Question
From: (redacted)
Sent: Tuesday, October 21, 2008 7:31 PM
To: Verne, B. Michael
Cc: (redacted)
Subject:802.10Dear Mike,
We have a transaction the gist of which isa reorganization of an Income Fund into a corporation and a simultaneousacquisition of tax losses from a third party. The steps of the transaction,which all occur simultaneously and are contingent on all other steps, are asfollows:
1.Company A is a publicly held Income Fund, and Company B is a publicly heldcorporation. In connection with the transaction, Company B will form a newholding company (B Holdco) and a wholly-owned subsidiary (Newco) -those stepsare intraperson transactions. Company B's shareholders will exchange theirCompany B shares for shares of B Holdco, pro rata.
1.Company A will transfer all of itsassets to Company B in exchange for a number of new common shares of B equal tothe number of outstanding Company A fund units and representing more than 50%of the outstanding voting shares of Company B.
2.Company A distributes the newly-issuedCompany B shares to the unit holders of Company A and Company A redeems itsoutstanding units.
3.Company B redeems the shares of itscommon stock held by B Holdco in exchange for the shares of Newco.
4.As a result, B Holdco no longer has anyinterest in Company Band Newco is a wholly owned subsidiary of B Holdco.
5.As a result of these steps, the unitholders of what was formerly Company A are now the shareholders of Company B, acorporation. Company B is no longer a subsidiary of B Holdco but is held by theshareholders of Company A pro rata, and holds all of the assets held by CompanyA prior to the reorganization, plus certain tax losses of Company B. The formershareholders of Company B are shareholders of B Holdco, pro rata.
In sum, as a result of the transaction,Company A Income Fund becomes Company B, which other than its change incorporate form is held exactly as was Company A, pro rata, and holds the sameassets it held prior to the transaction, plus some tax losses acquired fromCompany B. B Holdco holds all of the same assets that were held by Company Bprior to the transaction, except for the tax losses, which remain in Company B.B Holdco is held by its shareholders exactly as was Company B prior to thetransaction, pro rata.
In our view, Company A's conversion froman income fund to a corporation should be exempt under 802.10 since the only newasset that will be held by the reorganized entity consists of tax losses, whichshould be treated as cash equivalents under 801.21. In addition, thetransitory steps described can be disregarded and therefore the abovetransaction should be exempt from HSR requirements in all respects.
Please confirm that you agree with thisanalysis.
Many thanks,