Question
From: (redacted)
Sent: Tuesday, December 20, 2005 6:46 PM
To: Verne,B. Michael
Subject: Confirmation re December 16, 2005 Telephone Conversation
Mr. Verne
This email is to confirm my understanding of our telephoneconversation of Friday, December 16, 2005. Our conversation concerned theapplicability of the exemption from the filing requirements of theHart-Scott-Rodino Antitrust Improvements Act of 1976, as amended ("HSR Act"), provided by subsection (d) of 16 CFR Section 802.2 regarding office and residential property.Background
Our client is a commercial homebuilder. As we discussed, our cliententered into a non-binding letter of intent to purchase the homebuilding assetsof another company (the "Seller"). The letter of intent contemplatesthat our client will acquire from the Seller the assets described belowpursuant to the terms of a definitive purchase agreement.
The letter of intent contemplates that our client will acquire thefollowing assets (collectively referred to herein as, the "AcquiredAssets"):
The following three categories of residential lots:
lots that have been subdivided and platted for residential use,but not yet sold to homebuyers, all with varying levels of improvements thereonranging from no improvements to completed residences (the "UnsoldLots");
lots that are under contract with residential homebuyers, but havenot closed, all with varying levels of improvement thereon ranging from pouredfoundations to completed residences (the "Backlog Lots"); and
lots that have been subdivided and platted for residential use,but that have no improvements thereon (the "Future Lots," andtogether with Unsold Lots and Backlog Lots, the "Acquired Lots");
All housing inventory (including all work in progress,specification homes and model homes) constructed on the Unsold Lots and theBacklog Lots (the "Direct Construction"); and
Various other assets relating to the homebuilding business of theSeller, including, without limitation, the Seller's trade name, softwarerelated to its accounts payable, signage, subcontractor agreements and rightsto architectural plans and CAD engineering drawings (the "OtherConstruction Assets").
The acquisitionof the foregoing assets will be structured in a series of closings to becompleted over a period of approximately 48 months. At the initial closing,which the letter of intent contemplates will occur in the first quarter of 2006,it is contemplated that our client will acquire all of the Unsold Lots, BacklogLots, Direct Construction and Other Construction Assets. The letter of intentcontemplates that our client will acquire the Future Lots through a series ofsubsequent closings taking place between June 2006 and April 2010. Subject tofurther due diligence by our client, the approximate values expected to beattributed to these assets are as follows:
Initial Closing:
EstimatedPurchase Price
(dollars inmillions)
Unsold Lots $31.5
Backlog Lots 8.0
DirectConstruction 7.7
OtherConstruction Assets >1.0
Total (initialclosing) $48.2
SubsequentClosings:
Future Lots $55.5
Total PurchasePrice $103.7million
The estimatedaggregate amount that our client expects to pay for the Acquired Lots isapproximately $95.0 million.
Applicability ofRule 802.2(d)
During our call,we discussed my understanding of the scope of Rule 802.2(d) and whether theAcquired Lots would fall within the concept of "office and residentialproperty" set forth in Rule 802.2 (d). Based on our conversation and myreview of Informal Staff Opinion 0503022, it is my understanding that the staffof the Federal Trade Commission Premerger Notification Division interpretssubsection (d)(2)(iv) of Rule 802.2 relating to "assets incidental toownership of such property" as illustrative, but not exhaustive, of"real property that is used primarily for office or residentialpurposes."
Based on theforegoing understanding, I inquired whether the Acquired Lots could qualify as"office or residential property" pursuant to subject (d)(2)(iv) ofRule 802.2. I understood you to conclude that, because the Acquired Lots arebeing purchased together with other residential property assets (i.e.,completed homes and other assets related to the construction of such homes),that the Acquired Lots would constitute "assets incidental to theownership" of residential property, thus, qualifying for the exemptionprovided by Rule 802.2(d). Further, I understood this conclusion to relate toboth Acquired Lots with improvements constructed thereon and Acquired Lots withno improvements but upon which residences are to be constructed. I respectfullyrequest that you confirm that the foregoing understanding of our telephoneconversation is correct by responding t this email.