Question
From:
(redacted)
Sent:
Thursday, July 16, 2009 7:05 PM
To:
Verne, B. Michael
Cc:
(redacted)
Subject:
Question re: (c)(10) exemption
Attachments:
Public -Parent -Newco -Target Chart PPT
Mike,
I've attached asimplified structure chart for your reference in connection with a somewhatcomplicated question. In 2005, our client, Parent, a publicly traded foreigntrust, acquired Target, a privately held U.S. corporation. The transaction wasstructured as a series of steps and was ultimately exempt from the notificationand waiting period requirements of the HSR Act, a conclusion the partiesreached with assistance from you.
In connection withthe 2005 transaction, the pre-transaction shareholders of Target (the"Retained Interest Holders" or "PPS Holders"), exchangedtheir existing interests in Target for Participating Preferred Shares("PPS") in Target.
The RetainedInterest Holders, as PPS Holders, were granted voting rights in Parent. A ClassA Unit in Parent was issued to Target and gave its holder governance rightswith respect to Parent so long as one of the Retained Interest Holders held amajority of the PPS. Target, as holder of the Class A Unit, votes the rightsattached to the Class A Unit at the direction of a majority of the PPS Holders.
The PPS Holdersalso have exchange rights which entitle them to exchange their PPS for"ordinary units" of Parent or for cash.
In 2008, Parentcompleted its conversion from a trust to a corporation. In connection with theconversion, "Special Shares" of Parent were issued to Target, theholder of the Class A Unit, as a replacement for the Class A Unit. Thegovernance rights and exchange mechanics remain unchanged as a result of the conversion,but the PPS Holders may now exchange their PPS for common shares of parentrather than "ordinary units."
The PPS Holders areexpecting to exchange their PPS for common shares of Parent. Prior exchangeshave not been subject to the notification and waiting period requirements ofthe HSR Act because they have failed jurisdictional requirements or have beenexempt pursuant to Section 802.9 of the HSR Rules. One anticipated exchange,however, will satisfy the jurisdictional requirements and will not be exempt becausethat PPS Holder will acquire in excess of 10% of Parent's issued andoutstanding common shares as a result of the exchange.
We wonder, however,whether the acquisition of common shares of Parent by this one PPS Holder mightbe exempt pursuant to the statutory (c)(10) exemption? As described above, thePPS entitle PPS Holders to votes at the Parent level (as voted by Target (atthe direction of a majority of the PPS Holders) as the holder of the SpecialShares). The number of votes such PPS Holders are entitled to at the Parentlevel is calculated by assuming a full exercise of the PPS Holders' exchangeright, so each PPS Holder will not acquire additional voting rights in Parentas a result of the exchange.
With respect to theClass A Unit, we wrote to you in an email in respect of the 2005 transactionthat, "we also understand that the Class A Unit would be deemed a votingsecurity. However, if [Target] is deemed to beneficially hold the Class A Unit,and if [Parent] is the ultimate parent entity of [Target] as a result of the[acquisition], then [Target's] acquisition of the Class A Unit would be exemptfrom reporting requirements under the intraperson exemption. Under the facts wehave described, we understand that [Target] would be deemed to beneficiallyhold the Class A Unit."
Assuming the(c)(10) exemption is available in respect the exchange of PPS for common sharesof Parent, would our prior reliance on the beneficial ownership of the Class AUnit (now replaced by the Special Shares) have any effect on our ability torely the (c)(10) exemption? Although it is the PPS (and not the Special Shares)that are actually exchanged, we want to be clear that any prior reliance on theownership status of the Class A Unit does not preclude application of the(c)(10) exemption in the above described exchange.
(refer to imagefile)