0610004 Informal Interpretation

From:(redacted)

Sent:Tuesday, October 03, 2006 12:25 PM

To:Verne, B. Michael

Subject:HSR Question: "Control of an LLC"

Michael:

Weare trying to determine the Ultimate Parent Entity of an LLC. The LLC is ownedas follows:

CompanyA will own 25% of the preferred equity; and 22 1/2% of common equity

CompanyB will own 50% of the preferred equity; and 45% of common equity

CompanyC will own 25% of the preferred equity; and 22 1/2 % of common equity Company Dwill own 1.5% of common equity

CompanyE will own 10% of common equity

Thepreferred equity is treated like debt but is, in fact, equity. The preferredequity has a 15% dividend that accrues annually (whether or not the entityturns a profit) but is not paid until a liquidation event occurs. In addition,the preferred has a set redemption value (its original cost) so that upon aliquidation event, the payment of the preferred is in no way tied to theprofits of the entity. There is no common dividend. Accordingly, there will beno distribution of dividends or profits of the company to either the preferredequity holders or the common equity holders until a liquidation event occurs.

Upon liquidation, the preferred equity holders willbe paid first (the set redemption value plus accrued dividends), and then thecommon equity holders will receive their pro rata distributions of the residual,based on each owner's common ownership.

Basedon our reading of 801.1(b)(1)(ii), we believe that the LLC is its own UPEbecause no other entity has "control" of the LLC as no owner isentitled to (i) 50% or more of the profits of the entity (there being noprofit-based dividends), or (ii) upon liquidation, 50% or more of the assets ofthe entity. Please confirm.