Question
From: (redacted)
Sent: Sunday, November 04, 2007 11:17 PM
To: Verne, B. Michael
Cc: (redacted)
Subject: Questionconcerning the "Size of the Transaction Test"
and "Third Party Bank Debt."
We are emailing you in order to seek your view as towhether or not the below-mentioned transaction would be reportable under the Hart-Scott-RodinoAntitrust Improvements Act of 1976, as amended (the "HSR Act"). Weare counsel to Company A which will shortly enter into a Stock PurchaseAgreement to purchase all of the outstanding capital shares of Company B fromthe shareholders of Company B for an acquisition price of approximately $67million subject to a working capital adjustment.
Our question to the Premerger Notification Office("PNO") relates to how the purchase price for purposes of determiningcompliance under the size of the transaction test is calculated when it iscontemplated that a portion of the purchase price at the closing will be usedto satisfy certain third-party bank debt of Company B in the amount ofapproximately $17 million. None of the Selling Stockholders of Company B haveguaranteed repayment of Company B's debt obligation to said third-party banks.At the closing, the purchasers, at the direction of the sellers, will direct aportion of the acquisition proceeds directly to said third-party banks orsellers will receive such proceeds and simultaneously pay off said third-partybank debt of Company B. In addition we are advised that approximately $10million of the proceeds will be directed to pay off a promissory note issued byseveral of the selling shareholders or their affiliates.
In both Informal Interpretation Nos. 88 and 91, appearingin the ABA Section of Antitrust Laws's Premerger Notification Practice Manual(4th Edition, 2007), the PNO has indicated that a portion of the purchaseprice, which will be used to pay off or satisfy third-party bank debt, shouldnot be included in the calculation of the purchase price for purposes of determining compliance under thesize of the transaction test. For the purposes of this email, please assume that the amount ofthe working capital adjustment as well as any other adjustments to the purchaseprice will be nominal and that all parties meet their applicable size of theperson tests.
Our view is that the purchase price for purposes ofdetermining compliance under the size of the transaction test is under $59.8 million.
Basedupon our description of the facts and circumstances as described above, wouldyou agree with our view that this transaction would not be reportable under theHSR Act?