Wednesday, May 16, 2012
Pursuant to the terms of the Merger Agreement, the Company has granted Purchaser an irrevocable option (the “Top-Up Option”), upon the terms and subject to the conditions set forth in the Merger Agreement (including that the Minimum Condition has been satisfied), to purchase from the Company, at a price per share equal to the Offer Price, an aggregate number of Shares (the “Top-Up Shares”) equal to the number of Shares that, when added to the number of Shares then owned of record by Parent or Purchaser, constitutes one Share more than 90% of the sum of the Shares then outstanding and the Shares the Company may be required to issue on or prior to the Closing (as defined in the Merger Agreement) as a result of vesting, conversion or exercise of the Company’s stock options or other derivative securities, including convertible securities and other rights to acquire the Company’s common stock. However, in no event shall the Top-Up Option be exercisable if the number of Top-Up Shares would exceed the number of authorized but unissued Shares that are not already reserved for issuance as of immediately prior to the issuance of the Top-Up Shares. The Company has approximately 147,698,561 authorized but unissued Shares, after giving effect to all outstanding Options as of March 31, 2012.
According to Comverge’s amended 14d-9, when the tender closed, 65% of the outstanding shares were tendered, or 17,972,755 shares. Now, that’s enough to meet the 50% minimum condition for the tender, but well short of the 90% required to effectuate a 253 short form merger. And that’s where the top-up option comes in handy. But, go ahead and guess how many shares Comverge has to issue to the acquirer pursuant to the top-up option to get to 90%? C’mon, it’s lawyer math -
(17,972,755 tendered shares [corrected] + x option shares) / (27,650,392 outstanding shares + x option shares) = 90%
x = 69,310,020
That’s a lot of stock! Fortunately, Comverge was awash in authorized, but unissued stock. Even though you might get queasy at issuing so much stock in order to avoid a shareholder vote, the courts have ruled on this question and, subject to certain conditions, have okayed it (see Olson v EV3).
More on top-up option math, see an earlier post from a couple of years ago.