Question
[redacted]
December 5, 2000
BY HAND
Mr. Michael Verne
Premerger Notification Office
Bureau of Competition, Room 303
Federal Trade Commission
6th Street & Pennsylvania Avenue, N.W.
Washington, D.C. 20580
Dear Mr. Verne:
This is to confirm our conversation on November 28, 2000 in which you
concluded that the transaction described below was exempt from filing pursuant to 16
C.F.R. 802.63.
The ultimate parent entity includes among its holdings two corporations relevant
to this transaction. S1 is a franchisee and S2 is in business of m making loans to
franchisees of S1. A franchisee is in default on debt owned to S1, S2 and other creditors.
It owes $8.7 million to S2 and $1.4 million to S1. S1 will pay S2 for most of the
franchisees debt owned to it and S2 will forgive the rest of the debt. The franchisee will
then transfer its assets to S1. Also in consideration for receipt of the assets, S2 will
forgive $1.4 million in debt owned to it and put a minimum of $1.7 million in escrow for
unsecured creditors of the franchisee. The total of these and other assumed debts slightly
exceeds $15 million.
You advised me that we could exclude from the calculation of the value of the
transaction the sums owned to S1 and S2, pursuant to 16 C.F.R. 802.63. That rule
provides, in part, that an acquisition of collateral in connection with a bona fide debt
workout is exempt from the act if made by a creditor in a bona fide credit transaction
entered into in the ordinary course of the creditors business. S2 is in the business of
making loans to franchisees such as the debtor, and S1 regularly makes loans to its
franchisees. Even though S1 and S2 are separate corporations, you concluded that since
they both had the same ultimate parent entity, the $8.7 million in debt owned to S2 as well
as the $1.4 million owned to S1 could be excluded from the calculation of the size of the
transaction. These exclusion make the size of the transaction for Hart-Scott-Rodino
purposes less than $15 million and, consequently, not reportable.
Thank you for your assistance, Should you disagree with the above conclusion,
please advise me at [redacted].
Sincerely,
[redacted]
[redacted]