Question
From:(redacted)
Sent:Wednesday, March 21, 2007 8:25 PM
To:Verne, B. Michael
Subject:Reportability question stock for stock
DearMike,
Hope you are well. In the following transactionCorporation A is acquiring Corporation B through a merger of B into asubsidiary of A in exchange for A voting securities. After the merger Bshareholders will hold 75% of A's voting securities. PIPE financing in which Ahopes to issue additional voting securities valued at up to $125 million is tooccur simultaneously with the closing of the merger. B Shareholder presentlyholds more than 50% of B voting securities. After the merger B Shareholder willhold more than 50% of the voting securities of A.
I see three potentially reportable transactions:
1. Merger of B and A. B is not a publicly traded companyand for such companies, if the acquisition price has not been determined, theacquisition price is the fair market value ("FMV"). I understand instock for stock transactions in which one of the corporations is publiclytraded and the value of the stock has not been determined, I understand thatthe FTC's position is that the parties may use the value of the publicly tradedstock to determine the FMV of the non-publicly traded entity. If that iscorrect the FMV of the B stock will be equal to the value of publicly traded Astock. Under the terms of the acquisition agreement, B shareholders willreceive 75% of A's voting securities in exchange for their B stock. As long asthe total value of 75% of B's stock is less than $59.8 million no HSR filing isrequired.
2. Receipt of A shares. A is a publicly traded companyand for publicly traded companies the acquisition price is the market price ofthe company's stock or the acquisition price whichever is greater (Rule801.10). Here, the acquisition price has not been determined so the acquisitionprice is the market price. The market price is the lowest closing price within45 calendar days prior to the consummation of the acquisition (Rule 801.10(c)(1)).On March 13, 2007, CGI stock was trading at $0.40/share, it has atotal of 19,728,854 shares x $0.40 = $7,891,541.60. Unless any one shareholderwill receive $59.8 million of A voting securities no HSR filing is required.
3. Issuance of addition A voting securities valued at upto $125 million (PIPE financing). Post merger Shareholder B will hold more than50% of A and any subsequent acquisition by Shareholder B of additional A sharesis exempt from HSR filings requirements under the intra-person exemption (Rule802.30). To the extent any other shareholder will hold an aggregate of A votingsecurities valued at $59.8 million or more as a result of the PIPE financingthey may have a separate HSR filing obligation.
Pleaselet me know your thoughts on the three transactions as always many thanks