Question
From: (redacted)
Sent: Thursday, May 11, 2006 6:31 PM
To: Verne, B.Michael
Subject:Article/Exemption on Formation of LLC
Mr.Verne: Having reread the Article and parts of 802, I believe that I nowunderstand. Below is an example of a transaction that I believe would be exemptunder 802.4. Please let me know if I am correct. Thanks. (redacted)
CorporationX and Corporation Y want to form a joint venture that will be a limitedliability company ("LLC"). Corporation X will contribute certainstock and assets to LLC in exchange for a 75% interest in LLC. The value of thestock and assets contributed and the value of the LLC interest are each assumedto be $180 million. Corporation Y will contribute certain stock and assets toLLC in exchange for a 25% interest in LLC. The value of the stock and assetscontributed and the value of the LLC interest are each assumed to be $60million. It is also assumed that the size-of-the-parties test has beensatisfied. In determining whether or not the transaction is exempt under 802.4,the stock and assets are excluded pursuant to 802.30. In addition, thecontribution of Corporation Y includes a minority interest in a foreigncorporation the acquisition of which would be exempt under 802.51 [the minorityinterest would also be exempt under the last sentence of 802.4(a)], the valueof which is approximately $25 million, and foreign assets the acquisition ofwhich would be exempt under 802.50, the value of which is approximately $5million. Accordingly, the value of the transaction for purposes of thesize-of-the-transaction test is $30 million ($60 million contributed byCorporation Y, less $25 million for the minority interest in the foreigncorporation and less $5 million for the foreign assets), and therefore thetransaction is not reportable.