Our Ref~":N6l;P94":479­

Our Ref~":N6l;P94":479­

.Integrated';Resources,

File No. 132-3

~~Ori'

representations in your letter

of August 4, 1994, we would not recommend enforcement action to the

Commission if Presidio Capital Corp. ("Holding Company") and

certain other entities directly or indirectly owned by Holding

Company (t;ogether with Holding Company, the "Liquidating Entities")

do not register under the Investment Company Act of 1940 in

reliance on the exceptions in Sections 7(a) and 7(b) for

"transactions which are merely incidental to the dissolution of an

investment company. ,,1 The Liquidating Entities were created to

liquidate certain non-cash assets of Integrated Resources, Inc.

(the "Acquired Assets") and distribute the proceeds thereof.

Our position is based on your representations that the

Liquidating Entities:

(1) exist solely to liquidate the Acquired Assets and

distribute the proceeds to holders of Holding Company common stocki

(2) will be prohibited from conducting a trade or business

(other than maintaining going concern businesses acquired from

Integrated Resources, Inc. pending sale or liquidation thereof),

and from making any investment.s, except for temporary investments

in money market in~truments, government short-term securities, or

other investment grade short-term debt securities pending the'

distribution of liquidation proceeds to beneficiariesi and

(3) will not hold themselves out as investment 'companies, but

rather as liquidating entities.

You also represent that the Liquidating Entities will dissolve

on or before the fifth anniversary of the effective date of the

plan of liquidation unless additional no-action assurance is

obtained from the staff. You state that Holding Company and its

manager believe the Acquired Assets can be liquidated within three

to five years.

Liquidation of the Acquired Assets, however, is

subject to significant uncertainties due to general business and

economic conditions and the illiquidity of certain ACqQired Assets.

The Acquired Assets include, among other things, rights to various

deferred payment obligations (IIContract Rights"), interests in

'

partnerships that invest in various operating businesses, interests

in real estate partnerships and fee interests in certain parcels of

land. Holding Company and its manager believe that given the

complex, highly illiquid, and varied nature of the Acquired Assets,

1

We express no opinion on whether the principal assets

of the Liquidating Entities would constitute

IIsecurities ll for purposes of Section 2 (a) (36), or

"investment securities ll for purposes of Section

3(a)(3).

:;.

.

s~

e rassets?'

t. _ .........

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ears 'for "an

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,ligUidation

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~u ~-r,epre~,~nt,~;>l;1:lat: the Contractg1ghts' could produce

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;values dependiz;g on whether th~y are s~ld

,- " o.-;:~-;'.-'imriieaiatelY at a deep d1scount, over tl.me, or held untl.l maturl.ty.

You believe that in time the Contract Rights could be sold in bulk

for a reasonable value.

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Our position is also based on your representations that,

although Hulding Company's common stock will be transferable for

the benefit of the creditors of Integrated Resources:

(1) Holding Company and its manager, CD Co., will not:

(a) cause the stock to be listed on any national

securities exchange or NASDAQ,

(b) engage the services of any market maker, facilitate

the development of an active trading market or encourage

others to do so,

(c) place any advertisements in the media promoting

investments in Hol~ing Company common stock, or

....j

::."!

(d) except as required under Item 201(a) of Regulation

S-K prowllgated under the Securities Exchange Act of 1934 (the

"1934 Act") ,.collect or publish information about prices at

which Holding-Company's common stock may'be transferred;

J

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~

"

~

(2) an active trading market in the common stock of Holding

Company is unlikely to develop; and

(3) Holding Company will comply with the registration and

reporting requirements of the 1934 Act.

Our position is based on the facts and representations in your

letter. Any different facts or representations may require a

different conclusion. Moreover, this response expresses the

Division's' position on enforcement action only and does not express

any legal conclusions on the issues presented.

.

"

,/

£)

~~ J). ~~tik-Felice R. Foundos

Attorney

SCHULTE ROTH & ZABEL

900 THIRD AVENUE

RO~ERTM. ABRAHAMS

'~PTlSTE

,'1. BLIWISE

, BRODSKY

EDWARD G. EISERT

MICHAEL.J. FEINMAN

MICHAEL S. FELDBERG

STEVEN .J. FREDMAN

STUART D. FREEDMAN

SUSAN C. FRUNZI

~ ALAN R. GLICKMAN

LAWRENCE S. GOLDBERG

L.UCY H. GORDON

RONALD S. KOCHMAN

DANIEL J. KRAMER

BURTON L.EHMAN

ANDREW H. LEVY

ISAAC B. L.USTGARTEN

.JOHN G. MCGOLDRICK

MICHAEL C. MULITZ

ROBERT S. NASH

MARK A. NEPORENT

MARTIN L. PERSCHETZ

GREGORY P. PRESSMAN

FREDERIC L. RAGUCCI

NEW YORK, N.Y. 10022

ROBERT ROSENBERG

SUITE 1002

(212) 758-0404

PAUL N. ROTH

JEFFREY S. SABIN

CATHERINE SAMUELS

FREDERICK P. SCHAFFER

STEPHEN J. SCHULTE

CHARLES L. SHAPIRO

DANIEL $. SHAPIRO

HOWARD F. SHARFSTEIN

JOSEPH R. SIMONE

IRWIN .J. SUGARMAN

SHLOMO C. TWERSKI

F'LORIOA OFFICE

PHILLIPS POINT. WEST TOWER

777 SOUTH FLAGLER DRIVE

WEST PALM BEACH. FLORIDA 33401

FACSIMILE NUMBER:

(407) 659.9800

(212) 593-5955

TELEX: 426775

CABLE: OLYMPUS NEWYORK

WRITER'S DIRECT NUMBER:

:TIo;Xlfd yO

RULE

,JANET C. WALDEN

ALAN S. WALDENBERG

PAUL N. WATTERSON, JR.

PUBLIC

AVAILABILITY

PAUL E. WEBER

MARC WEINGARTEN

ANDRE WEISS

('/Q1cf

WIL.L.IAM D. ZABEL

Sections 3(a), 7(a) and 7(b) of the

Investment Company Act of 1940

,JAMES M. PECK

August 4, 1994

VIA FEDERA EXPRESS

Heidi Starn, Esq,

Assistant Chief Counsel

Division of Investment Management

Securities and Exchange Commission

- 450 Fifth Street, N. W.

Washington D. C. 20549

Re: Integrated Resources, Inc.

Dear Ms. Stam:

On behalf of Steinardt Management Company, Inc. and certain of its affilates

(the "Steinhardt Group"), CD Co. (the "Manager") and Presidio Capital Corp.

("HoldingCo"), we respectfully request your confrmation that HoldingCo and certin other

liquidating entities which are being formed by the Steinhardt Group, the Manager and

existing creditors (the "Creditors") of Integrated Resources, Inc. (the "Debtor") for the

purpose of acquiring and liquidating substantially all of the assets of the Debtor pursuant to a

plan of reorganization currently proposed in the Debtor's pending bankptcy proceeding wil

not be required to register under the Investment Company Act of 1940, as amended (the

"Company Act"), in reliance on Sections 7(a) and 7(b) thereof.

, (

Heidi Starn, Esq.

August 4, 1994

Page 2

I. Sumary of Proposed Transaction.

The Debtor fied for banptcy under Chapter 11 of the Bankptcy Code

in

February, 1990, and has been unsccessful in confrming a plan of reorganiation for over

four years. The Creditors have made claims againt the Debtor exceeding $1.9 bilion.!

The Debtor has approximately $500 milion in cash and various other assets, many of which

are highly illquid.

The Steinrdt Group intially proposed a cash offer for the Debtor's assets in

March of 1992 which was subsequently rejected by the Creditors. The Creditors have

indicated that they wish to participate in the equity of any entity formed for the purpose of

liquidating the Debtor's assets in the expectation that they would thereby realize greater value

on their original investment. In response, and after extensive negotiations with the Debtor

and Creditors, the Manager and the Steinhardt Group developed a plan of reorganiation (the

"Plan"), described in a disclosure statement which has been approved by the United States

Bankptcy Court for the Southern District of New York (the "Bankptcy Court"), which

provides for (i) substantially all of the non-cash assets of the Debtor (the "Acquired Assets")

to be transferred to HoldingCo and certin other entities directly or indirectly owned by

HoldingCo for the purpose of liquidation (collectively, the "Liquidating Entities") and (ii) the

Creditors to receive common shares of HoldingCo for all or a part of their claims against the

Debtor. HoldingCo and the Manager anticipate that the Liquidating Entities wil liquidate the

Acquired Assets within five years. The Creditors have insisted that the common shares they

acquire be transferable as a condition to their supporting the Plan.

The Plan has received the endorsement of each of the thee official committees

of Creditors appointed in the Debtor's bankptcy case (the "Bankptcy Case"), and the

necessary votes of Creditors for confirmation.

We seek your concurrence that the Liquidating Entities wil not be deemed to

be investment companies in reliance on Sections 7(a) and 7(b) of the Company Act.

1

Shareholder's equity and certain other claims would be discharged pursuant to the

bankptcy.

, í

Heidi Starn, Esq.

August 4, 1994

Page 3

II. Background.

A. ,The Debtor and its Bankruptcy Case.

The Debtor's Bankptcy Case is currently pending in the Bankptcy Court

before the Honorable Cornelius Blackshear. Prior to fiing the Bankptcy Case in 1990, the

Debtor was a finncial services company engaged primarily in the organiation, management

and sale of direct participation investment programs, generally tag the form of limited

parnerships organied to own, develop and manage real estate; operating businesses,

including the manufacturing of private jet aircraft, residential fireplaces and musical

instruments; the ownership and operation of cable television franchises, network television

affiliates and soft drink bottling companies; and the operation of life insurance companies and

independent general agencies. The Debtor continues to be in possession of its remainig

properties and is managing its business as a debtor-in-possession. Since the commencement

of its Chapter 11 case, the Debtor has disposed of certin assets.

Initially, the Steinhardt Group submitted a proposal to the Debtor and the

Creditors to acquire the assets of the Debtor pursuant to a plan of reorganization of the

Debtor to be funded by the Steinhardt Group which would have provided solely for cash

distributions to all Creditors which held allowed claims in the bankptcy proceedings. This

proposal was rejected by the Creditors who have made it clear that in order to obtain

approval of the Creditors any plan of reorganization must (i) offer the Creditors the option to

have a participation in the Debtor and any entity to which assets of the Debtor are transferred

for purposes of liquidation rather than an up-front cash payment, (ii) provide that the non­

cash assets of the Debtor be liquidated in a prudent and expeditious manner but not in haste

at "deep discount" and (iii) provide that the securities held by the Creditors constituting their

indirect interest in the non-cash assets of the Debtor not be subject to transfer restrictions.

The Plan has been structured so as to satisfy these conditions. A qualifying vote of Creditors

(generally a majority by number and two-thirds by value of each class) is required to approve

the Plan.

The receipt of a no action position as to the issues raised in this request is a

condition to both confirmation and consummation of the Plan.

Pursuant to various orders of the Bankptcy Court, the Plan and a "backup"

plan proposed by the Debtor have been presented to the Creditors in a joint disclosure

Heidi Sta, Esq.

August 4, 1994

Page 4

sttement (the "Disclosure Statement").2 On May 5, 1994, the Bankptcy Court entered an

order approving the Disclosure Statement, which was mailed to Creditors together with

copies of the Plan and the backup plan on May 31, 1994. A majority by number and more

than two-thirds by value of each class of Creditors entitled to receive distributions under the

Plan have now voted in favor of the Plan, and the hearing on the confiration of the Plan is

scheduled for August 8, 1994. Assuming the Plan is confirmed and the conditions to closing

are satisfied, it is anticipated that the consummation of the Plan wil occur during 1994 (the

"Consumation Date").

B. The Plan.

The Plan provides that the Acquired Assets wil be acquired by the Liquidating

Entities, which wil consist of (i) a n~wly formed Delaware Limited Partership (the

" Acquisition Partnership ") of which the sole partners wil be two newly formed British

Virgin Islands corporations owned by HoldingCo, (ii) one or more newly-formed Delaware

corpations (collectively, "DomesticCo") and (ii) HoldingCo, which is a newly formed

holdig company under the laws of the British Virgin Islands that wil hold directly or

indirectly all of the interests in the Acquisition Partnership and DomesticCo. Directors of

HoldingCo wil be designated by the Creditors and by a Steinhardt Group affiiate. The

Liquidating Entities wil acquire the Acquired Assets on the Consummation Date pursuant to

an Asset Purchase Agreement with the Debtor (the "Asset Purchase Agreement").3 The

2

The Debtor's "back-up" plan (which involves no third part funding) wil only be

considered by the Bankptcy Court if the Plan is unable to be confirmed or to

consummate within certain deadlines. The Official Committee of Holders of Bank

Debt and the Official Committee of Senior Public Debt and Commercial Paper

Holders, together with the Penguin Group, L.P., previously jointly proposed a third,

competing plan, which was later withdrawn, in approximately November of 1993.

3

Under the proposed liquidating structure, assets of the Debtor which do not consist of

operating companies, such as the Contract Rights assets described below, wil be

tranferred to the Acquisition Partership, non-U.S. partners of which generally

would not be subject to a corporate level of U. S. income taxation because they wil

not engage in a U.S. trade or business. All operating U.S. businesses of the Debtor

wil be held in the one or more U.S. companies comprising DomesticCo, and certin

assets wil be transferred to HoldingCo. The acquisition of assets by separate

affiiated corporations wil maximize the liquidation proceeds available for distribution

liabilties which may be incurred with

by insulating a group of assets from potential

(continued. . .)

, . I

Heidi Starn, Esq.

August 4, 1994

Page 5

Contract Right assets, described below, wil be acquired by the Acquisition Partnership.

DomesticCo and HoldingCo wil acquire all of the remainig Acquired Assets. Substantially

all of the approximately $500 milion in cash held by the Debtor wil be distributed to the

4

Creditors directly by the Debtor on the Consummation Date.

The Plan provides that the Creditors may elect to receive up to 88 % of the

common stock in HoldingCo (the "HoldingCo Common Stock") in lieu of all or a portion of

the cash distributions to which they otherwise would have been entitled, and that an affilate

of the Steinardt Group wil acquire for cash the remaining 12 % of the shares of HoldingCo

Common Stock. The 12 % of the shares of HoldingCo Common Stock acquired by the

Steinardt Group affilate wil be designated Class B and wil be entitled to elect two "Class

B" directors, and all other shares of HoldingCo Common Stock wil be designated Class A

and wil be entitled to elect thee "Class A" directors. The Plan does not provide for any

concurrent offering of HoldingCo Common Stock to the public at large or any concurrent

offerig of preferred stock or debt securities. To the extent that Creditors elect to receive

HoldingCo Common Stock in excess of the aggregate amount available, the number of shares

of HoldingCo Common Stock to be received by each electing Creditor wil be subject to

reduction on a pro rata basis. If Creditors initially elect to receive less than 88 % of the

HoldingCo Common Stock, the Steinhardt Group affiliate is required to purchase additional

shares so that it receives up to 25 % of the HoldingCo Common Stock. Any remaining

shares shall be eligible for acquisition for cash by those electing Creditors which had

\.. .continued)

respect to an activity or asset unrelated to that asset group and wil allow for the

resulting proceeds to be distributed by the corporation as a liquidating distribution,

rather than as a fully taxable dividend.

4

The Plan also provides that a limited number of non-cash assets of the Debtor, which

are not included in the Acquired Assets, wil be transferred to ERC Corp. ("ERC").

These assets principally include equipment leasing interests (or, at the election of the

Steinhardt Group or in the event such interests are sold prior to the Consummation

Date, real estate leasing interests) and the Debtor's interest in various litigations and

claims. You may assume for purposes of this no action request that ERC wil not be

an investment company for purposes of Section 3(a) of the Company Act. Upon the

Consummation Date, 88% of ERC's common stock (the "ERC Common Stock") wil

be transferred to the Debtor's disbursing agent for distribution to the Creditors

pursuant to the Plan. The remaining 12% of ERC's outstanding stock wil be

transferred to Steinhardt Management Company, Inc. in consideration of its

agreement to oversee the management of the affairs of ERC.

Heidi Starn, Esq.

August 4, 1994

Page 6

previously elected to receive HoldingCo Common Stock in lieu of 100% of the cash

distribution they would have otherwise received, and, thereafter, by the Steinardt Group

affiliate. If any shares remain, they wil be distributed to Creditors on account of their

claims. In addition, certin shares of HoldingCo Common Stock may be reserved in respect

of disputed claims, which if ultimately disallowed, would be available for purchase by

holders of Class A HoldingCo Common Stock. The HoldingCo Common Stock wil not be

the subject of any secondary distribution, but wil not otherwise be subject to restrictions on

tranfer.

HoldingCo wil enter into a management agreement with the Manager pursuant

to which the Manager wil have discretion to direct the "disposition, liquidation, sale,

securitization or other realization of the value" of such assets. In consideration of such

services, the Manager wil receive a fee (the "Management Fee") of $1.25 milion per year

and reimbursement of all reasonable out-of-pocket expenses. The Management Fee

compensates the Manager for its services in managing the liquidation of the Acquired Assets.

Steinardt Management Company, Inc. wil provide certin consulting services to the

Manager and wil also receive a fee of $1.25 milion per year. The Manager and Steinhardt

Management Company, Inc. wil not receive any other compensation for their services to

HoldingCo.

The Liquidating Entities wil exist solely for the purpose of liquidating the

Acquired Assets and dissolving, which wil be reflected in the constitutional documents of

HoldingCo. The Liquidating Entities (1) wil exist solely for purposes of liquidating the

Acquired Assets and distributing the proceeds thereof to the holders of HoldingCo Common

Stock; (2) wil be prohibited from conducting a trade or business (other than maintaining

going concern businesses acquired from the Debtor pending sale or liquidation thereof) and

wil not make any investments, except for temporary investments in cash equivalents and

government securities, pending the distribution of liquidation proceeds to beneficiaries; (3)

wil not hold themselves out as investment companies, but rather as liquidating entities; and

(4) wil dissolve on or before the fifth annversaryS of the Consummation Date unless prior

5

In MPC Liquidating Trust (AvaiL. March 10, 1994), the trust was represented to

liquidate its assets and dissolve within three years. As discussed below, in light of

greater amount and highly iliquid nature of the Acquired Assets, it is anticipated that

the Acquired Assets wil require between three to five years to liquidate.

Heidi Starn, Esq.

August 4, 1994

Page 7

thereto additional no action assurance is received from the staff of the Division of Investment

Management (the "1M Staffll).6

HoldingCo Common Stock wil be transferrable. HoldingCo wil comply with

the registration and reporting requirements under the Securities Exchange Act of 1934 (the

"1934 Act"). From and after the Consumation Date, the Manager and HoldingCo wil not

cause HoldingCo Common Stock to be listed on any national securities exchange or

NASDAQ, wil not engage the services of any market maker, wil not faciltate the

development of an active trading market or encourage others to do so and wil not place any

advertisement in the media promoting investments in HoldingCo Common Stock or, except

as required under Item iOl(a) of Regulation S-K promulgated under the 1934 Act, collect or

publish inormation about prices at which HoldingCo Common Stock may be transferred.

It is likely that following the Consummation Date some trading wil occur in

HoldingCo Common Stock. However, HoldingCo and the Manager believe that it is unlikely

that such trading wil be active or that a significant market wil develop of holders far beyond

the initial holders who are familar with the Debtor and the Acquired Assets. Such trading is

unlikely in light of the lack of a listing in HoldingCo Common Stock, the fact that

HoldingCo and the Manager wil not engage any market maker or collect or publish

information about prices at which HoldingCo Common Stock may be transferred as set fort

above, the limited term of HoldingCo and the complexity of the Acquired Assets.

The Acquired Assets are expected to be fully liquidated withn five years.

Liquidation of the Acquired Assets is subject to significant uncertinties, such as general

business and economic conditions and the iliquidity of certain Acquired Assets. It is

possible that the actual period which may be required to effect the liquidation of some of the

Acquired Assets may exceed the expected five year period. As noted above, however, under

its constitutional documents HoldingCo must liquidate the Acquired Assets and dissolve

6

In MPC Liquidating Trust, supra, the Bankptcy Court retained jurisdiction over the

liquidating trust and the term of the trust could only be extended beyond thee years

with the approval of the Bankptcy Court for cause. Here, the Bankptcy Court

wil only retain jurisdiction after the Consummation Date over issues relating to the

implementation of the Plan, the treatment, allowance and payment of claims and other

similar matters specified in the Plan. It is unlikely that the Bankptcy Court would

exercise jurisdiction over the Liquidating Entities in a manner that would enable it to

consider whether the term of the Liquidating Entities should be extended, because

their assets wil no longer be property of the Debtor's estate and their affairs wil not

be directly related to the Debtor's bankptcy case.

Heidi Starn, Esq.

August 4, 1994

Page 8

with five years of the Consummation Date unless prior thereto additional no action

assurance is received from the 1M Staff. Certin of the Acquired Assets wil be subject to (i)

a lien to secure an indemnty to certin directors and officers of the Debtor, which in certin

circumstances might affect the amount and timing of distribution of proceeds from the

liquidation of such Acquired Assets, or (ii) a lien to secure one-year notes issued under the

Plan to certin subsidiaries of the Debtor', and cash reserves may be established to cover

such potential obligations.

In general, HoldingCo and the Manager expect that the Acquired Assets of

each Liquidating Entity and the expected liquidation period of the Acquired Assets wil be as

follows:

1. Acquisition Partnership. The Debtor and its subsidiaries hold various

deferred payment obligations (the "Contract Rights") issued in consideration for the Debtor's

or a subsidiary's performance of services in originating a sale-leaseback transaction entered

into by various privately-offered limited parterships or in consideration for the Debtor's or

the subsidiary's assignment to such partnership of a contractual right to purchase the real

property currently owned by the parership. The Contract Rights are generally unsecured

obligations and provide for payments during both the primary and renewal terms of the

underlying lease. The Contract Rights are highly iliquid and could produce significantly

different values depending on whether they are (i) sold imediately at deep discount; (ii)

sold over time on a contract by contract basis, (ii) sold in due course in "bulk" or (iv) held

to maturity.

HoldingCo and the Manager believe that in time the Contract Rights could be

sold in "bulk" for a reasonable value. However, in order to realize imediate cash available

for distribution, HoldingCo and the Manager are considering a securitized financing based on

a significant portion of the value of the Contract Rights, which may be accomplished directly

7

Certin subsidiaries of the Debtor have fied claims against the Debtor in its

bankptcy case. In lieu of making cash distributions on account of such claims (or

offering such subsidiaries the opportnity to elect to receive HoldingCo Common

Stock on account thereof) the Plan provides for the issuance to the subsidiaries of

secured one-year notes in a principal amount equal to the cash distribution the

subsidiaries would otherwise have received. It is anticipated that the subsidiary notes

wil be forgiven, paid, or contributed to capital within one year of the Consummation

Date.

Heidi Starn, Esq.

August 4, 1994

Page 9

by the Acquisition Partnership or by a special purpose vehicle established for that purpose.s

HoldingCo and the Manager would expect to sell any residual interests in the securitized

assets with the five year liquidation period.

2. DomesticCo. The Debtor and its subsidiaries own interests in

numerous private partnerships which have invested in various operating businesses (the

"Operating Businesses"), public and private real estate parerships and fee interests in

certin parcels of land (the IIReal Estate Interests"). These interests are generally iliquid.

HoldingCo and the Manager wil pursue various realization strategies for the Operating

Businsses including sales to third parties. Such alternatives also may include taking such

companies public followed by a distribution of the stock to HoldingCo shareholders.

HoldingCo and the Manager wil seek to sell or dispose of the Real Estate Interests.

3. HoldingCo. Various other miscellaneous assets, which are also

generally iliquid, may be acquired directly by HoldingCo, which HoldingCo and the

Manager wil seek to liquidate within the five year liquidation period. The most significant

of these assets consist of the right to receive various payments for the sale of the Debtor's

annuity business and approximately 278,000 shares of a New York Stock Exchange listed

company (which shares are subject to an escrow agreement).

During the five year liquidation period, HoldingCo wil provide its

stockholders of record with year-end audited financial statements and unaudited quarterly

finacial statements, in each case together with management's discussion and analysis

thereof, and wil comply with the reporting requirements under the 1934 Act. HoldingCo

wil be dissolved promptly following the date on which all of the Acquired Assets have been

liquidated and distributed.

III. No Action Request.

A. Issues and Applicable Legal Standards.

Section 3(a) of the Company Act defines as an "investment company" any

issuer that either (i) "is or holds itself out as being engaged primarily, or proposes to engage

priarly, in the business of investing, reinvesting, or trading in securities. . ." or (ii) is

"engaged or proposes to engage in the business of investing, reinvesting, owning, holding, or

8

Weare not requesting the 1M Staff to address at this time whether a securitized

offering of a portion of the value of the Contract Rights would comply with the

requirements of Rule 3a-7 under the Company Act.

Heidi Starn, Esq.

August 4, 1994

Page 10

trading in securities, and (that) owns or proposes to acquire investment securities having a

value exceeding 40 per centum of the value of such issuer's total assets (exclusive of

Governent securities and cash items) on an unconsolidated basis. "9

The Liquidating Entities wil own and hold the Acquired Assets solely for the

puose of liquidation, and wil not engage in investing, reinvesting or trading securities. As

noted earlier, the Liquidating Entities wil not hold themselves out as investment companies

and wil not conduct a trade or business (other than maintaing going concern businesses

acquired from the Debtor pending sale or liquidation thereof). Without reachig the question

of whether each of the Acquired Assets constitutes an "investment security" under the

Company Act, each of the Liquidating Entities might constitute an "investment company"

under Section 3(a)(1) of the Company Act if such entity is deemed to engage or propose to

engage priarily, or to hold itself out as being engaged primarily, in the business of

investing, reinvesting or trading in securities. Each of the Liquidating Entities might also

constitute an "investment company" under Section 3(a)(3) of the Company Act if they each

are deemed to "engage" or "propose to engage" in the business of "investing, reinvesting,

ownig, holding, or trading" "investment securities" having a value exceeding 40 percent of

the value of such issuer's "total assets". 10

Sections 7(a) and 7(b) of the Company Act exempt from the provisions of the

Company Act an investment company, the transactions of which "are merely incidental to its

9

"Investment securities" are defined in Section 3(a)(3) to include "all securities except

(A) Governent securities, (B) securities issued by employees' securities companies,

and (C) securities issued by majority-owned subsidiaries of the owner which are not

investment companies." Section 2(a)(36) of the 1940 Act, in relevant part, defines a

"security" as "any note, stock, treasury stock, bond, debenture, evidence of

indebtedness, certificate of interest or participation in any profit-sharing agreement,

collateral-trust certificate, . . . transferable share, investment contract, . . . or, in

" . . . ."

general, any interest or instrument commonly known as a II

10

t

security

We are not requesting that you consider whether the Liquidating Entities in fact

constitute investment companies under Section 3(a) or whether they would meet the

terms of the exception under Rule 3a-1 under the Company Act for a company of

which no more than 45 percent of such company's total assets consist of, and no more

than 45 percent of each such company's net income after taxes (for the last four fiscal

quarers combined) is derived from, securities other than those listed in sub-sections

(a)(l), (2), (3) and (4) under Rule 3a-1 or which is not an investment company under

Section 3(a)(1) under the Company Act or a "special situation investment company".

Heidi Starn, Esq.

August 4, 1994

Page 11

dissolution" (the "Liquidating Entity Exclusion").11 Each of the Liquidating Entities is

organed and operates for the exclusive purpose of holding and liquidating Acquired Assets

and distributing the proceeds therefrom to the holders of HoldingCo Common Stock.

Accordingly, so long as each of such Liquidating Entities, even if otherwise meeting the

defintion of an investment company within the meanig of Section 3(a), is deemed only to

be tag actions and effecting transactions which "are merely incidental to its dissolution, "

such Liquidating Entity would not constitute an investment company under the Company Act.

The Liquidating Entity Exclusion, applicable to liquidating entities organied

as corporations (Section 7(a)) and those liquidating entities organied as trusts or other non-

corporate entities (Section 7(b)), was adopted by Congress in recognition that the

comprehensive scheme established under the Company Act for the protection of investors in

investment companies is inappropriate to and not needed for entities which are merely in the

process of liquidation, even if they otherwise meet the defintion of an "investment company"

by reason of their purpose or composition of assets.

12 As Professor Tamar Frankel stated

in her treatise The Regulation of Money Managers,13, Sections 7(a) and 7(b) "were designed

to meet situations which the (Company L Act should not cover." Since liquidation of an entity

otherwise constituting an "investment company" invariably would involve sale of a pool of

"investment securities," it follows that the mere fact that an entity holds and is involved in

sellng a pool of "investment securities" does not require it to be registered and regulated

under the Company Act. Rather, the adoption of the Liquidating Entity Exclusion by

Congress apparently reflects a determination that an entity must tae actions to attract

investors and/or actively manage investment assets before the protections of the Company

11

There have been no regulations proposed or adopted by the Commission under

Sections 7(a) or 7(b).

12

Similarly, Congress has determined, and reflected in thirteen separate definitional

exclusions contained in Section 3(c) under the Company Act, that an entity which

otherwise meets the definition of an "investment company" under Section 3(a) of the

Company Act should not be subject to the burden of compliance with the registration

and regulatory requirements under the Company Act if it is already subject to

regulations which protect holders of interests in such entities or there is no strong

interest on the part of the public in imposing the projections under the Company Act.

See, e.g., Protection of Investors: A Half Century of Investment Company

Regulation, p. 105, "Section 3(c)(1) reflects Congress's belief that federal regulation

of private investment companies is not warranted."

13

3 T. Frankel, The Regulation of Money Mangers, 429.

Heidi Star, Esq.

August 4, 1994

Page 12

Act are required. See, e.g., Frankel, supra, Sections 7(a) and 7(b) does "not apply to the

company . .. but to the activity. "

, The 1M Staff has identified in various no action letters four principal factors in

determing whether a liquidating entity such as each of the Liquidating Entities may rely on

the Liquidating Entity Exclusion14. These letters indicate that the Liquidating Entity

Exclusion is available to an entity if:

(i) the sole objective and purpose of the entity is to liquidate and

the entity holds itself out and presents inormation to holders of

interests in the entity and the public in a manner compatible

with such objective and purpose;

(ii) the entity issues periodic financial reports to holders of interests

in the entity during the period of liquidation to ensure that the

interests of such holders are protected;

(ii) the entity wil liquidate its assets and dissolve withn a

reasonable period of time in light of the entity's assets and any

other relevant factors; and

(iv) interests in the entity are not offered to the public and are not

transferable or tradeable in a manner that would suggest that the

entity is syndicating interests or creating a market in an ongoing

investment pool.

14-

E.g.~ MPC Liquidating Trust (AvaiL. March 10, 1994); Marbella Founders Trust

(AvaiL. Dec. 1, 1993); Oppenheimer Landmark Properties (AvaiL. March 9, 1993);

Celina Financial Corp. (AvaiL. February 19, 1993); VI Enterprises, Inc. (AvaiL.

January 7, 1993); Dean Witter Principal Guaranteed Fund ILL L.P. (AvaiL. July 23,

1992); Grubb & Ellis Realty Income Trust (AvaiL. May 26, 1992); Damson Oil Corp.

(AvaiL. February 21, 1992); Western Air Lines Inc. (AvaiL. January 28, 1992);

Graphic Scanning Corp. (AvaiL. August 21, 1991); JMB Realty Trust (AvaiL.

November 19, 1990); The Fund American Companies, Inc. (AvaiL. November 16,

1990); Hutton/Energy Assets Insured Oil and Gas (AvaiL. May 17, 1990); LDX

Group, Inc. (Avail. May 4, 1990); Federated National Resources Corp. (AvaiL. July

13, 1989); Newhall

Investment Properties (AvaiL. September 21', 1988).

Heidi Starn, Esq.

August 4, 1994

Page 13

The 1M Staff recently clarified in MPC Liquidating Trust (AvaiL. March 10,

1994) the circumstances under which it would grant favorable no action relief under Sections

7(a) and 7(b)under the foregoing general criteria. As discussed below, we believe that the

intat no-action request complies with the material requirements identified by the 1M Staff

in MPC Liquidating Trust, as well as the four general criteria set fort

'in the 1M Staff's prior

letters relating to the Liquidating Entity Exclusion. is

B. Analysis.

1. Purpose.

The objective and purpose of each of the Liquidating Entities to liquidate the

Acquired Assets and dissolve is clearly stated in the Disclosure Statement approved by the

Banptcy Court in the Bankptcy Case, which has been distributed to the Creditors. This

objective and purpose is also reflected in the Plan, the Asset Purchase Agreement, the

organiational documents of HoldingCo, and all documentation relating to the issuance to and

purchas by. Creditors of HoldingCo Common Stock, and wil be reflected in all filings any

of the Liquidating Entities may in the future make with the Bankptcy Court, with the

Commission in accordance with the 1934 Act or as may otherwise be required by applicable

15

We do not believe that the form of organization of each of the Liquidating Entities is

material to whether each such entity meets these four criteria. It is clear that

Congress intended the Liquidating Entity Exclusion to apply equally to all entities in

the process of liquidation regardless of the form of their organization, because the

Liquidating Entity Exclusion was inserted in nearly identical terms in Section 7(a),

dealing with entities which are organized in corporate form with boards of directors,

and Section 7(b), dealing with entities which are organized in non-corporate form

without a board of directors such as trusts or partnerships. It should not be material

whether an existing entity takes steps to liquidate assets and dissolve or, as here, the

assets of the entity are transferred to a special purpose entity which takes steps to

liquidate such assets and dissolve. See, e.g., MPC Liquidating Trust, supra (assets

transferred to a liquidating trust); Oppenheimer Landmark Properties, supra (assets

transferred to a liquidating trust); Dean Witter Principal Guaranteed Fund III L.P.,

supra (limited partnership to liquidate and distribute proceeds to its limited partners);

Western Air Lines Inc., supra (assets transferred to a liquidating trust); The Fund

American Companies, supra (the company to liquidate and distribute proceeds to its

stockholders); Hutton/Energy Assets Insured Oil and Gas Completion Program A,

Ltd., supra, (assets transferred to a liquidating trust); Gearhart Industries, Inc.

(AvaiL. April 6, 1987) (assets transferred to an "investment trust").

Heidi Sta, Esq.

August 4, 1994

Page 14

law. As noted previously, the Liquidating Entities wil not conduct a trade or business (other

than maintainig going concern businesses acquired from the Debtor pending sale or

liquidation thereof). The Liquidating Entities wil not hold themselves out as investment

companies, and HoldingCo and the Manager each represent that it wil not cause any

materials to be distributed to Creditors or the public which are inconsistent with the objective

and purpose of the Liquidating Entities as set fort above. The Liquidating Entities thus

meet the requirement that they wil hold themselves out, and wil present information about

themselves to holders of interests in such entities and to the public in a manner compatible

with an objective and purpose to liquidate and dissolve, as clearly and prominently set fort

in numerous regulatory and legally binding documents.16

In addition, none of the Liquidating Entities wil reinvest proceeds from

liquidation of the Acquired Assets in new investments, and instead wil hold such proceeds in

cash, money market instruments, governent short-term securities or other investment grade

short-term debt securities pending distribution to holders of HoldingCo Common Stock. This

16

See MPC Liquidating Trust, supra (objective to liquidate and would not hold trust out

as investment company); Oppenheimer Landmark Properties, supra (the managing

general parter adopted a policy of liquidatig the assets of the partnership by

disposing of its existing real estate portfolio); Celina Financial Corp., supra (the

objective was to permit shareholders of Celina to participate in any recovery under

certain legal claims); Grubb & Ells Realty Income Trust, supra (the board determined

that it was in the REIT's "best interests" to liquidate and both the board and the

shareholders approved the plan of liquidation); Graphic Scanning Corp., supra (the

objective was to hold a promissory note to maturity and distribute other assets);

Lockwood Banc Group, Inc. (AvaiL. December 19, 1990) (the objective was to collect

accounts payable on promissory notes and distribute the proceeds); Quanex Corp.

(AvaiL. July 28, 1989) (the objective was to establish an escrow fund to wind up the

interests of the stockholders of the company subsequent to a merger); Sinclair

Venezuelan Oil Company (AvaiL. November 8, 1979) (the objective was to liquidate,

although the company neither fied a formal plan of liquidation and dissolution nor

had obtained stockholder approval for any dissolution plan); Atlanta/LaSalle Corp.

(AvaiL. May 18, 1979) (both the board and shareholders approved Atlanta/LaSalle's

dissolution). Cf Terrapet Energy Corp. (AvaiL. January 10, 1985) (no action position

denied for partnership whose objective was to sell all its assets for notes and to

dissolve but which intended to amend its partnership agreements to provide that the

sale would not cause its dissolution).

Heidi Sta, Esq.

August 4, 1994

Page 15

approach is consistent with that of other entities relying on the Liquidating Entity

Exclusion.

I?

2. Reports.

Thoughout its liquidation period, HoldingCo wil issue audited year-end

fincial statements and unaudited quarterly financial statements to all shareholders of record

of HoldingCo Common Stock, in each case together with management's discussion and

analysis thereof, and wil comply with the reporting requirements under the 1934 Act. These

report wil reflect the assets, income and liabilties and other relevant financial information

of HoldingCo, Acquisition Partnership and DomesticCo on a consolidated basis. Holders of

HoldingCo Common Stock wil thus be in a position to monitor their interest in the

Liquidatig Entities and protect their interest as they deem appropriate as provided in

previous 1M Staff letters.18

17

See, e.g., MPC Liquidating Trust, supra (proceeds held in cash and governent

securities); Oppenheimer Landmark Properties, supra (proceeds were invested in

short-term cash equivalent mutual funds, certificates of deposit and/or money market

accounts); Dean Witter Prncipal Guaranteed Fund III L.P., supra (proceeds held in

U.S. governent securities or time deposits); Western Air Lines Inc., supra (proceeds

The Fund American Companies, Inc., supra

held in U.S. governent securities);

(proceeds were invested to a limited extent in short-term investment-grade debt

securities); Sinclair Venezuelan Oil Company, supra (proceeds invested in short-term

money market instruments).

18

Cf. MPC Liquidating Trust, supra (annual and quarterly reports); VH Enterprises,

Inc., supra (annual and interim reports); Grubb & Ells Realty Income Trust, supra

(anual and interim reports); Western Air Lines Inc., supra (semi-annual report);

Lockwood Banc Group, Inc., supra (annual reports); Hutton/Energy Assets Insured

Oil & Gas Completion Program A, Ltd., supra (annual reports and additional reports

regarding material events or changes affecting the Trust or beneficiaries' rights);

RRP-DGT GP Corp. (AvaiL. September 25, 1989) (annual reports and interim reports

on a discretionary basis); Crime Control, Inc. (AvaiL. August 3, 1987) (annual

reports); ASI Communications, Inc. (AvaiL. March 12, 1987) (annual reports);

Glenborough Limited (AvaiL. June 17, 1986) (annual reports and "other information");

Energy Development Partners Ltd. (AvaiL. September 12, 1985) (annual reports).

Heidi Starn, Esq.

August 4, 1994

Page 16

3. Term.

The Liquidating Entities wil liquidate their Acquired Assets and dissolve as

quickly as practicable in accordance with the Plan approved by the Bankptcy Court, subject

to the duty of the Manager on behalf of the Creditors to liquidate the Acquired Assets in a

reasonable and orderly manner rather than in haste at "deep discount". HoldingCo and the

Manager believe that the Acquired Assets can be liquidated within thee to five years, and

the organational documents of HoldingCo provide that it must liquidate the Acquired Assets

and dissolve within five years (unless prior thereto additional no action assurance is received

from the 1M Staff). If HoldingCo and the Manager determine that it may tae longer to

liquidate certin highly iliquid assets they would seek additional no action assurances from

the 1M Staff as a condition to extending such term.

The liquidation period permitted in previous 1M Staff letters has varied

considerably, from under a year to up to longer than 10 years or even an indefinite

period.19 In general, however, we understand from previous conversations with members

of the 1M Staff that it currently views a liquidation period of thee years as appropriate,20

absent special circumstances.

In previous letters the 1M Staff has consistently recognized that special

circumstances, generally involving illquid assets, support a longer liquidation period than

thee years. For example, in Western Air Lines Inc., the 1M Staff suggested that a

liquidating trust with a duration of 12 years could rely on the Liquidating Entity Exclusion

19

See MPC Liquidating Trust, supra, (three years); Oppenheimer Landmark Properties,

supra (3 years); Western AirLines Inc., supra (12 years); Lawyers Title of Dallas,

Inc., (AvaiL. April

2, 1991) (3 years); The Fund American Companies, supra (5

years); Hutton Energy Assets, supra (less than 7 years); WX Group, Inc. (AvaiL.

May 4, 1990) (1 year); RRP-DGT GP Corp., supra (6 years); Quanex Corp., supra

(4 years); Newhall Investment Properties, supra ("restricted term of existence");

Timber Realization Co. (AvaiL. June 15, 1987) (15 years); Gearhart Industries, Inc.,

supra ("restricted term of existence"); United Western Corp. (AvaiL. October 29,

1984) ("restricted term of existence"); Heizer Corp. (AvaiL. April 25, 1984)

("reasonable period of time"); Merit Clothing Co. (AvaiL. March 29, 1982) (up to 10

years); Sinclair Venezuelan Oil Co., supra (indefinite).

20

See, e.g., MPC Liquidating Trust, supra; Marbella Founders Trust, supra;

Oppenheimer Landmark Properties, supra; Celina Financial Corp., supra; Damson

Oil Co., supra; Federated National Resources Corp., supra.

Heidi Starn, Esq.

August 4, 1994

Page 17

due to the fact that the iliquid assets held by the liquidating trust could only be sold at very

deep discounts. (See also The Fund American Companies, Inc. (extended period of time due

to iliquid nature of assets held by the Company); Gearhart Industries, Inc. (extended period

of time due to extremely depressed prices of real propert); Merit Clothing Company

(extended period of time required to ascertin the exact amount of Merit's liabilties);

Atlanta/LaSalle Corp. (no unequivocal time for liquidation stated because the manner and

timing of the sale of Atlanta/LaSalle Corporation had not yet been determined)).

It is in the best interest of the Creditors that the Acquired Assets be liquidated

in an orderly and reasonable manner. In light of the complex and highly iliquid and varied

nature of the Acquired Assets, as well as the amount and large value of such assets,

HoldingCo and the Manager believe that these assets wil require up to five years for an

orderly liquidation, and accordingly the liquidation term has been established at five years in

order to permit, to the extent possible, the greatest potential for realization of value.

Immediate and complete liquidation or a cash sale of the Acquired Assets would needlessly

decrease the return available to the Creditors, which would not promote the public policy

objective of permitting creditors to obtain a reasonable value in bankptcy proceedings.

4. Transferabilty.

The Plan provides that no member of the general public other than Creditors

and the Steinhardt Group affiiate wil acquire HoldingCo Common Stock pursuant to the

Plan. However, the Creditors have required for their own business objectives that they

receive in exchange for their claim against the Debtor a security which wil be freely

transferable. Imposition of an absolute restriction on transferabilty of HoldingCo Common

Stock would preclude confirmation of the Plan, a result which would be inconsistent with the

public policy interest under the Bankptcy Code in achieving liquidation of the Debtor after

over four years of bankptcy proceedings. Transferabilty of HoldingCo Common Stock

would simply afford liquidity to Creditors currently holding iliquid claims againt the Debtor

in accordance with the Plan approved by the Bankptcy Court.

A liquidating entity may rely on the Liquidating Entity Exclusion even if its

securities are transferrable or tradeable, if, as here, there are circumstances which warrant

transferabilty of interests. In WX Group, Inc., the 1M Staff permitted the LDX Group to

register shares owned by minority stockholders under the 1933 Act pursuant to a pre-existing

agreement between the minority and the majority shareholders that afforded the former the

right to have their shares purchased or registered by the latter. The 1M Staff in the Western

Air Lines Inc. and Dean Witter Principal Guaranteed Fund III, L.P. letters similarly did not

insist on non-transferabilty, accepting instead representations that an active trading market in

the interests was unlikely to develop, that the trustee would not faciltate the development of

Heidi Sta, Esq.

August 4, 1994

Page 18

a trading market in the interests, would not make a market in the interests or encourage

others to do so. (See also Laers Title of Dallas, Inc., supra, (interests were transferable

qualified tax-free rollover); and Laguna Hills Utility Co. (AvaiL. August 15,

pursuant to a

1983) (interests were tranferable to the majority shareholder)). The 1M Staff has also

granted favorable responses where the requesting parties represented that their shares were

either already publicly traded or at least widely held. (See, e.g., Keyes Offshore Limited

Partership; Merit Clothing Co.; Atlanta/LaSalle Corp.; American Recreation Group, Inc.)

No representation was made in the letters, and the 1M Staff did not require, that such trading

would be terminated or that action would be taen to restrict the transfer of the interests.

In MPC Liquidating Trust the interests were transferable and some trading was

likely, although an active trading market was unlikely to develop. In granting a favorable no

action response, the 1M Staff clarified that interests of a liquidating entity can be

tranferable, and be subject to some trading, so long as an active trading market is unlikely

to develop, the interests are not listed on a national securities exchange or NASDAQ, the

entity wil not faciltate the development of an active trading market or encourage others to

do so, place any advertisement in the media promoting investments in such interests or

collect or publish information about prices at which such interests may be traded, and such

interests wil be registered under the 1934 Act.

HoldingCo and the Manager wil comply with these requirements of MPC

Liquidating Trust. It is likely that following the Consummation Date some trading wil occur

in HoldingCo Common Stock. However, HoldingCo and the Manager believe that it is

unlikely that such trading wil be active or that a significant market wil develop of holders

far beyond the initial holders who are familar with the Debtor and the Acquired Assets.

Such trading is unlikely in light of the lack of a listing in HoldingCo Common Stock, the fact

that HoldingCo and the Manager wil not engage any market maker or collect or publish

inormation about prices at which HoldingCo Common Stock may be transferred as set fort

above, the limited term of HoldingCo and the complexity of the Acquired Assets. Furter,

HoldingCo and the Manager represent that they wil not, and the Manager wil not cause

HoldingCo to, engage the services of any market maker, faciltate the development of a

trading market in HoldingCo Common Stock or encourage others to do so, cause HoldingCo

Common Stock to be listed on any national securities exchange or NASDAQ, place any

advertisement in the media promoting investments in HoldingCo Common Stock or, other

than as required under Item 201(a) of Regulation S-K, collect or publish information about

prices at which HoldingCo Common Stock may be transferred. In addition, HoldingCo

Common Stock wil be registered under the 1934 Act and HoldingCo wil comply with the

reporting requirements under the 1934 Act.

Heidi Starn, Esq.

August 4, 1994

Page 19

IV. Conclusions and Requests for Relief.

. Based on all of the foregoing, it is our opinon that the Liquidating Entities

wil not be investment companies and accordingly wil not be subject to registration or

regulation under the Company Act since they wil be engaged solely in "transactions. . .

which are merely incidental to (their) dissolution" with the meanig of Sections 7(a) and

7(b) of the Company Act. We respectfully request tht the 1M Staff (i) concur with the

opinon of counsel set fort above, or alternatively, (ii) confirm that it wil not recommend

that the Commission tae any enforcement action againt the Liquidating Entities, the

Manager or the Steinardt Group if they proceed in the manner outlined above.

* * * * *

In accordance with Release No. 3306269 (December 5, 1980) we have

enclosed an original and seven (7) copies of ths no-action letter request.

Please do not hesitate to contact the undersigned (Jeffrey S. Sabin, 212­

756-2290 or Stephen R. Nelson at 212-756-2470), or Peter Nussbaum (212-756-2565) who is

also familar with this matter, with any comments, questions or requests for additional

inormation regarding the foregoing.

Very truly yours,

:J el ~ 7. 5qL)ri

Jeffrey S. Sabin ~5ßn

~¡;If ~~

Steplien R. Nelson

cc: Felice Foundos, Esq.

Division of Investment Management

Peter Nussbaum, Esq.