Question
November 6, 1996
VIA COURIER
Richard Smith
Premerger Notification Office
Bureau of Competition
Federal Trade Commission
601 Pennsylvania Ave., NW
Washington, D.C. 20580
Dear Mr. Smith:
This is to confirm the content of our conversations today and on Monday, November 4, 1996, and to provide you with additional background information. I informed you that the corporation at issue has two shareholders (shareholder A and shareholder B) and that those shareholders and the corporation are parties to a shareholder agreement. Shareholder A currently owns a majority of the corporations common stock (the only voting securities of the corporation), each share of which entitles the holder to one vote in electing the Corporations Board of Directors.
On November 4, 1992, the corporations Board of Directors authorized the Board to have five directors. The shareholder agreement, which was entered into on July 6, 1994, and was last amended on March 12, 1996, provides that the shareholders shall take actions to cause the corporation to have five directors and that the shareholders shall take all actions necessary to ensure the election to the Board of Directors of (1) one individual nominated by shareholder A, (2) two individuals nominated by shareholder B and (3) two individuals mutually selected by shareholders A and B (independent directors).
Currently, the corporation only has four directors because shareholder A and shareholder B have designated only one of the two independent directors, but the Boards authorization of five directors and the shareholder agreements provision requiring the shareholders to take actions to have five directors remain in full effect. I represented to you that the Boards authorization of five directors and the shareholder agreements provision concerning the number of directors are not devices to avoid the Antitrust Improvements Act of 1976's (the Act) reporting requirements.
You informed me that, under the Act, shareholder A is considered to control the corporation because it holds a majority of the corporations voting stock. You stated that shareholder Bs contractual right to participate in the mutual selection of the two independent directors did not give shareholder B contractual power to appoint the independent directors for purposes of the Act. We agreed that shareholder B, therefore, does not control the corporation, as defined by 16 C.F.R. 801.1(b), because shareholder B only has contractual power to appoint two of the corporations five directors. You also stated that because the parties actions concerning the number of the corporations directors are not devices to avoid the Acts reporting requirements, the fact that the corporation currently only has four directors (and one vacancy) does not alter the analysis.
This letter supersedes my letter to you of November 5, 1996. Please contact me if any portion of my description of our conversations is inaccurate or the foregoing analysis is incorrect. I appreciate your assistance in this matter.
Sincerely,
(redacted)