0005014 Informal Interpretation

From: [redacted]
To: "mverne@<mverne@>
Date: Wed., May 31, 2000 1:56 P.M.
Subject: Passive Investor Exemption Question

Hi Mike,

As I warned you in my voice mail message, I have a few additional questions on application of the passive investor exemption.

Partnership P is contemplating an investment in an issuer (the "Target"). P's GP is LLC1. LLC1 had 5 managing members - LLC A, LLC B, LLC C, LLC D, and LLC E. [Note:LLC A is 1 of 5 managing members.]

Partnership A is entitled to over 50% of the profits or assets of LLC A, Partnership B is entitled to over 50% of the profits or assets of LLC B, Partnership C is entitled to 50% of the profits or assets of LLC C, Partnership D is entitled to over 50% of the profits or assets of LLC D, Partnership E is entitled to over 50% of the profits or assets of LLC E. Each of Partnership A, B, C, D, and E is its own ultimate parent entity. None of Partnership A, B, C, D, or E is the ultimate parent entity of LLC 1 or Partnership P.

For the sake of simplicity, I will described only the relationship between Partnership A and LLC A. The following description holds true for each of the 5 partnerships (A, B, C, D, and E) and its corresponding LLC, however.

(A) Mr. X is the only managing member of LLC A. Mr. X is one of Partnership A's GPs.

(B) Mr. Y, another GP of Partnership A, sits on the board of the Target. Mr. Y is not a managing member of LLC A, but is a member of LLC A.

Under the facts described above, could Partnership P utilize the passive investor exemption if it were to acquire and hold 10% or less of the outstanding voting securities of the Target?

One additional question. Same facts as above. In addition, LLC 1 has an investment committee that makes all of its investment decisions. LLC 1's 5 managing members each appoint a representative to sit on LLC 1's investment committee. LLC A has appointed Mr. Y to sit LLC 1's investment committee. (As you recall, Mr. Y is a GP of Partnership A and sits on the board of the Target. He is a member of LLC A but not the managing member of LLC A.) Can Partnership P still use the passive investor exemption if it were to acquire and hold less than 10% of the outstanding voting securities of the Target?

Thanks for your help Mike.

[redacted]