The opinion of the court was delivered by: STERN
Plaintiffs: Morton I. Thomas, a resident of New York; Edco Surgical Supply Co. Inc., a New York corporation; and Temco Products, Inc., a New Jersey corporation, sue Defendants: Duralite Company, Inc., a New York corporation; Bertram R. Lesser and Irving H. Zakin, residents of New York, for damages incurred by the sale of stock in Duralite Company, Inc. and Randolph Avenue Corporation, a New Jersey corporation which was later merged with Duralite on November 21, 1968, in accordance with an agreement of sale dated June 18, 1968.
This action arises under Sections 10(b), 20 and 29(b) of the Securities Exchange Act of 1934 (15 U.S.C. §§ 78j, 78t and 78cc(b) as amended) and the regulations promulgated thereunder by the Securities and Exchange Commission, particularly Regulation § 240.10b-5 (17 C.F.R. 240.10b-5), and involves an amount in controversy in excess of $10,000.00, exclusive of interest and costs. Jurisdiction is conferred on this Court by Section 1331 of Title 28 of the United States Code, and Section 27 of the Securities Exchange Act of 1934 (15 U.S.C. Section 78aa as amended). A claim for fraud under New Jersey law is annexed on the theory of pendent jurisdiction.
The principal parties in this litigation, Morton I. Thomas and Bertram R. Lesser, jointly founded the Duralite Company, Inc. in 1949. In 1949 Lesser and Thomas were close friends who worked together at the Sikorsky Aircraft Company. When they decided to establish their own company to manufacture aluminum chairs, Lesser took a leave of absence from Sikorsky and during that time Thomas paid over half his paycheck to Lesser. When Lesser's leave of absence had expired, but the new business had not yet been established, Thomas took a leave of absence and Lesser, in turn, sent half his paycheck to Thomas. (Tr. 1976-1977)
Duralite was established in 1949 in a storefront in Brooklyn. By dint of their joint efforts, Lesser and Thomas eventually moved to a loft in the Bronx. The partners were very close. They shared the same desk and there was a complete interchange of all information and decision-making in a spirit of total harmony. (Tr. 1977)
At first Duralite sold only to a company named Finkel. Over the years, however, the company began to sell to the trade in general. By 1958, the combined efforts of Lesser and Thomas had improved the annual sales of Duralite to approximately $2.5 million a year.
About 1958, Irving Zakin joined the firm. Zakin, formerly with the Finkel company, had as his principal responsibility Duralite's expanding sales effort. He soon became Vice-President in charge of Sales, and the atmosphere among all three parties at that time may best be described in terms of Zakin's own testimony:
Q. Describe your participation on that team during the fifties and into the middle sixties.
A. It was a very close working relationship. Mr. Thomas and Mr. Lesser and myself. There was constant communication, constant communication on a daily, hourly basis; I reciting my needs, Mr. Lesser his requirements, Mr. Thomas his requirements, so that it was a uniform, concerted effort directed towards an end goal which was the manufacture and the selling of the product of our manufacture. This was done typically in a team manner, in a team effort.
The business of Duralite flourished throughout the 1950's. By 1960 it was evident that Duralite's Brooklyn facilities were insufficient to meet the ever-increasing sales volume. Lesser and Zakin sought and found a piece of property in Passaic, New Jersey, which was purchased for the purpose of providing the needed expansion of facilities for Duralite. This property comprised 11 acres, on which stood buildings accommodating approximately 480,000 square feet of usable space. In order to effectuate the acquisition of this property, Lesser and Thomas formed the Randolph Avenue Corporation, each purchasing 50% of the stock. In 1960 the Randolph Avenue Corporation purchased the Passaic property for $600,000.00. The total purchase price was financed by means of two mortgages.
Duralite became Randolph's only tenant. It is clear that there was never an arm's-length, lessor-lessee relationship between the two corporations, Randolph and Duralite. Rather, since Lesser and Thomas owned all the stock of both corporations, Duralite occupied Randolph's premises and paid as rent whatever was necessary for Randolph to meet its mortgage payments, taxes and maintenance costs.
In 1963 the annual sales of Duralite were approaching $6,000,000.00 and the company, at the height of its season, employed more than 1,000 people. (Tr. 32) The relationship between Lesser and Thomas remained amicable. In spite of the size of their organization, they continued to share the same office and secretary, and took lunch together daily.
By this time, in addition to the title of President, Lesser had assumed the title of Treasurer from Thomas in order that the corporate hierarchy conform more nearly to Lesser's expertise in the financing end of the business. Thomas took the title of Executive Vice-President and maintained his position as Secretary in Duralite. Zakin continued in his post of Vice-President in charge of Sales of the Duralite Company.
A word must now be said about the nature of Duralite's business, particularly about its business cycle. During the period pertinent to this case, Duralite was primarily in the business of designing, manufacturing and selling summer furniture. There is no dispute in the testimony about the fact that the business cycle of Duralite would begin in late August or early September, looking towards the sale of summer furniture during the following spring and summer, and that the sales of summer furniture by Duralite would be substantially concluded by the July 4th weekend. Thus, Duralite's cycle of business ran from late August until the July 4th weekend.
It is also not disputed that the sales of Duralite were made to roughly three categories of buyers.
The next category of Duralite customers was such large department stores as Woolworth, Vornado, S & H Green Stamps, etc. These stores accounted for approximately 50%-60% of Duralite's sales volume. Although these orders came in substantially later than the September Sears contract, by the end of January most production for these large customers was accounted for by Duralite (Tr. 51; Zakin deposition, p. 18), and heavy volume shipments were made throughout the months of February, March, April and May.
The remaining 10%-30% of Duralite's business was conducted with relatively smaller houses. The major portion of these orders was received about March and April, although shipments were made by Duralite to such firms throughout the month of June and even, in a relatively negligeable amount, in the month of July.
It has been necessary to detail these transactions because one of the issues between the parties is whether it was possible, by the end of February each year, for the management of Duralite to know with a reasonable degree of certainty whether the year would be a profitable one. Thomas has repeatedly testified that not only was such knowledge possible for management, but that each February with the exception of 1962 when unexpected labor difficulties arose, Lesser did in fact predict with good accuracy whether Duralite was having a profitable or an unprofitable year.
Lesser, Zakin and other witnesses have testified to the contrary. Indeed it is the defendants' position that because of the critical June sales period, and the open question of how much inventory was left at the end of the season, it was not possible to accurately forecast Duralite's annual earnings until October, three months after the overall sales season ended, when the inventory was actually counted. Thus it was Lesser's testimony, corroborated by the testimony of Marvin Weinstein, Comptroller of Duralite, and others, that in a year in which Duralite was eventually to show a $200,000.00 profit, it was not possible to know even that there had not been a loss until the inventory itself was physically counted in October.
As this opinion will explain, a decision on this issue is not necessary to the determination of this lawsuit. Nonetheless, so that the Court's findings of fact will be complete, this Court finds as a matter of fact that whether or not Lesser had the information necessary to enable him to predict the profitability of Duralite in February, he could certainly do so by June 18th of each year. In spite of the welter of variable factors which defendants have pointed to, including the vagaries of weather, this Court, after having listened to the testimony, studied the monthly reports (P-42 through P-58) and listened to detailed explanations concerning the virtual day-by-day business of Duralite, is totally persuaded that the management of this company knew full well whether they were in a profit or a loss situation within two weeks of their season's end, and that such a determination did not have to await the actual physical count of inventory some three months after Duralite's season had ended and the new season had already begun.
The relationship between Lesser and Thomas, which began in 1949, continued throughout 1964, despite the fact that 1964 was a disastrous year for Duralite. In 1964 Duralite sustained a loss of roughly $600,000.00. The magnitude of this loss threatened the very existence of the firm. For a period of time it was unclear whether Duralite could maintain its lines of credit and meet its obligations on other indebtedness.
In January of 1965 Lesser and Thomas worked out an arrangement with Harry and Louis Resnick, the principals of Channelmaster. Duralite owed a substantial sum of money to Channelmaster, nearly half a million dollars, and for reasons of their own, the Resnicks were interested in preventing any financial collapse of Duralite at that time. By the terms of the agreement between the parties in January of 1965, the Resnicks forgave Duralite's obligation to their firm. Additionally, the Resnicks contracted to guarantee personally the $500,000.00 obligation of Duralite to Iselin, in return for which Lesser and Thomas each granted the Resnicks options on 50% of the Duralite and Randolph stock owned by Lesser and Thomas. By the terms of these agreements (P-1, P-2), the Resnicks could exercise their options on the Duralite stock by the payment of $50,000.00, and could exercise their options on the Randolph stock by the payment of $25,000.00. By the terms of both agreements, the options could be exercised "while the loan from William Iselin and Company, Inc. to the corporation, or any portion thereof remains unpaid, or at any time within five years of the time hereof, whichever period shall be longer."
It is clear, as will be developed later, that these options were granted to the Resnicks for the sole purpose of giving them some security for their personal guarantee of Duralite's obligation to Iselin.
The disastrous loss of 1964 strained the relationship between the hitherto close friends, Thomas and Lesser. As 1965 wore on, Thomas withdrew from the mutual friendship. He suddenly announced to Lesser that he would no longer take his lunch with him. The two men found it difficult to converse. This situation neared a head when Thomas announced to Lesser that he wished a separate office. By the end of 1965 the two men could no longer work together and found it difficult to manage the affairs of Duralite jointly. Not only did they take separate offices, but it was now necessary for them to consult with other employees of the firm to resolve corporate business decisions which Lesser and Thomas had previously made in a joint and easy fashion but could no longer agree on at all.
The fracturing of 16 years of a close and harmonious working relationship resulted in predictable acrimony. Thomas made overtures to Zakin, and to Duralite's production manager, Abraham Zwiekel, to support him in an attempt to wrest the presidency of Duralite from Lesser, and there is evidence in the record to support the conclusion that Lesser played court to Zakin and Zwiekel in an attempt to preserve his position.
During this period of time both Lesser and Thomas agreed to transfer shares of Duralite to both Zakin and Zwiekel, and 10% of the shares of Randolph to Zakin. This transfer was approved by the Resnicks on December 8, 1965 (P-3). The test of strength between Lesser and Thomas occurred at the December 17, 1965 meeting of the Board of Directors of Duralite. At that time Thomas stood for the presidency, but with Zakin's and Zwiekel's support, Lesser maintained his position. Shortly thereafter, Lesser fired Thomas' secretary, Doris Paley, without consulting Thomas, and Thomas, having lost his bid for the leadership position, and having tasted Lesser's control, resigned and left the executive management of Duralite before the end of 1965. Lesser, according to his trial testimony, was "very hurt" by Thomas' course of conduct. (Tr. 1974)
It is important to note that at this point Thomas and Lesser each owned 45 1/2% of the stock of Duralite, and each owned 45% of the issued and outstanding stock of Randolph.
As might be expected, negotiations were promptly undertaken to eliminate any participation by Thomas in the Duralite-Randolph enterprise. The basic plan was for Thomas to sell and Duralite to buy up Thomas' interest in these two companies. On or about December 22, 1965, Thomas was offered a total of $124,132.00 for his stock in the two corporations: $85,140.00 for his Duralite stock and $38,992.00 for his Randolph stock. He rejected this offer, primarily because the principal asset of Randolph, the real estate which underlay the offer of $38,992.00, was valued at $555,000.00 on the corporate books, and was assessed at $1.3 million by the New Jersey State Board of Tax Appeals. It was Thomas' testimony, which the Court finds to be credible, that he was at that point interested in selling only his Duralite stock and not his interest in Randolph.
While the negotiations continued, Lesser, of course, continued to run both Duralite and Randolph. Thomas launched into business for himself. He formed a corporation, Temco Products, Inc., which manufactured and sold convalescent aids made from aluminum tubing. Thomas also formed a business relationship with one Donald Edwards, who was the principal of Edco Surgical Supply Co. Edwards and his firm had been customers of Duralite whom Thomas had brought to Duralite, and Thomas eventually deepened his relationship with Edwards to the point that, by the end of 1967, Thomas owned 50% of Edco and Edwards owned 50% of Temco.
Throughout the spring of 1966 negotiations between Thomas and Lesser were dormant. It is the position of the plaintiffs, and it was Thomas' testimony, that throughout this period Thomas asked for and was refused relevant financial documents and information concerning the business of Duralite. The credible evidence does not support this contention. The Court finds that Thomas, during this period of time, was not refused any relevant financial documents he requested, other than certain internal Duralite monthly status reports, which Thomas' own accountant, Mr. Louis Lieberman, testified only Duralite management was entitled to. In sum, he was refused nothing except certain monthly internal reports which as a stockholder and not an officer he was not entitled to receive. Thomas called Lieberman, his accountant, who admitted as much on the witness stand.
Pursuant to his stated intention, by the beginning of 1967 Thomas offered to sell his Duralite stock, alone, for $145,000.00 (P-8). Lesser countered with an offer of $100,000.00 for Thomas' Duralite stock alone (D-32), stating that Duralite had encountered severe difficulties in its fulfillment of a cot contract for the Department of Defense. In response Thomas lowered his asking price to $115,000.00.
In a letter dated April 17, 1967, Thomas reiterated this offer:
The book value as of July 31, 1966 using standard accounting practices, the value of my stock including the exercise of the Channelmaster option, amounts to $145,450.00. That represents the minimum figure at which my stock could be bought if we were to evaluate it as of this date. Two months ago, because of the uncertainty of the government contract, I arbitrarily discounted this figure approximately $30,000.00 and offered to take the figure of $115,000.00 . . . It is my intention to continue with the $115,000.00 figure so long as these negotiations are concluded within a reasonable time. In the event that this is not possible, you may then consider that the minimum figure will revert to $145,450.00 until such time as a new financial statement is issued, at which time further adjustments would be proper. . . .
Thus, as of April 17, 1967, Thomas, although he proclaimed the belief that his Duralite stock was worth $145,000.00, was willing to sell it for $115,000.00, and Lesser had raised his original offer from $85,000.00 to $100,000.00. Following the April 17, 1967 letter, and additional negotiations, a contract dated December 4, 1967 was signed whereby it was agreed that Duralite would purchase all of Thomas' stock for the sum of $112,500.00. The contract was expressly conditioned on the waiver by Iselin and the Resnicks of their respective security and option interests in Thomas' stock. (P-10).
It is important to note that the figures which have been mentioned in terms of offers for the purchase or sale of Thomas' Duralite stock (that is, the $100,000.00 which Lesser was offering Thomas in March, the $115,000.00 which Thomas demanded in April, and the $112,500.00 which the parties agreed upon in December of 1967) were not contemplated to be the net amounts payable to Thomas. The parties at all times recognized that, whatever Thomas was to receive, Duralite also had a valid claim against Thomas for nearly $16,000.00 ($15,583.06) for an outstanding officer's loan owed by Thomas to Duralite, as well as monies due Duralite from Edco based on prior orders by Edco for merchandise, some of which Duralite had delivered to Edco, some of which Duralite held in inventory which Edco refused to accept, but none of which had been paid for. The amount due Duralite from Thomas based on his unpaid officer's loan was never in dispute. Similarly, it was never disputed that Edco owned Duralite money for goods sold and delivered and for goods ordered by Edco but refused by Edco, although the precise amounts of the latter two categories of obligations were a matter of continual negotiation between the parties and were intertwined with the bargaining on the value of Thomas' stock.
The agreement of December 4, 1967 apparently concluded the transaction concerning Thomas' interest in Duralite. By terms of the agreement it was recognized that Thomas' shares were worth $112,500.00, and that Thomas owed Duralite the amount of his officer's loan, Edco owed Duralite $22,509.75 for goods sold and delivered from Duralite to Edco and for raw materials which Duralite was holding for Edco, payment for which was computed under a formula established by the contract (P-10).
The agreement was never consummated. During fiscal 1967 Duralite suffered a net loss of $409,000.00. Although Lesser testified that both he and Thomas knew of this loss before they signed the December 4, 1967 agreement, the agreement itself could not be effectuated because neither Iselin nor the Resnicks would permit the transfer of the stock from Thomas to Duralite at a time when Duralite was in such a precarious financial position.
It is not disputed that either in late December of 1967 or early January of 1968 Thomas called Lesser and asked for a meeting with the intention of negotiating for the sale of his Randolph stock. It is not disputed that, in preparation for that meeting, Lesser developed a written proposal dated January 5, 1968 (P-11), which estimated the current value of the Randolph property at $800,000.00; after deducting for mortgages, taxes and other obligations, Lesser placed its net value at $342,785.00. Lesser's computation discounted Thomas' interest for the Resnicks options, stating it as $89,000.00. Thereafter, this figure was further reduced by Lesser under the following caption:
1. Existing third mortgage on property guarantee Duralite's obligation to William Iselin.
2. Possible inability to sell property within one year.
3. Undetermined course of action of controlling interest (Resnicks).
4. Reduced value in event of distress sale.
5. Possible foreclosure if mortgage payments are not kept current.
Due to the above, a 20% discount is considered equitable for a cash payment. Therefore, Thomas' interest is valued at 80% of $89,000.00 or $71,600.
Lesser brought his proposal to a meeting with Thomas at the Norselander Restaurant. There is a divergence between Lesser and Thomas as to what was said at this meeting. After hearing the testimony and reviewing the relevant documents, particularly P-11, this Court finds that Lesser revealed the magnitude of the loss that Duralite had just sustained to Thomas and conveyed to Thomas the clear impression that, at this point, Thomas' equity in Duralite was worth nothing; indeed, that it was worth less than nothing, for Lesser represented that Thomas had a minus equity of $19,937.00 in Duralite. Furthermore, while the word "bankruptcy" may not have been used directly in discussing the affairs of Duralite, there can be no question that the whole impact of what Lesser had to tell Thomas was that there was considerable question whether Duralite could continue in business. Thus, in the evaluation of Thomas' interest in Randolph, Lesser had made reference to "possible inability to sell property within one year" and "reduced value in event of distress sale," and "possible foreclosure if mortgage payments are not kept current."
Duralite was Randolph's only tenant. The only conceivable way that there could be a failure to make current mortgage payments, or a distress sale, or, for that matter, the necessity to sell the property within one year, would be if Randolph's only tenant and only source of income, Duralite, became financially unable to continue paying the taxes and mortgage payments due on Randolph's property.
Lesser in fact told Thomas that his stock was worthless and that Thomas should consider turning it in for nothing. In response Thomas indicated that he would not do so but would seriously consider exchanging his stock for the sum total of his personal responsibility under his officer's loan and the receivables due Duralite from Edco, or a total of $42,000.00 as Thomas and Lesser then reckoned it. (Tr. 239-246) Thomas made his offer subject to verification by his accountant, Lieberman, of Duralite's $409,000.00 loss.
Lieberman verified the loss, but advised Thomas that his equity in Randolph should be $91,272.00 (P-12).
As a result of this conversation, it is clear that Thomas abandoned his claim for $112,500.00 for his Duralite stock and was content to exchange it for whatever liabilities he and his corporation, Temco, owed Duralite. It is also clear that, fearing imminent bankruptcy by Duralite and the consequent insolvency of Randolph, Thomas abandoned his earlier estimate of the value of his interest in Randolph and totally capitulated to the offer which Lesser advanced to him in the context of a conversation in January of 1968, at a time when both Lesser and Thomas were rightfully concerned about the solvency of both Duralite and Randolph. There is no question about the fact that Thomas' sole interest, commencing in January and continuously thereafter until June 18, 1968, when he entered the contract of sale for his Randolph and Duralite stock, lay in discharging his and Edco's obligations, which he feared could momentarily fall due if Duralite went into bankruptcy, and in obtaining whatever compensation he could in addition to the discharge of these obligations for his Randolph and Duralite stock.
This conclusion is inescapable based on a meeting which took place in April of 1968 among Lesser, Thomas and Donald Edwards.
Before turning to that meeting, however, it is necessary to consider the testimony of James H. Kaltsas. In 1967 and throughout 1968, Kaltsas was the President of a company known as Prest-Wheel, a lawn furniture manufacturing company which he and his two brothers had founded in 1947. Prest-Wheel, in competition with Duralite, manufactured and sold lawn furniture. In addition, Prest-Wheel was a supplier of the aluminum tubing which manufacturers of lawn furniture used in assembling their finished products.
The testimony is clear that in the latter part of 1967 Kaltsas became interested in either merging Prest-Wheel with another company, or disposing of his family's interest in Prest-Wheel entirely. It is likewise clear that throughout 1968 he was engaged in negotiations with a conglomerate, Giffen Industries, aiming toward Giffen's purchasing the shares of Kaltsas and his two brothers in Prest-Wheel and taking over that firm.
While it is not possible to fix precisely the date on which those negotiations commenced, it seems clear that by January of 1968, or shortly thereafter, Kaltsas was engaged in serious negotiations with Giffen Industries. The negotiations were formally concluded by the signing of a contract in September of 1968 (DD-31), by the terms of which the three Kaltsas brothers conveyed their shares in Prest-Wheel to Giffen Industries for approximately 250,000 shares of lettered Giffen stock (Giffen was at that time selling for approximately $60.00 a share).
There is no dispute that the agreement was consummated on September 4, 1968. There is dispute among the parties as to when Kaltsas and Giffen reached a meeting of the minds. The Court finds that the testimony of Kaltsas is to be believed and that the parties, that is Kaltsas and Giffen Industries, reached a meeting of the minds in April of 1968, although the transaction was not finalized until September of 1968, because one of the Kaltsas brothers was demanding cash instead of lettered Giffen stock.
Kaltsas testified, and the Court finds his testimony to be credible, that Monroe Cooperman, then Executive Vice-President of Giffen Industries, represented to Kaltsas during the negotiations that Giffen Industries was seeking to expand in the recreational field and that, after the merger, James Kaltsas would play an important role in Giffen's aggressive acquisition policy in the leisure time field. Furthermore, Kaltsas testified that once it became clear in April that there would be a merger, Kaltsas began to undertake missions for Giffen Industries in search of possible future acquisitions for Giffen, even before the actual merger in September of 1968. Thus, throughout May, June and July of 1968 he made several trips on behalf of Eli Timoner, then Giffen's Chairman of the Board, to examine companies in several states and in Canada. Both Cooperman and Timoner, who also testified at trial, conceded, albeit reluctantly, that Kaltsas had undertaken such explorations and missions for Giffen even prior to the formal acquisition of Prest-Wheel by Giffen. Cooperman also reluctantly conceded that he may have given Kaltsas to understand that Giffen had plans for Kaltsas in its corporate management. (Tr. 3007, 3010-3012)
Kaltsas testified that about November or December of 1967 he first spoke with Irving Zakin about the possibility of Prest-Wheel merging with Duralite. The conversation, as he recalled it, took place in the Duralite showroom in New York. He testified that Zakin's response was that he thought that it was a good idea, but that Zakin would have to discuss it with his "partner."
Kaltsas testified that he continued to have conversations about possible mergers between Prest-Wheel and Duralite with Zakin. He testified that in January of 1968, at a furniture show in Chicago, he had another business conversation with Zakin. He testified that Zakin was anxious to discuss and to continue discussions about such a merger. (Parenthetically, Exhibit D-31 introduced by the defendant after Kaltsas left the witness stand establishes that there was such a furniture show in Chicago in January of 1968).
Kaltsas further testified that he and Zakin had another meeting, this time in April of 1968 at another show in New York. As noted, by this time Kaltsas knew that he had achieved, or was very close to achieving an agreement with Giffen. He told Zakin about the prospective merger between his firm and Giffen. Zakin and Kaltsas discussed the possibility of Giffen's taking over Duralite. Kaltsas questioned Zakin about the volume of Duralite's gross sales, and Zakin responded that he expected to do $6,000,000.00 and to show a profit of 4%-5% before taxes in fiscal 1968. At this meeting, in April of 1968, Kaltsas told Zakin that he estimated that Giffen would give $2,000,000.00 to $3,000,000.00 for the Duralite stock, based on Zakin's figures, and that he would "see to it" that Giffen took over Duralite once his own affairs with Giffen were concluded. He was as good as his word.
Thomas, of course, knew nothing of these conversations between Zakin and Kaltsas. While there is no direct testimony that Zakin ever reported the conversations to Lesser (indeed Zakin denies that the conversations ever occurred), the Court finds that the conversations actually did take place and that it is inconceivable that Zakin did not report them to Lesser.
We now turn to the April, 1968 meeting among Lesser, Thomas and Donald Edwards. Edwards, of course, had an interest in the transaction because the obligation of Edco to Duralite was interwoven in the negotiations over Thomas' Duralite stock, and at this point, Thomas' Randolph stock.
Lesser conveyed to Thomas, by what he said and by the way he said it, a feeling of "imminent disaster." Lesser represented the condition of Duralite as still being a "loss situation." While Thomas testified that Lesser did not actually use the word "bankruptcy," there is no question that Lesser conveyed to Thomas, and meant to convey to Thomas, the impression that Lesser's own stock in Duralite was worthless and that he was remaining with the company only for his salary and in the hope that someone might want to buy the company. Indeed, his manner was so downcast that Thomas rejoined "it looks like we're getting near bankruptcy." (Tr. 281)
While the testimony of Thomas is, in part, disputed by Lesser, the Court finds that Thomas' account is accurate and totally persuasive. The Court finds that Thomas and Edwards, concerned about the imminency of bankruptcy and the calling of Thomas' and Edco's obligation to Duralite, came to an immediate meeting of the minds with Lesser. Thomas, abandoning all of his previous demands, agreed to exchange his Duralite stock for nothing more than the release of his and Edco's obligations (reckoned to be $38,000.00) and accepted Lesser's January valuation of his interest in Randolph of $71,800.00, based on the discounts for possible distress sale and foreclosure of mortgages on the Randolph property.
In spite of Lesser's denials of talk of bankruptcy, it is obvious that if there had been no such thought or talk Thomas would not have agreed, in April of 1968, to sell his stock in both Duralite and Randolph for $109,000.00, a figure less than the $112,500.00 he had contracted to receive off his Duralite stock alone just four months before (December 19, 1967 contract, P-10).
A few days after the April meeting, on April 15, 1968, Thomas' counsel forwarded a draft of the new agreement (P-16, P-17) to Lesser's attorneys. The formal agreement itself was dated June 18, 1968 (P-18).
The agreement, in addition to providing for the sale of Thomas' interest in Duralite and Randolph to Randolph, also adjusted the claims among Duralite, Edco and Temco.
WHEREAS, all the parties recognize that the sale and purchase of the stock in Purchaser and Duralite and the payment of moneys by Edco to Duralite and purchase of said inventory of Duralite by Edco and Temco are interrelated because of the relationships between the parties, and the parties therefore desire to agree upon all of said matters for their ultimate resolution, and . . . .
The contract provided that Randolph was to have 90 days to arrange for the financing of the purchase. The contract itself was closed on November 21, 1968 (P-25).