Question
February 2, 2005
VIA E-MAIL AND FAX
B. Michael Verne, Esq.
Premerger NotificationOffice
Bureau of Competition
Federal Trade Commission
600 Pennsylvania Ave, NW
Washington, D.C. 20580
Re: Confirmation of Advice Regarding HSR Re
Dear Mr. Verne:
Attached is a summary of transactions to take place in connection with theinitial public offering of a company. I am writing to confirm our telephoneconversation that the transactions, as described in the attached summary, donot require the filing of a Report and Notification Form under theHart-Scott-Rodino Antitrust Improvements Act of 1976.
In accordance with all applicable laws and regulations, we seek confidentialtreatment for this letter and the attachment.
If you have any further questions, please do not hesitate to contact me at(redacted).
The transactiontaking place involves the separation of several lines of business from thegroup going public and a recapitalization of the public group, which will beeffected through several offerings (public and private) and the redemption ofseveral existing classes of interest holders, all with respect to (redacted),which is a Delaware limited liability company.
Step 1:Separation
(redacted)s willbe formed as the new holding company for (redacted). This means that allpersons who were members of (redacted) prior to the formation of (redacted)swill become members of (redacted)s and will cease to hold any membershipinterests in (redacted). [This is done via a mandatory exchange in accordancewith the (redacted) operating agreement.] After that exchange, (redacted)s willhold 100% of the LLC interests in (redacted). After the formation of theholding company, two businesses of (redacted) will be placed into a separateLLC subsidiary, (redacted), and 100% of its membership interests will bedistributed to (redacted)s, and (redacted)s will in turn distribute thoseinterests to its members. [Neither (redacted)s nor (redacted) will becontrolled by any single person or entity.]
Pursuant to theformation of (redacted)s as the new holding company, the former members of(redacted) will receive interests in (redacted)s. The current members of(redacted), who will become members of (redacted)s in the formation of theholding company, can be divided into roughly two categories based on theinterests in (redacted) that they hold: Working Partners and Capitalists. TheWorking Partners will receive an exchangeable interest in (redacted)s and aprofits and capital interests. The exchangeable interests will be exchangeablein the future for the underlying (redacted) common interests held by(REDACTED), which will then be exchangeable for common shares of the companythat will be the public holding company for (redacted) ("(redacted)"or "PubliCo"). The Capitalists will receive interests in (redacted)sthat will be redeemed as described below in the recapitalization.
Immediatelyafter the mandatory exchange, the (redacted) operating agreement will beamended and restated in contemplation of the additional transactions that willoccur, including by creating a class of (redacted) membership interests thatwill be granted to the current working partners to share in the profits of(redacted).
Step 2.Recapitalization
A key goal ofthe transactions ultimately is to facilitate the ability of the Capitalists tocash out their interests in (redacted). Accordingly, the recapitalizationinvolves the redemption (flip down) by the Capitalists of their interests in(redacted)s in exchange for newly issued redeemable interests of (redacted). Asa consequence of this redemption, the Capitalists will for a moment in timehold (redacted) interests. [These newly issued interests ultimately will be"redeemed" or bought out with the proceeds of the public offering of(redacted) (Publico) and the additional financing transactions, as describedbelow.]
All transactionsare also designed in part to facilitate the offering to the public of shares in(redacted). (redacted) is a Bermuda limited company. It is expected that, in the initial offering,the public will be offered Class A shares of (redacted), and (redacted)s willhold the Class B shares of (redacted). Each of the Class A shares and Class Bshares are entitled to voting rights; all of the economic rights reside in theClass A shares. For the purposes of this memo, assume that the Class A shareswill represent approximately 37% of the voting power of (redacted), and theClass B share approximately 63%. The actual percentages will depend upon theprice, size and types of securities offered in the IPO and additional financingtransactions.
After receipt ofthe net proceeds from the various capital raising transactions, (redacted) willredeem the redeemable (redacted) interests held by the Capitalists with these netproceeds. After the redemption of the Capitalist's (redacted) interests, eachof (redacted) and (redacted). {through certain wholly owned subsidiaries} willhold common interests in (redacted), which have economic but no general votingrights. For the purposes of this memo, assume that the common interests held by(redacted) in (redacted) will represent approximately 37% of the outstandingcommon interests in (redacted), and the common interests held by (redacted)s in(redacted) will represent approximately 63% of the outstanding common interestsin (redacted). The actual percentages will depend upon the price, size andtypes of securities offered in the IPO and additional financing transactions.