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The Bankruptcy StrategistLJN NewslettersNewsSections

Don't Pay Twice for Your Equity!

By Michael J. Sage and Mark E. Palmer
August 15, 2003

First of a Two-Part Article

In certain cases, a company may seek to exchange its outstanding debt for equity while also extinguishing (or 'squeezing-out') the interests of some or all of its prior shareholders. The need to reduce or eliminate shareholders typically stems from perfectly valid business reasons, including a desire to avoid becoming a reporting company under federal securities laws, to limit ongoing obligations to many small shareholders or to change the equity sponsor. In addition, the parties may seek to effect the transaction 'out-of-court' due to a perception (or the reality) that bankruptcy proceedings would take longer or damage the business.

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