ML120900629

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Aerotest Response to NRC Request for Additional Information
ML120900629
Person / Time
Site: Aerotest
Issue date: 03/09/2009
From: Mary Anderson
Aerotest, Autoliv ASP
To: Cindy Montgomery
Division of Policy and Rulemaking
Traiforos S
References
TAC MD2914
Download: ML120900629 (8)
v • d • e


Text

Autoliv Cindy Montgomery, Project Manager Research and Test Reactors Branch A Division of Policy and Rulemaking Office of Nuclear Reactor Regulation U.S . Nuclear Regulatory Commission Washington , DC 20555-0001 March 9, 2009 Re: AEROTEST OPERATONS INC . - REQUEST FOR ADDITIONAL INFORMATION REGARDING LICENSE RENEWAL REQUEST (TAC No. MD2914)

Dear Ms. Montgomery:

The following is our response to the U.S. Nuclear Regulatory Commission's (NRC) February 4, 2009 Request for Additional Information executed in a signed original under oath in accordance with 10 C.F.R. Part 50.30(b)

Request for Additional Information:

"Your application for license renewal is currently under review by the staff of the Nuclear Regulatory Commission (NRC). In the staffs assessment of you r application , it appears Aerotest is not in compliance with the Atomic Energy Act of 1954, as amended , in so far as it is foreign owned , controlled or dominated. Your response should specifically address the requirements set forth in section 104 of the Atom ic Energ y Act and 10 C.F.R 50.38 regarding foreign ownership, domination or control, including steps you have taken or are currently taking to meet these requi rements . Please respond within 30 days of the date of this letter."

Response :

M ichael S. Andersoll Vice President for l egal Affairs and General Counsel Autoliv ASP, In c.

1320 Pacific Dri ve Phooe +1 (248) 475-0442 Auburn Hills, M I, USA 48326 Fax +1 (801) 625-7399 mike.anderson@auloliv.com Phone +1 (248) 475-9000

I. Aerotest Should Not Be Considered Foreign Owned . Dominated . or Controlled Sections 103.d and 104.ofthe Atomic Energy Act provide that "No license

[for a production or utilization facility] may be issued to any corporation or other entity if the Commission knows or has reason to believe it is owned ,

control led , or dominated by an alien, a foreign corporation, or a foreign government." NRC regulations similarly provide that "any corporation or other entity which the Commission knows or has reason to believe is owned, controlled , or dominated by an alien, a foreig n corporation, or a foreign government, sha ll be ineligible to apply for and obtain a license" under 10 CFR Part 50. Aerotest Operations, Inc. ("Aerotest"), the holder of the NRC license for the Aerotest Research and Radiography Reactor ("AR RR")

respectfully submits that it is not ow ned, controlled , or dominated by an alien, a foreign corporation, or a foreig n government.

The facts concerning Aerotest's corporate structure and ownership have been provided previously to the NRC. Aerotest has held the NRC lice nse for the A RRR since 1965. A erotest is and has been a U.S . corporation and a fully ow ned subsidiary of OEA Aerospace, Inc. (formerly Explosive Techno logy, Inc .), a California corporation. OAE Aerospace, Inc. in turn is and has been a wholly owned subsidiary of OAE , Inc., a Delaware corporation. In 2000, all of OEA, Inc. stock (fo rm erly publicly traded) was acquired by Auto liv ASP, Inc. ("ASP"), an Indiana corporation . All of the management of Aerotest, OEA Aerospace , Inc., OEA, Inc. and ASP are U.S.

citizens. ASP is th e wholly owned subsidiary of Autoliv , Inc., a Delaware corporation whose stock is publicly traded on the New York Stock Exchange and is largely held in the United States. Autoliv is headquartered in Sweden ,

and (as of May, 2009) wi ll have a plurality of US citizens as directors.'

Like many w idely-held publicly-traded U.S. companies , the beneficial ownership of Autoliv , Inc. stock is diffuse. W hile the specific beneficial owners of Autol iv stock are not known, it is reasonable to believe that they are At the present time, Autoli v, Inc. has 13 directors, fiv e of whom are US citizens, fi ve are Swedish citizens, two a German citizens and one is a citizen of Japan. One ofthe Swedish directors is not standing for reelection at the May 2009 annual meeting. As a result, following that meeting Autol iv, Inc . will have twelve directors - 5 US citizens, 4 Swed ish citizens, 2 German cit izens and I Japanese citizen.

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largely U.S. citizens. As described in its 2008 annual report , approximately 80% of the stock of Autoliv, Inc. is held in the United States , reflecting that the stock is traded on the New York Stock Exchange. Further support can be found from the fact that the five entities that hold about one-th ird of the outstand ing stock in Autoliv . Inc. are US based investment entities, likely hold ing the stock for clients. Based on information on their websites, each of these entities is headquartered in the US. Specifically, as of the end of 2008, the top five shareholders are:

  • Alliance Bernstein LP owns 12.2 % of Autoliv , Inc. shares ,
  • Lord Abbett & co . owns 6.4 % of Autoliv, Inc. shares ,
  • LSV Asset Management owns 5.4 % of Autoliv, Inc. shares,
  • Morgan Stanley owns 5 .1 % of Auto liv, Inc. shares , and
  • Barclays Global Investors NA owns 4.4 % of Autoliv, Inc. shares.

Based upon these factors, it wou ld be reasonable to conclude that Auto liv, Inc.'s stock is largely owned by US citizens. As stated in sec. 3.2 of the Standard Review Plan on Foreign Ownership, Control, or Domination ("SRP"),

64 Fed . Reg. 52,355, 52,358 (1999) , an applicant would be eligible for an NRC license, even if the licensee were 100% owned by a foreign corporation ,

where "the Commission knows that the foreign parent's stock is "largely" owned by U.S. citizens." In this case, the ultimate parent is a corporation incorporated in the US , with (as of May 2009) a plurality of US citizens as its directors, and the stock of the ultimate parent largely owned by US citizens.

Furthermore, the entity holding the license is a US company with US citizens as its managers, as are the three companies which are the intermediate parents. All of these factors lead to the reasonable conclusion that Aerotest is not owned , control led or dominated by an a lien, a foreign corporation or a foreig n government.

Furthermore , the negation plan that has been in place since at least 2004 assures that the Aeratest is not fore ign owned , controlled or dominated. For example , the Aerotest Board of Directors , whose members are all US citizens residing in the US , has the following authority:

Decision to continue operation or shut dow n for repairs Decision to start up the reactor WW'N .pillsburylaw.com

Authority to make operability determinations for safety-related equipment Authority to change staffing levels for licensed personnel Authority to make organizational changes for Technical Specification required positions Decision to defer repairs on safety-related equipment Authority for quality assurance responsib ilities (selecting audits, approving audit reports , accepting audit responses)

Budget-setting and spending authority Authority to control the terms of employment for licensed staff Authority over the design control of the facility Decision to co ntinue operations or permanently cease operation Authority to determine whether NRC approval is needed under 10 CFR 50.59 Authority to perform maintenance on safety-related equipment Authority for the emergency preparedness program Authority to approve licensee event reports Authority to decide whether to make an event report Authority to provide health physics program services A uthority to provide chemistry program services Authority to provide fire protection program services Authority for engineering work on safety-related systems Authority for maintaining design basis documentation Authority for compliance engineering or licensing engineering services.

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The Atomic Energy Act obligates the NRC to issue licenses on a non-discriminatory basis. 42 U.S.C . § 2133(b). The NRC has accepted 100%

ownership of a nuclear reactor licensee by a parent that was a foreign corporation , with an appropriate negation plan. See North Atlantic Energy Service Corp. (Seabrook Station, Unit 1) and Northeast Nuclear Energy Co.

(Millstone Station , Unit 3), CLI-99-27 and CLI-99-28, 50 NRC 257 and 291 (1999). In Seabrook and Millstone, the NRC concluded that a negation plan would be adequate even though 100% ownership of the licensee by a foreign corporation . Because the NRC has concluded that 100% ownership of a licensee by a foreign corporation did not result in impermissible foregn ownership, domination and control of the licensee, the NRC should similarly conclude that Aerotest is not subject to fore ign ownership, control and domination under the facts set forth above. In Seabrook and Millstone, the entity with the foreign parent was a co-licensee. However, this difference does not distinguish the cases as NRC policy and case law applies the foreign ownership or control prohibition to each co-owner. 64 Fed. Reg.

52 ,355.

2. Aerotest Full Divestiture Efforts While Aerotest does not believe Aeratest is under foreign ownership, control, or domination , Autoliv has undertaken rigorous , but to date unsuccessful, efforts to divest itself of Aerotest stock or the ARRR. These efforts have involved two basic approaches, (1) approaching large industrial organizations, primarily customers of Aeratest or other testing organizations, to see if there is interest in an acquisition or other jOint venture, and (2) negotiating with smaller entities about a sale. These efforts included :
a. Marketing to Large Industrial Entities
  • In 1995, Aerotest approached Olin/Physic International, Wylie Laboratories , NTS, Lockheed Martin, Stanford University, and UC Berkeley. Olin/Physic International, NTS , and Stanford University performed additional due diligence. None of these entites concluded that the business of Aerotest was a good fit with their ongoing operations.
  • Later, Aerotest approached Ensign-Bickford, B.F. Goodrich (BFG),

Howmet, Pacific Scientific, Honeywell/ATK, General Dynamics OTS , and Precision Castparts (PCC/SMP) without success.

  • On December 29, 2000, certain assets of OAE Aerospace, Inc., the parent company of Aerotest, were sold to BFG. BFG specifically requested that Aerotest be excluded from the transaction, but did agree as part of the www.pillsburylaw.com

Asset Purchase Agreement to use "commercially reasonable best efforts" to assist Autoliv, Inc. in identifying potential buyers for Aerotest.

  • In early 2001 , Autoliv, Inc. retained the mergers and acquisitions advisory group of Deutsche Bank (DB) to assist Autoliv, Inc. in pursuing the divesting of Aerotest. Since DB was involved in the BFG transaction described above , it was already familiar with Aerotest. DB prepared an information memorandum and worked with BFG to create a list of potential buyers which included four commercial possibilities and the University of California. DB was unable to generate interest in any of the five targets .
b. Negotiations with Smaller Entities
  • In February 2001 , an executive at Autoliv expressed an interest in buying Aerotest. He was provided financial and other information , and discussions continued through April 2003, but no agreement was reached .
  • In October 2001 , Mike Slaughter, the director of the University of Utah's reactor program , expressed interest in buying the Aerotest reactor.

Autoliv , Inc. held a number of meetings and teleconferences with Mr.

Slaughter and supplied him with due diligence materials on several occasions. Negotiations continued until early 2004, with many proposals and counterproposals exchanged and various solutions to the issue of decommissioning the reactor - the major difficulty in completing the transaction - were investigated by the parties. On February 24 , 2004 , Mr.

Slaughter withdrew his last offer and proposed instead that he be hired by Aerotest to manage the facility.

  • In early 2003, Autoliv, Inc. signed a confidentiality agreement with Raghu Saripalli, the manager of a small private equity fun , who expressed interest in the Aeratest reactor. Autoliv provided Mr. Saripalli with due diligence materials and Mr. Saripalli visited the facility in November 2003 . Autoliv held face-to-face meetings with Mr. Saripalli in November and continued discussions through the remainder of 2003 and into March 2004. On March 16,2004, Mr. Saripalli presented Autoliv with a revised proposal under which Autoliv would retain Mr. Saripalli in a "financial sponsor" role to identify "value enhancement strategies" for the business with the hope of making it more attractive to a strategic buyer.
  • In early 2008, X-Ray Industries , Inc., a privately held , non-destructive testing company , expressed interest in Aerotest. Autoliv , Inc. provided X-Ray Industries with due diligence materials and had several preliminary discussions with the prospective buyer. In July 2008, X-Ray Industries informed Autoliv that they did not wish to pursue a transaction .

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Autoliv, Inc. is continuing to explore divestiture . In early February 2009, Autoliv engaged Ducker Worldwide's Advisory Services to create an offering memorandum and identify potential buyers for Aerotes!. In addition , Autoliv is investigating partially divesting Aeratest , such as by adding a minority owner of Aeratest , either directly or through one of Aerotest's intermediate parent corporations, or by other mechanisms.

3. Eligibility for License Renewal Aerotest is and has been operating under a negation plan developed in accordance with the guidelines set out in the SRP. Therefore, it is in full compliance with the Atomic Energy Act of 1954, the NRC's regulations , and the terms of its license and is therefore eligible for license renewal.

The SRP provides guidance on the degree to which licensees may be subject to some foreign ownership or control without violating Section 104 the Atomic Energy Act of 1954. Section 4.4 of the SRP calls for licensees subject to some foreign ownership or control to provide to the NRC a negation plan-

"positive measures that assure that the foreign interest can be effectively denied control or domination. "

Aerotest provided a negation plan to the NRC in accordance with the guidelines set out in the SRP on January 29, 2004. The plan consists of the following actions as outlined in Aerotes!'s January 29, 2004 letler to the NRC:

  • The president of Aerotest or any officers of Aerotest having direct responsibility for the control of, and any employees of Aerotest having direct custody of special nuclear material (as defined in the Atomic Energy Act of 1954, as amended) stored , used , or produced at the Aerotest Research & Radiography Reactor (ARRR) facility, shall be citizens of the United States;
  • The president of Aerotest shall be charged with the responsibility and have the exclusive authority (either acting directly or through persons designated by and reporting directly to him) of insuring that the business and activities of Aeratest shall at all times be conducted in a manner which www.pillsburylaw.com

shall be consistent with the protection of the common defense and security of the United States;

  • Aerotest will promptly notify the NRC of any economic, financial or other circumstances that may adversely affect Aerotest's ability to discharge its respons ibilities under the Atomic Energy Act , NRC rules and regulations and the terms of the license.

The plan has been implemented and continues in full effect today. Therefore, Aerotest is in compliance with the Atomic Energy Act of 1954 and is eligible for license renewal.

I wo uld be pleased to answer any questions that you may have or provide any further information you may require . Please contact me , or our outside nuclear counsel, Jay Silberg at Pillsbury Winthrop Shaw Pittman (202-663-8063) , at yo ur convenience.

Very truly yours,

~J..J-CI-,~

Michael S. Anderson Member of the Board of Directors Aeratest Operations , Inc.

[Notarized]

Subscribed and Sworn to by Mike Anderson before me on the 5th day of March, 2009.

(L:iCA zc;tPA~ (",,;,tL -

Candace Mierzwi ski Notary Public, State of Michigan, County of Oakland My Commi ssion Ex p ires : 5/26/13 Acting in t h e County of Oakland

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