Katz v. Oak Industries, Inc.

Katz (plaintiff) held long-term debt securities in Oak Industries, Inc. (defendant), whose indenture gave him no veto power over amendments and did not bar Oak from trying to induce consent to changes. Facing financial trouble, Oak offered to exchange debentures like Katz's for notes and/or common stock, paying below face value but above current market value. Around the same time, Allied-Signal agreed to buy part of Oak's business and 10 million shares of Oak stock, conditioned on at least 85% of debt securityholders accepting Oak's exchange offer, which itself required consenting to indenture amendments that would strip away debtholder protections. Katz sued, arguing the exchange offer coercively forced debenture holders to accept the harmful amendments alongside the exchange, breaching the implied covenant of good faith and fair dealing, and moved for a preliminary injunction.