0705012 Informal Interpretation

From:Verne, B. Michael

Sent:Thursday, May 17, 2007 8:59 AM

To:(redacted); Ferkingstad, James H.

Subject:RE: Size of Transaction Issue

Iagree

OriginalMessage

From:(redacted)

Sent:Wednesday, May 16, 2007 6:18 PM

To:Verne, B. Michael; Ferkingstad, James H.

Subject:Size of Transaction Issue

DearMessrs. Verne & Ferkingstad:

Ihave a size of transaction threshold ($59.8M) question. This is a stock deal inwhich several individuals are collectively acquiring 70% of stock of B. Onlytwo (husband and wife) of the individuals meet the size of person test butcollectively they alone may acquire about 50% of the stock. The stock of B isnot publicly traded thus 801.10(a)(2) applies. The acquisition price has beenset at roughly $40 million and so under (a)(2) it should control and thus thesize of transaction test is not met. The "wrinkle", however, is that,at or before closing, B plans to take out a loan of roughly $50 million whichwill be distributed to the seller's sole shareholder as a dividend. Iunderstand there are legitimate business and tax reasons for this loan/dividendstructure, and the loan will be an obligation that the company will have on itsbooks after the acquisition.

Myinitial analysis is that under (a)(2) the acquisition price controls and oneneed not add any or all of the loan/dividend amount to the acquisition price todetermine if the size of transaction threshold is met. Thus, the transaction isnot reportable. Is this correct or am I missing something? Thanks for youradvice.