8301002 Informal Interpretation

Date:
Staff:
Dana Abrahamsen

Question

(redacted)

January 4, 1983

Dana Abrahamsen

Premerger Notification Office

Federal Trade Commission

6th Street & Pennsylvania Avenue, N.W.

Washington, D.C. 20580

Re: January 4th 1983 Telephone Conversation

Dear Dana:

In a conversation this morning, I requested an

informal opinion with respect to two different factual

situations:

Factual Situation No. 1

Company A will acquire 50% of the outstanding voting

securities of Company b. this transaction will be

valued at less than $15 million. Company Bs last

10Q filing, dated July 3, 1982, indicates that

Company B has $31 million in assets. However,

Company B has prepared an estimated balance sheet,

in connection with this transaction, which reflects

only $22 million in assets. Moreover, Company B is

currently preparing its 10K form which will also

reflect assets of $22 million.

Discussion

You have advised that the total assets of Company B

shall be as stated on the last regularly prepared balance sheet

of Company B (Rule 801.11(c)(2)). The determination of whether

ir nit a balance sheet is regularly prepared is a question of

fact. A balance sheet does not have to be public nor must it be

filed in order to be regularly prepared. However, it must be

a document upon which the board of directors regularly relies.

A balance sheet prepared for purposes of a transaction usually

is not a regularly prepared balance sheet. In the factual

scenario described above, if, prior to consummation of the

transaction, a regularly prepared balance sheet, such as the

balance sheet contained in a 10K filing, were to indicate that

Company B had less than $25 million in assets, A hart-Scott-

Rodino filing would not be required.

Factual Situation No. 2

(a) Individual A will acquire 40% and Individual B

will acquire 10% of a company with more than $25 million

in net annual sales or total assets. However, the

transaction will be valued below $15 million.

Individuals A and B will enter into a voting trust.

Individual a will be the trustee and will have the

power to vote the shares of Individual B.

(b) In the same facts as (a), Individuals A and B

will enter into a shareholders agreement pursuant

to which Individual A will have the power to direct

how the shares of Individual B will be voted and

the power to prevent Individual B from selling his

stock without Individual As approval. Individual B

will bear the risk of loss of value and have the

benefit of any increase in value in the stock.

Discussion

(a) A Hart-Scott-Rodino filing is not required

because the voting trust agreement will not give Individual A

beneficial ownership of Individual Bs stock.

(b) It is a close factual question as to whether this

type of agreement would give Individual A beneficial ownership

of Individual Bs stock. Relevant factors to this determination

include whether consideration exists for the agreement and whether

Individual A will have the risk of loss or the benefit of gain

with regard to the shares of Individual B. If beneficial owner-

ship were imputed to Individual A, a Hart-Scott filing would be

required as Individual A would then control the acquired company

(i.e., hold 50% of its outstanding voting securities).*

________________________________-

* Individual As ability to elect one-half of the

board of directors is insufficient to give control,

as defined in the Hart-Scott rules, because it

does not five Individual A the power to elect a

majority of the board.

I believe this accurately describes our conversation

and the informal opinion which you rendered today. If it does

not, please contact me as soon as possible.

 

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