The opinion of the court was delivered by: WOOD
This action was brought to recover damages for alleged violations of Rule 10b-5 issued under the Securities Exchange Act of 1934 and of Section 17(a) of the Securities Act of 1933
in connection with a reorganization transaction in which Sandia American Development Corporation acquired World Wide Bowling Corporation, whose former stock- and debentureholders are the plaintiffs. After a review of the trial record as well as the proposed findings of fact and conclusions of law submitted by the parties, we entered Preliminary Findings of Fact and Conclusions of Law and requested additional briefing of two central issues which we did not consider had been fully discussed in the initial briefs of the parties. We have now received and reviewed these additional memoranda and make the following findings of fact and conclusions of law. Our preliminary findings and conclusions, which are unchanged, have been inserted in their appropriate context.
1. The plaintiffs are former stockholders of World Wide Bowling Enterprises, Inc.
2. The defendants are the Sandia American Corporation and its individual officers and directors.
3. The actions against Pauline Wechsler and Sigmund Goldblatt have been dismissed by agreement of counsel. (N.T. 5, 7)
4. Plaintiff Irving Gottlieb is a Certified Public Accountant and was President of World Wide Bowling Corporation at the time of the transactions involved in this case. (N.T. 13-14)
5. During 1961, World Wide Bowling Corporation was suffering from financial difficulties, and its officers and directors felt that it would be unable to resolve its financial difficulties with its existing assets. They decided to place an ad in the Wall Street Journal during February 1962 requesting a merger bid. (N.T. 14-15)
6. Among the responses to this ad was an inquiry from Sandia American Development Corporation. Gottlieb was initially very impressed with the personages on Sandia's Board of Directors, which included James Roosevelt. Mr. Nathan Wechsler, special counsel to and a controlling stockholder of Sandia, briefed Gottlieb generally about Sandia's conglomerate operations. Wechsler informed Gottlieb that Sandia had three alleys which it was already operating with some success and that he felt that these three alleys and the three run by World Wide could be operated efficiently without additional management. (N.T. 17)
7. During the period in which the events here at issue occurred, Sandia held approximately 19 subsidiaries in varying degrees of control. (See Ex. D-7)
8. Sometime in February or March 1962, Wechsler invited Gottlieb to Washington to examine the books and records of Sandia. During their discussions, Gottlieb was shown the Consolidated Balance Sheet for Sandia American Development Corporation as of December 31, 1961, in which the following items were listed as "Fixed Assets":
Bowling Alley Sites and
Bowling Lanes and
Leasehold Improvements 2,470.87
Less: Depreciation and
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