Question
From:
(Redacted)
Sent:
Thursday, January 21, 2010 3:33 PM
To:
Verne, B. Michael
Subject: InformalHSR Interpretation
Dear Mr. Verne:
I am requesting aninformal HSR interpretation as set forth below.
We representCompany A, a privately held corporation. In 2007 Company A entered into asecurities purchase and contingent acquisition right agreement with Company B, astart-up. Pursuant to that agreement, Company A (i) purchased from Company Band its shareholders, in the aggregate, just over 50% of the outstanding votingshares of capital stock of Company B (on a non fully diluted basis) and (ii)received from the shareholders of Company B the right to purchase, at a laterdate, substantially all of Company B's remaining outstanding shares of capitalstock if it so chose within an agreed exercise period and for an agreed price(the "purchase right"). The aggregate purchase price for the sharespurchased by Company A in 2007 was well below the then applicable HSR size oftransaction threshold and therefore no premerger notification filing was madein connection with that purchase. As a result of this initial investment,Company A appointed two directors and one observer to Company B's board ofdirectors, but under the transaction documents, unless and until Company Aexercises its purchase right, its ability to vote its Company B shares in itssole discretion is capped at 30% (while the balance of the shares are voted prorata in the same manner and proportion as the votes cast by the other Company Bshareholders). Company A is in the process now of exercising its purchase rightand thus acquiring the remaining outstanding shares of capital stock of CompanyB so that it will have 100% ownership (or in any event sufficient ownership tothen consummate a "short form" merger under applicable state law).Because the price for the exercise of the purchase right was determined basedon the future value of Company B at the time of exercise, and taking intoaccount the achievement of certain "milestones" by Company B, thepurchase price for those remaining shares will significantly exceed the pricepaid in 2007, but still be below the current HSR size of transaction threshold(although the total value of capital stock held by Company A after exercise ofthe purchase right will be above such threshold).
My understandingis that no premerger notification filing is required in order for Company A toconsummate its purchase right, because the proposed purchase would be exemptpursuant to the intraperson transactions exemption in 16 CFR 802.30 (a) and 7(A)(c)(3) of the HSR Act. I would appreciate it if the PNO could confirm thisanalysis or let me know if you disagree. I cannot think of any facts other thatthose set forth above that might be relevant to the analysis but would bepleased to answer any questions you might have.