Question
January 21, 1994
By Fax
Richard M. Smith, Esq.
Premerger Notification Office
Federal Trade Commission
6th Street and Pennsylvania Avenue, N.W.
Washington, D.C. 20580
RE: Rule 802.63
Dear Mr. Smith:
This is to confirm our conversation today concerning the applicability of Rule 802.63 to the facts described in this letter. Please let me know if this accurately reflects your advice.
Company A is a long-standing debentureholder of Company B. The proposed plan for a bona fide debt workout contemplates that Company As debenture will be converted into voting stock representing approximately 15% of the post-workout voting stock of Company B. Also, pursuant to the plan, Company A has been requested to contribute to new value for which it will receive additional voting stock. Subsequent to the workout, if Company A contributes new value as requested, it will hold a majority of the voting stock of Company B.
The issue presented is whether the acquisition of voting stock as a consequence of the contribution of new value pursuant to the workout is exempt under Rule 802.63. (The acquisition of stock in exchange for the debenture is clearly exempt under 802.63.)
Your advice was that as long as the new value was being contributed by a creditor pursuant to the workout plan, the acquisition of voting securities in exchange for the new value is exempt under Rule 802.63. This is true even if the acquisition of stock for new value results in Company A holding more than 50% of Company Bs outstanding voting securities. This is also true even if Company As contribution of new value is voluntary in the sense that it is free to refuse to make this contribution and face the economic consequences of that refusal.
Thank you for your assistance.
Sincerely,
(redacted)
(redacted)