Pottery Barn 2010 Annual Report Download - page 119

Provision W-S California W-S Delaware
50/90 Rule Restriction on
Cash Mergers
Under California law, a merger may
not be consummated for cash if the
purchaser owns more than 50% but
less than 90% of the then outstanding
shares unless either (i) all the
shareholders consent, which is not
practical for a public company, or (ii)
the Commissioner of Corporations
approves the merger.
The 50/90 rule, when combined with
the requirement in the California
Articles that holders of two-thirds of
the outstanding shares must approve a
merger transaction, may make it more
difficult for an acquiror to make an all
cash acquisition of the company which
is opposed by the Board of W-S
California. Specifically, the 50/90 rule
encourages such an acquiror making
an unsolicited tender offer to either
tender for less than 50% of the
outstanding shares or more than 90%
of the outstanding shares. A purchase
by such acquiror of less than 50% of
the outstanding shares does not allow
the acquiror to gain ownership of the
two-thirds needed to approve a second
step merger (which merger would be
used to enable the acquiror to acquire
100% of the company’s equity) and,
therefore, creates risk for such an
acquiror that such a favorable vote will
not be obtained. Yet, a tender offer
conditioned upon receipt of tenders
from at least 90% of the outstanding
shares also creates risk for such an
acquiror since it may be very difficult
to receive tenders from holders of at
least 90% of the outstanding shares.
Consequently, it is possible that these
risks would discourage some potential
acquirors from pursuing an all cash
acquisition of the company opposed by
the Board of Directors of W-S
California.
Delaware law does not have a
provision similar to the 50/90 rule in
California.
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