83 STAT. ]
PUBLIC LAW 91-172~DEC. 30, 1%9
605
"(b) CORPORATE ACQUISITION INDEBTEDNESS.—For purposes of this section, the term 'corporate acquisition indebtedness' means any obligation evidenced by a bond, debenture, note, or certificate or other evidence of indebtedness issued after October 9, 1969, by a corporation (hereinafter in this section referred to as 'issuing corporation') if— "(1) such obligation is issued to provide consideration for the acquisition of— " (A) stock in another corporation (hereinafter in this section referred to as 'acquired corporation'), or " (B) assets of another corporation (hereinafter in this section referred to as 'acquired corporation') pursuant to a plan under vehich at least two-thirds (in value) of all the assets (excluding money) used in trades and businesses carried on by such corporation are acquired, "(2) such obligation is either— " (A) subordinated to the claims of trade creditors of the issuing corporation generally, or " (B) expressly subordinated in right of payment to the payment of any substantial amount of unsecured indebtedness, whether outstanding or subsequently issued, of the issuing corporation, " (3) the bond or other evidence of indebtedness is either— " (A) convertible directly or indirectly into stock of the issuing corporation, or " (B) part of an investment unit or other arrangement which includes, in addition to such bond or other evidence of indebtedness, an option to acquire, directly or indirectly, stock in the issuing corporation, and " (4) as of a day determined under subsection (c)(1), either— " (A) the ratio of debt to equity (as defined in subsection (c)(2)) of the issuing corporation exceeds 2 to 1, or " (B) the projected earnings (as defined in subsection (c)(3)) do not exceed 3 times the annual interest to be paid or incurred (determined under subsection (c)(4)). " (c) RULES FOR APPLICATION OF SUBSECTION (b)(4).—For purposes
of subsection (b)(4)— " (1) T I M E OF DETERMINATION.—Determinations are to be made as of the last day of any taxable year of the issuing corporation in which it issues any obligation to provide consideration for an acquisition described in subsection (b)(1) of stock in, or assets of, the acquired corporation. "(2) RATIO OF DEBT TO EQUITY.—The term 'ratio of debt to equity' means the ratio which the total indebtedness of the issuing corporation bears to the sum of its money and all its other assets (in an amount equal to their adjusted basis for determining gain) less such total indebtedness. "(3) PROJECTED EARNINGS.—
" (A) The term 'projected earnings' means the 'average annual earnings' (as defined in subparagraph (B)) of— " (i) the issuing corporation only, if clause (ii) does not apply, or "(ii) both the issuing corporation and the acquired corporation, in any case where the issuing corporation has acquired control (as defined in section 368(c)), or has acquired substantially all of the properties, of the acquired corporation.
^^^ ^^^^ ^^^ 26 USC 368. *
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