1901001 Informal Interpretation

Date:

Tags:

Rule:
801.1, 801.10
Staff:
Timothy Carson
Response/Comments:

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.

Question

From: Carson, Timothy


Sent: Tuesday, January 29, 2019 3:15:11 PM (UTC-05:00) Eastern Time (US & Canada)


To: [Redacted]


Cc: [Redacted]


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: [Redacted]


Sent: Tuesday, January 29, 2019 8:01:03 AM (UTC-05:00) Eastern Time (US & Canada)


To: [Redacted]


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.

 

About Informal Interpretations

Informal interpretations provide guidance from previous staff interpretations on the applicability of the HSR rules to specific fact situations. You should not rely on them as a substitute for reading the Act and the Rules themselves. These materials do not, and are not intended to, constitute legal advice.

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