Question
December9. 2003
"VIA FACSIMILE
B. Michael Verne, Esq.
Premerger Notification Office
Bureau of Competition
Federal Trade Commission.
600 Pennsylvania Ave, NW
Washington, D.C. 20580
Re:Confirmation of Advice Regarding HSR Reportability of Formation of Nonprofit Corporation
DearMr. Verne:
I am writing to confirm our conversations of last weekconcerning the formation of a nonprofit corporation ("NewCo") and thepotential reportability of the transaction. I understand from our conversationsthat you agree that the transaction is not reportable.
A, Al, and B propose to enter into a transaction involvingthe creation of NewCo. Z describe below the pre-transaction structure of thevarious entities and the post-transaction structure.
I.Pre-Transaction Structure
(Referto image file for diagram)
1. A is anonprofit corporation. A's Board of Directors includes 5 members. I have askedyou to assume either that A is its own ultimate parent or that its ultimateparent has no additional interests in or rights as to A1 or B.
2. A isthe sole member of Al, which is a nonprofit corporation. Al's Board of Directorsis selected as .follows. First, the 5 directors of A serve as directors of Al.Second, the Board of Al can recommend -up to 10 additional directors, but A retainsthe right to elect or not elect those recomrnendees.
3. B is anonprofit corporation with no members. B's Board of Directors consists of 14members. Six of the members are nominated by Committee 1 of the Board of B, andsix members are nominated by Committee 2 of the Board of B. The nominees mustthen be elected by a supermajority of the Board of B. The chairperson isnominated and elected by the entire Board of B and thereafter serves as adirector of B. The CEO is nominated by Committee 2, but then must be elected bya supermajority of the Board.
4. Withrespect to constituent entities included within B, A1 has certain existing contractualrights with B to ensure that those entities adhere to prescribed ethical and religiousstandards.
II. Post-Transaction Structure
(Refer to image file for diagram)
1. Theparties have already formed NewCo, a nonprofit corporation, for purposes of thistransaction. NewCo has no members.
2. NewCowill become the "general member" of both A1 and B. A will cease to bethe general member of A1 and will become the "special member" of bothAl and B.
3. NewCo'sBoard of Directors will consist of 15 members:
o 4 members will be nominated byA and elected by the NewCo Board.
o 3 members will be nominated byAl and elected by the NewCo Board.
- 4 members will be nominated by Committee 1 of B and elected by the NewCo Board,
- 3 members will be nominated by B and elected by the NewCo Board.
- the CEO, who will also serve as a director, will be elected by a supermajority of the NewCo Board.
4. A1'sBoard of Directors will be elected as follows:
- A will continue to elect 40% of the directors of Al.
- NewCo will elect 60% of the Al directors from among a slate nominated by the then current Board of Al.
5. B'sBoard of Directors will be elected as follows:
- 6 candidates will be identified by Committee 1 of the B Board.
- 6 candidates will be identified by Committee 2 of the B Board.
- Once identified by the respective committees, the candidates must be nominated by a supermajority of the B Board.
- Once nominated by the B Board, the nominees must be elected (or rejected) by the Board of NewCo.
6. A willhave certain rights as the "special member" of Al and B to ensurethat A1 and certain entities included within B adhere to prescribed ethical andreligious standards. A's rights include the following: its directors' positionsin Al cannot be eliminated without A's consent; certain assets of Al and Bcannot be sold without A's consent; and there can be no merger, sale, ordissolution of Al or certain entities within B without A's consent.
III. Conclusion
Thetransaction does not involve the acquisition of assets or voting securities.You have confirmed that the Premerger Notification Office would not view thistransaction as reportable.
Iappreciate your assistance. I would appreciate your confirming that I havecorrectly stated your view of this transaction.