Question
October 21, 1992
Mr. Patrick Sharpe
Compliance Specialist
Premerger Notification Office
Bureau of Competition
Federal Trade Commission
600 Pennsylvania Avenue, NW, Room 303
Washington, D.C. 20580
Dear Mr. Sharpe:
The purpose of this letter is to confirm your oral advice concerning preparation of the Premerger Notification and Report in connection with the following fact scenario. Company X is non-profit corporation which is the sole member of Company Y, another non-profit corporation. Company A, a non-profit corporation, is the sole member of Company B, a non-profit corporation. It the proposed transaction, Company A will cease to be the sole member of Company B and Company Y will become the sole member of Company B. Company X and Company A will file Premerger Notification and Report Forms, as acquiring and acquired persons, respectively, to report Company Ys acquisition of all of the assets of Company B. [PNO staff note: ok]
At the same time as the change of membership, Company A shall transfer certain of its assets to a charitable grantor trust established for the benefit of Company B. Company A will act as the sole trustee of the trust. As the beneficiary of the trust, Company B will receive annually at least 85% of the net income of the trust. The trust shall be dissolved and the assets transferred to Company B upon the earlier to occur of (i) ten years, (ii) Company As loss of tax-exempt status or (iii) Company As loss of status as a supporting organization under the federal tax code. [Three PNO staff notes: Patrick Sharpe - This is potentially reportable. Counsel has been informed) Richard Smith - If trust is deemed revocable because A is the trustee, then no transfer. If trust is deemed irrevocable - exempt under 802.71). Patrick Sharpe - The trust is irrevocable.]
You advised me that Company As creation of the trust for the benefit of Company B should not impact Company Xs filing for the acquisition by Company Y of the assets of Company B. Under the definition of hold (16 C.F.R. 801.1(c)(5)), Company B, as the beneficiary of the trust [PNO staff note: and not controlled by X through Y], is not viewed as holding the assets constituting the corpus of the trust. Thus, neither Company Y not Company B are acquiring such assets at the time the trust is formed.
Pursuant to your advice, we plan to mention the trust formation in Item 2(a), but will not include trust assets in the valuation of assets being acquired for Items 1(f) and 3 purposes and Company A will not report any revenues with respect to such trust assets under Item 5.
We are in the process of completing the filings. Please contact me as soon as possible if you do not agree with my statement of your advice.
Very truly yours,
(redacted)
cc: (redacted)