8302004 Informal Interpretation

John Sipple



February 15, 1983

John Sipple, Esquire
Premerger Notification Office
Federal Trade Commission
7th and Pennsylvania Avenue, N.W.
Washington, D.C. 20580
Re:Premerger Notification Requirements
and Employee Savings Plans

Dear Mr. Sipple:

Enclosed please find a copy of the Discussion

Memorandum that I submitted to you last summer and that

I discussed at a meeting with you and Ms. Baruch, and that

I have subsequently discussed with you from time to time.

I would appreciate it if you could confirm my

understanding of the Commissions response to the hypo-

thetical set out in the Discussion memorandum namely


(1) Where a companys Savings plan pur-

chases shares sufficient to exceed a thresh-

old for which a Premerger Notification and

Report form has been filed (and where the

Company does not believe the Savings Plan will

acquire shares sufficient to breach any other

threshold) then the Commission will deem

Section 802.21, as continuing to apply, thus

giving a reporting firm another fiv3e-year

grace period beyond the initial such period,

provided another form is filed with respect

to the threshold exceeded.

(2) Where a companys Saving Plan does

not purchase shares sufficient to breach the

notification threshold for where the shares

owned by the Saving plan fluctuate above and

below the notification threshold) then the

Commission will deem Section 802.21 as con-

tinuing to apply, thus giving a reporting

firm another five-year grace period beyond

the initial such period.

In short, the Commissions view of the hypothetical

set forth in the Discussion Memorandum is that the five-year

grace period provided by Section 802.21(b) will again apply

after a company files its 1983 Premerger Notification and

Report form, provided that the threshold respecting which a

form is filed is (a) exceeded within a year after the filing,

or (b) exceeded at the time the 1983 form is filed.

I look forward to hearing from you on this.





Re:Premerger Notification Requirements

And Employee Saving Plans

The regulations as they apply to employee savings

plans produce a result that would appear to be unintended and,

in any event, wasteful both in terms of the point of view of

the government and the private sector. The problem can be

gleaned from the following hypothetical situation which is

doubtless very real to scores of companies.

A Company files a premerger notification report form

in the fall of 1978, relating to the acquisition of its stock

by its own Employee Savings Plan. That notice advised that

the Companys Savings Plan intended to acquire in excess of

25 percent of the shares of the Company withing the succeeding

twelve month period (e.g., by the fall of 1979).

Rule 803.7 provides that:

Notification with respect to an acquisi-

tion shall expire 1 year following the expira-

tioin of the waiting period. (Thus), if the

acquiring persons holding do not meet or

exceed the notification threshold with respect

to which the notification was filed, the

requirements of the act must thereafter be

observed with respect to any notification

threshold not met or exceeded.

By the fall of 1979, the Companys savings plan had acquired

in excess of 25 percent of the then outstanding common shares

of the Company. Specifically, the saving Plan ownership then

constituted 25.07 percent of the then outstanding common shares

of the Company. thus, the acquisition of stock exceeded the

notification threshold of 25 percent within a year of the


A problem now is created because of the operation

of 802.21 of the rules, which established (or fails to

establish) certain exemptions. Section 802.21 exempts acquisi-

tions of voting securities if:

(a) The acquiring person and all other

persons required by the Act in these rules

to file notification, filed notification with

respect to an earlier acquisition of voting

securities of the same issuer;

(b) The waiting period with respect to

the earlier acquisition has expired, or been

terminated pursuant to Section 803.11 and the

acquisition will be consummated within five

years of such expiration or termination; and

(c) The acquisition will not increase

the holding of the acquiring person to meet

or exceed a notification threshold greater

than the greatest notification threshold met

or exceeded in the earlier acquisition. 1/

The relevant notification thresholds are defined in Section

101.1 (h) (3) and (4) and are respectively, 25 percent and 50

percent of the outstanding voting securities.


1/ The Statement of Basis and Purpose indicates that

The final version of Section 802.21(c)

also accommodates the insertion of Section

803.7 into the final rules. Its phrasing,

the greatest notification threshold met or

exceeded in the earlier acquisition means

the greatest threshold met or exceeded within

the one year period before the notification

expires under Section 803.7 See the example

to the rule.

43 Fed. Reg. 33,493 (July 31, 1978).

The Companys Savings Plan now holds about 27 percent

of the Companys outstanding common stock, which is held by a

bank as trustee under the Companys Saving Plan. Many employees

can elect to contribute up to 8 percent of their salary to the

Saving Pan. The employees contribution can go to one of

several funds held by the trustee, which for present purposes

can be considered to be similar to mutual funds. One is a

diversified stock fund, one a bond fund, one a Company stock

fund, etc. For each dollar that an employee contributes, the

Company will contribute $.75 of its common stock into a separate

stock fund.. It is this latter fund, together with the contribu-

tory Company stock fund, that representing this 27 percent holding

of the Companys common stock by the Saving Plan trustee.

The number of shares in the fund fluctuates, tending

to decrease as a result of employees retiring or leaving the

Company and the resultant transfer from the fund to the individuals

of the stock to which they have become eligible. On the other

hand, the number of shares will tend to increase each month as

a result of the Companys matching the monthly payroll deductions

for the Saving Plan for its eligible employees. The rate at

which any increase takes place will vary depending upon fluctu-

ations in the number of eligible employees, The number of eligible

employees may increase either through employees becoming eligible

through seniority advances or as a result of an increase in the

Number of employees due to the expansion of the total work force.

Conversely, a reduction in the work force will result in a

decrease in the number of shares purchased each month and

distribution of shares to retiring employees.

A further variable is the total number of outstanding

common shares. They will decrease should the Company repur-

chase its own common shares; they will increase through the

conversion of preferred shares to common shares, the exercise

of stock options, or the issuances of new common shares incident

to an acquisition (thereby decreasing the percentage represented

by the Savings Pans holdings).

The problem presented to the Company in 1983 is that

the five year grace period provided by section 802.21(b) from

its 1978 filing will expire. With a current base holding of

27 percent, the next threshold with respect to which the

Company can file is the 50 percent threshold. It will be

impossible for the Company to exceed that threshold within the

year succeeding its 1983 filing. In fact, it is doubtful that

The Saving Plan holding will ever exceed the 50 percent thresh-

old simply because of the effect of ebb and flow of shares into

and out of the plan and fluctuations in the overall number of

outstanding shares, all as previously described. Since the

Company will not meet or exceed any new threshold within the year

after it files in 1983, Section 802.21 will not apply, and the

effect of the notification will, pursuant to Section 803.7

Expire one year following the expiration of the waiting period.

As a result, for the Saving Plan to purchase shares after

September 30, 1984, it will have been necessary to file a

further notification by August 31, 1984. An annual filing

will continue to be thereafter required forever it would


This unfortunate effect of the rule has no apparent

beneficial effect whatsoever insofar as the government is

concerned. For the Company to file this report annually will

be a waste of time for it, as will as for the personnel of

the Antitrust Division and the Federal Trade Commission.

For these reasons, and given the likelihood that a

substantial number of companies face a similar prospect, dis-

cussion about the nature of some suitable relief would appear

to be in order.

July 16, 1982

About Informal Interpretations

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