0111011 Informal Interpretation

From: (redacted)
To: Mike Verne
Date: 11/29/01 1:26PM
Subject: Hypothetical

Further to my voice mail message, this email describes the transaction that I would like to discuss. All steps will happen on the same day and are conditioned upon each other. In a nutshell, various shareholders of "A" are contributing certain stock of A to NewA in exchange for NewA stock; A then will be merged into NewA. Finally, one shareholder of A will contribute to NewA (1) cash; (2) debt securities of an A subsidiary; and (3) the voting securities of a subsidiary whose only asset is debt of another A subsidiary.

I know that this would be analyzed as the merger of A into NewA if the various A shareholders were contributing only A securities to NewA. I am not clear if this remains the case or if the transaction should instead be analyzed pursuant to 801.40 since one shareholder also is contributing cash, and debt securities of an A subsidiary.

Following is a detailed step summary:

(1) Each of several shareholders of "A" (the 'Founders") form a single member LLC and transfers to it voting securities of A.

(2) One of the Founders ("B") transfers to NewA one share of A Class A Common stock as a contribution to capital.

(3) "C," a shareholder of A who is not a Founder, transfers to NewA several shares of Class B Common Stock of A in exchange for an equal number of shares of Class C Common Stock of NewA.

(4) Each LLC formed by a Founder is merged with and into NewA. The Founders take back Class B Common Stock of NewA as consideration for their A stock.

(5) A merges into NewA.

(6) C contributes to NewA **(a) the voting securities of a C subsidiary that holds no assets other than a loan to an A subsidiary; (b) cash; and (c) debt securities of another A subsidiary. C takes back additional shares of Class C Common Stock of NewA as consideration.**

Staff comment - If C does not hold 50% of NewA at this point, the transfer of the v/s of the sub of C is potentially reportable; cash and debt are not Acquisition of additional shares already filed for A (covers NewA as successor corporation).

At the end of the day, C will be the UPE of NewA. C previously filed at the 50% threshold for an acquisition of A stock. If the transaction is analyzed as a merger, that filing would cover this transaction.

If the transaction is analyzed as an 801.40, C is the only shareholder who will have a filing obligation.

Please call me at your earliest convenience to discuss.

Thank you,

(redacted)