Stephen P. Rothman, Esq.
The University Startup Company Law Firm www.rothmanandcompany.com
steve@rothmanandcompany.com
(310) 993-9664
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Topics
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Business Acquisitions Generally – Benefits and Risks
Key Differences in Public Company Acquisitions
Board of Directors of Target
Deal Protection
No Recourse Post Purchase
Structural Options (Tender Offer v. Merger)
Employment
Antitrust
Hart-Scott-Rodino Act
SEC Process
Wild Cards
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• Revenue Synergies
– Getting New Products to Sell to Same
Customers
– Access to New
Customers for Existing
Products
• Acquire New
Technology
• Acquire Brand
• Better Management
Extends Reach
• Cost Savings
– Eliminate duplicate staff
(aka “rationalize the personnel structure” aka
“fire people”)
– Add new revenue to existing fixed cost structure; utilize excess capacity
• Shhhhhhh!
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• Employee Departures
• De facto retirement
• Hidden Liabilities
• Hidden Negative Trends in Business
• Culture clash
• Distraction by Purchase
/ Sale Process
• Transaction Expenses –
Busted Deals
• Government Challenge
• Bidding War / Lack of
Discipline / Overpaying
• Excess Leverage
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• Separation of Ownership and Control
– Target Board / Shareholders
• No Recourse Post Sale
• Overlay of SEC Filing Process
• Operating in a Fish Bowl
• Possibility of Hostile Bid
• Accentuated Time Pressures
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• Fiduciary Duties
– Duty of Loyalty
– Duty of Care
• Liability Exposure
• Smith v. van Gorkom
– Del. Sup. Ct. 1985
– Minimal time
– No investment banker
• Fairness Opinions
• Management Buyouts
• Equal Playing Field
• Auction v.
Negotiated Sale
• Market Test
• Fiduciary Out
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• Break-Up Fee
– Definition of Triggers
• Topping offer
• Breach of agreement
• Regulatory Risk
• Option on Principal Stockholder Stock
• Impermissible “Lockup” Option on Crown
Jewels
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• Representations and Warranties
• Really Just Closing Conditions
• Due Diligence Process
– Financials
– Projections
– Contingent Liabilities (customs case; others?)
– Intellectual Property
– Tax
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– Speed
– 20 Business Day Minimum
– “Offer to Purchase” / Newspaper Ad
– Securities & Exchange Commission 14D Rules
– Material Amendment Requires Additional 10 Days
– Speed Advantage Lost if Not All Cash Deal
– Second Stage Merger
• 90% - Short Form
• Otherwise Shareholder Approval
– Players
• Dealer – Manager (investment banker)
• Depositary
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– Slower
– Proxy Statement
• Proxy Statement
• File and Wait 20 Days for Prior SEC Review
• Circulation Followed by Solicitation
• Hire Proxy Solicitors
• Cash or Stock Consideration
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• Stay Bonuses
• Treatment of Stock Options
– In / Out of the money
– Acceleration of Vesting
• Single / Double Trigger
• Total / Partial / None
• Terms of Plans
• Integration
– HR; Benefits; Payroll
• Layoff Costs?
– WARN Act
– Severance Policy
• Incentives – Absence of Stock Options
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Clayton Antitrust Act of 1914
Prohibits mergers and acquisitions where the effect may substantially lessen competition
Enforced by the Federal Trade Commission and the
Antitrust Division of the U.S. Department of Justice.
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• Difficulty of Unscrambling the Egg
• Requires premerger notification of the FTC and Justice
Department
• Buyer and seller ultimate parent entities (Seiko Epson) both report revenues by SIC code
• revenues from all lines of commerce with respect to operations in the United States
• Government can look for overlap
• not limited to the revenues that are in the same industry as the acquired entity
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• Also file market and competition analyses
• Pre-planning; possibility of requesting a meeting with government
• Approval process may require divestiture of parts of the businesses which may cause anticompetitive actions
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Filing Thresholds
Either:
• Transaction over $226,800,000 (regardless of size of person)
Or:
• Both size of person and size of transaction tests met
• Tests applied to “Ultimate Parent Entity” – top in chain of 50% + ownership
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Size of Parties
• UPE of one party has total assets or total sales of at least $113 million; and
• UPE of other party to the transaction has total assets or total sales of at least $11 million
• InFocus had total assets of around $264 million at
December 31, 2005 and total revenues of $532 million in 2005
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Size of Transaction
• exempts any transaction involving under $56 million
• It does not seem very likely that InFocus transaction would be under that threshold.
• Based on 39,799,378 common shares outstanding as of August 1, 2006 per InFocus 2Q Form 10-Q, and current stock price of $2.59, the total market value of the company is around $103 million. 17

Filing fee
• $45,000 if the transaction size is under $113,400,000,
• $125,000 if the transaction size is over $113,400,000
(but less than $567,000,000)
• Imposed by law on acquiring party, but you may be able to negotiate a split 18

Filing
• responsibility of the ultimate parent entity
• that entity is permitted to designate another controlled entity (e.g. Epson America, Inc.) to make the filing 19

• 30 day waiting period (from when both buyer and seller have filed)
• 15 days instead of 30 for tender offer
• Waiting period runs concurrently with proxy solicitation for approval by the target shareholders, or a tender offer for the target shares.
• Can request early termination of the waiting period
• Waiting period can also be extended by second request
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DOJ / FTC Merger Guidelines
Product market defined as narrowest set of products and geographic area for which a sole producer could raise prices without buyers shifting to other products
Market concentration the number of firms in a market their respective market shares.
Herfindahl-Hirschman Index ("HHI") sum of the squares of the individual market shares of all the participants
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HHI Index
Post-Merger Below 1000
Unconcentrated - no problem
Post-Merger Between 1000 and 1800
Moderately concentrated.
Merger increasing HHI less than 100 ok.
Merger increasing HHI over than 100 will get scrutinized.
Post-Merger Above 1800.
Highly concentrated.
Mergers producing an increase in the HHI of less than 50 points ok
Mergers producing an increase in the HHI of more than 50 points presumed likely to create or enhance market power
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• Tender Offer
– No SEC prior review
– 20 business day rule
– 10 day extension for material changes
• Merger
– File preliminary and wait 20 days
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• Hostile Bid
– Defensive tactics
– Litigation
• Government Antitrust Action
• Shareholder lawsuit
• Material adverse change – contingent liabilities; changes caused by deal
• Texas Instruments LIcense
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Questions?
Stephen P. Rothman, ESQ.
ROTHMAN AND COMPANY, P.A.
www.rothmanandcompany.com
E-MAIL: steve@rothmanandcompany.com
(310) 993-9664 25