1309002 Informal Interpretation

From: (Redacted)
Sent: Thursday, September 19, 2013 11:19 AM
To: Verne, B. Michael; Walsh, Kathryn
Cc: (Redacted)

Subject: RE: HSR Question -- UPE

Yes. Meant to say Class 1 and 2. Also, yes, Class 1and Class 2 vote separately for the election of directors and not as a single class. My first thought was yours. However, under 801.1(b), the LLC would not seem to be the UPE because it does not control Company B. While it elects 5 of the 9 directors, it only holds approximately 46% of the outstanding voting securities. Thoughts?

From: Verne, B. Michael [mailto:MVERNE@ftc.gov]
Sent: Thursday, September 19, 2013 11:09 AM
To: (Redacted); Walsh, Kathryn
Cc: (Redacted)

Subject: RE: HSR Question -- UPE

(Redacted)- Still somewhat confusing. We are assuming in the second table you mean Class 1 & Class 2, not Class A & Class B. We are also assuming that, despite the parenthetical, Class 1 and Class 2 vote separately for the election of directors, not together as a single class. If those assumptions are correct, then why isn't the LLC that holds all of the Class 1 stock the UPE? It can elect 5 of 9 directors on its own. What are we missing?

From: (Redacted)
Sent: Thursday, September 19, 2013 10:52 AM
To: Walsh, Kathryn; Verne, B. Michael
Cc: (Redacted)

Subject: RE: HSR Question -- UPE

Mike:

To clarify the parentheticals in #4 and #6 below, Class 1and Class 2 stock is all common stock. Thus from a total outstanding common stock perspective, Class 1represents approximately 46% of the common stock and Class 2 represents approximately 54% of the common stock as follows:

One other wrinkle, Class 2 common stock is called non-voting because the holder has no voting rights other than the election to Company B's board of 4 of the 9 board directors. In other words with respect to the merger, the members that they elected to Company B's board voted for the transaction but the actual holders of Class 2 common stock did not get to participate in the shareholders' vote for the transaction. In contrast, in addition to having the right to elect 5 of the 9 directors to Company B's board, the holders of class 1common stock got to participate in the shareholder vote for the transaction.

While this is a wrinkle, under 801.1(f)(1)(i)'s definition of a voting security, the Class 2 common stock would seem to be a "voting security" given that it "entitle[s] the owner or holder thereof to vote for the election of directors of the issuer . .. " even though it called non-voting Class 2 common stock by Company B.

Because I have never run into this fact pattern before, I wanted to run it by you to get your views. Best,

From: (Redacted)
Sent: Thursday, September 19, 2013 9:48AM
To: Walsh, Kathryn (kwalsh@ftc.gov); mverne@ftc.gov
Cc: (Redacted)

Subject: RE: HSR Question -- UPE

Mike and Kate:

I hope all is well. I would like to run something by you in connection with determining the UPE of my client (the seller in a merger transaction).

Here are the facts:

1. Merger between Company A and Company B (the target).

2. Company B is a corporate entity.

3. There are two classes of Company B common stock.

4. Class 1stock represents 46% of all common stock (Classes 1and 2 combined).

5. Class 1stock entitles the holders to vote for 5 of the 9 directors for Company B.

6. ·Class 2 stock represents 54% of all common stock (Classes 1and 2 combined)

7. Class 2 stock entitles the holders to vote for 4 of the 9 directors for Company B.

8. Class 1stock is held by an LLC, which in turn is controlled by a Fund.

9. Class 2 stock is held by individuals investors with the largest investor holding 12.5% of the Class 2 stock.

Analysis

Because Classes 1and 2 stock each have the right to vote for directors they are voting securities under 80l.(f)(1)(i) of the HSR rules. However, Company B is its own UPE because no person holds 50% or more of the outstanding voting securities of Company B.