The opinion of the court was delivered by: BRIEANT
The second above entitled action (hereinafter the Smolek action) was filed initially as a class action in the Northern District of Illinois on February 27, 1974. While a motion was pending in that district to declare that the litigation proceed as a class action, the case was transferred to this district pursuant to 28 U.S.C. § 1404(a) by order dated October 29, 1974. While the undermined class action motion was before me for hearing, but before it had been resolved, and on September 11, 1975, the first above entitled action (hereinafter the Ochs action) was also filed in this Court as a class action. The Ochs action was assigned to me as a related case, under Local IAC Rule 13.
Thereafter, by Memorandum Decision dated December 2, 1975, the Court directed that the Ochs action be maintained as a class action, consisting of the plaintiff and all other shareholders of Pasco, Inc. ("Pasco") similarly situated who tendered their shares to Pasco and to Studebaker-Worthington, Inc. ("Studebaker") and whose shares had been accepted by Pasco and Studebaker pursuant to a joint tender offer commencing July 11, 1973 (hereinafter referred to as the "tender offer").Excluded from the class were all defendants and members of their immediate family.
Plaintiff Samuel Ochs was designated class representative, and his attorneys, Nemser & Nemser, Esqs., were designated as lead counsel. The Court declined to authorized the Smolek action to be maintained as a class action, but consolidated the two actions for pre-trial and discovery purposes.
The consolidated actions proceeded in accordance with the aforesaid order. Familiarity with all prior proceedings in both cases is assumed.
By the joint tender offer Pasco had agreed to purchase all shares up to and including the first five hundred thousand shares so tendered by Pasco's public shareholders. If more than 500,000 shares, but not more than 1,000,000 shares were tendered, Studebaker agreed to purchase all such shares tendered in excess of the 500,000 shares taken by Pasco, and if more than 1,000,000 shares were tendered, Studebacker Studebaker was entitled at its sole option, to purchase all or any part of the shares tendered in excess. There were, on July 11, 1973 when the tender offer was first made, a total of 4,718,042 shares of Pasco issued and outstanding, of which Studebaker already owned 2,457,000 shares or 52.1%; Pasco's officers and directors, and officers and directors of Studebaker taken together owned 89,672 shares or 2%. The balance of 2,171,370 shares or 45.9% were understood to be owned by others, including public shareholders. Pasco's stock was listed and traded on the New York Stock Exchange.
The tender offer was extended and finally expired on August 10, 1973. A total of 245,877 Pasco shares were tendered and accepted. These shares were purchased by Pasco and retired.
Pasco's initial business following its incorporation on April 17, 1947 under the name of Pan American Sulphur Company, was the exploration for, mining and sale of sulphur. It operated through wholly-owned Mexican subsidiaries. In 1967 Pasco sold the majority interests in its Mexican subsidiaries, and became an investment company within the definition of the Investment Company Act of 1940. It had by the end of 1971 more than $48,000,000 in cash, marketable securities or equivalent.
On September 23, 1971 a slate of 11 directors had been elected for Pasco, of whom six are claimed to have been designees of Studebaker. The Pasco shareholders voted to amend the certificate of incorporation to increase the directors from six to 11 and to authorized the Board in its discretion to change the nature of Pasco's business so it would no longer be or be deemed to be an investment company as defined in the Act. In the fourth quarter of 1971 Pasco had sold for approximately $20,000,000 in cash its remaining minority investments in the Mexican sulphur production companies.
Commencing in December 1971 and during 1972, Pasco had been engaged in negotiations with Atlantic Richfield Company ("Arco") for the purchase by Pasco from Arco of the Sinclair properties. The Sinclair properties were required to be divested by Arco pursuant to a judgment entered by Judge MacMahon of this Court on August 28, 1970 (United States of America v. Atlantic Richfield Company and Sinclair Oil Corporation, 69 Civ. 162, 50 F.R.D. 369).
Pursuant to a letter of intent dated September 21, 1972, followed by an agreement of purchase and sale dated as of December 21, 1972, Pasco acquired the Sinclair properties as a going concern, and Arco effected compliance with the aforementioned judgment of this Court in 69 Civ. 162.
The Sinclair properties may be described as an integrated petroleum business, including crude oil production properties, refineries, pipelines and marketing outlets. Pasco paid $65,000,000 of its own funds, borrowed $12,000,000 under a revolving credit and term loan from certain banks, and made a simultaneous sale of a production payment from Sinclair's petroleum reserves for $80,000,000.
As a result of the foregoing transactions, the SEC in January 1973 issued an order pursuant to Section 8(f) of the Investment Company Act, declaring that Pasco was no longer a ...