Question
From:(redacted)
Sent:Wednesday, May 30, 2007 10:20 PM
To:Verne, B. Michael
Cc:(redacted)
Subject:HSR Question
Michael,
Thankyou for returning my call so promptly. I thought it might be useful, as afollow-up to my voicemail from Tuesday, to briefly outline the transaction andour specific questions as follows:
1. Assume the acquiring party ("Company A") and the ultimateparent entity of the issuer whose membership interests are being acquired("Company B") meet the size of the person test.
2. Company A is acquiring all of the membership interests of Company B for$85 million and in addition, at the closing, Company A will pay, directly to athird party lender, debt owed by Company B of $20 million.
3. The only assets owned by Company B (based on its 12-31-06 balance sheet)are cash and prepaid expenses of $10 million, property and equipment of$22,000, and project development costs, permit development costs and loan feesof $7 million, for a total of approximately $17 million. Company B is also aparty to several mineral leases that are not reflected on the balance sheet.
4. The mineral leases owned by Company B are the assets with the greatestvalue. We believe these leases constitute unproductive real property that areexempt under Section 802.2. Although the parties have not allocated thepurchase price to the specific assets, they will agree upon such an allocationprior to the closing and we anticipate that the largest portion of the purchaseprice will be allocated to the leases.
5. We believe the transaction is exempt under Section 802.4 because anacquisition of voting securities is exempt if the acquisition of the assetsowned by the issuer is exempt.
We are seeking confirmation from you that:
A. Thesize of the transaction is $85 million - i.e. we do not include the debt of $20million - even when looking at the value of the underlying assets to determineif the exemption under Section 802.4 applies, and
B. Theacquisition of the assets of Company B, which consist primarily of cash,development costs and leases, would be exempt because cash and unproductivereal estate - i.e., the mineral leases - are both exempt (under Section 802.2)and the value of the remaining assets (even assuming they are all non-exempt)is less than $59.8 million. Therefore the acquisition of the membershipinterests is also exempt (under Section 802.4).
Please feel free tosend me an email or call me at (redacted) if you have any questions or need anyadditional information. We appreciate your assistance with this matter.