Question
From: (redacted)
Sent: Monday, July 31, 20064:04 PM
To: Johnson, Janice C.
Subject: Thx re feedback on acquisition of LLC membershipinterest
Janice,
Confirmingour telephone conference this afternoon regarding the inquiry set forth below,I understand that the transaction is not reportable as described. Because thetransaction involves the purchase of a membership interest in an LLC, theparties need only determine the purchase price of the membership interest to beacquired and the value of the resulting membership interest to be held by theacquiring party, i.e., $550,000 and $800,000 in the fact pattern presented. Theparties need not determine the fair market value of the underlying assets inthis situation. Thanks again for your cooperation and assistance in thismatter.
(redacted)
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>>>(redacted) 7/31/2006 11:36:06 AM >>> Janice,
Thankyou for your call this morning. We discussed the following transaction and howone should determine the size of the transaction for HSR reporting purposes.
1.LLC operates a specialtyhospital. LLC's members are A (55%), B (25%) and C (20%). LLC has assets with abook value of $32 million (fair market value not yet determined), andliabilities of $40 million currently held by the financing arm of A's ultimateparent entity. The debt is guaranteed pro rata by A, B and C based on theirrespective membership interest.
2.B proposes to purchase A'smembership interest for $550,000, and will thereafter hold an 80% membershipinterest in LLC. LLC will simultaneous refinance the outstanding debt and usethe proceeds to repay the debt currently held by the financing arm of A'sultimate parent entity.
3.The purchase of A's membershipinterest constitutes an acquisition of LLC by UPE-B from UPE-A. Both"A" and "B" satisfy the size of person test. I am having difficultyfollowing the new LLC rules regarding the size of transaction test. I believe thatthe size of the transaction is the greater of the acquisition price or the fairmarket value of the assets to be acquired, here the specialty hospital.
4.The acquisition price clearlyincludes the $550,000 cash consideration. Rule 801.10(d) appears to suggestthat the corresponding value of B's membership interest, here $250,000, shouldalso be included in the acquisition price, but I might not be reading thatcorrectly. Please confirm whether the value of B's membership interest isincluded in the acquisition price for purposes of Rule 801.10(d).
5.Second, while I understand thatthe value of the debt guarantee is part of the consideration to be included inthe purchase price, please confirm that the amount of debt guaranteed, however,is NOT included in the purchase price (ABA, Premerger Notification Practice Manual,Interpretation 102).
6. Finally, I understand that one must still makea good faith determination of the fair market value of the assets to be acquiredin the transaction described. If that is not necessary, please advise.
Thankyou for you assistance in this matter. I do not want to misstate the nuances ofthe new LLC rules in my opinion letter. Please let me know if you requireadditional information.