Company Name: American Hospital Supply Corporation
Public Availability Date: March 12, 1973

[INQUIRY LETTER 1]

PRICE, CUSHMAN, KECK & MAHIN
134 SOUTH LASALLE STREET
CHICAGO, ILLINOIS 60603

January 17, 1973

1933 Act/4(1)
Rule 144

January 17, 1973

Securities and Exchange Commission
500 North Capitol Street
Washington, D.C. 20549

ATTENTION: William E. Toomey
Assistant Chief Counsel
Division of Corporation Finance

RE: American Hospital Supply Corporation -
Interpretation under Rule 144

Gentlemen:

We wish to acknowledge and thank you for your letter of October 16, 1972, in response to our letter of September 12, 1972, pertaining to an interpretation of Rule 144(d)(1) under the Securities Act of 1933, as it applies to a transaction between American Hospital Supply Corporation and certain principal stockholders of the Dental Company of Canada, Limited. We have attached hereto copies of both our initial letter to you of September 12 and your response of October 16, 1972. In your letter, you indicated that on the facts as stated, you were unable to determine the commencement of the holding period with respect to the shares in Escrow B. We are interested at this time in obtaining from you such a determination, and we are hopeful that the description contained hereinafter is sufficient for you to make such a determination.

As stated in our letter of September 12, 1972, American and certain principal stockholders of the Dental Company of Canada, Limited ("Denco") entered into an Escrow Agreement in January of 1969, in connection with the acquisition by American of all of the outstanding stock of Denco in exchange for common stock of American. The Escrow Agreement was divided into two parts, Escrow A and Escrow B. With respect to Escrow A, simultaneously with the closing of the acquisition agreement on January 15, 1969, the principal stockholders of Denco deposited into escrow an aggregate of 10 per cent of the total number of American shares issued to them. The purpose of Escrow A was to create an indemnity fund out of the American shares deposited to provide security for the accuracy of the representations and warranties and the fulfillment of the covenants made by the principal stockholders of Denco to American in the acquisition agreement. You have indicated to us that it would appear to you that the risks of ownership were borne by the depositors with respect to shares in Escrow A from the date of the Escrow Agreement and that the holding period of shares in that fund for purposes of Rule 144(d)(1) commenced on that date.

With respect to Escrow B, at the closing of the acquisition agreement on January 15, 1969, the principal stockholders of Denco deposited a total of 6,012 shares of American stock received by them under Escrow B as an indemnity fund to assure payment to Denco by the government of Ontario for the purchase of Denco's leasehold interest in property located at 26 Breadalbane Street, Toronto, Ontario. This property was originally leased to Denco pursuant to a sublease agreement with another corporation in June 1964, providing for occupancy by Denco on December 16, 1968, and for a term of ten years with renewal rights for a further fifteen years. During the interval between the date of the agreement and the Denco occupancy date, the property was occupied by a department of the government of Ontario. The government department concerned approached Denco to indicate that it had a definite interest in continuing its occupancy of the property. An agreement was reached on August 13, 1968, whereby Denco agreed to sell all of its interest in the property to the Government at a price of $200,000.00. This transaction was scheduled to be closed on September 16, 1968. However, the original lessee of the property (from whom Denco received its sublease) sought to obtain a share of the price offered by the Government. Because this matter was not as yet resolved by the time of the closing of the American acquisition agreement on January 15, 1969, Escrow B was established as security for American in case less than the $200,000.00 was actually received by Denco. We understand that a final settlement with the Ontario Government and the other parties concerned has been proposed and is expected to be accepted, which consists of a payment of $85,000.00 for the Denco interest in the property.

Escrow B was established, just as Escrow A was, to protect American from getting less from the Denco stockholders than was bargained for. The leasehold in question was considered by the Ontario Government, in light of the negotiations prior to the Denco acquisition by American, to be worth $200,000.00. Accordingly, American could reasonably expect a resolution of this matter to consist of a payment of approximately that amount. The fact that this payment will in fact be for a lesser amount bears out the prudence of establishing an escrow to cover this matter.

Escrow B, like Escrow A, permitted depositors to substitute collateral for the American shares originally deposited. Also, as in the case of Escrow A, though the shares were registered in the name of the Escrow Agent, the Escrow Agent could only exercise voting rights in any securities deposited in accordance with the instructions of the principal stockholder depositing the securities to which such voting rights pertained. Similarly, dividends paid in cash on stock (or interest on bonds in the event of substitution) deposited in Escrow B were to be forwarded by the Escrow Agent to the principal stockholder making the deposit. The stockholders were not required to pay any further consideration subsequent to the closing to be entitled to the escrowed shares upon settlement of the disputed claim. In these essential respects, the status of the securities in Escrow B is similar to the status of the securities in Escrow A and the reasoning contained in our letter to you of September 12, 1972, with respect to Escrow A also obtains to Escrow B. In addition, we believe this situation with respect to the shares in Escrow B is embraced by the philosophy expressed in the Pennsylvania Life Co. matter in which the SEC staff gave an opinion, under date of October 11, 1972, indicating that both escrowed and earn-out shares were deemed acquired at the original closing.

Based on these facts, it is our opinion that the depositing stockholders carried during the life of Escrow B the full economic risk of the American shares deposited by them in Escrow B and now to be released to them. Accordingly, it is our opinion that for purposes of Rule 144, each depositing principal stockholder beneficially held his shares of American deposited in Escrow B as of the date of deposit, namely, January 15, 1969.

We look forward to hearing from you as to whether or not you concur with our opinion on this matter.

In accordance with Securities Act Release No. 5127, there are enclosed the original and two copies of this letter.

Very truly yours,

Wesley S. Walton

[INQUIRY LETTER 2]

PRICE, CUSHMAN, KECK & MAHIN
134 SOUTH LA SALLE STREET
CHICAGO, ILLINOIS 60603

September 12, 1972

Securities and Exchange Commission
500 North Capitol Street
Washington, D. C. 20549

Re: American Hospital Supply Corporation -
Interpretation Under Rule 144

Gentlemen:

American Hospital Supply Corporation ("American") and certain principal stockholders of the Dental Company of Canada, Limited ("Denco") entered into an Escrow Agreement in January of 1969, in connection with the acquisition by American of all of the outstanding stock of Denco in exchange for common stock of American. The Escrow Agreement was divided into two parts, Escrow A and Escrow B.

Simultaneously with the closing of the acquisition agreement on January 15, 1969, pursuant to which American acquired all of the outstanding stock of Denco, the principal stockholders deposited into Escrow A an aggregate of 10% of the total number of American shares issued to them and the other former stockholders of Denco. The purpose of Escrow A was to create an indemnity fund out of the American shares deposited and thereby provide security for the accuracy of the representations and warranties and the fulfillment of the covenants made by the principal stockholders of Denco to American in the acquisition agreement. Under the terms of the acquisition agreement, the principal stockholders were also liable, jointly and severally, for the accuracy of their representations and warranties and for the performance of their covenants over and above the assets held in Escrow A.

Escrow A further provided for the substitution by each individual depositing principal stockholder of the American shares deposited by him upon certain terms and conditions. In order to facilitate substitution of collateral, the American shares originally deposited by each principal stockholder at the time of the closing were registered in the name of the Escrow Agent. Notwithstanding that fact, Section A.3(g) of Escrow A provided that the Escrow Agent could only exercise voting rights in any securities deposited thereunder in accordance with the instructions of the principal stockholder depositing the securities to which such voting right pertained. Similarly, dividends paid in cash on stock (or interest on bonds in the event of substitution) deposited in Escrow A were to be forwarded by the Escrow Agent to the principal stockholder depositing the stock (or bonds) to which such dividends (or interest) pertained.

The Escrow Agreement further provided that Escrow A should terminate 36 months after the date on which the original deposits were made (January 15, 1969) and that all assets were to be distributed to the principal stockholders depositing the same as their interest may appear at the time of termination.

Since no claims were filed by American against any of the collateral hold in Escrow A, and since no substitution of American shares as originally deposited occurred, on January 15, 1972, the American shares in Escrow A were released and forwarded to each principal stockholder in accordance with the deposits originally made by each principal stockholder. Upon the release of such American shares on January 15, 1972, new stock certificates were prepared in the name of the principal stockholder originally depositing the same in 1969.

Since each depositing principal stockholder of Denco became entitled to his American shares upon the consumation of the exchange described above, and since each depositing principal stockholder of Denco caused the deposit of certain of his American shares into Escrow A but nevertheless retained full dividend and voting rights with respect to such shares, and, further, since each depositing principal stockholder had the right of substitution at any time, it is our opinion that each such depositing principal stockholder carried the full economic risk of the American shares deposited by him in Escrow A. Accordingly, it is our opinion that for purposes of Rule 144 each depositing principal stockholder beneficially held his shares of American deposited in Escrow A as of the date of deposit, namely, January 15, 1969. We base our opinion primarily on the fact that each depositing principal stockholder had the right of substituting other collateral for his American shares, and further upon Rule 16a-8 under the Securities Exchange Act of 1934, which provides essentially that beneficial ownership of a security for purposes of Section 16(a) includes:

* * *

"(2) the ownership of a vested beneficial interest in a trust; and

"(3) the ownership of securities as a settlor of a trust in which the settlor has the power to revoke the trust without obtaining the consent of all beneficiaries;"

* * * It appears to us that each depositing principal stockholder of Denco had a beneficial interest in the securities deposited by him in Escrow A and therefore within (2) above. Further, the fact that each depositing principal stockholder of Denco had the right of substitution as to the American shares deposited by him in Escrow A, such right constituted the ability to revoke Escrow A by him with respect to the American shares deposited by him. Consequently, such American shares fall within (3) above.

Although Rule 16a-8 does not by its own terms apply to Rule 144, we nevertheless believe that it is helpful in determining the Commission's intention of the meaning of "beneficial interest" when it adopted Rule 144. Further, we believe that the term "beneficial interest" should have the same meaning under Rule 144 as it has for the reporting requirements under Section 16 of the Act.

It is our further opinion that the facts in this case are readily distinguishable from the facts in the Communications Consultants, Inc. matter in which the SEC staff gave an opinion under date of April 13, 1972 indicating that certain pledged shares held in escrow were not deemed beneficially owned by the depositing parties until released from escrow.

We believe the principal distinguishing facts are, first, that no right of substitution for the escrowed shares appears to have existed in the Communications Consultants matter. Second, that the pledge of shares into escrow in that matter appears to have been for the purpose of assuring the correctness of certain matters as a condition precedent to closing (i.e., satisfactory examination of NCPS Stock Book, all certificates representing outstanding stock of that company inspected by Arcata's counsel and the receipt of all stockholders' investors' agreements). Obviously, if such conditions had not been met, there would be no closing. In the American-Denco situation, the escrow did not come into existence until the closing and the purpose of the escrow was not to verify facts as a condition precedent to the closing. Quite the contrary, the purpose of the escrow in the American-Denco matter was to create an indemnity fund which could be easily attached in the event of damages to American after the closing in the event of a false representation or warranty or a breach of a covenant by the Denco shareholders. Other shares of American held by the former stockholders of Denco or other assets belonging to them could likely be attached if they could be physically reached. The escrow merely facilitates American's ability to reach certain assets of the former stockholders of Denco.

In addition to Escrow A, Escrow b indemnifying American against certain other possible damages was established at the same time Escrow A was established with substantially identical provisions and we believe your interpretation with respect to Escrow A should apply equally to American shares deposited in Escrow B. Accordingly, we request that your ruling so indicate. In order to facilitate your understanding of the facts in this situation, we enclose a copy of the Escrow Agreement which includes both Escrow A and Escrow B.

If you need further information regarding this matter, please do not hesitate to contact the undersigned.

Very truly yours,

[ Original Text Illegible ]

[STAFF REPLY LETTER]

FEB 9 1973

Wesley S. Walton, Esq.
Price, Cushman, Keck & Mahin
134 South LaSalle Street
Chicago, Illinois 60603

Re: American Hospital Supply Corporation

Dear Mr. Walton:

This will refer to your letter of January 17, 1973 in response to our letter of October 16, 1972 interpreting the provisions of Rule 144(d)(1) under the Securities Act of 1933 as they applied to facts set forth in your letter of September 12, 1972. The Division's letter expressed no position concerning the commencement of a holding period applicable to shares to be distributed out of Escrow B in connection with the acquisition by American Hospital Supply Corporation ("American") of all of the outstanding stock of Dental Company of Canada, Limited ("Denco"). The shares deposited into Escrow B secured the eventual settlement of the value of a leasehold interest of Denco which was to be acquired by an agency of the government of Ontario. In your most recent letter you indicate that a value of $200,000 had been ascribed to the leasehold interest at the time the acquisition agreement was entered into, and that the escrow was intended to secure that value to American rather than to establish a payment fund for an as yet undetermined value.

Based upon the facts set forth in your letters of September 12, 1972 and January 17, 1973, it is this Division's opinion that the holding period for the purposes of Rule 144(d)(1) of the shares to be distributed from Escrow B commenced on the date of the acquisition agreement.

Sincerely,

William R. Toomey
Assistant Chief Counsel

OCT 16 1972

Theodore W. Grippo, Esq.
Price, Cushman, Keck & Mahin
134 South La Salle Street
Chicago, Illinois 60603

Re: American Hospital Supply Corp.

Dear Mr. Grippo:

This is in response to your letter of September 12, 1972 requesting an interpretation of Rule 144(d)(1) under the Securities Act of 1933 insofar as it applies to the following transaction. American Hospital Supply Corporation ("American") and certain principal stockholders ("depositors") of the Dental Company of Canada, Limited ("Denco") entered into an escrow agreement in January, 1969, in connection with the acquisition by American of all of the outstanding stock of Denco in exchange for common stock of American. As a part of the agreement the depositors agreed to place 10% of the American shares to be received by them into an indemnity fund called Escrow A to secure the accuracy of their representations and warranties and the fulfillment of their covenants to American. The depositors also agreed to place American shares worth $200,000 Canadian into a fund called Escrow B to secure Denco's leasehold interest in certain leased property. The term of Escrow A was 3 years and that of Escrow B was to be 10 years unless the depositors and American earlier agreed to settle Denco's leasehold interest or unless it was adjudicated by a Canadian court.

You ask whether the depositors may be deemed to have been the beneficial owners of the escrowed shares from the date of the escrow agreement in light of the various incidents of ownership of the shares retained by them. Although the shares were to be registered in the name of the escrow agent, the depositors retained the right to vote the escrowed shares, to receive dividends thereon, and to substitute cash or other securities therefore as security. Escrow A has terminated and, no substitutions or claims for indemnity having been made, the escrowed shares have been returned to the depositors. We are not advised as to the present status of Escrow 3.

It would appear that the risks of ownership were borne by the depositors with respect to shares in Escrow A from the date of the escrow agreement and that the holding period of shares in that fund for purposes of Rule 144(d)(1) commenced on that date. A review of the agreement establishing Escrow B suggests that the agreed value of the leasehold interest to be secured by the escrowed shares was not fixed and that the purpose of the escrow was to secure an eventual settlement of its value. If no agreement or adjudication of the value was reached within the term of the escrow the shares were to be delivered to American. It appears that the escrow agreement may involve a sale of shares and that the full consideration for the escrowed shares may not be determined until the date on which the value of the leasehold interest was agreed to or adjudicated. Accordingly, the Division is unable to determine from the information in your letter when a holding period with respect to the shares in Escrow B would commence.

Sincerely yours,

William E. Toomey

Assistant Chief Counsel