Question
From:
(Redacted)
Sent:
Thursday, September 03, 2009 6:41 PM
To:
Verne, B. Michael
Cc:
(Redacted)
Subject: Requestfor Informal Interpretation -
Rules 801.1(b); 801.2(f); 802.2(c); and 802.4(a)
Mike,
Thank you fortaking time to speak with (redacted) and me this afternoon. I am writing toconfirm our understanding regarding the interpretation of the Hart-Scott-RodinoRules with respect to the facts and analysis we presented to you.
FACTS
Acquiring Personwill purchase interests in two limited liability companies (Company A andCompany B) from subsidiaries of Acquired Person (the "Transaction").We will assume that both Acquiring and Acquired Persons satisfy thesize-of-person test. Though subject to further negotiation, we will assume apurchase price over the current size-of-transaction threshold.
Acquisition ofInterests in Company A
Acquiring Personwill purchase all the interests in Company A held by Acquired Person consistingof 300 of the 900 Class A membership units and 70 of the 100 Class B membershipunits. The to-be-acquired Class A and B membership units constitute a combined37% ownership interest in Company A derived as follows: At the time of theoccurrence of the transaction, the Class A units as a whole would be entitledto 90% of both profits and distributions on dissolution and the Class B unitsas a whole would be entitled to the remaining 10%. Thus, Acquiring Person wouldobtain a 37% interest in profits and distributions on dissolution. However, theClass B units would be entitled to the first $500,000 of such profits and distributionsin the nature of a preferred return.
Company A, inturn, owns 100% of a lower tier limited liability company that holds a 57%undivided interest in an as-yet-to-be-completed power generating plant (the"Project"). The Project is approximately 70% complete with anexpected completion date in the Fall of 2010. The Project has executed powerpurchase agreements. In its present state, the real property held by such lowertier sub will not have generated total revenues in excess of $5 million during thethirty-six (36) months preceding the anticipated acquisition. While we are notcertain of what revenues may have been generated with respect to prior ownersof a small portion of real estate encompassed by the Project, any such revenueswould have derived from businesses unrelated to the Project, no longer existingon the Project site and the improvements related to which have been or are inthe process of being razed.
Acquisition ofInterests in Company B
Acquiring Personwill purchase all the interests in Company B held by Acquired Person andconstituting 100% of the interests in Company B. Company B provides services tothe Project. Acquiring Person has made a good-faith determination that only asmall portion of the total purchase price will be allocable to the purchase ofthe interests in Company B, an amount far below the present size-of-transactionthreshold.
ANALYSIS
We believe thatthe Transaction is not reportable under the Hart-Scott-Rodino AntitrustImprovements Act for the following reasons: Acquisition of Interests in CompanyA We believe that there is no acquisition of "control" of Company A.The preferred return of the first $500,000 would not entitle the holder toshare in the future economics of the company but rather a fixed amount (Rule801.1 (b); Reference Informal Interpretation No. 0712012). Consequently, webelieve the acquisition of the 37% interest in Company A is exempt from the HSRnotification rules because it is the acquisition of a minority interest in anoncorporate entity (Rules 801.1(b)(1 )(ii) and 801.2(f)(1)(i).
Further, even ifthe preceding paragraph were not so, we believe the assets ultimately held byCompany A consist of exempt unproductive real property (Rule 802.2(c) and Rule802.4(a); Reference Informal Interpretation No. 0808002; InformalInterpretation No. 0411008; and Informal Interpretation No. 0012010.) Youindicated that the Staff would take the position that we should consider thereal property as it exists now in calculating the $5 million in revenues overthe preceding thirty-six (36) months rather than attempting to trace back torevenues generated by businesses that are unrelated to the present use of theland and no longer exist on such land. You referred us to informal interpretationsregarding properties destroyed during Hurricane Katrina and the Staff positionthat when pre-existing businesses located on a subject piece of real propertyhad been so destroyed the Staff would not look back prior to such destructionto determine whether total revenues exceeded $5 million during the preceding 36months. See Informal Interpretation No. 0608003; Informal Interpretation No.0604022; and Informal Interpretation No. 0601027.
Acquisition ofInterests in Company B
Assuming theacquisition of interests in Company A is exempt, we believe the acquisition ofthe 100% interest in Company B is not reportable as not meeting thesize-of-transaction test
Thanks again foryour time and assistance. Please let us know if the foregoing does not accuratelyreflect the facts and analysis we discussed during our telephone conversation.