Question
December 5, 1994
VIA TELECOPIER (REDACTED)
AND FEDERAL EXPRESS
Ms. Melea Epps
Premerger Notification Office
Bureau of Competition
Federal Trade Commission
6th & Pennsylvania Avenue, NW
Room 303
Washington, D.C. 20580
Re: Confirmation of Exemption from Requirement to File Notification
And Report Form under Hart-Scott-Rodino Antitrust
Improvements act of 1976
Dear Ms. Epps:
In connection with the transactions described below, we have discussed with you on December 2, 1994 the following material facts and analysis of the applicable rules, regulations, statements and interpretations under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the Act). Pursuant to our discussions and assuming that the following facts are true and complete in all relevant respects as set forth in this letter, you confirmed our conclusion that no filing of a Notification and Report Form for Certain Mergers and acquisitions (HSR Form) would be required pursuant to the Act with respect to any of such transactions.
In accordance with your suggestion, we are writing this letter to memorialize our conversation and, if we are not notified by you within the next five business days to the contrary, we will assume that the positions reflected in this letter are correct. All capitalized terms used but not otherwise defined in this letter have the meanings set forth in the rules promulgated under the Act (the Rules).
A. APPLICABLE PROVISIONS OF THE ACT AND RULES.
We have set forth on Appendix a to this letter the provisions of the Act and the Rules and the positions expressed bay the staff which we have discussed with you and which we believe to be applicable to the transactions described in this letter.
B. FACTS
Generally, please assume for purposes of this letter that the tests set forth in Section 7A(a) (1) and (2) of the Act are met.
1. Transaction 1: Initial Acquisition of Notes.
The transaction described below in this paragraph 1 is referred to in this letter as Transaction 1.
A United States (redacted) , whose Ultimate Parent Entity is a Foreign Person, purchased notes (the Notes) of a United States Issuer (the Issuer) sole for the purpose of investment in a bona fide credit transaction entered into in the ordinary course of the (redacted) business. At the time of such purchase the Issuer of the Notes was not in bankruptcy or known to the (redacted) to be intending to seek bankruptcy protection.
Subsequently (three years and six months after the initial purchase of the Notes), the Issuer and its parent company, a United States Person (Parent), filed for the protection under Chapter 11 of the United States Bankruptcy Code (the Bankruptcy Proceedings). In the Bankruptcy Proceedings, the Issuer and the Parent filed a prepackaged plan of reorganization and, thereafter, several amended plans of reorganization, each of which contemplated that the Notes held by the (redacted) would be converted on the effective date of the plan into Voting securities of the Issuer. (Such plan also contemplated that the parent would be merged into the Issuer.) The final version of the amended plan of reorganization (the Plan) containing such provisions was confirmed on (redacted) and the effective date of the Plan (the Effective Date) is anticipated to occur prior to (redacted) (and possibly as early as (redacted)
As a result of the conversion of the Notes into Voting Securities of the Issuer on the Effective Date pursuant to the Plan, the (redacted) will become the largest single holder of Voting Securities of the Issuer. The (redacted) will hold approximately 39.7% of the Issuers Voting Securities; which will be an aggregate amount of Voting Securities of the Issuer in excess of $15 million.
In anticipation of such result, during the Bankruptcy Proceedings, the (redacted) actively sought to protect its anticipated interest as a holder of Voting Securities by insuring that it will appoint directors to the aboard of directors of the Issuer and otherwise participate in the formulation, determination, or direction of the basic business decisions of the Issuer. Such actions have been solely in response to its anticipated treatment under the Plan. It should be noted that the Plan as confirmed restricts the (redacted) until the Issuers 1997 annual meeting from controlling the board of directors by virtue of various provisions limiting the (redacted) representation on such board.
2. Transaction 2: Acquisition of Additional Voting Securities
The transaction described below in this paragraph 2 is referred to in this letter as Transaction 2."
During the Bankruptcy Proceedings, the (redacted) acquired the right to receive from a third party illegible convertible preferred stock from the Parent and debt of Parent and the Issuer (of the proceeds thereof, being Voting Securities of the Issuer). Pursuant to the Plan, on the Effective Date such preferred stock and debt will be converted into Voting Securities of the Issuer. It is anticipated that the actual transfer to the(redacted) may occur after the Effective Date so that the (redacted) will actually receive Voting Securities of the Issuer. However, if the actual transfer occurs prior to the effective Date, we do not believe such fact would alter the conclusions in this letter given the pendency of the Issuers Bankruptcy Proceedings.
The amount of the Voting Securities so acquired will equal approximately 2% of the Voting Securities of the Issuer. The aggregate total amount of such Voting Securities of the Issuer is anticipated to be substantially less than $15 million (approximately $1.67 million [based on the value supplied by the Issuer)).
On the other hand, if combined with the Voting Securities received pursuant to Transaction 1, the (redacted) would have an aggregate of approximately 41.7% of Voting Securities of the Issuer, which would be an aggregate total amount of Voting Securities of the Issuer in excess of $15 million.
3. Transaction 3: Possible Future Purchases.
The transaction described below in this paragraph 3 is referred to in this letter as Transaction 3.
The (redacted) considering making open market purchases from time to time after the Effective Date [within one year of the Effective Date] of Voting Securities of the Issuer for the purpose of acquiring enough Voting Securities of the Issuer to ultimately hold in he aggregate more than 50% of the Voting Securities of the Issuer. In order to do so, the (redacted) would need to acquire approximately an additional 8.45 of the voting Securities of the Issuer, the aggregate total amount of which the (redacted) anticipates will be less than $15 million.
Even if these open market purchases were to be aggregated with the Voting Securities acquired in Transaction 2, the (redacted) anticipates that the aggregate total amount of the Voting Securities of the Issuer held by the (redacted) as a result of Transactions 2 and 3 would be less than 15% of the Voting Securities of the Issuer and less than $15 million (approximately $8.7 million).
C.Conclusions .
1. Transaction 1. .
Based upon the foregoing, we believe that Transaction 1 alone would not require the (redacted) to file an HSR Form pursuant to the exemption provided in Rule 802.63. Furthermore, pursuant to Rule 801.15(a) (2) the Voting Securities acquired pursuant to Transaction 1 would not be deemed to be held as a result of an acquisition and therefore would not be aggregated with any subsequent acquisition.
2. Transaction 2.
As a result of Transaction 2 alone, the (redacted) would hold only 2% of the Voting Securities and the aggregate total amount of Voting Securities would not be in excess of $15 million. This transaction alone would not meet the test in Section 7A(3) of the act. Accordingly, no HSR Form would be required upon the acquisition of the voting securities as described in Transaction 2.
Pursuant to 801.15(a) (2), the Voting Securities acquired in Transaction 1 would not be aggregated with those acquired in subsequent Transaction 2.
Although Transaction 1 alone would also be exempt under Section 7A(c) (11) (A) of the act, as we read Rule 801.15(c), it would not provide an exemption from aggregation for Transaction2 because additional voting securities of the same issuer have been or are being acquired in connection with such transactions. Accordingly, the (redacted) would be relying on the exemptions provided by Rules 802.63(a) and 801.15(a) (2) to support its conclusion that an HSR Form is not required to be filed s a result of Transactions 1 and 2.
3. Transaction 3.
For the same reasons described above with respect to Transaction 2, no HSR Form will be required to be filed in connection with Transaction 3. This conclusion will be correct only to the extent that in Transaction3 the (redacted) acquires additional Voting Securities of the Issuer which when aggregated with the Voting Securities acquired in Transaction 2do not equal or exceed 15% of the Voting Securities of the Issuer or an aggregate total amount of the Voting Securities of the Issuer in excess of $15 million. We assume that the Voting Securities acquired in Transactions 2 and 3 must be aggregated.
4. Transactions 1, 2, and 3.
Pursuant to 801.15 (a) (2), the Voting Securities acquired in Transaction 1 would not be aggregated with those acquired in subsequent Transactions 2 and 3. Accordingly, no HSR Form would be required upon the acquisition of the Voting Securities as described in Transactions 2 and 3.
Given that our immediate concerns are the filing requirements for Transactions 1 and 2, to the extent that you determine that our conclusions with respect to Transactions 1 and 2 are correct, but that our conclusions with respect to Transaction 3 are incorrect, please so advise us.
As discussed above, please do not hesitate to contact the undersigned at (redacted) if you have any questions or comments. As you suggested, if we are not otherwise advised within five business days of the date hereof, we will assume that no HSR Form filing is required pursuant to the Act and the Rules as a result of the transactions described in this letter. [note 1]
(Redacted)