Question
To: Walsh,Kathryn; Berg, Karen E. Subject: FW:
Have a look at this please. I think 802.10 works for theshareholders of B because they are acquiring a lower percentage in Newco thanwhat they currently hold in B. Also, B already controls all of the underlyingLLCs and the LP. I don't think 802.10 will work for A because it will holdvoting securities of Newco, which will control B and A currently has nointerest in B. So if A's 22.22% of the voting securities of Newco is valued inexcess of $59.8 MM, A has a reporting obligation. I think the fact that theassets that B holds directly are valued under $59.8 MM is irrelevant. To see if802.4 exempts A's acquisition of Newco voting securities, you would have tovalue the non-exempt assets held directly by B and all of the non-exempt assetsof the LLCs and LP that B controls. Any thoughts?
OriginalMessage----------------------------------
From: (redacted)
Sent: Thursday, December 20, 2007 12:51 PM
To: Verne, B.Michael
Cc: (redacted)
Subject:RE:
Here are some facts relating to our call.
(redacted)
---Original Message-------------------------------
From: Verne, B.Michael [mailto:MVERNE@ftc.gov]
Sent: Thursday, December 20, 2007 12:45 PM
To: (redacted)
Subject:RE:
Sure
---------Original Message
From: (redacted)
Sent: Thursday, December 20, 2007 12:42 PM
To: Verne, B.Michael
Subject:RE:
shall we arrange a call for 1:45?
FACTS
PresentStructure
1.A owns 33.33% of LLC-l.
2.B owns 66.66% of LLC-1.
3.LLC-1 owns100% of LLC-2, whichowns 75% of LLC-3, whichowns 80% of LP-1. B also owns 10% of LP-1 through another entity.
4.A also owns adirect 5% interest in LP-1
Re-organization
1.B spins-off a subsidiarybut retains certain assets valued at $30 million - $60 million.
2.B merges with a Newco and stockholdersof B receive Newco shares.
3.A contributes its33.33% interest in LLC-1 to Newco and its 5% directinterest in LP-1 to Newco in exchangefor 22.22% of Newco's voting securities.
4.As a result,stockholders of B will own 77.78% of Newco, A will own 22.22% of Newco.
Analysis
This reorganizationfalls under Rule 802.10. Under this rule, the conversion of a LLC to acorporation is exempt if no new assets are contributed and either there is noincrease in the acquiring person's percentage ownership or the acquiring personcontrolled the original entity. However, new assets, not owned directly orindirectly by A, are being contributed, but they may fall below thejurisdictional threshold.