9911011 Informal Interpretation

(redacted)

November 23,1999

VIA FACSIMILE

Bernard Rubenstein, Esquire
Premerger Notification Office
Bureau of Competition
Room 303
Federal Trade Commission
Washington, D.C. 20580

RE:Hypothetical on Applicability of Hart-Scott-Rodino (HSR) Act Filing Requirements

Dear Mr. Rubenstein :

This letter is a follow-up to two previous telephone discussions we had on October 26, 1999 and November 10, 1999 regarding the application of the filing requirements of the HSR Act to a particular hypothetical transaction which I presented to you. You had provided me with informal advice, after consultation with your colleagues, regarding the filing requirements with respect to the hypothetical transaction. Your last voice-mail message indicated that you would welcome further discussion to clarify your earlier comments.

I have attached a descriptive summary of the hypothetical transactino which we discussed and a brief summary of the applicable provisions which we reviewed prior to making our inquiries to you. I would appreciate it if you could review the attached summary and call me so we can further discuss this matter.

If you have any questions, please give me a call.

Very truly yours,

(redacted)

Attachement

(redacted)

Summary of Proposed Transaction

Corp. A and Corp. B, unrelated entities each of which is assumed to have in excess of $100 million in annual net sales, create a new company (Joint Venture) which is initially capitalized with a $50,000 contribution by each of Corp. A and Corp. B. In exchanged for their contribution, Corp. A and Corp. B each receive 50% of the voting securities of the Joint Venture and the right to designate 50% of the directors.

Corp. B then purchases 50% of the voting securities of a wholly-owned subsidiary of Corp A (Sub 1") for approximately $8-9 million. Sub 1 is a holding company which owns 100% of the voting securities of two operating subsidiaries, one of which has total assets on its balance sheet of approximately $39 million (Sub 2"). Of the approximately $39 million of total assets on Sub 2's balance sheet, about $32-33 million are classified as bonds (a number of them being short-term government obligations) which Sub 2 holds as a reserve against insurance claims of its customers. The Stock Purchase Agreement for Corp. Bs purchase of 50% of the voting securities of Sub 1 provides that immediately upon consummation of such sale, each of Corp. A and Corp. B shall contribute their respective 50% ownership interests in Sub 1's voting securities to the Joint Venture.

A chart of diagrams summarizing the proposed transaction is attached hereto (graphics)

The above transaction would appear to be exempt from a filing requirement by reason of application of Section 7A(c)(2)(A) of the HSR Act and Rules 802.4. The reason for the exemption would be a failure to satisfy the Size-of-Transaction Test. If the proposed transaction is viewed as a formation of a joint venture, then the provisions of Rules 801.40 would apply in determining if a filing is required.

Issue Presented

Our understanding of the key dispositive issue in determining if a filing is required for the proposed transaction is how the assets of the Joint Venture are counted in determining if the Size-of-Transaction Test is met under the rules for formation of a joint venture. Specifically, is Rule 802.4 applicable to exclude certain exempt assets when determining if the Size-of-Transaction Test is met in the formation of a joint venture? (Note #1)

It is our belief that Rules 802.4 could be applied to the proposed transaction to exclude the value of the bonds (Note #2) held by Sub 2, thereby resulting in Corp. A and Corp. B receiving voting securities of an issues, the Joint Venture(through contribution of the stock of Sub 1), which has annual net sales and total assets less than $25 million (and non-exempt assets less than $15 million. (Note #3). Thus, the Minimum Dollar Value exemption under Rule 802.20 would apply to result in the transaction not satisfying the Size-of-Transaction Test under the joint venture provision in Rules 801.40 (Note #4).