Question
From:
(redacted)
Sent:
Tuesday, December 02, 2008 5:35 PM
To:
Verne, B. Michael
Cc:
(redacted)
Subject:Confirmation of our telephone discussion regarding control of an LLC
Mike:
As we discussedthis morning, we are reviewing a transaction with a view to determining whetheror not an HSR filing is required in connection with the acquisition by Buyerfrom Seller of interests designated as "Class
A Interests"in an LLC, for cash consideration of $50 million (the "ClosingConsideration").
Prior to, and incontemplation of the purchase of the Class A Interests, Seller will form theLLC as a wholiy-owned subsidiary and contribute to the LLC certain assetsconstituting the business of Seller. The equity of the LLC will be comprised ofClass A Interests and Class B Interests. The fair market value of the assets isapproximately $170 million. Folioing the purchase of all of the Class AInterests by Buyer, the Sellers will retain ail of the Class B Interests, whichinterests have a liquidation value of $120 million.
Distributions madeby the LLC will be made pursuant to the following terms:
1.First, to Buyer until Buyer hasreceived an amount equal to the $50 million Closing Consideration plus a 25%compounded internal rate of return.
2.Second, to Seller until Sellerhas received an amount equal to $120 million plus a 4% return thereon.
3.Thereafter, Buyer shall receive80% and Seller 20% of distributions.
You indicated thatunder these terms the rights to profits are not fixed at the time of closingand therefore would
not be relevant todetermining whether or not Buyer would control the LLC at closing. Pleaseconfirm.
The rights toassets upon the dissolution of the LLC are as follows:
1.Buyer's Class A Interests giveBuyer a liquidation preference under which Buyer will be entitled to the first$50 million obtained upon a sale of the LLC's assets in a liquidation, plus a25% compounded internal rate of return.
2.Thereafter, Seller will beentitled to $120 million of the proceeds from the sale of assets in a liquidation,plus a 4% return thereon.
3.Thereafter, Buyer and Sellerwould receive 80% and 20% of the proceeds of any liquidation.
If the fair marketvalue of the LLC's assets at closing equals approximately $170 million, andBuyer would not be entitled to receive 50% or more of that amount, am I correctin concluding that Buyer will not control the LLC and need not make an HSRfiling?
Thank you verymuch for your time.