1210015 Informal Interpretation

Date:
Rule:
801.1(f)(1)
Staff:
Michael Verne
Response/Comments:

  - Agree

Question

From:

(Redacted)

Sent:

Thursday, October 25, 2012 2:25 PM

To:

Verne, B. Michael

Subject:

HSR filing question regarding "convertible voting securities"

DearMike,

I amhoping that you can confirm my analysis of the following situation. CorporationX proposes to issue a class of preferred shares of a Corporation to a buyer.The preferred shares to be issued provide in their terms that the right toappoint a certain number of directors by the class vests upon the later of (1)60 days from the date of issuance or (2) if an HSR filing is required prior tovesting of the right to vote for directors, the expiration of the HSR waitingperiod.

As Iunderstand the Rules, the acquisition of the preferred shares does not requirean HSR Act filing because they are "convertible voting securities",the acquisition of which is exempt under 802.31, since the shares do not, atthe time of acquisition, presently entitle its owner or holder to vote fordirectors of any entity, which is required under the definition of "votingsecurities" in 801(f)(1)(i).

Ofcourse, if the buyer wants to "convert" its shares to shares with apresent right to vote, as noted above, it has to (1) comply with the HSR Act or(2) have determined that the "conversion" to voting securities on day60 or later does not require an HSR Act filing. (Although the definition of"conversion" contemplates an "exchange" of securities,here, there would be no physical "exchange" of securities. Consistentwith interpretation #65 in the Premerger Notification Practice Manual, 4th Ed.wherein it describes the grant of voting rights after one year of holding astock as a "later conversion", that fact does not change the outcome.)

Also,the conclusion that no filing is required upon the acquisition of the preferredshares would not change if the holders of the preferred shares have animmediate contractual right upon issuance to nominate directors of theCorporation, but still not vote for directors, since the critical attribute indefining a voting security is the right to vote for directors, not nominatedirectors and also because such contractual right to nominate would not be aterm of the preferred shares itself but would be reflected in a separateagreement.

About Informal Interpretations

Informal interpretations provide guidance from previous staff interpretations on the applicability of the HSR rules to specific fact situations. You should not rely on them as a substitute for reading the Act and the Rules themselves. These materials do not, and are not intended to, constitute legal advice.

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