Question
May 1, 1992
Via Federal Express
Mr. William Schechter
Premerger Notification Office
Bureau of Competition
Room 303
Federal Trade Commission
Sixth Street & Pennsylvania Avenue, N.W.
Washington, D.C. 20580
Re: Notification Report Form for Proposed Stock Acquisition
Dear Mr. Schechter:
I am writing to confirm our discussion today as to whether a filing would be necessary under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, 15 U.S.C. 18a, or the regulations promulgated thereunder, 16 C.F.R. 801.1, et. seq., in connection with a proposed acquisition of voting securities. The proposed transaction is summarized below and in the attached diagram.
A owns B. B does not have regularly prepared financial statements; in fact, the only financial statement of B which has been prepared is a December 31, 1991 unaudited balance sheet which shows a book value of $1.5MM. A and B believe that the assets of B currently have a fair market value of $5.7MM. B does not have any sales.
C proposes to buy 1 share of Bs common stock, which represents less than 1% of Bs issued and outstanding common stock, for (i) $1.00 and (ii) Cs commitment to loan up to $13.5MM to B. A will also provide B with a $13.5MM loan commitment. A and C meet the size-of-the-parties test. A and C will also enter into agreements which give C rights with respect to (but not ownership of) additional shares of Bs common stock which, together with the one purchased share, will equal 50% of the issued and outstanding common stock of B. B does not have any class of capital stock other than common stock. The loan commitments of A and C are subject to several criteria of performance which must be met before B is entitled to make draws under them.
We do not believe that the filing of a Notification and Report Form is required. First, an acquisition of a sufficient amount of the voting securities of B has not occurred. Only one share, representing less than 1% of the voting securities of B, will actually be purchased by C. Accordingly, the transaction does not meet the size-of-the-transaction test.
Second, even if we assume that the sale of one share of common stock together with the agreements between A and C constitute an acquisition of 50% of Bs voting securities, the purchase price of the voting securities (even if the amount of Cs loan commitment is included) will not exceed $15MM. Therefore, a filing will be required only if B has total assets or annual net sales of $25MM or more. This $25MM threshold will not be met because (i) Bs December 31, 1991 balance sheet indicates a total asset value of less than $1.5MM, (ii) A and B in good faith place a market value on Bs current assets of approximately $5.7MM, and (iii) B does not have any sales. Accordingly, the transaction is exempt under Rule 802.20.
If I misinterpreted our conversation, I would appreciate being so advised as early as possible. Thank you for your assistance in this matter. If you have any questions, do not hesitate to contact me directly at (redacted) or at fax number (redacted).
Sincerely,
(redacted)
Enclosure
cc: (redacted)
Attached Graphic