Question
From: (redacted)
Sent: Friday, January 28, 2005 12:39 PM
To: Verne, B. Michael
Subject: TransactionDescription And Analysis/Proposed LNG Facility
Mr.Verne: Attached is a Transaction Description and Analysis relating to atransaction that we recently discussed for which no filing would be requiredunder the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.Please confirm by email or voicemail that our analysis is correct. As always,thank you for your assistance. (redacted)
TRANSACTION DESCRIPTION ANDANALYSIS
FACTUALBACKGROUND
CorporationX is a publicly-traded corporation engaged primarily in the development, constructionand operation of liquefied natural gas ("LNG") onshore receivingfacilities, as well as the business of oil and gas exploration and development.Corporation X is its own ultimate parent entity. Corporation Y is aprivately-held corporation that owns a one-third limited partner interest inLP, a limited partnership formed to develop, construct and operate an LNGonshore receiving facility (the "LNG Facility"). Corporation Xindirectly owns the remaining two-thirds limited partner interest in LP and100% of the general partner interest in LP.
Itis proposed that Corporation X, through a merger of Corporation Y into awholly-owned subsidiary of Corporation X, indirectly acquire the limited partnerinterest of Corporation Y in LP in a tax-free exchange for restricted commonstock of Corporation X having a value of approximately $70 million andrepresenting approximately 4% of the outstanding common stock of Corporation X(the "Transaction"). At the closing of the Transaction, CorporationY's sole asset will be the one-third limited partnership interest in LP. Inconnection with the transaction, Corporation X will grant the sole shareholderof Corporation Y, who will receive the restricted common stock, certainregistration rights with respect to such restricted common stock. The commonstock of Corporation X is the only voting security of Corporation X. As aresult of the Transaction, Corporation X will indirectly own 100% of LP.
Atthe time of the formation of LP, Corporation Y contributed to LP a tract ofreal estate (approximately 212 acres in fee and related easements andadditional rights) valued at approximately $310,000 (the "Land") anda commitment to contribute cash of approximately $4.5 million. Since theformation of LP, Corporation Y has contributed to LP the approximately $4.5million in cash from its commitment, and Corporation X and Corporation Y havecontributed to LP additional cash of approximately $4.2 million.
Theonly assets of LP are the Land on which the LNG Facility will be located, plansand specifications for the construction of the LNG Facility, an applicationwith the Federal Energy Regulatory Commission for the development, constructionand operation of the LNG Facility and an air permit for the operation of theLNG Facility. The technology to be utilized in connection with the development,construction and operation of the LNG Facility is existing technology that maybe purchased by any person or entity.
TheLand does not currently generate any revenues, and during the 36 monthspreceding the closing of the Transaction, the Land did not generate totalrevenues in excess of $5 million. The Land is currently vacant and does notcontain manufacturing or non-manufacturing facilities that have not yet begunoperation, or manufacturing facilities or non-manufacturing facilities thatwere in operation at any time during the 12 months preceding the closing of theTransaction. In addition, the Land is not adjacent to or used in conjunctionwith real property that is not unproductive real property and is included inthe Transaction.
CorporationY and its officers, directors and sole shareholder do not currently participatein the management of Corporation X. Following the closing of the Transaction,neither Corporation X nor the current sole shareholder of Corporation Ycontemplate that the current sole shareholder of Corporation Y will participatein the management of Corporation X, and it is contemplated that the current soleshareholder of Corporation Y will hold the common stock of Corporation Xreceived in the Transaction as a passive investor.
QUESTION
Isany filing required under the Hart- Scott-Rodino Antitrust Improvements Act of19'76, as amended (the "Act"), in connection with the Transaction?
OURUNDERSTANDING
Itis our understanding that the indirect acquisition by Corporation X of aninterest in LP that will result in Corporation X indirectly owning 100% of LPwill be treated for purposes of the Act as an acquisition of all of the assetsof LP having a fair market value in excess of $50 million and subject to thefiling requirements of the Act in the absence of an exemption. It is also ourunderstanding that the receipt by the sole shareholder of Corporation Y of theconsideration for the merger of Corporation Y into a wholly-owned subsidiary ofCorporation X will be treated for purposes of the Act as the acquisition ofvoting securities of Corporation X in excess of $50 million and subject to thefiling requirements of the Act in the absence of an exemption.
Itis our understanding that the indirect acquisition by Corporation X of the Landwould constitute an acquisition of unproductive real property within themeaning of 16 C.F.R. 802.2(c) and therefore be exempt from the filingrequirements of the Act. It is also our understanding that the indirectacquisition by Corporation X of all other assets of LP, other than the Land,would constitute an acquisition of new goods in the ordinary course of businesswithin the meaning of 16 C.F.R. 802.1(b) and therefore be exempt from thefiling requirements of the Act.
Inaddition, it is our understanding that the acquisition by the current soleshareholder of Corporation Y of the common stock of Corporation X would constitutean acquisition solely for the purpose of investment within the meaning of 16C.F.R. 802.9 and therefore be exempt from the filing requirements of theAct.
Inview of the foregoing, it is our understanding that the Transaction describedabove would be exempt from the filing requirements under the Act.