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Date
Rule
801.40
Staff
Michael Verne
Response/Comments
Probably the appropriate way to look at this is as a formation of Holdco, with Investor, Founder and other shareholders contributing either cash or shares of target to the formation, because Holdco is being created solely for the purpose of effecting this transaction. It doesn't look like Investor or any of the other shareholders will hold voting securities of Holdco valued in excess of $59.8 MM. Founder may, but his acquisition of Holdco shares would be exempt under 802.4 because he can exclude the value of the target shares he is contributing from the limitation on non-exempt assets.

Question

From:(redacted)

Sent:Tuesday, May 01, 2007 4:48 PM

To:Verne, B. Michael

Cc:(redacted)

Subject:FW: HSR Filing Question

Hi,Mike -

Hopeyou're well. I am hoping to get your thoughts on the following transaction:

Afinancial investor (the "Investor") is making a $55 millioninvestment in a business in exchange for a series of securities that confer 32%of the voting power of the post-closing entity. The target business iscurrently held in three corporations, the ultimate parent entity of which is anindividual (the "Founder"). Investor is not currently a shareholderof any of the companies. For purposes of this question, assume that the size ofparties test is met by Investor and Founder.

Toeffect this transaction and combine the three target businesses under onecorporate parent company, the parties have proposed the following transactionstructure:

Step 1: Investor forms Holdco (a corporation) andwholly-owned subsidiary, Mergerco, and invests $55 million in Holdco inexchange for the securities to which it is entitled in the transaction.

Step 2: Holdco purchases the common stock of two ofthe corporations from Founder in exchange for some of the contributed cash andHoldco voting stock. At closing of this step, Holdco will likely be controlledby Founder though it is possible that Investor will continue to control Holdco.

Step 3: Mergerco merges with and into the thirdcorporation, and the stockholders of the third corporation (including theFounder) receive the balance of cash and Holdco voting stock in exchange fortheir shares. At this point Holdco will either be controlled by Founder or beits own ultimate parent entity.

After the completion of these steps, the threecorporations will be wholly-owned subsidiaries of Holdco. Investor will own 32%of the voting securities of Holdco, Founder may own more, but will likely ownless than 50% of the voting securities of Holdco (based upon the outcome ofcash/stock elections that other shareholders may make) and the remaining formerstockholders of the target business will own the remaining voting stock.

It appears to me that an HSR filing is not requiredbased on these facts. Please let me know if you disagree.

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