Question
April8, 2004
BY MESSENGER AND FEDERAL EXPRESS
Ms. Nancy Ovuka
Premerger Notification Office
Bureau of Competition
Federal Trade Commission
Room 303, 6t" Street and
Pennsylvania Ave. N.W.
Washington, DC 20580
Re:Hart-Scott-Rodino Compliance Inquiry
Dear Ms. Ovuka:
Thisletter summarizes the telephone conversation that we had yesterday. It sets forththe various considerations resulting in the conclusion that the acquiringperson and the acquired person in the transaction discussed in our conversationand described below are not required to make filings pursuant to theHart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, 15 U.S.C. 18a (the "HSR Act"). For the sake of clarity, I have expandedupon the facts that we discussed in our conversation in certain places in thisletter.
A.Transaction Summary.
Pursuantto a stock purchase agreement (the "Agreement"), the acquiring personwill acquire all of the issued and outstanding equity securities of theacquired person from the shareholders of the acquired person in exchange for$129,447,000 in cash at closing (the "Cash Purchase Price").Additionally, the acquiring person may pay the shareholders of the acquiredperson $10 million of additional cash in consideration of certain post-closingcontingencies.
Theacquired person is a S corporation within the meaning of Sections 1361 and 1362of the Internal Revenue Code. It has 10,000 shares of issued and outstandingequity securities. One hundred of these equity securities are voting securitieswithin the meaning of 16 C.F.R. 801.1(f)(1), i.e., they conferupon their holders the right to vote for the directors of the issuer. Theremaining 2,900 equity securities are not voting securities within the meaningof 16 C.F.R. 801.1 (f)(1), i.e., they do not confer upon theirholders any right to vote for the directors of the issuer. The equitysecurities are held as follows:
(Refer to Original Document)
The voting securities are 1 % ofthe issued and outstanding equity securities of the acquired person (100 =10,000 = 0.01). The non-voting securities are 99% of the issued and outstandingequity securities of the acquired person (9,900 = 10,000 = 0.99).
The Agreement provides that the Cash Purchase Pricewill be allocated on a pro rata basis among all issued and outstanding equitysecurities of the acquired person due to its status as a S corporation. An Scorporation cannot have different classes of stock except for differences invoting rights among shares of common stock. Therefore, the Cash Purchase Price must be allocated on a pro rata basis among allshares. Internal Revenue Code Sections 1361(b)(1)(D) and 1361(c)(4).
B. Allocation of Purchase Price.
Based upon the pro rata allocation of the Cash PurchasePrice between all of the issued and outstanding equity securities of theacquired person, $1,294,470 of the Cash Purchase Price is being paid for thevoting securities of the acquired person ($129,447,000 * 0.01 = $1,294,470).Based upon that allocation, the remaining $128,152,530 of the Cash PurchasePrice is being paid for the nonvoting securities of the acquired person ($129,447,000* 0.99 = $128,152,530). Although the amount of any contingent payments will bepaid to the shareholders on a pro rata basis, the maximum amount that theacquiring person could pay for the voting securities of the acquired personunder the Agreement would be $11,294,470 even assuming that the maximum amountof the potential $10 million of contingent payments was allocated to votingsecurities.
C. Analysis.
Among other threshold requirements, the HSR Act onlyrequires filings where, as a result of the acquisition, the acquiring personwould hold an aggregate total amount of the voting securities and assets of theacquired person in excess of $50 million. As discussed above, this acquisitioncannot result in the acquired person holding more than $50 million of thevoting securities or assets of the acquired person. Accordingly, no filing isrequired for this acquisition under the HSR Act.
Iunderstand that the Premerger Notification Office does informal advice inwriting. However, I would appreciate it if you would call me at (redacted) assoon as reasonably possible to confirm whether or not this letter correctlyrepresents our discussion and the advice that you gave me. Thank you again foryour assistance.