1003001 Informal Interpretation

Date

March 4, 2010

Rule

802.4

Staff

Michael Verne

Response/Comments

4 and 802.51 (and maybe 802.4) for scenario 5. I have attached a link to a tip sheet on 802.4. I'm assuming in all of these scenarios that you are using acquisition price and fair market value interchangeably. Scenario 1 : Under 802.4, B holds on $40 MM in non-exempt assets, so exempt. Note that the 802.4 analysis does not affect the size of transaction in any of these scenarios. The size of transaction is till $120 million, but the acquisition is exempt. Scenario 2: Same 802.4 analysis, but now B holds $80 million in non-exempt assets, so not exempt. Transaction value is $160 million. Only check the voting securities box because you are not directly acquiring the trademarks. The result could change if you are acquiring the two subs directly, not B. If that is the case, the value of the transaction would only be $80 MM, but still not exempt. Scenario 3: Agree -the initial acquisition is exempt under 802.4. Now I'm a bit confused. If A acquired all of B's stock in step 1, how is making additional acquisition from B which is now within the person of A. Let me make the scenario a little different. Alternative scenario 3(a): A is acquiring all of the stock of B's sub which holds the warehouses and trademarks in step 1. This step is exempt under 802.4. 75 days later A buys trademarks directly from B for $80 million and voting securities of another B sub for $70 million (I'm assuming that this sub does not have any exempt assets). This would be reportable and the value would be $150 million. Alternative scenario 3(b): A is acquiring all of the voting securities of B's sub which holds the warehouses and trademarks in step 1. This step is exempt under 802.4. 75 days later A acquires all of the stock of another B sub which holds only warehouses. A also acquires trademarks directly from B for $40 million. The transaction is not reportable. The acquisition of the second sub is exempt under 802.4. The $40 million in trademarks is an asset acquisition, so it is not aggregated with the trademarks acquired in step 1 through a voting securities deal. The value of the second transaction is only $40 million, so not reportable. Scenario 4: Agree both steps are reportable. Step 1 is valued at $160 million and Step 2 is valued at $150 million. Step 1 is reported only as a voting securities deal and Step 2 is reported as an acquisition of voting securities and assets. Scenario 5: Because you are acquiring the stock of B and not its subsidiaries you would use the 802.4 analysis. Assuming all of US sub's assets are US assets and not otherwise exempt, the transaction would be reportable and the value would be $375 million. If A was acquiring the stock of the three subs instead, Sub 2 and Sub 3 would be exempt under 802.51 and the value of the transaction would be $150 million. If Sub 1 held $100 million in foreign assets with no sales into the US and $50 million of US non-exempt assets, and A was acquiring all of B's voting securities, the transaction would be exempt under 802.4. All of Sub 2 and Sub 3's assets are exempt and the $100 million of Sub 1 's foreign assets are exempt. So under 802.4, B only holds $50 million in non-exempt assets and the transaction is not reportable.

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Question

From:

(Redacted)

Sent:

Thursday, March 04, 2010 10:44 AM

To:

Verne, B. Michael

Subject: Questionsabout Potential Transactions

Good morning,

I have somequestions about a few transactions that I'm working on. Please see thescenarios described below and let me know whether you agree with the analysesand please provide corrections where appropriate. Thanks very much for yourtremendous assistance.

Scenario 1

A is buying all ofB's stock. The acquisition will include

Warehouses = $80m(exempt under 802.2(h)) (acquisition price)

Trademarks = $40 m(The acquisition price and fair market value are the same)

Under the 802.2(h)analysis and 801.15(a) analysis and respective examples, A's acquisition isexempt from a filing because the value of the non-exempt assets standing alone,is below the $63.4 million size of transaction threshold.

Question:

Do you also applythe 802.4 analysis, which would give the same result?

Scenario 2

A is buying all ofB's stock. The acquisition will include

Warehouses =$80m(exempt under 802.2(h)) (acquisition price)

Trademarks =$80 m(The acquisition price and fair market value are the same)

Under the 802.2(h)analysis and 801.15 (a) analysis and respective examples, A's acquisition isnot exempt from a filing because the value of the non-exempt assets standingalone exceeds the $63.4 million size of transaction threshold.

Questions:

Do you also applythe 802.4 analysis, which would give the same result?

Is the transactionvalue for the filing the value of the trademarks only -$80 million or is it theoriginal total transaction value of $160 million? Is the voting securities boxchecked only or do you also check the assets box because trademarks are beingacquired?

Does the resultchange if the warehouses are held by one wholly owned US sub and the trademarksare held by a different wholly owned US sub (trademarks are for use in US)?

A is buying all ofB's stock. The acquisition will include

Warehouses =$80m(exempt under 802.2(h)) (acquisition price)

Trademarks =$40 m(The acquisition price and fair market value are the same)

Under the 802.2(h)analysis and 801.15 (a) analysis and respective examples, A's acquisition isexempt from a filing because the value of the non-exempt assets standing alone,is below the $63.4 million size of transaction threshold.

Approximately 75days later, A buys more trademarks from B and voting securities of B'ssubsidiary.

New trademarks =$80 m (The acquisition price and fair market value are the same) votingsecurities = $70

This transactionis reportable because the value, $150 m exceeds the $63.4 threshold.

Questions:

Under rule 801.15,does A have to aggregate the value of the trademarks, $40 m-from the firstacquisition, with the current acquisition such that the filing is for the oldand new trademarks and the voting securities of B's subsidiary?

Should the filingvalue be $190 million?

Are there anyother factors that should be noted or considered as part of the analysis?

Scenario 4

A is buying all ofB's stock. The acquisition will include

Warehouses = $80m (exemptunder 802.2(h)) (acquisition price)

Trademarks = $80 m(The acquisition price and fair market value are the same)

Approximately 75days later, A buys more trademarks from B and voting securities of B'ssubsidiary.

New trademarks =$80 m (The acquisition price and fair market value are the same) votingsecurities =$70

This transactionis reportable because the value, $150 m exceeds the $63.4 threshold.

Questions:

Does A need toaggregate the value of the current transaction $150 m with the value of theearlier one?

Or is that thevalue of the previous transaction simply counts in A's size of person/balancesheet calculation?

Please state thevalue of the transaction to be put on the form and indicate whether assets andsecurities are checked?

Scenario 5 -Differenttransaction

A is buying 100%of B's voting securities. B has three subsidiaries and B is a US company.

Sub 1 -US Sub=$150 million
Sub 2 -Foreign Sub with no US sales or assets =$75 million
Sub 3 -Foreign Sub with no US sales or assets = $150 million

Questions:

Subs 2 and 3 areexempt under 802.51, but is the filing for the value of only the US sub, $150million or the entire transaction value, including all three subs, $375million? Please explain whether 802.4 is relevant to this analysis.

I greatlyappreciate your taking the time to review this and your quick responses (as I'munder pressure to give answers). As you may know from queries from others,these issues can be confusing sometimes so I want to be sure the answers areconsistent with the PNO's views.

1003001 Informal Interpretation

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