Question
(redacted)
May 10,1991
Victor Cohen
Premerger Notification Office
Bureau of Competition
Federal Trade Commission
600 Pennsylvania Avenue, NW
Room 303
Washington, D.C. 20580
Dear Victor:
This is to confirm our telephone conversation yesterday that the following proposed transaction is not reportable under the Hart-Scott-Rodino Antitrust Improvement Act:
Assume that Company X and Company Y meet the size of the
parties test. Company X proposes loaning Company Y $3 million
until December 15, 1991 at a rate of prime plus 1%. Company X
has the option to loan Company Y an additional $3.5 million on
December 15, 1991. In the event that Company X exercises its
option on December 15, 1991, the combined $6.5 million loan
will be at prime plus 1% for an indefinite term. In addition to
this interest payment, Company X would be entitled to 50% of
the net profits derived from the operating cash flow of Company
Y. Company X will have the right to vote stock proxies in
certain specific circumstances, such as: (1) at the option ofCompany X to force a sale of the assets of Company y; and (2) to veto any consideration by Company Y of filing for voluntary bankruptcy. Company X will not have any rights regarding theappointment of directors in Company Y except to the extent that the removal or appointment of directors may be required to force Company Y to be sold.
As we discussed, Company X would not be considered as controlling Company Y after the t transaction occurs by virtue of the entitlement to 50% of the net profits of company Y or to the right to vote stock proxies in the limited circumstances specified. Furthermore, since the purchase of cash (such as the net profits of Company Y ) is not considered an asset, the purchase of these rights by Company X would not be a reportable event.
Please contact me immediately if I have in any way ,misunderstood your analysis of this matter. Thank you for your assistance.
Sincerely,
(redacted)
(redacted)
cc: (redacted)