Question
April 5, 2004
VIA FACSIMILE
Mr. B. Michael Verne
Premerger Notification Office
Federal Trade Commission
600 Pennsylvania Avenue, N.W.
Washington, DC 20580
Re: Hart-Scott-RodinoAct ("HSRAct") Filing Requirements
DearMr. Verne:
We are '1:' to confirm our understanding of theconversation among you, (redacted) of the law firm (redacted) and theundersigned on March 16, 2004.
(Redacted) client, the ultimate parent entity("UPE") of a corporation ("Corp. A") and a limitedpartnership ("LP"), and a co-owner, will transfer to (redacted)client, Corp. B, 100% of the voting securities of Corp. A and 100% of thelimited partnership interests in LP. At this time, the parties have decided ona base price of $95 million. To that figure the parties add the prepaymentpenalties to be paid by Corp. B on the loans that will be prepaid at closing -$3.85 million, for a total of $98.85 million.
It is our position that,for purposes of calculating the size-of-transaction under the HSR Act, the entire debt:of Corp. A including prepayment penalties, should not be included in thepurchase price. Interpretation 93, ABA SECTION OF ANTITRUST LAW, Premerger,Notification Practice Manual (3rd ed. 2003). Likewise, the agreement 'among theparties provides that the purchase price will be reduced by the debt of Corp. Ato be prepaid at closing, $51.3 million, all of the prepayment penalties, $5million, and Corp. A's debt not to be prepaid, $2.5 million, which total $58.8million. That amount should be subtracted from $98.85 million, which leaves $40million approximately. We also noted that Corp. A's debt is not guaranteed byits UPE and Corp. B will wire the funds to prepay the debt and the prepaymentpenalties directly to the creditor.
The final calculation inthe size-of-transaction determination would be to add the positive estimatedworking capital adjustment, if any, to the $40 million figure. If that amountis less than $10 million, approximately, the size-of-transaction would notexceed the $50 million threshold.
The LP's debt of $6.3 million and a portion of theprepayment associated with that debt of $500,000, will be deducted from thepurchase price to be paid to the Sellers, but are not deducted from thesize-of-transaction as the debt of an LP must be added to its purchase pricefor HSR purposes.
Please let us know if the above does not accuratelyreflect our telephone conversation or if you disagree with our analysis. Wevery much a appreciate your help on this matter and do not hesitate to contact,the undersigned at (redacted) if you have any questions.