0605008 Informal Interpretation

us-ftc-hsr-informal-interpretations-bacfed3fe9cab90b9bb4dd6e7de4810b0605008 Informal InterpretationGuidance

Date
Rule
801.2
Staff
Michael Verne
Response/Comments
I don't think this changes my original conclusion. The holder of the warrants will either know that he is going to exercise them or that they will automatically be exercised at a date certain in the future.

Question

From: (redacted)

Sent: Friday, May 05, 200610:40 AM

To: Verne, B. Michael

Subject:Automatic Warrant Exercises

Hi Mike.

Thank you for your advice this morning concerning whetherthe automatic exercise of a warrant on a day certain in the future could be HSRreportable. I have learned a few more facts since we talked and wonder whetherthey would change the analysis and conclusion.

Specifically X holds a warrant to acquire votingsecurities of Y. The warrant may be exercised at any time by X. If it is notexercised by the earliest of a date certain in the future or a change ofcontrol of Y, the warrant terminates and it will be deemed to have beenexercised automatically immediately prior to the termination pursuant to acashless net exercise.

At the time X acquired the warrant, Y was notpublicly traded and there was no certainty Y would have an IPO. Subsequent toX's acquisition of the warrant, Y did have an IPO. Therefore, if X does notexercise the warrant before the date certain, the warrant will in factautomatically terminate and X will receive voting securities of Y in a netexercise.

Significantly, at the time that X acquired thewarrant, there was no certainty that X would ever acquire voting securities ofY under the warrant. If Y had remained a private company, then under the termsof the net exercise provision of the warrant, the board of Y would havedetermined in good faith the fair market value of a share of Y stock forpurposes of the automatic net exercise should the warrant have terminated on adate certain. If the Board had determined that the fair market value of a shareof Y stock would be less than the exercise price, then under the terms of thenet exercise provision of the warrant, X would not have received any shares ofY voting securities upon the automatic termination of the warrant.

Please advise if under these facts, X would not havea filing obligation should the warrant automatically terminate on a datecertain in the future through no act of X and, as a result, X automaticallyreceives certain shares of Y voting securities.

Verne, 6. Michael 86 \.
From:
Sent: 	Friday, May 05, 2006 10:40 AM
To: 	verne, B. ~ i c h a e l
Subject: 	Automatic Warrant Exercises
Hi Mike
Thank you for your advice this morning concerning whether the automatic exercise of a warrant on
a day certain in the future could be HSR reportable. I have learned a few more facts since we talked
and wonder whether they would change the analysis and conclusion.
Specifically X holds a warrant to acquire voting securities of Y. The warrant may be exercised at
any time by X. If it is not exercised by the earliest of a date certain in the future or a change of
control of Y, the warrant terminates and it will be deemed to have been exercised automatically
immediately prior to the termination pursuant to a cashless net exercise.
At the time X acquired the warrant: Y was not publicly traded and there was no certainty Y would
have an IPO. Subsequent to X's acquisition of the warrant, Y did have an IPO. Therefore, if X does
not exercise the warrant before the date certain, the warrant will in fact automatically terminate and X
will receive voting securities of Y in a net exercise.
Significantly, at the time that X acquired the warrant, there was no certainty that X would ever
acquire voting securities of Y under the warrant. If Y had remained a private company, then under
the terms of the net exercise provision of the warrant, the board of Y would have determined in good
faith the fair market value of a share of Y stock for purposes of the automatic net exercise should the
warrant have terminated on a date certain. If the Board had determined that the fair market value of
a share of Y stock would be less than the exercise price, then under the terms of the net exercise
provision of the warrant, X would not have received any shares of Y voting securities upon the
automatic termination of the warrant.
Please advise if under these facts, X would not have a filing obligation should the warrant
automatically terminate on a date certain in the future through no act of X and, as a result, X
automatically receives certain shares of Y voting securities.
Thanks for your help Mike,
I don't think this changes my original conclusion. The holder of the warrants will either
know that he is going to exercise them or that they will automatically be exercised at a
date certain in the future. 	s 	doc,^.^ 	bE, h%truifAnu=.
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