Question
From:
(redacted)
Sent:
Thursday, January 08, 2009 3:32 PM
To:
Verne, B. Michael
Cc:
(redacted)
Subject: Confirmingemail -1/7/09 tender offer discussion
Mike:
This email isintended to memorialize the discussion among you, me and (redacted) of (redacted)in our phone call of January 7, 2009 concerning a contemplated tender offer.
1. Buyer intends to make a tender offer for 100% of thecurrently outstanding voting securities of Target, a Delaware corporation. Thevalue of 100% of the currently outstanding shares (based on the tender offerprice, which is higher than the market price) does not exceed $63.1 million.Buyer then intends to merge with and into the Target, resulting in the Target'sstockholders who did not tender their shares in the tender offer (other thanBuyer) being entitled to receive merger consideration for each share of commonstock then held equal to the amount per share offered in the tender offer.
2. For reasons wholly unrelated to the HSR Act, Buyer isonly prepared to proceed with a tender offer acquisition structure in the eventit is able to utilize a "short-form" merger process. Under Delaware law, in order to consummate a "short-form" merger process, the Buyermust hold at least 90% of the issued and outstanding shares of votingsecurities of the Target.
3. In the event that at least 90% of the currentlyoutstanding shares are tendered and accepted for payment, Buyer would be ableto consummate its acquisition of Target without an HSR filing obligation sinceit would be able to acquire 100% of the outstanding voting securities of Targetvia a "short-form" merger, valued at not more than $63.1 million.
4. Target has additional authorized, but presentlyunissued, shares of common stock. In the event at least 82%, but less than 90%,of the outstanding shares are tendered, such additional unissued shares (the"Top-Up Shares") may be issued to Buyer such that, after (i)acceptance for payment of the tendered shares by Buyer and (ii) the subsequentissuance of the Top-Up Shares, Buyer would hold 90% of the issued andoutstanding shares of common stock of Target and a short-form merger may beconsummated. It is possible that, depending upon the number of Top-Up Sharesnecessary to be issued, based on the tender offer price, the aggregate value of(i) 100% of the currently outstanding voting securities and (ii) the additionalTop-Up Shares could exceed $63.1 million.
5. In the event Top-Up Shares are necessary in order forBuyer to acquire 90% of the outstanding common stock, the operative transactiondocumentation would require that the issuance of the Top-Up Shares occur onlyafter the shares tendered by the current shareholders are accepted for payment.Thus, the acquisition of the voting securities of Target would take place intwo distinct steps. First, the current holders would tender their shares, andthe shares would be "accepted for payment." Second, at some pointafter the currently outstanding tendered shares are "accepted forpayment," Target would issue the requisite number of Top-Up Shares toBuyer. After the foregoing two distinct steps have been taken, Buyer wouldcomplete its acquisition of Target by "short-form" merger.
As we assessed the foregoing structure,we concluded that the foregoing acquisition could be accomplished withouttriggering a filing obligation under the HSR Act, even where the issuance ofTop-Up Shares becomes necessary. The analysis under the HSR Act would look atthe two distinct steps (described in Point #5) separately.
In the first step, Buyer would acquirecontrol of Target by virtue of its acceptance for payment of somewhere between 82%and 89.99% of the currently outstanding shares of common stock. Pursuant to 16C.F.R. Section 801.33, "the acceptance for payment of any shares tenderedin a tender offer is the consummation of acquisition of those shares within themeaning of the [HSR Act]." Thus, upon Buyer's acceptance for payment ofthe tendered shares, that acquisition would be deemed consummated, and Buyerwould, from that point forward, control Target for purposes of the HSR Actsince it would hold 50% or more of Target's voting securities. Since the valueof the shares acquired in this first step does not exceed $63.1 million, theacquisition contemplated by this first step will not trigger a filingobligation under the HSR Act since it will not satisfy the "size-of-transaction"test.
The second step, whereby Target issues toBuyer Top-Up Shares, would be viewed distinctly. That additional acquisitionmay be accomplished in a transaction that would be an exempt"intraperson" acquisition pursuant to 16 C.F.R. Section 802.30 since atthe time of the acquisition of the Top-Up Shares, Buyer would be both (i)acquiring person and (ii) acquired person as a result of the acquisitionconsummated in the first step. Thus, an HSR filing obligation would not berequired with respect to the issuance of the Top-Up Shares, regardless of thevalue of Target's voting securities held by Buyer as a result of the issuanceof the Top-Up Shares.
Please let us know if you agree that theforegoing reflects our discussion and that you agree with the conclusions setforth in this confirming email.