Van Gemert v. Boeing Co.
United States Court of Appeals, Second Circuit, 1975.
520 F.2d 1373, cert. denied, 423 U.S. 947 (1975)
FACTS
-Class action brought by non-converting holders of Boeing's convertible subordinated debentures.
Complaint: P had inadequate and unreasonable notice of Boeing’s intention to redeem or “call” convertible debentures in question and were unable to exercise their conversion rights before the deadline in the call.
$3.25 premium only → were supposed to give notice (only gave notice in paper -small print: CLD used which meant “call”, investors did not know - mandatory call)
-Would get $316 if called.
ISSUE
Was Boeing’s notice adequate?
Held: No, notice was not adequate.
-News release did not provide information as to the conversion rate or expiration time as required by NYSE rules.
-Boeing made no attempt to mail notice to the original subscribers (would have been nominal)
-Boeing notice had 2 deficiencies:
1) Boeing did not adequately apprise the debenture holders what notice would be given of a redemption call.
2) Newspaper notice given by Boeing was in itself inadequate.
ANALYSIS
-If you register debt with a company, would have got a letter in the mail, if you call, will convert → company can’t object. Debenture notice, however, did not indicate that registration would mean that debenture holder would receive mail notice.
-No indication of extent to newspaper notice or what newspapers would be used, or how often notice would be published.
-Notice of the call is a primary basis of the deal.
Duty of Reasonable Notice
-arises out of the contract between D and debenture holders.
-An issuer of debentures has a duty to give adequate notice either on the face of the debentures or in some other way, of the notice to be provided in the extent the company decides to redeem the debentures.
-Court looks at “less sophisticated investors”, states: putting notice provisions only in 113 page indenture agreement was in effect no notice at all.
-What one buys when purchasing a convertible debenture in addition to the debt obligation of the company incurred thereby is principally the expectation that the stock will increase sufficiently in value that the conversion right will make the debenture worth more than the debt.
-Debenture holder relies on the opportunity to make a proper conversion on due notice.
-The debenture holder’s expectancy is that he will receive reasonable notice and it is his reliance on this expectancy that the courts will protect.
United States Court of Appeals, Second Circuit, 1975.
520 F.2d 1373, cert. denied, 423 U.S. 947 (1975)
FACTS
-Class action brought by non-converting holders of Boeing's convertible subordinated debentures.
Complaint: P had inadequate and unreasonable notice of Boeing’s intention to redeem or “call” convertible debentures in question and were unable to exercise their conversion rights before the deadline in the call.
$3.25 premium only → were supposed to give notice (only gave notice in paper -small print: CLD used which meant “call”, investors did not know - mandatory call)
-Would get $316 if called.
ISSUE
Was Boeing’s notice adequate?
Held: No, notice was not adequate.
-News release did not provide information as to the conversion rate or expiration time as required by NYSE rules.
-Boeing made no attempt to mail notice to the original subscribers (would have been nominal)
-Boeing notice had 2 deficiencies:
1) Boeing did not adequately apprise the debenture holders what notice would be given of a redemption call.
2) Newspaper notice given by Boeing was in itself inadequate.
ANALYSIS
-If you register debt with a company, would have got a letter in the mail, if you call, will convert → company can’t object. Debenture notice, however, did not indicate that registration would mean that debenture holder would receive mail notice.
-No indication of extent to newspaper notice or what newspapers would be used, or how often notice would be published.
-Notice of the call is a primary basis of the deal.
Duty of Reasonable Notice
-arises out of the contract between D and debenture holders.
-An issuer of debentures has a duty to give adequate notice either on the face of the debentures or in some other way, of the notice to be provided in the extent the company decides to redeem the debentures.
-Court looks at “less sophisticated investors”, states: putting notice provisions only in 113 page indenture agreement was in effect no notice at all.
-What one buys when purchasing a convertible debenture in addition to the debt obligation of the company incurred thereby is principally the expectation that the stock will increase sufficiently in value that the conversion right will make the debenture worth more than the debt.
-Debenture holder relies on the opportunity to make a proper conversion on due notice.
-The debenture holder’s expectancy is that he will receive reasonable notice and it is his reliance on this expectancy that the courts will protect.
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