Question
From: (redacted)
Sent: Wednesday, January 25, 2006 2:54 PM
To: Verne, B. Michael
Subject:General partner's duties
Dear Mike,
I am trying to figure outthe UPE of a NewCo. Some time ago, I talked with you and Nancy about a situationwhere a large number of investing partnerships (the number is now 8) planned tocreate a NewCo to purchase a target company. Assuming all the investingpartnerships are their own UPE or have different UPEs, and no one investingpartnership will hold 50% or more of the outstanding voting securities of theNewCo, the question came down to the issue of whether any one person or entityhad the right to appoint 50% or more of the board of directors of NewCo.
A majority of the investingpartnerships have the same general partner, and it's my current understandingthat this general partner has the right to appoint 50% or more of the board ofdirectors of the NewCo.
As I understood your answerback then, you said that if the general partner was given the right to appointthe directors of NewCo as part of its normal duties and in its regular capacityas the general partner of each of the investing partnerships, its power toappoint directors would not be aggregated among the various investing partnershipsfor UPE analysis, and the NewCo would be its own UPE. However, if there wassome kind of contract entered into wherein the investors in each partnershipgranted a contractual right to the general partner to appoint the directors ofNewCo, then the general partner's power to appoint directors would beaggregated across the investing partnerships, thus making the general partnerthe UPE of NewCo.
I've done more research, andI don't know on which side of the line this situation falls. Each investingpartnership has created a deed of limited partnership that (among other things)appoints this general partner, and spells out its general duties. Among them isthe power to appoint directors. I excerpt it here:
5.2 Authority and Powers
Without prejudice to thegenerality of clause 5.1 hereof, but subject to the terms of this Agreement,the General Partner shall have full power and authority on behalf of thePartnership and with the power to bind the Partnership thereby and withoutprior consultation with any of the Limited Partners:
[...]
(c) to monitor and whereappropriate to appoint or remove directors to the boards of Investee Companies(subject always to the provisions of clause 6(e));
Clause 6(e) merely statesthat the general partner will take care to continue to qualify as a"venture capital operating company" under ERISA rules.
These deeds were executed awhile ago, long before this acquisition was contemplated, and apply to allinvestments made by the limited partnerships, not just the one at issue here.It is a general grant and right of power.
Can you let me know whetheryou consider that a normal/regular duty or a special contractual power?