Question
From: (redacted)
Sent: Tuesday, August 26, 2008 5:03 PM
To: Verne, B. Michael
Cc: (redacted)
Subject: 801.1 (b)(2) Control Question
Mike, I, along with (redacted), are tryingto run down confirmation of our understanding of the control rules under 801.1(b)(2). We'd both appreciate getting your thoughts on the scenario posed belowand, if needed, could schedule a call to answer any questions that you have ata time that works best for you ideally at some point tomorrow --withavailability after 1 p.m. your time on Wednesday or at any time Thursday.
The scenario involves a shareholder("Shareholder A") which holds approximately 46% of an Issuer("Corporation X"). That part is easy, given that Shareholder A doesnot hold 50% or more of the outstanding voting securities of Corporation X.However, Shareholder A also has entered into a Shareholders Agreement withanother shareholder which holds approximately 23% of the voting shares ofCorporation X ("Shareholder B") in which the following rights havebeen granted with respect to its 5 member Board of Directors
oShareholder A has the right to designate two board members
oShareholder B has the right to designate one board member
oOne board member is the Chief Executive Officer; and
o One board member is mutually designated byShareholder A and the Chief Executive Officer (as an aside, the Chief ExecutiveOfficer was already serving in this capacity before Shareholder A acquired anystake in Corporation X)
Our understanding is that, for the purposesof 801.1(b)(2), this leaves Shareholder A with the contractual right to appoint2 out of the 5 board members --a result that's not changed by the fact thatShareholder A also has a shared right to appoint a third director (a rightwhich it shares with the Chief Executive Officer). Seehttp://www.ftc.gov/bc/hsr/informal/opinions/8807006.pdf and
http://www.ftc.gov/bc/hsr/informal/opinions/06004007.htm