1. © 2003 Haynes and Boone, LLP An Introduction to Going Private Transactions by Jennifer Wisinski June 18, 2003

2. © 2003 Haynes and Boone, LLP What is a “going private transaction”? Three elements: 1.As a result of the transaction, a class of equity securities will not be listed on a securities exchange or quoted on an inter-dealer quotation system or a class of equity securities will be held by fewer than 300 persons.

3. © 2003 Haynes and Boone, LLP What is a “going private transaction”? Three elements (cont’d): 2.Undertaken by the issuer or an affiliate of the issuer. 3.Involves a merger, tender offer or reverse stock split.

4. © 2003 Haynes and Boone, LLP Why do companies “go private”? Traditional: Buy out by management or a controlling stockholder. It is common in a management buyout for management to team up with a third party financing source who may provide substantial equity capital and may control or significantly influence the buyout group. Current: With the enactment of the Sarbanes-Oxley Act and increasing corporate governance, combined with the recent relative inactivity in the capital markets, some public companies, especially small-to- medium sized companies, are beginning to think that the costs of “being public” outweigh the benefits.

5. © 2003 Haynes and Boone, LLP What is the typical structure of a going private transaction? Merger Merger Tender Offer, followed by a merger Tender Offer, followed by a merger Reverse Stock Split (less common but used to terminate SEC reporting obligations) Reverse Stock Split (less common but used to terminate SEC reporting obligations)

6. © 2003 Haynes and Boone, LLP Why does the SEC have special rules that apply to going private transactions? The SEC has historically viewed going private transactions with a critical eye because of the inherent conflicts of interest involved in the transaction where management or a controlling stockholder stands on both sides of the transaction. As a result, the SEC rules require additional disclosure in a going private transaction that is not required for typical M&A transactions.

7. © 2003 Haynes and Boone, LLP What is a typical process for a going private transaction and why is the process important? The “process” of a going private transaction is important because the SEC places an emphasis on procedural fairness as well as substantive fairness. In addition, a fair process may be helpful in handling litigation that often is filed when a going private transaction is announced. A fair process will help support the argument that the directors did not breach their fiduciary duties in the transaction. As a result, a key element to a successful going private transaction is management’s emphasis on a fair process.

8. © 2003 Haynes and Boone, LLP The typical process (up to signing the definitive agreements) involves: Company announces that it has received a proposal Company announces that it has received a proposal – the announcement often results in litigation being filed and may lead to other potential bidders making an offer to buy the company Board forms a Special Committee of directors who will not participate in the company after the closing Board forms a Special Committee of directors who will not participate in the company after the closing – members should be independent and have bargaining power

9. © 2003 Haynes and Boone, LLP The typical process (cont’d): Special Committee hires its own legal advisors and financial advisor Special Committee hires its own legal advisors and financial advisor Special Committee determines negotiation process and begins to negotiate the terms of the transaction (a formal auction may be helpful but is not necessarily required to obtain the best price) Special Committee determines negotiation process and begins to negotiate the terms of the transaction (a formal auction may be helpful but is not necessarily required to obtain the best price) Special Committee considers any other offers made for the company Special Committee considers any other offers made for the company Buyout group works to arrange financing Buyout group works to arrange financing

10. © 2003 Haynes and Boone, LLP The typical process (cont’d): Transaction agreements are drafted and negotiated Transaction agreements are drafted and negotiated Financial advisor delivers fairness opinion to Special Committee Financial advisor delivers fairness opinion to Special Committee Special Committee approves the transaction Special Committee approves the transaction The parties sign and announce the execution of the transaction agreements The parties sign and announce the execution of the transaction agreements

11. © 2003 Haynes and Boone, LLP What SEC filings are required in a going private transaction? Schedule 13D Schedule 13D Schedule 13E-3 Schedule 13E-3 Schedule 14A proxy statement if proxies are being solicited Schedule 14A proxy statement if proxies are being solicited – If the transaction is structured as a merger or a reverse stock split, a preliminary proxy statement is prepared and filed with the SEC. The SEC often reviews going private transactions and the proxy statement cannot be finalized and mailed to stockholders until the SEC clears the document

12. © 2003 Haynes and Boone, LLP What SEC filings are required (cont’d) … ? Schedule TO if the transaction involves a tender offer Schedule TO if the transaction involves a tender offer – If the transaction is structured as a tender offer, tender offer documents are prepared and filed with the SEC and the tender offer is commenced (the SEC does not have the right to review and comment on the tender offer documents before they are mailed). The SEC may comment on the tender offer documents after they are mailed.

13. © 2003 Haynes and Boone, LLP What types of additional disclosures are necessary? Fairness – the company and each affiliate in the transaction must state whether they reasonably believe the transaction is fair or unfair to the unaffiliated stockholders, including the reasons for their beliefs (the SEC will review this carefully) Fairness – the company and each affiliate in the transaction must state whether they reasonably believe the transaction is fair or unfair to the unaffiliated stockholders, including the reasons for their beliefs (the SEC will review this carefully) Purpose of the Transaction – a description of why company is engaging in the transaction at this time and what alternatives were considered (the SEC will review this carefully) Purpose of the Transaction – a description of why company is engaging in the transaction at this time and what alternatives were considered (the SEC will review this carefully) Plans or Proposals – a description of plans or proposals for extraordinary transactions involving the company Plans or Proposals – a description of plans or proposals for extraordinary transactions involving the company

14. © 2003 Haynes and Boone, LLP Types of additional disclosures (cont’d) … Past Contacts – a description of offers and negotiations relating to an acquisition of the company during the past two years (it is important for the company to keep detailed notes with dates of meetings, telephone calls, etc., relating to potential acquisition) Past Contacts – a description of offers and negotiations relating to an acquisition of the company during the past two years (it is important for the company to keep detailed notes with dates of meetings, telephone calls, etc., relating to potential acquisition) Background of Affiliates in the Transaction – the identity and background of all affiliates involved in the transaction Background of Affiliates in the Transaction – the identity and background of all affiliates involved in the transaction

15. © 2003 Haynes and Boone, LLP Types of additional disclosures (cont’d) … Alternatives – a description of alternative transactions the company considered or the possibility of doing no transaction Alternatives – a description of alternative transactions the company considered or the possibility of doing no transaction Reports and Appraisals – all reports, opinions and appraisals received from outside parties that are materially related to the transaction (including “board books” created by the financial advisor) Reports and Appraisals – all reports, opinions and appraisals received from outside parties that are materially related to the transaction (including “board books” created by the financial advisor)

16. © 2003 Haynes and Boone, LLP How long does the process take? Length of time before the transaction agreements are executed depends on Length of time before the transaction agreements are executed depends on – whether and for how long a formal auction is in place; – how long it takes the buyout group to arrange financing; – length of negotiations on transaction agreements between the issuer and the buy out group; and – length of negotiations among the members of the buyout group. Length of time from signing to closing depends on the time necessary to clear SEC comments if reviewed. Length of time from signing to closing depends on the time necessary to clear SEC comments if reviewed.

17. © 2003 Haynes and Boone, LLP In summary, what should a company that is getting ready for a going private transaction do to help it run smoothly? Select diligent and independent board members to serve on the special committee Select diligent and independent board members to serve on the special committee Give the special committee broad authority to negotiate the transaction on behalf of the company and consider alternatives Give the special committee broad authority to negotiate the transaction on behalf of the company and consider alternatives Hire experienced legal and financial advisors Hire experienced legal and financial advisors

18. © 2003 Haynes and Boone, LLP In summary, cont’d … Keep detailed notes of meetings and discussions for disclosure in the SEC documents Keep detailed notes of meetings and discussions for disclosure in the SEC documents Obtain a price that is demonstrably fair (within the ranges of the fairness opinion) Obtain a price that is demonstrably fair (within the ranges of the fairness opinion)