SEC Division of Investment Management staff letter: Celina Financial Corporation

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OFFICE OF CHIEF COUNSEL

DIVISION OF CORPORATION FINANCE -. RESPONSE OF THE Re: Celina Financial Corporation (the "Company")

Incoming letters dated October 30, 1992,

January 8, and 28, 1993

Based on the facts presented, the Division will not

recommend enforcement action to the Commssion if the Rights to

be distributed under the Trust, as described in your letters, are

not registered under the Securities Act of 1933. In arriving at

this position, we note' that: (1) the Rights will be granted pro￾rata to shareholders as an integral part of the consideration for

the proposed tender offer/merger; (2) the Rights will not be

transferable except by operation of law or by will with no form or certificate used to represent the Rights; (3) the Rights will

not have a voting or a dividend privilege and will not bear

interest; (4) the Rights will not represent an ownership interest

in the Company, Republic Mutual Insurance Company, - The Celina

Mutual Insurance Company, The National Mutual Insurance Company

or Celina Acquisition Company; (5) any amount ultimately paid

pursuant to the Rights will not depend upon the operating results of the Company, Republic Mutual Insurance Company, The Celina

l, Mutual Insuranc-e Company, The National Mutual Insurance Company or Celina Acquisition Company; (6) the Trust will have a limited purpose of orderly completion of liquidation; (7) the Trust will terminate upon the earlier of the resolution of the claims held by it or its third anniversary (provided, that if the Trust is extended beyond such three-year period, then the Trust will request additional no-action assurance -from the staff prior to any extension); (8) the Trust ,~ill provide an annual financial accounting and certain other informtion to its beneficiaries. We also note your oral representation that the Trust will provide interim reports to beneficiaries upon the occurrence of any material events affecting the Trust or the Trust's claims ~ The Division of Market Regulation has asked that we inform

you that it concurs in the position expressed above with regard

to registration of the Rights under the Securities Exchange Act

of 1934."

The Division of Investment Management has asked us to inform

you that, on the basis of the facts and representations in your

letters, it would not recommend enforcement action to the

Commission under Section 7 (b) of the Investment Company Act of

1940 (the "1940 Act") if Celina creates a trust (the "Trust"),

the purpose of which will be to permit the shareholders of Celina

to participate in any recovery under certain legal claims (the

"Celina Claims n), without registering the Trust under the 1940

!

, í ~ i, t
Actin reliance on the exception from registration in Section i 7 (b) for "transactions which are merely incidental to the 1 (- dissolution of an investment company." ~/ \ Our position is based in particular on the following

representations: (a) the Trust will not engage in any ongoing

trade or business; (b) the interests of the beneficiaries of the

Trust will not be transferable except by will, intestate

succession or otherwise by operation of law, and there will be no

certificates of beneficial interest issued to beneficiaries; and

(c) the Trust will termnate at the earlier of the date that the

last distribution of funds resulting from the Celina Claim is

made by the trustees to the beneficiaries of the Trust or three

years from the date of formtion of the Trust. This no-action

relief is further contingent upon your agreement that the

existence of the Trust will not be extended beyond three years

from the date of its creation without first obtaining additional

no-action assurance from the staff.

Because these positions are based on the representations

made in your letters, it should be noted that any different facts

or conditions might require a different conclusion. Further,

this response only expresses the Divisions' positions on

enforcement action and does not purport to express any legal

conclusion on the questions presented.

"0f, "fc,"nc, er1y, . '/ .

'\
~/ John C. Brousseau
,'~'/~/~
-- Special Counsel

~/ On Decemer 29, 1992, Gerald Greenberg, counsel to Celina

Financial Corporation, stated in a telephone conversation

with Eli Nathans of the Division of Investment Management

that the Trust would rely on the exception from registration

in Section 7 (b) .

,. , ~
... ---.- cA. TAFT, STETTINIUS & HOLLISTER 1800 STAR BANK CENTER

...."..AY S MONiiOC eM"""..!. o. LINOBellQ . .' ,'Mas ,., .fIIOQI:L.NO. .I". JI08l!IlT Q. STACtoU..11l 425 WALNUT STREET STI!P"'EN.. Qfll~IIITH. Jil. ..AJIQA"IT C COLLOTO,. \NK Jo STeWAfIT WILaull l.. COLLINS CINCINNATI. OHIO 45202-3957 .¡AMI!S I. ."'TAi'" TMOMAS 1:. GROSS..ANN ....s .I "VAN 1.. Ci.I~.O"O CflAIQ """'TIN MCMINIIY .. .III!..A.. OUAHA" i,8e1lT J TOWNSEND WILLIAM lC eNOIMA'" 513-381-2838 lrICl-AI!L A. ...e:llS.. RAYMONO 't 1"£"'81(. THO"'''S Y ALLMAN "ONAL" NeWIIANi(S CABLE: TAFTHOL TWX: 810-481-2623 CHIlISTI..I.. ZI"'MI" AO"ERT S COflKC.. JE"OLD A. IlINK T"'OMA$ 0 HIIKIN FAX: 513-381-0205 PATIlICIA O. LOW"''' i-URA A. "INGEN8ACH .i AuiN LI~S MELVIN S. SMOTTEN ~.iiii..... S. SCHL.OE...", aAIA", i- GII.LAN QE"AL.D .I. lIA~IEN STI~H.N .. NI!CHl:MIAS SCOT" ~ iiOISH SA"UI!L M QUAAN HIN"'" C. KASSON Q OAvie SCMII!"INQ WASHINGTON. O.C, OFFICE Jl!IIII"IX MAIIKS TIMOTHY C. SULLIVAN FlOllEAT I: "IICM ~ ,JOS.PM IIAlIKE" 625 INDIANA AVENUE, N.W. ...L.W...NCI: Ie MOYT OAVIO Q KJlALL JAM!S MANDERSON TIMOTHY E. MO.IIIQ WASHINGTON, D.C. 20004-2901 PATIIICK oJ MiTCHELL PHILip", SCMULTZ Q. .JACK OONSON. JA "ICMARO S ~Oel!"TS SUSAN I. WHurL!E A081!1IT A. WINTER. .JA ..... ..'0......0 0 s~oo..... OAVIO L. JOMN$O,..... "'AA)(A lI'1l1ausON.... JOH.. HA"LESTON 202-628-2838 THOMAS C ,"ULL l.WRENC~ J SART., FAX. 202-347-3419 RONAL.O C. Cttjl'ST1AN ""'CMA.L R JlICK..AN Tl-OMAS T TEAP i-WAI!NCE 0 WALKE.... MAAK.J. AUEHL.MANN i"'uC,....IL C. i.UEOER RoaE" A. WESE'" CaNALe C MESS T SCOTT auel:v .. 8J1AOIIOAO SANOERS .iOHN... TIQI!AT "l~. ROSS E. WALES COLUMBUS. OHIO OFFICE A."AM S. OO"'OON OOAe:EN CANTON TUofOTHY" NAGY.. JAMES'" HALL. .JR. 21 EAST STATE STREET "'IC)0AEL l:. OeFRANK .JOAN A. HEFII!ERNAN W. STUART OO"NIITTII Tii-OTHY ... QUINN COLUMBUS, OHIO 43215-4221 JENNi"e:" "USM OL.NO "'ARCIA VOOiiMIS ANOAEw .J TMOMAS CRUTC"'ER eOWARO 0 OILLE" 614-22i-2838 .iOSI~H fi ,.llOIl-'Ci.. QAiaolly PAAl(EJI ~OQERS OANII!L J HOFICMI!IME" TIMOTH".J. MURI.E" FAX: 814-221-2007 i:AEOEJlICK,. BU"TON KENNETH 1.. LAWSON .JOMN,J McCO" STEVEN W WEEKS MAIIUA R. SCMAE~I!R SCOTT T GREENWOOO' TIMOTM., ii A£ILL" WILI.IA,.,J SEITZ m M"IiUC Q. KOllSUK K.TMJIVN A. i.EOiG~. ,JAMES M. SAUN TMOMAS li. SCHUCK NORTHERN KENTUCKY OFFICE ..UTCHELI, O. McCJlATa T..,...., l- ,.AMZ.!MPOUA OONALO ... HI!....E..u. MiCHAEL.J. ZAVATSK" THOMAS MORE CENTRE !:LIZA8ETM '10"1( SCMiliia .JOMN'" Pl-ll.l.IP.S KIM l( SU""'E i-AR)( J. STEPANIA)( 2670 CHANCELLOR DRIVE GREGORY C. LUKE P,jTAICIA 0 8RAXTON CI-AIlLES ..ICMAEL STEPMAN GERALO S. QREI!N8ERQ CRESTVIEW HILLS, KENTUCKY 41017.3491 CHAALES H. poANa8u"N i: I:OeeRT ... 811.0T' aRENOA M. KLOOS -iARQARI! AVRil.. I.WSON 606-331-2838 STrPHI!N H. ..ETT WILL.IAM I NAKASIAN"~ E. E. STEINE.. TOSHIO NAKAO RUSSeLL. S. SAY"!! STEP"'e.. 0 i.e:RNER RQ8111T 8. CRAiQu.. 513-381-2838 ELIZAIII!TH A. GAI.LOWA.. PATRICIA 1.. HER BOLO ANOPIEW 1.. wooes". FAX: 513-381-86;3 JULIANA ... FA.IIIS" .i OONAl.O MO-:i.e;V .lAMeS oJ. IIA"JIl:SI 0" COUNSEL: J. ""ACK SwIGe:RT DAVIO e
CAPTE,i JAN.'.UCMI!LE l.EMON LEONARa A. WEAKLey EARi. 1(. i-eSSEFl I(TMLEI!N J. MOONEY'" ':!,~'~ AOBEAT TAFT. JR. STEVEN 0 Pl-ILLIPS I'Rl!N 0 SMITH i:oseAT T. KEELER SUSAN M STOCKTON I(ENNI!TH O. wOOOROW SVONOR L. CAVIS TI-O"'AS J SARAK,TS,jNNIS October 30, wESLey... MALOWITZ". WILL.IA.. V. FINN 1992 TIMOTl-V 1.. COYLE~" CYNTMIA F 8LANK 'W"'SHINQTON. 0 C. oi-_,c& FRANCIS V aUCOlll' '''COi.uw...s. 0..'0 O".'C& STEVEN N STeIN

FREOERICK 0 NELSON .......O"Ti-IlJlN J(&NTUCJI O."'C.
..~:OHIO
FEDERAL EXPRESS '! t::f Ë (3ËJ~:7ÈD'=
Securities and Exchange CommissipR_
Divisîon of Corporation Finance i "
Division of Investment Manageme
.,
~1
450 Fifth Street, N.W. ,.i:.,t,"'.l!); h. , ?
WaShington, D.C. 20549 Section ::,,_,....,J ß .....'-,.. ¡ L-tCiE!i~:,~ T¡:~~~d Re: Celina Financial corp~~~ ;~=:; 't bl1 ('

Ladies and Gentlemen: !.:-allabi~ty rJ f Ii 3 ~~ --~~.;~ This letter is submitted on behalf of our client, --.."" Celina Financial Corporation, an Ohio corporation ("Celina"). We

hereby request that the Division of Corporation Finance confirm

that it will not recommend any enforcement action to the

Commission if, in the circumstances described below, rights

("Rights") to receive cash from an irrevocable trust (the

"Trust") are not registered under the Securities Act of 1933 (the "1933 Act") and, following the tender offer and merger described

below, Celina ceases periodic reporting under the Securities

EXChange Act of 1934 (the "1934 Act"). We also request that the

Division of Investment Management confirm that it will not

recommend any enforcement action to the Commission if the Trust

does not register as an investment company under the Investment

Company Act of 1940 (the "1940 Act"). These requests are made on

the basis of our view that such rights are not "securities" under

any of the 1933
Act, the 1934 Act and the 1940 Act, that

establishing the Trust and distributing cash to the holders of

Rights upon the termination of the Trust do not constitute

"sales" within the meaning of such term as used in the 1933 Act

and that the maintenance of the Trust constitutes a transaction

incidental to the dissolution of an investment company as that

phrase is used in Section 7 of the 1940 Act.

/~~ Securities and Exchange Commission

October 30, 1992

The Class A Common Shares of Celina are publicly traded

and registered pursuant to the Securities Exchange Act of 1934

(the "1934 Act"). Republic Mutual Insurance Company, an Ohio

mutual insurance company ("Republic Mutual"), The National Mutual

Insurance Company, an Ohio mutual insurance company ("National

Mutual"), and The Celina Mutual Insurance Company, an Ohio mutual

insurance company ("Celina Mutual" and, together with Republic

Mutual and National Mutual, the "Mutual Companies"), currently

own approximately 3%, 16% and 31%, respectively, of the Class A

Common Shares of Celina, and Celina Mutual and National Mutual

own all 100,000 outstanding Class B Common Shares of Celina.

Class B shareholders are entitled to exercise 40% of the entire

voting power of Celina. Four of the seven directors of Celina

have been elected by the holders of the Class A Common Shares and

three have been elected by the holders of the Class B Common

Shares. Celina and the Mutual Companies are under common

management.
It is contemplated that National Mutuäl will make a

cash tender offer for any and all of the Class A common shares of

Celina at a price still to be determined. Republic Mutual and

Celina Mutual do not intend to tender their shares. The tender

offer will be conditioned, inter alia, on the ténder of at least

50% of the Class A Common Shares not held by the Mutual

Companies. The tender offer will be made in compliance with the

requirements of Rules 13e-3 and 14d-1 under the 1934 Act.

It is further contemplated that, immediately after the

consummation of the tender offer, Celina, the Mutual Companies

and Celina Acquisition Company, an Ohio corporation to be wholly

owned by the Mutual Companies and organized for that purpose

("CAC"), will enter into an Agreement and Plan of Merger,

pursuant to which CAC will merge into Celina and the surviving

-corporation will be whOlly-owned by the Mutual Companies.

As a result of the merger the Mutual Companies will own

all of the outstanding stock of the surviving corporation and

each holder of Class A Common Shares of Celina (other than the

Mutual Companies), will be entitled to receive for each share

owned at the time of the merger an amount in cash equal to the

price per share to be paid in the tender offer. It is expected

that certain employees of Celina who hold unexercised options to

purchase Class A Common Shares will enter into agreements with

Celina providing that upon such merger all of such options shall

be cancelled in exchange for (a) a cash payment equal to the

difference between the exercise price of the options and the merger price and (b)' the Rights which the holders of such options would have been entitled to receive if they had exercised such

options prior to the consummation of the tender offer.

Securities and Exchange Commission

October 30, 1992

It is also contemplated that, if the conditions to the

tender offer are met, immediately preceding the consummation of

the tender offer, Celina will distribute Rights to its

shareholders pro rata (including the Mutual Companies and

treating the Class A Common and Class B Common Shares equally and

assuming that all outstanding options to purchase Class A Common

Shares had been exercised as of such time (such shareholders and

the option holders described above being referred to herein as

the "Pre-Tender Offer Shareholders")) as rights to participate in

the Celina Claims (defined below) through the Trust as discussed

below.
To implement such distribution, Celina will assign all

rights which it may have 'with respect to certain claims (the

"Celina Claims"), together with cash to finance legal fees and

expenses, to the Trust described below. The Celina Claims

consist of claims Cel ina may have against third parties in

connection with the failure of Mission Insurance Company and its

affiliate Pacific Reinsurance Management Corporation. The value

of the Celina Claims and the amount which may be recovered in

connection therewith are difficult to estimate with a reasonable

degree of certainty at this time. To attempt to put a value on

the Celina Claims at the present time would require conjecture

and, therefore, may be unfair to the Pre-Tender Offer

Shareholders of Celina. See Slater Development Corp. (May 9,

1988 )
, Celina will enter into a trust agreement (the "Trust

Agreement") with three individuals who are currently directors or

officers of Celina (the "Trustees"). The form of the Trust

Agreement is attached to this letter for your reference. Under

the terms of the Trust Agreement, Celina will assign to the

Trustees its rights in the Celina Claims and deposit with the

Trustees cash to pay legal fees and expenses to be incurred in prosecuting the Celina Claims. ThsteA~ wil pursue the Celina Claims in such mann~T a~ th~ deem to be in thA hast - -îfffërests of the Pre-Tender Off '-. ---- . AT Shareholder~,. maintain the , Trust and will invest any cash . . nment_ securities av uri ies of less than five year~~ In erest

eaLned by the Trust (net of applicable income ta) will become

part of the Trust. The purpose of the
'Trust is to provide the public Pre-Tender Offer Shareholders of Celina with a means to

participate in any recovery under the Celina Claims. Any amount

paid to the Trustees with respect to the Celina Claims as a

result of a final unappealable judgment or a settlement, net of

any legal fees and expenses and together with any other cash held

by the Trustees under the Trust Agreement, will be distributed to

all of the Pre-Tender Offer Shareholders of Celina (including the

Mutual Companies) on a pro rata basis. Any recovery by the

Trustees will be held in trust for the Pre-Tender Offer

~" Securities and Exchange Commission

October 30, 1992

Shareholders of Celina and will not be subject to the claims of

Cel ina 's creditors.

The Rights of the Pre-Tender Offer Shareholders to

receive cash from the Trust will be represented by the Trust

Agreement and the resolutions of the Board of Directors of Celina

approving the distribution of the Rights and the creation of the

Trust; they will-not be assignable. ort,r-,gD_Sf~:U;:Çlble except by

operation of law or by intestacy arid will not be evidenced by any certificate or other instrument. The Rights will not pay any

dividends or bear any stated rate of interest and will have no

voting rights. The Rights will represent only the contingent

right to receive additional cash consideration under certain

defined circumstances.

Discussion

1933 Act.

A. The Rights are not "Securities" Under the 1933 Act.
The definition of the term "security" under the 1933

Act, as set forth in Section 2 (1) of' the 1933 Act, provides that

"unless the context otherwise requires," a security is:

(A)ny note, stock, treasury stock, bond, debenture, evidence of indebtedness, certificate of

interest or participation' in any profit-sharing

agreement, collateral-trust certificate,

preorganization certificate or subscription,

transferable share, investment contract, voting-trust

certificate, certificate of deposit for a security,

fractional undivided interest in oil, gas or other

mineral rights, or, in general, any interest or

instruent commonly known as a "security" or any

certificate of interest or participation in, temporary

or interim certificate for, receipt for, guarantee of,

or warrant or right to subscribe to or purchase, any of

the foregoing.

Congress has stated that the 1933 Act defines "the term

security in sufficiently broad and general terms so as to include

within that definition the many types of instruents that in our

commercial world fall wi thin the ordinary concept of a security."

H.R. Rep. No. 85, 73d Cong., 1st Sess. 11 (1933). The

Congressional debates demonstrate that the legislators assumed

that the ordinary concept of a security connoted some form of

investment. The intent of the 1933 Act was seen as

"regulate (ing) the sale of investment securities to :the innocent

( Securities and Exchange Commission
October 30, 1992

public." 77 Congo Rec. 2940 (1933) (remark~ of Rep. McFadden).

See also, Id. at 2912 (remarks of Rep. Mapes).

Although the term "security" has been given a broad

definition, the Rights are not specifically identified in its

definition nor do the Rights fall within any of the included

categories. In addition, the Rights will not possess any of the

characteristics of a security. They carry no rights common to

equity holders (no dividends, voting or equity interest); they do not represent the obligation to pay a sum certain nor do they

carry a stated interest rate; and they are not transferable or

evidenced by any certificate or other instrument. Moreover, in

economic real i ty, they do not represent investments. Thus, in

our view, as discussed below, the Rights are not securities

within the meaning of Section 2 (1) of the 1933 Act so as to

require registration under that Act.

1. The Rights ,Are Not Investment Contracts

,., In our view, the Rights do not fall wi thin the definition of an "investment contract" as crafted by the courts.

The Supreme Court in SEC v. W. J. Howev Co. stated that an

investment contract is a scheme which "involves an investment of money in a common enterprise with profits to come solely from the

efforts of others." 328 U.S. 293,301 (1946). "The touchstone is

the presence of an investment in a common venture premised on a

reasonable expectation of profits to be derived from the

entrepreneurial or managerial efforts of others. By profits, the

Court has meant either capital appreciation resulting from the

development of the initial investment . .. or a participation in

èarnings from the use of investors' funds . .. In such cases

the investor is attracted solely by the prospects of a return on

his, investment." United Housinq Foundation. Inc. v. Forman, 421

U.S. 837, 852 (1975). See, Quanex Corporation (July 28, 1989)

and GID/TL, Inc. (March 21, 1989) (arguing that deferred payment

rights given pursuant to a merger were cash substitutes and not

an investment in a common venture) .

The Celina Pre-Tender Offer Shareholders' interest in

the Trust is not an investment contract within the meaning of Howey. First, such shareholders' receipt of the Rights does not invol ve an investment of money in a common enterprise. Indeed,

the public Pre-Tender Offer Shareholders are terminating an

investment, not making one. The public Pre-Tender Offer

Shareholders will receive the Rights as part of the consideration

for their shares of Celina disposed of in the tender offer or the

merger, not in exchange for a cash investment. The Rights

constitute a contingent cash payment as partial consideration for

terminating their interest in Celina.

,~" Securities and Exchange Commission

October 30 i 1992

,.'
The total value of Celina is difficult to determine at

the present time due to the uncertainty as to the amount of the

net recovery, if any, to be obtained with respect to the Celina Claims. The public Pre-Tender Offer Shareholders, therefore, initially will receive consideration equal to the value of Celina

wi thout regard to the value of the Celina Claims. If there is

any net recovery with respect to the Cel ina Claims, such

shareholders will receive such funds on a pro rata basis. See,

for example, Slater Development Corp., May 9, 1988, in which

shareholders received Deferred Cash Consideration Rights

entitling them to share in the recovery with respect to a patent

infringement lawsuit.
Second, the Rights do not reflect an expectation of

profits from the efforts of others. The Rights are part of the

purchase price for Celina. They represent a contingent cash payment which is dependent upon the recovery, if any, with

respect, to the Celina Claims. The occurrence of such an event

will determine whether the
Pre-Tender Offer Shareholders will receive any distribution from the Trust. The likelihood that the

Celina Claims will be successfully
'pursued does not depend primarily on the efforts of Celina or the Mutual Companies.

2. The Rights Are Not Evidences of Indebtedness.

There can be no assurance or reasonable expectation

that any particular amount will be received by the Pre-Tender

Offer Shareholders from the Trust; the Rights do not. represent an obligation to pay a predetermined amount of money, nor, indeed, to pay any money, and any recovery will depend on circumstances

beyond the control of Celina; nor do the Rights bear any stated

rate of interest or return. Accordingly we do not believe that

the Rights are notes or other evidences of indebtedness under the

definition of a security.

3. Previous No-Action Positions of the SEC.

The Staff has consistently taken the position that it

would not recommend enforcement action where, pursuant to a

proposed merger i contingent deferred payment rights having the

same essential elements as the Rights were not registered under

the 1933 Act. Although the proposed Celina transaction includes

a tender offer and a distribution of the Rights to shareholders

by board action rather than pursuant to a merger agreement and

is, therefore, structured somewhat differently than the

transactions described in the no-action letters referred to

below iit is essentially the same from the point of the view of

the public Pre-Tender Offer Shareholders who receive cash and

Rights in exchange for their continuing interest in Celina. The

Rights are an integral part of the consideration to be received

r' Securities and Exchange Commission
October 30, 1992

in the transaction and will be received by all Pre-Tender Offer

Shareholders if a majority of the public Pre-Tender Offer

Shareholders elect to accept the tender offer.

In Essex Communications Corp. (June 28, 1988), the SEC

staff took a no-action position on a plan similar to the Trust.

In its request letter, Essex stated that, pursuant to a proposed

merger, a portion of the purchase price would be placed in an

escrow account to serve as security for post-closing purchase

price adjustments and indemnity claims against the selling

company. Approximately 16 months after the effective date of the

merger, the escrow agent was authorized to release the funds to

the former shareholders of Essex. In reaching its no-action

conclusions in this letter, the SEC staff focused on the

following elements: ' 1) the rights granted to the former

stockholders were an integral, part of the consideration to be

received in the proposed merger; 2) the rights did not represent

an equity or ownership interest in the company and did not carry

voting or dividend rights, or bear a stated rate of interest; 3)

the rights were not transferable, except by operation of law or

by will; 4) the rights were not represented by any form of

certificate or instrument; and 5) any amount ultimately, paid to

the selling shareholders pursuant to the rights did not depend

upon the operating results of the surviving company or any

consti tuent company to the merger.
These factors were also cited by the SEC staff as key

elements in its decision to not recommend enforcement action in

Quanex Corporation, suora; Genentech Clinical Partners (April 28,

1989); GID/TL, Inc. (March 21, 1989); First Boston, Inc.

(December 2, 1988); Minnesota Mining and Manufacturing Company

(October 13, 1988); Slater Development Corp., suora¡ and Lorimar,

Inc. (November 4, 1985)..

The five criteria generally used in granting no-action

request letters are present in the proposed Trust:

1. The Rights are an integral part of the

consideration for the shares of Celina. Celina's Board of

Directors has determined that it is currently difficult to

estimate the value of the Celina Claims with a reasonable degree

of certainty. On the other hand, the Board was advised by

counsel that the Celina Claims may have substantial value, and

the Board, therefore, has concluded that it would be desirable to

permi t the Pre-Tender Offer Shareholders to share in any such

recovery .
2. The Rights will not represent any ownership or

equi ty interest in Cel ina or the Mutual Companies. The holders

of the Rights will have no rights, such as voting or dividend

/""" Securities and Exchange Commission ( October 30, 1992

payments, common to a shareholder of the surviving or any

constituent corporation nor will they carry a stated rate of

interest or return. The Rights represent only the right to

receive the funds in the Trust once the amount thereof, if any,

has been determined.
3. The Rights will not be transferable or assignable

except by will, the laws of intestacy or other operation of law.

4. The Rights will not be represented by any form of

certificate or instrument.

5. Any amount ultimately paid to the Pre-Tender Offer

Shareholders will not depend on the operations of the surviving

corporation or the Mutual Companies. There is no connection

between the performance of the surviving corporation or the

Mutual Comp~nies and the amount of the funds to be distributed by

the Trust. The amount of such funds wiii depend solely upon the

resolution of the Celina Claims, a contingent event beyond the control of the parties. The Staff reached a similar conclusion in Crime Control Inc. (August 3, 1987) with respect to a trust established in connection with the liquidation of a corporation. The Staff

noted that "( 1) beneficial interests in the Trust will be non transferable except as described in (the) letter; (2) the Trust

will have a limited purpose of orderly completion of liquidation

and will have a restricted term of existence; and (3) the trustee

will be required to issue annual financial accountings to the beneficiaries of the Trust.,"

Again, these factors are present in the Trust:

1. The Rights will not be transferable or assignable

except by will, the laws of intestacy or by other operation of

law.
2. The Trust exists ~o liquidate in an orderly manner

the public Pre-Tender Offer Shareholders' interest in Celina.

The Trust Agreement provides that all funds held by the Trustees

will be distributed promptly after' a final resolution of the

Celina Claims.

3. The Trustees will make an annual financial report

to the Pre-Tender Offer Shareholders.

Upon examination of the position taken by the SEe staff

in the prior no-action letters referred to above, the Rights do

not fit within the scope of the definition of a "security" under

the 1933 Act because they lack the traditional characteristics of

Securities and Exchange Commission (- October 30, 1992

a security. In addition, the public interest will not be

furthered by requiring registration of the Rights under the 1933

Act because the holders of the Rights will receive an offer to

purchase in connection with their consideration of the tender

offer, in accordance with SEC Regulations.

B. Distribution of Rights Does Not Constitute a "Sale" . similar to the discussion above relating to investment

contracts, distribution of Rights to the Pre-Tender Offer

Shareholders does not involve a "sale" which requires

registration under the 1933 Act. A shareholder would receive a

Right as part of the payment for all the shares of Celina. There

is no additional investment required to receive a Right. No new consideration is given for it, and no separate investment ' decision is made. A shareholder does not have an option to

forego the Right in exchange for another form of consideration.

The shareholder ~akes an investment decision when such

shareholder decides to terminate his investment in Celina for the

right to receive the cash tender offer price plus the Right. To

provide the shareholder with information to make such a decision,

the shareholder will receive an offer to purchase regarding the

tender offer, including information on the rights of Pre-Tender

Offer Shareholders of Cel inato receive funds from the Trust.

However, there is no independent sale of Rights. The Rights are

merely an attempt to determine an amount to be received by public

Pre-Tender Offer Shareholders which reflects the "true" value of

Celina Class A Common Shares. If a majority of the Class A

Shares held by public Pre-Tender Offer Shareholders are tendered,

the Rights will be distributed to all Pre-Tender Offer .

Shareholders without further action on their part.

1934 Act

In our view, for the same reasons set forth above, the

Rights should not be consider~d to be a "security" or an "equity

security" under the 1934 Act. Accordingly, upon the completion

of the tender offer and the merger, Celina should be entitled to

deregister the Class A Common Shares under the 1934 Act, the

Rights should not be required to be registered under Section

12 (g) of the 1934 Act and Celina and the Trustees should be exempt from periodic reporting under the 1934 Act. Crime

Control, suora.

1940 Act.
The introduction to Section 3 of the 1940 Act states that an investment company must be an "issuer", and Section 3 (a) (22) defines an "issuer" to be any person who issues or proposes

~
Securities and Exchange Commission
( October 30, 1992

to issue a security. For the reasons cited above under the

subheading "1933 Act", we do not believe that the Rights

constitute securities for purposes of the 1940 Act. Nor do the

Rights fit within the categories of investment contract or

evidence of indebtedness. The Rights are not readily

identifiable as any of the securities listed in the 1933 Act

definition of a "security". The Rights possess the five criteria

generally noted by the Staff in granting no-action positions for

failure to register similar deferred payment rights. Further,

because the shareholders would receive an offer to purchase

describing the Rights, registration would not further the

purposes of the 1933 Act. We note that the definition of a

"security" under the 1933 Act is essentially the same as the

definition of a "security" under the 1940 Act. .

Further, the Trust should not be viewed as an "investment company" under Sections 3 (a) (1) .and 3 (a) (3) of the 1940 Act. Under Section 3(a) (3) of the 1940 Act, an issuer may

be deemed an "investment company" if it, invests, holds, trades or

owns investment securities exceeding 40% of the value of such

issuer's total assets. Government securities are expressly

exempted ,from the definition of "investment securities". Under

the Trust Agreement, the only "investments" that may be made by

the Trustees are in' government securities.
Under Section 3 (a) (1) of the 1940 Act an "investment company" is an issuer which is (or holds itself out as being)

engaged primarily in the busines~ of 'investing, reinvesting or

trading in securities. The Trust is not principally engaged in

the business of investing because its purpose is to provide- a

means to recover funds for the benefit of the former shareholder

of Celina; any "investment activity" by the Trust is only incidental until the termination thereof. See, Quanex

Corporation and Damson Energy Co., L. P., supra.
Even assuming that the Rights may constitute

"securities" for purposes of the 1940 Act (and thus that the

Trust may be an "issuer"), we believe that the 1940 Act should

not apply to the Trust pursuant to Section 7 thereof because it

is, even upon its creation, in the process of winding up; that

is, its activities are limited and its term is definite.

The SEC has noted the following characteristics in

granting a favorable no-action position based on Section 7:

"1. The beneficial interests in the trusts are

non-transferable, except by death or operation of law.

i
, i ~ " i
,
Securities and Exchange Commission

October 30, 1992

'.
2. The trustees are 'obligated under the Trust

Agreement to provide financial or other information to the former

stockholders.
3. The trust's purpose is the orderly liquidation of

its assets and the satisfaction of its liabilities, and the trust

will not engage in any ongoing trade or business.

4. The trust will be terminated in a reasonable period

of time." Heizer Corp. (February 8, 1984).

As noted above, the beneficial interests in the Trust

are non-transferable. The Trustees will make annual financial

reports on the balance of funds in the Trust and transmit copies

of such reports to the Pre~Tender Offer Shareholders. The

purpose of the Trust is analogous to the liquidation of the

public Pre-Tender Offer Shareholders' interests in the assets of

Celina subject to Celina's liabilities. The Trust will be

,created to wind up the interests of Celina's shareholders in the company. The Trust will not engage in any ongoing trade or business. Finally, the Trust will terminàte at a fixed time.

See al so, 'Quanex, supra; Damson Energy Co., L. P., supra;

Glenborough Limited (June 17, 1986).

After the Trust serves its purpose as a means of

collecting the Celina Claims, the Trust will terminate at a

definite time, and its assets will be distributed to

Tender Offer Shareholders of Celina. While the Trust is in the Pre-

existence, any cash held by the Trustees will be invested in

government securities. The low amount of risk involved in an

investment in government securities is consistent with the

Trust's sole purpose.' Any interest received would be retained in

the Trust and used to pay taxes due and" expenses of the Trustees,

including legal fees and expenses relating to the Celina Claims.

Conclusion and Reauest

On the basis of the foregoing, we believe that the

Rights are not securities that must be registered under the 1933

Act or the 1934 Act and the Trust is not an investment company"

for purposes of the 1940 Act. Accordingly, we respectfully

request that the Commission staff advise us in writing that it

would not recommend any enforcement action to the Commission if

the Rights are not registered pursuant to the 1933 Act or the

1934 Act and the Trust is not registered pursuant to the 1940

Act.
In accordance with SEC Release 33-6269, seven

additional copies of this letter are enclosed.

.-'-f l
,
¡ t
~'.. !
Securities and Exchange Commission

October 30, 1992

,.'
If you have any questions or wish to discuss this

matter, please call Timothy E. Hoberg, J. Thomas Crutcher or

Gerald S. Greenberg of this firm.

GSG : bs cc: Timothy E. HOberg, Esq.

J. Thomas Crutcher, Esq.

Tammy P. Hamzehpour, Esq.

Sincerely,
~ ç¡ (llOOJJOiJM'l

Gerald S. G:~~g~ èJ

1 '

CFC Shareholders' Trust Aoreement
This Trust Agreement, dated as of , 1993, is made

by and between Celina Financial Corporation, an Ohio corporation ("Celina"), as grantor and , and as trustees C'Trustees").

RECITALS:
WHEREAS, the Class A Common Shares of Celina are currently publicly traded and registered pursuant to the Securities Exchange Act of 1934; WHEREAS, Republic Mutual Insurance Company, an Ohio mutual insurance company ("Republic Mutual"), National Mutual Insurance Company, an Ohio mutual insurance company ("National Mutualll), and The Celina Mutual Insurance Company, an Ohio mutual insurance company CICelina Mutual" and, together with Republic Mutual and National Mutual, the "Mutual Companies"),

currently own approximately 3%, 16% and 31 %, respectively, of the Class A Common Shares of Celina, and Celina Mutual and National Mutual own all 100,000 outstanding Class 8 Common Shares of Celina; WHEREAS, National Mutual has made a tender offer for any and all of the Class A Common Shares of Celina at a price of $ per share, all

conditions to the consummation of which (other than the establishment of the trust contemplated hereby and distribution of beneficial interests therein to the Celina shareholders) have been met as of the date of this Agreement, and such tender offer is expected to be consummated on , 1993; WHEREAS, it is contemplated that, immediately following the consummation of the tender offer, Celina, the Mutual Companies and Celina

Acquisition Company, an Ohio corporation wholly-owned by the Mutual Companies ('.CAC"), wil enter into an Agreement and Plan of Merger, pursuant to which CAC will merge into Celina and the surviving corporation wil be wholly-owned by the Mutual Companies; WHEREAS, as a result of the merger, each holder of Class A Common Shares of Celina (other than the Mutual Companies, whose shares wil be canceled without payment, and dissenting shareholders under Ohio Revised Code Section 1701.85) wil be entitled to receive for each share owned at the time of the merger an amount in cash equal to the price per share paid in the tender offer; WHEREAS, as partial consideration for terminating their interest in Celina either in the tender offer or the subsequent merger, Celina is contemporaneously herewith distributing to its shareholders pro rata, including the Mutual Companies and treating the Class A and Class 8 Common Shares and all Class A Common Shares subject to outstanding employee stock options equally (the "Pre- Tender Ofer Shareholdersll, which term for purposes of this Agreement shall include the employees referred to in the next paragraph), prior to the consummation of the tender offer, participations in the Celina Claims (defined below) through beneficial interests in the Trust Fund as established in this Agreement; WHEREAS, it is expected that Celina wil enter into an agreement with each of its employees who holds unexercised options to purchase Class A Common Shares providing for the cancellation of such options upon the consummation of such merger in exchange for a cah payment and a beneficial interest in the Trust Fund (computed as if such employee had exercised his or her option prior to the termination of the tender offer);

NOW, THEREFORE, in consideration of the mutual covenants and (/-- promises contained herein, the parties agree as follows:
1 . Establishment of Trust. Celina hereby assigns all of its right, title and interest in and to the claims described on Exhibit A attached hereto and incorporated herein by reference (the IICelina Claims"), together with $ in cash (the "Trust Fundll) to the Trustees, said cash to be used to pay legal fees and expenses incurred by the Trustees in prosecuting the Celina Claims. The Trustees hereby acknowledge receipt of such Trust Fund, and agree that they shall hold it and any other funds that may be transferred to them as part of this trust and all investments and reinvestments thereof in trust for the uses, purposes and on the terms and conditions set forth herein. Celina hereby agrees that if any recovery " relating to the Celina Claims is received by Celina, Celina shall endorse and deliver to the Trustees any such checks, drafts or money so received as such payment, and agrees that until delivery of such items to the Trustees, Celina shall treat any such items as the propert of the Pre-Tender Ofer Shareholders held in ,trust for such shareholders. Celina agrees to execute any documents and take any and all other action that may be necessary or appropriate to carry out the intent and , purposes of this assignment.
2. Investments. All cash in the Trust Fund shall be invested by the

Trustees in securities of the United States Government or its lawfl agencies having maturities of less than fie years. All income earned on the investment of the Trust Fund wil become part of the Trust Fund, to be held and, if not used for legal fees and expenses as contemplated by Paragraph 1 above, invested and disbursed as provided in this Agreement.

3. Duties of Trustees: Standard of Care: Indemnification. The

Trustees shall pursue the Celina Claims, the conduct of all litigation relating to the ,.' Celina Claims and any settlement negotiations relating thereto in such manner as they deem to be in the best interests of the Pre-Tender Ofer Shareholders. Any recovery on the Celina Claims received by the Trustees shall be paid into the Trust Fund in trust for the Pre-Tender Ofer Shareholders. The Trustees shall also maintain the Trust Fund and invest any cash in the Trust Fund as provided in this Agreement. The Trustees shall perform their duties hereunder in good faith, in a manner they reasonably believe to be in or not opposed to the best interests of the Pre-Tender Ofer Shareholders, and with the care that an ordinarily prudent person in a like position would use under similar circumstances. In performing their duties hereunder, the Trustees may rely, and shall be proteced in acting or refraining from acting, upon any document or instrument furnished to them hereunder and believed by them to be genuine and in conformity with the provisions of this Agreement. The Trustees shall not be liable in damages for any action (or any refraining from action) taken by them under this Agreement, unless it is proven by clear and convincing evidence in a court of competent jurisdiction that such action or failure to act involved an act or omission undertaken with deliberate intent to cause injury to Celina or the Pre-Tender Ofer Shareholders, or undertaken with reckless disregard for the best interests of Celina or such shareholders. The Trustees may consult with counsel of their choice and shall be fully protected in actng or refraining to act in good faith and in accrdance with the opinion of such counsel.

( The Trustees shall be entitled to reimbursement for all their expenses including, but not limited to, reasonable attorneys fees incurred in connection with the carrying out of their duties hereunder. Celina hereby agrees to indemnify and hold the Trustees harmless

against any loss, liabilit or expense incurred, without gross negligence or bad faith on their part, in connection with any claim arising out of or in connection with their entering into this Agreement and carrying out their duties hereunder, including the costs of defending themselves against such claim.
4. Release of Trust Fund. The Trustees wil hold the Trust Fund in

their possession until such time as there has been an entry of a final, nonappealable judgment or a settlement of the Celina Claims and any recovery relating thereto (or any portion thereof, if such recovery is to be received in more than one installment) has been received by the Trustees, at which time, or as soon as practicable thereafter, the Trustees shall make distributions from the Trust Fund from time to time, net of any legal fees and expenses, pro rata to the Pre-Tender Ofer Shareholders in' such manner as the Trustees deem fair and' appropriate. Celina has delivered to the Trustees a schedule showing all of the Pre-Tender Ofer Shareholders "and the number of Class A and Class 8 Common Shares held by each. The Trustees may rely on such schedule, as it may hereafter be amended or supplemented by Celina, as being accurate and complete for all purposes hereunder. This trust shall terminate automatically on the date that the last distribution of funds resulting from the recovery under the Celina Claims is made by the Trustees to the Pre-Tender Ofer Shareholders. In additn, this trust may be terminated by the Trustees in their discretion if they determine that it is not in the

\
, best interests of the Pre-Tender Ofer Shareholders to continue to pursue the Celina Claims. '.
5. Resianation or Removal of Trustees. Any Trustee may resign on

30 days prior written notice to Celina; provided, that a new Trustee duly appointed under Paragraph 7 shall have accepted such trust and received and receipted for the assets thereof prior to the effective date of such resignation. In addition, Celina shall have the power to remove any Trustee acting hereunder only for cause. Removal of a Trustee shall not be effective until a Succssr Trustee has duly accepted said trust. Any removal shall be effected by written notice to such trustee.
6. Successor Trustee. The Successor Trustee shall be appointed.

by the remaining Trustees. If he/she refuses to accept such appointment or having' accepted ceases to act prior to the completion of the trust, the remaining Trustees shall appoint another Successor Trustee. In the event there are no remaining Trustees, Celina shall' appoint a Successor Trustee or Trustees.
7. Application to Successor. This Agreement shall apply to, and

bind the heirs, executors, administrators, successors and assigns of Celina and each of the Trustees, and all rights, powers, privileges and immunities, duties, liabilties, responsibilities and disabilities herein conferred or imposed upon the Trustees shall apply to any Successor Trustee.
8. Miscellaneous.

(b) The beneficial interests of the Pre- Tender Ofer Shareholders in the Trust Fund do not represent any ownership or equity interest in Celina or the '. Mutual Companies, wil not be represented by any certifcate, and may not be transferred or assigned except by will, the laws of intestacy or by other operation of law. Such beneficial interests wil be evidenced only by this Agreement and the (c) This Agreement shall be governed by and construed in

accordance with the laws of the State of Ohio. The parties hereto consent to the jurisdiction of the courts of the State of Ohio to resolve any disputes hereunder. (d) All notices and communications hereunder shall be in To Celina: Celina Financial Corporation One Insurance Square Celina, Ohio 45822 To Trustees:
Any part to this Agreement may change its address for the above purposes by notifing in writing the other parties of such change in address.

( IN WITNESS WHEREOF, the parties have executed this of the date first above written. Agreement as CELINA FINANèlAL CORPORATION By:
Its:
"TRUSTEESII

(\ Exhibit A
All right, title and interest of Celina Financial Corporation, whether known or unknown, relating to or associated with the recovery of any monies or propert or other item of value resulting from the below-mentioned legal actions

including, but not limited to, any underlying right of recvery from any of the below￾mentioned parties or any applicable insurance coverage available to said parties of any and all forms of damages and other relief, at law or in equity, for their actions and/or failures to act and/or their responsibility for the actons and/or failure to act on the part of other potentially liable parties, resulting from any claim, cause of action or other request for relief presently asserted or to be asserted and/or which are reasonably associated with or related to, or arising from or related to facts which are or may become the basis for the claims asserted in the below-mentioned actions:
(1) U.S. District Court

Central District of California
Civ. No. 866243 (PAR)

Ohio Reinsurance Corporation, Hamburg International Reinsurance Corporation, Abeile-Paix Reassurances, Ltd., Walton Insurance, Ltd., Hassneh Insurance Co. of Israel, Ltd., Compagnie TranscontinentaleDe Reasurances, and Seguros America, S.A., Plaintiff

• against
  Ronald C. Bengtson, Robert L. Marsh, and Does 1 through 25, Defendant (2) U.S. Distict Court

Central District of California

Civ. No. 866244 (PAR)

Ohio Reinsuranc Corporation, Hamburg International Reinsurance Corporation, Abeile-Paix Reasurances, Ltd., Walton Insurance, Ltd., Hassneh Insurance Co. of Israel, Ltd., Compagnie Transcontinentale De Reasurances, and Seguros America, S.A., Plaintif

"
..
(' - against
Mission Insurance Group, Inc., ER. DeRosa, L.F. Marioni, C.H. Undner, EA. Smith, C.W. Perry, M.A. Mulholland, EM. Benson, Jr., H.J. Toso, M. Van Hengel, J.M. Klein, W.A. Noll, R.F. Walker, H.S. Nye, and Coopers & Lybrand, Defendants

es,2

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....QT A0w-IO.to 0"".0
Securities and Exchange Commission
450 Fifth street
( Washington, D. C. 20549 _
Re: Celina Financial Corporation

Dear Mr. Nathans:

This will confirm our discussion to the effect that, the Trust Agreement referred to in our letter to the SEe dated

. October 30, ,1992 will be revised to provide that the Trust' will ~ be terminated not later than the earlier of the resolution of the

claims hel~ .byit and its third anniversary unless Celina has

received further "no-action" comfort from. the st'aff to the effect

that the term of the Trust may be extended. As we discussed,

al though Celina hopes that the claims held by the Trust can be

resolved as promptly as possible, due to the nature of the claims

it is difficult to forecast the time period which may be required

for resolution.

Thank you for your assistance in this matter.

Sincerely, ~'51~
Gerald S. GreenbergJ
('
" GSG: bs cc: Timothy E. Hoberg, Esq.
J. Thomas Crutcher, Esg.
Tammy P. Hamzehpour, Esq.

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1JlN V. QU"" ...... lN Oltii l"eN N. STIN FA£aUlac D. NC January 28, 1993 TELBCOPY Patty Goiniecki, Esq.

Offîce of Chief counsel

Division of Market Reglation securities and Exchange comission

Washington, D. C.
Re: Celina Financial co~oration
Der MS. Goiniecki:
In response to your requests for supplemental informtion in our telephone conversation of this afternoon, please be advised

as follcnS:'

1. During 1985, ceiina Financial corporation (the
   casualty reinsurance subsidiary, "Company") sold its property and

Ohio Reinsurance corporation (Mahio Re") and formed a new wholly ownedsuba1diary, Firat NationalJ:ndem.ity comany ("First National") .In connection with the sàlê 'of Ohio Rei, First

National acquired certain assets and reinsured thë existing

liabilities of Ohio Re pursuant t.o a reinsurance agreement.

, previously ¡Ohio Re had canceled all of its reinsurance agreements. since 1985, Ohio Re has been involved in various legal proceedinqs with Pacific Reinsurance Management Corporation

10: 19 U513 381 0205 TAFT. STETTINIUS& 14 003 .," , i ¡ (- Patty Goinieoki, Esq. January 28, 1993 '. ("Pacific Reinsurance"), Mission Insurance company ("Mission")

and its liquidator, the California commissioner of Xnsurance, and

Mission Insurance Group, Inc. The lec¡al proceedinqs were related to a Manageient Agreement entered into between Ohio Re and

Pacific Reinsurance and Retrocession and Reinsurance Agreements

entered into between Ohio Re and Mission. On Karch 28, 1990,

ohio Re was placed in liquidation by the Ohio Departent of

Insurance for unrelated reasons. A Commutation and settlement

Agreement was entered into as of Decemer 30, 1991, between First

Nationai and the liquidator of Ohio Re. This agreement called

for the payment of approximately $17 million by First National

and the qrantinq of 1Iutual general releases which discharqed any

further iiabiiity between First National and Ohio Re. on July 1,

1992, all conditions to the Commutation and Settlement Agreement

were ,satisfied and such commutation and settlement was

'effectuated.
Two class action lawsuits against the officers of Pacific

Reinsurance, ~ission, the directors of Mission InSurance Group

and independent accountants of the Group, were filed on

september 24, 19a6 by Ohio Re on behlf of itself and others simlarly situated in the united states District Court for the central District of California.

The actions charge, these defendants with violations of the

Racketeer Influenced and Corrupt Orqanizations Act ("RICO") t violation of the federal securities laws, common law fraud,

breach of fiduciary duty and negliqence.

Ohio Re contends, among other things, tht it: was Pacific to estabiish proper reserves for losses Reinsurance's obligation

and loss expenses, including incurred but not reported ("IBNR"),

and that Paoific Reinsurance purposely established and maintained

a knowinqly inadequate IBNformula, that Pacific Reinsurance

estalished arbitrary reserve figures and maipulated same in

order to conceal said knowingly inadequate IBN formula and significant adverse development in prior years i loss experience

to enable Pacific Reinsurance to report consistent, -tavorable

loss ratios on a month to month (then quarer to"quarter) basis,

that pacific Reinsurance failed to estabiish any IBNR reserves on

property business, that Pacific Reinsurance established

inadequate reserves for casualty business, and Lhat Pacific

Reinsuranoe miscOded casualty business as property business

therebyfailinqto establish any IBN reserve at all. The

Company believes that additional investigation performed

subsequent to the filing of the lawsuit shows that significant

volumes of premium were wrItten by Pacific Reinsurance for types

and classes ot business that were either (1) excludQd, (2)

and represen'ted as beinq generaiiy avoided, and (3) not underwitten

. .. 01/28/93 10: 20 la513381 0205 TAFl .STETlINIUS& f4 004 t 6, r-,\

l
¡ i
,
(--'
\ Patty Goiniecki, Esq.
Januar 28, 1993
Page 3 -.
at all, and that none of this informtion was ever disclosed to

the paricipants in this underwitinq pool.

2. The Co~pany expects to deposit $250,000 in cash with
   the Trustees to pay legal fees and exenses to be incured in prosecuting these clai.s.

3. As at January 29, 1993, the company had approxi:mateiy

1,200 holders of record of its shares. Each of the Company's

shareholders on the date of distribution of the Rights, exected

to be on or about March 4, 1993, will be a beneficiary of the

Trust.
4. The Trust. Agreement will be revised to provide that thè

annual financial report will include a statement of receipts and

disbursements, a report on changes in Trustees, i'f any, a report on developments in the litigation, including any settlement, and

any other material events. Because the Trust's assets will

consist solely of the claims, cash and government securities, and

the Trust will not coÌlduct any busines~ other than the

prosecution of the claims, the Company believes that engaging an

independent accounting firm to audit the Trust's financial

statements would be an unecessary exense. However, the Trust Agreement will be revised to require the Trustees to certify that

the statements are correct in all material respects to the best

of t~eir knowledge.

*- 5.:It is contemplated that the Trustees will be three

". individuals who are currently directors or officers of the

company. Each of these persons is a shareholder of the Company

and, accordingly, wiii pea beneficiary of the Trst, although

their aggrec;ate interest in the Trust is not exected to exceed

10%. Because the Trustee's objective is to achieve maxi.um

recovery for the beneficiaries, we do not see any inherent Trstees. None of these conflict of interest in their service as

persons has any independent personal interest in the litigation. of the amount of discretion inaddition, we balieve that, because

which 'te Trustees will be required toexeroise, it would be both

difficult and expensive to engaqe an independent institutional

trustee.
If you require any additional informtion, please call the

undersigned or my partners, Tlithy Boberq or Thomas crtoher.

, ,01/28/93 10: 20 'Z513 381 02Q5 TAFT. STETTINIUS& ia 005 ,f) ." ( (-' Patty Goiniecki, Esq. January 28, 1993 . .~. Because the company plans to hold a Board of Directors meeting to

consider and vote upon the transacLion on February 2, 1993, your

prompt response would be appreciated. sincerely, ~5,~ Gerald S. Greenberg

GSG: bs

cc: Timothy E. Hoberg, Esq.

J. Thomas Crutcher, Esq.

Patricia o. Lowr, Esq.

Tamy P. Hamzehpour, Esq.
(,