The opinion of the court was delivered by: CANNELLA
CANNELLA, District Judge:
Plaintiffs' motion, pursuant to Rule 65 of the Federal Rules of Civil Procedure, for a preliminary injunction restraining Inland Credit Corporation ("Inland") from consummating its presently pending "Exchange Offer to Holders of Class A Stock $1 Par Value" (the "Exchange Offer"), is granted pending disclosure by Inland in conformity with this decision.
Gerald and Constance Broder, owners of 393 shares of Inland Class A common stock have brought this action on behalf of themselves and all other holders of Inland shares similarly situated, alleging violations of Sections 10(b), 13(d), 14(d) and 14(e) of The Securities Exchange Act of 1934, as amended, as well as New York common and statutory law. It includes in addition, a derivative claim.
On October 24, 1974, plaintiffs noticed this motion, and on November 8, 1974 a hearing was held and completed with the presentation of oral argument by counsel. Neither party chose to present witnesses,
and the matter was submitted to the Court on November 12, 1974 with the filing of final reply papers.
Inland Credit Corporation, a New York corporation in the commercial financing business listed on the American Stock Exchange, is attempting to go "private." In an attempt to effectuate this goal, Inland on October 4, 1974, made an exchange offer to its public stockholders. This offer, originally scheduled to expire on October 29, 1974, has been extended pending the determination of this motion.
There are presently 761,016 shares of Inland Class A stock outstanding, of which approximately 70% (525,851 shares) are held by Inland's management and their families. The remaining 30% of the outstanding shares are held by 1,500 public shareholders.
Oscar Dane and Stanley Stern are Inland's principal shareholders, as well as the Chairman of the Board of Directors and President, respectively. They and their families (Stern is Dane's son-in-law) own 69% of Inland's outstanding stock (523,851 shares). The remaining named defendants own approximately 2,000 shares of the company's outstanding stock.
On January 11, 1973, when the market price of Inland was $5.50 per share, Dane and Stern formed the Stern-Dane Holding Company, the principal if not sole asset of which is apparently 483,222 shares of Inland stock (approximately 63% of the corporation's outstanding stock). Simultaneously with the formation of the Stern-Dane Holding Company, Stern purchased 83,860 shares of Inland Class A common stock from six individuals and four accounts held in trust. All of the sellers were apparently related to Mr. Dane either by blood or marriage. As consideration for these shares, an "original" value of $11.27 per share was agreed upon, payable to the sellers, 20% down and the balance payable in four annual installments commencing January 1, 1974 with 6% interest from November 1, 1972 on the unpaid principal. The $11.27 per share price which was derived from the book value of a share of Inland on October 31, 1972, is, however, subject to an adjustment so that the total amount eventually paid by Stern for each share will be "the book value of a share of Common Stock as of October 31, 1972, retroactively determined as of October 31, 1975. . . ." In essence, this adjustment will be effected through a reconstruction of the October 31, 1972 balance sheet with the aid of hindsight as available on October 31, 1975. While it is, of course, impossible to state exactly what the adjusted figure will ultimately be, it seems clear that barring substantial unanticipated defaults in presently outstanding loans, any required adjustment will be minimal.
Having completed these transactions with an initial payment totaling $191,256.52, Stern contributed his newly acquired 83,860 shares and Dane the 376,352 shares he previously owned so that the Stern-Dane Holding Company held 483,222 shares of Inland stock.
The Stern-Dane agreement provided that all Inland shares contributed by the partners would be valued at $11.27 per share subject to the adjustment discussed above. Upon the death, insanity, insolvency or bankruptcy of either partner, the other is afforded the option to purchase all of that partner's stock at $11.27 per share as adjusted. If that option is not exercised, the estate of the deceased, insane, insolvent or bankrupt partner can either require such a purchase, or, in the alternative, itself purchase the other's shares. All of the above facts regarding the purchases by Stern and the formation of the Holding Company were disclosed in an accurate and timely fashion on January 17, 1973, with the filing by Stern of a Schedule 13D pursuant to Section 13(d) (1) of the Williams Act. Attached to the Schedule 13D was a copy of the Stern-Dane partnership agreement and a copy of a typical stock purchase agreement used by Stern in acquiring his shares.
On October 4, 1974, Inland sent the instant Exchange Offer to its shareholders. The Offer invites all owners of Inland Class A Common Stock to tender their stock back to the corporation in exchange for 10% non-convertible subordinated debentures due 1984 and having a principal value of $5.00. For each share of Inland so tendered, the shareholder will receive one such debenture in exchange.
The Offer provides for a maximum repurchase by the corporation of 190,000 shares, and states that the holders of 523,851 shares (the Stern-Dane Holding Company (483,222 shares) and Stanley Stern's wife and children and trusts for the benefit of said children (40,629 shares)), "have indicated their intention not to tender such shares." Thus, there are a total of 237,165 shares outstanding which may be tendered in response to the Exchange Offer. If all 190,000 shares for which the Offer has been made were to be tendered, there would then be 47,165 shares of outstanding stock publicly held by other than members of Stern's family.
Inter alia, the Exchange Offer states: 1) that in light of the present economic climate "there are few advantages and substantial disadvantages, to the company and its shareholders, of the company continuing to be publicly held and required to prepare and file reports with and to observe all the regulations of The Securities and Exchange Commission and The American Stock Exchange. While the present market price for the Class A Stock is depressed, in the opinion of management the prospects of a substantial increase in the market price in the foreseeable future appear limited;" 2) that there is no established market for the debentures and that "there can be no assurance that such a market for debentures will develop;" 3) that even without the Exchange Offer the company was subject to delisting by The American Stock Exchange, and that after the Exchange Offer "the company may also fall below the other listing standards. In any such event, the Class A Stock may be delisted by the Exchange;" 4) under the heading of "Effect of Exchange Offer," there is basically nothing more than a table which shows that the net tangible book value per share before the exchange is $11.73, while after the exchange, if all 190,000 shares are tendered, it will be $13.97.
THE STANDARD FOR PRELIMINARY INJUNCTIONS
It is settled in this Circuit, that a preliminary ...