0009005 Informal Interpretation

From: [redacted]

To: FTC.SERUS("mverne@ftc.gov")

Date: Mon, Sep 18, 2000 8:14 PM

Subject: Technical 1(b)/1(c) Questions on Reverse Triangular Merger

Mike:

Welcome back. A technical HSR question on the form itself re the distinction between "being" an acquired person in a transaction for 1(b) and 1(c) purposes and "filing" as an acquired person.

A does a reverse triangular merger with B. It is accomplished by A forming 2 wholly-owned subs (1) A1, and below that (2) A2. A2 is merged into B (which is designated as the survivor between A1 and B), but at the same time all the shares of B are canceled and instead the shareholders of B now get shares of A2, pursuant to an exchange ratio. As a result of the merger, A1 ends up holding more than 50% but less than 100% of A2, which includes all of what formerly was B. Unknown and unknowable former shareholders of B (which is public before the deal) may end up with more than $15 million of shares of A2 as a result of the deal, but all will be under 10% and A believes that all such shareholders would qualify for investment only exemption.

The issues:

1. A is clearly the acquiring person in substance even through B is technically the "survivor." What was B company is now all part of A2 which is directly controlled by A1 and, ultimately by A. We will designate A the acquiring person and B the acquired person. Correct? [Staff Comment - YES]

2. Since shareholder or B will acquire shares of newly created A2, an entity controlled by A, isn't A technically still an acquired person and the unknown shareholder of former B technically an acquiring persons? I don't see anything in 801.2(d) to mandate a different result, but it my impression that a number of our colleagues in HSR Bar would not treat A as an acquired person in this context.It is not clear to me how they reach that result. [Staff Comment: Yes]

3. If A is correctly thought of as both acquiring and acquired, shouldn't A check the box "both" in Item 1(b) indicating that it is both an acquiring and an acquired person, even through it is no making a reportable filing as an acquired person. [Staff Comment - No - indicate only what is reportable]

4. In 1(c), should A be listed as both acquiring and acquired persons? The Instructions say list each acquiring and acquired person regardless of whether they have a filing obligation. We know that former B shareholders will, as a result of the acquisition, hold stock in A2 that they did no previously hold, but A2 will continue to be controlled by A. Assuming this is correct, A still should not be required to answer Items 5-9 of the form separately as an acquired person, however, so long as A is not "filing" as an acquired person in a reportable acquisition. [Staff Comment - The language of the instructions notwithstanding, we have taken the position that only information with regard to the reportable portion of the transaction need be provided in the form.]

My concern is that if we check the box "both" in 1(b) someone in Premerger might accidentally bounce the filing or not responding separately to Items 5-9 as an acquired person. [Staff Comment - Do not indicate "both".]

5. Since A does not know the identity of all former B shareholders who will end up holding stock of A2, is it appropriate to simply cross reference item 2(a) in the 1(c) listing of all acquiring persons? [Staff Comment - No need to.]

I would appreciate it if you could give me a call (leave a voice mail if you miss me) with your views on the above. As always, I appreciate your insight.

[redacted]

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