Question
July 14, 1993
BY FAX
Nancy Ovuka, Esq.
Premerger Notification Office
Federal Trade Commission
Room 303
Sixth Street & Pennsylvania Avenue, N.W.
Washington, D.C. 20580
Fax No.: (202) 326-2050
Dear Ms. Ovuka:
As we discussed by telephone yesterday, I would like to receive your guidance regarding which person is required to file a Premerger Notification and Report Form as an acquired person in connection with a sale of fixed assets (the Assets) that are leased by one person to another pursuant to a relatively complex contractual relationship.
The lessor of the Assets is an (redacted). The Assets are leased to a (redacted). The person of which the (redacted) is a part is controlled by the controlling shareholder (the Parent) of the (redacted). The (redacted) and the (redacted) have entered into a letter of intent to sell the Assets, together with related inventory and accounts receivable (which are owned by the (redacted) to a third party. I would like your guidance on whether the acquired person for purposes of the Hart-Scott-Rodino Antitrust Improvements Act is the (redacted) the (redacted) or both of them.
The relationship between the (redacted) and the (redacted) is set forth in an Integrated Agreement (the Agreement), consisting of four sections: (redacted) under the marketing section of the (redacted) the (redacted) sells its member-produced crops exclusively to the (redacted). The (redacted) must pay the (redacted) at least the (redacted) as defined in the (redacted) of the (redacted) plus a share of the earnings generated from these (redacted).
Under the facilities financing section of the Agreement, the (redacted) purchases the fixed assets and one-half of the (redacted) intangible assets used by the (redacted) in its business and leases them to the (redacted). The (redacted) pays all taxes, insurance, maintenance, and other operating costs of the leased facilities and pays annual rent to the (redacted) equal to the annual amortization taken on the leased fixed and intangible assets. The (redacted) also pays interest equal to the cost of funds used by the (redacted) for the financing of assets leased to the (redacted). The (redacted) is required to repair or replace any leased assets that are damaged or destroyed. The lease arrangement is accounted for as a capitalized lease, and the leased assets are depreciated by the (redacted) for both tax and financial reporting purposes. The Assets represent a portion of the fixed assets leased by the (redacted) to the (redacted).
The operations financing section of the Agreement provides that the (redacted) will lend to the (redacted) all funds not required for its own operations or for purchases of assets to be leased to the (redacted). Funds borrowed by the (redacted) and re-lent to the (redacted) bear the same conditions and interest rates as the (redacted) has obtained from its lenders. Provisions of the Agreement do, however, allow the (redacted) with sufficient notice to the (redacted) to accelerate the repayment of outstanding debt. As additional consideration for the fixed assets and funds provided by the (redacted) to the (redacted) the (redacted) shares in the profits of the (redacted).
The (redacted) and the (redacted) operate from common offices and all operations of the (redacted) are managed by the (redacted) under the policy direction of the (redacted) Board of Directors. The management section of the Agreement provides that the (redacted) with the concurrence of the (redacted) Board of Directors, shall select the principal executive officer of the (redacted) who is designated as the General Manager. While the management section does not so require, the General Manager of the (redacted) has been an executive officer of the (redacted) since the (redacted) was formed. The (redacted) has no employees of its own.
The Agreement extends to June, 1997, and provides for two successive renewals, each for a term of five years, at the option of the (redacted). [Comment - Not useful life.] The (redacted) has the option of terminating the Agreement at any time by purchasing all assets leased from the (redacted) at book value. [Comment - No credit for lease payments already made.] Should the Agreement be terminated and the (redacted) not buy the assets of the (redacted), then the (redacted) must sell to the (redacted) all trademarks, brand names, and other intangible assets of the (redacted) at their then existing book value. [Comment - yes, all intangible assets, but not equipment.]
If you require any further information in order to provide the guidance requested by this letter, please feel free to call me at (redacted). Thank you for your assistance in this matter.
Very truly yours,
(redacted)
(redacted)