Question
From(Redacted)
Sent: Tuesday, April 07, 2009 4:24 PM
To: Verne, B. Michael
Subject: Thisweek's puzzler
Mike: May I enlistyour interpretational assistance on the following problem?
Corporate Issuer hasmultiple shareholders, none controlling. Issuer will create an upstreamcorporate holding company ("Holdco") that will hold all of the votingsecurities of Issuer.
All of the currentshareholders of Issuer will be offered the opportunity to contribute theirshares of Issuer to Holdco, and to receive voting securities of Holdco inreturn.
I understand thePNO takes the position that if all the shareholders participate and everybodyends up with the same percentages of Holdco shares as they had of Issuershares, no filings are required from anybody.
However, it isexpected that some of Issuer's current shareholders may elect not toparticipate. They will continue to hold their shares of Issuer, and theshareholders electing to exchange their Issuer shares for Holdco shares willhave the opportunity to acquire the unsubscribed shares of Holdco.
Assume for thispurpose that some of the current shareholders of Issuer will acquire a largerpercentage of Holdco shares than the percentage of Issuer shares theypreviously held, and others of the current shareholders of Issuer will acquirethe same or smaller percentages Holdco shares than the percentages of Issuershares they previously held.
Here are myquestions. I assume the shareholders who acquire larger percentages of Holdcoshares have to file, if SOP and SOT tests are met. Do the shareholders whosepercentage holdings in Holdco do not exceed their percentage holdings of Issueralso have to file, assuming SOP and SOT tests are met?
In other words, doyou extend that 7A(c)(10) and 802.10 analogy to this latter group ofshareholders? Or is the entire formation of Holdco reportable? If it'sreportable, is it reportable under 801.40?
Does it make adifference whether the participating shareholders acquire the additional sharesof Holdco that the non-participating shareholders don't acquire, as opposed tojust leaving those unsubscribed Holdco shares unissued? The result would bethat participating shareholders' percentage holdings of Holdco would neverthelessexceed their percentage holdings of Issuer, because the denominator in thepercentage calculation would be smaller.