Question
From:(redacted)
Sent:Tuesday, April 17, 2007 1:40 PM
To:Verne, B. Michael
Subject:Forward Contract
Mike,
Thiswill confirm our discussion this morning that the hypothetical factual scenarioset forth in an attachment to an email I sent to you yesterday does not giverise to a HSR reporting obligation at the time the agreement contemplated inthe hypothetical is entered into by the IBK and its Investor customer. As setforth in the hypothetical, however, HSR must be cleared prior to the Investortaking physical delivery of the shares and/or being able to direct the votingof the shares.
Ifthe above is inconsistent with your understanding of our conversation, pleasecontact me as soon as possible.
i
An investor (the "Investor") intends toenter into a forward sales contract (the "Forward") with anunaffiliated investment bank ("IBK") on the voting shares of thecommon stock of an unaffiliated public company (the "Issuer"). TheForward has been structured so that the Investor will bear the economic risk ofany change in the price of the common stock of the Issuer over the term of theForward. The Investor intends to file under the Hart-Scott-Rodino ("HSR")Antitrust Improvements Act of 1976, as amended (the "Act"), atapproximately the same time that the Investor enters into the Forward. TheForward will have the following terms:
oThe price specified in the Forward will equalthe price of the common stock of the Issuer at the commencement of the Forwardincreased by commissions charged by the 1BK and the cost of financing theholding of hedge shares by the IBK over the term of the Forward described belowand decreased by any dividends paid of such shares.
oAt the commencement date of the Forward,the value of the shares of common stock of the Issuer subject to deliverypursuant to the Forward will exceed $59.8 million but the number of shares heldby the IBK as a hedge will not exceed 15% of the outstanding shares of theIssuer.
oThe Forward will allow the Investor toelect either to physically settle the Forward, i.e., to take delivery of theshares of the underlying common stock, or to cash settle the transaction, i.e.,to receive or pay the change in the value of the shares of underlying commonstock on a specified date or at an earlier date elected by the Investor.
oIf physical settlement is elected, theIBK will be obligated to deliver to the Investor the specified number of sharesof common stock of the Issuer against payment by the Investor of the price pershare specified in the Forward. Any such physical settlement will be subject tothe condition that the Investor has made all filings required under the Act andthe waiting period under the Act has expired or terminated.
oIf cash settlement is elected by theInvestor or the waiting period under the Act has not expired or been terminatedby a date (or time period) specified in the Forward, the Forward will be cashsettled. If the price of the common stock of the Issuer has increased, the IBKwill pay the Investor the amount of the increase; if the price of the commonstock of the Issuer has decreased, the Investor will pay the IBK the amount ofthe decrease. If cash settlement occurs, the current market price used todetermine the amount to be paid will either be based on the price received bythe IBK upon the sale of its hedge shares or an objective market price.
As anexample, assume that the price per share of common stock specified in theForward is $50. If physical settlement were to occur, then the Investor wouldpay $50 per share against delivery of a share upon settlement of the Forward.If cash settlement were to occur and the price per share of common stock atsettlement were S40, then the Investor would owe the IBK $10 per share.Conversely, if cash settlement were to occur and the price per share of commonstock at settlement were S55, then the IBK would owe the Investor $5 per share.
In order to hedge the risk to the IBK of movements inthe price of the common stock of the Issuer, the IBK intends to purchase anumber of shares of common stock of the Issuer equal to the number of sharesunder the Forward. The IBK and the Investor intend to approach an entity thatcurrently holds in excess of 9% of the outstanding shares of common stock ofthe Issuer and the IBK will seek to purchase some or all of such shares as partof its hedge. The shares of common stock held by the IBK as a hedge to itsexposure under the Forward will be held in the name of the IBK or in the nameof a depository (such as DTC) for the account of the IBK. The shares will notbe pledged to the Investor to secure the performance of the IBK under theForward and the Investor will have no direct claim on the shares held by theIBK as a hedge in the case of a default or bankruptcy of the IBK. The Investorwill have no rights in the shares held by the IBK as a hedge unless and untilthose shares are delivered to the Investor and therefore the Investor will haveno right to direct the voting or disposition of those shares prior to any suchdelivery and the IBK will not accept any instruction as to the voting or dispositionof those shares from the Investor.
For purposes of this hypothetical only, assume thatthe Investor holds a controlling interest in an entity that operates a businessin the same line of business as the Issuer. After entering into the Forward,the Investor intends to contact the Issuer to discuss strategic optionsincluding the possibility that the Investor may seek to acquire all of or acontrolling interest in the Issuer.
From:(redacted)
Sent:Tuesday, April 17, 2007 1:57 PM
To:Verne, B. Michael
Subject:FW: Forward Contract
Mike:This will further confirm that a similar put/call transaction is analyzed thesame way and with the same result, notwithstanding: (1) that the agreement mayinclude a recital to the effect that, for purposes of tax analysis, theInvestor is the beneficial owner of the shares at the time the agreement isexecuted; and (2) that the IBK may purchase up to $59.8 million of the Issuer'sshares from the Investor rather than in the market. Again, if I have misstatedyour advice, please let me know as soon as possible.
Thanks,
From:(redacted)
Sent: Tuesday, April 17, 2007 1:40 PM
To:' Verne, B. Michael'
Subject:Forward Contract
Mike,
This will confirm our discussion this morning thatthe hypothetical factual scenario set forth in an attachment to an email I sentto you yesterday does not give rise to a HSR reporting obligation at the timethe agreement contemplated in the hypothetical is entered into by the IBK andits Investor customer. As set forth in the hypothetical, however, HSR must becleared prior to the Investor taking physical delivery of the shares and/or beingable to direct the voting of the shares.
If the above is inconsistent with your understandingof our conversation, please contact me as soon as possible.
Thankyou,