## Facts

- Boeing issued 4.5% convertible subordinated debentures due July 1, 1980, convertible into Boeing common stock at a specified conversion rate.
- The debentures/indenture allowed Boeing to redeem the debentures and required notice of redemption 30–90 days before the redemption date, primarily by newspaper publication; holders who registered could receive mailed notice, but this mechanism was not meaningfully communicated to most holders.
- On March 2, 1966, Boeing set April 8, 1966 as the redemption date and March 29, 1966 as the conversion deadline.
- Boeing publicized the call through Wall Street Journal publications (March 8 and March 18), NYSE ticker and bulletins, and bond-table references; it did not issue a broader general news release.
- Many holders did not learn of the call before the conversion deadline and were redeemed at $103.25 per $100 principal, although the stock obtainable on conversion was worth far more (over $300 per $100 principal around the deadline).
- A certified class of nonconverting holders alleged losses exceeding $2 million and sued Boeing and related entities, asserting federal securities, Trust Indenture Act, listing-agreement, and related theories.
- The district court dismissed the amended complaint, reasoning Boeing complied with the indenture’s express notice provisions and owed no additional duties.

## Issues

1. Whether Boeing’s contractual right to redeem convertible debentures carried an implied duty to provide debenture holders reasonable notice sufficient to permit timely exercise of conversion rights.
2. Whether the notice actually provided (limited newspaper publication and market-channel notices) was reasonably adequate under the circumstances.
3. Whether related theories under federal securities statutes, the Trust Indenture Act, and the NYSE listing agreement supported relief despite technical compliance with express indenture notice terms.

## Decision

- The Second Circuit reversed the dismissal in relevant part and remanded for further proceedings.
- The court held Boeing had a contractual duty to provide reasonably adequate notice to enable holders to exercise conversion rights effectively.
- The court concluded Boeing’s notice efforts were not reasonably adequate, even if they satisfied minimal, literal notice clauses.
- The court agreed that the Trust Indenture Act’s explicit requirements were not necessarily violated, but held that did not end the inquiry where contractual obligations required more.

## Legal Principles

- A contractual right to redeem convertible debt may include an implied obligation to give reasonable notice, measured by whether the notice was reasonably calculated to inform affected holders in time to act.
- Technical compliance with formal notice provisions (e.g., limited publication) may be insufficient when the issuer knows holders are dispersed, notice mechanisms are not readily accessible, and the economic consequences of missing conversion are substantial.
- Industry and issuer undertakings reflected in exchange listing standards (such as expectations of adequate publicity) may be relevant in evaluating the reasonableness of an issuer’s notice effort.
- Statutory compliance does not preclude liability where contract law independently requires reasonable steps to notify holders of redemption and conversion deadlines.

## Conclusion

The Second Circuit held that Boeing’s redemption call triggered an implied contractual duty to provide reasonably adequate notice to debenture holders, and that Boeing’s limited publication and market-channel notices were insufficient to protect holders’ opportunity to convert; the dismissal was reversed and the case remanded.


Van Gemert v. Boeing Co., 520 F.2d 1373 (2d Cir. 1975)