1304005 Informal Interpretation

Michael Verne

04/10/2013 Agree, KW concurs.


From: (Redacted)
Sent: Wednesday, April 10, 2013 1:11PM
To: Verne, B. Michael
Cc: (Redacted)
Subject: CONFIDENTIAL - Question Concerning Control of Non-Profit Non-Stock Corporation
Attachments: DOC920.PDF



Hello. I hope you are enjoying the heat wave and looking forward to the Spring Meeting.

We are writing to confirm that a proposed affiliation among three non-profit membership corporations would not be subject to HSR filing obligations, consistent with the informal interpretation reflected in the attached correspondence with you. NP-A is the sole member of NP-B. NP-A, NP-B, and NP-C propose entering into an affiliation that would be structured as follows. NP-A would be merged with and into NP-B with NP-B surviving. Concurrently with the merger, NP-B's articles and by-laws would be amended so that NP-C would become NP-B's sole corporate member. None of NP-A, NP-8, or NP-C has voting securities now or will have voting securities post-transaction.

As a result of the merger, NP-B will change its name to NP-CB. NP-CB's board will have between 18 and 24 members. Two-thirds of these directors will be appointed initially by the members of the existing NP-B board immediately prior to the merger (the "NP-B Designees"). Thereafter, their successors will be appointed by the NP-B Designees on a self-perpetuating basis. One-third of the directors will be appointed by NP-C, assessors to the directors initially appointed by NP-C will be appointed by NP-C. This board structure will remain in place for 20 years.

NP-C will make a capital commitment in excess of $200 million to be expended over ten years for the enhancement of NP-CB's operations, will assume or guarantee the outstanding debt of NP-CB, and will commit to support its outstanding liabilities. Following the transaction, NP-C will have overall responsibility and authority with respect to the operations of NP-CB, which will be treated as an integrated unit of NP-C's organization. Except with respect to certain enumerated powers, some of which are reserved to NP-CB and others of which will be exercised jointly by NP-C and the board of NP-CB, NP-C will have the power to make business and operational decisions for NP-CB independent of the NP-CB board.

We understand that because NP-C would not have the power to appoint at least 50% of the directors of NP-CB, no HSR filing would be required in connection with the proposed transaction because no acquiring person would acquire control of NP-CB, an existing non-profit membership corporation which has no outstanding voting securities. This conclusion is true even though (i) NP-C will effectively exercise governance and operational control over NP-CB, and will have the power to make decisions and initiate/implement actions involving NP-CB, including its subsidiary entities; (ii) NP-CB will hold itself out as part of NP-C's "family" or integrated system of service providers; (iii) there will be a commingling of certain funds and assets of NP-CB and NP-C; (iv) NP-C will commit to substantial capital expenditures to NP-CB; (v) NP-C will assume or guarantee the outstanding debt of NP-CB and commit to support its outstanding liabilities; (vi) certain decisions that will initially be made by NP-CB's board will have to be approved by NP-C (such as NP-CB's entering into new contracts with service providers); (vii) for a five-year integration period post-closing, certain actions affecting NP-CB will require the approval of the NP-CB board and NP-C acting jointly, including (among other things) approval of operating and capital budgets; approval of the use of certain funds; material changes to certain contracts with third parties; approval of strategic plans; approval of the CEO; approval of material changes to programs and services offered by NP-CB; amendments to the articles or by-laws of NP-CB; and the sale of NP-CB's real estate; (viii) NP-C may have the authority to contract with third parties (including suppliers and customers) on NP-CB's behalf, (ix) after such five-year integration period, certain of the actions enumerated in (viii) above may require approval by NP-C only; and (x) the Board of NP-CB may not be able to unwind the transaction.

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