Question
From: (redacted)
Sent: Monday, December 17, 2007 11:00 AM
To:Verne, B. Michael
Subject: Passive Investor
HiMike,
Iam writing to follow-up on a conversation we had a while ago (September 19th).The transaction was on hold but is now proceeding, hence I am writing toconfirm your earlier advice.
CompanyA and certain of its subsidiaries have initiated cases under Chapter 11 of theBankruptcy Code. As part of Company A's reorganization, it has entered into anagreement with 6 investors ("Investors 1-6") whereby the Investorshave committed to purchase common stock and preferred stock of Company A. Theplan of reorganization contemplates that a Search Committee will be appointed forthe purpose of selecting directors for the newly reorganized company. TheSearch Committee will consist of four representatives: (i) one representativeof Company A; (ii) one representative of the Unsecured Creditors Committee;(iii) one representative of Investor 1; and (iv) one representative of eitherInvestors 2 or 3. (Investors 4-6 are not represented on the Search Committee.)Investor 1 will choose the representative of either Investor 2 or 3 that willbe on the Search Committee. The board of company A will consist of 9 directors.One of the 9 directors (the "Non-Lead Investor Director") will beselected by the representative of Investor 2 or 3 that is chosen to be on theSearch Committee. The Search Committee is only participating in the selectionof the initial board; not future boards. After expiration of the Non-LeadDirector's two year term, that slot will be elected by the shareholders atlarge of Company A.
Myclient is Investor 3. Investor 1 will appoint a representative of Investor 2 tothe Search Committee. You indicated that none of the foregoing facts wouldpreclude Investor 3 from relying on the passive investor exemption (16 CFR 802.9). I would be grateful for your conformation.