Consider this: Ten years ago your client, an executive officer with his company, purchased (or received) stock in his company valued at $10 Million. Next week, he is going to receive restricted stock from his company with a current market value of $8 Million. The original $10MM in stock he received 10 years ago is now worth $56 Million. The company has assets valued at $128 Million.
Question – Although there is no substantive antitrust concern in your client's acquisition of the $8 Million in restricted stock next week, do you think you need to be concerned with compliance with the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act")?
Before you answer, recall that the HSR Act requires parties to certain mergers or acquisitions (including acquisitions of voting securities, as in our example) to notify the Federal Trade Commission and the Department of Justice before consummation of the proposed transaction. Whether an HSR filing is required for a particular transaction depends upon the value of the acquisition and the parties' size (as determined by the value of their assets and sales).
Regardless of the substantive antitrust analysis of your client's receipt of stock, the answer to the question is yes – and the penalties for noncompliance can be very large (i.e., up to $11,000 per day from the date on which the unreported transaction closes).
The transaction in our example satisfies the "Size of Transaction" test in determining HSR reportability. Simply put, if after a transaction, one party will own voting securities or assets of the other party valued in excess of $63.1 Million, and if each party owns assets or has net sales of a sufficient amount, both parties must make an HSR filing with both the Department of Justice and the Federal Trade Commission (unless an applicable exemption applies). What triggers reporting is the value of all the voting shares in the company owned by the executive after the transaction closes, not the value of the shares being acquired in this transaction. Therefore, it is really a “Size of Holding” test, not a “Size of Transaction” test.
Further, it does not matter if the stock in the company is acquired as a result of an open market purchase, a negotiated transaction, the exercise of options, or the grant of restricted stock as compensation – an HSR filing may be required and an HSR analysis should be performed. Exemptions do exist that may negate the need for an HSR filing – but the parties to the transaction, the manner in which the stock or equity is held, and other factors must be carefully reviewed to determine the applicability of the exemptions.
If you believe that your client may be involved in a stock or other equity acquisition that may require Hart-Scott-Rodino analysis, we at Tydings are uniquely situated to offer such counsel quickly and efficiently.
Our attorneys, including those in the antitrust and business practice groups, are experienced at the national and federal levels. For more information on our antitrust practice, contact Lee Lundy.
 In May of 2007, the Federal Trade Commission obtained a $250,000 judgment against James Donero, a manager of the Highland Capital hedge fund, for failure timely to make an HSR filing when he exercised 10,000 options in shares of Motient Corp., a wireless communications company for which Donero served on the board of directors. The value of the stock acquired by Donero as a result of exercising the options standing alone did not meet the "Size of Transaction" threshold, but the total value of Donero's stock after the exercise of the stock options surpassed the threshold.
 Transactions resulting in holdings valued greater than $63.1 Million but not more than $252.3 Million, may be reportable if one party to the transaction has total assets or annual net sales of at least $126.2 Million and the other party has total assets or annual net sales of at least $12.6 Million (e.g., the "Size of Person Test"). In our example, the company has assets of $128 million and the other party, the executive, has assets of over $12.6 million. In transactions resulting in holdings valued at $252.3 Million or more, the Size of Person Test need not be satisfied for the transaction to be reportable.
This alert has been prepared by Tydings for informational purposes only and does not constitute legal advice.