Mail Stop 3561
July 13, 2005
Marvin G. Kiser, Sr.
Vice President of Finance
McRae Industries, Inc.
400 North Main Street
Mount Gilead, North Carolina 27306
Re: McRae Industries, Inc.
Schedule 13E-3
Filed June 10, 2005
File No. 5-34909
Preliminary Proxy Statement on Schedule 14A
Filed June 10, 2005
File No. 1-8578
Dear Mr. Kiser:
We have reviewed your filing and have the following
comments.
Where indicated, we think you should revise your document in
response
to these comments. If you disagree, we will consider your
explanation as to why our comment is inapplicable or a revision is
unnecessary. Please be as detailed as necessary in your
explanation.
In some of our comments, we may ask you to provide us with
information so we may better understand your disclosure. After
reviewing this information, we may raise additional comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or any other aspect
of
our review. Feel free to call us at the telephone numbers listed
at
the end of this letter.
Schedule 13E-3
1. We note that D. Gary McRae and James W. McRae are officers and
directors who hold approximately 40% beneficial ownership of your
Class A shares and in excess of 50% of your Class B shares. We
also
note that on June 9, 2005, investment funds that the McRae`s
control
converted Class B shares into Class A shares totaling
approximately
10% of the Class A voting power. We further note that approval of
the transaction requires the affirmative vote of each common stock
class voting separately. Please provide us with your analysis as
to
whether the McRae`s are affiliated persons engaged in the
transaction
requiring that they should be identified as persons filing the
Schedule 13E-3. See Section II.D.3 of the staff`s Current Issues
Outline dated November 14, 2000 for a discussion of our views as
to
Schedule 13E-3 filing obligations of affiliates engaged in a going
private transaction. To the extent that additional filing persons
are added to the Schedule 13E-3, please revise the document to be
disseminated to stockholders to include the disclosure required by
Schedule 13E-3 for each filing person. In addition, to the extent
they apply, please address the comments below as to each new
filing
person.
Schedule 14A
Letter to Stockholders
Introduction
2. Please revise your letter to stockholders to more clearly
convey
that Proposal 1 contemplates a reverse and forward stock split of
Class A and Class B common stock. Similarly, indicate in the
introduction that the board of directors is soliciting proxies for
Class A and Class B common stock.
Summary Term Sheet, page 1
Recommendations of the Special Committee and the Board of
Directors,
page 4
3. We note your definition of "affiliated stockholder" and
"unaffiliated stockholder." Please tell us what consideration
you
have given to whether Branch Banking & Trust Co. is an affiliated
stockholder as a result of its greater-than-10% share ownership.
Conditions to Completion of the Transaction, page 4
4. We note that the board of directors reserves the right to defer
or
abandon the transaction even if it is approved by stockholders.
Please revise your disclosure to briefly discuss the circumstances
under which the board of directors may decide to defer or abandon
the
transaction.
Questions and Answers about the Special Meeting and Transaction,
page
7
5. It appears that your Questions and Answers section repeats a
great
deal of information from the Summary Term Sheet. Please revise to
eliminate unnecessary repetition. In particular, we suggest you
limit the Questions and Answers section to procedural matters
relating to the meeting.
What if I hold shares in street name?, page 10
6. You indicate here and throughout the document that you "will
offer
to treat stockholders holding common stock in `street name`
through a
nominee (such as a bank or broker) in substantially the same
manner
as stockholders whose shares are registered in their names." In
this
regard, you advise stockholders to contact their broker, bank or
nominee. This disclosure is unclear. Please clarify the
significance of your "offer to treat" beneficial holders as record
holders and what discretion their bank or broker may have in the
ultimate outcome. Also, please disclose what, if any, actions
stockholders may take to be certain of the manner in which their
shares will be treated. For example, can they convert their share
so
that they hold them of record rather than in street name? Can
they
purchase additional shares, dispose of shares or change their
ownership structure to be certain they either remain stockholders
or
are cashed out? In this regard, it does not appear that you have
provided all possible outcomes in the discussion in your Question
&
Answer section on pages 11-12. For example, if the bank or broker
has discretion in determining whether to carry out the splits at
the
beneficial ownership level, then it appears that even stockholders
who have fewer than 200 shares could remain stockholders after the
reverse split.
Recommendation of the Board of Directors, page 15
7. Because this transaction affects subsets of unaffiliated
stockholders differently, Rule 13e-3 requires a separate fairness
determination for each group of unaffiliated stockholders. See
Question & Answer No. 19 in Exchange Act Release No. 17719 (April
13,
1981). Please expand to address why each filing person believes
this
transaction is fair to those unaffiliated stockholders who will be
cashed out as well as those who will remain as stockholders. It
also
appears you should do so with respect to each class of securities.
Summary Financial Information, page 16
8. According to your financial statements, you currently have
outstanding notes payable to banks. Please revise to disclose the
ratio of earnings to fixed charges in a manner consistent with
Item
503(d) of Regulation S-K. See Item 1010(c)(4) of Regulation M-A.
Special Factors, page 19
9. We note that four sections appear between the Summary Term
Sheet
section and the Special Factors section. Please revise so that
your
Special Factors section appears more closely in front of the
document. See Rule 13e-3(e)(1)(ii).
Background of the Transaction, page 19
10. Please more clearly identify who initiated and participated in
the going private process and describe the context and nature of
each
material action. Please also revise to more clearly identify each
person in attendance at each meaning. Where you state that
"management" performed certain tasks or attended meetings, please
identify the members of management to which you refer.
11. Please revise to more clearly discuss why management chose to
engage in a going private transaction at this time.
12. Please refer to the fourth paragraph on page 20. Please
revise
to disclose the criteria used to determine the ultimate
consideration, including an explanation of how the board derived
the
premium. Did the board consider providing different consideration
for each class of common stock? If not, please explain.
Recommendation of the Special Committee, page 24
13. The factors considered in determining fairness must be
explained
in enough detail for stockholders to understand them. As such,
please revise to avoid conclusory statements or listing of
generalized areas of consideration, such as "our historic earnings
..
.. . and the relevance of historic earnings to future prospects[.]"
14. Please revise to include discussions of procedural fairness
that
separately address each applicable factor within 1014 of
Regulation
M-A. For instance, clarify how the board of directors reached the
conclusion that the transaction is procedurally fair in the
absence
of the procedural safeguard set forth in Item 1014(c) of
Regulation
M-A. See also prior comment 7.
Recommendation of the Board of Directors, page 26
15. If the filing person relied on the analysis of another, such
as
the special committee, it must expressly adopt the conclusion and
analyses of the party that performed the Item 1014(b) analysis in
order to fulfill its disclosure obligation. It appears that the
board has done so based on its disclosure on page 27. In this
regard, note that the special committee has not addressed
liquidation
value of the company. See Instruction 2(v) to Item 1014 of
Regulation M-A. If it did not consider liquidation value relevant
to
its determination, the board should state that and explain why the
factor was not deemed important or relevant. See Question &
Answer
No. 20 in Exchange Act Release No. 17719.
16. Please revise to discuss whether the board of directors
considered any different factors with regard to the two categories
of
unaffiliated stockholders. That is, did any factors support the
determination with regard to the stockholders being cashed out but
not those that were remaining?
Opinion of Financial Advisor, page 27
17. Please revise to provide a more clear and concise discussion
of
the analyses Oxford Advisors performed. For each analysis, expand
your disclosure to provide a complete discussion of the
statistical
findings, including how Oxford determined the multiples in each
analysis, the assumptions made under each method and the basis for
choosing the companies and transactions that are a part of the
comparison, as applicable. Present the range of implied equity
value and implied price per share under each method, as
applicable.
Also, disclose the meaning and significance of each analysis and
draw
a conclusion between the results of the analysis versus the
specific
consideration offered in the transaction. Generally, provide
disclosure in understandable terms that clearly explains upon what
the financial advisor is opining.
18. We note that Oxford Advisors "reviewed and discussed business
prospects and financial outlook of the Company with
representatives
of the senior management of the Company[.]" Tell us whether
management or the board of directors provided the financial
advisor
with projections. If so, disclose the projections and all
material
assumptions underlying the projections.
19. It does not appear that Oxford differentiated between the fair
value of Class A common stock and Class B common stock. In light
of
their differing market prices and rights, please explain why
Oxford
treated both classes of common stock in the same manner for the
purposes of determining that the transaction is fair to the
unaffiliated stockholders. Also revise to clarify what
consideration
the board gave to the fact that Oxford did not distinguish between
the two classes of stock.
Different Effects on Affiliated and Unaffiliated Stockholders,
page
31
20. Please confirm that the officers and directors will not
receive
any compensation or benefits as a result of the transaction other
than the disclosure that appears in the first paragraph here. For
example, will the compensation to be received by your officers and
directors increase as a result of this transaction? Will there be
any material alterations to the existing executive agreements that
will be favorable to your executive officers as a result of this
transaction? To the extent that there are material differences
between the interests of your affiliated and unaffiliated
stockholders in this transaction, please prominently disclose a
summary of the interests and potential conflicts of interests of
affiliates in the Summary Term Sheet.
Security Ownership of Principal Stockholders, page 40
21. We note that, according to recently filed Schedule 13-D
amendments, D. Gary McRae, James W. McRae, McRae A Investment and
McRae B Investment altered their beneficial ownership of Class A
and
Class B common stock on June 9, 2005. Please accordingly revise
your
table here, which states it reflects beneficial ownership as of
June
9, 2005.
Appendix A
Appendix B
Form of Proxy Card
22. We note that you have attached two different amendments to
your
certificate of incorporation. Please tell us whether state law or
your governing instruments dictate that each change requires
shareholder approval. Rule 14a-4(b)(1) requires you to identify
on
the proxy card each matter to be voted on. In this regard, please
tell us what consideration was given to the need to unbundle
Proposal
1 to include two separate proposals, one representing the reverse
stock split and one representing the forward stock split? See the
September 2004 interim supplement to the Division of Corporation
Finance`s Manual of Publicly Available Telephone Interpretations,
available at www.sec.gov.
* * * * *
As appropriate, please amend your filing and respond to
these
comments within 10 business days or tell us when you will provide
us
with a response. You may wish to provide us with marked copies of
the amendment to expedite our review. Please furnish a cover
letter
with your amendment that keys your responses to our comments and
provides any requested information. Detailed cover letters
greatly
facilitate our review. Please understand that we may have
additional
comments after reviewing your amendment and responses to our
comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filing to be certain that the
filing includes all information required under the Securities
Exchange Act of 1934 and that they have provided all information
investors require for an informed investment decision. Since the
company and its management are in possession of all facts relating
to
a company`s disclosure, they are responsible for the accuracy and
adequacy of the disclosures they have made.
In connection with responding to our comments, please
provide,
in writing, a statement from the company acknowledging that:
* the company is responsible for the adequacy and accuracy of the
disclosure in the filing;
* staff comments or changes to disclosure in response to staff
comments do not foreclose the Commission from taking any action
with
respect to the filing; and
* the company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in our review of your filing or in
response to our comments on your filing.
Please contact Scott Anderegg, Staff Attorney, at (202) 551-
3342, David Mittelman, Legal Branch Chief at (202) 551-3214 or me
at
(202) 551-3720 with any other questions.
Sincerely,
H. Christopher Owings
Assistant Director
cc: Mark R. Busch, Esq.
Via Fax (704) 353-3140
??
??
??
??
Marvin G. Kiser, Sr.
McRae Industries, Inc.
July 13, 2005
Page 1