New Rules Should Facilitate Business Transactions.

On January 1, 2001, two new exemptions to California's usury laws came into effect. New California Corporations Code Section 25118 exempts from the interest rate limitations of California's usury laws (a) debt issued by an entity, or debt guaranteed by an affiliated entity, with assets of at least $2,000,000 on the day the debt is issued or guaranteed, and (b) debt with a total principal amount of at least $300,000 at the time it is issued. For purposes of this second exemption, debt purchased with original issue discount will be exempt if the total purchase price for the debt at the time of issuance is at least $300,000.

Both of the new exemptions are subject to certain exceptions and limitations. First, the exemptions do not apply to debt issued or guaranteed by an individual, a revocable trust with one or more individuals as trustors, or a partnership in which one or more individuals are general partners at the time of issuance. Second, the debt may not be issued primarily for personal, family or household purposes. Third, the lender must either (a) have a pre-existing relationship with the borrower or guarantor or (b) reasonably appear to the borrower to have the capacity to protect its own interests in the transaction. A lender may meet this last standard if it designates its counsel as its professional advisor for purposes of the transaction.

These new exemptions should make it easier for companies to obtain debt financing without running afoul of California's usury laws.

Changes to the Act

On February 1, 2001, significant changes in the filing requirements of the Hart-Scott-Rodino Antitrust Improvements Act took effect. These are the first significant changes to the HSR Act since it was passed in 1976.

The HSR Act requires that companies file notification and report forms with the Federal Trade Commission and the U.S. Department of Justice before completing a merger or acquisition where the value of the transaction and size of the parties exceed specified thresholds. The parties must then observe a waiting period during which the federal agencies determine whether the proposed transaction may be anticompetitive under antitrust laws.

Pre-merger notifications need to be filed under the HSR Act if both the "size of the parties" and the "size of the transaction" tests are met. Previously, under the "size of the parties" test, pre-merger notification was generally required if one side of the transaction had sales or assets in excess of $100 million and the other side had sales or assets in excess of $10 million. The "size of the transaction" test was met if, as a result of the acquisition, the acquiring party would hold at least $15 million or 15% of the voting securities or assets of the acquired entity.

The changes to the HSR Act eliminate the 15% threshold in the "size of the transaction" test and raise the floor amount for this test from $15 million to $50 million. The "size of the parties" test remains unchanged for transactions valued under $200 million; however, any transaction valued at more than $200 million will be reportable without regard to the size of the parties. Beginning in 2005, these threshold amounts will be adjusted annually to reflect changes in the GNP for the previous year.

The amendments to the HSR Act also replace the uniform $45,000 filing fee with a tiered fee from $45,000 to $280,000 depending on the value of the voting securities or assets held as a result of the transaction. The filing fee also will be adjusted annually beginning in 2005 to reflect changes in the GNP for the previous year. Finally, the length of the waiting period that follows substantial compliance with a second request for additional information will be 30 days for most transactions, rather than 20 days.

Benjamin S. Lehrer is with Ervin, Cohen & Jessup LLP.