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November 25, 1970

Harold E. KOHN, Trustee, et al., Plaintiffs,
AMERICAN METAL CLIMAX, INC. and Roan Selection Trust, Ltd., et al., Defendants

Masterson, District Judge.

The opinion of the court was delivered by: MASTERSON

MASTERSON, District Judge.


 On April 8, 1970 plaintiff, a trustee of American Depositary Receipts representing 2000 shares of Roan Selection Trust, Ltd., (RST), a Zambian corporation, filed a complaint against defendants, American Metal Climax Company (AMAX) and Roan Selection Trust, Ltd., seeking to enjoin the proposed amalgamation of the defendant companies on the grounds that the disclosure provisions of the Securities Exchange Act had been violated, that the amalgamation was violative of the antitrust laws, was unfair to non-AMAX shareholders of RST, and was effectuated by the fraud and breach of fiduciary duty on the part of certain directors of RST. From May 11th to 18th a hearing was held on plaintiff's motion for a preliminary injunction. On June 8th we filed an Opinion, 313 F. Supp. 1251, making Findings of Fact and Conclusions of Law, denying without prejudice plaintiff's request for a preliminary injunction on the grounds that it was premature in that (1) before the amalgamation could be effectuated it would have to be approved by the shareholders who, prior to the vote, were to be sent an explanatory statement which was intended to fully explain the proposed amalgamation, and (2) if and when the shareholders voted in favor of the plan, it would then have to be submitted to the High Court of Zambia for its approval. In late June, just prior to the time when the explanatory materials were to be sent, plaintiff made a motion to enjoin their distribution on the ground that they were violative of the Securities Exchange Act. On July 2nd we held a hearing on plaintiff's motion and, at that hearing, enjoined the distribution of the explanatory materials. The defendants' appeal from this action was dismissed on the ground that, since no written order had been executed by the District Court, the Court of Appeals had no jurisdiction. On July 8th we entered a written order enjoining the distribution of the materials unless certain conditions were met by defendants. These conditions were met and we allowed the materials to be sent without prejudice to the plaintiff's claims that the materials were violative of the Securities Exchange Act. On August 5th, just prior to the time when the proposed amalgamation was to be put before the shareholders for a vote, plaintiff again made a motion to enjoin the defendants from taking any further steps to effectuate the amalgamation. We denied plaintiff's motion on that same day only insofar as it sought to enjoin the amalgamation from being put before the shareholders for a vote. On the balance of plaintiff's motion we held a hearing on August 12th. On August 6th the shareholders voted to approve the reduction of capital, the first step necessary to effectuate the amalgamation. On August 12th we preliminarily enjoined the amalgamation, making Findings of Fact and Conclusions of Law that the plaintiff had demonstrated a strong probability that he would, upon final hearing, be granted relief. We set the case down for a final hearing for September 8th. On August 13th the defendants appealed our August 12th Order. On that day, the Court of Appeals stayed the effect of our Order upon certain conditions, one of them being that the defendant AMAX would deposit with the Court ten million dollars as security for any injury plaintiff might suffer from the granting of the stay. On August 14th the High Court of Zambia approved the reduction of capital. Also on August 14, 1970, plaintiff made a motion to the Court of Appeals for a re-hearing of the August 13th appeal and for an amendment to the Court of Appeals Order of August 13th. On August 31st the Court of Appeals amended and supplemented its August 13th Order in certain respects and further ordered that this court proceed forthwith with the trial and disposition of the case, notwithstanding the pendency of an appeal from our preliminary injunction, and that we reach final judgment prior to October 29, 1970. On August 25, 1970 plaintiff made a motion for leave to file an amended and supplemental complaint and for summary judgment. During this time we continued generally the final hearing scheduled for September 8th. On September 14th we granted plaintiff's motion for leave to file an amended and supplemental complaint and on that day the complaint was filed adding, inter alia, new party defendants. On September 21st the defendants moved for summary judgment. On September 25th we heard oral argument on the cross motions for summary judgment and on September 30th both motions were denied. On October 5th the trial of this case commenced and a jury was called. On that day, after the calling of the jury, the parties entered into a stipulation waiving their rights to a jury trial. At that time the case against the new defendants added on September 14th was severed and it was agreed that the case should proceed solely against the defendant companies, the trial being continued to October 13th. On October 8, 1970, plaintiff moved in the Court of Appeals for a further amendment of the Court of Appeals Order of August 31st. The Court of Appeals amended its August 31st Order to extend the time for our final disposition of the case from October 29, 1970 to November 27, 1970. The trial commenced as scheduled and continued to November 3, 1970. At the conclusion of the trial, we ordered that briefs and proposed Findings of Fact and Conclusions of Law be submitted on November 11th and that replies to those briefs and Findings of Fact be submitted on November 13th. On November 16th we heard oral argument.

 After careful consideration of the entire record in this case, we enter the following




 1. This action was originally brought in three counts by plaintiff, Harold E. Kohn, trustee for the Pension of Harold E. Kohn, P.A., attorneys-at-law, against defendants AMAX and RST. It was brought both as a derivative action on behalf of RST and as a class action on behalf of all shareholders of RST, except AMAX, and principally seeks to enjoin AMAX from acquiring some of the assets of RST remaining after the acquisition of control of RST by the Government of Zambia.

 2. Count I was brought under Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j, and Rule 10b-5, 17 C.F.R. § 240.10b-5, promulgated thereunder. In substance, it charges that AMAX conspired with one or more of the directors of RST to perpetrate a fraud on the non-AMAX shareholders of RST and that, pursuant to this conspiracy, they made untrue statements of material fact and omitted to state other material facts necessary to be stated in order to make the statements made not misleading.

 3. Count II charged AMAX with the above-mentioned fraud and with a breach of fiduciary duty owed to RST and its non-AMAX shareholders.

 4. Count III was brought only as a derivative action on behalf of RST. It charges that the proposed acquisition of RST by AMAX is violative of Section 7 of the Clayton Act, 15 U.S.C. § 18, and that an alleged interlocking of directorates between AMAX and RST is violative of Section 8 of the Clayton Act, 15 U.S.C. § 19.

 5. On September 14, 1970 we granted plaintiff leave to file an amended and supplemental complaint, which the plaintiff filed that same day. Essentially, the amended and supplemental complaint asserts the same grounds for relief as the original complaint. However, additional defendants, who are either officers and/or directors of or financial advisers to the defendant corporations, were named.

 6. The Court has subject-matter jurisdiction over plaintiff's claim that defendants violated the Securities Exchange Act of 1934 under Section 27 of that Act, as amended, 15 U.S.C. § 78aa.

 7. The Court has subject-matter jurisdiction over plaintiff's claim of fraud and breach of fiduciary duty by the defendants under 28 U.S.C. § 1332.

 8. The Court has subject-matter jurisdiction over plaintiff's antitrust claims under 15 U.S.C. § 26.

 9. Venue is proper in this District under section 27 of the Securities Exchange Act of 1934, as amended, 15 U.S.C. § 78aa, and under 28 U.S.C. § 1391 (c) and (d), § 1401.

  10. This Court has personal jurisdiction over the defendants AMAX and RST.


 11. Plaintiff, Harold E. Kohn, Trustee, for the Pension Plan of Harold E. Kohn, P.A., Attorneys-at-law, holds American depositary receipts representing 2,000 ordinary shares of RST which are listed for trading on the New York Stock Exchange. Plaintiff is a citizen of the Commonwealth of Pennsylvania, resides in the Eastern District of Pennsylvania, and purchased such American depositary receipts on January 14, 1970. (Uncontested Fact No. 1 *fn1" ).

 12. There are approximately 40,000 shareholders of RST in the United States (See Uncontested Fact No. 10) and United States citizens, other than AMAX, own approximately 37.7% of RST. (Uncontested Facts Nos. 5 and 9). Motions to intervene as party plaintiffs were granted to approximately 265 shareholders of RST, representing approximately 550,000 shares of RST. In our Order of June 8, 1970, we ordered that this action could be maintained as a class action pursuant to Rule 23(c) (1) of the Federal Rules of Civil Procedure.

 13. Defendant AMAX, a listed company on the New York Stock Exchange, is a New York corporation with its principal place of business at 1270 Avenue of the Americas, New York, New York, and is licensed to do business in the Commonwealth of Pennsylvania. (Uncontested Fact No. 2). AMAX is a major producer, fabricator and marketer of metals and minerals. AMAX is the owner of 42.3% of the issued shares of RST. (Uncontested Fact No. 5, in part).

 14. At the time suit was instituted, defendant RST was a corporation organized and existing under the laws of the Republic of Zambia, with its principal place of business in Zambia. RST's executive office was located at Kafue House, Cairo Road, Lusaka, Zambia; its central and registered office was located at Mpelembe House, Broadway, Ndola, Zambia. RST, since at least 1955, has reported annually to the Securities and Exchange Commission (SEC) on Form 20-K with its Annual Report to shareholders annexed. Its principal business was the production, smelting and refining of copper in Zambia. (Uncontested Fact No. 3).

 15. On January 7, 1970, RST organized RST International, Inc., a wholly-owned Delaware subsidiary, for the purpose of externalizing RST's Zambian assets after the nationalization. RST International, Inc., pursuant to an Order of the United States Court of Appeals for the Third Circuit, dated August 31, 1970, entered their appearance as a party defendant in this action on September 25, 1970.

 16. The Morgan Guaranty Trust Company of New York (Morgan), the American depositary of RST shares, regularly performs the following functions:

 (a) mails annual quarterly reports supplied to it by RST to registered American shareholders of RST (Deposition of Regis E. Moxley, Vice-President of Morgan, p. 6);

 (b) distributes cash dividends of RST to American shareholders (Moxley Dep., p. 8);

 (c) mails other reports, announcements, documents and circulars of RST to American shareholders (Moxley, Dep., pp. 10-13).

 In performing these services, Morgan is paid by RST. The fees paid Morgan by RST for these and other services amounted to over $300,000 for the period July 1, 1968 to June 30, 1969. (Plaintiff's Exhibit, hereinafter "PX", No. 22).


 17. In the spring of 1968, the Zambian Government announced a limitation of dividends that may be paid outside the country to 50% of net profit. This is commonly referred to as the Mulinguishi Declaration. (Uncontested Fact No. 7).

 18. On August 11, 1969, the President of Zambia announced ("Matero Declaration") the desire of the Zambian Government to acquire controlling equity interests in the operating copper properties in Zambia. Thereafter, RST was obliged by the Government to negotiate the sale of 51% interest in the copper producing, smelting and refining businesses conducted in Zambia by certain of its operating subsidiaries. (Uncontested Fact No. 8, in part).

 19. Between August 11, 1969, and November 17, 1969, RST's efforts were devoted almost entirely to the intense negotiations with the Zambian Government concerning nationalization. RST's chief concern in the negotiations was to secure the agreement of the Zambian Government to allow RST to transfer its domicile and to externalize its assets. "Externalization" here means the freeing of assets from Zambian exchange controls. (Notes of Trial Testimony, Final Hearing, pp. 369-71). *fn2" The negotiations were conducted on behalf of RST by Messrs. Jean Vuillequez and R. H. Page, RST's Executive Vice-Chairman and Chief Financial Officer, respectively. AMAX did not formally take part in the negotiations between RST and the Government of Zambia, but was kept advised of the progress of such negotiations by RST, supplied technical assistance to RST in the drafting of proposals, and advised RST of its views as to certain of the issues, particularly urging that the agreement with the Zambian Government include complete externalization. (PX-151). (Uncontested Fact No. 12, in part). Sullivan & Cromwell, attorneys for both AMAX and RST, took an active part in these negotiations. (DX-50).

 20. On November 17, 1969, the RST board met and unanimously approved an agreement in principle to be entered into between the Government, the Industrial Development Corporation of Zambia, Ltd. (INDECO) (a Government corporation) and RST. (Uncontested Fact No. 13, in part). Prior to the execution of the agreement, AMAX had made known to RST its opinion that the agreement was as favorable to RST as could be expected under the circumstances. (Uncontested Fact No. 13, in part).

 21. On November 17, 1969, after unanimous approval by the RST Board, Sir Ronald Prain, Chairman of the Board, issued a statement, which was sent to RST stockholders, that RST and Zambia had agreed on the principal terms by which the Government would acquire a majority interest in the mining properties of RST. (Uncontested Fact No. 14, in part; DX-1).

 22. On December 22, 1969, a committee of the directors of RST approved the agreement between and among the Republic of Zambia, INDECO and RST. (Uncontested Fact No. 18). The salient provisions of that agreement are:

 (a) that the mining operations of RST would be merged into a company to be known as Roan Consolidated Mining, Ltd. (RCM) in which INDECO would own 51 percent, RST 36.75 percent, and the remainder of 12.25 percent by other companies known as the Anglo-American Group because of its minority interest in certain of the RST companies;

 (b) that in payment for such operation, INDECO would issue negotiable bonds guaranteed by the Zambian Government in the amount of $151,000,000 of which RST would receive 36.75 percent;

 (c) that RST, or a company nominated by it, will manage the operations of RCM and act as sales agent for a minimum period of 10 years, for which RST or its nominee will receive one and one-half percent of RCM's gross sales revenue plus two percent of RCM's profits after mineral taxes but before income taxes;

 (d) that the holder of the management contract hold not less than 20 percent of RCM stock;

 (e) that RCM will pay quarterly dividends not subject to dividend limitation and which will equal the net income of RCM after provision for reserve for exploration and development in an amount approved by the entire board of RCM;

 (f) that all of the assets of RST except those sold to the Zambian Government may be transferred to a new corporation outside of Zambia and that such assets consist principally of cash of approximately $60,000,000, a 30 percent interest in Botswana RST, Ltd. (BRST), interests in Baluba Mines Limited and certain other exploration companies, the Ametalco group of companies, *fn3" the aforesaid INDECO bonds and RST shares in RCM;

 (g) that the acquisition by Zambia of 51% of RST be approved by the RST shareholders. (DX-1; Uncontested Fact No. 19, in part).


 23. On August 11, 1969, the date the "Matero Declaration" was announced, Sir Ronald Prain and his colleagues began giving serious consideration to the externalization of RST's assets and making RST an international mining house to avoid being " looked in Zambia". It was decided to make externalization a condition to RST's agreeing to the Zambian Government's nationalization plan. (N.T.F.H. 369). In fact, such an "externalization program" was incorporated into the agreement in principle. (See Finding of Fact No. 22(f), supra).

 24. Between August 11, 1969 and November 17, 1969, Prain did not discuss with anyone except Vuillequez the possibility of RST's becoming an international mining house. Both expressed their concern that such a plan might involve RST's becoming a competitor of AMAX. (N.T.F.H. 378-79).

 25. In late November, Prain raised with Ian MacGregor, who is Chairman of the Board of AMAX and a director of RST, the idea of RST's becoming an international mining house. At that time MacGregor noted the possible adverse competitive impact this might have on AMAX and mentioned that the only possible solution would be for AMAX either to sell all or part of its RST shares or to buy all or part of the RST shares it did not already own. (N.T.F.H. 380-81). Prain and MacGregor had no further discussions on this point until December 11, 1969. (N.T.F.H. 383-84).

 26. By memorandum to the Directors of RST dated December 10, 1969, Prain recommended, inter alia, that all of the RST assets, except cash balances to be externalized to a Luxembourg subsidiary and except those assets to be sold to the Zambian Government, be transferred to a newly formed corporation in another country, most likely the United States or Luxembourg, under the name "RST International" and that RST become an international mining company. (PX-3; N.T. 444, 450-51). He also stated that the major shareholder (AMAX) had requested him to become chairman of the international corporation. (PX-3). The RST management had concluded that the formation of an international mining company would be accompanied by a distribution to RST shareholders of some cash and all the Zimco bonds. The RST management had so concluded because it felt that RST had a moral obligation both (1) to distribute to its shareholders that which RST had received (i. e., the Zimco bonds) for Zambia's taking over 51% of the company and (2) to distribute some cash to make up for dividend restrictions imposed by Zambia in the past as well as to provide additional compensation for the take-over. The management also concluded that distributing the Zimco bonds to stockholders all over the world would minimize the political and economic risk of default by Zambia in the payment of principal or interest. (N.T.F.H. 374-75, 1284-87).

 27. On December 11, the RST board met and unanimously approved Prain's recommendations. Ian MacGregor, who is Chief Executive Officer and Chairman of the Board of AMAX and a director of RST, was present at that meeting and approved such resolution. (PX-3; PX-27; Uncontested Fact No. 16, in part).

 28. On that same day, December 11, 1969, MacGregor proposed to Prain an amalgamation of RST and AMAX. His purpose in so doing was to protect AMAX's investment in RST. (N.T.P.H. 386). One of AMAX's primary reasons for seeking to amalgamate with RST was to acquire RST's cash for AMAX's own requirements in financing its foreign investment projects in the production of nickel and bauxite. AMAX anticipated that it would be short of capital because of these extensive projects. (PX-5, pp. 8-9; PX-573a). MacGregor's proposal envisioned a "distribution to the non-AMAX shareholders of RST of certain of the RST assets and some type of debenture from AMAX to make up whatever value was negotiable." (N.T.F.H. 384). Prain asked whether the AMAX debentures could be substituted with AMAX common stock, but this suggestion was totally dismissed as a possibility by MacGregor. (N.T.F.H. 557-58). MacGregor did not represent to Prain that this amalgamation proposal had the authorization of the AMAX board.

 29. On December 19, 1969, RST's management retained N. M. Rothschild & Sons, London merchant bankers, to advise RST in its discussions with AMAX. (N.T.P.H. 192-93, 160-61). In these negotiations, AMAX was advised by Lehman Brothers, New York investment bankers. On January 17, 1970, RST retained Kuhn, Loeb & Co., New York investment bankers, to work jointly with Rothschild's. (N.T.P.H. 503-08). The negotiations were held over a period of approximately 2 1/2 months, culminating on March 5, 1970, when the parties entered into an Agreement in Principle for the amalgamation of AMAX and RST. (PX-9; Uncontested Fact No. 5).

 30. The two persons who were authorized by AMAX to negotiate on its behalf were MacGregor and Donahue (President of AMAX), who both were and are members of the RST board. (PX-7). Also intimately involved in the negotiations for AMAX was Harold K. Hochschild, a member of both the AMAX and RST boards, and former President and Chairman of the Board of AMAX. (N.T.F.H. 1032-36). Aside from its investment bankers, RST was represented in the negotiations by inter alia, Prain, Jean Vuillequez and R. H. Page, a director and Vice-President of RST. (N.T.F.H. 309, 508).

 31. Throughout these negotiations, MacGregor felt that non-AMAX shareholders of RST were being more than amply represented by RST directors other than himself. (N.T.P.H. 395). In the process of negotiation, MacGregor's sole concern was for the interests of AMAX. (N.T.P.H. 386; N.T.F.H. 919). This concern was shared by Harold Hochschild, who considered himself part of the AMAX negotiating team only. (N.T.F.H. 1036).

 32. During the course of negotiations many avenues were explored. Since Prain felt that the best course for RST would be to become an international mining house, and since he was aware of AMAX's objections to this plan for competitive reasons, RST offered, in early January, 1970, to buy out AMAX's total interest in RST. (N.T.F.H. 392-406). MacGregor summarily dismissed this proposal. (N.T.F.H. 406, 425).

 33. RST felt that their proposal for a total buy-out of AMAX's interest was too hastily dismissed by MacGregor and, thus, in late January or early February, 1970, again offered this proposal together with a plan to buy-out a part of AMAX's interest. Also, at this time, RST again presented a plan to become an international mining house. (N.T.F.H. 417-26).

 34. AMAX, principally through MacGregor, again rejected any buy-out of its interest by RST. (See N.T.F.H. 822-28; DX-14, p. 6).

 35. On the other hand, AMAX proposed two plans, to wit: (1) a total liquidation of RST which would have reduced RST to a mere management company in Zambia and (2) an amalgamation of AMAX and RST whereby AMAX would substantially increase its percentage holding in RST by buying-out the public shareholders interest in RST. (N.T.F.H. 428). Prain rejected the total liquidation proposal out of hand since he and his non-AMAX colleagues felt that such a proposal was not in the interests of RST stockholders. (N.T.F.H. 428-29).

 36. At this juncture RST investigated the possibility of amalgamating with a company other than AMAX. However, RST was advised by its investment bankers that, in their opinion, there was no such company. (N.T.F.H. 429, 433-34).

 37. Thus, in early February, 1970, the only alternatives open to RST were amalgamation with AMAX or becoming an international mining house. At this time, Prain remained steadfast in the view that the best course for RST would be to become an international mining company, knowing full well, however, that such a course would be totally unacceptable to AMAX. (N.T.F.H. 392, 407, 559, see Finding of Fact Nos. 25, 32, supra).

 38. On or about February 26, 1970, Prain concluded that the best interests of RST lay in an amalgamation with AMAX rather than in becoming an international mining company. (N.T.F.H. 392-93). The reasons given for Prain's change of mind were: (1) he was advised by RST's investment bankers that if RST were to become an international mining house (a) its borrowing power would be limited (N.T.F.H. 393-95) and (b) consequently, RST would have to generate capital internally and would have less earnings available for distribution to stockholders as dividends (N.T.F.H. 395); (2) becoming an international mining house would involve competing with AMAX (N.T.F.H. 400); (3) RST was orally advised on February 19, 1970, by its tax counsel, Wayne C. Chapman, Esquire, of Cravath, Swaine and Moore, that if RST were to be domiciled in either Luxembourg or in the United States and if there were to be a distribution, as contemplated, of cash and Zimco bonds (N.T.F.H. 395-399), such a distribution would result in an unequal tax impact on different classes of RST shareholders. (N.T.F.H. 1157-62). An additional reason given by RST's investment advisers, but not subscribed to by Prain, was that RST's management had not been created to develop an international mining house nor could they have attracted such talent. (N.T.F.H. 746).

 39. RST and its investment advisers did consider the consequences of RST's becoming an international mining house without making a distribution of cash and Zimco bonds to RST shareholders but concluded that this avenue was unacceptable for the reasons previously outlined (see Finding of Fact No. 26) as well as for other tax problems which the failure to make a distribution would create. (N.T.F.H. 1284-87). RST's tax counsel, Mr. Chapman, was never requested to render any opinion as to the tax impact on the shareholders if RST were to become an international mining house without making a distribution. (N.T.F.H. 1172-73).

 40. It was at this time, on or about February 26, 1970, that RST's management began for the first time to seriously consider amalgamation with AMAX and to come to grips with the problem of negotiating its terms. (N.T.F.H. 401).

 41. For this purpose, inter alia, the RST board met on February 28, 1970, and adopted the following resolution:


That a committee of any two of Sir Ronald Prain, Mr. J. Vuillequez and Mr. R. H. Page be appointed to settle any such amalgamation if an offer on the lines discussed was forthcoming.

 (Uncontested Fact No. 26; PX-79).

 41(a). In the event that the negotiations with AMAX concerning amalgamation did not result in an agreement, RST, as late as March 4, 1970, was giving serious consideration to implementing the previously agreed upon international mining house plan (See Finding of Fact Nos. 26, 27, supra), albeit in its modified "twinning" form. (N.T.P.H. 472-75). The twinning concept involved leaving the RCM stock and some other assets in a Zambian corporation, creating a new Luxembourg corporation wholly independent of the Zambian corporation to hold the cash and other externalized assets and distributing to the shareholders single share certificates representing stockholdings in both companies. (PX-33). The hoped for effect of the twinning proposal was to preserve for the RST stockholders the tax credit they enjoyed as result of a tax treaty. AMAX's strong opposition to the "twinning" plan forced RST to realistically view it as an alternative only if amalgamation with AMAX could not be worked out. (PX-5, Appendix, p. 10).

 42. One day later, on March 5, 1970, the Agreement in Principle for the amalgamation of AMAX and RST was signed by Mr. Ian MacGregor of AMAX and Mr. H. J. Hinves of RST. (Uncontested Fact No. 25; PX-39). Prior to the execution of the agreement, RST's investment bankers orally advised RST's board of directors that the proposed reorganization was fair and equitable and in the best interests of RST stockholders and that it was preferable to other reorganization proposals which had been considered. (N.T.P.H. 167-68, 452, 508).

 43. At a March 5, 1970 meeting, the board of AMAX approved the Agreement in Principle unanimously. The members of AMAX who were either directors or alternate directors of RST abstained from such vote on advice of counsel although they stated they would support adoption of said plan. (Uncontested Fact No. 28).

 44. The committee authorized by the RST board meeting of February 28, 1970, consisted of Vuillequez and Page. This committee met on March 6, 1970, and voted on behalf of RST to accept the Agreement in Principle to amalgamate with AMAX. (Uncontested Fact No. 29; N.T.F.H. 508).

 45. In essence, the Agreement provides for the consolidation of RST's Zambian operating assets into RCM, a Zambian corporation, 51% of which will be sold to INDECO for INDECO bonds, December 24, 1969 with the Government of Zambia; pro rata distribution to all RST shareholders of the INDECO bonds thus acquired; pro rata distribution to all RST shareholders of RST's shares of Botswana RST Limited; pro rata distribution to all RST shareholders of the shares in RCM, except to the extent that the Zambian Government has required 20% of the RCM shares to be retained by RST, and acquisition of the remainder of RST by AMAX, for which AMAX will pay to other RST shareholders approximately $76.2 million principal amount of 8% AMAX subordinated debentures with common stock warrants attached and $6.3 million in cash. (PX-9).

 46. More specifically the Agreement in Principle provides for the following (PX-6; PX-9; DX-6A):

 Non-AMAX shareholders of RST, who own 25.4 million or 57.7% of the total RST shares will receive the following in complete redemption of their shares:

 (a) $6.3 million in cash, representing $.25 per RST share;

 (b) Their approximate pro rata share ($2 principal amount per RST share) of the 6% Zimco bonds;

 (c) Approximately 16.75% of the shares of RCM;

 (d) Their pro rata share (57.7% of RST's 30.2%) (947,401 shares) of Botswana RST Limited, which has a controlling interest in a proposed Botswana copper-nickel mining venture;

 (e) Approximately $76.2 million principal amount ($3 principal amount per RST share) of 8% AMAX debentures, subordinated to all present and future AMAX debt, due January 1, 1986, with one seven-year AMAX common stock warrant attached to each $100 principal amount of debentures. The warrants will be exercisable at $47.50 per share and will be detachable and exercisable six months after issuance.

 After the reorganization, RST will be a wholly-owned subsidiary of AMAX and RST will own the following:

 (i) Approximately 42.3% of $40 million principal amount of the Zimco bonds to be received by RCM;

 (ii) 42.3% of RST's present interest in Botswana RST;

 (iii) 20% of the shares of RCM;

 (iv) 100% of the Ametalco group of companies;

 (v) The contracts to manage the RCM mines and to sell their output pursuant to previously announced agreements in principle with the Zambian Government;

 (vi) Miscellaneous exploration and other assets both inside and outside of Zambia; and

 (vii) Net current assets of approximately $63 million remaining in the RST Group, based on estimated January 1, 1970 figures.

 At the time of the Agreement, AMAX anticipated that it would receive, inter alia, the following benefits as a result of the Agreement in Principle between RST and AMAX:

 (a) AMAX's annual income would be increased by $8.7 million calculated at a $.50 per pound copper price *fn4" (PX-5, p. 1; N.T.F.H. 1096-97);

 (b) AMAX's cash flow would be improved by $134 million over a period of 1970-1975;

 (c) AMAX's foreign balance of payments position would be improved by $91 million;

 (d) Although AMAX would increase its net exposure in Africa by about $24 million, 4 1/2 years of incremental earnings after the acquisition would recoup this (PX-5, p. 1);

 (e) AMAX would be acquiring high yielding assets (PX-5, p. 6).

 46(a). The Agreement between RST and Zambia granted RST discretion regarding adopting a plan for externalization and set no time limit for this purpose. (DX-1, p. 5). The Zambian Government had also indicated its willingness to cooperate in any plan of externalization which RST might devise, subject of course to any of the requirements in the aforesaid Agreement. (PX-64, p. 10). There was no requirement that nationalization and externalization had to proceed simultaneously. In fact, the Zambian Government indicated a strong desire to effectuate nationalization without much delay and to have the externalization plan follow later. (PX-36; PX-138).

 47. For the agreement between AMAX and RST to take effect, it had to be adopted by the vote of the holders of three-quarters of all RST shares represented in person or by proxy at the shareholders' meeting scheduled for August 6, 1970. (Zambia Companies Ordinance, §§ 14, 104 (1965)). Prior to our Opinion of June 8, 1970, counsel for AMAX represented to the Court that RST would also present, for a separate vote, the agreement and amalgamation to the non-AMAX shareholders of RST voting as a class. Even though no prescribed vote of this separate class was required for approval under the Zambia Companies Ordinance and even though the Agreement in Principle between AMAX and RST (PX-9) made no specific mention of this special vote, counsel had assured us that the reorganization would not be consummated unless it were approved by a majority of the non-AMAX shareholders participating in the class vote. See, e. g., Defendant's Trial Memorandum, p. 24.

  48. On or after July 8, 1970, the RST stockholders were sent an Explanatory Statement with Appendices containing information intended to allow the stockholders to make an informed decision whether or not to approve the amalgamation with AMAX. The Explanatory Statement and Appendices contained approximately 200 pages of highly complex and technical financial and legal data. Accompanying these materials was a cover letter, dated July 7, 1970, from Sir Ronald Prain to the shareholders (PX-41) stating, inter alia, that in the opinion of the RST board the proposed amalgamation with AMAX was in the best interests of RST and urged them to vote in favor of the Resolutions. Also accompanying these materials was a one page letter, dated July 7, 1970, from the plaintiff to the RST shareholders (Court Exhibit 2) setting forth plaintiff's contentions in this lawsuit. (See also PX-45).

  49. Included in the materials sent to the stockholders was a proxy card or instruction form (PX-44) upon which the stockholders could authorize Morgan Guaranty Trust Company, the American Depository, either to vote for or against the amalgamation and nationalization, both of which were presented as one resolution and could not be voted upon separately.

  50. RST's management actively sought to obtain stockholder approval for the proposal by taking the following steps: (1) hiring firms to solicit proxies (PX-42, p. 20; PX-148); (2) when shareholders instructed the American Depositary to vote against the proposal, a letter was sent over Prain's signature requesting that they give further consideration to the proposal and reiterating Prain's firm conviction that the proposal was in the best interests of all shareholders of RST. Enclosed in Prain's additional solicitation was another Instruction Form and return envelope, with postage affixed. (PX-46).

  51. On August 6, 1970, the shareholders voted on the resolutions for nationalization and amalgamation with AMAX. The recorded vote of all RST shareholders present and voting showed 85.5% in favor and 14.5% opposed. At a separate meeting of non-AMAX RST shareholders, the resolutions passed with 66% in favor and 34% opposed. (DX-21, pp. 2-3).

  52. On August 14, 1970, the High Court of Zambia approved the Reduction of Capital necessary for amalgamation. (DX-27(y)). On August 15, 1970, the High Court's approval of the Reduction of Capital was registered. (DX-28). The effect of the registration of the Court's Order was to cancel and render void all issued shares of RST other than those held by AMAX and its nominees. (See Affidavit of John G. Harkins, Jr., Esq., filed August 12, 1970; Affidavit of David Ffinlo Quirk, filed September 24, 1970). Then the RST Board of Directors adopted resolutions authorizing the distribution to shareholders other than AMAX of the cash and securities described in the Explanatory Statement.


  53. AMAX owns 42.3% of RST. (Uncontested Fact No. 5).

  54. Selection Trust, Ltd. (Selection), together with its subsidiaries, owns 11.8% of AMAX. (PX-42, p. 5).

  55. Charter Consolidated, Ltd., (Charter) and its subsidiaries, own approximately 27% of Selection Trust, Ltd. (PX-42, p. 13).

  56. At all times material to this action, RST had 13 directors, six of whom were and are directors of AMAX. Of the six common directors, three are present and two are former officers of AMAX; the other seven directors of RST, including the Chairman, Executive Vice-Chairman and the President of RST, are neither directors nor officers of AMAX. (Uncontested Fact No. 5, in part). Four of RST's directors are also directors of Selection Trust, Ltd. (PX-43, p. O-1).

  57. Sir Ronald Prain, Chairman of the Board of RST, is also a director of Selection, in which he owns 4,875 shares. (PX-43, p. O-1, 2). Prain has been retained by AMAX as chairman-designate of RST, International, Inc., and owns 2,250 shares of AMAX and 6,000 shares of RST. (N.T.F.H. 340; PX-43, O-1-2).

  58. Jean Vuillequez, an RST director and one of the principal negotiators for RST in the AMAX negotiations, was employed by AMAX from 1917 through 1963. During that time, he held various offices in AMAX and, from 1956 through 1963, was a member of both the Executive Committee and the Board of Directors of AMAX. Vuillequez came to RST in January, 1964. (N.T.F.H. 350, 503, 507-08). He is the owner of 26,169 shares of AMAX, worth approximately $1 million, and 16,236 shares of RST, worth approximately $80,000. (PX-43, O-1, 2).

  59. James L. Reid, a director of RST owns 412 shares of AMAX and 400 shares of RST. (PX-43, O-1, 2).

  60. Donald J. Donahue, one of the principal AMAX negotiators in its negotiations with RST, is a director of RST as well as being a director and President of AMAX. Donahue owns 8,529 shares of AMAX and 800 shares of RST, which are beneficially owned by AMAX, are held in his name. (PX-43, O-1, 2).

  61. Eric J. T. Goudie is a director of RST, in which he owns 800 shares, and Selection, in which he owns 13,785 shares. (PX-43, O-1, 2).

  62. H. J. Hinves, who, on behalf of RST, signed the Agreement in Principle with AMAX, is a director of RST and Selection. He owns 351 shares of AMAX, 808 shares of RST, and 891 shares of Selection. (PX-43, O-1, 2).

  63. Harold K. Hochschild, who was part of the AMAX negotiating team in its negotiations with RST, is both a director of RST and AMAX. From 1947 to 1957, Hochschild was Chairman of the AMAX Board and, together with other members of his family, owns approximately 10% of all the AMAX stock. Personally, Harold Hochschild owns 627,450 AMAX shares, and 800 shares of RST, which are beneficially owned by AMAX, are held in his name. (N.T.F.H. 822-23, 1032, 1036; PX-43, O-1, 2).

  64. Walter Hochschild is a director of both RST and AMAX. He owns 145,809 shares of AMAX, and 800 shares of RST, which are beneficially owned by AMAX, are held in his name. (PX-43, O-1, 2).

  65. Ian K. MacGregor, who is Chairman of the Board and Chief Executive Officer of AMAX, is also a director of RST. MacGregor, who was one of the principal AMAX negotiators in its negotiations with RST, owns 26,651 shares of AMAX, and 800 shares of RST, which are beneficially owned by AMAX, are held in his name. (PX-43, O-1, 2).

  66. R. H. Page, executive vice-president and chief financial officer of RST, is also a director of RST. Page was one of RST's principal negotiators in its negotiations with the Zambian Government and AMAX. He owns 1,654 shares of RST. (N.T.P.H. 439-40, 453; PX-43, O-1, 2).

  67. John Payne, Jr., an AMAX vice-president, is both a director of RST and AMAX. He owns 13,023 shares of AMAX, and 800 shares of RST, which are beneficially owned by AMAX, are held in his name. (PX-43, O-1, 2).

  68. H. J. Wedgwood is a director of RST and owns 400 shares of RST. (PX-43, O-1, 2).

  69. E. C. Wharton-Tigar is a director of RST, AMAX and Selection. He owns 1,500 shares of AMAX, 800 shares of RST, and 9,000 shares of Selection. (PX-43, O-1, 2).

  69(a). AMAX controls RST because of its 42.3% stock interest in RST and because of its domination of the RST Board of Directors. (See, e. g., PX-5, App., p. 10).

  70. N. M. Rothschild & Sons was first retained as adviser to RST when AMAX held 51% of the stock of Rhodesian Selection Trust Company, a predecessor of RST. (N.T.F.H. 741-42). During the past two years, Rothschild's has acted for AMAX in acquiring and selling shares in financial markets and the total compensation paid by AMAX to Rothschild since January 1, 1967 has aggregated approximately $46,500. (PX-42, p. 6). A partner in Rothschild's is a director of Charter Consolidated Limited, and on May 1, 1970, that firm and its partners held beneficially 126,000 shares of Charter. (PX-42, p. 13). The aggregate fees of Rothschild and Kuhn, Loeb & Co., for their advice and assistance to RST in the negotiations with AMAX, were approximately $1,000,000, exclusive of services in connection with judicial proceedings. This fee was to be paid by AMAX if the amalgamation were effectuated; otherwise, the cost would be borne by RST. (PX-42, p. 6; N.T.F.H. 577-78).

  71. Since August 26, 1969, and throughout the negotiations with Zambia, Sullivan & Cromwell (S & C), which had represented RST and AMAX for over 35 years, advised RST as to the terms of both an agreement with the Zambian Government and forms of reorganization, all of which included externalization. Sullivan & Cromwell had the main responsibility for drafting the RST agreement with Zambia. (PX-90; PX-107, PX-134, p. 2; DX-50, 1-3; Answer to Interrogatory No. 36(17)). Arthur H. Dean, senior partner in Sullivan & Cromwell, has been a director of AMAX since 1945. (DX-50, 1).

  F. VALUATION. 72. As of March 5, 1970, the date the Agreement in Principle between AMAX and RST was signed, Kuhn, Loeb ascribed the following values to RST's assets: Net Current Assets $69.5 million INDECO Bonds 54.1 million RCM Shares 120 million Botswana Shares 22.7 million Ametalco 13 million Management Contract 12.5 million Exploration Areas, Miscellaneous Investments in African Securities, Etc. 20 million TOTAL $311.8 million


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