Question
From:
(Redacted)
Sent:
Tuesday, September 15, 2009 2:02 PM
To:
Verne, B. Michael
Subject: HIGHLYCONFIDENTIAL
Mike,
Thank you forresponding to my voicemail message. In the interest of time, I thought I wouldset forth the essential facts and analysis of the hypothetical I mentionedconcerning the "recreational land" exemption under 802.2(f). Pleaselet me know whether you concur with the analysis.
FACTS
Company A willacquire Company B, an LLC, for an amount in excess of $65.2 million. Assumethat the size-of-persons test is satisfied. The assets of Company B consistessentially of the following:
(a) Real property comprising:
(i) atennis club, including twenty or so tennis courts, a clubhouse, locker rooms,and exercise facilities;
(ii) atennis stadium that is used for an annual, two-week international ATP/WTA (men'sand women's professional tours) tennis tournament and other special events,such as concerts;
(iii) Land that isused to set up temporary retail and food-and-beverage facilities in connectionwith the tennis tournament and other stadium special events;
(iv)parking lots that are used both year-round for tennis club purposes and forstadium special events; and
(v)parking lots that are used exclusively for stadium special events.
(b) Other assets,including tangible and intangible personal property, contracts and leases,equipment, permits, licenses, trademarks and other intellectual property, andother assets that need not be defined further for present purposes.
The tennis cluband improvements identified at (a)(i) above are used year-round by club membersfor recreational purposes except that, during the annual two-week tennistournament, the tennis club's courts are turned over for use by the tournament.Similarly, the parking facilities identified at (a)(iv) above are usedyear-round for tennis club purposes exclusively, except that they are turnedover to stadium use during the annual two-week tennis tournament and wheneverthere is a special stadium event. Special stadium events, excluding the tennistournament, occur approximately twice per year on average.
In Company A'sgood faith view, the acquisition price in this case reflects the fair marketvalue of the underlying assets. Furthermore, Company A estimates in good faiththat, after subtracting from the total acquisition price the value of thetennis club (with improvements) identified at (a)(i) above, and of the parkingfacilities identified at (a)(iv) above, the fair market value of the remainingassets is below $65.2 million.
ANALYSIS
We believe thatthis acquisition is exempt from the HSR Act under 16 C.F.R. 802.4 and 802.2.Section 802.4 exempts the acquisition of interests in an LLC if the LLC and allentities that it controls do not hold non-exempt assets with an aggregate fairmarket value in excess of $65.2 million. 16 C.F.R. 802.4. In this case, someof the assets held by the LLC are exempt from the HSR Act as "recreationalland" under 16 C.F.R. 802.2(f). Thus, the acquisition is reportable onlyif the aggregate fair market value of the non-exempt assets exceeds
The HSR rulesdefine "recreational land" to include, among other things, "realproperty used primarily as ... a tennis club facility, and assets incidental tothe ownership of such property." Id. In promulgating theserules, the Federal Trade Commission has made clear that tennis clubimprovements such as parking facilities are included under the category of"recreational land," while tennis stadia are not. Statement of Basisand Purpose, 61 F.R. 13666, 13676, 13677 (1996).
In this case, thetennis club (including the twenty or so tennis courts, the clubhouse, lockerrooms, and exercise facilities, but excluding the stadium) qualifies asrecreational land because it is used solely for recreational purposes as atennis club for the entire year except during the annual, two-week tennistournament. Similarly, the parking lots used both by tennis club members andfor stadium special events are exempt because they are used solely for tennisclub purposes except during the annual two-week tennis tournament and forspecial stadium events, which account approximately for an additional 2 daysper year.
As indicatedabove, Company A estimates in good faith that, after subtracting from the totalacquisition price the value of the tennis club (with improvements) and of theparking facilities that are used for both the tennis club and the stadiumevents, the fair market value of the remaining assets is below $65.2 million.Based upon this calculation, Company A estimates in good faith that theaggregate fair market value of the non-exempt assets in this case is below$65.2 million. Accordingly, the acquisition is exempt under 802.4.