691 F.2d 1039 (2d Cir. 1982)
Between 1965 and 1977, UV Industries, Inc. issued approximately $23 million of 5 3/4% subordinated debentures due in 1995 under an indenture naming Chase Manhattan Bank, N.A. as trustee.1 In 1968, the City of Port Huron, Michigan, issued approximately $22 million in Industrial Development Revenue Bonds due in 1993 under a second Chase indenture backed by a UV guaranty of its subsidiary's lease obligations.2 In 1968, the County of Itawamba, Mississippi, issued approximately $13 million in similar bonds under an indenture with Union Planters National Bank also backed by a UV guaranty.3 In 1977, UV issued $75 million of 8 7/8% debentures due in 1997 under an indenture with Manufacturers Hanover Trust Company.4 At the same time, UV issued $25 million of 9 1/4% senior subordinated notes due in 1987 under an indenture with United States Trust Company of New York.5
During 1977 and 1978, UV operated three lines of business consisting of electrical equipment and components through Federal Pacific Electric Company that generated 60% of operating revenue, oil and gas properties that produced 2% of operating revenue, and copper and brass fabrication through Mueller Brass together with metals mining that produced 38% of revenue.6 On December 19, 1978, UV's Board of Directors announced a plan to sell Federal.7 On January 19, 1979, the Board announced its intention to liquidate UV subject to shareholder approval, with proxy materials distributed on February 20, 1979, recommending approval of the sale of Federal for $345,000,000 and a Plan of Liquidation and Dissolution to sell remaining assets over a 12-month period.8
UV shareholders approved the sale of Federal and the liquidation plan on March 26, 1979.9 UV filed its Statement of Intent to Dissolve the following day.10 On March 29, the sale of Federal to the Reliance Electric subsidiary for $345 million in cash was consummated.11 On April 9, UV announced an $18 per share initial liquidating distribution.12 On July 23, 1979, UV announced the sale of most of its oil and gas properties to Tenneco Oil Company for $135 million cash, consummated October 2, 1979.13
In November 1979, after a bidding contest with Reliance Group, UV and Sharon Steel Corp. entered into an Agreement for Purchase of Assets and an Instrument of Assumption of Liabilities on November 26, 1979, under which Sharon purchased all assets owned by UV on that date, including Mueller Brass, mining properties, and $322 million in cash or equivalents, for $518 million consisting of $411 million in Sharon subordinated debentures valued at $353,460,000 plus $107 million in cash, with Sharon assuming all of UV's liabilities including the public debt.14 On December 6, 1979, Sharon delivered supplemental indentures and assumption agreements to the Indenture Trustees, who refused to sign them.15
By letters dated December 24, 1979, Chase, U.S. Trust, and Manufacturers issued notices of default demanding cure within 90 days or redemption of the debentures.16 On December 26, 1979, Sharon initiated this action against Chase, U. S. Trust and Manufacturers. The state court actions have been stayed pending disposition of this case.17 The Debentureholders later intervened as a class.18 After a jury trial in April and early May 1981, the district court granted a directed verdict dismissing Sharon's amended complaint on May 11, 1981.19 The court granted summary judgment on June 2, 1981, on the Trustees' and Debentureholders' claims.20 Judgment was filed on August 18, 1981, ordering dismissal of the complaint, that the debentures were due and payable, payment of interest earned on the $155 million fund, costs and attorneys' fees, and a constructive trust on the fund, from which Sharon, the UV Defendants, the Indenture Trustees, and the Debentureholders appealed.21
Whether the successor obligor clauses in the UV indentures permitted assignment of the public debt to Sharon Steel in the course of UV's liquidation?22
Interpretation of boilerplate successor obligor clauses is a matter of law requiring uniform construction to preserve capital market efficiency.23 These clauses permit assignment of public debt upon a sale of all or substantially all assets to a single purchaser.24 They do not permit assignment in the course of a piecemeal liquidation unless all or substantially all of the assets held by the company at the time the plan of liquidation is determined upon are transferred to one buyer.25
No. The UV shareholders approved the plan of liquidation on March 26, 1979.26 The assets transferred to Sharon Steel on November 26, 1979 consisted of Mueller Brass, metals mining properties responsible for only 38 percent of 1978 operating revenues and 13 percent of operating profits, and cash and liquid assets, which together amounted to only 51 percent of the book value of UV's total assets on the reference date.27 Because this transfer fell far short of all or substantially all assets, the successor obligor clauses did not apply and UV remained liable on the debentures.28
The successor obligor clauses did not permit assignment of the public debt to Sharon Steel in the course of UV's liquidation.29
Whether the Indenture Trustees and Debentureholders engaged in concerted activity that violated Section 1 of the Sherman Act?30
No. The Indenture Trustees confronted a common breach arising from UV's liquidation plan and attempted assignment of the public debt.33 Their joint negotiations produced the April Document that created a $155 million security fund, avoided multiple extreme lawsuits that could have driven UV out of business, and served the interests of debtors and creditors alike by reducing enforcement costs without foreclosing UV from capital markets.34
The Indenture Trustees and Debentureholders did not engage in concerted activity that violated Section 1 of the Sherman Act.35
Whether UV was required to pay the redemption premium on the debentures after default arising from its voluntary liquidation plan?36
Acceleration provisions in indentures are explicitly permissive and not exclusive of other remedies.37 A debtor that causes debentures to become due and payable through voluntary actions such as a liquidation plan must pay the redemption premium because the premium places a price on the voluntary satisfaction of debt before maturity.38
Yes. The default here stemmed directly from the plan of voluntary liquidation approved on March 26, 1979 followed by the unsuccessful attempt to invoke the successor obligor clauses.39 Allowing a liquidating debtor to avoid redemption premiums simply by failing to take the steps necessary to redeem the debentures would undermine the plain purpose of those provisions.40
UV was required to pay the redemption premium on the debentures after default arising from its voluntary liquidation plan.41
Whether the Debentureholders were entitled to interest earned on the $155 million fund created under the April Document?42
Recovery of interest earned on a security fund is unavailable absent a contractual provision in the indentures or April Document directing such payment.43 General equitable principles do not support an award of interest on a sum that is the subject of pending litigation absent contractual direction or a finding that pursuit of the litigation constitutes an abuse of process.44
No. The indentures contain no provision for payment of additional interest in the event of default.45 The April Document likewise provides no entitlement to interest earned on the fund set aside as security.46 Pursuit of litigation over the meaning of the successor obligor clauses was not frivolous and therefore does not justify an extraordinary equitable award.47
The Debentureholders were not entitled to interest earned on the $155 million fund created under the April Document.48
Whether attorneys' fees and expenses of the Debentureholders should be paid directly by Sharon Steel and UV rather than from the class recovery?49
Debentures that expressly provide for payment of attorneys' fees and expenses only in litigation brought by the Indenture Trustees do not authorize an award of fees directly against the issuer or its successor when the Debentureholders intervene as a class to assert their own claims.50
No. The debentures specifically limit fee recovery to litigation initiated by the Indenture Trustees.51 The Debentureholders intervened as a class under Fed. R. Civ. P. 23(b)(2) and therefore must recover their fees and expenses from the common fund secured for the class rather than directly from Sharon Steel or UV.52
Attorneys' fees and expenses of the Debentureholders should not be paid directly by Sharon Steel and UV rather than from the class recovery.53