Skip to main content
Date
Rule
801.10
Staff
Michael Verne
Response/Comments
Agree This is not an earn out which must be added to the acquisition price. N. Ovuka & K. Berg concurs.

Question

Summary E-Mail File Our March 19th Conversation

From:
To:
Date: Subject: Summary E-Mail Re: Our March 19th Conversation.

Mike,

March 26, 2001

During our March 19th, 2001 telephone conversation, I sought your advice for the purpose of determining whether a $45,000,000 Employee Bonus Pool should be included in the acquisition price of a transaction. We discussed the following hypothetical:

Company A is acquiring 100% of the outstanding voting securities of Company B, a privately held company, for consideration of approximately $175,000,000.

Additionally, Company A is establishing a $45,000,000 Employee Bonus Pool to be paid to the employees of Company B when/if certain performance milestones are achieved. Many Company B employees are also Company B shareholders and one of the factors being used to allocate Bonus payments from the Employee Bonus Pool is an individual employee's equity interest in Company B. Consistent with the characterization of these funds as an Employee Bonus Pool, non-employee shareholders are not eligible to receive payments from the fund, but non-shareholder employees of Company B are eligible to receive payments from the fund.

We discussed whether the $45,000,000 fund should to be included in the acquisition price as an earnout because one of the factors being used to. allocate payments from the fund was an individual employee's equity interest in Company. Based upon our discussion, you advised that it was not necessary to include the $45,000,000 fund in the acquisition price because, assuming the fund is a bona fide Employee Bonus Pool, the use of employee equity ownership as a guide to allocate bonus payments would not automatically convert the fund into an earnout payment to shareholders. Further, you suggested that the fact that non-employee shareholders would not be receiving any payments from the fund, but non-shareholder employees would receive such payments supported the conclusion that the fund should be properly characterized as an Employee Bonus Pool, not an eamout.

Please advise if this summary misstates our conversation.

Thanks

About Informal Interpretations

Informal interpretations provide guidance from previous staff interpretations on the applicability of the HSR rules to specific fact situations. You should not rely on them as a substitute for reading the Act and the Rules themselves. These materials do not, and are not intended to, constitute legal advice.

Learn more about Informal Interpretations.