Question
From:
(redacted)
Sent:
Friday, March 20, 2009 2:00 PM
To:
Verne, B. Michael
Subject: ProposedAcquisition
Mike -I was hopingto speak with you to discuss whether one or more transactions that are part ofa proposed acquisition are reportable. However, since the facts are relativelycomplicated, I though it would help if I forwarded a description to you beforewe spoke. 8elow is a description of the proposed acquisition and the relevantparties. My contact information is set forth below. I am generally availablethis afternoon and Monday to discuss this. If neither day works for you, pleaselet me know when you are available to speak. Thanks in advance for your help. (redacted)
Description ofProposed Transaction
A privately heldcompany ("A") proposes to acquire all of the stock of anothercorporation ("C"). The proposed structure is a forward triangularmerger whereby "C" will merge with and into "B", a wholly-ownedsubsidiary of "A" which is being formed for purposes of theacquisition. "B" will be the surviving entity upon consummation ofthe merger.
FurtherDescription of the Relevant Parties
1. "A" is a privately-held corporation with 24shareholders. One shareholder, "X", owns more than fifty percent(50%) of the voting stock of "A". Accordingly, "X" is theultimate parent entity ("UPE") of "A".
2. "B" is a corporation and wholly-ownedsubsidiary of "A". "B" was formed for the purpose of acquiring"C".
3. "C" is a publicly-traded shell corporationcommonly referred to as a "SPAC", a special purpose acquisitioncompany. "C" has both stockholders and warrant holders, but it doesnot conduct any business at this time. However, "C" has approximately$135 million in assets. Almost all of its assets are in the form of cash orcash equivalents, all of which are currently being held in trust pending anacquisition that meets the investment purposes for which "C" wasformed. The stock of "C" is currently trading at $7.66 per share. Thelowest trading value for the shares of "C" over the past 45 days is$7.54 per share. "C" has a current market capitalization of $161million. No shareholder of "c" holds fifty percent (50%) or more ofits shares, so "C" is the UPE.
Additional Facts
Contemporaneouslywith the closing, a substantial portion of the assets of "C" (i.e.,approximately $103 million in cash), will be used to redeem shares and/orwarrants of the current shareholders and warrant holders of "C", aswell as to pay closing costs and a cash payment of $3.5 million to thestockholders of "A". It is anticipated that only approximately $25million in cash/cash equivalents will be left following these redemptions andother payments.
Each of the remainingshareholders of "C" will receive one (1) share of "A" inexchange for each share of "C" that he holds. Each warrant holder of"C" who is not redeemed will receive an equal number of warrants in"A".
"A"conducts three lines of business, one of which is a manufacturing business andthe other two of which are service businesses. As reflected on its most recentbalance sheet, "A" has total assets of approximately $43 million and,when consolidated with its wholly-owned subsidiaries, it has total assets of $107 million. In addition, "A" has net revenue of approximately $4.9million (i.e., gross revenue of $29.7 million minus cost of revenue of $24.8million) and, when consolidated with its wholly-owned subsidiaries, it has netrevenue of $37.4 million (i.e., gross revenue of $165.4 million minus cost ofrevenue of $128 million).
As reflected onits most recent balance sheet, "C" has total assets of approximately$135.5 million, almost all of which are in the form of cash and cashequivalents (which cash and cash equivalents are being held in trust pendingthe closing of a transaction that meets the investment criteria of"C").
Immediately priorto or contemporaneously with the closing of the transaction, "A"shall have registered its stock so that it will trade publicly from and afterthe consummation of the transaction. It is anticipated that, at the time of theclosing, the shares of "A" will trade at a per share value of $7.85.At the present time, it is believed that "A" has an enterprise valueof approximately $134.6 million.
Following theconsummation of the transaction, it is anticipated that the currentshareholders of "A" will own approximately sixty percent (60%) of theoutstanding capital stock of "A". In addition, shareholders of"C" who are not redeemed will own approximately forty percent (40%)of the outstanding capital stock of "A". "X", the UPE of"A", will own less than fifty percent (50%) of "A"following the transaction. Accordingly, "X" will no longer be theUPE. Following the transaction, "A" will be its own UPE because nosingle shareholder will own fifty percent (50%) or more of "A".