us-ftc-hsr-informal-interpretations-6b81f75bc7963cf10b57942781498d8c•0803004 Informal Interpretation
0803004 Informal Interpretation
us-ftc-hsr-informal-interpretations-6b81f75bc7963cf10b57942781498d8c0803004 Informal InterpretationGuidance
Question
From:(redacted)
Sent:Tuesday, March 04, 2008 2:14 PM
To:Verne, B. Michael
Subject:Informal Interpretation
DearMike,
Thankyou for taking the time to speak with me yesterday. I want to confirm that Icorrectly understand our conversation. In our call I presented you with thefollowing facts:
CompanyA, an insurance company, is acquiring Company B, an insurance agent. CompanyB's total assets, as reflected on its most recent, regularly prepared balancesheet, are greater than $12.6 million. A large percentage of these assetsconsist of insurance premiums that are collected by Company B as agent forCompany A, never held by Company B, anddeposited into Company A 's account. Notwithstanding that Company B never holdsthe funds collected, Company Bcarries a receivable for the premiums due and corresponding payable solelybecause it would nevertheless owe these amounts to Company A if thosefunds were not collected. Company B to date has not been required to remit anyfunds to Company A which were uncollectible. Company B proposes to take thefollowing actions prior to closing of the proposed transaction with Company A:
(1)Issue a cash dividend to itsshareholders.
(2) Enterinto an agreement with Company A pursuant to which Company B will no longer beliable for any uncollected funds owed to Company A. Although Company B willcontinue to serve as a collection agent for Company A and deposit collectedfunds directly into a Company A account, Company B will have no liability foruncollected receivables. Accordingly, the amount of the receivables forinsurance premiums owed to Company A will not be carried on Company B's balancesheet.
(3) Goingforward, Company B will modify its accounting policies to put into effect themodified agreement with Company A and no longer carry the premium receivablesand corresponding payable on Company's B balance sheet.
As a result of these actions, Company B's total assets asreflected on its next regularly prepared balance sheet (which will be created prior to the acquisition ofCompany B by Company A) will have total assets of less than $12.6 million.
Presentedwith these facts, you confirmed that these actions would not constitute atransaction or device for avoidance under 16 C.F.R. sec. 801.90.
Please let me know assoon as possible if I have misstated our conversation in any way. As always, thankyou for your time and assistance.
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