8304001 Informal Interpretation

Date:
Rule:
801.40
Staff:
Dana Abrahamsen

Question

(redacted)

April 7, 1983

Dana Abrahamson, Esquire
Federal Trade Commission
Washington, D.C. 20580

Dear Mr. Abrahamson:

Confirming our telephone conversation of the last three weeks, the following planned transaction is not reportable under the Hart-Scott-Rodino Improvements Act.

(Redacted) is a wholly-owned subsidiary of the ( redacted ), an ultimate parent entity with sale and

assets substantially in excess of $100 million. (Redacted) proposes to sell certain outlets to a newly-formed Delaware corporation, (redacted) ( redacted ) in a transaction which will substantially exceed $25 million (aggregating payments made and assumed liabilities). Ownership of (redacted) will be as follows upon closing of the transaction.

(Redacted), a natural person, will own 48% of the voting stock. A voting trust for stock owned by (redacted), another natural person, will hold 12% of the voting stock. (Redacted) will have the contractual right to vote all stock held by this voting trust. He will thus own or control 60% of the voting stock. The remaining 40% of the voting stock will be owned by (redacted). (Redacted) will own all of the preferred stock of (redacted). Upon the happening of certain events of default, (redacted) may be entitled to utilize rights stemming rom this preferred stock to elect a majority of the board of directors of (redacted). (Redacted) would continue to have this right only until the default or defaults were cured.

Under these facts, (redacted) and only (redacted) is deemed the ultimate Parent of (redacted). Though (redacted) may have the contractual right to elect a majority of the board of directors upon the happening of certain contingencies, it has no present right to do so. Neither Mr. (redacted) nor Mr. (redacted) holds business assets of $10 million or more.

The proposed sale of assets by (redacted) to (redacted) is not reportable because Mr. (redacted), (redacted) ultimate parent, is not a $10 million Person. This is so even though (redacted) expects to have unused line of credit exceeding $10 million after acquiring the assets from (redacted). The post acquisition cash availability test for determining a persons

size is an informal test which is used by the Federal Trade Commission only when an newly-formed acquiring entity which is its own ultimate parent has no regularly prepared balance sheets or other financials.

Moreover, the formation of (redacted) is not reportable. Though (redacted) is deemed to be $100 million Person, neither of the other contributors to formation of (redacted) Mr. (redacted) and Mr. (redacted) is a $10 million Person. (Redacted) proposed lenders (which are $10 million Persons) will not receive any stock of (redacted), and thus are

not seen to be contributing to its formation within the meaning of the Hart-Scott-Rodino Act.

(Redacted)

cc: (redacted)

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