Question
From:(redacted)
Sent:Saturday, April 01, 2006 6:05 PM
To:Verne, B. Michael
Subject:HSR inquiry re: exclusive licenses/option contracts
Dear Michael:
Thisemail follows up on our conversation on Thursday. Please let me know if youagree with this analysis.
TheLicensor will license to Licensee a trademark to use on a line of products forthis Licensee.
Largelythe license is exclusive to the Licensee, save for reservations by the Licensorto also sell the products via an on-line or other retail outlet. The exclusiveproducts will be manufactured by the Licensee or a third party on behalf of theLicensee. However, in the case of sales by the Licensor, consumers are eitherreferred to the Licensee or the Licensor "purchases" product from theLicensee for 20% above the landed cost. You indicated that this was anexclusive license for the purpose of HSR, and that the transaction may bepotentially reportable if it meets the thresholds.
Assumingan exclusive license, the fair market value of the royalty contract is below$50 million. The term of the agreement is 5 years with the option of a renewalof the agreement at the discretion of the Licensee. The purpose of the optionis to allow the Licensee to renew the agreement if it is profitable or to ceasethe arrangement if it is not working.
Youindicated that if the length of the contract is not a sham but is based on goodbusiness reasons, that the value of the transaction is below the "size ofthe parties" test and no filing is required. Further, upon exercise of theoption, there would be no aggregation with prior royalties, but that theparties would have to value the next term going forward to determine if thethen current HSR thresholds are met by the renewed contract.
Thanks for your assistance with this.