– Conversion is not involuntary. Given the redemption notice, if holder choose to convert to common stock, a filing is required.
Sent: Friday, February 10, 2012 2:58PM
To: Verne,B. Michael
Subject: Involuntary Conversion
Issuer has non-votingDepositary Shares outstanding, which represent a fractional interest inIssuer's non-voting Preferred Stock. The Preferred Stock is redeemable for cashat the option of Issuer at a specified redemption rate. The Depositary Sharesare redeemable at the option of the Issuer for Preferred Stock, and convertibleat the option of the holder to Issuer's Common Stock (which is a publiclytraded voting security) at a specified conversion ratio.
Issuer exercises itsright to redeem the Preferred Stock, which results in a simultaneous redemptionof the Depositary Shares. Based on the pre-determined redemption value andconversion ratio, the cash value that a holder of Depositary Shares wouldreceive if he allows the shares to be redeemed is only about 50% of the valueof the Common Stock that he would receive if he instead converts the DepositaryShares. At this point the holder of Depository Shares is therefore compelled tomake a decision. Any economically rational holder of the Depositary Shares willelect to avoid the redemption (which gives him only 50% of the value) byconverting to Common Stock -- a decision he had not voluntarily made prior toIssuer's exercise of its right to redeem the Preferred stock --before theredemption becomes effective (which is presumably Issuer's expectation upongiving the redemption notice).
If Investor X (who hasheld the Depositary Shares for more than two years, i.e., he did not acquirethem immediately prior to the redemption, in anticipation of such redemption)elects, in this context, to avoid the monetary loss resulting from theotherwise mandatory redemption, and to convert, should this be considered an(non-reportable) involuntary conversion of X's Depositary Shares into CommonStock, because it was caused by an action taken by Issuer and the"choice" to convert rather than take 50% of the value in cash isreally illusory?