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S-35
Heg. T-60
459
INTEHPli.E'I'ATION OF LAW OR REGULATION
(Copies to be sent to all FedertJ.l Reserve bnnks)
September 24, 19[7.
Mr.
, Vice President,
Federal heserve Bank of
--··--Dear r1r.
, --·
_______
----'
:
Reference is made to your letter of Sept~mber 14, 1937, relating
to the effect, under H.egulation •r} of the stamping of Convertible $6.50
Cumulative P1·eferred r:ltoek of the
Company with a legend to
indic~te tho acceptance by the stockholder of ~ certain offer to exch:mgu thi::: stock for other securities. Th(:; question pres:)ntGd is, in
effect, whetber a eustoiner with a restricted. n.ccount cont'lining the
stock in qm~rtion may be permitted, without the deposit of additional
margin, to huV<3 such stock stamped in this manner, :md ther8after to
consummate tbe exchange offer.
Since the in~uiry involvGs.the question of whether and at what time
the stock tecomes a diffr.)rent security and hence, in the absence of a
sepc,rate reg:\.stre_tion, an U:."lregist8r+:::d security, the views of the Securities r,nd Exchange Corrm1ission Vfer;~ requcstc;d on this point.
There i~> o.tt~tcbed a copy of a self-explanatory 1etter, d::,ted September 22, .L 937 .• from Mr. Harold H. Neff, Director of the Forms :md
Regulations Division of the SecuritieE o.nd Exchange Commission. It
will Oo noted that Mr. Nc.:ff iz of tho opin.Lon thEtt the stamping of the
stock here• in question does not c:.:use the stock to become_, .<;. different
security, that the stock doos become n diffc,rent r>ecuri ty when the :~x
ch~:.nge offer b('comes i'inally effectivf,, but thr.:.t the different security
would then hn.vG D special exemption under hule .AN19.
The Eoard see:.:: no recu:on to differ with the v:i.eNs e;:prEsscd l;y the
Directcr of t,he Commissi·:m 1 s Forms and Hegulations Division. Accordingly, the Board is of the opinion that c. customer with o. restri(~ted
account containing the stock in quC;stion may bs permlttc,ci, without the
deposit of e.ddi tionu.l margin, te; have such stock stamp0d t•.j indicate
the acceptance of the exchange offer. The Board is also of the opinion
that in the circumstances the consummaticn of the proposal by ~1cccpting
the new $5.50 Prior Preferred Stock in exchenge for the stamped stock
would not require the obtaining of additioqrcl margin regardl<:ss of 1Nhether
or not the new Prior Preferred Stvck is registered.
Very truly yours,
(S~gned)
L, P. Bethea
L. P. :eethea,
Ass~€taqt
Secretary.
S-35-a
Reg. T-60
SECURITIES
Al~D
EXCHANGE COMMISSION
WASHINGTON
September 22, 1937.
of Governors of the
Reserve System
Washington, D. C.
Bo~rd
lt'eder~ll
Gentlemen:
This will acknowledge the r..:;ceipt of your letter of SeptGmbor 17, 193'1, in which you request an opinion as to whether
the Convertible $6.50 Cumulative Preferred Stock of the _ __
- - - - - - - - Company will become a new security if the certificates are stamped with a legend evidencing the holdor 1 s acceptance of a certain excho.nge offer.
From the material which accm1panied your letter, I understand the facts to be as follows: On September 30, 1937, the
Preferred Stade will l>e in arrears on dividends in the runount
of $58.44 per sb.are. It is proposed to amend the Certificate
of IncQrporation to auti.1orize a nevv issuo of $5.50 Prior Preferred Stock, which is to be offered in voluntary exchange to
the holders of the prGsent Preferred. Preferred stockholders
desiring to accept the exch:mg0 offer c~re required to forward
their stock certificates to tho
Trust Company,
agent for the issuer, to be stamped ao follows:
"'rhe holder of the shares of stock represented
by this certificate has accepted, .::md overy successive
holdor or register,:;cl owner thereof by becoming such
accopts, the exclwnge offer • • • and each such holder
or I'egistercd owner agrees to be, and is, bound by
all the terms and provisions of said exchange offer
and Letter of Tr<.msmi ttal; subjoct, howcVl1r, to s<.;.id
exchang<J offer 1 s becoming finally effective and to
the right of such holder or registe:red owner to revoke
or withdraw such acceptance, as provided in said exchange offer and s.::;id Letter of Transmittal. n
The Letter of Trt,nsmittal provide~:. that the accept~mce may
be revoked by writ-Len notice at any time before th8 Board of
Directors decb.res the exchange offer effecti vo. After tho oxcho.nge offer is declared of.focti ve, the :·.ccept:,,nco may be withdraV'm by I'ITi tten notice until the close of business on the third
460
461
-2-
S-:35-a
Reg. T.,-.6()
business day following the date of mu.iling the notice that the
exchange offer has become effective. The exchange offer becomes
finally effective at the close of such three-d2.;;r period unless
the holders of more than 5% of the shares wi thdrmv, in which
event the plan may, nevertheless, be declared effectivs at any
time within 15 days. If the exch&ngo offer does not bacome
finally effective within 15 days after tbe expiration of the
withdrawal right, or in any event, on or before Decembt:;r l, 1937,
holdel's of stamped certificates are entitled to turn them in and
receive instead unctc..mped certificates.
Under the circumstance::; the <:tccepkmce of the exchange off:.~r
by the prefern;d stockholder would not Etppear to crente a binding obligation upvn either the c.orporation or the stockholder,
ancl in my opinion, the st~1mping of an endorsement evidencing the
accepto.nce upon the Cf:rtifieates would not make the Preferred
Stock a nevi security as to whLch £~ now application for registration is requir<:lci. On the other hand, when th0 exehange offer
becomos finally effective, st1.mped certificates come: to represent a new or additional security 'd1ich would have to be registered, if tre.ding is to continue on 1:: national securities exch~mge,
unless an exemption is availab.1.e. It is my opinion, on the basis
of th8 filets stated, th'lt the temporary exemption under Rule A.Nl9
would be av~::tilabL'l to this new security. It shou.Ld be pointed
out, how,:wer, that unless registration vvere effected with reasonable pro;nptness, proceedings would be in order under paragrapt
(c) of Hule ANl9 to terminate this exemption.
If you have any further question, I shall be glao tc· be of
service.
Very truly yours,
(Signed)
Harold H. Neff
Hnrol(t H. Neff
Director
Forms and Hegulations Division
@FedFRASER