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 reorganiza-
tions unless the successor corporation assumes the re-
sponsibility to make payments under the indenture.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. FINDINGS.
The Congress finds that—
(1) interstate public offerings of debt securities
by corporations and other entities that are registered
under Federal securities laws are required to be cov-
ered by a trust indenture meeting the requirements
of the Trust Indenture Act of 1939 (‘‘1939 Act’’);
(2) a trust indenture is a contractual agreement
between the issuer of the debt securities and a finan-
cial institution as trustee for the benefit and protec-
tion of public debtholders;
(3) a trust indenture under the 1939 Act sets
forth certain responsibilities and rights of the issuer
and the trustee, including the obligation of the is-
suer to make payment of interest and principal on
the debt securities to debtholders, and it sets forth
events of default which can trigger actions by the
trustee on behalf of the debtholders to have the de-
fault cured or to otherwise obtain payment for debt-
holders;
(4) the 1939 Act does not, however, contain
provisions that would require a successor corporation
to the issuer resulting from a merger, consolidation,
sale of substantially all of its assets, share exchange
or other transaction having substantially equivalent
effect, to assume payment responsibility for the
predecessor/issuer’s debt securities;
(5) sample trust indenture provisions set forth
in sections 801 and 802 of the American Bar Foun-
dation’s Model Debenture Indenture Provisions
(‘‘ABF Model Indenture’’, approved and adopted in
1967) for registered public offerings of debt securi-
ties attempt to deal with the ‘‘successor responsibil-
ity for payment’’ situation, but fail to specifically
cover ‘‘share exchanges’’ (which are types of cor-
porate reorganization transactions developed subse-
quent to 1967) or ‘‘equivalent effect’’ transactions;
(6) issuers of debt securities are not currently
required to include in their trust indentures any sec-
tion dealing with the ‘‘successor liability for pay-
ment’’ situation, inasmuch as inclusion of the ABF
Model Indenture provisions on that subject, in whole
or in part, is voluntary by the issuer;
(7) certain issuers of debt securities to the pub-
lic in registered offerings have engaged in share ex-
change transactions (that are substantially equiva-
lent to mergers), with successor corporations, where
such issuers have sought to avoid successor payment
responsibility on the debt securities on the premise
that the language of their trust indenture provisions
regarding successor payment responsibility does not
specifically cover share exchanges nor state that
such sections would be applicable to any other trans-
actions having effects substantially equivalent to a
merger, combination, or sale of substantially all the
issuer’s assets; and
(8) it is appropriate and necessary for the pro-
tection of public purchasers of debt securities in
publicly registered offerings under the Federal secu-
rities laws that trust indentures relating to such
debt securities be required under the 1939 Act to
have successor payment responsibility provisions,
and that such provisions be drafted with language
that is both complete and flexible in order to assure
that a successor to an issuer of debt securities re-
sulting from a merger or equivalent transaction can-
not avoid payment responsibility that would disas-
trously injure public debtholders.
SEC. 2. AMENDMENT TO THE TRUST INDENTURE ACT OF
1939.
The Trust Indenture Act of 1939 is amended by add-
ing after section 328 (15 U.S.C. 77bbbb) the following
new section:
‘‘MERGER, CONSOLIDATION, CONVEYANCE, OR TRANSFER.
‘‘SEC. 329. (a) CONDITIONS ON TRANSACTION.—An
issuer of any security subject to this title shall not consoli-
date with or merge into any other corporation or convey
or transfer its properties and assets substantially as an
entirety to any person, or engage in any equity or share
exchange transaction with any other person or with the
security holders of any other person which results in a
reduction of the assets available to the issuer, or engage
in any other transaction having a substantially equivalent
effect, unless—
‘‘(1) the corporation formed by such consolida-
tion or into which the issuer is merged or the person
which acquires by conveyance or transfer the prop-
erties and assets of the issuer substantially as an en-
tirety, or the person which acquires the shares of the
issuer or whose equity holders acquire such shares,
in a transaction which results in a reduction of the
assets available to the issuer, shall be a corporation
organized and existing under the laws of the United
States of America or any State or the District of Co-
lumbia, and shall expressly assume, by an indenture
supplemental hereto, executed and delivered to the
trustee, in form satisfactory to the trustee, the due
and punctual payment of the principal of (and pre-
mium, if any) and interest on all the securities and
the performance of every covenant of the indenture
on the part of the issuer to be performed or ob-
served;
‘‘(2) immediately after giving effect to such
transition, no event of default, and no event which,
after notice or lapse of time, or both, would become
an event of default, shall have happened and be con-
tinuing; and
‘‘(3) the issuer has delivered to the trustee an
officers’ certificate and an opinion of counsel each
stating that such consolidation, merger, conveyance,
transfer, equity or share exchange transaction, or
transaction having a substantially equivalent effect,
and such supplemental indenture comply with this
article and that all conditions precedent herein pro-
vided for relating to such transaction have been
complied with.
‘‘(b) RIGHTS AND OBLIGATIONS UNDER INDENTURE
OF SUCCESSOR CORPORATION.—Upon any consolidation
or merger, or any conveyance or transfer of the properties
and assets of the issuer substantially as an entirety, or
equity or share exchange transaction described in sub-
section (a), or any transaction having a substantially
equivalent effect, in accordance with subsection (a), the
person subject to subsection (a)(1) shall succeed to, and
be substituted for, and may exercise every right and power
of, the issuer under the indenture with the same effect
as if such successor corporation had been named as the
issuer: Provided, however, That no such consolidation,
merger, conveyance, transfer, or equity or share exchange
or other transaction shall have the effect of releasing the
issuer, or any successor corporation which shall have be-
come a successor by operation of this section from its li-
ability as obligor and maker on any of the securities.’’.
Æ