0910002 Informal Interpretation

From:

(redacted)

Sent:

Tuesday, October 13, 2009 7:28 AM

To:

Verne, B. Michael

Subject:

FW: Hypothetical and Analysis

Dear Mike:

This is a follow-upto an e-mail from last week as the facts have changed. There is no need torefer to the earlier message as it is now moot.

(redacted)

HypotheticalTransaction:

Today: As noted inthe attached diagram, Investor X owns 29% of membership interests in U.S.LLC A and the Multiple Investors collectivelyown 71% membership interests in U.S. LLC A. The investors or their affiliatesalso own promissory notes issued by U.S. LLC A on a pro rata basis inaccordance with the investors' membership interests ownership in U.S. LLC A.

Step 1: U.S. Corp. B re-classifies its capital stock as Class A commonstock and Class B common stock; both will be owned by U.S. LLC A.

Step 2: Multiple Investors and their affiliates that hold promissorynotes issued by U.S. LLC A will deliver their promissory notes to U.S. LLC Afor cancellation. In addition, Multiple Investors will exchange theirmembership interests in U.S. LLC A for Class B common stock in U.S. Corp. B.Immediately after such cancellation and exchange, Multiple Investors, asholders of Class B common stock in U.S. Corp. B, will contribute approximately$175 million in total to U.S. Corp. B as additional capital contributions. As aresult of this exchange, Investor X will hold 100% of U.S. LLC A-whose saleasset will be its holding of 29% of the voting securities of U.S. Corp B.

Step 3: Simultaneously with Step 2, Investor X will pay approximately$70 million to purchase additional membership interests in U.S. LLC A and U.S.LLC A, as the holder of Class A common stock in U.S. Corp. B, will use such $70million to make additional capital contribution to U.S. Corp. B.

Step 4: As a result of the above transactions, U.S. LLC A will own 29%of the common stock of U.S. Corp. B ( diluted from 100%), and the MultipleInvestors collectively will own 71% of the common stock of U.S. Corp. B. Thisis the exact ownership percentage held today in U.s. LLC A by Investor X andthe Multiple Investors. The only difference is that Investor X will indirectly(through u.s. LLC A) own the 29% common stock in U.S. Corp. B.

Promissory Notes:The promissory notes are owned today by the investors or their affiliates butwill be delivered to U.S. LLC A for cancellation, except for the promissorynote owned by Investor X's affiliate, which will remain outstanding.

Analysis:

Step 1: This is simply a reclassification of stock by a wholly-ownedentity. No HSR Act issue.

Step 2: The cancellation of promissory notes is not subject to the HSRAct. The exchange of LLC interests for common stock in Corp B raises twopotential issues.

First, as a resultof this exchange by the Multiple Investors, Investor X's direct interest inU.S. LLC A will increase from 29% to 100%. However, the sale asset of U.S. LLCA is its holding in U.S. Corp B, now reduced from 100% to 29%. Thus even if onewere to view Investor X as instrumental in causing this increase in itsownership to occur, Rule 802.4 would exempt its "acquisition" of 100%of U.S. LLC A as the sale asset of U.S. LLC A is its 29% stock interest in CorpB.

Second, theacquisition of common stock in U.S. Corp B by the Multiple Investors will resultin several Investors holding voting securities of U.S. Corp B valued in excessof $65.2 million. Moreover, Investor X's secondary acquisition of the 29%interest held in U.S. Corp B by U.S. LLC A could be reportable as its valuewill exceed $65.2 million. However, both of these "acquisitions"should be exempt under the approach outlined in Interpretation 19 of thePremerger Notification Practice Manual. This transaction essentially isidentical to the spin-off of a wholly-owned subsidiary to the shareholders ofthe parent-in this case U.S. LLC A-discussed in Interpretation 19. The onlydifference is that, in this case, the parent- U.S. LLC A, instead ofdistributing a 29% interest in U.S. Corp B to Investor X, will retain a 29%interest in its formerly wholly-owned subsidiary while the remaining 71%interests are distributed pro-rata to the Multiple Investors who will ownexactly the same percentage of U.S. Corp B that they previously held in U.S.LLC A. And Investor X instead of holding 29% of U.S. LLC A--whose only assetwas its 100% ownership of U.S. Corp B-will now hold 100% of U.S. LLC A which,in turn, will hold the 29% interest directly in U.S. Corp B. In other words,Investor X's ownership really has not changed at all, it is just held throughslightly different means. This seems clearly to fall within the approachadopted in Interpretation 19 and the entire transaction, including thesecondary acquisition by Investor X, should be exempt.

The additionalcapital contributions by the Multiple Investors in U.S. Corp B is not subjectto the HSR Act as these contributions do not involve any"acquisition" of voting securities or assets by the MultipleInvestors.

Step 3: The acquisition of additional membership interests in U.S. LLC Aby Investor X is exempt as X already holds 100% of U.S. LLC A. The capitalcontribution by U.S. LLC A to U.S. Corp B is not subject to the HSR Act as itdoes not involve an acquisition of assets or voting securities.

(refer to image file for diagram)