SHARON STEEL CORPORATION V. CHASE MANHATTAN BANK, N.A.
691 F.2d 1039 (2nd Cir. 1982), cert. denied, 460 U.S. 1012 (1983)
NATURE OF THE CASE: This was a dispute over the value of debentures in a sale of corporate assets. Sharon (P), corporation and trustees of liquidating trust, appealed a decision, which granted summary judgment to Chase (D), indenture trustees and debenture holders.
FACTS: UV issued debentures that because of their value were worth significantly under face value. UV decided to sell its assets and P decided to buy one part of the assets for $107 million and to assume the debentures. The total face value of the debentures was $411 million. Each instrument contains clauses permitting redemption by UV prior to the maturity date, in exchange for payment of a fixed redemption price (which includes principal, accrued interest and a redemption premium) and clauses allowing acceleration as a non-exclusive remedy in case of a default. During 1977 and 1978, UV operated three separate lines of business. In 1978, UV's Board of Directors announced a plan to sell Federal, one of the three companies. In 1979, the UV Board announced its intention to liquidate UV, subject to shareholder approval. UV distributed proxy materials, recommending approval of (i) the sale of Federal for $345,000,000 to a subsidiary of Reliance Electric Company and (ii) a Plan of Liquidation and Dissolution to sell the remaining assets of UV over a 12-month period. The proceeds of these sales and the liquid assets were to be distributed to shareholders. The liquidation plan required 'that at all times there be retained an amount of cash and other assets which the [UV Board of Directors] deems necessary to pay, or provide for the payment of, all of the liabilities, claims and other obligations . . .' of UV. Shareholders approved the sale of Federal and the liquidation plan. The sale of Federal to the Reliance Electric subsidiary for $345 million in cash was consummated. On April 9, 1979 UV announced an $18 per share initial liquidating distribution to take place on Monday, April 30. On April 26, representatives of Chase, Manufacturers met with UV officers and directors and collectively demanded that UV pay off all the debentures within 30 days or, alternatively, that UV establish a trust fund of $180 million to secure the debt. It was agreed that UV was not in violation of the debentures. On July 23, 1979, UV announced that it had entered into an agreement for the sale of most of its oil and gas properties to Tenneco Oil Company for $135 million cash. The deal was consummated as of October 2, 1979 and resulted in a net gain of $105 million to UV. In November, 1979, UV and P entered into an agreement where P purchased all of the assets owned by UV on November 26 (i.e., Mueller Brass, UV's mining properties and $322 million in cash or the equivalent) for $518 million ($411 million of Sharon subordinated debentures due in 2000 -- then valued at 86% or $353,460,000 -- plus $107 million in cash). P assumed all of UV's liabilities, including the public debt issued under the indentures. UV thereupon announced that it had no further obligations under the indentures or lease guaranties, based upon the successor obligor clauses. P delivered to the Indenture Trustees supplemental indentures executed by UV and P. The Indenture Trustees refused to sign. The issue before the courts was whether by virtue of the liquidation of UV, the debentures became due and payable. The trial judge ruled for the holders and P appealed contending that certain language in the contracts allowed for their assumption by a third party. P and the UV defendants appealed.
ISSUE:
RULE OF LAW:
HOLDING AND
DECISION:
LEGAL ANALYSIS:
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