ML120900629

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)

Text

M ic h a el S. And erso ll Cindy Montgomery , Project Manager Resear c h and Test Reactors Branch A Division of Policy and Rulemaking Office of Nuclear Rea ctor 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:

Autoliv The follow i ng is our response to the U.S. Nuclear Regulatory Commission

's (NRC) February 4 , 2009 Request for Additional Info rmat ion 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 cu rrentl y under review by the staff of the Nuclear Regulat ory Commission (NRC). In the staffs assessment of you r application , it appears Ae rotest is not in compliance w ith the A to mic Energy Act of 1 954, 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 o f the Atom i c Energ y Act and 1 0 C.F.R 50.38 regarding foreign ownership , dom ination or control , including steps you have taken or are currently taking to meet these requi remen ts. P l ease respond within 30 days of the date of this le tte r." Response: Vice P resident for l egal Affairs an d General Counsel Autoliv ASP , In c. 1320 Paci f ic D ri ve P hooe +1 (248) 475-0442 F ax +1 (80 1) 625-7399 mike.anderson

@au l oliv.com Auburn H ills , M I , USA 48326 Phone +1 (248) 475-9000 I. Aero test Should Not Be Co n si dered F o reign Owned. Dom i na ted. or Controlled S ect ions 103.d a nd 104.ofthe Atomic Energ y Ac t provide that " No license [for a production or utilization facility]

may be i ss ued to any cor porati o n or other ent it y if the Commission k no ws or has reason to belie ve it is owned , c on trol l ed , or dominated b y an al ien , a foreign corporat i o n , or a f ore ign go vernm en t." NRC regulations similarly provide that " an y corporation or o ther entity w hi ch the Commission kno ws or has re aso n to believe is owned, controlled , or dominated b y an alien , a foreig n cor po rat i on, o r a forei g n government, sha ll be ineligible to apply for and o btain a license" under 10 CFR Part 50. Aero test Operations , Inc. ("Aerotest"), the holder of th e NRC li ce nse for the Aerotes t Resear c h an d Radiography Reactor (" AR RR") respe c tfull y subm its that it i s n ot o w ned, controlled , or d o minated by an alien , a f oreign corpo rati on, o r a f oreig n government.

The fa ct s co n ce rning Aerotest's corporate structure and ownership ha ve been pro vi ded pre v ious ly to the NRC. Aerotest has held the NRC li ce nse for the A RRR since 1965. A erotest is and has been a U.S. corporation and a full y o w ned subsidiary of OEA Aerospace, Inc. (formerl y Ex plos i ve Techno l og y, In c.), a California corporation. OAE Aerospace , In c. in turn i s and has b ee n a wholly owned subsidiary of OAE , Inc., a Dela ware corporation.

In 2000, all of OEA , In c. stock (fo rm erl y publicl y traded) was acquired by Auto li v ASP, Inc. (" ASP"), an Indiana corporation. All of t he management of Aerotest , OEA Aerospace , Inc., OEA, Inc. and ASP are U.S. citizens. ASP is th e who ll y owned su bsidiary of Autoliv , Inc., a Delaware corporation w h os e stock is publicly t rad ed on th e New York Stock E xc ha n ge and is l a rgel y held i n the United States. Autoliv i s headquartered in Sweden , and (as of May , 2009) wi ll ha ve a plurality o f US citizens as directors.' Like many w id ely-held publ ic l y-trad ed U.S. companies , t he be n eficia l ownership of Autoliv , In c. stock is diffuse. W hil e the spec ific be neficia l owners of Autol i v stock are not k n ow n , it is r easonable to b el ie ve that th ey are A t the pre sent t im e, Autoli v, In c. has 13 dir ec tor s, fiv e of whom are US ci tizen s, fi v e are Swedish citiz e ns , t wo a German c iti ze n s and on e is a citizen of J ap a n. On e ofthe Swedish dir ect o r s i s not st anding f or reele ction at th e Ma y 2009 a nnual m ee ting. A s a resu l t , following th at meeting Au tol i v, In c. w ill have tw elve director s -5 US citizens, 4 Swed i sh ci tizens , 2 German cit ize ns and I J ap ane se citizen. www.pillsburylaw_com 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 i rd of the outstand i ng stock in Autoliv. Inc. are US based i nvestment entities, l ikely ho ld i ng the stock for clients. Based on information on their websites , each of these entities is headquartered i n the US. Specifically, as of the end of 2008 , the top five shareholders are:

• A ll iance Bernstein LP owns 12.2 % of Autoliv , Inc. shares ,

• Lord Abbett & co. owns 6.4 % of Autoliv , I nc. shares ,

• LSV Asse t Management owns 5.4 % of Autoliv, Inc. shares,

• Morgan Stanley owns 5.1 % o f Auto l iv, Inc. shares , and

• Barclays Global Investors NA owns 4.4 % of Autoliv, I nc. shares. Based upon these factors, it wou ld be r easonable to conclude that Auto l iv , Inc.'s stock is l argely owned b y 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 li censee were 100% owned by a foreign corporation , where " the Commission knows that the foreign parent's stock is " largely" owned by U.S. c it izens." In this case, the ultima te parent is a corporation incorporated in the US , w i th (as of May 2009) a p lur ality of US c i tizens as it s directors, and the stock of the u l t i mate parent la r gely owned by US citize ns. Furthermore, the entity holding the license is a US company with US c iti zens as it s manage r s, as are the three companies which are the intermed i ate parents. A ll of these factors l ead to the reasonable conclusion that Aerotest is not owned , control l ed or dominated by an a li en, a foreign corporation or a foreig n government.

Furthermore , the negat io n p lan that has been in pla ce s i nce at least 2004 assures that the Aeratest is not fore i gn owned , contro l led or dominated.

For examp l e , the Aerotest Board of Directors , whose members are all US citizens residing in the US , has the f o ll ow i ng authority: Decis i on to continue operation or shut do w n for repairs Decision to start up the reactor WW'N.pillsb uryl a w.c o m Authority to make operability determinations for safety-related equipment Authority to change staffing leve ls 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 i lities (selecting audits , appro vi ng audit reports , accepting audit responses)

Budget-setting and spending authority A uthority to control the terms of employment for licensed staff Authority over the design control of the facilit y Decision to co nt i nue operations or permanent ly cease operation Authority to determine whether NRC approval is needed unde r 10 CFR 50.59 Authority to perform maintenance on safety-related equipment Authority for the eme r gency preparedness program Authority to approve licensee event reports Authority to decide w hether to make an event rep o rt Authority to provide health phys ic s program services A uthorit y to pro v ide chemistry program services Authority to provide fire protection program services A uthority for engineering work on safety-related systems A uthorit y for ma i ntaining design bas i s documentation A uthori ty for c ompliance engineering or l ice nsing engineering services. www.pillsburylaw

.com The Atomic Energy Act obligates the NRC to issue licenses on a 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 negat io n 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 corpo ra tion. 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 ig n 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 o w nership or control prohibition to each co-owner.

64 Fed. Reg. 52 , 355. 2. Aerotest Full Di v estiture 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 i nterest in an acquisition or other jOint venture , and (2) negotiating with smaller entities about a sale. These efforts included: a. Marketing to Large Industria l Entities

• In 1995 , Aerotest approached Olin/Physic International , Wylie Laboratories , NTS , Lockheed Martin , Stanford Universit y, and UC Berke ley. 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 wi th their ongoing operations.

• Later, Aerotest approached Ensign-Bickford , B.F. Goodrich (BFG), Howmet , Pacif ic Scientific, Honeywell/ATK , General Dynami cs OTS , and Precis io n Castparts (PCC/SMP) without success.

• On December 29, 2000 , certain assets of OAE Aerospace , Inc., the parent company of Aerotest, wer e 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 " commerc i ally reasonable best efforts" to assist Autoliv , Inc. in identifying potential buyers for Aerotest.

• In early 2001 , Autoliv , Inc. retai n ed the mergers and acqu i sitions adv i sory group of Deutsche Bank (DB) to assist Autol iv, 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 i nterest in any of the five targets. b. Negotiations with Smaller Entities

• In Feb r uary 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 , M i ke Slaughter , the director of the University of Utah's reactor program , expressed interest in buying the Aerotest reactor. Autoliv , Inc. held a number of meet i ngs and teleconferences with Mr. Slaughter and supplied him with due diligence mater i als 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 w i thdrew 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 equ i ty 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 i nto March 2004. On March 16,2004 , Mr. Saripalli presented Autoliv w ith a rev i sed proposal under w hich Autoli v would retain Mr. Saripall i in a "financial sponsor" role to i dentify " value enhancement strategies" for the business w i th 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 Ray Industries with due diligence materials and had several preliminary discussions with the prospective buyer. In July 2008 , X-Ray Industries informed Autoli v that they did not wish to pursue a transaction. www.p illsbu ry law.com 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 bu ye rs for Aerotes!.

In addition , Autoliv is investigating partially divesting Aeratest , such as by adding a m i nority 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 i n 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 prov i des 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 "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 follow i ng 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 Un i ted States;

• Aerotest alone shall be responsible for the custody and control of such special nuclear material , and the officer of Aeratest i n charge of such special nuclear material shall report directly to the president of Aerotest;

• The president of Aerotest shall be charged with the responsibility and ha ve the exclusive authority (ei ther acting directly or through persons designated by and reporting directly to him) of insuring that the business and act iv ities of Aeratest shall at all times be conducted in a manner w hi ch www.pi llsburylaw

.com shall be consistent wi th the protection of t he 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 i bilities under the Atomic Energy Act , NRC rules and regulations and the terms of the license. The plan has been imp le mented 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 ma y require. Please contact me , or o ur outside nuclear counsel , Jay Silberg at Pillsbury Winthrop Shaw Pittman (202-663-8063), at yo ur convenience.

Very truly yours ,

Michael S. Anderson Member of t he Board of Directors Aeratest Operations , Inc. [Notari zed] Subscribed and Sworn to by Mike Anderson before me on the 5th day of March, 2009. (L:iC A Candace Mierzwi ski N otary Public, State of Michigan, County of Oakland M y Com mi ssion Ex p ires: 5/26/13 Acting in t h e County of Oakland .... ww, pills bu ry l a w.co m