Question
From:(redacted)
Sent:Tuesday, April 13, 2004 5:31 PM
To:Verne, B. Michael
Cc:(redacted)
Subject: Unproductive Real Property Exemption Confirmation
Mr. Verne
During a telephone conversationand email on April 8, 2004, I outlined a transaction to you that involved our client,Company A. At that time, I explained that Company A and Company B are the solemembers of a limited liability company ("LLC X"). Company A andCompany B's interests in LLC X are 60% and 40%, respectively. The parties arecontemplating a transaction pursuant to which Company A will acquire all ofCompany B's interest in LLC X.
In my April 8th email, I alsoexplained that the sole asset of LLC X is an arena (the "Arena"). LLCX generates revenues from this property by leasing the Arena for large scaleevents (professional sporting events, concerts, trade shows, etc.), throughadvertising and sponsorship arrangements and through concessions sales bythird-party vendors. Of the revenues generated by the property in fiscal year2003, less than 10% were paid to LLC X by entities included within Company A.By email dated April 12, 2004, you confirmed that Company A could treat as exempt anamount equal to the fair market value of the entire Arena reduced by the valueattributable to entities included within Company A.
This afternoon we had a secondconversation regarding another sale of membership interests in a separate butrelated limited liability company ("LLC Y"). LLC Y has two members,Company C (our client) and Company D. Company C and Company D's interests inLLC Y are 60% and 40%, respectively. The parties are contemplating atransaction pursuant to which Company C will acquire all of Company D'smembership interests in LLC Y. The sole asset of LLC Y is five undeveloped lots(Lots A through E) surrounding the Arena (the "Lots"). The Lots areused for parking during events held at the Arena. The Lots are separate, non-contiguousparcels. With the exception of Lot E, none of the Lots generated revenues inexcess of $5 million in the preceding 36 months. Company UPE will be theultimate parent entity in both Company A's acquisition of the membershipinterests of LLC X and Company C's acquisition of the membership interests ofLLC Y. Such transactions will be treated as a single transaction for HSRpurposes and, pursuant to Formal Interpretation 15, will be consider theacquisition of 100% of the membership interests of LLC X and LLC Y. Thetransaction will be reportable as the acquisition of all of the assets of LLC Xand LLC Y and Company UPE will be both the acquiring and acquired person.
Under 802.2(c) of the HSRregulations (the "Unproductive Real Property Exemption"), unproductivereal property is exempt from the requirements of the Hart-Scott-RodinoAntitrust Improvements Act of 1976 (the "Act"). "Unproductivereal property" is any real property, including raw land, structures orother improvements (but excluding equipment), that has not generated totalrevenues in excess of $5 million during the thirty-six (36) months precedingthe acquisition. Unproductive real property does not include real property thatis either adjacent to or used in conjunction with real property that is notunproductive real property and is included in the acquisition. In InformalInterpretation 0111003 dated November 13, 2001, the FTC was asked to confirm ifcertain unproductive real property that was adjacent to productive realproperty which was part of the transaction but qualified for a separate assetexemption under the HSR regulations, does such unproductive real propertyqualify for the Unproductive Real Property Exemption. Under the factspresented, the FTC confirmed that reliance on the Unproductive Real PropertyExemption was appropriate.
During our conversation today andbased on the foregoing facts (some of which we have expanded upon in this emailfor clarity purposes), I inquired whether Company UPE could treat as exemptfrom the requirements of the Act under the Unproductive Real Estate Exemption,the same pro rata portion of the value of the Lots as it treats as exempt fromthe value of the Arena. I understood your position to be that it would beappropriate to exempt from the requirements of the Act pursuant to ,theUnproductive Real Property Exemption, an amount equal to the value of the Lots(with the exception of Lot E which does not qualify for the Unproductive RealEstate Exemption because it has generated revenues in excess of $5 million inthe preceding 36 months) multiplied by the same percentage used to determinethe appropriate pro rata portion of the value of the Arena that was exempt fromthe requirements of the Act for the reasons discussed above.
I respectfully request that youcontact me by email or at (redacted) to confirm that the foregoing accuratelysummarizes our conversation and your views on the matters discussed herein.Thank you for your attention to this matter.