Question
February 1, 1995
Nancy Ovuka, Esq.
Staff Attorney
Pre-Merger Notification Office
Federal Trade Commission
6 Pennsylvania Ave. N.W.
Room 603
Washington, D.C. 20580
Re: Telephone conversation of January 31, 1995
Dear Nancy:
I am writing to confirm our telephone conversation yesterday, during which we discussed the staffs position with respect to the requirement in Rule 801.11(c)(2) that the total assets of a person shall be as stated on the last regularly prepared balance sheet of that person. Specifically, I informed you that I have a client that is contemplating a transaction which meets the Size-of Transaction test, and in which the acquiring party clearly meets the Size-of Person test. My client is a small company in the developmental stages with little or no operating revenue, and which relies heavily upon venture capital to fund its operating expenses. As a result, its balance sheet assets routinely rise above and fall below $10,000,000, as new cash is infused into the company and is expended at a substantial monthly rate. The company prepares a balance sheet each month which fits the definition of a regularly prepared balance sheet under the rules.
My clients assets as of the most recently prepared balance sheet exceed the $10,000,000 threshold, but it expects that its assets will fall below the threshold as of the next regularly prepared balance sheet. The parties would like to commit to the transaction in the near term, at which time the Size-of-Parties test would be satisfied, to be consummated within a reasonable period, at which time it is currently anticipated that the test will not be satisfied.
I conveyed to you that it was my understanding that the staff applies a bright line test in which the asset test is applied to the last regularly prepared balance sheets as of the date of consummation. The parties assets at the date of the agreement are irrelevant. Moreover, the fact that consummation of the transaction is timed with an eye toward the expected assets as of the date of consummation is not a device for avoidance as long as the balance sheet test is satisfied. You confirmed that this was indeed the staffs view.
Thank you very much for your assistance. I enjoyed talking to you.
Very truly yours,
(Redacted)
(Redacted)