The opinion of the court was delivered by: WORTENDYKE
WORTENDYKE, District Judge:
The judgment of this Court entered upon its Opinion, reported in 257 F. Supp. 345, was reversed by the United States Court of Appeals for the Third Circuit whose Opinion was filed April 8, 1968 and reported at 393 F.2d 865.
Plaintiff brought this stockholders' derivative action on behalf of Hydromatics, Inc., a New Jersey corporation, asserting claims under the common law and under the Securities Exchange Act of 1934 as amended, 15 U.S.C. § 78aa. Each of the asserted claims is based upon alleged wrongdoing in connection with the sale of 64,534 shares of Hydromatic stock to defendants and others in private placement transactions at a price allegedly so far below the contemporaneous fair value of the shares as to amount to fraud.
As we understand the Opinion of the Appellate Court it directs this Court to resolve the following questions:
(1) Have the interested directors shown, by clear and convincing proof, that the transaction complained of was honest, fair and reasonable?
(2) Was there a direct violation of Section 10b of the Securities Exchange Act of 1934, 15 U.S.C. § 78p(b) and its implementing Rule 10b-5 (17 C.F.R. 240-10b-5)?
(3) Did the Board of Directors cause their corporation to sell its stock to them and others at a fraudulently low price?
(4) If the "independent" stockholders were considered as standing in the place of the defrauded corporate entity at the time of the original resolution authorizing the stock sales was passed, was there such deception in the resolution as to bring it within the proscription of the Rule?
(5) Had Hydromatics standing, albeit derivatively, to maintain this action under Rule 10b-5 in the circumstances of this case?
(6) What was the fair value, on the respective dates of sale, of the shares involved in the criticized transactions?
(7) What misrepresentations of fact appear in the minutes of the directors meeting of December 21 authorizing the sale of the shares and in the proxy material issued to obtain stockholder ratification?
This action was initially instituted by certain minority stockholders against a New Jersey corporation (Hydromatics), and three of its five officers and directors. Defendants Edward Nathan, and Philip Brooks as Trustee of the Employees' Profit Sharing and Retirement Trust, were joined in the amended and supplemental complaint. When the action was commenced, jurisdiction was predicated upon diversity of citizenship. Subsequent proceedings therein destroyed the diversity but invoked jurisdiction under a federal statute. Jurisdiction of the original single count of the complaint has, despite the destruction of diversity, been retained as pendent to the federal statute jurisdiction. The present defendants were the corporate officers and all of the directors at the time of the transactions in issue. There remains presently as sole plaintiff a Canadian corporation holding 1,700 shares of $1.00 par common stock of the corporation, out of a total of 352,534 shares issued and outstanding.
The causes of action alleged are predicated upon the unanimous action of the corporation's board of directors in adopting a resolution on December 21, 1961 authorizing the issuance of 64,534 shares of the authorized, but theretofore unissued and unregistered, shares of the common stock, at a price of $6.00 per share, to themselves and other purchasers under agreements to hold the shares for investment purposes only, but providing ...