The opinion of the court was delivered by: CARTER
The final stage has now been reached, at least in this court, of the litigation spawned by the acquisition in January, 1978, by Sun Company, Inc. ("Sun") of approximately 34% of the stock of Becton, Dickinson & Co. ("BD"). The nature and history of this bifurcated action is detailed in the opinion, reported at 475 F. Supp. 783 (D.C.N.Y.1979), that concluded the liability phase of this proceeding. Since familiarity with that prior determination is assumed, this opinion will limit recapitulation of the facts to those necessary for an understanding of the issues to be decided at this time.
This is a consolidated proceeding involving a corporate law suit (78 Civ. 539), a Securities and Exchange Commission ("Commission") enforcement proceeding (78 Civ. 1055) and 5 class actions (78 Civ. 284, 78 Civ. 291, 78 Civ. 345, 78 Civ. 1025 and 78 Civ. 1156) against Sun and other defendants, alleging violations of various provisions of the Securities Exchange Act of 1934 and the Investment Company Act of 1940.
The defendants other than Sun are L.H.I.W., a Sun subsidiary, Salomon Brothers ("Salomon"), F. Eberstadt & Co. ("Eberstadt"), F. Eberstadt & Co. Managers and Distributors, Inc. ("M & D"), Robert Zeller, Fairleigh S. Dickinson, J. Fitzgerald Dunning, Kenneth Lipper, Ann Dickinson Turner, Chemical Fund, Inc. and Surveyor Fund, Inc.
After a 4 week trial, it was held that Sun had violated sections 10(b) and 14(d) of the Exchange Act, 15 U.S.C. §§ 78j(b) and 78n(d), and Rule 10b-13 (17 C.F.R. §§ 240.13d-1, 240.13d-2) promulgated thereunder; that Zeller, Lipper, Salomon and Eberstadt had aided and abetted the 14(d) violation; that Dickinson, Eberstadt, M & D and others, aided and abetted by Zeller, Lipper and Salomon, had violated section 13(d) of the Exchange Act, 15 U.S.C. § 78m(d); and that Eberstadt had violated sections 17(d) and 17(e) of the Investment Company Act of 1940, 15 U.S.C. §§ 80a-17(d), 80a-17(e), and Rule 17d-1 (17 C.F.R. § 270.17d-1) promulgated thereunder.
At this point much of the controversy has been resolved. During the liability trial, J. Fitzgerald Dunning settled with the class and corporate plaintiffs and took no further part in the trial. The Commission has reached a satisfactory settlement of its enforcement action against Dunning, Salomon, Lipper, Dickinson and Eberstadt. On January 26, 1979, Dunning consented to the entry of an injunction against him in the Commission's enforcement action, terminating that case. On February 15, 1980, orders were entered (1) setting forth the terms of the stipulation of settlement between the Commission, Salomon and Lipper and dismissing the Commission's action against Salomon and Lipper with prejudice; (2) setting forth the terms of the stipulation of settlement between the Commission, Eberstadt and M & D, now F. Eberstadt & Co., Eberstadt Asset Management and Eberstadt Fund Management,
and dismissing the Commission's action against the latter two defendants with prejudice; and (3) reciting the court's liability finding and order as to Dickinson and otherwise terminating the Commission's enforcement action against that defendant with prejudice. The court made no finding on liability against either the Chemical Fund or Surveyor Fund; the Commission is not seeking further relief against these funds, and BD will not pursue its claims against these defendants or any other defendant.
The Commission has also reached agreement with Sun settling its enforcement claims against that defendant. Similarly, BD has reached a settlement with Sun, and the class plaintiffs have reached a proposed settlement of the class's 14(d) claims against Sun and all the other defendants. All of these proposals have in common a plan of divestiture by Sun of its BD stock and continuing jurisdiction by the court to enforce the terms agreed upon. Since the plan of divestiture is a part of the class settlement, the proposed resolution of the Commission's and BD's cases against Sun cannot go forward unless the class settlement is approved.
The Commission, however, does seek injunctive relief against Robert Zeller in its enforcement proceedings, and the class plaintiffs press their 13(d) claims for damages against Lipper, Zeller, Salomon, Dickinson, Eberstadt and M & D.
The Proposed Class Settlement
The class plaintiffs are stockholders who as of the close of business on January 16, 1978, owned common stock of BD which was not sold to Sun, and debenture holders who at the close of that business day owned 41/8% convertible debentures due in 1988, excluding defendants. The class consists of some 13,000 BD shareholders holding 12,706,846 shares and 889 debenture holders who hold the equivalent of 225,840 shares.
The proposed settlement with Dunning provided for payment of $ 375,000 to the class and BD. The corporation has waived any rights it has to share in this settlement fund. The money has been invested in U.S. Treasury bills and as of June 8, 1980, had accrued to $ 435,000. There is no opposition to the proposed class settlement with Dunning.
The proposed agreement with Sun provides for the corporation to pay the class $ 2,600,000 with interest at 8% from December, 1979, and up to $ 50,000 of the out-of-pocket disbursements of class counsel. All the 14(d), 10(b) and Rule 10b-13 claims arising out of the transaction that were, could have been or should have been pleaded against Sun, Salomon, Lipper, Eberstadt, Zeller or Dickinson are to be dismissed with prejudice, and all members of the class who have not exercised their right to opt out are to be permanently barred from prosecuting any such claims against these parties.
As has been indicated, the key element of the class settlement, as well as resolution of the enforcement proceeding and BD's claim against Sun, is the plan for divestiture by Sun of its BD stock. The plan provides that within three years of approval of the settlement Sun is to make a public offering of debentures that may be exchanged for Sun's BD stock at a price to be fixed by Sun at the time of the offering but not to exceed $ 60 per share.
The terms of the debentures cannot be less than 10 years and are expected to range from 10-25 years; and Sun is obligated to take all necessary action to divest itself of all of its BD holdings within 25 years after it first issues and sells the exchangeable debentures.
The holders of the exchangeable debentures will have the right to vote the shares by direction to an escrow agent who will hold Sun's 6,485,493 shares of BD stock; pending the sale of the debentures, Sun's shares will be voted in accordance with the vote of the majority of BD shareholders. This limitation on Sun's right to vote its BD holdings will not apply to matters of liquidation or mergers which involve the issuance of additional BD shares.
The agreement provides that beginning in the eleventh year of the plan's operation, Sun may make mandatory sinking fund redemptions of its debentures. If the debentures are called for but not exchanged for BD shares, BD has the right to buy the underlying shares at a minimum price of $ 49.50 per share. The price to be paid is to be based on a formula that depends on the initial price of the debentures and the market price and book value of the BD shares. BD's obligation to buy is limited to a maximum of 432,367 shares in any one year, except that if BD in any year purchases less than that maximum where such shares are available, Sun may require BD in the following year to purchase the amount of BD stock equal to that which it failed to purchase in the prior year. BD, however, may not be required to expend more than an aggregate of $ 200 million over the entire term of the agreement in purchasing such shares. Under certain conditions BD may pay a premium price of 15% over market or book value for the shares, but BD cannot be required to pay more than a total of $ 40 million in premium payments over the entire term of the agreement. Sun may sell those shares not exchanged for debentures or bought by BD at a public offering or may issue new exchangeable debentures. After issuance of its debentures, and until its BD holdings fall below 7.5%, Sun will be entitled to designate one nominee for election to the Board of BD on management's slate.
Notices of the proposed settlement were duly sent to the class. While neither the stipulation of settlement nor the terms of the plan of divesture were themselves sent to the class, the notice stated to the class that Sun had agreed to divest itself of all its BD holdings under the agreement with BD, summarized the other terms of the class settlement and advised that the stipulation and plan of divestiture were on file with the court. In addition, the proposed plan was sent to all BD shareholders by BD management. Some 30 shareholders and 5 debenture holders have exercised their right to opt out pursaunt to Rule 23(c)(2)(A), F.R.Civ.P., and the court ...