Rule(s):

 801.50

Staff:

Michael Verne

Response / Comments:

 04/11/2011 – Agree – not reportable.

 

Original Image File

 

From:        (Redacted)
Sent:         Monday. April 11, 2011 11:57 AM
To:            Verne, B. Michael
Subject:    Series of Transactions Importance: High

 

Mr. Verne: I left you a voice mail this morning and would appreciate your assistance in determining if the following series of transactions result in any of the parties being obliged to file a Hart-Scott-Rodino Report form.

1.      Individual A owns all the shares of Target, and Individual A owns personal assets that are used in the business of Target. A's personal assets are what give the Target business value.

2.      Party B forms a limited liability company called "Holdco" and contributes $34 million to it.

3.      Individual A contributes his personal assets (used in the business of Target) to Holdco for $12.5 million consisting of (i) $5 million cash (paid from Party B's $34 million investment) and (ii) 18% interest in Holdco, which is valued at approximately $7.5 million.

4.      Individual A also contributes all of his shares of Target to Holdco, the value of which is de minimis.

5.      Holdco contributes $25 million (from Party B's $34 million investment) to Target, which is now Holdco's wholly-owned subsidiary.

6.      Target borrows $22 million from bank. The loan is guaranteed by Holdco.

7.      Target uses the $25 million contribution from Holdco, and the $22 million loan from the bank, which is guaranteed by Holdco, to payoff existing debt of $47 million owed by Target to a different bank.

Individual A has more than $13.2 million total assets and that Party 6 has more than $131.9 million total assets.

A. I am assuming that the formation of Holdco, even if it is deemed to be a joint venture of Individual A and Party B, is not reportable because the only non-cash assets contributed to its formation are Individual A's personal assets and his shares of Target, which together equal approximately $12.5 million. Do you agree?

B. Do the formation of Holdco ($34 million) and Holdco's acquisition of Target ($7.5 million) and Individual A's assets ($5 million), and Holdco's guaranty of Target's loan ($22 million) somehow combine to be a reportable transaction? I don't see it.