Question
From: (redacted)
Sent: Thursday, September 24, 2009 11:51 AM
To: Verne, B. Michael
Subject: Section 802.4
Mike,
I'm working on atransaction with a contingent payment. Our client, the acquiring person, iscurrently valuing the contingent payment to determine the acquisition price andwhether the transaction meets the size-of-transaction threshold.
I am alsoconsidering whether the transaction may be exempt pursuant to Section 802.4 inthe event size-of-transaction is satisfied.
On its most recentregularly prepared balance sheet, the acquired person lists total assets of $39million. Of this amount, $25.8 million is accounts receivable. The targetprovides engineering consulting services and is not involved in retail lendingor financial services.
I understand thatInterpretation #7 of the Fourth Edition of the PNO Manual states that,"But transfer of such receivables in the context of an acquisition of aretail lending company ... or of substantially all of the assets of anotherentity, would not be in the ordinary course (and therefore not exempt) underSection 802.1 (a)." (Emphasis mine)
Does the languageI've underlined mean that receivables would not be exempt in asset dealsinvolving substantially all the assets of the seller, but that, so long as thetarget is not involved in financial services, they would be exempt under astock deal?
We understand thatour client would need to conduct a fair market valuation of the remainingnon-exempt assets in order to determine whether the transaction is actuallySection 802.4 exempt, but if the $25.8 million is exempt, it's very unlikelythe value of the remaining non-exempt assets would exceed $65.2 million. Couldyou let me know whether I'm analyzing this correctly? Of course, please feelfree to give me a call if you have any questions.