PLR 1330007 approves a tax-free separation of two corporate businesses

Plain-English summary

The IRS rules that a planned contribution and distribution will qualify as a tax-free reorganization under IRC § 368(a)(1)(D) and a tax-free separation under § 355. The transaction separates one business from another, with a newly formed controlled corporation receiving the separated business and later distributing stock to the parent corporation's shareholders. The ruling also addresses related debt repayment, retained shares, fractional-share cash payments, basis, holding periods, earnings and profits, and post-distribution transactions. The IRS does not express an opinion on several separate requirements, including business purpose, device concerns, and whether the transaction is part of a plan involving acquisitions.

Ruling snapshot

• Question: Will the proposed contribution, distribution, and related transactions qualify for the stated tax treatment under IRC §§ 355 and 368?
• Outcome: Approved, subject to the stated facts, representations, and limitations.
• Key authorities: IRC §§ 301, 312, 355, 357, 358, 361, 368, 1001, 1223, 1502, and 1504; Treas. Reg. §§ 1.355-2, 1.355-3, 1.355-7, 1.358-2, 1.1502-13, 1.1502-19, and 1.1502-33.

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201330007 Third Party Communication: None
Release Date: 7/26/2013 Date of Communication: Not Applicable
Index Number: 355.01-00, 355.01-01,
368.04-00 Person To Contact:
-------------------------, ID No. -----------------
-------------------------- -----------------------------------------------------
---------------- Telephone Number:
---------------------------------------------------- ----------------------
----------------------------- Refer Reply To:
--------------- CC:CORP:B03
----------------------------- PLR-135052-12
Date:
February 05, 2013

Legend

Distributing = ---------------------------------

Controlled = -----------------------------------------------

Sub 1 = --------------------------------------

Sub 2 = ------------------------------------

LLC 1 = ----------------------------------

LLC 2 = ----------------------------------

Business A = ------------------------------------

Business B = -------------------------
PLR-135052-12 2

Business C = -----------------------------------

B Properties = --------------------------------------------------------------------------------

Shareholder A = ------------------------------------------------------------

Shareholder B = ------------------------------------

State A = --------------

Investment Bank = -----------------------

Date 1 = ----------------------

Date 2 = --------------------

Date 3 = -------------------

Date 4 = ----------------------

Date 5 = ------------------------

Date 6 = ------------------------

Date 7 = ------------------------

Date 8 = ------------------------

Date 9 = --------------------------

a = ----

b = ----

c = ----

d = ------

e = -----

f = -------------------
PLR-135052-12 3

g = -----------------

h = -----------------

i = -----

j = --------------

k = ----

l = -------

Dear --------------:

This letter responds to your August 13, 2012 request for rulings on certain Federal
income tax consequences of a series of proposed transactions (the “Proposed
Transactions”). The information provided in that request and in later correspondence is
summarized below.

The rulings contained in this letter are based upon information and representations
submitted by the taxpayer and accompanied by a penalties of perjury statement
executed by an appropriate party. While this office has not verified any of the material
submitted in support of the request for rulings, it is subject to verification on
examination.

In particular, this office has not reviewed any information pertaining to, and has made
no determination regarding, whether the distribution described below: (i) satisfies the
business purpose requirement of § 1.355-2(b) of the Income Tax Regulations; (ii) is
used principally as a device for the distribution of the earnings and profits of a
distributing corporation or a controlled corporation or both (see § 355(a)(1)(B) of the
Internal Revenue Code and § 1.355-2(d)); or (iii) is part of a plan (or series of related
transactions) pursuant to which one or more persons will acquire directly or indirectly
stock representing a 50-percent or greater interest in any distributing corporation or any
controlled corporation (see § 355(e)(2)(A)(ii) and § 1.355-7).

                                  Summary of Facts

Distributing is the common parent of a group of corporations the includible affiliates of
which join in filing a consolidated return for Federal income tax purposes. Distributing is
engaged through its direct and indirect domestic and foreign subsidiaries, partnerships,
and limited liability companies (“LLCs”) (the “Distributing Group”) in Business A,
PLR-135052-12 4

Business B, and Business C. The outstanding capital stock of Distributing consists of a
single class of common stock. Based on publicly available securities information, only
Shareholder A and Shareholder B held five percent or more of the common stock on
Date 1. The remaining shares of Distributing are widely held and publicly traded.
Distributing issues restricted stock (“Distributing Restricted Shares”) to its non-employee
directors.

Until the time of the Controlled IPO, Distributing, a State A corporation, owned all the
stock of Sub 1, a State A corporation, and Controlled, a State A corporation newly
formed to facilitate the Proposed Transactions, and all of the outstanding interests in
LLC 1, a State A limited liability company disregarded as separate from Distributing for
Federal tax purposes under § 301.7701-3 of the Procedure and Administration
Regulations. Distributing owns directly and indirectly the stock of and interests in
numerous other entities that conduct the businesses of Distributing. Distributing, LLC1,
and certain other entities in the Distributing Group are engaged in Business A.
Following the Distribution (described below), these entities will all belong to the
Distributing separate affiliated group (“SAG,” as defined in § 355(b)(3)(B))(the
“Distributing SAG”).

Sub 1 wholly owns Sub 2, a State A corporation, and also owns directly and indirectly all
the stock of and interests in several other corporations, partnerships, and LLCs
(collectively, the “Sub 1 Subgroup”). The Sub 1 Subgroup is engaged in Business B.
Following the Distribution, these entities will all belong to the Controlled SAG.

Financial information has been submitted indicating that Business A (conducted by the
Distributing SAG) and Business B (to be conducted by the Controlled SAG following the
Contribution) each has had gross receipts and operating expenses representing the
active conduct of a trade or business for each of the past five years.

LLC 1 owns all of the interests in LLC 2, a State A LLC treated as a corporation for
Federal tax purposes. LLC 2 owns directly and indirectly all the stock of and interests in
several corporations, partnerships, and LLCs (the “LLC 2 Subgroup”). The LLC 2
Subgroup is engaged in Business C. Distributing announced on Date 9 that it has
entered into a definitive agreement to sell LLC 2 and Business C. The sale of LLC 2
and Business C should not have any effect on the Proposed Transactions’ qualification
under § 355.

The Distribution will separate Business B from Business A to (a) resolve capital
allocation issues between Business A and Business B; (b) enhance the value of the
stock of Distributing and Controlled and thereby (i) facilitate future strategic acquisitions
by Controlled using its stock as acquisition “currency” and (ii) increase the long-term
effectiveness of equity-linked incentive compensation programs for the employees of
each business; and (c) resolve management, operational, and other business issues
PLR-135052-12 5

caused by the operation of these businesses within the same affiliated group ((a), (b),
and (c) together, the “Corporate Business Purposes”).

                             Proposed Transactions

To achieve the Corporate Business Purposes, Distributing has proposed and partially
undertaken the following series of transactions:

(i) On Date 3, Distributing organized Controlled under State A law.

(ii) On Date 4, Sub 1 issued several intercompany notes in the aggregate
principal amount of f dollars to Distributing (the “Sub 1 Notes” and the “Note
Distribution”). The Sub 1 Notes had terms ranging from a months to b
months and bore a market rate of interest.

(iii) On Date 5, Controlled filed an Amended and Restated Certificate of
Incorporation with the State of State A. Controlled authorized two classes of
common stock: (the “Controlled High-Vote Common Stock” and the
“Controlled Low-Vote Common Stock”). Each share of Controlled High-Vote
Common Stock is identical to each share of Controlled Low-Vote Common
Stock, except for voting rights and conversion. Regarding voting rights, each
share of Controlled High-Vote Common Stock entitles its holder to e votes on
all matters submitted to a vote of the stockholders, while each share of
Controlled Low-Vote Common Stock entitles its holder to d votes per share.
Regarding conversion, the Controlled High-Vote Common Stock may be
electively or automatically converted under certain circumstances to
Controlled Low-Vote Common Stock. In particular, any member of the
Distributing Group has the right to convert all or a portion of any Controlled
High-Vote Common Stock held by it into Controlled Low-Vote Common Stock
at any time before the Distribution in Step (xi) (any conversion of all of
Distributing’s Controlled High-Vote Common Stock, a “Complete Pre-
Distribution High-Vote Conversion”).

       Distributing may not transfer Controlled High-Vote Common Stock outside the
       Distributing Group, except to Distributing’s shareholders in the Distribution at
       which time the conversion features of the Controlled High-Vote Common
       Stock will cease to apply. The Controlled Low-Vote Common Stock is not
       convertible into Controlled High-Vote Common Stock or any other security. In
       addition, at any time before the Distribution, Controlled, subject to
       Distributing’s consent and the satisfaction of certain other requirements, may
       elect to reduce the number of votes per share of the Controlled High-Vote
       Common Stock for either or both of (a) the election of directors or (b) all
       matters other than the election of directors to the minimum number of whole
       votes per share (but not less than one) required to preserve Distributing’s

PLR-135052-12 6

       control of Controlled, as defined in § 368(c) (“Section 368(c) Control” and a
       “Vote Reduction Election”). The dual-vote capitalization ensured that
       Distributing would have Section 368(c) Control of Controlled after the
       Controlled IPO in Step (viii) and that Distributing would have Section 368(c)
       Control before the Distribution in Step (x).

(iv) On Date 6, Distributing transferred to Sub 1 in non-taxable transactions the B
Properties related to Business B.

(v) On Date 7, Sub 2 transferred to LLC 2 in taxable transactions certain
intellectual property related to Business C (the “IP” and the “IP Distribution”).

(vi) On Date 7, Distributing contributed all of the Sub 1 stock to Controlled in
exchange for Controlled High-Vote Common Stock (the “Contribution”). The
resulting group of entities is referred to as the “Controlled Group.”

(vii) On Date 8, Controlled borrowed g dollars from unrelated third parties under
new senior secured credit facilities (such amount, less fees and expenses,
the “Cash Proceeds”). These credit facilities consist of a i year revolving
credit facility and two term loans of varying maturities provided by a syndicate
of financial institutions.

(viii) As a result of an initial public offering on Date 7 and related funding on Date
8, Controlled issued j shares for h dollars to public investors in exchange for
cash (the “Controlled IPO” and, such amount, less fees and expenses, the
“IPO Proceeds”). Following the Controlled IPO, public investors owned all of
the outstanding Controlled Low-Vote Common Stock (the “Public Investor
Stock”). If prevailing capital market conditions and other factors are
favorable, Controlled may undertake additional public offerings of its
Controlled Low-Vote Common Stock (together, the “Aggregate Controlled
Offerings”). In addition, Distributing may convert a portion of its Controlled
High-Vote Common Stock into Controlled Low-Vote Common Stock to effect
a follow-on offering (any such offering may take the form of (an) equity for
debt exchange(s) similar to the Equity for Debt Exchange(s) described in
steps (xiii) and (xiv)). In no event will (a) the Public Investor Stock resulting
from the Aggregate Controlled Offerings, (b) any Controlled common stock
not distributed by Distributing in the Distribution (the “Retained Shares”), and
(c) the shares in the Restricted Stock Distribution (defined below) together
represent more than ---- percent of the outstanding Controlled common stock
by voting power.

(ix) Immediately after the closing of the Controlled IPO, on Date 8, Controlled
contributed f dollars of the Cash Proceeds and IPO Proceeds (together, the
“Combined Proceeds”) to Sub 1, and Sub 1 transferred the Combined
PLR-135052-12 7

     Proceeds plus the then-accrued interest on the Sub 1 Notes to Distributing in
     full satisfaction of the Sub 1 Notes. At the time of its payment, the Sub 1
     Notes had been outstanding for k days. Payment had previously been
     authorized by the boards of directors of both Controlled and Sub 1.
     Immediately after receipt, Distributing used the Combined Proceeds to pay
     down existing third-party debt (“Distributing Historical Debt”).

(x) Before the Distribution in Step (xi), Controlled intends through a Vote
Reduction Election to reduce to d votes per share the number of votes per
share of the Controlled High-Vote Common Stock for all matters other than
the election of directors. In addition, Controlled intends to reduce the number
of votes to which each share of Controlled High-Vote Common Stock is
entitled in the election of directors of Controlled to the lowest whole number
that is less than e (but not less than d) that is necessary to preserve Section
368(c) Control in the Distribution.

(xi) Distributing intends to distribute sufficient Controlled common stock, whether
Controlled High-Vote Common Stock, Controlled Low-Vote Common Stock,
or a combination of the two, to ensure the distribution of at least ---- percent of
the voting power of Controlled common stock to its shareholders, pro rata (the
“Distribution”). Holders of Distributing Restricted Shares who are directors of
Controlled at the time of the Distribution will exchange such shares for
Controlled restricted shares having similar terms (the “Restricted Stock
Distribution”). If, at the time of the Distribution, the Controlled High-Vote
Common Stock that Distributing intends to distribute in the Distribution
represents more than ---- percent of the total number of outstanding shares of
Controlled common stock, Distributing may effect a Complete Pre-Distribution
High-Vote Conversion. Alternatively, if the Controlled High-Vote Common
Stock that Distributing intends to distribute in the Distribution does not
represent more than ---- percent of the total number of outstanding shares of
Controlled common stock, Distributing may elect to convert some of its shares
of Controlled High-Vote Common Stock to Controlled Low-Vote Common
Stock such that the Controlled High-Vote Common Stock and the Controlled
Low-Vote Common Stock that Distributing intends to distribute in the
Distribution satisfies Section 368(c) Control. No fractional shares of
Controlled common stock will be distributed in the Distribution. Instead, all
fractional shares of Controlled common stock that Distributing shareholders
otherwise would be entitled to receive will be aggregated by a transfer agent
and, as soon as practicable following the effective time of the Distribution, will
be sold at the prevailing price on the New York Stock Exchange. Any
Distributing shareholder entitled to receive a fractional share of the Controlled
common stock will be entitled to receive a cash payment in an amount equal
to the shareholder’s proportionate interest in the net proceeds from the open
market sales. Any Retained Shares, which, upon the Distribution, shall
PLR-135052-12 8

       automatically convert into Controlled Low-Vote Common Stock, may be used
       to effect the Equity for Debt Exchange(s) described in step (xiii).

(xii) If any Complete Pre-Distribution High-Vote Conversion or other conversion
has not eliminated the Controlled High-Vote Common Stock, it is expected
that, following consummation of the Distribution, and in connection with the
consideration of resolutions to be submitted to the Controlled shareholders at
the next regularly scheduled annual shareholders’ meeting of Controlled or at
a special shareholders’ meeting of Controlled, the Controlled Board of
Directors (the “Controlled Board”) may consider a proposal to convert the
Controlled High-Vote Common Stock to Controlled Low-Vote Common Stock
on a share-for-share basis, subject to the approval of the Controlled
shareholders by a majority of the aggregate number of outstanding shares of
Controlled High-Vote Common Stock and Controlled Low-Vote Common
Stock, voting together as a single class, with one vote per share (the “Post-
Distribution High-Vote Conversion”). There will be no binding commitment by
the Controlled Board to, and there can be no assurance that the Controlled
Board will, consider the issue or resolve to present the proposal to the
Controlled shareholders at that meeting or any subsequent meeting.
Moreover, there can be no assurance that, if presented, the Controlled
shareholders will approve the Post-Distribution High-Vote Conversion.

(xiii) Not later than c months following the Distribution, Distributing may issue
short-term debt (the “Distributing Short-term Debt”) to one or more investment
banks (“Investment Bank”) in exchange for cash. This Step (xiii) may occur
earlier in the sequence of Proposed Transactions Steps, including before the
Distribution. Not earlier than five days following the issuance of the
Distributing Short-term Debt, Distributing and Investment Bank (acting as
principal for its own account) will enter into an exchange agreement (the
“Exchange Agreement”) pursuant to which Distributing will transfer an amount
of the Retained Shares (up to and including all of the Retained Shares), in
one or more transactions, to Investment Bank in repayment of the Distributing
Short-term Debt (the “Equity for Debt Exchange(s)”). It is expected that
immediately after the receipt of Retained Shares, Investment Bank will sell
the Retained Shares to unrelated third parties in a public or private offering.
In this regard, Investment Bank may solicit orders (but not binding
agreements) from third parties before entering into the Exchange Agreement
and engaging in the Equity for Debt Exchange(s). Investment Bank may
enter into other arrangements respecting the Distributing Short-term Debt,
including hedging arrangements, provided neither Distributing nor any
member of its affiliated group is a party to the arrangements.

       To the extent requested by Investment Bank, the Exchange Agreement will
       also grant to Investment Bank the option to acquire additional Controlled

PLR-135052-12 9

       common stock from Distributing in exchange for the Distributing Short-term
       Debt to cover any over-allotment of Controlled common stock (the “Over-
       Allotment Option”). In the event the Over-Allotment Option is exercised by
       Investment Bank, the exchange of Controlled common stock for Distributing
       Short-term Debt pursuant to the Over-Allotment Option will close
       approximately l business days after the date of exercise. Any Distributing
       Short-term Debt exchanged by Investment Bank for Controlled common stock
       pursuant to the Over-Allotment Option will have been held by Investment
       Bank for at least 14 days, subject to applicable waiver provisions.

(xiv) Not earlier than 14 days following issuance of the Distributing Short-term
Debt, Distributing and Investment Bank will complete the Equity for Debt
Exchange(s). This Step (xiv) may occur earlier in the sequence of Proposed
Transactions Steps if the issuance of Distributing Short-term Debt in step (xiii)
occurs earlier in the sequence. Any portion of the Distributing Short-term
Debt that remains outstanding after completion of the Equity for Debt
Exchange(s) will be repaid by Distributing in cash at its maturity.

(xv) As soon as practicable following the Equity for Debt Exchange(s) (unless
it/they occur(s) before the Distribution), Distributing will dispose of any
remaining Retained Shares by distribution, sale, or other exchange (the
“Retained Shares Disposition”).

Once the Distribution and any Retained Shares Disposition are concluded, the
separation of Business B from Business A will be complete except for the Continuing
Agreements described below.

In connection with the Proposed Transactions, the Distributing Group and the Controlled
Group have entered into a variety of agreements (collectively, the “Continuing
Agreements”), including a Separation Agreement, a Tax Matters Agreement, an
Employee Matters Agreement, Transitional Agreements (including a Transition Services
Agreement), and certain commercial agreements (including manufacturing & supply,
sales & distribution, transition sales, and intellectual property agreements).
Indemnification provisions in the Separation and Tax Matters Agreements are together
referred to as the “Contingent Liability Arrangements.”

                                 Representations

                         The Contribution and Distribution

Distributing has made the following representations for the Proposed Transactions:

(a) Any indebtedness owed by Controlled (or any entity controlled directly or
indirectly by Controlled) to Distributing (or any entity controlled directly or
PLR-135052-12 10

    indirectly by Distributing) after the Distribution will not constitute stock or
    securities.

(b) Except for the Restricted Stock Distribution, no part of the consideration
distributed by Distributing in the Distribution will be received by any shareholder
as a creditor, employee, or in any capacity other than that of a shareholder of
Distributing. In no event will the Restricted Stock Distribution, combined with
the Retained Shares and stock issued in the Aggregate Controlled Offerings,
represent more than ---- percent of the voting power for directors of the
Controlled common stock (restricted or unrestricted) immediately before the
Distribution.

(c) No shareholder of Distributing will surrender Distributing stock in the Distribution
except for the Restricted Stock Distribution.

(d) Distributing and Controlled each will treat all members of its SAG (as defined in
§ 355(b)(3)(B)) as one corporation in determining whether the requirements of
§ 355(b)(2)(A) regarding the active conduct of a trade or business are satisfied.

(e) The five years of financial information submitted for Business A conducted by
the Distributing SAG and for Business B to be conducted by the Controlled SAG
following the Contribution is representative of the present operations of each
business, and there have been no substantial operational changes in either
business since the date of the last financial statements submitted

(f) Neither Business A conducted by the Distributing SAG nor control of an entity
conducting this business will have been acquired during the five-year period
ending on the date of the Distribution in a transaction in which gain or loss was
recognized (or treated as recognized) in whole or in part, except in connection
with expansions of Business A. See § 1.355-3(b)(3)(ii).

(g) Neither Business B to be conducted by the Controlled SAG following the
Contribution nor control of an entity conducting this business will have been
acquired during the five-year period ending on the date of the Distribution in a
transaction in which gain or loss was recognized (or treated as recognized) in
whole or in part, except in connection with expansions of Business B. See
§ 1.355-3(b)(3)(ii).

(h) Apart from transitional and administrative support services that are being
provided under the Continuing Agreements, the Distributing SAG will continue
the active conduct of Business A, independently and with its separate
employees, following the Distribution.
PLR-135052-12 11

(i) Apart from transitional and administrative support services that are being
provided under the Continuing Agreements, the Controlled SAG will continue
the active conduct of Business B, independently and with its separate
employees, following the Distribution.

(j) The Distribution will be carried out to accomplish the Corporate Business
Purposes. The Distribution is motivated in whole or substantial part by the
Corporate Business Purposes.

(k) The Distribution will not be used principally as a device for the distribution of the
earnings and profits of Controlled or Distributing or both.

(l) There is no plan or intention to liquidate any member of the Distributing SAG
engaged in Business A or any member of the Controlled SAG engaged in
Business B, to merge any member of either SAG with any other entity, or to sell
or otherwise dispose of the assets or shares of any member after the
Distribution, except for transactions in the ordinary course of business and the
anticipated sale of LLC 2 and Business C.

(m) The total adjusted basis of the assets transferred to Controlled in the
Contribution exceeded the sum of (i) the total liabilities assumed (as determined
under § 357(d)) by Controlled and (ii) the total amount of any money and the
fair market value of any other property (within the meaning of § 361(b)) received
by Distributing from Controlled and transferred to Distributing’s creditors in
connection with the reorganization.

(n) Any liabilities assumed (as determined under § 357(d)) by Controlled in the
Contribution were incurred in the ordinary course of business and are
associated with the assets transferred.

(o) The total fair market value of the assets transferred to Controlled in the
Contribution exceeded the sum of (i) the amount of any liabilities assumed (as
determined under § 357(d)) by Controlled in connection with the Contribution,
(ii) the amount of any liabilities owed to Controlled by Distributing that were
discharged or extinguished in connection with the Contribution, and (iii) the
amount of any cash and the fair market value of any other property (other than
stock and securities permitted to be received under § 361(a) without the
recognition of gain) received by Distributing in connection with the Contribution.
The fair market value of the assets of Controlled exceeded the amount of its
liabilities immediately after the Contribution.

(p) The aggregate fair market value of the assets Distributing transferred to
Controlled in the Contribution exceeded the aggregate adjusted basis of those
assets.
PLR-135052-12 12

(q) No investment tax credit determined under § 46 has been, or will be, claimed
for any property that was transferred by Distributing to Controlled in the
Contribution.

(r) No two parties to the Distribution are investment companies as defined in
§ 368(a)(2)(F)(iii) and (iv).

(s) Immediately before the Distribution, items of income, gain, loss, deduction, and
credit will be taken into account as required by the applicable intercompany
transaction regulations (see § 1.1502-13 and -14 as in effect before the
publication of T.D. 8597, 1995-2 C.B. 147, and as currently in effect; § 1.1502-
13 as published in T.D. 8597). Further, any excess loss account that
Distributing has in the Controlled common stock or the stock of any direct or
indirect subsidiary of Controlled will be included in income immediately before
the Distribution to the extent required by regulations (see § 1.1502-19). At the
time of the Distribution, Distributing will not have an excess loss account in the
stock of Controlled or the stock of any direct or indirect subsidiary of Controlled.

(t) Apart from debt arising in connection with the Proposed Transactions and
intercompany loans or other obligations that have arisen, or will arise, in the
ordinary course of business, no intercorporate debt will exist between
Controlled (or any entity controlled directly or indirectly by Controlled) and
Distributing (or any entity controlled directly or indirectly by Distributing) at the
time of, or after, the Distribution.

(u) Apart from certain payments made under the Tax Matters Agreement, the
Employee Matters Agreement, and/or the Transitional Agreements, payments
made in connection with all continuing transactions between Controlled (or any
entity controlled directly or indirectly by Controlled) and Distributing (or any
entity controlled directly or indirectly by Distributing) will be for fair market value
based on terms and conditions arrived at by the parties bargaining at arm’s
length.

(v) For purposes of § 355(d), immediately after the Distribution, no person
(determined after applying § 355(d)(7)) will hold stock possessing ---- percent or
more of the total combined voting power for directors of all classes of
Distributing stock entitled to vote, or ---- percent or more of the total value of
shares of all classes of Distributing stock, that was acquired by purchase (as
defined in § 355(d)(5) and (8)) during the five-year period (determined after
applying § 355(d)(6)) ending on the date of the Distribution.

(w) For purposes of § 355(d), immediately after the Distribution, no person
(determined after applying § 355(d)(7)) will hold stock possessing ---- percent or
PLR-135052-12 13

   more of the total combined voting power for directors of all classes of Controlled
   common stock entitled to vote, or ---- percent or more of the total value of
   shares of all classes of Controlled common stock, that was either (i) acquired by
   purchase (as defined in § 355(d)(5) and (8)) during the five-year period
   (determined after applying § 355(d)(6)) ending on the date of the Distribution or
   (ii) attributable to distributions on Distributing stock or securities that were
   acquired by purchase (as defined in § 355(d)(5) and (8)) during the five-year
   period (determined after applying § 355(d)(6)) ending on the date of the
   Distribution.

(x) The Distribution is not part of a plan or series of related transactions (within the
meaning of § 1.355-7) pursuant to which one or more persons will acquire
directly or indirectly stock representing a -----percent or greater interest (within
the meaning of § 355(d)(4)) in Distributing or Controlled (including any
predecessor or successor of either corporation).

(y) Immediately after the transaction (as defined in § 355(g)(4)), (i) no person will
hold a -----percent or greater interest (within the meaning of § 355(g)(3)) in
Distributing or Controlled, (ii) if any person holds a -----percent or greater
interest (within the meaning of § 355(g)(3)) in any disqualified investment
corporation (within the meaning of § 355(g)(2)), such person will have held such
interest in such corporation (either directly or through attribution) immediately
before the Distribution, or (iii) neither Distributing nor Controlled will be a
disqualified investment corporation (within the meaning of § 355(g)(2)).

(z) Distributing will hold the Retained Shares, if any, following the Distribution to
provide flexibility in further reducing indebtedness of Distributing (including in
the Equity for Debt Exchanges(s)).

(aa) Distributing will transfer the Retained Shares, if any, to Investment Bank in the
Equity for Debt Exchange(s) no later than c months following the Distribution.
Any Retained Shares not transferred to Investment Bank in the Equity for Debt
Exchange(s) will be distributed in the Retained Shares Disposition as soon as
commercially practicable, but in no event later than five years after the
Distribution.

(bb) After the Distribution, Distributing will vote the Retained Shares, if any, in
proportion to votes cast by the other Controlled shareholders and will grant
Controlled a proxy for the Retained Shares requiring this manner of voting.

(cc) In the event a Retained Shares Disposition is necessary, from the date of the
Distribution until the date Distributing has disposed of all Retained Shares, no
director or officer of Distributing or any of its subsidiaries will be a director or
officer of Controlled or any of its subsidiaries.
PLR-135052-12 14

(dd) Controlled has no legally binding obligation to any person to consider or present
to the Controlled shareholders a proposal to convert the Controlled High-Vote
Common Stock to Controlled Low-Vote Common Stock following the
Distribution.

(ee) If a proposal to convert the Controlled High-Vote Common Stock to Controlled
Low-Vote Common Stock is approved by the Controlled Board and presented to
the Controlled shareholders, its adoption will require the approval of a majority
of the aggregate number of outstanding Controlled High-Vote Shares and
Controlled Low-Vote Shares, voting together as a single class, with d votes per
share.

(ff) The aggregate amount of Distributing Historical Debt and Distributing Short-
term Debt repaid with the Retained Shares will not exceed the weighted
quarterly average of Distributing third-party debt for the 12-month period ending
on the close of business on Date 2.

(gg) The receipt by Distributing shareholders of cash in lieu of fractional shares of
Controlled common stock resulting from the open market sale of these shares
will be solely for the purpose of avoiding the expense and inconvenience to
Controlled of issuing fractional shares and does not represent separately
bargained-for consideration. It is intended that the total cash consideration
received by the shareholders of Distributing from the open market sale of their
fractional shares will not exceed ------ percent of the total consideration that will
be distributed in the Distribution. It is also intended that no Distributing
shareholder will receive cash in an amount equal to or greater than the value of
one full share of Controlled common stock. Neither Controlled nor Distributing
is aware of any overall plan (within the meaning of § 355(e)) to acquire an
ownership interest in Controlled through the purchase of bundled Controlled
shares sold in connection with the issuance of cash in lieu of fractional shares.

                                     Rulings

                   The Contribution and Internal Distribution

(1) The IP Distribution and the Note Distribution each will be a distribution within
the meaning of § 301. Sub 1 will recognize gain (if any) as if it had sold the IP
to Distributing at its fair market value (§ 311(b)).

(2) The Contribution, followed by the Distribution, will qualify as a reorganization
under § 368(a)(1)(D). Distributing and Controlled each will be “a party to a
reorganization” within the meaning of § 368(b).
PLR-135052-12 15

(3) No gain or loss will be recognized by Distributing on the Contribution (§§ 361(a)
and 357(a)).

(4) No gain or loss will be recognized by Controlled on the Contribution (§ 1032(a)).

(5) The basis of each asset received by Controlled in the Contribution will equal the
basis of that asset in the hands of Distributing immediately before the
Contribution (§ 362(b)).

(6) The holding period of each asset received by Controlled in the Contribution will
include the period during which Distributing held that asset (§ 1223(2)).

(7) No gain or loss will be recognized by Distributing on the Distribution
(§ 361(c)(1)).

(8) No gain or loss will be recognized by Distributing on the Equity for Debt
Exchange(s) (§ 361(c)(3)).

(9) No gain or loss will be recognized by Distributing on the Retained Shares
Disposition to the extent it takes the form of a distribution, should it occur
(§ 361(c)).

(10) No gain or loss will be recognized by (and no amount will be included in the
income of) the Distributing shareholders on the Distribution (§ 355(a)(1)).

(11) No gain or loss will be recognized by the Distributing shareholders on the
Retained Shares Disposition to the extent it takes the form of a distribution,
should it occur (§ 355(a)(1)).

(12) The basis of the Distributing stock and Controlled common stock in the hands of
each Distributing shareholder immediately after the Distribution (including any
fractional share interest in Controlled common stock to which the shareholder
may be entitled) will equal the basis of the Distributing stock held by such
Distributing shareholder immediately before the Distribution, allocated between
the stock of Distributing and Controlled in proportion to the fair market value of
each in accordance with § 1.358-2(a)(2)(iv) (§ 358(b)(2) and (c)). If a
Distributing shareholder that purchased or acquired shares of Distributing stock
on different dates or at different prices is not able to identify which particular
share of Controlled common stock (or portion thereof) is received with respect
to a particular share of Distributing stock (or portion thereof), the shareholder
may designate which share of Controlled common stock is received with
respect to a particular share of Distributing stock, provided the terms of the
designation are consistent with the terms of the Distribution (§ 1.358-
2(a)(2)(vii)).
PLR-135052-12 16

(13) Should the Retained Shares Disposition occur and take the form of a
distribution, immediately after such distribution, a Distributing shareholder who
receives Retained Shares will have an adjusted basis in its Distributing stock,
Controlled common stock (excluding the Retained Shares but including any
fractional share interest in Controlled common stock to which the shareholder
may be entitled in the Distribution), and Retained Shares equal to the adjusted
basis of the Distributing stock held by such Distributing shareholder immediately
before the Distribution, allocated among the Distributing stock, Controlled
common stock (excluding the Retained Shares but including any fractional
share interest in Controlled common stock to which the shareholder may be
entitled in the Distribution), and Retained Shares in proportion to the fair market
value of each immediately following the Distribution in accordance with § 1.358-
2(a)(2)(iv) (§ 358(b)(2) and (c)). If a Distributing shareholder that purchased or
acquired shares of Distributing stock on different dates or at different prices is
not able to identify which particular share of Controlled common stock (or
portion thereof) is received with respect to a particular share of Distributing
stock (or portion thereof), the shareholder may designate which share of
Controlled common stock is received with respect to a particular share of
Distributing stock, provided the terms of the designation are consistent with the
terms of the Distribution (§ 1.358-2(a)(2)(vii)).

(14) The holding period of the Controlled common stock received by each
Distributing shareholder in the Distribution (including any fractional share
interest in Controlled common stock to which the shareholder may be entitled)
will include the holding period of the Distributing stock on which the Distribution
is made, provided the Distributing stock is held by the Distributing shareholder
as a capital asset on the date of the Distribution (§ 1223(1)).

(15) Should the Retained Shares Disposition occur and take the form of a
distribution, the holding period of the Controlled common stock received by a
Distributing shareholder in the Retained Shares Disposition (including any
fractional share interest in the Retained Shares to which the shareholder may
be entitled) will include the holding period of the Distributing stock (as it existed
on the date of the Distribution) on which the Retained Shares Disposition is
made, provided the Distributing stock was held by the Distributing shareholder
as a capital asset on the date of the Distribution (§ 1223(1)).

(16) Earnings and profits, if any, will be allocated between Distributing and
Controlled in accordance with § 312(h) and §§ 1.312-10(a) and 1.1502-33(e)(3).

(17) Any payments between Distributing and Controlled that are made following the
Distribution pursuant to the Contingent Liability Arrangements regarding
obligations that (i) have arisen or will arise for a taxable period ending on or
PLR-135052-12 17

     before the Distribution or for a taxable period beginning before but ending after
     the Distribution and (ii) will not have become fixed or ascertainable until after
     the Distribution, will be treated as occurring immediately before the Distribution
     (cf. Arrowsmith v. Comm’r, 344 U.S. 6, 73 S. Ct. 71, 97 L. Ed. 6, 1952-2 C.B.
     136 (1952); Rev. Rul. 83-73, 1983-1 C.B. 84).

(18) Following the Distribution, Controlled will not be a successor of Distributing for
purposes of § 1504(a)(3). Therefore, Controlled and its direct and indirect
subsidiaries that are “includible corporations” (under § 1504(b)) and satisfy the
ownership requirements of § 1504(a)(2) will be members of an affiliated group
of corporations entitled to file a consolidated Federal income tax return with
Controlled as the common parent.

(19) The retention of the Retained Shares is not in pursuance of a plan having as
one of its principal purposes the avoidance of Federal income tax within the
meaning of § 355(a)(1)(D)(ii).

(20) Effecting the Post-Distribution High-Vote Conversion will not prevent the
Distribution from qualifying under § 355, whether the conversion occurs before
or after Distributing disposes of the Retained Shares.

(21) The receipt by a Distributing shareholder of cash in lieu of fractional shares of
Controlled common stock will be treated for Federal income tax purposes as if
the fractional shares had been distributed to the Distributing shareholder as part
of the Distribution and then had been disposed of by the shareholder for the
cash in a sale or exchange. The gain (or loss), if any (determined using the
basis allocated to the fractional shares in ruling (12) or (13) and the holding
period attributed to the fractional shares in ruling (14) or (15)), will be treated as
a capital gain (or loss), provided the stock was held as a capital asset by the
selling shareholder (§ 1001).

                                      Caveats

No opinion is expressed about the tax treatment of the Proposed Transactions under
other provisions of the Code or regulations or the tax treatment of any conditions
existing at the time of, or effects resulting from, the Proposed Transactions that are not
specifically covered by the above rulings. In particular, no opinion is expressed
regarding:

(i) Whether the Distribution satisfies the business purpose requirement of
§ 1.355-2(b);
PLR-135052-12 18

  (ii)    Whether the Distribution is used principally as a device for the distribution of
          earnings and profits of Distributing or Controlled or both (see § 355(a)(1)(B)
          and § 1.355-2(d));

  (iii)   Whether the Distribution and an acquisition or acquisitions are part of a plan
          (or series of related transactions) under § 355(e)(2)(A)(ii); and

  (iv)    The tax treatment of any payment made under the Continuing Agreements
          that is not for fair market value based on terms and conditions arrived at by
          the parties bargaining at arm’s length.

                                  Procedural Matters

This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of the Code
provides that it may not be used or cited as precedent.

Temporary or final regulations pertaining to one or more of the issues addressed in this
ruling have not yet been adopted. Therefore, this ruling will be modified or revoked by
the adoption of temporary or final regulations to the extent the regulations are
inconsistent with any conclusion in the letter ruling. See section 11.04 of Rev. Proc.
2013-1, 2013-1 I.R.B. 1, 49. However, when the criteria in section 11.06 of Rev. Proc.
2013-1, 2013-1 I.R.B. 1, 50 are satisfied, a ruling is not revoked or modified retroactively
except in rare or unusual circumstances.

In accordance with the Power of Attorney on file with this office, a copy of this letter is
being sent to your authorized representative.

A copy of this letter must be attached to any income tax return to which it is relevant.
Alternatively, taxpayers filing their returns electronically may satisfy this requirement by
attaching a statement to their return that provides the date and control number of the
letter ruling.

                                      Sincerely,



                                      Gerald B. Fleming
                                      Senior Technician Reviewer, Branch 2
                                      Office of Associate Chief Counsel (Corporate)

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