Question
From: (redacted)
Sent: Thursday, July 12, 2007 3:43 PM
To: Verne,B. Michael
Cc: (redacted)
Subject:Size-of-Person Test
Hi Mike.
I hope you are doing well. It wasnice to talk to you earlier today.
We have a questionabout the size-of-person test and the financials that are used to determine ifa party satisfies the $12 million prong of the size-of-person test.
Company A proposesto acquire all of the voting securities of Company B, a U.S. issuer not engaged inmanufacturing, for $70 million. Company B is its own UPE. Company A has inexcess of $119.6 million in assets or annual net sales. Company B's most recentregularly prepared balance sheet (April 30, 2007) shows total assets ofapproximately $7 million. Company B's most recent regularly prepared annualincome statement (FY 2006) shows total net sales of approximately $71 million.
Largely forhistorical reasons, and because of a contractual requirement contained in anexisting Shareholder's Agreement among the shareholders of Company B, Company Bperforms a US GAAP reconciliation of its annual financial statements, whichrequires Company B to recognize an intangible asset. The reconciliation inCompany B's most recent annual financial statement (12/31/06) shows total assets in excess of $12 million.However, Company B's most recent regularly prepared balance sheet (April 30, 2007) does not show assets in excess of$12 million because it was not performed with a US GAAP reconciliation. CompanyB does not do such reconciliations in connection with its monthly or quarterlyfinancials.
We understand thatwhen determining Company B's size under the size-of-person test, it isnecessary to examine only its most recent regularly prepared annual incomestatement to determine its annual revenues and its most recent regularlyprepared balance sheet (April 30, 2007) to determine its total assets, and wewould disregard the 12/31 balance sheet that was prepared with a US GAAPreconciliation. Please advise if you agree.
Mike, thanks for your help.