1104011 Informal Interpretation

Michael Verne

– Agree. K
Walsh concurs.





Thursday, April 21, 2011 3:43 PM


Verne, B. Michael

Subject: HSR Question

Dear Mr. Verne:

Thank you for agreeing to provide yourthoughts regarding an HSR matter that has arisen with one of my law firm'sclients. I note that you provided your advice regarding a fairly similarsituation in an informal staff opinion dated February 2, 2011 (see InformationStaff Opinion 1103001).

My question is whether four separatetrusts (collectively, the "Trusts" and each, individually, a"Trust") are considered to be "controlled" by a certain lawfirm (the "Named Law Firm") (or any of the Named Law Firm's partners,members or shareholders) whose partners, members and shareholders have thepower to remove and replace the "Qualified Corporate Trustee" of eachTrust and, in turn, whether the Trusts are considered to hold their respectiveassets and voting securities. I believe the answer to the foregoing question isthat none of the Trusts is "controlled" by the Named Law Firm (or anyof its partners, members or shareholders), within the meaning of 16 C.F.R. 801.1(b)(2),and, therefore, each Trust is considered to hold its assets and votingsecurities. However, given the unusual nature of the facts at issue, I wish toconfirm my conclusion with you.

The Proposed Transaction

Each Trust holds voting securities ofCompany X. Company X is proposing to consummate a transaction whereby Company Xwould exchange certain shares of Company X for shares of its subsidiary,Company y.

The Trusts and the Trustees

Each Trust is an irrevocable trust inwhich the settlor does not retain a reversionary interest in the corpus. Whileeach of the Trusts is a separate trust, the trust agreement governing eachTrust is largely the same, and each Trust currently happens to have the sametrustee (although, it is not a requirement that the Trusts have the sametrustee(s)), which is a corporate trustee. The trust agreement of each Trustprovides that there may be multiple trustees of each Trust and that thetrustees may be individual and/or corporate trustees. However, at least onetrustee of each Trust must be a "Qualified Corporate Trustee" (whichis a corporate trustee that maintains a minimum amount of capital underadministration and meets certain other requirements). As is noted above, thereis currently only one trustee of each of the Trusts, and that trustee is acorporate trustee which satisfies the definition of a Qualified CorporateTrustee. My law firm represents the Qualified Corporate Trustee of each Trust.

Removal and Replacement of theQualified Corporate Trustee

Each trust agreement provides that,whenever there are no individual trustees of a Trust, then a QualifiedCorporate Trustee may only be removed and replaced, as follows:

"Whenever no individual trustee orindividual trustees are acting under this Agreement, a partner, member, orshareholder of [the Named Law Firm] or an attorney in one of the then fivelargest law firms in [a specified metropolitan area] ... who has at leastfifteen (15) years of experience in advising trustees regarding law pertinentto administration of trusts, as designated in writing by any two of thepartners, members of shareholders of [the Named Law Firm], shall have the powerto remove or replace a Qualified Corporate Trustee then acting or designated toact and shall have a duty to appoint another Qualified Corporate Trustee toreplace a sole Qualified Corporate Trustee upon such Qualified Corporate

Trustee'sremoval or resignation."

I interpret the foregoing use of "removeor replace" to effectively mean "remove and replace"(particularly given that there is a duty to replace if a sole QualifiedCorporate Trustee is removed).

As is noted above, each Trust has onlyone trustee -a Qualified Corporate Trustee -and no individual trustees. Assuch, per the above-quoted language from the trust agreements, any partner,member or shareholder of the Named Law Firm could remove and replace theQualified Corporate Trustee of each Trust. Alternatively, any two of thepartners, members or shareholders of the Named Law Firm could designate inwriting any attorney in one of the largest five law firms in the specifiedmetropolitan area to remove and replace the Qualified Corporate Trustee of eachTrust, so long as the attorney so designated had at least fifteen (15) years ofexperience in advising trustees regarding law pertinent to the administrationof trusts (for purposes hereof, I'll refer to any attorney satisfying theforegoing criteria as a "Designated Attorney").

I am not associated with the Named LawFirm, although I am familiar with it. According to the Named Law Firm'swebsite, it currently has nearly 200 lawyers, well over one-half of whom appearto be partners, members or shareholders.

None of the Trusts is"Controlled" by Another Person

It seems to me that none of the Trustsis "controlled" by the Named Law Firm (or any partner, member orshareholder of the Named Law Firm), within the meaning of 16 C.F.R. 801.1(b)(2) and, therefore, each Trust is considered to hold its assets and votingsecurities. I base the foregoing conclusion on the following:

The Named Law Firm itself does not havethe power to remove and replace the Qualified Corporate Trustee. Therefore, theNamed Law Firm could not be said to "control" any of the Trusts.

Any partner, member or shareholder ofthe Named Law Firm may remove and replace a Qualified Corporate Trustee.Alternatively, any two of the partners, members or shareholders of the NamedLaw Firm may designate in writing any Designated Attorney to remove and replacea Qualified Corporate Trustee. Conceivably, Partner 1 of the Named Law Firmcould remove and replace the Qualified Corporate Trustee on a given day, andMember 2 could do the same on the next day, and Shareholder 3 could do so theday after that, and so on. Or, Partner 1 and Member 2 of the Named Law Firmcould designate a Designated Attorney on a given day (who could remove andreplace the Qualified Corporate Trustee), Shareholder 3 and Partner 4 coulddesignate a different Designated Attorney on the next day (who could remove andreplace the Qualified Corporate Trustee), and so on. To further complicatematters, the Named Law Firm appears to be continually adding and losingpartners, members and shareholders (a brief review of the Named Law Firm'swebsite reflects that it added a new lateral shareholder in just the pastweek), as are the five largest law firms in the specified metropolitan area(which provide the pool of potential Designated Attorney candidates). In short,the right to remove and replace a Qualified Corporate Trustee is widely shared,ever-changing and difficulty defined. I struggle to believe that each of themore than one hundred (at present) individuals who enjoy (or could bedesignated to enjoy) such right "controls" the Trusts, when none of themmaintains that right exclusive to anyone else.

While I do not know whether there is anycontractual arrangement among the partners, members and shareholders of theNamed Law Firm as to whom among them may exercise the right of removal and replacementof a Qualified Corporate Trustee, the terms of the trust agreements are clearin that any of them may do so (and any two of them may designate a DesignatedAttorney to do so). I do not believe that any such contractual arrangement, ifone exists, would have the effect of amending and overriding the express termsof the trust as to whom may exercise such right.

Please confirm whether or not you agreewith my conclusion hereinabove stated. If you disagree, I ask that you provideguidance as to how you would recommend defining who "controls" eachof the Trusts (e.g., is it partners, members and shareholders of the Named LawFirm as of a certain date (and, if so, what date), and does it also includeevery person as of such date who could conceivably be a Designated Attorney).

About Informal Interpretations

Informal interpretations provide guidance from previous staff interpretations on the applicability of the HSR rules to specific fact situations. You should not rely on them as a substitute for reading the Act and the Rules themselves. These materials do not, and are not intended to, constitute legal advice.

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