Question
From: (redacted)
Sent: Tuesday,December 20, 2005 6:13 PM
To: Verne,B. Michael
Subject: UPE
Hi, Mike. Sorry the questions have been so frequent of late. Ihope things will calm down soon, and I can quit emailing you so frequently.
I have a situation very similar to one you addressed previously,as reflected in a letter dated 3/2/05. The letter is found online at:http://www.ftc.gov/bc/hsr/informal/opinions/0503004.htm
Here, a new company has been formed to make an acquisition, indirectly,through 2 other newly-formed companies. I'll refer to them as TopCo, MidCo and BidCo.My question is whether TopCo is its own UPE.
TopCo is owned by seven partnerships, no one of which will holdmore than 50% of the shares of TopCo. Each partnership has many investors, eachof which is a limited partner of the partnership in which it invests. None of .the partnerships is controlled by any one person or entity (according to the50% profits/assets upon dissolution test). Thus, I believe each partnership isits own UPE. However, each partnership has the same general partner. And thisgeneral partner will have the right to appoint the directors of TopCo. I amtold that this general partner will have the right to appoint more than 50% ofthe board of TopCo, in the aggregate.
I believe that because this general partner is acting on behalf ofseven different funds, the general partner would not be deemed the UPE. Thefollowing paragraphs from the 3/2/05 letter seem to support this view, but the facts are notexactly the same.
"Messrs. (redacted) inquired as to whether the result wouldbe different if, hypothetically, the Investment Funds were managed by a commonperson or entity other than the general partner of any of the Investment Fundsbut that is nevertheless under common control or otherwise affiliated with allof the general partners of the Investment Funds, and whether such anarrangement would vest in the manager the contractual power to designate 50percent or more of the directors of Newco I under Rule 801.1(b)(2), and youadvised that the PNO would not view such an arrangement asconferring control of Newco I.
[. .]
In a follow upcall on March 1, we further discussed the shareholders agreement and its terms.We explained that under the shareholders agreement to be executed at closing,all of the parties to the shareholders agreement, including the ContributingShareholders and the Investment Funds, will agree to vote their shares in favorof board representatives selected by the Investment Funds. However, because noone
Investment Fundacting independently would have the contractual power to designate 50 percentor more of the directors, you advised that Newco I would remain its ownultimate parent. You further advised that your position would not be differenteven if the Investment Funds would in all likelihood be acting together."