1201012 Informal Interpretation

Sheila Clark-Coleman

  – Correct as noted.  J Johnson concurs.





Thursday, January 12, 2012 10:43 AM


Clark-Coleman, Sheila


Follow-up to HSR Inquiry


Thankyou so much for your time and assistance the other day. As per your request, Iam writing with respect to the follow-up question we preliminarily discussed onthe phone on January 10, 2012.

Asyou may recall, we also spoke back on December 28, 2011 with respect to thefollowing hypothetical transaction. Companies A through M (13 separatecompanies) are a mix of corporations, partnerships and limited liabilitycompanies engaged in or related to a coordinated business operation. Theapplicable stock/partnership interest/membership interest of each of CompaniesA through M are owned by the same five adult individuals (Messrs. "U"through "Z") in the same percentages as follows: Mr. "U"owns 20% of each, Mr. "V" owns 20% of each, Mr. "W" owns20% of each, Mr. "X" owns 20% of each, Mr. "Y" owns 1 0% ofeach and Mr. "z" owns 1 0% of each. While Messrs. "U","V", "W" and "X" are all members of the sameextended family, they are not spouses or minor children of each other. Mr."Y" and Mr. "z" are both members of a different family, butare not spouses or minor children of each other. All of these individually areactively involved in the business operation.

Acquirer0 (which has assets in excess of $131 ,900,000) will, either itself or througha wholly owned subsidiary, simultaneously purchase from Messrs. "U","V", "W', "X", "Y" and "z" all oftheir stock/partnership interests/membership interests in each of Companies Athrough M (collectively constituting 100% of the equity of Companies A throughM) pursuant to a single purchase agreement for an aggregate sum somewherebetween $100,000,000 to $150,000,000, but the total price payable for theequity of anyone single Company A through M will be less than $66,000,000. Inthis scenario, you concurred that no one person controlled any of Company Athrough M (because each individual, Messrs. "U", "V","W", "X", "Y" and "Z", owned less than50% of any Company A through M), and therefore (i) each of Company A through Mwould be treated as its own separate Ultimate Parent Entity (UPE) and (ii) thesize of person test and size of transaction test must be separately applied toeach of Company A through M based on the price paid for that particularCompany's equity. You further concurred that if the purchase price for each ofCompany A through M's stock/partnership interests/membership interests was lessthan $66,000,000, then the size of transaction test would not be satisfied forany Company and that no HSR notification filing at all should be required. [Correct SC]

Asmy follow-up to our prior discussion, let's assume the same facts above, butalso that Mr. "U", Mr. "V", Mr. "W" and Mr."X" are parties to a voting agreement relating solely to Company A (acorporation). Under that voting agreement, each of Mr. "U", Mr."V", Mr. "W" and Mr. "X" agree to vote all oftheir stock of Company A (a total of 80% of Company A's stock) to elect each ofMr. "U", Mr. "V", Mr. "W" and Mr. "X"as directors of Company A and not to vote to remove them as directors. Inaddition, each of Mr. "U", Mr. "V", Mr. "W" andMr. "X" agree, in their capacities as directors, to vote for theothers as officers of Company A and not to vote to remove them as officers. Asa result, Mr. "U", Mr. "V", Mr. "W' and Mr."X" will comprise 4 out of 5 (80%) of the members of Company A'sboard of directors and will each be officers of Company A. There is nocontractual agreement or proxy which allows or requires (i) any of suchindividuals to vote together as shareholders or directors on any other matter(other than amending Company A's by-laws), or (ii) anyone individual to vote ordirect the other's vote as a shareholder or director, and each may vote on anyother matter in their discretion. In effect, the Company A voting agreementensures that each of Mr. "U", "V", "W" and"X" collectively constitute a majority (but not all) of Company A'sboard, but none of them can vote or direct the other's vote on any particularmatter as directors or shareholders and no one individual holds or exercises50% or more of the total voting power. In addition, let's assume that Mr."U", Mr. "V", Mr. "W" and Mr. "X" areparties to a similar voting agreement for Company B (a limited liabilitycompany) where they all agree to elect each other as officers of Company B andnot to remove them as officers. In addition, they agree to vote together asmembers on any amendments to Company B's regulations (analogous to by-laws),but none of them can vote or direct the other's vote on any particular matters(as members or officers) and no one individual holds or exercises 50% or moreof such voting power.

Itis our view that under these facts, the above described voting agreements wouldnot change the prior conclusions as to the control or UPEs of Companies Athrough M, would not cause the equity interests of Mr. "U", Mr."V", Mr. "W" and Mr. "X" to be aggregated in anymanner, and would not result in Company A and Company to be under control ofanyone individual or other "Person [Correct SC] for HSRpurposes. Furthermore, as we understand it, a group of individuals would not bedeemed a Company, a "Person" or a single UPE underthese circumstances. In support of that position, we direct your attention toInterpretation 43 of the Pre-Merger Notification Practice Manual (4th Edition)and Informal Staff Opinion 0901007 (on Rule 801.11) of Michael Verne datedJanuary 29, 2009. Please advise if you concur.

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