Rotermund v. United States Steel Corporation, 71 C 596(2).

Citation346 F. Supp. 69
Decision Date26 May 1972
Docket NumberNo. 71 C 596(2).,71 C 596(2).
PartiesAdolph M. ROTERMUND, Plaintiff, v. UNITED STATES STEEL CORPORATION, a Delaware corporation, et al., Defendants.
CourtU.S. District Court — Eastern District of Missouri

James L. Sullivan, St. Louis, Mo., for plaintiff.

Thomas L. Croft and John R. Musgrave, Coburn, Croft, Shepherd & Herzog, St. Louis, Mo., for defendants Basic Materials Co. and Raymond F. Powell.

Albert E. Schoenbeck, St. Louis, Mo., for defendant U. S. Steel Corp.

MEMORANDUM OPINION AND ORDER

REGAN, District Judge.

In this action, removed from the Circuit Court of the City of St. Louis, defendants have moved for summary judgment as to each of the three counts of the complaint.

Count I, directed only against defendant United States Steel (USS), seeks specific performance of an alleged agreement to purchase certain shares of stock in Basic Materials Company (Basic) allegedly owned by plaintiff. In Count II plaintiff prays for actual and punitive damages allegedly resulting from a conspiracy of all defendants to induce USS to violate its alleged contractual obligation to plaintiff under the agreement. Count III seeks damages against defendant Basic only by reason of an alleged violation of the Missouri Service Letter Statute.

On June 28, 1965, defendant Powell, then the owner of over 75 per cent of the then outstanding shares of the common stock of Basic, entered into the agreement with USS as to which plaintiff is an alleged third-party beneficiary. It appears from said agreement (1) that of the 77,307 shares of common stock of Basic then owned by Powell, 59,284 were theretofore pledged to the First National Bank in St. Louis, pursuant to a 1962 loan agreement, (2) that Powell had an option to purchase 60,000 shares of common stock at a price of $9.7625 per share, and (3) that USS owned warrants to purchase 51,150 shares of Basic common stock at $8.73. By said agreement, USS agreed to lend to Powell up to $465,000 on a long-term note bearing no interest prior to maturity and Powell agreed to use part of the proceeds of the loan to repay the bank loan and to purchase from USS for $40,000 all of its warrants. As security for the note Powell was to pledge 25,000 shares of Basic common stock. One provision of the agreement precluded Powell, except with the consent of USS, from exercising his option to purchase Basic stock and from exercising his rights as holder of the warrants during the effective period of the agreement.

Paragraph 5 of the 1965 agreement granting an option to USS provides as follows:

"During the period ending on the fifteenth (15th) anniversary of this Agreement and while USS is not in default as to any of its obligations hereunder and while the Note shall be outstanding, or while (but no later than twenty (20) years from the date hereof) USS owns, or is obligated under any circumstance to purchase, any obligations of Basic, USS or its nominee shall have the option to purchase all the stock of Basic which Powell may now or hereafter own.
(a) after the death of Powell; or
(b) after Powell's retirement from the active management of Basic as defined in the last paragraph of this Section 5; or
(c) in the event that (i) an annual audited statement shall disclose that the book value of the common stock, without giving effect to any surplus created by any write-up or reappraisal of any assets, shall be at least 20% less than such book value as disclosed by the audited financial statement for either of two immediately preceding years or (ii) an annual audited statement shall disclose that such book value is at least 15% less than such book value for either of two immediately preceding years and an unaudited statement for the next succeeding half-year delivered to USS pursuant to 13(a)(i) or an audited statement procured by USS for such half-year period shall disclose that such book value is at the date as of which such statement is made at least twenty percent (20%) less than such book value for either of the two immediately preceding years, then such option shall continue until an annual audited financial statement shall disclose that such book value has been restored to the level at which it was in the audited financial statement for either of such preceding years, whichever such level is higher.
For the purpose of clause (b) above Powell will be deemed to have retired from active management of Basic (i) if his physician under whose care he has been for a reasonable period of time, shall give Powell written advice that his continuation in the active management of Basic would involve a substantial probability of material injury to his health and upon such advice Powell has not carried out his duties as an executive officer of Basic, an essential part of which is physical presence in the executive office or operating properties of Basic for at least seven (7) hours during at least one business day in a period of ninety (90) consecutive calendar days and at the end of said period Powell receives written confirmation from his said physician of said physician's original opinion, or (ii) after ten (10) years from the date of this Agreement if Powell has failed so to carry out his duties as an executive officer for any reason for a period of ninety (90) days."

Paragraph 6 of the 1965 Agreement granting an option to Powell is as follows:

"During the period ending on the fifteenth (15th) anniversary of this Agreement and while Powell is not in default as to any of his obligations hereunder, and while the Note shall be outstanding, Powell, his guardian, or his estate or testamentary trustees, as the case may be, shall have an option to require USS or its nominee to purchase all the stock of Basic which he or his guardian, estate, or his testamentary trustees may then hold.
(a) after the death of Powell; or
(b) after Powell's retirement from active management of Basic under the same circumstances as set forth in Section 5(b), above, provided that the option granted in this Section shall forthwith terminate if the President or any person acting as President of Basic shall admit in writing Basic's inability to pay its debts; or Basic shall consent to a receiver or trustee for itself or substantially all of its property to be appointed; or consent to proceedings under the laws of the United States or any state thereof relating to bankruptcy, insolvency or the release of debtors to be instituted by or against itself; or if such receiver or trustee is appointed or such proceedings instituted without the consent of Basic and is not discharged or are not dismissed or stayed, as the case may be, within six (6) months; or suffer any writ of attachment or execution or any similar process to be issued or levied against substantially all of its property which is not released, stayed, bonded or vacated within sixty (60) days after its issue or levy."

The agreement sets forth a formula for determining the purchase price of the Powell stock in the event either of the foregoing options is exercised, together with the manner in which the party is to exercise said option. Another provision in the agreement (Paragraph 12) in addition to limiting Powell's right to sell or transfer any of his stock, manifests the intention of the parties that at all times while the agreement is in effect "the stock subject to the right of USS to purchase (t)hereunder constitutes at least 75% of the voting power of the sum of all issued and outstanding stock of Basic."

Plaintiff, an officer of Basic at the time the 1965 agreement was entered into, was the owner, jointly with his wife, of 2000 shares of Basic common stock. Paragraph 10 of the 1965 agreement, upon which plaintiff premises his Count I claim, provides as follows:

"If during the term of this agreement USS shall purchase Powell's stock in Basic pursuant to the terms hereof USS shall within thirty (30) days after such purchase irrevocably offer for sixty (60) days to acquire on the same terms and conditions any stock of Basic which, according to its records, was held by Oliver Keller, Adolph M. Rotermund, Stephen F. Powell or Gale H. Powell, on the date twelve (12) months prior to the date of such purchase. Acquisitions of stock by USS pursuant to this section shall be made within fifteen (15) days of acceptance of USS's offer and tender to USS of the certificates of stock which is the subject of such acceptance."

On July 30, 1968, Powell and USS entered into another agreement whereby Powell granted USS a 90-day option to purchase 25,000 shares of his Basic common stock for $1,966,000 on condition that at the time of closing the sale Powell would surrender to Basic the warrants to purchase 51,150 shares of Basic stock at $8.73 per share he had acquired under the 1965 agreement. On the same day and immediately following the execution of the July 30, 1968 agreement, Powell and USS executed an amendment to the 1965 agreement, to become effective only if USS exercised its option to purchase 25,000 shares of Basic common stock pursuant to the 1968 agreement. Among the various amendments to the 1965 agreement was one deleting the original Paragraph 5 and substituting the following new Paragraph 5:

"During the period ending on the fifteenth (15th) anniversary of this Agreement and while USS is not in default as to any of its obligations hereunder, or while (but no later than twenty (20) years from the date hereof) USS owns, or is obligated under any circumstances to purchase any obligations of Basic, USS or its nominee shall have the option to purchase all the stock of Basic which Powell may now or hereafter own
(a) after the death of Powell; or
(b) in the event that (i) an annual audited statement shall disclose that the book value of the common stock, without giving effect to any surplus created by any write-up or reappraisal of any assets, shall be at least 20% less than such book value as disclosed by the audited financial statement for either of two immediately
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