Question
VIA ELECTRONIC MAIL March10, 2006
B. Michael Verne
Premerger NotificationOffice
Bureau of Competition
Federal Trade Commission
7th & PennsylvaniaAvenue, NW
Washington, DC 20580
Dear Mike:
OnFriday, February 24, 2006, I left you a message regarding a fact scenario toconfirm that it did not create "control" of a newly formed issuer bythe principal shareholder for purposes of the Hart-Scott-Rodino AntitrustImprovements Act of 1976, as amended ("HSR Act"). You confirmed byemail on Monday, February 27, 2006 that the scenario I described did not createcontrol of the newly formed issuer. Below I set out the facts I presented to you,with a little more detail, to confirm my understanding from our communicationthat these facts would not result in control of a newly formed issuer by theprincipal shareholder.
Asa part of the proposed transaction, Shareholder A will hold shares constituting49.9% of the voting securities of a newly formed issuer, NEWCO, and will havethe contractual power to appoint one less than a majority of the directors ofthe board of NEWCO i.e., one out of three or two out of five directors).Appointment of the directors by Shareholder A will not require approval of theother shareholders or the board of directors. The appointment of a director whois not a director appointed by Shareholder A will either be by majority vote ofthe shareholders or by the board of directors as a whole and will besubsequently approved by the shareholders (voting in proportion to ownershipinterests) at the next general meeting. Shareholder A will be able to block theappointment of directors, but will not be able to force the other shareholdersto accept the appointment of directors (except for in the case of the directorsthat Shareholder A has the contractual right to appoint). Shareholder A alsowill have the power to remove the chairman of the board of NEWCO, but will nothave the power to replace the chairman.
Pleaselet me know as soon as possible if you disagree with the conclusion based onthese facts that Shareholder A does not control NEWCO for HSR purposes. Thankyou for your assistance in this matter.