Question
From: (redacted)
Sent: Monday, May 02, 2005 2:21 PM
To: Verne, B. Michael
Cc: (redacted)
Subject: Transaction Structure Chart for 5/3/05 Discussion
Mike -- As I indicated during our telephone conversation today, (redacted) andI would like to discuss with you the HSR analysisof a proposed transaction on which we are currently working. To facilitate ourdiscussion, I have attached a structure chart that summarizes the multi-steptransaction.
For additional context, I have included two URLs that link to a press reportand a press release concerning the transaction: (redacted)
As agreed, we will call you tomorrow (Tuesday) at 9:30amto discuss the HSR analysis, but if you have any advancequestions, please feel free to contact me (redacted)or (redacted)
CO. L'SACQUISITION OF CO. S
Co. L has entered into a definitive agreement and publicly announced its intentto acquire 100% of Co. S through a multi-step transaction designed toaccommodate non-U.S. regulatory hurdles.
Current
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Step 1
1.1 Trust A is formed by Co. S's outsidelegal counsel for the sole purpose of holding Co. S shares for a transitionalperiod. Once the transition is complete, Trust A will be dissolved.
Step 2
2.1 Trust A forms aspecial purpose acquisition vehicle, Newco.
Step 3
3.1 Co. L (not currently a Co. S shareholder) purchases 11% ofNewco for nominal/par value consideration.
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3.2 Co. L issues a promissory note to Newco that will be used asconsideration for the
85% of Co. S held by the Institutional Investors.
3.3 Co. L loans Newco the money for a public tender of the 15% ofCo. S in free float.
3.4 All "significant" actions of Newco require a 90%affirmative shareholder vote, e.g., Co. L has a veto.
3.5 Newco Board of Directors is composed of 3 directors, of which1 is appointed by Co. L and 2 are appointed by Trust A.
3.5.1 Newco Board actions require unanimity, except that Co. L hassole discretion in actions related to the public tender offer for Co. S shares.
Step 4
4.1 Institutional Investors contributetheir Co. S shares to Newco in exchange for their proportionate share of thepromissory notes issued by Co. L (and originally contributed to Newco).
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Step 5
5.1 With the loan from Co. L, Newco launches a public tender offerfor 15% of Co. S.
5.2 Co. S Board of Directors is composed of 5 directors, of which 3will be appointed by Trust A and 2 will be appointed by Co. L.
5.2.1 Co. L director will be named chairman of Co. S.
5.2.2 Co. L has a veto right regarding the appointment and removalof Co. S management.
5.2.3 Co L. has veto rights over certain corporate actions by Co.S, including (i) purchase and sale of certain assets, (ii) material contractswith a duration in excess of 1 year, and (iii) amendment and termination ofstrategically significant business agreements.
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Step 6
6.1 Co. L. increases its holdings in Newco to 49% for nominal orno consideration.
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Step 7
7.1 Co. L. acquires the balance of Newco for nominal or noconsideration.
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Assumptions:
1. All entitiesare Foreign Persons.
2. The equity ofCo. S is worth more then $53.1 mm.
3. Co. S has morethan $53.1 mm in US sales.
4. Trust A is itsown UPE.
Analysis:
1. Over the next 12 months, Co. L intends to acquire the balanceof Newco voting securities and will submit an HSRfiling to that effect prior to its initial acquisition of Newco votingsecurities.
1.1 The staged transaction is forregulatory purposes and fully contemplated as part of the transaction at theoutset and provided for in the definitive agreement.
2. Theformations of Trust A and Newco before contribution of the Co. S votingsecurities are HSR exempt.
3. Atthe time of Step 4, Trust A is arguably the UPE of Newco, the Acquiring Entity.
4. Step4 - Newco's acquisition of control of Co. S by acquiring the Institutionalinvestors' Co. S shares is arguably a reportable event separate from Co. L'sacquisition of Newco/Co. S.
4.1 But: Trust A has no economic risk;acquisition paid for by Co. L promissory note.
4.2 If Co. L fails to acquire control ofNewco by a date certain (12/31/08), the transaction unwinds and theInstitutional Investors take back their respective Co. S shares and receive noconsideration.
4.3 Newco has the right to repay the loanthat it received from Co. L for the purpose of acquiring the 15% of Co. Sshares that were publicly traded, by tendering its remaining shares in Co. S toCo. L.
4.4 Trust A has no authority to requireNewco to undertake significant corporate actions (e.g., declare a dividend)without consent of Co. L.