I

103D CONGRESS

1ST SESSION H. R. 1258

To amend the Trust Indenture Act of 1939 to require that indentures prohibit

corporate acquisitions or reorganizations unless the successor corporation

assumes the responsibility to make payments under the indenture.

IN THE HOUSE OF REPRESENTATIVES

MARCH 9, 1993

Mr. KLECZKA introduced the following bill; which was referred to the

Committee on Energy and Commerce

A BILL

To amend the Trust Indenture Act of 1939 to require that

indentures prohibit corporate acquisitions or reorganizations unless the successor corporation assumes the responsibility to make payments under the indenture.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. FINDINGS.

4 The Congress finds that—

5 (1) interstate public offerings of debt securities

6 by corporations and other entities that are registered

7 under Federal securities laws are required to be cov-
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1 ered by a trust indenture meeting the requirements

2 of the Trust Indenture Act of 1939 (‘‘1939 Act’’);

3 (2) a trust indenture is a contractual agreement

4 between the issuer of the debt securities and a finan5 cial institution as trustee for the benefit and protec6 tion of public debtholders;

7 (3) a trust indenture under the 1939 Act sets

8 forth certain responsibilities and rights of the issuer

9 and the trustee, including the obligation of the is10 suer to make payment of interest and principal on

11 the debt securities to debtholders, and it sets forth

12 events of default which can trigger actions by the

13 trustee on behalf of the debtholders to have the de14 fault cured or to otherwise obtain payment for debt15 holders;

16 (4) the 1939 Act does not, however, contain

17 provisions that would require a successor corporation

18 to the issuer resulting from a merger, consolidation,

19 sale of substantially all of its assets, share exchange

20 or other transaction having substantially equivalent

21 effect, to assume payment responsibility for the

22 predecessor/issuer’s debt securities;

23 (5) sample trust indenture provisions set forth

24 in sections 801 and 802 of the American Bar Foun25 dation’s Model Debenture Indenture Provisions
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1 (‘‘ABF Model Indenture’’, approved and adopted in

2 1967) for registered public offerings of debt securi3 ties attempt to deal with the ‘‘successor responsibil4 ity for payment’’ situation, but fail to specifically

5 cover ‘‘share exchanges’’ (which are types of cor6 porate reorganization transactions developed subse7 quent to 1967) or ‘‘equivalent effect’’ transactions;

8 (6) issuers of debt securities are not currently

9 required to include in their trust indentures any sec10 tion dealing with the ‘‘successor liability for pay11 ment’’ situation, inasmuch as inclusion of the ABF

12 Model Indenture provisions on that subject, in whole

13 or in part, is voluntary by the issuer;

14 (7) certain issuers of debt securities to the pub15 lic in registered offerings have engaged in share ex16 change transactions (that are substantially equiva17 lent to mergers), with successor corporations, where

18 such issuers have sought to avoid successor payment

19 responsibility on the debt securities on the premise

20 that the language of their trust indenture provisions

21 regarding successor payment responsibility does not

22 specifically cover share exchanges nor state that

23 such sections would be applicable to any other trans24 actions having effects substantially equivalent to a
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1 merger, combination, or sale of substantially all the

2 issuer’s assets; and

3 (8) it is appropriate and necessary for the pro4 tection of public purchasers of debt securities in

5 publicly registered offerings under the Federal secu6 rities laws that trust indentures relating to such

7 debt securities be required under the 1939 Act to

8 have successor payment responsibility provisions,

9 and that such provisions be drafted with language

10 that is both complete and flexible in order to assure

11 that a successor to an issuer of debt securities re12 sulting from a merger or equivalent transaction can13 not avoid payment responsibility that would disas14 trously injure public debtholders.

15 SEC. 2. AMENDMENT TO THE TRUST INDENTURE ACT OF

16 1939.

17 The Trust Indenture Act of 1939 is amended by add18 ing after section 328 (15 U.S.C. 77bbbb) the following

19 new section:

20 ‘‘MERGER, CONSOLIDATION, CONVEYANCE, OR TRANSFER.

21 ‘‘SEC. 329. (a) CONDITIONS ON TRANSACTION.—An

22 issuer of any security subject to this title shall not consoli23 date with or merge into any other corporation or convey

24 or transfer its properties and assets substantially as an

25 entirety to any person, or engage in any equity or share

26 exchange transaction with any other person or with the
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1 security holders of any other person which results in a

2 reduction of the assets available to the issuer, or engage

3 in any other transaction having a substantially equivalent

4 effect, unless—

5 ‘‘(1) the corporation formed by such consolida6 tion or into which the issuer is merged or the person

7 which acquires by conveyance or transfer the prop8 erties and assets of the issuer substantially as an en9 tirety, or the person which acquires the shares of the

10 issuer or whose equity holders acquire such shares,

11 in a transaction which results in a reduction of the

12 assets available to the issuer, shall be a corporation

13 organized and existing under the laws of the United

14 States of America or any State or the District of Co15 lumbia, and shall expressly assume, by an indenture

16 supplemental hereto, executed and delivered to the

17 trustee, in form satisfactory to the trustee, the due

18 and punctual payment of the principal of (and pre19 mium, if any) and interest on all the securities and

20 the performance of every covenant of the indenture

21 on the part of the issuer to be performed or ob22 served;

23 ‘‘(2) immediately after giving effect to such

24 transition, no event of default, and no event which,

25 after notice or lapse of time, or both, would become
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1 an event of default, shall have happened and be con2 tinuing; and

3 ‘‘(3) the issuer has delivered to the trustee an

4 officers’ certificate and an opinion of counsel each

5 stating that such consolidation, merger, conveyance,

6 transfer, equity or share exchange transaction, or

7 transaction having a substantially equivalent effect,

8 and such supplemental indenture comply with this

9 article and that all conditions precedent herein pro10 vided for relating to such transaction have been

11 complied with.

12 ‘‘(b) RIGHTS AND OBLIGATIONS UNDER INDENTURE

13 OF SUCCESSOR CORPORATION.—Upon any consolidation

14 or merger, or any conveyance or transfer of the properties

15 and assets of the issuer substantially as an entirety, or

16 equity or share exchange transaction described in sub17 section (a), or any transaction having a substantially

18 equivalent effect, in accordance with subsection (a), the

19 person subject to subsection (a)(1) shall succeed to, and

20 be substituted for, and may exercise every right and power

21 of, the issuer under the indenture with the same effect

22 as if such successor corporation had been named as the

23 issuer: Provided, however, That no such consolidation,

24 merger, conveyance, transfer, or equity or share exchange

25 or other transaction shall have the effect of releasing the
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1 issuer, or any successor corporation which shall have be2 come a successor by operation of this section from its li3 ability as obligor and maker on any of the securities.’’.

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