Question
From: (REDACTED)
Sent: Monday, July 28,2008 3:21 PM
To: Verne, B. Michael
Cc: : (REDACTED)
Subject: FW: question regarding management agreement
Hi, Mike:
We have a question regarding whether theexecution of a management agreement could be deemed an acquisition of assetsunder certain circumstances, possibly triggering reporting under the Act.
A, a private equity fund, is entering intoan agreement with Seller to purchase all of the issued and outstanding votingsecurities of B, a company owned by Seller (the "Transaction"); atthe same closing A will enter into an option agreement with Seller whichprovides that either A or Seller upon the occurrence of certain conditionsprecedent can require the other to enter into a Management Agreement with theother with regard to C, another company owned by the Seller, within a year's time(the "Option Agreement"). The value of the Transaction is below theHSR reporting threshold and the Option Agreement does not give rise to areporting at present because there is no acquisition and at most such optionrepresents a convertible voting security.
However, A is concerned that if it decidesto exercise -or is caused to exercise -the option granted under the OptionAgreement, the execution of the Management Agreement (the "Agreement")may be viewed as a transfer of assets from Seller and subject A and Seller toHSR reporting (prior to exercise) since the combined value of the Transactionand the Agreement (for which additional consideration will be paid by A) isexpected to exceed the HSR threshold.
As noted, C is a corporate entity in themedical space owned solely by Seller, a doctor; A is prevented from owning Cdue to various "corporate practice of medicine" doctrines, whichprohibit ownership by non-doctors. Under the Agreement, A will assume all ofthe administrative duties of C and have the sole and absolute authority andresponsibility to manage and operate C, except providing the actual medicalservices; A will also be entitled to all profits of C but will not bear anyrisk of loss if C performs poorly. Record ownership of C's voting stock, allmedically-related decision-making and risk of loss will remain with Seller.
We think under these circumstances, that theentry into the Agreement would not be deemed to be a transfer of assets, which,when aggregated with the earlier Transaction would require reporting. Do youagree?
Thanks,