These are consolidated class actions brought by public stockholders of defendant Power/Mate Corporation (Power/Mate) to enjoin a proposed merger of Power/Mate into defendant General American Industries, Inc. (General). The actions were instituted by orders to show cause and, on notice to and in the presence of counsel for all parties, the court restrained the consummation of the merger pending further hearing. The matter is before the court at this time on plaintiffs' application for a preliminary injunction against the proposed merger.
The undisputed facts are as follows: Prior to December 1968 Power/Mate was a privately held New Jersey corporation engaged in the business of manufacturing and marketing electronic modular and laboratory power supply equipment. It had been organized in 1966 to succeed to a business founded by defendant Richard Graham in 1965. During December 1968 Power/Mate issued and sold to public investors 110,000 shares of its stock at a price of $5 a share. The public offering was made pursuant to a registration statement filed with the Securities and Exchange Commission under the Securities Act of 1933. At the time of the public offering the "inside," or majority stockholders, retained ownership of 225,000 shares, or about 69%, of Power/Mate's stock.
After the public offering and for a period of about 1 1/2 years, Power/Mate's publicly held stock was traded in the over-the-counter market. During December 1968 the price of the stock ranged between a low bid of $9 a share and a high asked price of $21. During 1969 and the first half of 1970 the range was between $2.25 and $18. The stock was listed for trading on the National Stock Exchange in the second half of 1970 and continued to be so listed until that Exchange terminated operations on January 31, 1975. During the period of its listing the high and low prices ranged from $4.50 a share (Second quarter of 1971) to a low of $.50 a share (fourth quarter of 1974). Since February 1, 1975 the stock has been traded in the over-the-counter market at a high asked price of $2.50 and a low bid of $.75.
Since the public sale of its stock Power/Mate has continued to carry on its business activities on a profitable basis. The per share earnings record for the years 1970-1974 has been as follows: 1970 -- $.41, 1971 -- $.04, 1972 -- $.14, 1973 -- $.33, and 1974 -- $.45. Between 1970 and 1974 Power/Mate's sales increased from $1,857,812 to $5,169,272, and the book value of its stock increased from $2.60 a share to $4.10 as at December 31, 1974. Power/Mate has never declared or paid a dividend on its stock at any time.
For the six-month period ending December 31, 1974 the earnings were $.41 a share, as compared to $.12 for the equivalent 1973 period. On December 30, 1974, it should be noted, the individual defendants, Richard Graham and Marvin Charter -- who are the principal officers, directors and controlling stockholders of Power/Mate -- declared a bonus of $100,000 each to themselves. But for the bonus, the earnings for the six months ending December 31, 1974 would have been approximately $1.04 a share. Prior to the declaration of the bonus Graham and Charter were being paid salaries at the rate of $60,000 and $55,000, respectively.
Power/Mate's sales for the six-month period ending December 31, 1974 increased to $3,253,195 from $2,331,544 for the 1973 period. January 1975 sales were 65% over those for January 1974, and February 1975 sales showed a decrease of 6.5% from February 1974. As of March 3, 1975 orders on hand totalled $2,300,000 as compared to $1,250,000 on March 3, 1974. At December 31, 1974 Power/Mate's current assets were $2,271,854 as compared to current liabilities of $1,257,408. Its noncurrent assets totalled $352,581 as against noncurrent liabilities of $74,029.
General was organized as a New Jersey corporation on March 27, 1975, by defendants Graham and Charter, who own all of General's capital stock. Graham and Charter contributed all of their Power/Mate stock, consisting of 225,250 shares, to General, and the Power/Mate Stock is General's sole asset. General carries on no business activity of its own.
On March 31, 1975 the boards of directors of Power/Mate and General -- both boards consisting of the same persons, i.e., Richard Graham, his wife Marion Graham and Marvin Charter -- entered into a merger agreement. The basic terms of the merger agreement provide for the merger of Power/Mate into General, and the payment of each Power/Mate shareholder at the rate of $2 a share (except for the Power/Mate shares held by General, which will be cancelled). Upon completion of the merger the name of General will be changed to Power/Mate and the new Power/Mate will have succeeded to all of the assets and liabilities and the business of the old Power/Mate. As stated in the proxy statement, the sole objective of the merger "is to eliminate the publicly-held interest" in Power/Mate.
There are presently 89,850 shares of Power/Mate in the hands of the public, representing 28.5% of the issued and outstanding Power/Mate stock.*fn1 General intends to borrow from a bank the $179,700 required to pay the public stockholders, and to repay the bank loan immediately after the merger from the cash assets of Power/Mate it will receive as a result of the merger.
On April 3, 1975 Power/Mate's board of directors sent notice to its stockholders of a special meeting of stockholders to be held on April 30, 1975 to consider and vote on the proposed merger of Power/Mate into General. The notice was accompanied by a proxy statement containing essentially the facts set forth above. In addition, the proxy statement notes that General, as the owner of 71.5% of Power/Mate stock, intends to vote its stock in favor of the merger; that a two-thirds majority*fn2 is required for approval, and that pursuant
to N.J.S.A. 14A:11-(1)(a) the stockholders of Power/Mate will have no right to dissent but will be bound ...