Question
From: (redacted)
Sent: Wednesday, April 04, 2007 11:27 AM
To: Verne, B. Michael
Subject: control
Dear Mike,
I have an unusual corporatestructure and I'd appreciate your opinion as to how the test of control shouldbe applied.
Target company is Dutch. A Newcowill be formed, also Dutch, to make the acquisition. Newco has variousinvestors, none of which hold 50% or more of the voting securities of Newco,thus, I am left with the other half of the control test, the right to appointdirectors.
Upon acquisition by Newco, Targetwill have a so-called "supervisory board." The duties of this boardare as follows:
a.enteringinto agreements whereby [target] or the subsidiaries are granted a bank creditif this concerns an amount of more than [ ]
b.enteringinto commercial agreements if this involves a financial interest of more than []
c. entering into or terminatinglong-lasting co-operations between [target] or an affiliated (dependent)company with another company or as fully liable partner in a limitedpartnership or a "vennootschap onder firma", if this co-operation ortermination is of fundamental importance for the [target] Group
d.acceptanceof a participation of at least 1/4 of the outstanding capital with reservesaccording to the balance sheet of [target] , by her or an affiliate (dependentcompany) in the capital of another company, and the fundamental increase ordecrease of such participation
e.investmentsthat equal an amount similar to 1/4 of the outstanding capital with reservessaccording to the balance sheet of [target]
f.aproposal to amend the articles of association of [target]
g.aproposal to dissolve [target]
h.reportof bankruptcy and request for suspension of payment by [target]
i.terminationof employment of a substantial part of the [target]'s employees or of anaffiliated (dependent company) at the same time or within a short time frame
j.fundamentalchanges in the labour conditions for a substantial part of [target]'s employeesor of an affiliated (dependent) company
k.aproposal to decrease the outstanding capital of [target]
I. fundamental change in thestructure of the activities of [target]
Newco has a"board of directors/management body." The duties of this board are asfollows:
a.determinationor approval of the Business Plan and the Budget (including all adjustments orchanges thereof)
b.paymentof dividends or payment of interest re. the shareholder's loan ("Aandeelhouderslening")
c.enteringinto agreements or arrangements with the Seller or an affiliate of the Seller,other than under professional ("at arm's length") conditions
d.issue,including the right to acquire shares in Newco or the subsidiaries, unless (i)it involves an issue within the [target] Group and/or (ii) the issue takesplace under the circumstance that Newco and/or the subsidiaries no longerfulfill the "banking covenants" or there are for other reasonsshortages of liquidity within Newco and/or the subsidiaries that require an issue
e.co-operationwith the issue of certificates of shares in Newco or the subsidiaries
f.requestfor quotation or withdrawal of quotation of the documents as referred to in d.and e. in the price-list of a stock-market
g.exclusionor limitation of the priority right, unless the issue to which the priorityright relates occurs under the circumstance that Newco and/or its subsidiariesno longer fulfill the "banking covenants" or there are for otherreasons shortages of liquidity within Newco and/or the subsidiaries thatrequire an issue
h. a proposal to amend the articles ofassociation of Newco
i.aproposal to dissolve Newco
j.reportof bankruptcy and request for suspension of payment by Newco
k. a proposal to decrease theoutstanding capital of Newco
The investors in Newco (theacquiring parties) will have the right to appoint members of both boards,although in different proportions, which leads to different outcomes on theissue of control. Would you please let me know your thoughts on which boardshould be referenced for purposes of control on the acquiring side?