Question
March 24 1994
Mr. Dick Smith
Premerger Notification Office
Room 303
Federal Trade Commission
Washington, D.C. 20580
RE: Necessity of Hart-Scott-Rodino Filing on Behalf of (redacted)
Dear Mr. Smith:
Pursuant to our conversation on March 22, 1994, regarding the necessity of our client,(redacted), filing the requisite notification under the Hart-Scott-Rodino Antitrust ImprovementsAct of 1976 (15 U.S.C. 18a; Hart-Scott-Rodino), we submit, on behalf of the Company, thisletter describing the proposed transaction and our interpretation of Hart-Scott-Rodino andrequest your offices comment.
I. Background
The Company is a specialty retailer primarily engaged in the retailing and distribution of(redacted) through its retail stores located in (redacted) states. Through one of the Companyssubsidiaries, the Company manufactures and distributes high quality (redacted).
Unable to resolve its financial problems resulting from its debt leverage, a decliningeconomy and intense competition, the Company and four of its direct and indirect wholly-ownedsubsidiaries filed voluntary petitions under Chapter 11 of the United States Bankruptcy code, 11U.S.C. 101 et. seq., on (redacted). On (redacted) the Company, along with the other debtors,filed a Fourth Amended Joint Plan of Reorganization with the Bankruptcy Court (theReorganization Plan). The Reorganization Plan was confirmed by the Bankruptcy Court on(redacted) and became effective on (redacted).
As a result of the Reorganization Plan, approximately $(redacted) Million of outstandingprincipal amount loans from (redacted) (Lenders) remained secured by substantially all of theCompanys real estate.
The Company, and its subsidiaries, meets both the annual net sales and total assets limitsunder Hart-Scott-Rodino.
II. General Description of the Proposed Transaction
The Company intends to form a Trust in which substantially all of the Companys realestate which presently secures the loans made by the (redacted) Lenders will be transferred. Inconsideration thereof, approximately $80 Million of the approximately (redacted) Million of debtcurrently owed by the Company to the (redacted) Lenders will also be transferred to the Trust. The beneficiaries of the Trust will be the Company and some of its subsidiaries.
The general purpose of the Trust will be to liquidate the assets of the Trust and pay downthe assumed debt and other associated costs and expenses. The trustee of the Trust will be(redacted) who shall liquidate the assets in such a manner as it determines in its sole and absolutediscretion without the consent of the Company.
The residual of the Trust, if any, after full payment of the assumed debt and the otherassociated costs and expenses will be distributed 80% to the Company and 20% to the (redacted)Lenders to pay down any remaining debt, if any, owed by the Company to the (redacted) Lenders.
III.Interpretation Under Hart-Scott-Rodino
A. Prior to the proposed transaction the Trust as the acquiring person will have no assets or annual net sales, the transaction therefore fails to satisfy any of the required tests of 18a(a)(2), each of which require minimum annual net sales or total assets of theacquiring person.
B. Since the Company and some of its wholly-owned subsidiaries are the beneficiaries of the Trust, the Company should be considered the parent entity of the Trustresulting in the lack of a true acquiring person.
C. Since the Company and some of its wholly-owned subsidiaries retain an 80% interest in the residual of the Trust after the assumed debt is paid off, the Company, again, shouldbe considered the parent entity of the Trust resulting in the lack of a true acquiring person. Based on this reasoning, we feel that Hart-Scott-Rodino is never triggered.
We would appreciate your prompt response to this letter. We understand that yourconclusions are deemed by us as informal.
If you have any questions or would like to discuss this matter further, please do nothesitate to contact me.
Very truly yours,
(redacted)
(redacted)
STAFF COMMENTS: 3/30/94
The Company has named itself and some of its subsidiaries as the beneficiaries of the Trustestablished by the Company, i.e., the settlor. The Commission, on pg. 33459 of the 7/31/78SBP, notes that In that case [when the settlor is also a beneficiary of the trust] the settlor isdeemed the holder of the trusts assets. Clearly there has been no transfer of the assets bythe Company and no filing is needed. In addition, A and C above may also provide furtherrationale for not filing. Writer advised that, based on B alone, no filing is required.
R.B. Smith