Page 346 - מיזוגים ורכישות - פרופ' אהוד קמר תשפב

The requirement that stock constitute at least 40 percent of the total
consideration (and the corresponding limitation on the amount of cash and "other
property") in a transaction is also based on regulations finalized in September 2005. For
purposes of these percentage tests, stock includes voting and nonvoting stock, both
common and preferred. Target shareholders will be taxed on the receipt of any cash or
"other property" in an amount equal to the lesser of (x) the amount of cash or other
property received and (y) the amount of gain realized in the exchange (i.e., the excess of
the total value of the consideration received over the shareholder’s adjusted tax basis in
the Target stock surrendered). For this purpose, "other property" includes preferred
stock (Nonqualified Preferred Stock) that is limited and preferred as to dividends, does
not participate in corporate growth to any significant extent and either (1) is puttable by
the holder within 20 years, (2) is subject to mandatory redemption within 20 years, (3) is
callable by the issuer within 20 years and is more likely than not to be called or (4) pays a
variable rate dividend, unless the Acquiror Nonqualified Preferred Stock is received in
exchange for Target Nonqualified Preferred Stock. Any gain recognized generally will be
capital gain, although it can under certain circumstances be taxed as dividend income.

Reverse parent-to-parent mergers have been employed in a number of
transactions for a variety of structural reasons. Issues that arise in connection with
reverse mergers include how the acquisition will be characterized in press releases and
public disclosures, which group of shareholders (if any) will be required to exchange its
share certificates, whether change-of-control provisions in employment, severance and
benefit plans and agreements or other agreements of either company will be triggered
by the structure, and possible regulatory ramifications, including the identity of the filing
parties and the information required under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976,15 U.S.C. § l8a.

In January 2006, the IRS issued final regulations that treat a forward triangular
merger of Target into a subsidiary of Acquiror that is a "disregarded entity" for tax
purposes (such as a single member limited liability company that has not elected to be
treated as a corporation) as a direct merger of Target into Acquiror for purposes of
determining whether the transaction is tax free. An example in the regulations also
provides that certain mergers of a corporation into a partnership, whereby the
partnership becomes a disregarded entity of an acquiring corporation following the
merger, would qualify as a direct merger.

342