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Date
Rule
801.11
Staff
Michael Verne
Response/Comments
Advised - I think that you have two potentially reportable transactions. 801.11 (e)(2) says that the size of an acquired person that does not have a regularly prepared balance sheet is "all assets held by the acquired person at the time of the acquisition". Since we don't recognize simultaneity, we would have to analyze the three acquisitions sequentially. The first investor (pick one) is not reportable since the corp will have assets of less than $10 MM. The second will be reportable if the investor is a $100 MM person, since the acquired corp will now have $60+ MM in assets. The third will be reportable if the investor is a $10 MM person since the acquired corp will now have $120+ MM in assets.

Question

From:(redacted)
Sent: Friday, December 19, 2003 8:52 AM
To: Verne Michael
Subject: Question

Ican't decide whether this question is simple and straightforward or not.

Anexisting corporation has a number of shareholders (none controlling), nooperations and relatively small assets. It has never created a balance sheet inthe ordinary course of its business. Three investors (none under commoncontrol) decide to use this corporation as an acquisition vehicle for asubsequent transaction. In order to do so, they agree that each will contribute$60 million to the existing corporation, receiving newly issued shares of thecorporation in return.

Do Ihave three non-reportable acquisitions, because the pro forma balance sheet forthe existing corporation will show less than $10 million of assets for eachone? Or do I have to include $120 million on the pro forma balance sheet foreach of the three $60 million acquisitions, and all three become reportable?

Eventhough 801.11 (e) doesn't apply to an acquired person, this situation isinterestingly analogous because if you decide that the three transactions areall reportable, you're counting the same assets toward the size-of-person andthe size-of-transaction test, which is what 801.11(9) was designed to obviate.

Bythe way, I assume it's clear that 801.40 doesn't apply, simply because theissuer corporation is already in existence (and let's assume that it wasn'toriginally created with this investment and acquisition vehicle scenario inmind).

~Z(l~ro3

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