Question
From: (redacted)
Sent: Tuesday, June 05, 2007 4:27 PM
To: Verne, B. Michael
Subject: Follow Up
DearMike,
I am writing to confirm myunderstanding of a telephone conversation we had on Monday, May 21, 2007concerning the non-reportability under the Hart-Scott-Rodino AntitrustImprovements Act of 1976, as amended (the "HSR Act") of the proposedtransaction described below.
Proposed Transaction
Buyer currentlyholds approximately 19.6 million shares of common stock of the Company("Common Stock") with a current fair market value of approximately$29 million. Buyer also currently holds warrants to purchase an additionalapproximately 16.9 million shares of Common Stock ("Warrants"). TheWarrants have an exercise price of $0.01 per share, do not have voting rightsand have generally been acquired for a purchase price equal to the value of theCompany's Common Stock less $0.01 (the exercise price of the Warrants). TheCommon Stock and the Warrants are not publicly traded. Buyer now desires toexercise the Warrants. After such exercise, Buyer will hold approximately 36.5million shares of Common Stock in total, the fair market value of which mayexceed $59.8 million.
The Common Stock and Warrants wereissued in 2003 to various creditors of the Company in connection with theCompany's emergence from bankruptcy, as part of its plan of reorganization.During 2004 and 2005, Buyer acquired approximately 4.2 million shares of CommonStock and 150,000 Warrants in separate open market private transactions.
In May 2006, Buyer acquired anadditional 16.8 million shares of Common Stock and 21.0 million Warrants fromfour outside stockholders (and former creditors) of the Company in a privatelynegotiated transaction (the "May 2006 Acquisition"). Also as part ofthe May 2006 Acquisition, Buyer acquired 1.3 million shares of Common Stockfrom certain officers of the Company and 600,000 shares of Common Stock fromcertain former directors of the Company.
In April 2007,Buyer sold approximately 4.5 million shares of Common Stock and 4.2 millionWarrants to an affiliated third party, the ultimate parent entity of which isdifferent from that of Buyer. The transfer to the affiliated third party wasmade for business reasons in accordance with the investment policies of Buyerand the third party transferee.
In May 2007, certain officers of theCompany exercised a put right arising from the May 2006 Acquisition and, as aresult, in June 2007, Buyer and the affiliated third party acquiredapproximately 1.3 million additional shares of Common Stock (the "PutShares").
Conclusions
You agree thatthere is no HSR reportable event arising from the exercise of the Warrants heldby Buyer. Specifically, you confirmed the following:
1) The May 2006 Acquisition ofCommon Stock and Warrants was not a reportable transaction under the HSR Actbecause the aggregate value of the voting securities held by Buyer did notexceed $56.7 million. Under 16 C.F.R. 801.15, the aggregate value of votingsecurities does not include the value of voting securities, the acquisition ofwhich was exempt at the time of acquisition under 16 C.F.R. 802.31, or thepresent acquisition of which is exempt under 16 C.F.R. 802.31. The acquisitionof the Warrants was exempt from the requirements of the HSR Act under 16 C.F.R. 802.31 because the Warrants are "convertible voting securities."The fair market value of the Common Stock held by Buyer prior to the May 2006Acquisition, plus the acquisition price of the shares of Common Stock acquiredin the May 2006 Acquisition, was less than $56.7 million.
2)Theexercise of the Warrants will not be a reportable transaction under the HSRAct. The current fair market value of the Common Stock held by Buyer isapproximately $29 million. The acquisition price of the Common Stock acquiredupon exercise of the Warrants is the exercise price of $0.01 per share andthere is no aggregation, for HSR Act purposes, of the exercise price with the amountpaid for the Warrants, the fair market value of the warrants, a valueattributable to the surrender of the Warrants or any other measure.Accordingly, under 16 C.F.R. 801.13, because the Common Stock is not publiclytraded, the aggregate value of the voting securities held by Buyer followingthe exercise of the Warrants will be equal to the fair market value of theCommon Stock held prior to the exercise of the Warrants (approximately $29million), plus the acquisition price of the Common Stock acquired upon exerciseof the Warrants (approximately $169,000 based on the $0.01 exercise price)(collectively, the "Aggregate Share Value"). Based on the foregoing,the Aggregate Share Value will be less than $59.8 million. As a result, theexercise of the Warrants is not reportable under the HSR Act.
3)Buyer'sacquisition of the Common Stock and the Warrants between 2004 and the present,including the May 2006 Acquisition and the acquisition of the Put Shares, aswell as its planned exercise of the Warrants are not a plan or device to avoidthe obligations of the HSR Act under 16 C.F.R. 801.90. As discussed above, theCommon Stock and the Warrants were originally issued to creditors of theCompany in connection with its plan of reorganization. The exercise price ofthe Warrants was set at that time with the approval of the Bankruptcy Court andhad no relationship to Buyer's acquisition of the Warrants.
Please letme know as soon as possible if you disagree with any of the conclusions above,or if I have misunderstood any aspect of your advice. Thank you for yourassistance and attention to this matter.
(redacted)