Monday, September 10, 2012 10:32 AM
Verne, B. Michael
HSR question re: control
Weare hoping to get your guidance on the issue of control of a corporate entityvia board appointment rights.
A,B, C, & D (collectively, the "Investors") will collectivelyacquire approximately 65% of the voting securities of Company X, which is anon-public corporate entity, through a newly-formed corporate investmentvehicle ("Newco"). Each of the Investors is its own UPE and none ofthe Investors will control Newco. Assume that the SOP test is met. Alternatively,B may invest in Company X through a separate blocker entity from Newco but willstill be its own UPE and will hold less than 50% of the voting securities ofCompany X.
A willhave the right to appoint two out five directors and a third director with theagreement/approval of C. Up to this point, based on these facts, A will notcontrol Company X because it will not hold at least 50% of the votingsecurities and will not have a present contractual right to appoint 50% or morethe board.
CompanyX will have two classes of directors with different voting power: one class ofdirectors is entitled to one vote per matter, and the other class is entitledto five votes per matter. A will appoint the director who has 5 votes permatter and thus, will control a majority of the votes eligible to be cast bythe board, despite the fact that it can only appoint 2/5 directors, because itcan appoint the director with the higher voting power. Based on previousinterpretations, however, A will not control the board of Company X because"enhanced voting rights attributed to a director do not affect thecalculation of percentage of voting securities held in the corporation. Onlythe number of votes per share that vote for the election of directors arecounted." See Informal Letter # 0704006.
Doesthis still represent the PNO's current position and if so, do you agree thatInvestor A will not control Company X?