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Escrowed Stock
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Stock put into escrow at closing can be considered
stock and not other
property, provided:
- Target shareholders must have voting rights
- Target shareholders must have dividend rights
- Amount of stock put into escrow
cannot exceed the amount of stock issued outright
If escrowed shares are used to satisfy
an indemnity liability:
- No gain or loss is recognized by Target shareholders if the number
of forfeited Buyer shares is determined based upon their fair market
value at the time of the original acquisition
- Gain or loss is recognized if the number of forfeited shares is
determined using fair market value at settlement
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Contingent Stock
SEC_CODE_REF_0090001192884
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Contingent stock can be considered
stock
and not other property,
provided:
- Maximum amount of contingent stock cannot exceed the amount of stock issued outright in the merger,
including any
escrowed stock
- Thus, as little as 25% of the total amount of stock which can be issued must
be issued outright
- An additional 25% can be issued into escrow
- The remaining 50% can be
contingent stock
Contingent stock is treated as issued
only when the right to receive it matures:
- Receipt of contingent stock is considered receipt of
a deferred
payment
- A portion of the stock received is
subject to tax
- Recharacterized as interest income
- Under the imputed interest or original issue
discount rules
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Related Topics
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