1901001 Informal Interpretation

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Sheinberg, Samuel I.
From:
Sent: 	Tuesday, January 29, 2019 3:15 PM
To: 	Walsh, Kathryn E.; Berg, Karen E.; Sheinberg, Samuel I.; Six, Anne; Whitehead, Nora
Subject: 	FW: Inquiry re: Instrumentality in Redemption/Relinquishment
From: Carson, Timothy
Sent: Tuesday, January 29, 2019 3:15:11 PM (UTC-05:00) Eastern Time (US & Canada)
To:
Cc:
Subject: RE: Inquiry re: Instrumentality in Redemption/Relinquishment
The facts shared in your email do not necessarily demonstrate that Investor A is instrumental. If investigated, the
agency would look at the totality of the circumstances, so Investor A will need to make the call and be prepared to
defend that it in fact was not instrumental.
From:
Sent: Tuesday, January 29, 2019 8:01:03 AM (UTC-05:00) Eastern Time (US & Canada)
To:
Subject: Inquiry re: Instrumentality in Redemption/Relinquishment
Dear PNO,
We are analyzing a transaction that involves a redemption of shares from a current member of an LLC who is departing
the company. As background, this would more accurately be described as a relinquishment given the circumstances of
the redemption and the nominal consideration being paid for the redeemed shares. Regardless, the transaction will
have the unintended consequence of increasing the interests of Investor A, which currently holds 49.9% of the economic
interests of the LLC, to 50% or more. Investor A is the only holder of Preferred LLC Units, and under the LLC Agreement,
a repurchase or redemption of equity interests requires the written consent of a majority in interest of the Preferred
Members. Therefore, a redemption currently cannot be effectuated without Investor A’s approval. Our question is
whether Investor A is “instrumental” by virtue of this provision in the agreement in causing the
redemption/relinquishment of LLC units by the soon‐to‐be former member of the LLC.
We have received previous guidance from PNO (copied below) indicating that a transaction in which shareholder action
was necessary to effect the percentage interest increase did not necessarily make the shareholder instrumental such
that the transaction was reportable. In that case, two shareholders were the only members of the board of directors of
a company and had to sign a settlement dispute agreement which ultimately resulted in their percentage interest in the
company increasing. Similar to that matter, the HSR reportability issue here is a by‐product of an event outside of
Investor A’s control, and Investor A is in no way causing the redemption, even if their action is ultimately necessary for
the transaction to occur. In this example, management of the LLC and the soon‐to‐be departing member are driving the
redemption, not Investor A.
Because the increase in Investor A’s percentage holdings is solely caused by the redemption and the entity is not
acquiring any additional interests, we do not consider Investor A to be instrumental in the redemption such that a filing
is required. Please let us know if you agree with this assessment or if we can answer any further questions.
Thanks,

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From: Whitehead, Nora [mailto:nwhitehead@ftc.gov]
Sent: Monday, June 08, 2015 9:45 AM
To:
Cc:
Subject: RE: HSR Redemption Question
We agree. Hope you had a good weekend as well.
Nora Whitehead
(202) 326‐3262
Check out the PNO Blog!
From:
Sent: Monday, June 08, 2015 8:37 AM
To: Walsh, Kathryn E.; Berg, Karen E.; Whitehead, Nora; Gillis, Diana L.
Cc:
Subject: HSR Redemption Question
Hi all,
I hope everyone enjoyed the weekend.
We are analyzing a scenario which involves a litigation dispute settlement structure that, among other things, conveys
back to the plaintiff company a certain amount of plaintiff’s own shares. This transaction has the unintended
consequence of increasing the percentage interest held by the remaining shareholders because the plaintiff company
cannot vote these shares. Plaintiff company (D) has three shareholders (A, B and C). To settle a litigation dispute D will
redeem all of C’s interest in exchange for cash. A and B are the only members of the board of directors and will sign the
settlement dispute agreement in their individual capacity. As a result of the redemption, A and B’s percentage interest
will increase and A will hold more than 50% of D’s voting securities. The increase in A and B’s percentage holdings is
solely caused by the redemption (neither A nor B are acquiring any additional voting securities). The HSR reportability
issue is a by‐product of the litigation dispute settlement, not the cause of the redemption.
The question is whether A and B are making an “acquisition” by virtue of seeing their percentage interests increase.
Interpretation 142 in the 5 th Edition of the Premerger Notification Practice Manual says an HSR could be required if a
stockholder that is an officer or director of an issuer is instrumental in causing the redemption. That interpretation sites
to informal interpretation #0810008 (we have included below copies of the relevant interpretations). In #0810008 the
investor had a representative on the board, for legitimate business purposes the company structured a
financing/redemption transaction in a way that caused a shareholder’s percentage interest to increase. The PNO agreed
the redemption was not an acquisition, and therefore, the transaction was exempt from the HSR filing requirements. As
in #0810008, the investors here are on the board, hold executive positions and are involved in the settlement dispute
(they are signing the settlement dispute in their individual capacities). The redemption has a legitimate business
purpose, the settlement of a litigation dispute, the increase in the remaining shareholders percentage interest is an
unintended byproduct of the settlement.
We are available to discuss by phone at any time that is convenient to you today (or tomorrow). Apologies in advance
for the short notice but unfortunately this is proceeding quickly so your prompt attention is sincerely appreciated.
As always may thanks for your guidance.

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0810008 Informal Interpretation
Date: October 22, 2008
Rule: 15 USC 18a(c)(10) 7A(c)(10)
Staff: Michael Verne
Response/Comments: I agree that the redemption is not an acquisition your client can rely on (c)(10).
Original Image File (70.37 KB)
Question
From: (redacted)
Sent: Wednesday, October 22, 2008 8:31 PM
To: Verne, B. Michael
Cc: (redacted)
Subject: 7(A)(c)(10) Question
Importance: High
Attachments: 0403003 Informal Staff Opinion ‐801.10, 801.90.htm
Mike,
(Redacted) and I are analyzing a scenario which involves an investor who is purchasing additional voting securities of an
issuer but who, given the simultaneous purchases of voting securities by other investors, will see his percentage of
outstanding diluted. Given this dilution we view the transaction as exempt pursuant to 7A(c)(10) but wanted to make
sure that additional facts (described below) didn't give rise to a reporting obligation assuming an otherwise
jurisdictionally sufficient transaction.
Assume that the investor ("A") is an existing minority shareholder of the issuer ("B") and has a representative on the
board of B. For legitimate business reasons unrelated to HSR considerations, B has structured the financing round such
that it will use a portion of its proceeds to later repurchase/redeem some of its previously issued voting securities. That
future redemption of shares will then increase the percentage of voting securities held by A and certain other existing
shareholders, although A will not end up controlling B.
The question is whether A is making an "acquisition" by virtue of seeing its percentage of outstanding increase as a
result of the redemption. Although we did not see any interpretation directly on point, the attached interpretation
provides that the subsequent redemption of shares by a company in such circumstances should be treated as separate,
and is not aggregated with the actual acquisition of voting securities by the acquiring party for HSR purposes (where the
transactions have been structured for legitimate business reasons, as here, rather than for the purpose of avoidance of
any HSR filing obligation).
0403003 Informal Staff Opinion ‐801.10, 801.90.htm Please confirm that A's board membership on B does not render
the later redemption of shares by B an acquisition on A's part. We assume that if these facts render the later redemption
to not be an acquisition it doesn't matter whether or not A was "instrumental" in structuring the deal so long as the deal
was structured for legitimate business reasons.

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If you conclude that the redemption would be viewed as an acquisition please confirm that the time of the "acquisition"
would be when the redemption would increase A's voting percentage (meaning that A would be able to make its
original, dilutive, acquisition but would need to file and observe a waiting period before the later redemption became
effective).
If you need any additional facts or want to discuss this, both Rick and I are available for a call at any time that's
convenient to you tomorrow (if you have any availability tomorrow whatsoever). Apologies in advance for the short
notice, but the transaction has come together at lightning speed and any delay makes it likely that issuer will simply
choose to close on all other investors' pieces of the deal. If it does, that would deprive my client of the pro rata
exemption ‐‐since its investment would then trail the others and not be diluted by them in a simultaneous closing.
Therefore, could you please try to confirm your conclusion on Thursday, October 23rd, if at all possible.
142 Applicable provisions. 802.30, 801.1(c)(3).
Issue. When is a corporation’s redemption of its own voting securities exempt? Under what circumstances would a
corporation’s stockholders have a filing requirement due to a redemption?
Analysis. A corporation’s redemption of its own voting securities would be exempt under Section 802.30.
However, stockholders who are instrumental in causing a redemption and whose percentage of the issuer’s voting
securities increase as a result of the redemption could have a filing obligation if the HSR threshold tests are met and no
other exemption applies, even if such stockholders did not actually acquire any additional shares of voting securities of
the issuer. For example, stockholders that are officers or directors of the issuer can be instrumental in causing the
redemption to occur, as can a shareholder that guaranties or provides funding to be used for consideration for the
redemption. In such a case the corporation’s UPE would file as the acquired person. See Int. 45. See also HSR Informal
Interpretation Letters, #0806001 (June 3, 2008), available at http://www.
ftc.gov/bc/hsr/informal/opinions/0806001.htm (filing not required where acquiring person is not instrumental in
causing the redemption).
.