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Kardolrac Industries v. Wang Lab.

OPINION FILED AUGUST 6, 1985.

KARDOLRAC INDUSTRIES, CORP., PLAINTIFF-APPELLANT,

v.

WANG LABORATORIES, INC., DEFENDANT-APPELLEE.



Appeal from the Circuit Court of Cook County; the Hon. Richard L. Curry, Judge, presiding.

JUSTICE HARTMAN DELIVERED THE OPINION OF THE COURT:

The circuit court entered summary judgment for defendant in an action brought by plaintiff debenture holder to recover for accrued interest allegedly owing on debentures issued by defendant. Plaintiff appeals, raising the issue of whether the debenture indenture authorizes the payment of accrued interest to debenture holders who, in the face of defendant's redemption call, converted their debentures to common stock after the record date but before the interest payment date.

Pursuant to an indenture (Indenture) dated December 1, 1980, between defendant and the Chase Manhattan Bank, as trustee, defendant issued $100,000,000 aggregate principal amount of 9 1/2% convertible subordinated debentures (Debentures) due December 1, 2005. Plaintiff subsequently purchased Debentures in the principal amount of $1,013,000.

On April 26, 1983, defendant issued a notice of redemption advising debenture holders that defendant would redeem all outstanding Debentures as of the close of business on May 26, 1983. Between May 15 and May 26, 1983, plaintiff converted its Debentures into 40,520 shares of class B common stock of defendant corporation.

On October 17, 1983, plaintiff filed a class action complaint on behalf of itself and "all persons who were beneficial holders of the Debentures as of the close of business on May 15, 1983, and who converted their debentures prior to the close of business on May 26, 1983." The class members were alleged to be entitled to receive accrued interest on the Debentures through May 26, 1983, and defendant's refusal to pay this interest was an alleged breach of the Indenture.

Defendant petitioned to remove the case to Federal district court on November 14, 1983. On December 19, 1983, while the case was in district court, defendant filed a motion for summary judgment, which was fully briefed by both parties. The district court, however, remanded the action on plaintiff's motion back to the circuit court of Cook County on April 13, 1984.

On June 5, 1984, in the circuit court, defendant renewed its earlier Federal court motion for summary judgment, which the circuit court granted on July 18, 1984. Plaintiff's timely appeal followed.

Plaintiff challenges the summary judgment on the grounds that the Indenture authorized payment of accrued interest on the Debentures to debenture holders who, in the face of an imminent redemption by defendant, converted their Debentures into corporate stock during the period between the record and the interest payment dates.

• 1 A debenture indenture is essentially a contract, the interpretation of which involves the application of contract law principles. (See, e.g., Broad v. Rockwell International Corp. (5th Cir. 1981), 642 F.2d 929, 946-48, cert. denied (1981), 454 U.S. 965.) Because the Indenture specified that it "shall be governed by and construed in accordance with the laws of the State of New York," we accept that statement as the parties' intent and shall apply New York law in our analysis. Hofeld v. Nationwide Life Insurance Co. (1975), 59 Ill.2d 522, 529, 322 N.E.2d 454.

A debenture indenture must be viewed as a whole, and all its parts reconciled, if possible, to avoid inconsistency. (National Conversion Corp. v. Cedar Building Corp. (1969), 23 N.Y.2d 621, 625-26, 246 N.E.2d 351, 354, 298 N.Y.S.2d 499, 502.) The words of the indenture should be given their plain meaning and should not be interpreted in such a way as to render a provision without force and effect. (Laba v. Carey (1971), 29 N.Y.2d 302, 308, 277 N.E.2d 641, 644, 327 N.Y.S.2d 613, 618.) A term should not be rewritten by "interpretation" when it is clear and unambiguous on its face. (Fiore v. Fiore (1979), 46 N.Y.2d 971, 973, 389 N.E.2d 138, 139, 415 N.Y.S.2d 826, 826.) Where a term is susceptible of two possible and reasonable interpretations, that interpretation which best accords with the remainder of the instrument will be chosen. Broad v. Rockwell International Corp. (5th Cir. 1981), 642 F.2d 929, 947 (construing New York law).

• 2 The Indenture provides for the semiannual payment of accrued interest on the interest payment dates of June 1 and December 1 of each year, "until the principal thereof is paid or duly provided for." The person in whose name the Debenture is registered at the close of business on the regular record date, the May 15 or November 15 immediately preceding the respective interest payment date, is entitled to payable interest.

Defendant is provided with the right to redeem all or a portion of the Debentures at its election prior to maturity, upon giving notice to debenture holders not less than 30 nor more than 60 days prior to the redemption date. The price paid by defendant to redeem the Debentures includes the principal amount, the premium, if any, and interest accrued to the redemption date. All Debentures redeemed or converted into stock are to be delivered to the trustee "and shall be promptly cancelled."

Section 1301 of the Indenture provides that debenture holders may convert their Debentures into shares of class B common stock at any time prior to the December 1, 2005, maturity date, or, if called for redemption, before the redemption date. Section 1302, which defines the manner in which the conversion privilege may be exercised, provides that:

"Debentures so surrendered during the period from the close of business on the Regular Record Date preceding an Interest Payment Date to the opening of business on such Interest Payment Date shall (unless any such Debentures or the portion thereof being converted shall have been called for redemption on a date after such Regular Record Date and before such Interest Payment Date) also be accompanied by payment in New York Clearing House funds or ...


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