assuming that necessary adjustments were made. Finally, an evaluation based on only a 1-year earnings record, fell far short of serving as a realistic basis for determining valuation.
A hotly contested area of concern arose from the insistence of Schiele and his counsel that October 14, 1969, rather than the date of August 8, 1969, should be used for ultimate determination of the valuation of NSM shares. The Court agrees with the claimants. While the agreement was signed and dated by the parties on August 8, it was not operative at that time but still required approval of the shareholders of both NSM and the claimants. Under the circumstances, it was reasonable and proper to accept October 14, 1969, when they had shareholder approval and the stock transfer occurred for all parties to the merger. While transfer of the shares may be considered a mere formality, obtaining shareholder approval was entirely different. The agreement between the parties was contingent upon necessary shareholder approval and that was not secured on August 8, 1969.
The Court finds that October 14, 1969, when the NSM and the claimants' shareholders voted for the merger, was the effective date of merger and the appropriate valuation date. The mean average bid and ask price of NSM stock on that date was $46 per share. The fair market value of Mailbag/M.I.I. on that date was $ 2,987,056 [(90,434 - 13,500) x $ 46 x 2/3 627,750 = $ 2,987,056]
CONCLUSIONS OF LAW
Federal law governs the various aspects of this securities law litigation based on Rule 10b-5, 17 C.F.R. § 240.10b-5, promulgated pursuant to section 10(b) of the Securities & Exchange Act of 1934, 15 U.S.C. § 78j(b). Huddleston v. Herman & MacLean, 640 F.2d 534, 557 (5th Cir.1981), aff'd in relevant part, 459 U.S. 375, 103 S. Ct. 683, 74 L. Ed. 2d 548 (1983). Although the valuation questions before the Court arise out of settlement agreements, the damage formula contained in the Plan of Distribution is based on securities law principles. Thus, securities law damage and valuation guidelines are especially instructive in this matter.
Fair market value has been defined as that which a willing buyer would pay a willing seller when neither is under any compulsion and both are reasonably informed as to all relevant facts. Klapmeier v. Telecheck International, Inc., 482 F.2d 247, 252 (8th Cir.1973); Bar L Ranch, Inc. v. Phinney, 426 F.2d 995, 999 (5th Cir.1970).
Federal courts have recognized the special difficulty in valuing small, closely held corporations. Glick v. Campagna, 613 F.2d 31, 37 (3d Cir.1979). In the absence of an active market for a corporation's stock, the value of the corporation should be based on an assessment of all available evidence of value. Affiliated Ute Citizens of Utah v. United States, 406 U.S. 128, 155, 92 S. Ct. 1456, 1473, 31 L. Ed. 2d 741 (1972); Glick v. Campagna, 613 F.2d at 37; O'Malley v. Ames, 197 F.2d 256, 258 (8th Cir.1952); Francis I. duPont & Co. v. Universal City Studios, Inc., 312 A.2d 344, 347-48 (Del. Ch.1973), aff'd, 334 A.2d 216 (Del.1975); Treas.Reg. § 20.2031-2(e). If necessary, the finder of fact may consider relevant evidence gathered a reasonable time after the stock sale. VI L. Loss, Securities Regulation 3922-23 (1969); Dupuy v. Dupuy, 551 F.2d 1005, 1025 (5th Cir.), cert. denied, 434 U.S. 911, 98 S. Ct. 312, 54 L. Ed. 2d 197 (1977). A variety of factors may be considered relevant, depending on the particular circumstances. In Gottlieb v. Sandia American Corp., 304 F. Supp. 980, 992 (E.D.Pa.1969); aff'd in relevant part, 452 F.2d 510 (3d Cir.), cert. denied, 404 U.S. 938, 92 S. Ct. 274, 30 L. Ed. 2d 250 (1971), the court referred valuation questions to a special master and directed him to consider a variety of factors, such as the value of similar concerns, the value of intangible assets such as management quality, capitalized future earnings, and the bid and ask prices for the stock.
It is reasonable and appropriate for the Special Master to apply a one-third discount to the value of restricted NSM shares to reflect their lack of marketability. Fox v. Kane-Miller Corp., 398 F. Supp. 609, 647-49 (D.Md.1975), aff'd, 542 F.2d 915 (4th Cir.1976).
In situations such as presented here, where there is disagreement among the expert witnesses and the Court is called upon to evaluate and pass on the merits of the different views expressed by them, the Court must determine whether a particular expert opinion is supported by the record, is reasonable and also whether the opinion has general acceptance. This has been done in arriving at the above valuations.
Based on all available evidence, the Special Master correctly determined that the value of Renselaar, which was the consideration exchanged by claimants Raymond Gold and Herbert Frank for NSM stock, was $ 4.1 million; that amount shall be the basis on which the Special Master shall calculate the claimants' actual losses.
Based on all available evidence, the Special Master correctly determined that the value of Mailbag/M.I.I. which was the consideration exchanged by claimant George Schiele for NSM stock was $ 2,987,057; that amount shall be the basis on which the Special Master shall calculate the claimant's actual losses.
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