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other entity to dominate the negotiations leading to and through the approval of the transaction by both charities. Neither charity appointed significantly more of Charity AB’s initial governing board. Although the chief executive officer of Charity B is the only key senior officer for which a retention decision has been made, neither charity dominated the selection process of the governing board and senior management, collectively. Lastly, although the corporate charter and bylaws of Charity A were retained, the stated mission of Charity AB includes the operating objectives of Charity B. In addition, the bylaws and operating policies and practices of Charities A and B were similar. Thus, on the basis of the preponderance of the evidence, it is determined that the combination is a merger—that the governing boards of Charity A and Charity B each ceded control to the new NFP, Charity AB, which has a newly formed governing body. [FAS 164, paragraph A16, sequence 117]

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    > > Case B: A Combination That Is neither a Merger nor an Acquisition

958-805-55-17 In this Case, Charity AB is established as a new legal entity with its own charter. [FAS 164, paragraph A17, sequence 118] Charity A and Charity B will each continue to exist with its current governing body but cease to operate its existing programs. [FAS 164, paragraph A17(a), sequence 118.1.1] Each has the power to veto nominations for future members of Charity AB’s governing body for two years. [FAS 164, paragraph A17(b), sequence 118.1.2] Each will retain $200,000 in operating cash and all of the investment assets of its donor-restricted endowment funds. [FAS 164, paragraph A17(c), sequence]

958-805-55-18 Charity A and Charity B each have the right to dissolve Charity AB. If the right is exercised, it will result in a reversion of assets, liabilities, and staff. Upon reversion, all staff will be retained by their respective legacy entity. In addition, the assets and liabilities of Charity AB will be transferred to each legacy entity in a distribution ratio equivalent to the fair value of the net assets contributed by each (which was determined to be about 65:35 at the combination date). [FAS 164, paragraph A17(d), sequence 118.1.4] Two years following the combination date, Charity A and Charity B will dissolve and transfer their remaining assets to Charity AB unless either exercises its right of withdrawal. [FAS 164, paragraph A17(c), sequence]

958-805-55-19 In this Case, it appears that Charity A and Charity B may intend to combine after the passage of a two-year period. But neither of their governing boards has ceded control, as defined, and neither entity has obtained control of the other. Therefore, the combination is neither a merger nor an acquisition; rather, on the basis of the preponderance of the evidence, it appears that Charity AB is a joint venture of Charity A and Charity B. [FAS 164, paragraph A18, sequence 119]


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