Fox v. Kane-Miller Corp., Civ. No. 71-600-K.

• Decision Date: 30 May 1975
• Docket Number: Civ. No. 71-600-K.
• Parties: Frederick B. FOX et al. v. KANE-MILLER CORP. et al.
• Court: U.S. District Court — District of Maryland

398 F. Supp. 609

Frederick B. FOX et al. v. KANE-MILLER CORP. et al.

Civ. No. 71-600-K.

United States District Court, D. Maryland.

May 30, 1975.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

John J. Ghingher, Jr., and Alfred H. Kreckman, Jr., Baltimore, Md., for plaintiffs.

Charles H. Miller, Daniel S. Greenfeld, and Marshall, Bratter, Greene, Allison & Tucker, New York City, Alan B. Lipson and Sherbow, Shea & Boyle, Baltimore, Md., for defendants.

FRANK A. KAUFMAN, District Judge.

Plaintiffs in this case alleged violations of the Securities Act of 1933, 15 U.S.C. §§ 77a-aa, the Securities Exchange Act of 1934, 15 U.S.C. §§ 78a-hh, the Maryland Securities Act, 3 Md.Code Ann. art. 32A, §§ 13-44 (1971 Repl.Vol.), and of common law fraud principles. Defendants denied liability and stated a counterclaim grounded in the 1934 Act and common law fraud. After a lengthy jury trial, 52 questions were submitted, pursuant to Federal Civil Rule 49(a), and answered by the jury. In their totality, those answers clearly added up to entitlement on the part of plaintiffs to judgments in their favor. Defendants have filed under Federal Civil Rule 50 for judgments in their favor in the case-in-chief and as to their counterclaim, notwithstanding the jury's answers to the special Rule 49(a) questions.

The facts of the case were to some degree stipulated and in other respects highly controverted. In February 1969 negotiations began between Frederick and Benjamin Fox (the "Foxes") and representatives of Kane Miller Corp. ("K-M") for the acquisition of three corporations owned by the Foxes (the "Fox Companies").¹ Those negotiations took place in New York and in Maryland and were conducted both in person and over the telephone. They lasted from February 1969 to May 13, 1969. As indicated infra, there is disagreement about some of the events during those negotiations.

At a date subsequent to February 10, 1969 and prior to May 13, 1969, K-M furnished to the Foxes in connection with the negotiations a copy of a K-M prospectus dated February 5, 1969 (the "Prospectus"), which had been drawn up in connection with a secondary offering of $1,750,000 of K-M convertible debentures, 218,750 shares of K-M common stock which were issuable upon conversion of those debentures, and an additional 286,500 shares of K-M common stock. The offerors of the debentures and common stock under the secondary offering were shareholders who had previously acquired such debentures and stock in a separate transaction with K-M unrelated to the subsequent negotiations and agreement with the Foxes. The Prospectus was drawn up and filed prior to K-M's acquisitions of Carolina By-Products Company, Inc. (Carolina), The American Meat Packing Corporation (AMPAC) and R. K. Baking Company, all of which acquisitions occurred after February 5, 1969. Carolina was acquired by K-M on March 26, 1969 for $8,000,000 in cash, a $1,000,000 promissory note and 24,922 shares of K-M common stock. AMPAC was acquired by K-M on April 16, 1969 for $8,500,000 in cash and 35,945 shares of K-M common stock. R. K. Baking Company and its three affiliated companies were acquired by K-M on May 2, 1969 for $700,000 in cash, notes payable over three years in the aggregate amount of $1,437,500, plus the greater of the value of $462,500 in cash or 10,268 shares of K-M common stock, payable in January 1972.

Each of the acquisitions made by K-M in the first half of 1969 was immediately publicly announced. News releases were sent to the Wall Street Journal, the various ticker services, and to newspapers in or near communities in which there were situated K-M subsidiaries. Prior to February 1969 K-M had acquired Bayshore Foods, Inc., a small company located only a few miles from the Fox Companies. That apparently kindled local interest and caused a number of those press releases to be printed in the Easton Star Democrat, the only local newspaper, a weekly. On April 2, 1969 the following article appeared in the Easton Star Democrat:

KANE-MILLER CORP. has completed an agreement to purchase Carolina By-Products Co., Inc. and affiliates, Greensboro, N. C. Total purchase price will be about $10 million in cash and securities.

Acquisition of Carolina By-Products further broadens Kane-Miller's agribusiness activities and adds another facet to its vertically integrated operations. Carolina By-Products converts animal and poultry materials into ingredients for poultry feed, which ties in directly with BAYSHORE FOODS, INC., the company's chicken processing subsidiary headquartered in Easton.

Kane-Miller last week announced an agreement to purchase FOX FOODS, INC., Queen Anne, a vegetable processor.

On April 16, 1969, two issues later, the following article appeared in the Star Democrat (dealing with New York Loin which is not one of the complained of acquisitions):

KANE-MILLER CORP. has agreed to purchase New York Loin Corporation and affiliates, New York, Kane-Miller President Daniel Kane announced last week. The contract calls for a down payment of $1.7 million in stock and additional contingency payments of up to $1 million in stock.

Kane-Miller Corp., although headquartered in New York City is also a major corporate citizen of the Delmarva Pennisula. Its subsidiaries include BAYSHORE FOODS, INC. at Easton, Shorgood Poultry Co. at Milford, Del., and FOX FOODS, INC. at Queen Anne.

On or about May 5, 1969, Frederick Fox received and read several times a copy of the 1968 K-M Annual Report. That report includes, inter alia, the following items:

1. On page 2 of the Report —

2. On page 7 of the Report — 3. On pages 16 and 17 the following K-M Consolidated Balance Sheet appeared —

                CONSOLIDATED BALANCE SHEET
                At December 31, 1968 and 1967
                ASSETS                                                                               1968            1967
                -------------------------------------------------------------------------------------------------------------
                CURRENT ASSETS
                  Cash ........................................................................    $ 2,316,815   $ 1,205,410
                  Notes and accounts receivable (net of notes receivable
                  discounted of $5,839 and $69,873 and allowance for
                  doubtful accounts of $260,011 and $241,976 for 1968 and
                  1967 respectively) ..........................................................      6,840,876     5,372,707
                  Inventories (note 2) ........................................................     12,170,366     9,336,715
                  Prepaid expenses ............................................................        213,642       140,300
                                                                                                   ___________   ___________
                             TOTAL CURRENT ASSETS .............................................     21,541,699    16,055,132
                                                                                                   ___________   ___________
                PROPERTY, PLANT AND EQUIPMENT — AT COST
                  Less accumulated depreciation and amortization (notes 3 and 5) ..............     11,101,666     3,243,873
                EXCESS OF PURCHASE PRICE OVER BOOK VALUE PAID
                FOR SUBSIDIARY ACQUISITIONS (NOTE 1) ..........................................     14,816,589     1,118,831
                OTHER ASSETS AND DEFERRED CHARGES
                  Notes and accounts receivable (net of allowance for
                  doubtful accounts of $14,507 and $67,112 for
                  1968 and 1967 respectively) .................................................        184,221       157,471
                  Deferred charges, security deposits, etc. ...................................        399,485       518,212
                                                                                                   ___________   ___________
                             TOTAL OTHER ASSETS AND DEFERRED CHARGES ..........................        583,706       675,683
                                                                                                   ___________   ___________
                                                                                                   $48,043,660   $21,093,519
                                                                                                   ===========   ===========
                The accompanying notes and accountants' opinion are integral parts of this statement
                -------------------------------------------------------------------------------------------------------------
                

                LIABILITIES AND SHAREHOLDERS' EQUITY                                                           1968         1967
                ---------------------------------------------------------------------------------------------------------------------
                CURRENT LIABILITIES
                  Notes payable — banks (note 4) ...................................................       $ 3,300,002   $ 4,179,998
                  Current portion of long-term debt (note 5) .......................................         1,779,958       644,468
                  Accounts payable .................................................................         3,624,161     2,665,376
                  Federal and state income taxes (note 6) ..........................................         1,654,259       426,717
                  Accrued expenses and other current liabilities ...................................         1,586,369       672,071
                                                                                                           ___________   ___________
                             TOTAL CURRENT LIABILITIES .............................................        11,944,749     8,588,630
                                                                                                           ___________   ___________
                LONG-TERM LIABILITIES
                  Long-term debt (note 5) ..........................................................         8,234,380     2,653,476
                  6% Convertible Subordinated Notes due
                  serially to 1982 (note 7) ........................................................         2,050,000     3,750,000
                  Payments due after one year for subsidiary
                  acquisitions .....................................................................

...