Opinion ID: 344913
Heading Depth: 2
Heading Rank: 2

Heading: Obligation of Sundstrand to Purchase Burke Stock

Text: 27 In the court below, Sundstrand contended that it purchased the Burke family stock on January 9 and was obligated by its written agreement of that date with Huarisa to complete the payment therefor. We agree with the district court that the January 9 agreement between Sundstrand and Huarisa did not obligate Sundstrand to complete the purchase of Burke stock. Paragraph 2 of that agreement did require Sundstrand to convey 5,686 shares of Sundstrand stock to Huarisa to reimburse him for the $334,785 which he had paid the Burkes when he exercised his option to purchase their stock at $30 per share on January 8. In order to determine Sundstrand's liability under the January 9 contract, it is necessary to consider also the December 7, 1968, Burke family's written offer to sell 223,190 common shares of SKI stock to Huarisa at $30 per share and the pooling agreement referred to therein. The pooling agreement between the Burke family and Huarisa was dated February 23, 1967. It and the offer to sell gave John B. Huarisa the right of first refusal to purchase the Burke shares for 30 days after December 10, 1968, 11 by paying the Burkes $334,785 (5 per cent of the complete purchase price) at the time of his election to purchase. This deadline was January 9, and Huarisa satisfied this clause on January 8, 1969. Under the pooling agreement, if he wished to complete the purchase, he had until February 9 to pay an additional 20 per cent and until April 9 to pay the final 75 per cent. The pooling agreement provided that Huarisa would forfeit his right to purchase the 223,190 shares of SKI in the hands of the Burke family if he failed to make any payment when due, with any prior payment being forfeited as liquidated damages. Since the agreement of January 9 between Sundstrand and Huarisa did not bind Sundstrand to pay the unpaid balance of $6,360,915, the agreement remained an offer to sell until Sundstrand should elect to purchase all the shares. Consequently, if Sundstrand did not choose to make additional payments on February 9, it would forfeit only the 5,686 Sundstrand shares that it agreed to convey to Huarisa to reimburse him for his initial payment of $334,785 (which was 5 per cent of the purchase price specified in the offer to sell and the pooling agreement). In Sundstrand I we characterized this transaction as follows: 28 Taking this cue (that otherwise Sun Chemical would purchase the Burke shares and thus impede any SKI-Sundstrand merger), Sundstrand expressed a willingness to purchase Huarisa's rights to the Burke stock and to issue shares in Sundstrand to reimburse Huarisa for his payment of funds due the Burkes within three days. Huarisa accepted this offer. On January 8, he paid the Burkes sufficient funds to hold open his right of first refusal, and executed an agreement with Sundstrand the next day, conveying his purchase rights in return for reimbursement of the ($334,785) monies paid the Burkes. 29 On February 6, 1969, more than two weeks after it had rejected the possibility of merger with SKI, Sundstrand paid the Burkes $6,360,915 and received the stock of SKI which Sun Chemical had earlier offered to purchase. Huarisa was repaid (the $334,785) on March 3, when Sundstrand transferred to him 5,686 shares of its common stock. By its agreement with Huarisa, Sundstrand was to repurchase the shares from him upon fifteen days' notice at any time within two years of the contract date. 488 F.2d at 810. 30 As Sundstrand has explained (Br. 15-16) and as the district court found (mem. op. 19), its reason for entering into the January 9 agreement with Huarisa was to prevent Sun Chemical from acquiring a block of SKI stock large enough to frustrate the proposed Sundstrand-SKI merger before Sundstrand could complete its study of SKI which commenced on January 7 and ended on January 20. Previously Sundstrand had been erroneously told by its counsel that the agreement of January 9 obligated it to buy the 223,190 shares, and accordingly it proceeded with the purchase on February 6. As a result, although Sundstrand's president told Huarisa on January 6 that Sundstrand would only be interested in buying the Burke stock if the proposed merger with SKI were to take place, on January 22, after the merger negotiations terminated, he told Huarisa that Sundstrand would honor its commitment of January 9 with respect to the Burke shares.