Question
From: (redacted)
Sent: Wednesday, April 18, 2007 6:21 PM
To: Verne, B. Michael
Subject: Analysis of Transactionto Determine Reporting Requirements
Mike - This willconfirm our telephone conversation of yesterday and the analysis of whether aproposed transaction will have any premerger reporting requirements. I havereceived additional information regarding valuations since we talked yesterday,so the amounts have changed from what we discussed, but the concepts are thesame.
1.Initial Step. A and B are forming an LLC in which each will hold a 50%interest. A is contributing assets that have a combined value of approximately$73,200,000 and combined debt of approximately $36,200,000. B is contributing$37,000,000 in cash. If we stopped there, the analysis would be as follows:
a.Analysisof A's Acquisition. A is acquiring a controlling interest in anunincorporated entity that holds $0 in non-exempt assets (A's own contributionis exempt and B's contribution of cash is exempt); thus, A is exempt fromreporting requirements under Section 802.4.
b.Analysisof B's Acquisition. B is acquiring a controlling interest in anunincorporated entity that holds $73,200,000 in non-exempt assets (the value ofthe assets that A has contributed which are not offset by the debt; B's owncontribution is exempt); thus, B is not exempt from reporting requirementsunder Section 802.4. B must now value its acquired interest under Section801.10(d), which is equal to the acquisition price of $37,000,000. Thus, B isnot subject to reporting requirements because the size of the transaction for Bis less than $59,800,000.
2.Second Step. There is another step, however. Immediately following B'scontribution of $37,000,000 in cash, the LLC will use the $37,000,000 topurchase assets from five persons: one person is A and the other four personsare their own UPEs, separate from A and B and each other. From A, the LLC willpurchase additional assets that have a value of approximately $87,400,000 anddebt of approximately $61,100,000, for a purchase price of approximately$26,300,000. From each of the other four UPEs, the LLC will purchase assetsthat, in each case, have a value of less than $10,000,000 for a purchase priceof less than $10,000,000.
a.Analysisof Purchase from A. Because A is one of the parties forming the LLC, thepurchase from A will be treated as part of the formation of the LLC, and thepurchased assets will be treated as part of A's contribution to the LLC. Thiswill not change the analysis of A's acquisition, however, because all of A'scontribution still is exempt and B's contribution of cash still is exempt Thus,even with the purchased assets added to A's contribution, A still is acquiringa controlling interest in an unincorporated entity that holds $0 in non-exemptassets and A still is exempt from reporting requirements under Section 802.4.
b.Effecton B's Acquisition. Nor will the LLC's purchase from A change the analysis ofB's acquisition in the LLC. This is because even though B is now acquiring aninterest in an unincorporated entity that holds in excess of $160,600,000 inassets (without offsetting debt), the value of B's acquisition still is equalto its acquisition price of $37,000,000. Thus, B still is not subject toreporting requirements because the size of the transaction for B still is lessthan $59,800,000.
c.Analysisof Purchase from Other Four UPEs. Each of these purchases will be analyzed asan asset acquisition by the LLC which is an asset acquisition by each of itsUPE's, A and B. However, each purchase is for assets valued at less than$10,000,000 for a purchase price of less than $10,000,000 (taking into accountthe cash price paid plus any debt assumed). Thus, neither A nor B are subjectto the reporting requirements for any of these purchases because the size ofthe transaction for each purchase, for each of A and B, is less than$59,800,000.
The final result isthat, under these facts, none of the parties, A, B, the LLC or any of the fourseparate UPEs, are subject to the premerger reporting requirements. Pleaseconfirm that you agree. If you do not agree, please call me to discuss.
Thank you for your assistance onthis matter.