or already engaged in selling them, bidding on the market for the same securities, thereby creating an unjustifiable impression of market activity which would facilitate the sale at artificially high prices, As was noted in Securities & Exch. Comm’n v. Scott Taylor & Co., 183 F.Supp. 904, 907 (S.D.N.Y.1959): **'This was one of the practices which the Securities Exchange Act was designed to eradicate, and it is the practice which is covered by Rule X-10B-6."’ (Footnotes omitted.) (Em- phasis added.) Weitzen v. Kearns, 271 F.Supp. 616, 623 (S.D.N.Y.1967) ; Securities & Exch. Comm'n vy. Electronies Security Corp. 217 F.Supp. 831, 836 (D.Minn.1963), Bangor Punta’s cash purchases of 120,200 shares of Piper in five transactions in May 1969, effected neither on the Exchange nor from or through a broker or dealer, were obviously not designed to place market pressures on the distribution price of Piper, so as to create an artificially high price for this security. Any increase in the price of Piper shares as a result of these transactions would obvi- ously serve only to make Bangor Punta’s exchange offer appear less desirable to Piper shareholders. The SEC has recently proposed Rule 10b-13, whieh would prohibit a person making a cash tender or exchange offer for any equity security from purchasing such secuti- ties otherwise than pursuant to the cash tender or exchange offer. Although the release states that this new Rule is, in effect, a codification of existing interpretations under Rule 10b-6,7 this Court has been unable to find, and has not heen referred to, any support therefor. Moreover, the re- cent decision in Armour & Co. v. General Host Corp., 2% 7 Release No. 34—8595, May 5, 1969, CCH § 77,706. A-15 Judge Tenney’s Opinion F.Supp. 470, 476 (S.D.N.Y.1969), would appear to the con- trary. ‘*(Sjubstantial legal issues exist whether Rule 10-b(6) is applicable at all to the instant transactions. The principal question is whether subsection (b) of the Rule applies to the stock of the ‘target’ corporation [Piper], as well as that of the distributor.”’ Finally, in considering Chris-Craft’s contentions that Bangor Punta and Piper have violated the terms of the final judgment of permanent injunction in making various statements which have been attributed to them by the press, itis well to remember that such episodes may reflect ‘‘the difficulties commonly experienced in answering skilled and energetic reporters who seek more definiteness than there is, and the frailties inevitable in human communica- tion* * *.** Electronie Specialty Co. v. International Con- trols Corp. 409 F.2d 937, 951 (2d Cir. 1969). This, of course, would appear especially true when both Piper and Bangor Punta have expressly denied ever making such statements.’ It has been frequently noted that a preliminary injune- tion is an extraordinary equitable remedy which will be granted only upon a showing by the applicant therefor that it will probably sueceed on the trial and that it will suffer irreparable injury if the defendant is not restrained from certain activity pending trial. American Metropolitan Enterprises of N. Y., Ine. v. Warner Bros. Records, 389 F.2d 903 (2d Cir. 1968), and the eases cited therein; Clairol Ine. v. Gillette Co., 389 F.2d 264 (2d Cir. 1968) (prelim- inary injunction will not be granted except upon a clear showing of probable success). * Affidavit of Donald L. Deming, dated August 4, 1969, at 16; supra note 1 at 14-15, A-16 Judge Tenney’s Opinion [4] As previously noted, both the Chris-Craft and Bangor Punta exchange offers have expired. Neither party has gained control of Piper, and both are still in a position to do so. Although a finding by the trial coun that plaintiff will ultimately prevail on the merits is not required before issuing a preliminary injunction when, as here, there would appear to be a lack of an adequate show- ing of irreparable damage, the party seeking a preliminary injunction has the burden of convincing the trial court with reasonable certainty that it will succeed upon the trial. Unicon Management Corp. v. Koppers Co., Inc., 366 F.2d 199, 204-05 (2d Cir. 1966). To show irreparable injury, Chris-Craft must at least demonstrate that ‘‘unless an injunction is granted, the plaintiff will suffer harm whieh cannot be repaired.’’ Studebaker Corp. v. Gittlin, 360 F.2d 692, 698 (2d Cir. 1966). No such showing has been made herein; nor does it appear that the ‘‘ balance of hard- ships’’ tip decidedly toward plaintiff. [5] ‘*The historic injunctive process was designed to deter, not to punish.’’ Hecht Co. v. Bowles, 321 U.S. 321, 329-30, 64 S.Ct. 587, 592, 88 L.Ed. 754 (1944); Hambros Bank, Ltd. v. Meserole, 287 F.Supp. 69, 72 (S.D.N.Y.1968). The conduct of Bangor Punta must be tested, as the Court of Appeals for the Second Circuit noted in both Electronic Specialty Co. v. International Controls Corp., supra at 98 of 409 F.2d, and Symington Wayne Corp. v. Dresser Indus- tries, Inc., 383 F.2d 840, 843 (2d Cir. 1967), by whether ‘* ‘any of the stockholders who tendered their shares would probably not have tendered their shares if the alleged vio- lations had not occurred.’ ’’ After careful consideration, | cannot say that in the instant suit such would have been the case. The equities of the situation would, therefore, appear to speak against the issuance of a preliminary it- junction. Armour & Co. v. General Host Corp., supra at 475 of 296 F.Supp. A-17 Judge Tenney’s Opinion It is not unlikely that further exchange offers to the remaining public shareholders of Piper may now be con- templated both by Bangor Punta and Chris-Craft. In this respect, the, it is wise to recall, as was noted in Sherman y. Posner, 266 F.Supp. 871, 874 (S.D.N.Y. 1966), that: ‘‘(Nlo matter how clearly it was indicated other- wise, the issuance of the injunction undoubtedly would be viewed by some [of these Piper shareholders] as a favorable adjudication of the claims of the plaintiff. This would be tantamount to a determination of wrongdeing on the part of the*** [Bangor Punta] management. Just how this result could be remedied in the event it was found at a full hearing that the claims of the plaintiff were unfounded is not readily perceptible to this court.’’ See Kauder v. United Board & Carton Corp., 199 F.Supp. 420, 424 (S.D.N.Y. 1961); Mack v. Mishkin, 172 F.Supp. 885, 889 (S.D.N.Y. 1959). Accordingly, and for the foregoing reasons, plaintiff’s motion is in all respects denied. So ordered. mA — Pobre aye APPENDIX B Opinion of the Second Circuit Court of Appeals. Sitting in banc in Chris-Craft Industries, Inc. v. Bangor Punta Corporation and David W. Wallace, dated April 28, 1970 B-1 UNITED STATES COURT OF APPEALS For THE Seconp Circuit No. 249—September Term, 1969. (Submitted to the court in banc February 2, 1970* Decided April 28, 1970.) Docket No. 33983 Curis-Crart Ixpustries, Inc., Plaintiff-Appellant, Vv. Baxcor Punta Corporation and Davin W. Wa.tace, Defendants-A ppellees. Before: LumBarp, Chief Judge, WaterMAN, Moore, Frienpiy,** Smitu, KavrMan, Hays, ANvERson and FeErnserc, Circuit Judges. * Argued on September 19, 1969 before a division of the court composed of Chief Judge Lumbard and Judges Waterman and Kauiman. After the filing of panel opinions on November 6, 1909 a petition for rehearing with suggestion that the full court also rehear the case was timely filed. The division denied the rehearing petition as of January 12, 1970, but a rehearing in banc was then granted, the in banc reconsideration to be had without further oral argument. The parties were granted permission to file further briefs on or before February 2, 1970. ae eer ; ‘ After the nine active judges decided to rehear the case in banc Judge Friendly refrained from any further participation in the dis- position of the case. April 28, 1970, Second Circuit Opinion Appeal from an order denying a motion for an injure. tion pendente lite, United States District Court for the Southern District of New York, Tenney, J. Order aftirmed. However, as the rationale of affirming opinion differs materially from rationale of opinion below the case is re- manded for further proceedings. Artuur L. Limay, Joseru J. AcKELL, Atay J, Scutosser, Pavi, Weiss, GoLpBerc, Riki), Wuarton & Garrtsox, New York City, fu Plaintiff-Appellant. James V. Ryax, Wittiam L. D. Barrerr, Naser L. Pastey, Wepster, SHEFFIELD, FLeIscu- MANN, Hircucock & BrookrieLp, New York City, for Defendants-Appellees. Pau G. Pexnoyer, Jr., Zacuary Surmer, Inet Conrad WaArSHAUER, CHADBOURNE, Parke. Wuitesie & Woxtrr, New York City, for Piper Aircraft et al. Puiuie A. Loomis, Jr., General Counsel: David Ferber, Solicitor; Meyer Eisenberg, Asso- ciate General Counsel; Harvey A. Rowen. Attorney, Securities & Exchange Commis sion, for Amicus Curiae. Waterman, Circuit Judge: Plaintiff-appellant, Chris-Craft Industries, Inc., appeals from the denial of an order entered below in the United States Distriet Court for the Southern Distriet of New York denying appellant’s motion for a preliminary injunction te B-3 April 28, 1970, Second Circuit Opinion restrain Bangor Punta Corporation from gaining and ex- ercising control of Piper Aircraft Corporation pending a trial on the merits of whether certain shares of Piper were acquired by Bangor Punta in violation of governing Rules of the Securities and Exchange Commission. We affirm the denial of the preliminary injunction but remand the ease to the district court for further proceedings there not in- consistent with the within opinion. This litigation comes at the end of a hard fought battle between Chris-Craft Industries and Bangor Punta Corpo- ration for control of Piper Aireraft Corporation. The eon- test opened in January 1969 when Chris-Craft began to acquire Piper shares on the open market. At that time Piper had 5,000,000 authorized shares of $1.00 par common stock of which 1,641,890 shares were issued and outstand- ing. In January 1969 Chris-Craft made a publie exchange offer for 800,000 Piper shares, and by February these efforts had gained Chris-Craft 34 per cent of the then outstanding Piper stock. On February 27, 1969, Chris-Craft filed with the Securities and Exchange Commission a reg- istration statement and proposed prospectus for an ex- change offer for an additional 300,000 shares. Still another exchange offer was announced by Chris-Craft on May 7 and became effective July 24. Chris-Craft’s bid for control met strong resistance from the Piper family and Piper management, who owned 501,090 shares (31 per cent of the outstanding shares), and con- sidered Chris-Craft to be a corporate raider. The manage- ment advised other Piper shareholders that Chris-Craft’s tender offer was inadequate but offered 300,000 of Piper’s authorized but unissued shares to Grumman Aircraft Cor- poration at the same price that Chris-Craft had offered. Althongh this transaction was never consummated, Piper initially advertised that Grumman had agreed to purchase B-4 April 28, 1970, Second Circuit Opinion the Piper shares and the court below noted that Chris. Craft’s tender offer was adversely affected by this publicity, Subsequently, on March 22, the Piper management issued 469,199 shares of authorized but unissued stock to acquire control of two subsidiary corporations, United States Con- crete Pipe Company of Florida and Southply, Inc. Piper failed to seek the approval of the New York Stock Hxchange and of its own shareholders as its listing agreeement with the Exchange provided it should before issuing a signif- eant new block of stock. Therefore, the Exchange refused to approve Piper’s listing application. When the Exchange shortly afterward suspended trading in Piper shares and authorized proceedings before the SEC to delist Piper, Piper rescinded both transactions and trading in its shares was resumed. At this juncture, in April 1969, the Piper family resumed talks which had begun as early as January with Bangor Punta Corporation. These negotiations bore fruit on May 8, when the two groups agreed that the family would exchange its 501,090 shares for specified Bangor Punta securities. Bangor Punta agreed in addition to use its best efforts to acquire enough additional Piper shares to make it the holder of more than 50% of the shares out- standing. As part of these best efforts, Bangor Punta agreed to make an exchange offer to all Piper shareholders ‘*under which such holders will be entitled to exchange each share of Piper common stock held by them for Bangor Punta securities and/or cash having a value, in the written opinion of The First Boston Corporation, of $80 or more.” If Bangor Punta succeeded in acquiring 50% or more of the stock, the consideration paid by Bangor Punta would be increased to make up to the Piper family the difference. if any difference there were, between the value of the pack- age specified in the agreement and $80 per share. B-d April 28, 1970, Second Circuit Opinion The two occurrences which form the basis of Chris- Craft’s complaint followed the negotiation of this contract. The first of these occurrences was the issuanee by Bangor Punta and the Piper management of press releases an- nouncing the transaction on May 8, the day the contract was signed and the day after Chris-Craft announced the terns of its second exchange offer. After stating that the Piper family would receive Bangor Punta securities for their shares, the Bangor Punta press release continued as follows: Bangor Punta has agreed to file a registration state- ment with the SEC covering a proposed exchange offer for any and all of the remaining outstanding shares of Piper Aireraft for a package of Bangor Punta se- curities to be valued in the judgment of The First Boston Corporation at not less than $80 per Piper share. The registration statement covering all secur- ities to be issued will be filed as soon as possible and a meeting of the shareholders of Bangor Punta Corporation will be called for approval. Mr. Piper said that in view of Bangor Punta’s long- standing policy of maintaining autonomy in the man- agement of its operating companies, and the similarity of operating philosophies between the two companies, he and the Piper family would strongly support the merger and would recommend it to all shareholders. Mr. Wallace said Bangor Punta weleomed the as- sociation with Piper Aircraft, its world-wide distribu- tion, and its prestigious product name. He said the consolidation would align the Piper Aircraft name with other leading Bangor Punta companies, including Smith & Wesson, Starcraft Company, and Waukesha Motor Company. 5-6 April 28, 1970, Second Circuit Opinion Bangor Punta manufactures a wide variety of reere- ational vehicles including sailboats, houseboats, snow. mobiles, campers, trailers and motor homes. A merger of Bangor Punta and Piper As noted infra the sale of BAR stock took place October 2. 1%® and was fer $5 million in cash, a figure some $13.5 million below the carrying value of BAR on Bangor Punta’s financial statements. C-3 Judge Pollack’s August 25, 1971 Opinion then a reasonable probability of a sale. It contends that it was not required to make any reference in the prospectus of July 18, 1969 to the sale or to any steps leading to sale.* The evidence adduced upon trial established the follow- ing facts. On or about May 29, 1969 Bangor Punta filed with the Commission a registration statement and prospectus for an offering of its securities to holders of Piper common stock in exchange for their shares of Piper. The registration statement beeame effective on July 18, 1969 and the pros- pectus was sent thereafter to all Piper shareholders. On this offering, Bangor Punta obtained 111,628 shares of Piper Aireraft or about 7° of the 1,644,790 shares of Piper Air- eraft common stock outstanding. There is no information in the prospectus suggesting consideration or pendeney of a sale in June, July or August, 1959. Bangor Punta did sell its stock in BAR to Amoskeag Corporation (** Amoskeag*’) on October 2, 1969 at a price of $5 million in eash plus certain contingent payments later deseribed. The historie cost of BAR‘s assets, less depreciation and other accounting adjustments and less liabilities was about 29.8 million. However, the financial statements in’ the prospectus earry Bangor Punta’s interest at $18.4 million, a figure which retleets an appraised value of the BAR shares as of September, 1965. The history of this figure is as follows: Tatil 1961, BAR was an independent company. It then beeame a subsidiary of The Banger and Aroostook Corpo- * Bangor Punta has alleged affirmatively that the administrative staff of the Commission, te evercome its own errors and shortcem- ings, has engaged in a course of conduct, the intended result of which has been to interfere on behalf of and to favor Chris-Cratt Corpora- ton in its struggle with Banger Punta fer control of Piper. a struggle which has been geing on since May, 1909. No proof was adduced to support this contention. Ae RY ae RP ARID FI C-4 Judge Pollack’s August 25, 1971 Opinion ‘cation (the **Corporation’’) whieh had been formed as a holding company. Duri>¢ 1960 and 1961 the Corporation offered its seeurities te | \R shareholders in exchange for their BAR shares and ..\juired more than 98° of BAR's outstanding shares. Based on the market price of BAR shares on the New York Stock Exchange before they were delisted in 1961, the Corporation's interest was worth $8.1 million and the Corporation carried the BAR interest at this figure in its financial statements. In 1964, the Corporation combined with Bangor Punta (a wholly-owned subsidiary of Punta Alegre Sugar Corpo- ration). Although Bangor Punta could have shown its equity in the net assets of the BAR at $29.8 million, it elected to earry forward the figure appearing on the books of the Corporation, viz., $8.1 million. It is elaimed that this was done beeause of a strong possibility that BAR was to be dis- posed of promptly. By September, 1965 that possibility had evaporated. But, instead of restating the carrying value of BAR at the amount of Bangor Punta’s equity inter- est in BAR on a historieal cost basis (whieh would have resulted in a carrying figure of $29.8 million) or at its or its predecessor's cost, Bangor Punta obtained an appraisal from investment banking houses with knowledge of the rail- road industry. Based on their recommendation as to ap- proximate fair market value Bangor Punta restated the BAR holding at $18.4 million—approximately. $10 million less than its equity in the underlying net asset value of the railroad on an historical cost basis and $10 million more than the former earrying figure. The difference between the former carrying figure of $8.1 million and the new ap- praised value of $18.4 million was eredited direetly te Bangor Punta’s earned surplus, by-passing the profit and loss account. This treatment had been the subjeet of inquiry C-5 Judge Pollack’s August 25, 1971 Opinion by the Commission in connection with a prior registration statement and, after explanations were made, the Commis- sion dropped the matter. Except for minor accounting adjustments the $18.4 million carrying value of BAR established in 1965 remained unchanged and was reflected in the 1969 registration. Bangor Punta’s management had, for some time, sought ameans of separating out BAR ina way which would permit its continued operation as a railroad. Discussions to that end were held within Banger Punta in 1967 and 1968 and continued inte 1969. Several methods were speculated on: viz. the ereation of a New England Railroad System by eombining the BAR with the Maine Central and Boston and Maine Railroads; an acquisition of the Delaware and Hud- son Corporation to combine its railroad with the BAR; a spin off of BAR or a rights offering to the Bangor Punta stockholders. Prior to April of 1969 there seemed to be no prospect of a buyer for the railroad. On April 1, 1969 Banger Punta appointed a committee to study the possible divestiture of BAR. The committee consisted of Curtis M. Hutehins, a director and member of the Exeeutive Committee, Gordon Robertson, eo-Chairman of the Board and Chairman of the Exeeutive Committee, Robert G. Stone and George H. Siel, Directors of the rail- road. Messrs. Hutchins and Robertson were both past presidents of the railroad. This was a highly knowledge- able group on matters pertaining to the railroad and its problems. Some weeks after the Committee was appointed Amos- keag Company through its president, Frederic C. Dumaine, made an offer to C. M. Hutehins for the railread of $5 million in eash. Dumaine had long and aetive experience in the railroad business as an operator. Amoskeag was a | COPAT UIE — a rey Sa FECA NES C-6 Judge Pollack’s August 25, 1971 Opinion registered investment company with investments in th, Maine Central Railroad Company among other enterprises, Dumaine’s price was merely the amount of the savings j) operating expenses which he estimated could be etfected if the Maine Central and BAR were combined. Hutchins told Dumaine—in response to his query—that Bangor Punta might dispose of its interest in the railroad if the priee was right. To Dumaine’s offer of $5 million— for either the assets or the stoeck*—Hutehins responded that this was exceedingly low but that he would convey it to the management. Essential details—ineluding the railread’s ‘ash flow figures; its balance sheet and a five year forecast, both eash and profit and loss—were furnished to Dumnaine at a second meeting with Hutchins. Dumaine reatlirmed his $5 million offer as his highest priee. Hutehins explained that he had no authority except to explore possibilities of divestiture of the railroad; he had no power of decision. Hutehins and the Committee members with whom he conferred concluded that sale of BAR stock to Amoskeag at the proferred price of $5 million was the ‘**best course for Bangor Punta to pursue.”’ The company’s independent auditors were asked about the accounting treatment which would be atforded a sale of the railroad for $5 million. On May 20, 1969 they reported that such a sale would be treated on the financial statements of Bangor Punta as an extraordinary loss of about $15. million. On May 21, 1969 at a meeting of Bangor Punta’s Board of Directors, Hutehins, speaking for all the members of his Committee, stated that there were three possibilities for the 4Dumaine’s offer soon narrowed to one for the stock only and remained such through the negotiations. C-7 Judge Pollack’s August 25, 1971 Opinion future of BAR. Bangor Punta might (1) keep the railroad as is, (2) continue to seek to merge it with another railroad, or (3) sell BAR at the best possible price. He discussed each of these possibilities. In respect of the third possibi- lity, he stated that the only person he knew who might be interested in a purchase was Dumaine, of Amoskeag. He reported that preliminary diseussions with Dumaine indi- eated that he might be willing to pay $5 million in eash, securities or some combination of both. Hutchins told the Board that his Committee unanimously recommended sale at the $5 million price. He reported that over the next five vears a heavy infusion of eapital in the order of $5 million would be needed to break even from operations. He gave very little hope for the possibility of a merger exeept conceivably with the Boston and Maine Railroad, and noted that this would produce securities rather than eash for Bangor Punta. This proposal of sale Was a surprise to the Board and met with the objection that the Board had insufficient information to make an intelligent decision since a great deal of accounting, tax and legal work had to be done as a preliminary matter to put the offer in proper foeus. In the course of the meeting, counter-suggestions as to price to be sought were broached by the Chairman of the Board, Nicholas M. Salgo. ’ — Following discussion, it was the consensus of the Board that Hutehins should attempt to negotiate for a sale, at book value, of 51°C of the stoek of BAR and sale of the balance at a higher price with a total consideratien to approximate $7 million. Hutehins was separately author- ized to negotiate a sale of 100° of the BAR stock, subject to an investigation of the tax and aeecounting ramitieations of such a transaction and subject to the approval of the i PART ey AR? — | Bearers ad C-8 Judge Pollack’s August 25, 1971 Opinion Board of Directors or of the Exeeutive Committee of the Board of Directors. Dumaine, informed by Hutehins of the Board’s counter. suggestions, would not change his offer. Dumaine and Hlutehins then drafted an unsigned letter setting forth a proposed arrangement of sale which Hutehins was to pre- sent to the Board. The draft, reeiting that Hutehins was authorized only to explore the situation tentatively and that any ‘tunderstanding’* was subject to approval by the Board of Directors’ stated that Hutehins and Dumaine had agreed on the sale to Amoskeag of all the BAR stock owned by Bangor Punta for $5 million plus some additions, subjeet to LCC approval. Shortly thereafter, on June 3, 1969, following Hutehins’ report toa key management group of Bangor Punta, it was decided to table the entire matter until the tax impact upon Bangor Punta of a sale of assets, as compared with some other disposition of the interest, could be studied and aseertained.S| Nothing indieated that there was any especial urgeney to give the matter earlier consideration. While the divestiture of this asset was a matter of significant interest to Bangor Punta, time was not made of the essence, by either Bangor Punta or Amoskeag. Two weeks later, on June 16th, Hutehins met with Dumaine and apprised him of the management’s decision S$ Hutchins explicitly informed Dumaine that time was needed for accountants and tax personnel of Bangor Punta to review the tar effects of any deal and the evidence unquestionably confirms Hutchins limited exploratory role. The study would require considerable time since it involved going to the Interstate Commerce Commission, sending representa- tives to Maine and going back over some 70 years of tinancia! history and records and books of the BAR—a time consuming and complex project. C-9 Judge Pollack’s August 25, 1971 Opinion not to approve or aceept the unsigned draft letter. He told him that Bangor Punta lawyers and accountants had no time available then to make the investigations and re- ports deemed essential by the Board; that they were busy with a variety of other matters, including a pending SEC registration statement (the Piper exchange offer) ; and that it might be two months before they could get to the investi- gation of the factors material to Bangor Punta’s econsidera- tion of a sale, Bangor Punta’s general exchange offer for the eommon stock of Piper Aireratt expired at 5 P.M. on July 29, 1969 and was approved by Bangor Punta's shareholders on August 7, 1969.) On August 8, 1969, Bangor Punta eom- menced distributing its seeurities to Piper shareholders who had accepted the exchange offer. The final prospectus for the offer stated: Until August 27, 1969, all dealers effecting transactions in the registered securities, whether or not participat- ing in this distribution, may be required to deliver a Prospectus. In the latter part of August, 1969, with the exchange program well nigh completed, Hutehins approached the general counsel of Bangor Punta with the suggestion that the required studies in respect to a sale of BAR go forward. Following instructions from the president, counsel began to gather the information which the Board of Directors Was seeking.’ Qn September 9, 1969, Bangor Punta's Board of Directors continued their diseussions regarding the sale of BAR, whieh ace ording to the minutes ‘thas been under ’The president was, however, careful to caution counsel not to allow the inquiry to interfere with any pressing current matters. —— “APRN Bere C-10 Judge Pollack’s August 25, 1971 Opinion the consideration by the Board of Directors for a consider. able period of time’’, Various proposals concerning the sale of the railroad were discussed, including an assct sale, a combination of a partial sale of the assets and a leasing arrangement of the remaining assets, and the sale of the stock of the railroad. The Directors voted at that meeting to authorize Hut- chins to consummate the sale of either the assets or stock of BAR to Amoskeag or to any other buyer for a considera- tion of $5 million or more in eash and such other additional consideration and benefits as were in his judgment obtain- able and the Board authorized the execution of documents and the taking of all other action necessary to consummate a sale in accordance with the terms and conditions so to be negotiated. Six days later, on September 15, Hutchins wrote to Dumaine that Bangor Punta had not yet reached a decision as to whether it would be most advantageous to dispose of its interest in the BAR through a sale of the stock owner- ship or in the form of an assets sale. Hutchins proposed to Dumaine that an agreement be worked out which would allow Bangor Punta, at its option, to sell either the BAR stock or assets. On October 2, Hutchins and Robertson met with Dumaine in Boston. Dumaine refused to change his position in respeet of an assets transaction, Thereupon, a contract for the sale of the stock of BAR to Amoskeag was prepared and signed and the closing followed immediately thereafter. The agreement of sale called for payment of $5 million in cash and other consideration. It was agreed that, if within three years BAR should transfer all of its assets exeept in a transaction in which neither gain nor loss is recognized for federal income taxes, Amoskeag would pay C-11 Judge Pollack’s August 25, 1971 Opinion Bangor Punta an additional $1.5 million within 30 days after such transfer sale or other disposition.. And, sub- ject to specified conditions, Amoskeag agreed that it would also pay the net profits received by BAR within the next five years from sale of all or any part of its property at Sears Island, Maine. The public announcement of the BAR sale on October 3, 1969 expressly stated that it would result in a non-recurring book loss of approximately $13 million with no tax benefit tothe company and that part of the $5 million to be received ineash for the stock would be subject to capital gains taxes. Major Factual Contentions and Conclusions It is contended by the Commission—and Dumaine gave testimony supporting the notion—that, at some undefined time during June, July or August, Bangor Punta had de- cided upon the sale to Amoskeag but decided to defer it to avoid disclosure in the pending registration statement and prospectus. These contentions, as well as Dumaine’s testimony on the subject, lack support both in the credible evidence and in the probabilities. Indeed the evidence which the Court accepts as worthy of belief unequivoeally negates any such purpose or plan. The Commission's reliance on Dumaine’s testimony is misplaced and the inferenees which it has sought to draw that a sale was determined upon and deliberately deferred to avoid disclosure, are not accepted? §The purpose of this provision is not entirely clear. It may have been intended to act as a deterrent to Amoskeag to consider any course hut continuance of operation of the road. * From observation during the trial the Court concludes that both Dumaine and Hutchins who negotiated and desired the sale, believed what they wished to believe, that their personal agreement concluded all but the formalities. ee | peel eee C-12 Judge Pollack’s August 25, 1971 Opinion The Bangor Punta Board’s behavior was consistent with the dictates of prudence. It insisted on consideration and study of alternatives. It accepted the sale only after being convineed that no viable alternatives existed. If there was a conscious tactical motive in delay, the most believable one is that the Board hoped to let Dumaine (and indeed Hut- chins, whose personal commitment to the sale was obvious) simmer long enough to come up with something better, Indeed, even after the Board meeting of September 9, information was being supplied to the Board and, on Sep. tember 29, some of the Board members attempted to block a sale of stock and bring about a sale of assets. Their reasons were weighty—for a sale of assets mighi permit the reflection of a tax loss as high as $17.7 million, with some #9 million of cash flow addition for Bangor Punta— as distinguished for the taxability of proceeds from sale of stock. Thus, while the Court finds that there was an intention to sell, failing other alternatives and upon the best available tax and accounting bases, the Court does not find that Bangor Punta consciously concealed, deferred or refrained from going forward with Dumaine’s offer in order to cir- cumvent disclosure in a pending registration statement: Requirements of Disclosure Bangor Punta could not in its registration statement and prospectus for the exchange offer omit ‘‘to state [any] material fact necessary in order to make the statements made, in the light of the cireumstanees under which they were made, not misleading.’’ Section 17(a) of the Securi- ties Act of 1953, 15 U.S.C. 77q(a); Section 10(b) of the Securities Act of 1934, 15 U.S.C. 78j(b), and Rule 10b-5, 17 CFR 240.10b-5. Bangor Punta’s registration statement became effective on July 18, 1969. It ‘‘spoke’’ as of that date. The duty of C-13 Judge Pollack’s August 25, 1971 Opinion dealers to use prospectuses continued until August 27, 1969.° The Commission insists that as of these dates Bangor Punta intended to sell and there was a reasonable probability that it would sell BAR at a substantial loss. Its failure to reflect this state of affairs is claimed to constitute the violations charged. The Court has found that as of these dates Bangor Punta had not reached a decision to sell. The Commis- sion’s charge that the sale was a reasonable probability is made from the vantage point of hindsight. In the total perspective of events preceding the sale—including the last-minute attempts to convert it into a sale of assets—the Court cannot find that the sale was a reasonable probability at the time and to the people involved. Cf. James Black- stone Mem. Library Assn. v. Gulf, Mobile and Ohio R. Co., 64 B2d 445 (7th Cir.), cert. denied, 361 U.S, 815 (1959). However, this does not necessarily mean that Bangor Punta met the obligation imposed upon it to make a requisite dis- closure under the circumstances of this case. For the cir- cumstances do indicate a sufficiently serious consideration of the possibility of sale at a figure some $15 million below the then carrying value of the BAR stock on Bangor Punta’s books so as to force the conclusion that the Bangor Punta directors could not, at the time, have believed that the $18.4 million figure (based on an appraisal of 1969 fair market value) any longer represented a responsible ap- praisal of market value of the BAR holding. 10 The antifraud provisions of the Securities Act (§ 17(a)) and of the Exchange Act ($10(b) and Rule 10b-5) require the pro- specttis to reflect any post-effective changes necessary to keep the prospectus from being misleading in any material respect. This is sometimes handled mechanically by putting a sticker on the pro- spectus or supplementing it otherwise. The procedure to be used is set forth in 17 CFR 230.424(c). ur coe | PER Wi gid ot coat aA AS = me RRs he C-14 Judge Pollack’s August 25, 1971 Opinion In this respect, however, the Commission is claiming more than it needs to. The essential question is whether, despite the non-existence of intent or of reasonable prob. ability, the circumstances surrounding the sale were such as to indicate that the $18.4 million carrying figure of the BAR holding was obsolete to the point of being misleading, The Court finds that it was—absent full disclosure of the factors affecting the ultimate decision to sell the BAR in. terest at a figure of $5 million—or even $7 million—and regardless of whether the sale was to be of stock or of assets. The Court is aware of no principle of accounting or of fair disclosure which would justify a failure to up-date a constructed carrying figure which may have reflected ap- proximate fair value in 1965 but which was almost four times the offer of a willing buyer (and the only willing buyer) in 1969—an offer which the Board, despite its ef- forts in good faith to find alternatives—was constrained ultimately to accept. Consistency of fair disclosure re- quired exposure of circumstances which so clearly rendered obsolete an appraisal made four years earlier. I find that Bangor Punta did not intentionally or pur- posefully mislead Piper Aircraft stockholders or the public or investors by the omission to make disclosure of the sale under consideration nor did Bangor Punta or its directors intend to gain an advantage over Chris-Craft by the non- disclosure in the contest being waged for control of Piper. There was no purposeful connection between the nondis- closure and the contest for control. In other words, the nondisclosure was not prompted by an improper purpose. However, absence of bad faith does not excuse the failure to state facts necessary to make the facts stated not mis- leading. The explanatory footnote which did appear on the 1969 balance sheet was given so that anybody looking at the C-15 Judge Pollack’s August 25, 1971 Opinion financial statements would not be confused as to why the full equity of the railroad was not picked up by Bangor Punta as the carrying value of its investment. By the same token, the 1965 constructed carrying value should not have been used when it was known to substantially exceed the only bid that could be generated from a purchaser capable and willing to buy and operate the asset. Bearing on Exchanging Piper Holder The standard of materiality to be applied here is whether a reasonable stockholder of Piper might have hesi- tated to make an exchange for Bangor Punta securities with such a large loss figure emerging—at least until suf- ficiently explained and put in proper perspective, in terms understandable by a reasonable investor. At the end of fiscal 1968, Bangor Punta had retained earnings of $37.9 million. 69 CIV. 2354 (MP) Curis-Crart Ixpustrigs, Inc., et al, Defendant. OPINION APPEARANCES: Wesster SHEFFIELD FLeiscuMann Hitcucock & BrooKFIELD Attorneys for Plaintiff One Rockefeller Plaza New York, N. Y. 10020 By: James V. Ryan, William L. D. Barrett and C. Kenneth Shank, Jr., Esqs. of Counsel. Paci, Weiss, Rirxinp, Wuarton & Garrison Attorneys for Defendants 345 Park Avenue New York, N. Y. 10022 By: Arthur L. Liman, Joseph J. Ackell and Jack C. Auspitz, Esqs. of Counsel. Pottack, District Judge. iV. ; misplaced. The alleged breaches must not only be sup ported by credible evidence but must, importantly, b Span oN = _— F-13 Judge Pollack’s Opinion in Bangor Punta Action eausally linked to damages. The complaint falls short on both scores. The complaint is dismissed for failure to sustain with eredible evidence, the burden of proof cast upon the plaintiff. The foregoing shall constitute the findings and con- clusions required by F. R. Civ. P. 52(a). So ORDERED. (ORIGINAL SIGNED) Mitton Po.tiack December 10, 1971 U.S. District Judge MILLE PMI LDN IL BORE AE ALF ATEN DIL LOLOL Lig IEE DIETER NOLS ONE RL EEN. EIS APPENDIX G Opinion of Judge Milton Pollack of the United States District Court of the Southern District of New York in Chris-Craft Industries, Inc. v. Piper Aircraft Corporation, et al., dated December 10, 1971 G-1 United States Bistrict Court SovuTHERN District or New YorkK waa ; (yris-Crart [xpustries, Ixc., Plaintiff, v. * + 69 CIV. 2227 (MP) Preer AirncraFTr Corporation, ef all., Defendants. OPINION APPEARANCES: Paci, Weiss, Rirxkixnp, Wuartoxn & Garrison Attorneys for Plaintiff 345 Park Avenue, New York, N.Y. 10022 By: Arthur L. Liman, Joseph J. Ackell and Jack C. Auspitz, Esqs., of Counsel Wesster SHEFFIELD FLEISCHMANN HitcHcock & BrooKFIELD Attorneys for Defendants (Bangor Punta Corporation, Nicholas Salgo and David W. Wallace) One Rockefeller Plaza, New York, N.Y. 10020 By: James V. Ryan, William L. D. Barrett and C. Kenneth Shank, Jr., Esqs., of Counsel G-2 Judge Pollack’s Opinion in Chris-Craft Action CuapBourRNE, Parke, WuitesipeE & WoLrFr Attorneys for Defendants (Piper Aircraft Corporation, William T. Piper, Jr., Howard Piper and Thomas F. Piper) 25 Broadway, New York, N.Y. 10004 By: Paul G. Pennoyer, Jr., Zachary Shimer and Irene C. Warshauer, Esqs., of Counsel SULLIVAN AND CROMWELL Attorneys for Defendants (The First Boston Corporation, Paul L. Miller and Nicholas A, Bayard) 48 Wall Street, New York, N.Y. 10005 By: John F. Arning, Roger L. Waldman and Charles W. Sullivan, Esqs., of Counsel Potuack, District Judge: The Context of the Case This case and its companion cases! arise out of the ur- successful attempt of Chris-Craft Industries, Inc. (Chris Craft), a diversified manufacturer of recreational products, to secure control of Piper Aircraft Corporation (Piper), a leading manufacturer of light aireraft. The Chris-Craft takeover attempt was resisted by Piper and by a competi- tor for the control, Bangor Punta Corporation (Bangor Punta), which eventually succeeded in acquiring more than 50% of the outstanding Piper shares. The bulk of Chris 1 Bangor Punta v. Chris-Craft, U.S.D.C. S.D.N.Y., 69 Civ. 2354 (MP), which is being decided this day; and SEC v. Bangor Punta, et al., 331 F. Supp. 1154 (S.D.N.-Y. 1971) (Pollack, J.). G-3 Judge Pollack’s Opinion in Chris-Craft Action Craft’s complaints is based on charges that Bangor Punta’s success Was achieved and Chris-Craft’s failure and its as- serted damages were caused by deception of the Piper shareholders and of Chris-Craft in violation of various pro- visions of the federal securities laws and regulations. Only a minor segment of the case involves charges that Chris-Craft was directly deceived by Piper. The balance of the case deals with charges of deceptions alleged to have been committed by Piper and Bangor Punta on public holders of Piper stock to induce them not to accept Chris- Craft’s offers to aequire their stock by purchase or ex- change. Chris-Craft claims also that Bangor Punta pri- vately acquired three critical blocks of Piper stock during the pendency of an exchange offer in violation of an SEC Rule. The contest for control of Piper was sophisticated and hard fought. The contenders were men accustomed to the handling of vast sums of publie capital, were assisted by skilled professionals and were themselves seasoned in cor- porate tactics. It is not hard to detect personal overtones which added some passion and urgency to the contest. In addition, the conduct of both sides invoked the attention of the SEC and the New York Stock Exchange. Thus, neither side can approximate itself to the position of an average public investor for whose express benefit, in dealing with others of superior knowledge (or the capacity to gain it), skill and resources, the law was designed. The Court does not intend to imply that contests for corporate control are to be unmediated by standards properly appli- cable under common law, federal legislation or regulation. However, substantial justice cannot be done by mere me- chanical application of standards evolved to correct the imbalances of knowledge, skill and capacity for self- G-4 Judge Pollack’s Opinion in Chris-Craft Action protection which so often oceur in securities transactions between members of the public and professionals. Nor can the Court be indifferent to the ultimate source from whieh the damages are claimed, in effect. (See infra, 35-37). The Major Events Piper stock was listed on the New York Stock Exchange, There were 1,641,890 shares outstanding. Chris-Craft began purchasing Piper stock just before the end of 1963. By January 21, 1969 Chris-Craft had acquired 102,600 shares of Piper stock on the New York Stock Exchange. On the next day it increased its holdings by purchasing 101,100 shares at $65 per share from Technology Fund, a midwest. based mutual fund; this made Chris-Craft’s holdings total 13% of the issue. The market for the stock was then in the low fifties. On January 23, 1969, Chris-Craft announced a cash tender offer for Piper shares of $65 per share and it obtained 304,606 shares through tenders. It also bought an additional 38,000 shares approximately bringing its holdings by February 3, 1969, to 547,106 shares, a number barely short of one-third of the shares outstanding, at a cost of $34,677,000. The Piper management (in essence the Piper family), which held some 31% of the outstanding Piper stock, reacted to the Chris-Craft tender offer by a communication te shareholders late in January to dissuade them from accept: ing the Chris-Craft tender offer. One of its statements eomplained of by Chris-Craft was that the Piper manage- ment considered the Chris-Craft $65 tender price inade- quate. Chris-Craft charges that this was a misleading statement, based on the facts that Piper’s investment bankers, First Boston Corporation, had advised Piper that a $65 price was fair and, furthermore, that on January 2, Piper had announced an agreement to sell 800,000 unissued Piper shares to Grumman Aircraft Company at $69 per G-5 Judge Pollack’s Opinion in Chris-Craft Action share? The Grumman agreement was not consummated and the additional shares were not issued. On February 27, Chris-Craft filed with the Securities and Exchange Commission (‘*Commission’’) an S-1 regis- tration statement as a step in a proposed offer of exchange of a Chris-Craft package of securities for Piper stock. (The statement did not become effective until May 15.) On Mareh 22, Piper issued 469,199 authorized but un- issued shares to aequire control of two companies, viz., Southply, Incorporated and United States Conerete Pipe Company of Florida. Apart from increasing the number of shares outstanding, these acquisitions could make Piper less attractive to Chris-Cratt since the Pipe Company was not in the recreational field and ownership of Southply, a speedboat manufacturer, might bring Chris-Craft into con- flict with antitrust law. However, Piper rescinded both of these acquisitions within a short time. Piper had failed to comply with its listing agreement with the New York Stock Exchange by issuing such a block of shares before seeking the approval thereof of its stockholders. This omission led the Exchange to refuse the listing of the newly issued shares, to suspend trading in all Piper shares on the Ex- change and to initiate delisting proceedings. Following the rescission of both of these acquisitions, the Piper family revived negotiations with Bangor Punta, begun early in January, toward securing a defensive merger between Piper and Bangor Punta. _—_ *Part of the agreement, not mentioned in the announcement, Was an option in Grumman to “put” the shares back to Piper after Sx months at Grumman's cost plus interest. Piper insists that the “put” was part of an overall understanding that the proposed sale Was a step in a possible Grumman-Piper merger, failing which Grumman might not be interested in a holding of Piper stock. The “put” was described in Piper's application to list the addi- tonal shares on the New York Stock Exchange. eee a G-6 Judge Pollack’s Opinion in Chris-Craft Action The discussions were fruitful. The Piper family agreed to exchange its 501,090 shares for a package of Bangor Punta securities and Bangor Punta agreed to use its best efforts to acquire a majority of the outstanding Piper shares. Pursuant thereto, on May 8, 1969, Bangor Punta and Piper issued a release which made the usual joyful announcement of a fitting marriage, stating that the Piper family would receive Bangor Punta securities for their Piper shares and containing the following potent message: Bangor Punta has agreed to file a registration state. ment with the SEC covering a proposed exchange offer for any and all of the remaining outstanding shares of Piper Aireratt for a package of Bangor Punta Securities to be valued in the judgment of The Firs Boston Corporation at not less than $80 per Piper share. Chris-Craft has attacked this release and has attacked also the registration statement referred to in the release. We deal later with those issues. Bangor Punta entered the battle with several consider- able advantages. It was sponsored by the management of Piper, it could look forward to the Piper family block* and. significantly, it alluded to a value figure of $80, exceeding Shortly after this release was issued, the Commission, deeming the release to be a gun-jumping offer by Bangor Punta, sought © the U.S. District Court for the District of Columbia an injunctie: to prohibit further similar releases before effectiveness of the Banger Punta registration statement. Bangor Punta and Piper, withou admitting any of the allegations, consented to the issuance of 2 injunction, 4 One of the issues raised by Chris-Craft respecting Bangor Punta: acquisition of the Piper block relates to a guarantee by Bango: Punta to the Piper family that they would receive $80 for ther stock if Bangor Punta acquired control. All parties agree that m similar guarantee inhered in the $80 value statement contained in th May 8 release. G-7 Judge Pollack’s Opinion in Chris-Craft Action Chris-Craft’s eash tender offer and the values to be im- puted to the Chris-Craft package. This was a serious blow to Chris-Cratt. Aceordingly, one day after Chris-Craft’s exchange offer became effective, it added $10 to its package. Chris-Craft continued to acquire Piper stock until August, 1969, when it virtually ceased buying the stock. Through its succeeding exchange offers and together with its open market purchases, Chris-Craft had by then obtained 697,495 Piper shares, about 42¢c, while Bangor Punta, by early September, 1969, ended with slightly more than 50%. The contest for control was over except for the litigations ques- tioning the actions of the parties along the way which has embroiled them in claims and counter-elaims. Chris-Craft’s Status Under the Securities Exchange Act Both sides have argued strenuously the question of Chris-Craft’s standing to bring this action. Chris-Craft relies heavily on the language of the Court of Appeals in Crane Co. ve Westinghouse Air Brake Co., 419 F.2d 787 (2d Cir. 1969), cert. denied, 400 U.S. 822 (1970), as prece- dent affording it status. Defendants rely on Birnbaum v. Yewport Steel Corp., 193 F.2d 461 (2d Cir.), cert. denied, 3448 US. 956 (1952) and related eases for the proposition that Chris-Craft has no right to sue. Chris-Craft’s claims fall into several categories, each requiring separate consideration of the question of stand- ing to sue. (a) Chris-Craft made purehases of Piper stock and claims to have acted on statements of Piper about its im- portant product lines. Even though its purchases were not from Piper, it has standing to assert such claims. Iroquois Industries, Inc. v. Syracuse China Corp... 417 F.2d 968, 96S (2d Cir. 1969), cert. denied. 399 U.S. 909 (1970). G-8 Judge Pollack’s Opinion in Chris-Craft Action (b) Chris-Craft seeks damages from Bangor Punta claimed to have resulted from the purchase by the latter of three blocks of Piper stock, totalling 120,200 shares in May, 1969, during the pendency of their competing offers to Piper holders, in violation of SEC Rule 10b-6. Chris. Craft claims that these purchases enabled Bangor Punta to obtain majority ownership of Piper. It is held that Chris-Craft has standing to attempt to establish such a claim. (ec) Chris-Craft claims damages from the defendants on the charges that, during the pendency of Chris-Craft’s at- tempt to take over Piper, Piper and Bangor Punta issued improper press releases and Bangor Punta filed a registra- tion statement with material omissions and misstatements. Chris-Craft, which neither bought nor sold on the basis of the releases or registration, premises its standing to sue thereon on two grounds; one is an exception to the Biri baum doctrine repeated in, Zroquots Industries, Ine. y. Syracuse China Corp., 417 F.2d 963 (2d Cir. 1969), cert. denied, 399 U.S. 909 (1970); the other is predicated on a recent amendment to the Securities Exchange Act of 1934. The first theory is that Chris-Craft is in the position of a ‘**foreed seller’’ as a result of Bangor Punta’s acquisition of a majority of Piper’s stock. Chris-Craft emphasizes the decision of the Court of Appeals in Crane Company v. Westinghouse Air Brake Company, 419 F.2d 787, 797-98 (1969), cert. denied, 400 U.S. 822 (1970). In Crane the Court of Appeals distinguished Jroquois Industries, Inc. supra, (decided by the Court of Appeals five weeks prior to Crane—with rehearing denied by the Court of Appeals on the very day on which the Crane opinion was issued) by pointing out that plaintiff in /ro- quois (a disappointed contender for control) was neither a buyer nor a seller, whereas in Crane, the disappointed G-9 Judge Pollack’s Opinion in Chris-Craft Action contender was deemed a ‘‘foreed seller’’. Chris-Craft claims to be a locked-in buyer which could sell only at a substantial loss, and that it could not under state law (Pennsylvania) resist a merger, should Bangor Punta, as majority holder, elect to effect one. While the ‘*foreed sale’? argument here rests on quite different grounds from those expressed by the Court of Appeals in Crane, Chris-Craft might be within the realm of reason in asserting itself to be a forced seller, should a merger of Piper be effeeted under Bangor Punta’s con- trol. However, no such merger has been proposed and the “forced seller’? basis for standing to sue is in this ease as compared with Crane of highly dubious validity.S The second theory on which Chris-Craft relies for standing to assert the matters relating to the press releases and registration statement is that Seetion 14(e) of the Securities Exchange Act affords it a right of action. Section I4(e), 15 U.S.C. S78n(e), provides: It shall be unlawful for any person to make any untrue statement of a material fact or omit to state any mate- rial faet necessary in order to make the statements made, in the light of the cireumstaneces under which they are made, not misleading, or to engage in any fraudulent, deceptive, or manipulative acts or prac- tices, in connection with any tender offer or request *Crane Co.'s S position as a forced seller was deemed to result from the fact that its target, by merging with a product competitor of Crane (Standard) made Crane an involuntary holder in its com- petitor and vulnerable to antitrust action. Crane thereupon sold out —, all of the Standard holding acquired in the merger. It may he that one need not have looked bevond the merger itself to these special facts to deem Crane a forced seller. While the exchange effected in a merger has not been traditionally deemed by SEC to he a “sale” for registration purposes, it has heen deemed ‘a “sale” for Purposes of invoking anti-fraud provisions. G-10 Judge Pollack’s Opinion in Chris-Craft Action or invitation for tenders, or any solicitation of security holders in opposition to or in favor of any such otter, request, or invitation. The Commission shall, for th purposes of this subsection, by rules and regulativis define, and prescribe means reasonably designed ty prevent, such acts and practices as are fraudulent, de- ceptive, or manipulative. (mphasis supplied). This seetion was added to the ‘34 Act in 1968. The las: sentence was added in Deeember, 1970 (one year following the decision of the Court of Appeals, Second Cireuit, in Crane). In Crane, the Court of Appeals commented in dictum that Seetion 14(e) ‘should serve to resolve any doubts about standing in the tender offer eases, even where an of- feror is not, as is Crane, in the position of a foreed seller.” 419 F.2d at 798-99. This comment may find support in Electronic Specialty Co. v. International Controls Corp.. 409 F.2d 937, 940 (2d Cir. 1969), where the target of a take- over bid, as well as that corporation's shareholders, were accorded standing to sue for alleged violations of §14(e) oceurring in the course of a control fight. Judge Friendly stated that the amendment which produced section 14(e), ‘In effect... applies Rule 10b-5 both to the offeror and to the opposition’* and added that ‘texecept perhaps for any bearing it may have on the issue of standing, [the amend: ment is] only a codification of existing case law.*’ The conclusions herein reached as to Chris-Craft's 10b-9 claims will be dispositive of the merits of any claim based on S14(e). Under the cireumstanees, the Court finds it unnecessary to decide whether $14(e) may be separately invoked by one competitor for corporate control against another. G-11 Judge Pollack’s Opinion in Chris-Craft Action 1. Piper's shareholder letter and release of January 23, 1969. (a) One of the attacks on these communications centers on the utterance by the Piper management of its view that the $65 Chris-Cratt offer was inadequate. While the offer was some $13 above the current market price, it was considerably less than a Piper holder, biding his time, could have received at later stages of the contest. Chris-Craft insists that the communications could not be read to refer to any inadequaey of the Chris-Cratt offer other than in respect to price and—to establish Piper's bad faith and intention to mislead—it points out that (1) Piper’s own bankers had advised Piper that $65 per share Was a fair price and (2) the Grumman agreement contemplated a sale of Piper stock by Piper to Grumman at $65 per share.® Any Piper shareholder with a telephone or a newspaper at hand could compare the current market for Piper shares with Chris-Craft's offer. Thus, if the Piper statement of the inadequacy of the offer were intended to refer to price only it would be more fatuous than misleading. The more rational view is that the statement referred and was or should be taken to refer to other factors—sueh as Piper's ®We do not doubt that one of the reasons for the Grumman agree- ment was the effect its consummation would have on the number of shares outstanding and consequently on the number Chris-Craft would have to acquire to gain control. W. T. Piper. Jr. had no hesitaney in stating that the Grumman transaction “would give us additional shares” and that it “might make the... tender offer of Chris-Craft less attractive to our shareholders.” A psychological efect may have been intended as well—to discourage Chris-Crait early in the game by facing it with the prospect of a heavier than anticipated commitment to the contest. As noted above, the shares were never issued. G-12 Judge Pollack’s Opinion in Chris-Craft Action management "s views as to company prospects or as to the quality of Chris-Craft management, should Chris-Craf: acquire control. That Piper’s management refrained in these releases from expressing fully its personal (and in all likelihood unflattering) opinions about Chris-Craft’s management does not, in our opinion, fault the communications. And if the statements were intended to convey the impression that to resist Chris-Craft Piper’s management would bend jt. efforts to procure a better alternative for Piper share- holders, the efforts were made and were, in terms of price to tendering shareholders, successful. Chris-Craft makes the further assertion that it was it- self, as a purehaser, misled by the announcement of the Grumman agreement. Chris-Craft claims that an indication that Grumman was willing to pay $65 (in the absence of disclosure of the **put’’—see n. 2 supra) helped to justify its own decision to pay that much, indicated that Chris-Craft might have a willing buyer for its block, should it decide to unload, and led Chris-Craft to refrain from exercising its right to withdraw its offer if any material increase in outstanding Piper shares were proposed or made. While the Court has no doubt that the Grumman agree- ment, the announcement and their timing were strategic moves, it cannot conclude that the agreement was a sham, or that the ‘‘put’’ provision was anything more than what Piper purports it to be—Grumman’s ‘‘out’’ in the event that a Grumman-Piper merger did not materialize. These were all, under the circumstances, rational steps for the Piper and Grumman managements to take and the Court cannot hold that in taking its steps Piper had any special duty to warn Chris-Craft (by disclosing the ‘put’ or otherwise) not to gather comfort from the agreement price of $65 and not to rely on Grumman as a possible dumping ground for its shares of Piper. G-13 Judge Pollack’s Opinion in Chris-Craft Action Chris-Craft admits that Piper described the ‘‘put’’ as- pects of the Grumman agreement fully in its application to the New York Stock Exchange for listing of the addi- tional shares. Chris-Craft’s contention therefore that, de- spite its efforts to obtain a copy of the Grumman agree- ment, it did not learn of it until April, 1969 when two Chris-Craft representatives were elected to the Board is not worthy of belief and can evoke litthe more than the additional respouse that it could have been more sedulous than it was to protect its already heavy and growing in- vestment in Piper. But the fatal blow to Chris-Craft’s credibility on this issue is its action after April, 1969 when it claims first to have discovered the ** put’? provisions of the Grumman agreement. Between April 1 and August 18, Chris-Craft acquired about 150,000 additional shares of Piper. On May 16 it added $10 to its exchange package to compete with Bangor Punta. Such behavior with knowledge of the facts is inconsistent with a claim that knowledge would have caused Chris-Craft to change its course. Plaintiff's refer- ence to SEC v. Great American Industries, 407 F.2d 453 (2d Cir, 1968), cert. denied, 395 U.S. 920 (1969) (nondisclosure of finders’ fees) is, under the circumstances, beside the mark. (b) Chris-Craft has further criticized the eommunieca- tions for saying that Piper was in a growth industry and expected **to participate fully in this growth’’. The basis of its attack is in product problems faced by Piper in con- nection with a model then in development (Pocono) and one already on the market (Twin Comanche). These are diseussed at greater length, infra. Here it is sufficient to point out that inherent in Chris-Craft’s claim are the was- sumptions (1), that these problems would effectively pre- vent Piper from participating in the industry’s growth— which it has not proved and (2), that this on-the-run re- G-14 Judge Pollack’s Opinion in Chris-Craft Action sponse of Piper’s management to Chris-Craft’s foray into the Piper stock is to be tested by the standards applicable to a registration statement—a view which this Court rejects. Chris-Craft’s contentions as to the January Piper com. munications and the Grumman agreement must be and are rejected as unfounded. 2. The May sth Release This release is one of Chris-Craft’s principal targets. Chris-Craft asserts that the release was in violation of the registration and prospectus provisions of the Securities Act of 1933, especially § 5(¢) (15 U.S.C. § 77e(e)). This con- tention has the support of the SEC, which, in May, 19, brought an action in the District of Columbia to restrain further releases of a similar character, with Bangor Punta consenting to a deeree, and it has the support of the Cour of Appeals of this Circuit, which held, in Chris-Cra/t li dustries, Inc. v. Bangor Punta Corporation, 426 F.2d 509, 573-76 (2d Cir. 1970) that the release violated the registra- tion requirements. The Court of Appeals nonetheless su- tained the District Court’s refusal to issue a preliminary injunction to prevent Bangor Punta from gaining and exer- cising control of Piper, but remanded the case for further proceedings.’ While the law of these injunction cases, as contended by Chris-Craft, may be that the May 8th release violated See- 7 Four opinions were written. Judge Waterman wrote the ma jority opinion for a full court (with Judge Friendly not participating Judge Moore uttered strong doubts as to the majority's rejection o Bangor Punta’s claim that the release was in conformity with SEC Rule 135, 17 C.F.R. § 230.135. Judge Anderson, who concurred i: the legal conclusions a the majority, expressed separate views as the materiality of the $80 statement. Judge Lumbard (then Chie Judge) could find no substance in Chris-Craft’s legal claims as to Sec- tion 5(c), 15 U.S.C. §77e(c), or Rule 10b-6, 17 C.F.R. § 240.10b~ (to be discussed). G-15 Judge Pollack’s Opinion in Chris-Craft Action tion 5(¢) of the Securities Act, that by no means disposes of the issue in the damage suit here being adjudicated.* Since Chris-Craft was not a purchaser of Bangor Punta stock it has no standing to invoke the provisions of Section 11 or 12(2) of the Securities Act of 1933 (15 U.S.C. © in view of athen possible sale of BAR, Banger | the asset down to some $8 million. That -a) materialize and the earrying figure was again re) time upward) to reflect an $18.4 million valuation of | BAR investment by investment bankers. The book inet oe resulting from this revaluation was credited directly | earned surolus (bypassing the income accounts). There is no dispute as to this series of adjustments The $18.4 million carrying figure is, however, attacked a: materially misleading in view of a sale of Bangor Punta’ 13.\ fulle discussion of this issue is contained in this Courts opinion in SEC v. Bangor Punta, et al., 331 F. Supp. 1154 (SD. N.Y. 1971) Pollock, J.). Only high-light facts are here discussed G-19 Judge Pollack’s Opinion in Chris-Craft Action interest in BAR, at $5 million (and additional contingent consideration) which did occur in October, 1969, a few months following effectiveness of Bangor Punta’s registra- tion of its Piper exchange package. Chris-Craft asserts that the agreement to sell the road at that figure existed earlier and should have been reflected in Bangor Punta’s registration statement. The charge is ‘hat Bangor Punta postponed formal contract and closing ‘» avoid having to reflect in its registration statement a wok loss of $15 million on the sale. ln SEC vy. Bangor Punta, n. 13 supra, this Court con- at there was no substance in similar allegations SEC regarding the BAR matter. We held, however, registration statement was unintentionally in error G-38 Judge Pollack’s Opinion in Chris-Craft Action Chris-Craft, it invited Bangor Punta to compete with Chris. Crait. Bangor Punta acceded and (with the aid of the sub. stantial blocks of Piper stock held by the Piper family and other significant cooperation of Piper’s management) jt won the contest. While both contestants may, today, be less than happy at the outcome, Piper was the prize, not g contender. The Court is at a loss to envisage any form of equitable (or other) relief to which Piper might in reasoy and justice be entitled. Piper’s case against Chiris-Craft, like Bangor Punta's rests shakily on surmise and specu. lation and much of it, even if sustainable, is irrelevant t any damage which Piper does or could claim. The counterelaim of Piper against Chris-Craft is dis. missed for failure to sustain the burden of proof thereof, The foregoing shall constitute the findings and conclu. sions required by I. R. Civ. P. o2(a). So ORDERED. December 10, 1971 Mitton Potiack U.S. District Juda APPENDIX H Opinion of the Second Circuit Court of Appeals in Chris-Craft Industries, Inc. v. Piper Aircraft Corpo- ration et al.; Bangor Punta Corporation v. Chris- Craft Industries, Inc.; and Securities and Exchange Commission v. Bangor Punta Corporation, dated March 16, 1973. H-1 March 16, 1973, Second Circuit Opinion UNITED STATES COURT OF APPEALS For tHE Seconp Circuit = = i a Nos. 805-08—September Term, 1971. (Argued August 14, 1972 Decided March 16, 1975.) Docket Nos. 72-1053, 72-1064, 72-1120, 72-1140 Docket No. 72-1064 Curis-CraFt Inpvstriss, Ivc., Plaintiff-A ppellant, Vv. Pirer ArrcraFt Corporation, Howarp Piper, THomas F. Piper, Witui1am T. Psrer, Jr., Baxncor Punta Corpora- tion, Nicotas M. Sateo, Davin W. Watuace, THe First Boston Corporation, Paut L. Mmwer and Nicwonas H. BayarD, Defendants-A ppellees. =~ = a a es Docket No. 72-1120 Bancor Punta Corporation, Plaintiff-Appellant, Vv. Curis-Crart Ixpvstries; Ixc., Defendant-A ppellee. 4 | y om aes H-2 March 16, 1973, Second Circuit Opinion Docket Nos. 72-1053 and 72-1140 Securities anp Excuance Commission, Plaintiff-A ppellant-A ppellee, Vv. Bancor Punta Corporation, Defendaunt-Appellee-A ppellant. we rr Before: Mansrietp and Trmsers, Circuit Judges, and Gcurrrrtx, District Judge.* = = Cr Appeals from judgments entered after non-jury trials of three separate but related civil actions in the Southern District of New York, Milton Pollack, District Judge, in- volving alleged violations of the antifraud provisions of the federal securities laws in connection with the contest between Chris-Craft Industries, Ine. and Bangor Punta Corporation for control of Piper Aireraft Corporation. Affirmed in part; reversed and remanded in part. =~ a at Artuer L. Limax, New York, N.Y. (Stuart Ro- binowitz, Joseph J. Ackell, Jack C. Auspitz, Anthony M. Radice and Paul, Weiss, Rif- kind, Wharton & Garrison, New York, N.Y., on the brief), for Chris-Craft Industries, Inc. (Plaintiff-Appellant in No. 72-1064; De- fendant-Appellee in No. 72-1120). ° Of the United States District Court for the Southern District of New York, sitting by designation. H-3 March 16, 1973, Second Circuit Opinion Zacuary Sumer, New York, N.Y. (Paul G. Pennoyer, Jr., Irene C. Warshauer and Chadbourne, Parke, Whiteside & Wolff, New York, N.Y., on the brief), for Piper Aircraft Corporation, Howard Piper, Thomas F. Piper and William T. Piper, Jr. (Defend- auts-Appellees in No. 72-1064). : ee oes e) ee ero ase James V. Ryax, New York, N.Y. (William L. D. Barrett, C. Kenneth Shank, Jr«and Webster Sheffield Fleischmann Hiteheock & Brook- field, New York, N.Y., on the brief ), for Bangor Punta Corporation ( Defendant-Ap- pellee in No. 72-1604; Plaintiff-Appellant in : No. 72-1120; Defendant-Appelee-A ppellant ; in Nos. 72-1053 and 72-1140) and for Nicolas M. Salgo and David W. Wallace ( Defen- dani-Appellees in No. 72-1064). Joux F. Arnixe, New York, N.Y. (Roger L. Waldman, Charles W. Sullivan, and Sul- livan & Cromwell, New York, N.Y.. on the brief), for The First Boston ( “orporation, Paul L. Miller and Nicholas H. Bayard (Defendants-Appellees in No. 72-1064 ‘3 Rocert E. Kusnxer, Assistant General Counsel, SEC, Washington, D.C. (G. Bradford Cook, General Counsel, David Ferber, Solicitor, and James J. Sexton, Attorney, SEC, Wash- ington, D.C., on the brief), for Securitics and Exchange Commission (amicus curiae im No. 72-1064; Plaintiff-A ppc llant-A ppellee in Nos. 72-1053 and 72-1104 ). _—s 7, Y sen arty ’ H-4 March 16, 1973, Second Circuit Opinion INDEX PAGE PRELIMINARY STATEMENT ............................. oor H-6 I. EVENTS LEADING TO INSTANT LITIGA- cE SEAR nace Race Pact one en SC H-7 Il. CHRIS-CRAFT INDUSTRIES, INC. sv. PIPER AIRCRAFT CORPORATION, ET is, | Cs PID | Sacceteicteatedanctioncneicnens H-18 (A) Fenction or Private Action ror Damaces IN ENFORCEMENT OF FEDERAL SECURITIES I ccc icincnctant nasi ncnaabin H-21 (B) VioLtations oF ANTIFRAUD PROVISIONS OF Section 14(e) or 1934 Act .....................-.... H-24 (1) Standing of CCI to Sue for Damages }i-24 (2) Defendants’ Violations of Section BIOS © cenicnsacriscrcichencaubsdausahaismescndmaiare: H-33 (a) Controlling Principles In Deter- mining Section 14(e) Violations }.33 (jh. 2 ganna ene H-37 (c) BPC And Its Officers .............. + Hl (d) First Boston And Its Officers ...... H-48 ee INN scene pcittics seen cnictcasaccgmemsenees H-35 (C) Viotations or Rute 10b-6 Unper 1934 Act }, 43 (D) Rewier to Be GrantTeED For VIOLATIONS OF Section 14(e) ann Rute 10b-6 0... H-67 Pee SINE oo eicnverarn o> poiencaaenconcanecnieds H.-68 Cy eee an H-69 Ill. IV. H-5 March 16, 1973, Second Circuit Opinion PAGE BANGOR PUNTA CORPORATION v. CHRIS- CRAFT INDUSTRIES, INC. (No. 72-1120)...... H-70 (A) Cxamm or Manipunation or Prices or CCI BNI. sseenciionneeneccakenacuei ac oien H-71 (B) Cuamm or IttecaL WareEHousING .................. H-76 SEC v. BANGOR PUNTA CORPORATION (Nos. 72-1053 and 72-1140) 20 H-77 (A) Insuncrive Revie ow. H-78 (1) Erroneous Standard .............. H-79 (2) Requirement of Intent H-80 (3) Injunction to Protect Public Interest H.82 (4) BPC’s Past Violations H-84 (5) BPC as a Conglomerate ....................... H-85 (6) Abuse of Discretion 0.000... H-86 (7) Mischievous Precedent 0.00.0... H-89 (3) Recor Oo H 39 H-6 March 16, 1973. Second Circuit Opinion Trmpens, Circuit Judge: PRELIMINARY STATEMENT These consolidated appeals present important questions, some of first impression, involving the antifraud provisions of the federal seeurities laws in their application to a eon- test for acquisition of a controlling stock interest in a tar- get corporation. Among the questions presented are those involving the scope of liability and relief under Section 14(e) of the Securities Exchange Act of 1934 and the type of relief necessary, in an SEC cnforcenient proceeding, to effectuate the broad remedial purposes of the federal securities laws. The appeals are from judgments entered after non-jury trials of three separate but related civil actions in the Southern District of New York before Milton Pollack, Dis- trict Judae. In Chris-Ciaft Industries, Inc. ¥. Piper Aircraft Cor- poration, et al. (No. 72-1064), Chris-Craft appeals from the district court's dismissal after trial of its complaint against all defendants, 387 F.Supp. 1128 (S.D.N.Y. 1971), essentially on the grounds that many of the alleged se- eurities laws violations had not been proven, that those proven had not cansed injury to Chris-Craft and _ that Chris-Craft had failed to prove its claim for damages. We reverse and remand. In Bangor Punta Corporation v. Chris-Craft Industries, Inc. (No. 72-1120), Bangor Punta appeals from the dis- trict court's dismissal after trial of its complaint, 337 F.Supp. 147 (S.D.N.Y. 1971), on the ground of insuf- ficient evidence to support Bangor Punta’s claims that Chris-Craft had violated the securities laws or that such violations had caused injury to Bangor Punta. We affirm. In SEC vy. Bangor Punta Corporation (Nos. 72-1053 and 72-1140), the SEC appeals from those provisions of the H-7 March 16, 1973. Second Circuit Opinion district court’s judgment after trial, 331 F.Supp. 1154 (S.D.N.Y. 1971), which denied a permanent injunction against further violations of the securities laws and which imposed a condition upon Bangor Punta’s rescissicn offer to former Piper shareholders. On the SEC’s appeal, to the extent the judgment is appealed. from, we affirm in part, and reverse and remand in part. On Bangor Punta’s cross-appeal, we affirm. I. EVENTS LEADING TO INSTANT LITIGATION Before turning to the issues raised on appeal in each of the three actions, we shall set forth a narrative of the events, beginning in the latter part of 1968 and during 1969 in connection with the contest for eontrol of Piper Aircraft Corperation, which culminated in the instant liti- gation. Facts having specifie bearing upon the issues in each of the three appeals will be diseussed in more detail in connection with our rulings below on those issues in each ease. Our task on these appeals has been greatly facil- itated by Judge Pollack’s detailed, comprehensive findings of fact, and particularly by his evaluation of the facts as found. While we disagree with certain of his conelu- sions, as will appear below, we take this occasion to com- 1 The facts are substantially undisputed. We shall assume familiarity with the detailed statements of facts set forth in the prior reported opinions involving this contest for control of Piper. In addition to the three opinions of Judge Pollack referred to above (337 F.Supp. 1128, 337 F.Supp. 1147, 331 F.Supp. 1154), there was an earlier opinion by Judge Tenney denying Chris-Craft’s motion for a preliminary injunction (303 F.Supp. 191 (S.D.N.Y. 1969)), and an en bane opinion by this Court affirming the denial of the pre- liminary injunction, indicating certain violations of the securities laws and remanding to the distriet court for further proceedings not incon- sistent with this Court's opinion. Chris-Craft Industries, Inc. v. Bangor Punta Corp., 426 F.2d 569 (2 Cir. 1970) (en banc). ret = H-8 March 16, 1973, Second Circuit Opinion mend him upon the clarity of his opinions in these complex cases, Chris-Craft Industries, Inc. (CCI) is a Delaware cor- poration. It is a diversified manufacturer of recreational produets. Its securities, common and preferred stock and convertible debentures, are traded on the New York Stock Exchange (NYSE). Piper Aircraft Corporation (Piper) is a Pennsylvania corporation. It is one of the nation’s leading manufac- turers of light aircraft. Its 1,644,890 shares of issued and outstanding stock were traded (during periods relevant to these appeals) on the NYSE from October 1, 1968 to Au- gust 11, 1969 and then on the Philadelphia-Baltimore-Wash- ington Stock Exchange. The three individual Piper defen- dants (referred to herein as the “Piper family”) were of- ficers and directors of Piper and owned about 325,000 of che 1,644,890 outstanding Piper shares. Bangor Punta Corporation (BPC) is a Delaware cor- poration. It is a conglomerate with holdings in diversified fields. Its securities are traded on the NYSE. Defendants Nicolas M. Salgo and David W. Wallace are principal of- ficers and directors of BPC. The First Boston Corporation (First Boston) is a Mas- sachusetts corporation. It is an investment banking firm and also a registered broker-dealer. In connection with the events involved herein, it served as investment adviser to Piper and as underwriter for BPC. Defendant Paul L. “I:Ter is president of First Boston and defendant Nicholas ii. Bayard is a vice president in its underwriting depart- ment in the latter part of 1968, CCI undertook a large financing program designed to produce excess cash that could be used primarily for acquisitions. On October 30, 1968, CCT filed a registration statement and preliminary prospectus for H-9 March 16, 1973, Second Circuit Opinion an offering of 6% convertible debentures up to $26 million in principal amount. The offer was made to shareholders and executives of CCI. It was largely successful, pro- ducing over $25 million in excess cash. At about the same time, Herbert Siegel, CCI’s president and chief executive officer, discussed with the Philadelphia National Bank the obtaining of a revolving line of credit of up to $15 million. Such credit was granted and was drawn upon in February 1969 when needed. CCI made its first purchase of Piper stock on December 30, 1968.2 The purchase totalling 5200 shares was made through a confidential numbered account at Mitchell, Hutchins & Co., Inc., a member of the NYSE and a regis- tered broker-dealer retained primarily by institutional in- vestors. Additional purchases of Piper stock were made through Mitchell, Hutchins shortly thereafter in 1969: January 3 36,100 shares (34,200 from Madison Fund at $54) January 6 22,000 January 7 700 January 8 30,900 (all but 200 from Keystone Growth Fund) i CCI also made market purchases of Piper stock in the fol- lowing amounts through other brokers: January 14 3,700 shares January 20 800 January 21 3,200 —_—_ 2 CCI as of this date apparently had not yet decided to seek a con- trolling interest in Piper. Mr. Siegel testified that he had decided to buy the 5200 shares only a few days in advance and that he had not yet determined that an attempt to take over Piper would be advisable. The Board of Directors of CCI did not openly discuss the acquisition of Piper until its January 23, 1969 board meeting. . —s H-10 March 16. 1978. Second Cirenit Opliion On January 22, CCI negotiated the purchase of 101,100 shares of Piper stock from Technology Fund, Ine, at $65 per share, This brought its total holdings in Piper to over 200,000) shares, approximately 15° of the outstanding Piper shares, Up to this point, CCT had not officially informed Piper of its extensive purchases of Piper stock, nor had a public announcement been made.’ On the morning of January 23, Mr. Siegel telephoned Mr, W. ‘lt. Piper, Jr., then President of Piper, and informed him that CCT would be announcing that day a cash tender offer for the purchase of Piper stock and that CCI had tentative plans to aequire a majority shareholder interest in Piper, In a statement released to the press that day, CCT announced a cash tender offer beginning immediately and ending on February 3 for up to 300,000 shares of Piper at $65 per share. The price of Piper stock on the NYSE at the close of January 22 was $52.50. CCT also revealed in its press release of January 25 that it was purchasing the stock for investment with a view to control of Piper. but that it did not presently have any specific plan or propesal with respect to the future of Piper. The first response of the Piper management (essentially the Piper family) to the tender offer was to call a meeting on Jannary 23 of representatives of First Boston (Piper's investment adviser), Chadbourne, Parke, Whiteside and Wolff (Piper's legal counsel), and Arthur Young & Co. (Piper's auditors). The next day, January 24, the Piper family decided to oppose CCTs bid for control of Piper. First Boston was asked to contaet cther companies to 3 Section 128(4) 1) of the Securities Exchange Act of 1934, 15 U.S.C. §78m(d) (1) (1970), requires that certain reports be filed by a pur chaser when he has aequired more than 10¢7 of the outstanding stock of a company. CCT satisfied this requirement by filing a Schedule 1D | with the SEC along with its tender offer materials. H-11 March 16, 1978, Second Circuit Opinion solicit proposals which might be preferable to a CCI take- over. BPC was one of the companies contacted. It showed considerable interest. But Piper did not follow up at that time. The Piper family’s resistanee to the CCT tender offer took several forms, On January 25, the Piper Board adopted a resolution that CCT’s offer was not in the best interests of the Piper shareholders and decided that this resolution should be sent to them, Letters were sent out the same day asking Piper shareholders to delay accepting the CCI offer until the Piper management could adequately respond to it. This was followed by a letter dated January 27 over the signature of W. T. Piper, Jr... The letter stated, among other things, that the Piper Board “has carefully studied this offer and is convinced that it is in- adequate and not in the best interests of Piper's share- holders.” Also on January 25, Piper officers met with officers of Grumman Aircraft Engineering Corporation (Grumman) to discuss the sale of 800,000 unissued but authorized Piper shares to Grumman at $65 per share. An agreement was entered into on January 28 under which Grumman agreed to purchase 300,000 Piper shares at $65 per share; Piper agreed to seek approval from the NYSE for the listing of the new shares; and Grumman agreed to tender a check for $19,500,000 at a closing to be held within 3 days of the NYSE approval. The agreement was entered into with “the intention of Grumman and Piper to explore the de- sirability of a merger of their two corporations”, Under the agreement, Grumman was given an option to put the shares back to Piper after six months at Grumman's cost plus 314% interest per annum running from the closing 4 This letter was prepared by D. F. King & Co. Tt was reviewed by the Piper family, by its legal counsel and by Mr. Bayard of First Boston. = § SS 4 H-12 March 16, 1973, Second Cireuit Opinion date. In order to guarantee the option, Piper was re. quired to maintain the proceeds of the sale in a fund separate from its other assets and free of liens. A press release was issued by Piper on January 29 announcing that Grumman “has agreed to purchase” 300,000 shares of Piper subject to the approval of the Boards of both companies. The release further stated that the agreement was also conditioned on the shares being listed with the NYSE, on there being no material adverse change in Piper’s business, and on there being no change in the management of Piper. A letter tracking the language of the release was sent to Piper shareholders on the same day, There was no mention of the “put” arrangement in either the press release or the letter to shareholders. The Grum. man agreement was terminated by mutual consent on March 19 after the NYSE advised the parties that it would not list the new shares. Returning to CCI’s program for purchasing Piper stock, its tender offer resulted in its acquiring an additional 304,606 shares of Piper. This boosted CCT’s total holdings‘ to 547,106 shares, or approximately 33° of the outstanding shares of Piper as of February 3. To obtain the additional 17% necessary for control, CCI decided to make an ex- change offer. On February 14, the Board of CCI approved the making of an exchange offer without determining its terms. On February 27, CCI filed with the SEC an S-1 registration statement and a preliminary prospectus for an exchange offer to acquire a minimum of 80,000 and a maximum of 300,000 Piper shares. CCI issued a press release on May 7 announcing the specific package of CCI securities to be exchanged for Piper shares. First Boston 5 While the tender offer was outstanding, CCI continued to purchase Piper stock on the market. On January 24, 16,200 shares were pur chased, Between January 27 and February 3, another 22,600 shares were purchased. H-13 March 16, 1978, Second Circuit Opinion estimated that the package was worth $70-74 per Piper share. On May 12 and 16, the Board of CCI adopted reso- lutions approving the exchange offer and increased the value of the package by adding $10 cash. Between March 18 and April 7, CCL had issued orders to Mitehell, Hutchins to continue purchases of Piper stock for CCT’s account. CCT actually purchased 9100 shares while its exchange offer was being processed. On April 7, however, Mr, Siegel met with the SEC which warned him that such purchases violated Rule 10b-6 as the SEC inter- preted it. Mr, Siegel informed the SEC that CCT would cancel all outstanding orders and it did. In the meantime, the Piper management continued to search for an effective maneuver to defeat CCI. On March 22, Piper entered into an agreement with United States Conerete Pipe Company of Florida to acquire all the out- standing shares of Concrete Pipe in exchange for 320,000 authorized but unissued Piper shares. On the same day, Piper agreed to acquire 99.466°% of the shares of Southply, Ine. in exchange for 149,199 authorized but unissued shares of Piper. Piper apparently hoped that, by increasing the number of Piper shares outstanding, CCT would find Piper less attractive. The NYSE refused to list the new shares because the Piper family had failed to obtain the approval of Piper shareholders for the deals. When Piper itself issued the stock certificates, an extremely unconventional procedure, the NYSE suspended trading in Piper stock beginning April 7 and initiated delisting procedures. Piper rescinded the agreements on April 14. Going back for a moment to CCT’s program for purchas- ing Piper stock, its tender offer between January 23 and February 3 had resulted in its bringing its total holdings of Piper shares to 547,106 or roughly one-third of Piper's outstanding shares (ineluding those privately purchased), Pursuant to its February 27 exchange offer (which termi- as H-14 March 16. 1973, Second Circuit Opinion nated July 24), CCT aequired 39,826 additional Piper shares. And pursuant to its July 24+ exchange offer (an- nounced on May 7, approved by the CCL Board on May 12 and 16. and termineted on August +), CCI acquired 112.989 additional Piper shares-—-thus bringing its total holdings of Piper shares to 668,295 or 41% of Piper's outstanding shares. BPC's first contact with the contest for control of Piper came on January 24 when First Boston spoke to Nicolas M. Saigo, BPC’s Chairman of the Board, about the possi- bility of a deal between Piper and BPC. Mr. Salgo showed some interest but Piper broke off contact until February °4 when there was a meeting of Piper and BPC repre- sentatives concerning a merger of the two companies. BPC officials demanded that the Piper family sell to BPC all its holdings in Piper, which amounted to 319% of the out- standing shares. The Piper family gave no answer at that time. Further meetings were held on April 18 and 20. The Piper family did not decide to sell until late April or early May. On May 8, a formal agreement was entered into between BPC and the Piper family. BPC made a “limited exchange offer” of specified BPC stock, warrants, and debentures (valued by First Boston at $70-72 per Piper share), for the total Piper family holdings of Piper stock, 501,090 shares. BPC also promised to use its best efforts to ac- quire additional stock to bring its holdings up to more than 50° of the outstanding Piper siock by a “further exchange offer” of “Bangor Punta securities and /or eash having a value, in the written opinion of the First Boston Corporation, of $80 or more per Piper share”. It was further agreed that if BPC were successful in gaining control of Piper, and if First Boston determined that the package of securities received by the Piper family were valued at less than $80 on the opening day of the general H-15 Varel 16. 1973, Second Circuit Opinion exchange offer, the Piper family would be given stock and/or cash to make up the difference. On May 8, a statement was released to the press by both Piper and BPC disclosing that BPC was acquiring the Piper family’s stock holdings through an exchange offer for a package of BPC securities. The release con- tained a statement that BPC would effer to the remain- ing Piper shareholders a package of BPC securities to be valued in the judgment of First Boston “at not less than $80 per Piper share”. This $80 valuation was repeated by David W. Wallace, President of BPC, to a reporter for the Wall Street Journal on May 16. On May 26, the SEC brought an action against Piper and BPC in the District Court for the Distriet of Colum- bia charging that the May 8 press release violated £5(e) of the Securities Act of 1933, 15 U.S.C. b = Pt teach anal Comey oe 2 RUM Ge joe + gh POEL TINS RE DIRU PNG oar ON) Beers eh Mikal H-42 March 16. 1973, Second Circuit Opinion $80 value figure to be a guarantee of market value when the actual market value proved to be considerably less than $80. As stated above, we held in our earher en bane deei- sion that this statement of value violated §5(e) of the 1933 Act but we made no determination whether the statement also was misleading. 426 F.2d at 575-76. We did observe that a prospectus “would have eliminated the possibility, perhaps the probability, that some persons would have construed the $80 figure as referring to market value when that value was neither aceurate nor intended”. Id. at 575. The district court concluded that “the language of the May § release could not be confused by reasonable men... with offers intending or implying guarantees of market value.” 337 F.Supp. at 1137 n. 9.1% We agree. Tf the release were to be construed as a promise of future value, it would not be as a promise of market value. A reasonably knowl edgeable investor is aware that the “value” of a seeurity ean refer either to the market or sales price of the seeurity er to its worth as measured by the assets and earnings of the issuing company. The absence of the term “market -alue” in the release, as well as the fact that the valuation was to be “in the judgment of the First Boston Corpora- tion”, would suggest to a prudent investor that “value” here was to be based on an appraisal of assets and earnings. The statement of value was not a fraud violation for another reason. Tt was not a material representation. A rational investor considering whether to take advantage of the BPC exchange offer after it beeame effective would not have been influenced by the earlier promise of value when the actual package had been disclosed to him for serutiny and value determination. We therefore agree [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385607_0737%3A4. Public record. Not legal advice.