0904007 Informal Interpretation

April 16, 2009

VIA US MAIL AND FAX NUMBER (202.326.2624)

Michael B. Verne
Premerger Notification Office
Bureau of Competition
Federal Trade Commission
6th Street and Pennsylvania Avenue NW
Washington, DC 20580

Re: "Size-of-the-Person" JurisdictionalTest and Payment of Extraordinary Dividend

Dear Michael:

This letter is written tosummarize and to confirm the guidance and informal opinions that you haveshared with us during a phone conversation on February 20, 2009 regarding the"Size-of-the-Person" jurisdictional test under the Hart-Scott-RodinoAnti-Trust Improvements Act of 1976, as amended (the "HSR Act"), andthe Commission's implementing regulations thereunder, and in particular, howthe Premerger Office would analyze the consequences of the distribution of apremerger extraordinary dividend on the parties' Premerger Notificationobligations.

As I described in ourconversation, Company A intends to acquire 100% of the voting capital stock ofTarget through either a merger or a stock purchase in a transaction that theparties have preliminary valued at approximately $100 million. Target is itsown ultimate parent entity and is not engaged in manufacturing. Company A hasassets in excess of $200 million. Target regularly prepares month-end balancesheets. Target's most recent February 2009 month-end balance sheet reflectsapproximately $14.5 million in total assets. Of its assets, Target holdsseveral million dollars in "excess" cash -in the sense that the "excess"cash is not currently necessary to support the day-to-day operational workingcapital needs of Target. Target may declare and pay an extraordinary dividendof at least a portion of its excess cash to its shareholders sometime in March resultingin Target having less than $13.0 million in assets as reflected on its nextregularly prepared balance sheet as of March 31, 2009.

For a proposed transactionvalued in excess of $65.2 million and up to and including $260.7 million to bereportable under the HSR Act, the parties to the transaction must meet the"Size-of-the-Person" jurisdictional test. In this regard, if anacquiring person with over $130.3 million in total assets or annual salesintends to acquire the voting securities or assets of a person not engaged inmanufacturing, the acquired person must have at least $13.0 million in totalassets as reflected on its last regularly prepared balance sheet. Furthermore,Section 801.90 of the Commission's implementing regulations provides that "[a]nytransaction(s) or other device(s) entered into or employed for the purpose ofavoiding the obligation to comply with the requirements of the [HSR Act] shallbe disregarded, and the obligation to comply shall be determined by applyingthe [HSR Act] and these rules to the substance of the transaction."

Opinion No. 195 of the PremergerNotification and Practice Manual (Third Edition 2003) responds to a questionsubmitted to the Premerger Notification Office inquiring whether a Section801.90 problem arises where shortly before the closing of a transaction anacquired person "declares an extraordinary (and accelerated) dividend thatreduces its size below $10 million [($13 million as currently inflationadjusted)] on its next regularly prepared balance sheet which is prepared bythe time of closing." In response to the question, Opinion No. 195 statesthat it does not view the extraordinary dividend as a device for avoidance inthat the HSR Rules of Practice instructs that the size of the person is to bedetermined by referring to its financial statements prepared in accordance withthe accounting principles normally used. If the statements had been prepared ona regular basis in accordance with the person's normal accounting practices andshow that the person does not satisfy the relevant"Size-of-the-Person" jurisdictional test, the proposed transactionwould not be reportable.

Based on the facts of theproposed transaction, if the parties were to close the transaction prior to thepreparation of the regularly prepared balance sheet that reflects the reductionin assets following the payment of the dividend described above, the HSR Actand its implementing rules would mandate that the parties make the appropriatepremerger notification filings with the Federal Trade Commission and Departmentof Justice. (The other jurisdictional elements of the HSR Act are satisfied).However, based on Opinion No. 195, and prior informal interpretations renderedby the Federal Trade Commission staff, you confirmed that if the acquiredperson would issue an extraordinary dividend such that its total assets asreflected on its regularly prepared balance sheet would be less than $13.0million, the parties to the proposed transaction would fail to satisfy the"Size-of-the-Person" jurisdictional test under the HSR Act.

As we discussed during our phoneconversation on February 20, while the cash that would be subject to theextraordinary dividend is excess in the sense that it is not necessary forTarget's day-to-day working capital needs, Target would likely not be issuingthe dividend in the absence of the proposed transaction with Company A. Thatsaid, in light of the proposed transaction, Target will be making theextraordinary dividend regardless of any HSR implications. The timing of theissuance of that dividend, however, may be, at least in part, motivated by theconsequences of the dividend on the parties' obligations under the HSR Act. Inthis regard, Opinion No. 194 of the Premerger Notification and Practice Manualis instructive in opining that the parties' decision to delay a closing until atarget's next balance sheet reflecting a reduction in total assets would not beviewed as a potential transaction or device for avoidance. According to OpinionNo. 194, the Size-of-the-Person jurisdictional test is a bright line testapplied at the time of closing, and "[p]ostponing the closing date until anew regularly prepared balance sheet is available that would cause thetransaction to fail the Size-of-the-Person test would not result in violationof Section 801.90."

We understand that the issuanceof the extraordinary dividend does not raise avoidance issues under Section801.90 of the HSR Act and implementing rules even though the issuance of thedividend occurs shortly before a proposed transaction and results in thefailure of the acquired person meeting the "Size-of-the-Person"jurisdictional test. So long as the extraordinary dividend is actuallydistributed, a regularly prepared balance sheet prepared in the ordinary courseof business and consistent with Target's past practice reflects the issuance ofthe dividend prior to closing, and the balance sheet accurately reflectsTarget's size, the ''Size-of-the-Person'' threshold will not be exceeded and thereis no reason to implicate Section 801.90 on these facts.

We understand that the PremergerNotification Office staff concurs with this interpretation of the HSR Act andits implementing rules and regulations.

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Please let us know if you haveany questions concerning this letter or require any additional intonation. Ifyou disagree with the above analysis in any manner whatsoever, please call meat your earliest convenience to discuss the issues in further detail. As always,we very much appreciate your attention to this matter.