Question
From: (redacted)
Sent: Friday, June 29, 2007 11:50 AM
To: Verne,B. Michael
Cc: (redacted)
Subject: Hart-Scott-Rodino Antitrust Improvements Act - UPE Question
Mike
Thank you for taking the time tospeak with me and (redacted) last week. I am writing to confirm the advice youprovided. The factual background that we discussed is set forth below as is theanalysis.
Background
An existing limited liabilitycompany ("LLC A"), currently has a corporate ultimate parent entitythat has the right to receive 50% or more of the profits and 50% or more of theassets upon dissolution ("Owner X"). A limited partnership iscontemplating making an investment in LLC A ("Owner Y") and as aresult of such investment, the equity ownership of LLC A would be reorganizedsuch that Owner X would continue to own preferred membership interests in LLC Aentitling it to receive upon the dissolution of LLC A or from future profits,the first $39.4 million plus an 8% accruing dividend on $31.4 million of suchamount. Owner Y, as a result of such investment, would receive preferredmembership interests entitling it to the next S27.0 million plus an 8% accruingdividend on such amount upon the dissolution of LLC A or from future profits,and would also receive common membership interests that would entitle it toshare in profits and distributions of assets upon dissolution after thesatisfaction of the payments in respect of the preferred membership interests.The common membership interests to be held by Owner Y would entitle it to 50%or more of the profits and 50% or more of the assets upon dissolution at suchtime as the amounts in respect of the preferred membership interests have beensatisfied.
LLC A is anticipating acquiringassets from an unrelated business ("Target T") for an amount inexcess of $59.8 million and less than S239.2 million (the"Acquisition"). Owner Y's investment in LLC A would occur immediatelybefore the consummation of the Acquisition. We believe that irrespective of theidentity of the ultimate parent entity of LLC A, both LLC A and Target T willsatisfy the size of party test under the HSR Act.
Analysis
Issue: Is Owner X the ultimate parententity of LLC A for purposes of the notification to be filed in respect of theAcquisition?
Based on informal staff opinion 0705023, dated May 30, 2007,we discussed with you that, to determine the ultimate parent entity of LLC A ona prospective basis giving effect to Owner Y's investment in LLC A and toanalyze the equity ownership of LLC A as of the time of the Acquisition, theappropriate methodology to determine "control" pursuant to Rule801.1(b) is to use LLC A's most recently regularly prepared balance sheet.Using that balance sheet, we should determine which person, if any, would havea right to receive 50% or more of the profits or 50% or more of the assets upondissolution of LLC A based on the equity ownership that will exist immediatelyafter Owner Y's investment in LLC A and at the time of the Acquisition. Theregularly prepared balance sheet will be for a date that precedes Owner Y'sinvestment in LLC A. Due to Owner X's right to receive $39.4 million plus an 8%accruing dividend on S31.4 million of such amount before any other LLC A memberwould receive anything, and because the amounts payable to Owner X would exceed50% of LLC A's net assets as reflected on LLC A's most recently regularlyprepared balance sheet, Owner X will be LLC A's ultimate parent entity despiteOwner Y's investment in LLC A and the prospect that, sometime in the future dueto its common membership interests in LLC A, Owner Y might ultimately becomeentitled to receive 50% or more of LLC A's profits or assets upon dissolution.
Thank you again foryour consideration and assistance in this matter. If you do not believe thatthis note reflects the facts discussed in our conversation or if I havemisstated the advice you provided, please contact me at your earliestopportunity.
(redacteded)