In October, the Department of Justice obtained a half a million dollar penalty against Iconix Brand Group for omitting "4(c)" documents in its Hart-Scott-Rodino Act premerger notification.  For lawyers and companies involved in mergers, acquisitions and joint ventures, the DOJ’s actions make clear that HSR filings, including their more technical aspects, are no minor matter and call for diligence.

The HSR Act imposes premerger notification and waiting period obligations on transactions over a certain size,[1] where the parties are over a certain size,[2] before those transactions may be completed.[3]  Each "person" who is a party to an HSR-reportable deal must file an HSR notification with the DOJ and the Federal Trade Commission.

Under Section (d)(1) of the HSR Act, the FTC, with the DOJ’s concurrence, is authorized to require that the HSR notification be in the form and contain the documentary material and information that is necessary to determine whether the acquisition, if completed, may violate the antitrust laws.  Accordingly, Item 4(c) of the HSR notification form requires the parties to submit with their HSR filings "[a]ll studies, surveys, analyses and reports which were prepared by or for any officer(s) or director(s)…for the purposes of evaluating or analyzing the acquisition."

Iconix owns a portfolio of fashion brands.  On March 6, 2007 it and Rocawear Licensing LLC signed an asset purchase agreement whereby Iconix would acquire Rocawear’s names, brands and other assets.  Each filed an HSR notification on March 14, 2007.  Neither of them submitted a single Item 4(c) document with the filing.  As all HSR filings require, Iconix and Rocawear included a sworn statement that the information submitted in the filing was to the best of their knowledge, "true, correct and complete."  The next week the FTC telephoned Iconix to verify that an appropriate search had been conducted for 4(c) documents.  Iconix’s counsel told the FTC that the company had duly searched for 4(c) documents and no such documents existed.  The FTC and DOJ cleared the acquisition, finding it did not raise competitive issues.

Soon after however, the DOJ opened an investigation to determine whether Iconix "in fact had undertaken an acquisition requiring more than $200 million in financing without its officers or directors having prepared or reviewed documents that evaluated or analyzed the proposed acquisition with regard to competitive factors that would be responsive to Item 4(c)."[4]The investigation uncovered three documents responsive to Item 4(c).  One document was an email addressed "To the Iconix directors", sent also to several Iconix officers, describing Rocawear as a "leader in the urban lifestyle category" and the acquisition as "a great opportunity to expand into this market segment [and] in new categories [including] international tie-ins."  Another document was a presentation sent to Iconix’s Executive Vice President describing "Rocawear’s presence in the urban lifestyle market," with charts showing Rocawear’s and its competitors market shares.  The third document included materials prepared for an Iconix Board of Directors meeting, sent to all members of the Board, including the same market share data that Iconix’s Vice President received.

In some instances, it might not be clear whether a document is a 4(c) document.  This case does not appear to be one of them.  All of the above documents were prepared by or for Iconix’s officers or directors and evaluated and analyzed the proposed acquisition with respect to market shares, competition, competitors, markets, and potential for sales growth or expansion into product or geographic markets.  The DOJ thus filed a complaint in United States District Court for the District of Columbia, alleging that Iconix’s failure to submit documents it knew or should have known were responsive to Item 4(c) violated the HSR Act’s reporting and waiting requirements.  The maximum amount of civil penalty for each day that a person violates the HSR Act is $11,000 per day.  Iconix was thus exposed to liability for nearly $1 million, as it was allegedly in violation of the Act for 85 days.  The company ultimately paid $550,000 as it agreed to the DOJ’s settlement offer.  The DOJ’s investigation teaches that the government treats the HSR Act’s filing requirements seriously, even when a proposed transaction does not raise substantive, competitive issues.

Authored by:

Heather M. Cooper

(213) 617-5457

[1]           See 15 U.S.C. § 18a.  Notification is required if the acquiring person will acquire and hold certain assets, voting securities, and/or interests in non-corporate entities valued at more than $59.8 million.  In asset deals, the value of the assets is either the acquisition price or the fair market value of the assets, whichever is higher.  In stock deals, the value of the stock is determined by the acquisition price or the market price, whichever is higher.  Debt assumed counts toward the size of transaction test in asset deals but usually not in stock deals.

[2]           Transactions valued at more than $239.2 million are not subject to the size of person test and are therefore reportable.  Otherwise, to meet the size of person test, generally one "person" to the transaction must have at least $119.6 million in total assets or annual net sales, and the other must have at least $12.0 million in total assets or annual net sales. Where the acquired person is not in manufacturing, only total assets are considered in calculating the acquired person’s size of person.

            The size of person test measures the size of the "ultimate parent entity" of the buyer and seller.  The "ultimate parent entity" is an entity or natural person that controls the buyer or seller and is not itself controlled by anyone else.  The Act defines "control" as either (1) holding 50 percent or more of the outstanding voting securities of an issuer, (2) in the case of an entity that has no outstanding voting securities, having the right to 50 percent or more of the profits of the entity, or having the right in the event of dissolution to 50 percent or more of the assets of the entity; or (3) having the contractual power presently to designate 50 percent or more of the directors of a corporation, or in the case of unincorporated entities, of individuals exercising similar functions.

[3]           The waiting period is 30 calendar days.  If the filing parties so request, the agencies may grant early termination of the waiting period after they have completed their review of the proposed transaction.

[4]           Complaint, ¶ 19, available at: