Opinion ID: 457711
Heading Depth: 2
Heading Rank: 2

Heading: The Gulton Joint Venture

Text: 17 On May 28, 1969, a joint-venture agreement was made between Rothberg and Sanford Rosenbloom, with a guaranty of Sanford's indemnity agreement by David Rosenbloom, and an agreement by Harry Selzer that in exchange for half of the Rosenblooms' profits he would participate in the indemnification of Rothberg. Three weeks before May 28, a public announcement was made that Nytronics had contracted to purchase approximately 20% of the stock of Gulton Industries from Dr. Gulton, its founder, and his family, for $35 a share: $12 million in cash and $10.75 million in secured notes. Nytronics proposed to follow up by submitting an offer to purchase the remaining stock of Gulton solely for securities of Nytronics, but having a value of at least $35 a share. 18 David Rosenbloom and Benson Selzer were both Nytronics insiders. In their capacity as officers of Nytronics, Rosenbloom and Selzer learned from Dr. Gulton that he believed he controlled the Gulton Board of Directors and would persuade the Board to support a Nytronics proposal for the purchase of the remaining Gulton shares outstanding on a securities-for-securities basis. Because of Nytronics' financial position, the price which Gulton shares, in Nytronics securities, could be expected to command was expected to be very favorable. Dr. Gulton's representation about his supposed ability to control the decision of the Gulton Board was disclosed to Rothberg, and the joint venture agreement followed. Rothberg made the required investment in Gulton stock. 19 The anticipated joint venture profit never materialized, because, as it turned out, Dr. Gulton had overestimated his influence on the Gulton Board. Because he had not advised the other members of that Board of his intention to sell his stock to Nytronics before doing so, some Board members opposed, and eventually blocked, the proposed Nytronics-Gulton merger. That left Nytronics with no cash and a minority position in Gulton. As a consequence, the market reacted adversely on both stocks. Nytronics was obliged to sell its Gulton position at a large loss, and Gulton stock declined. The joint venture lost $443,894.50. 20 The trial court found, 21 One tip was [that] a company called Nytronics, of which David Rosenbloom was an officer and director, would make a profitable merger with Gulton. Although there was some publicity about the proposed acquisition of Gulton, the key secret information which David transmitted to the plaintiff was that Dr. Gulton would swing or deliver the votes of the Gulton board to approve the transaction on a stock for stock basis as the Gulton public shareholders, Dr. Gulton having sold his own holdings for cash. David as an insider had a duty to his own corporation not to reveal this key secret to selected persons for the purpose of buying Gulton stock. 22