Question
July 24, 2007
VIA EMAIL & REGULAR MAIL
Kathryn E. Walsh, Esq.
Premerger Office
Federal Trade Commission
6`h St. & Pennsylvania Ave., N.W.
Washington, DC 20580
Dear Kate:
I am writing to confirm the analysiswe set out in our conversation of Monday noon (in which (redacted) also participated). I hadforwarded to you the following description of a series of steps in anintegrated transaction, and I understand that you forwarded the description toMike Verne and consulted with him in confirming your analysis and conclusions.
1.Sis the owner of all of the issued and outstanding stock of C, a privately heldcompany (100,000 shares).
2.Cwill issue and sell to B, 65,000 validly issued, fully paid and nonassessablenew shares (the "Investment Shares") of C which (after giving effectto the repurchase set forth in 5, below) constitute 65% of the shares of C, for$32.5 million.
3.C.,S and B will enter into a stockholders' agreement pursuant to which B will havethe power to name a majority of the Board of Directors of C and will providecertain protections for S as minority holder (S will be a minority holder afterthe repurchase set forth in 5, below).
4.Cwill enter into a credit agreement with a syndicate of lenders providing for a$[57] million senior credit facility, including a revolving credit facility,and will use the proceeds of this financing to repay all of C'sthen-outstanding indebtedness and to consummate the repurchase described in thenext paragraph.
5.Cwill repurchase from S 65,000 shares of C stock, such that S will own 35,000shares of C stock (35% of the shares of C stock then outstanding, after givingeffect to the sale of the Investment Shares identified in 2, above), inexchange for the sum of $82,850,000, subject to reduction for C's existing debtand adjustment for cash and tax benefits in C and payment of certain expensesof the transaction (adjusted amount expected to be, for talking purposes,around $60 million).
6.Thetransaction documents recite that all of the steps outlined above happensimultaneously.
We all agreed that the transactionset forth in step 2, above, is not reportable because it fails the "sizeof transaction" jurisdictional test (as a private company and with thepurchase price already determined, the "size of transaction" is $32.5million, per rule 801.10(a)(2)(i)). We also agreed that this conclusion was notaltered or affected by the repurchase set forth in step 5, even though the65,000 shares to be repurchased will have an adjusted purchase price ofapproximately $60 million.
We did not discuss step 3 in anydetail, but I think that step 3 does not grant any rights to B that are anydifferent from the rights of ownership resulting from the transaction in step2. Step 4 is a financing transaction and not an acquisition of votingsecurities or assets, and so does not implicate the HSR notification rules. Theissuer's repurchase of its own shares in step 5 is an intra-person transactionexempted from HSR notification by rule 802.30. While we did not dwell on thestatement set forth in 6, I believe that there is not any conceivable sequenceof these steps that would change the conclusion that the series of steps, takenas a whole, are not reportable.
Best regards,