Question
From:(redacted)
Sent:Monday, July 30, 2007 12:51 PM
To:Verne, B. Michael
Subject:FW: HSR Timing
Hi Mike.
Ihope you are doing well and staying cool this summer.
Ihave a question about the timing of an HSR filing for a transaction with anunusual structure. Company A is contemplating entering into a series ofagreements under which it would acquire B through a multi-step transaction.Those steps are described below. Although there may be negotiated changes tothe details of the transaction, those changes are not expected to be materialto the transaction or the structure. The only significant holdings of B are IPthat it hopes to develop into a new pharmaceutical product (hereafter,"B's First IP"), which is in clinical development, and IP relating toanother potential pharmaceutical product (hereafter, "B's Second IP"),which is in pre-clinical development.
(1)A would make payments to, or on behalfof, substantially all of B's stockholders in the aggregate amount ofapproximately $45 million in exchange for options to acquire their shares in B.Under the Option Agreements, A would have the discretionary irrevocable rightto acquire the shares of B held by such stockholders at any time prior to adate certain in 2010 (the "Option Period").
(2)Contemporaneously with entering into theOption Agreements described in #1 above, A and B would also enter into a MergerAgreement under which a subsidiary of A would be merged with and into B.Consideration for the shares of B in the merger would consist of $255 millionin the aggregate. The closing of the merger, and the related exercise of theOption Agreements (the "Second Closing"), would occur at A's solediscretion at any time prior to the date certain in 2010 described in #1 above.
(3) During the Option Period, A would continue, direct,and fund the clinical development of B's First IP pursuant to the terms of aCollaboration Agreement between A and B. Also A (and not B) would have theright, at its discretion, to continue, direct, and fund the development of B'sSecond IP during the Option Period. The CollaborationAgreement will be signed at the time the Option and Merger Agreementsare entered into, and would take effect at the time the $45million is paid andthe Option becomes exercisable (the "First Closing").
Following the First Closing, it is contemplated thatB would have only two officers and no employees. It is possible that some ofB's employees currently involved in the development of B's First IP would behired directly by A. A would be responsible for B's ordinary course operatingcosts and expenses during this time, which are anticipated to be limited to thecosts incurred as result of the Collaboration Agreement.
A and B would form a joint development committeecomprised of the two B officers who would remain with B and two representativesof A. Beginning at the First Closing, the committee would oversee theimplementation of the development plan for B's First IP. A, however, wouldchair the committee and would make all final decisions regarding the implementationof the development of B's First IP, subject to the terms of the CollaborationAgreement. A would have the right to terminate further development of B's FirstIP under specified circumstances. If the development of B's First IP isterminated by A, A would be responsible for the wind-down costs associated withthe termination. Under the Collaboration Agreement, B would be responsible forthe continued prosecution of its I P subject to A's oversight and rights toacquire such responsibility if B does not meet its
responsibilities.
(4) The Option, Collaboration, and Merger Agreements wouldbe terminated if there is a material breach of such agreements by A or if themerger does not occur on or before the date certain in 2010.
Mike, I have three questions for you related to thisunusual structure.
(A)Under these facts, and the reasoningexpressed in Informal Staff Opinion 0511015, an e-mail to you dated November17, 2005, and attached to this e-mail for your convenience, I believe that Awould acquire beneficial ownership of B at the time of the First Closing (whenthe Option becomes exercisable, the $45 million is paid, and operation of thebusiness of B under the terms of the Collaboration Agreement begins) because atthat time A would effectively fund and control B's
operations.Please advise if you agree. (MV comment Agree)
(B) also assume that so long as the parties fileHSR notifications and observe the waiting period before the First Closing, andso long as the First Closing occurs within one year from the expiration ortermination of the waiting period, A and B would not have to file additionalHSR notifications before the Second Closing, whether or not it occurs withinone year of the expiration or termination of the waiting period. Do you agree?(MV comment Agree)
(C)Finally, would B's stockholders have afiling obligation as acquiring persons if the agreements terminate after Aexercises beneficial ownership over B and if threshold tests are met at thattime? Or could the parties take the position that B's stockholders would thenacquire beneficial ownership of B's voting securities through no act of theirown and therefore the acquisitions would be exempt?
Mike,many thanks for your help on this transaction.
Themessage is ready to be sent with the following file or link attachments:
Shortcutto: http://www.ftc.gov/bc/hsr/informal/opinions/0511015.htm