1112005 Informal Interpretation

Michael Verne

– Agree that no one controls Company A.


From: (Redacted)
Sent: Saturday, December 17, 2011 2:30 PM
To: Verne, B. Michael; Walsh, Kathryn
Subject: Rule 801.1(b)(2) Question

Mike and Kate

I have a quick Rule801.1(b)(2) issue that I wanted to confirm with you. I am dealing with acorporation ("Company A") that has one class of voting securities. Noperson holds a majority of the shares, but a majority of the shares are held inthe aggregate by three funds ("Fund A", "Fund B" and"Fund C" and collectively, the "Funds") that might qualifyas "associates". Each of the Funds (two limited partnerships and alimited liability company) is its own ultimate parent entity. Company A has astockholders agreement, which provides that Funds A and B (collectively, butthere is no discussion in the agreement of the means by which they need toagree) have the right to designate three directors, the founder of Company Ahas the right to designate two directors and each of Funds A and B(collectively, but there is no discussion in the agreement of the means bywhich they need to agree) and the founder has the right to nominate anadditional independent director with the other having a consent right over suchnominee. Company A's board consists of seven directors. For simplicity, Funds Aand B designate three, the founder designates two and they each get to nominateone more director, subject to the consent of the other, not to be unreasonablywithheld. Funds A and B in the aggregate own less than a majority of CompanyA's voting securities, but Funds A and C in the aggregate do own a majority of CompanyA's voting securities.

There are severalinformal interpretations (including those below) where the Staff has taken theposition that unless a shareholder has an unfettered right to designatedirectors (Le. the approval of another shareholder is not required), directornominees that are so limited do not count as directors for whom contractualpower to designate exists.

I wanted to confirm thatthe prior informal interpretations remain accurate, and that in my presentsituation you concur that the Funds would be considered to only have a right todesignate three of the seven directors and therefore the Funds do notindividually nor together "control" Company A. I do not believe thatthe analysis would change if Fund C were also a party to the stockholdersagreement and joined with Funds A and B in designating directors.

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