2. The Supplemental Agreement has a single, lawful purpose, namely, to assure Kidde of the benefit of the Reynolds guarantee of the agreed merger price, plus interest, in the event of a frustration of the Merger Agreement for any reason, while protecting Reynolds' exposure on that guarantee against an unreasonably low price on a sale to a third party.
The court concludes that the applicable law for the purpose of interpreting the agreement is the law of Delaware, according to its terms. Three Rivers Motor Co. v. Ford Motor Company, 522 F.2d 885 (CA-3, 1975). It is the meaning of the agreement, as so interpreted, that is tested against federal law to determine whether it violates the antitrust laws.
The Delaware courts have applied the rule, widely recognized in many jurisdictions, that every contract will be regarded as containing an implied covenant requiring each party to act in good faith and with fairness. See, Blish v. Thompson, etc., 30 Del. Ch. R. 538, 64 A.2d 581 (S. Ct. 1948); Raisler etc. Co. v. Automatic etc. Co., 36 Del. 57, 171 A. 214 (S. Ct. 1933); Association, etc. v. Catholic, etc., 61 N.J. 150, 293 A.2d 382 (1972); Bak-A-Lum Corp. v. Alcoa, etc., 69 N.J. 123, 351 A.2d 349 (1976). The same concept is expressed in the Uniform Commerical Code, Sec. 1-203, which has been widely adopted.
It is also a universally recognized principle that if the language of an agreement is susceptible of several interpretations, one of which renders the contract unlawful, and the other renders it lawful, the courts will adopt that which renders the contract lawful. See Restatement, Contracts, Sec. 236; 17 Am. Jur. "Contracts," Sec. 254 (no precedents contra are listed); Great Northern Ry. Co. v. Delmar Co., 283 U.S. 686, 75 L. Ed. 1349, 51 S. Ct. 579 (1931) and cases cited.
The argument of the United States is that the Supplemental Agreement is an unreasonable restraint per se, under 15 U.S.C. Sec. 1, on the ground that it is inherently pernicious to and destructive of competition and urges that efforts to justify it should not be heard. Alternatively, it argues that it is unreasonable under the circumstances in that the effect on trade and commerce outweighs the justification. See, American Motor Inns, Inc., v. Holiday Inns, Inc., 521 F.2d 1230 (CA-3, 1975).
But both the history of the transaction and the evidence at trial show beyond challenge that Kidde wanted and wants to dispose of U.S. Lines. No antitrust law obliges Kidde to retain U.S. Lines. It is free to dispose of it or liquidate it, as prudent business judgment may dictate, with or without the Supplemental Agreement.
Nor does the evidence establish that the Supplemental Agreement would have the impact or effect of an unreasonable restraint, Chicago Board of Trade v. United States, 246 U.S. 231, 38 S. Ct. 242, 62 L. Ed. 2d 683 (1918), or although an otherwise reasonable restraint, that it was "designed" to achieve a forbidden restraint, United States v. Columbia Steel Co., 334 U.S. 495, 92 L. Ed. 1533, 68 S. Ct. 1107 (1948); Poller v. CBS, 368 U.S. 464, 7 L. Ed. 2d 458, 82 S. Ct. 486 (1962).
The sole purpose of the Supplemental Agreement, as appears from a reading of it, and as confirmed by a reading of it together with the Merger Agreement, was to provide a means to assure Kidde that it would receive the merger price, plus interest, if the merger itself were frustrated for any reason, and it is designed to achieve that end by what amounts to a guarantee by Reynolds of that price. On a third party sale, Reynolds necessarily takes the risk that today's realizable price will be less than the merger price, and stands to gain if it be more.
Naturally, there may have been many other ways to construct the mechanism for sale, but nothing appears to suggest that any other construction would be significantly different. The arrangement calls for a non-party financial institution to find a buyer; this provision reduces the risk of disputes, had either one of the parties been required to undertake that chore, especially since this kind of sale is ordinarily developed through some financial institution. Nor is the fact that Reynolds made the selection of any moment, as it is the one exposed to risk of loss or gain. No one has offered any evidence to suggest that Dillon Read & Company, Inc., will carry out its functions other than responsibly and in compliance with the provisions of the Supplemental Agreement as interpreted by the court.
The Supplemental Agreement is clear by its structure for disposition of U.S. Lines, as well as by express provisions, that the sale is to be made, if at all feasible, so that U.S. Lines will continue as an operating company; it is only as a last resort, if all other methods prove not feasible, that piecemeal liquidation of the assets is authorized. This pattern provides as much or more assurance that U.S. Lines will continue to operate than a sale by Kidde would without the Supplemental Agreement. Kidde would be under no obligation to make that effort.
No agreement of like nature seems to have been the subject of judicial evaluation in the antitrust context. Neither counsel nor the court have found any.
Beyond that, the arrangement is essentially the same as those commonly made for other kinds of transaction in which a sale is conditioned on one or more government agency approvals (e.g., zoning, license transfers, and the like), and the seller is willing to accept the condition only if assured of the contract price, and with the buyer taking the risk, in exchange, of loss or gain on a third party sale.
Accordingly, the Supplemental Agreement is not illegal per se. Also, it is not illegal under the circumstances, and the court so finds.
In arriving at these findings, the court has interpreted the Supplemental Agreement in accordance with the principles stated above:
1. Under the agreement, Kidde or U.S. Lines is the seller to the third party, depending on whether the company as a whole is bought or whether some part of the assets (such as the ships under charter to Military Sealift Command) are sold separately from the rest of the company.