8301002 Informal Interpretation

Dana Abrahamsen



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


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.


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.


(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.


About Informal Interpretations

Informal interpretations provide guidance from previous staff interpretations on the applicability of the HSR rules to specific fact situations. You should not rely on them as a substitute for reading the Act and the Rules themselves. These materials do not, and are not intended to, constitute legal advice.

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