Question
(redacted)
July 10, 1996
BY HAND
Premerger Notification Office
Bureau of Competition
Federal Trade Commission
600 Pennsylvania Avenue, NW, Room 303
Washington, D.C. 20580
Re:
Dear Dick:
This letter memorializes the advice you provided yesterday over the telephone concerning the appropriate analysis under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the Act), and the implementing regulations, as to who controls a corporation under the following circumstances:
X is a not-for-profit corporation that has no voting securities. X is managed by a board of directors consisting of four natural persons, A, B, C, and D. A and B are husband and wife; C is a lawyer, among whose clients are A and B; and D is a third party who is president of the corporation. None of the directors has any contractual power to control the vote of any other director; each can vote as he or she deems fit, consistent with the fiduciary obligations of a director.
Xs by-laws provide that directors are elected at each annual meeting of directors by a plurality of the votes cast by the then-serving directors. Directors can be removed for cause by a majority vote of the directors. If a director resigns or is removed, a new director is selected by majority vote of the remaining directors.
Based on the above facts, you advised that corporation X is not controlled by A or Bor any other person, and that X is therefore its own ultimate parent entity. You explained that because X has no voting securities, determining whether X is controlled by any other person depends upon whether any person has the contractual power presently to designate 50% or more of the directors of X. 16 C.F.R. Section 801.1(b)(2).
As we discussed, all decisions regarding the designation of directors are made through votes of the directors themselves. Because directors A, B, C, and D are each natural persons with no contractual power to control the vote of any other director, you indicated that none of their respective voting rights as directors should by aggregated. You advised that Section 801.1(c)(2), pertaining to holdings of spouses, would not apply in this context, and that Cs status as an attorney to A and B should likewise be disregarded in the absence of any agreement binding C to vote as directed by A or B. Thus, because no one person has the contractual right presently to designate 50% or more of the directors of X, you concluded that X is its own ultimate parent entity.
If this letter does not accurately reflect the advice you provided, please call me as soon as possible.
Thank you for your time and assistance.
Very truly yours,
(Redacted)
cc: (redacted)