Question
From: (redacted)
Sent: Friday, May 05, 200610:40 AM
To: Verne, B. Michael
Subject:Automatic Warrant Exercises
Hi Mike.
Thank you for your advice this morning concerning whetherthe automatic exercise of a warrant on a day certain in the future could be HSRreportable. I have learned a few more facts since we talked and wonder whetherthey would change the analysis and conclusion.
Specifically X holds a warrant to acquire votingsecurities of Y. The warrant may be exercised at any time by X. If it is notexercised by the earliest of a date certain in the future or a change ofcontrol of Y, the warrant terminates and it will be deemed to have beenexercised automatically immediately prior to the termination pursuant to acashless net exercise.
At the time X acquired the warrant, Y was notpublicly traded and there was no certainty Y would have an IPO. Subsequent toX's acquisition of the warrant, Y did have an IPO. Therefore, if X does notexercise the warrant before the date certain, the warrant will in factautomatically terminate and X will receive voting securities of Y in a netexercise.
Significantly, at the time that X acquired thewarrant, there was no certainty that X would ever acquire voting securities ofY under the warrant. If Y had remained a private company, then under the termsof the net exercise provision of the warrant, the board of Y would havedetermined in good faith the fair market value of a share of Y stock forpurposes of the automatic net exercise should the warrant have terminated on adate certain. If the Board had determined that the fair market value of a shareof Y stock would be less than the exercise price, then under the terms of thenet exercise provision of the warrant, X would not have received any shares ofY voting securities upon the automatic termination of the warrant.
Please advise if under these facts, X would not havea filing obligation should the warrant automatically terminate on a datecertain in the future through no act of X and, as a result, X automaticallyreceives certain shares of Y voting securities.