[MILLING BENSON WOODWARD L.L.P. LETTERHEAD]
September 27, 2004
Mr. Michael Pressman
Office of Mergers and Acquisitions
Division of Corporation Finance
U.S. Securities and Exchange Commission
450 West Fifth Street, N.W.
Washington, D.C. 20549-0303
Re: Avoca, Incorporated
Schedule 13E-3 filed August 13, 2004
File No. 5-32043
Preliminary Schedule 14A filed August 16, 2004
File No. 0-9219
Dear Mr. Pressman:
This letter is submitted in response to your letter of August 30, 2004.
We have worked with our client, Avoca, Incorporated, its board of directors and
Chaffe & Associates, Inc., Avoca's financial advisor, in order to provide the
SEC with a detailed and relevant response. We also have contacted Mr. Dennis
Garris of Alston and Bird as to certain aspects of our response. Our response
has been somewhat delayed by the threat of Hurricane Ivan as we previously
advised. We appreciate the assistance and guidance you have provided during the
preparation of our response.
1. Avoca is presented as the only filing person because we believe that
none of the "management-related Stockholders" currently possess the
level of "control" over Avoca that would require them to be added as
filing persons on the Schedule 13E-3, nor will they attain such
control as a result of the going private transaction. Further, the
management-related Stockholders, Whitney National Bank and Hellenic,
Inc., are not "engaged" in the reverse split pursuant to Rule
13e-3(b)(2).
Whitney National Bank currently owns 268,000 of the 830,500 issued and
outstanding shares of Avoca common stock, or 32.27%. After the reverse
split, Whitney will own 2680 of the approximately 8100 outstanding
shares, or approximately 33.09%. Bobby Baird, President and Director
of Avoca, also serves as Executive Vice President of Whitney. Cleland
Powell, Secretary/Treasurer and Director of Avoca, also serves as a
Senior Vice President of Whitney.
MILLING BENSON WOODWARD L.L.P.
September 27, 2004
Page 2
Hellenic, Inc. currently owns 72,875 of the 830,500 outstanding shares
of Avoca common stock. A related company, Capital Management
Consultants, Inc., owns another 30,954 shares, and Mrs. Scott Tucker
owns 200 shares. Together, these interests currently own approximately
12.52% of Avoca's common stock. After the reverse split, these
interests will collectively own approximately 13.04% of the post-split
shares. Scott Tucker, Vice President and Director of Avoca, also
serves as President, CEO and Director of Hellenic, Inc., and CFO and
Director of Capital Management Consultants, Inc.
There is no relationship between Whitney National Bank and Hellenic,
Inc., nor is there any agreement between those entities, or between
Avoca's Whitney-employed directors and Scott Tucker, to vote together
on any Avoca matters. The Whitney-employed directors are only two of
the five Avoca directors, and therefore cannot control the board.
Whitney's 32.27% ownership interest does entitle it to call Special
Meetings of the shareholders; however, a quorum may only be
established by a majority of the common stock. A vote on general
matters brought before the shareholders requires only a majority of
the votes cast; however, amendment of the articles, merger or
consolidation, and the sale, lease, exchange or other disposition of
all or substantially all of the assets of the Company requires
two-thirds of the voting power present. Directors are elected by
cumulative vote, which further diminishes Whitney's ability to
control.
Avoca agrees that under certain circumstances, a 33% ownership
interest could constitute control sufficient for the application of
Rule 13e-3. However, given the 12.5% Hellenic interest, Whitney's
ability to control Avoca is substantially diminished. For example,
assume Whitney proposes a matter requiring approval by two-thirds of
the common stock, but Hellenic opposes the matter. Assume further the
presence of 90%, 80% or 70% of the common stock. In each instance,
Whitney would need to obtain the support of approximately 60% of the
remaining voting power present to succeed in its proposal.
Total interests present: 90.00% 80.00% 70.00%
Whitney 32.27% 32.27% 32.27%
Hellenic 12.52% 12.52% 12.52%
------ ------ ------
Other interests present 45.21% 35.21% 25.21%
Whitney needs: 2/3 of 90% = 60.00% 2/3 of 80% = 53.33% 2/3 of 70% = 46.67%
Whitney represents 32.27% 32.27% 32.27%
------ ------ ------
Whitney needs an additional 27.73% 21.06% 14.40%
27.73 = 61.34% 21.06 = 59.82% 14.40 = 57.11%
----- ----- -----
45.21 35.21 25.21
MILLING BENSON WOODWARD L.L.P.
September 27, 2004
Page 3
There is no reason to believe that Whitney would be in any better
position than Hellenic to obtain the votes needed to support such a
proposal.
In addition to the lack of control necessary for the
management-related stockholders to cause the Split Transaction to
occur, Whitney and Hellenic are not engaged in the transaction as
required under Rule 13e-3(b)(2) to cause them to be filing persons on
the Schedule 13E-3. The decision to conduct the Split Transaction was
that of management of Avoca and its board of directors. As described
in the proxy statement, the purpose of the transaction is to eliminate
the company's expenses with respect to being a public company and the
administrative expenses from having a large number of stockholders
owning less than 100 shares. The company estimates that of its 642
Stockholders of record as of July 21, 2004, 460 of them own less than
100 shares which represent only 1.13% of the total number of
outstanding shares of Common Stock. The Split Transaction is not being
proposed for the purpose of benefiting the management-related
stockholders. In fact, Whitney's ownership will increase only by a
mere .82% and Hellenic's ownership will increase only by a mere .22%.
Additionally, following the transaction, the company estimates that
there will continue to be 180 Stockholders in addition to the
management-related stockholders. The only participation in the
transaction by Whitney and Hellenic is the same as all other
stockholders of the company - voting on the transaction. The
participation of Messrs. Baird, Powell and Tucker as directors of
Avoca in the decision to propose the reverse split should not be
viewed as participation by Whitney and Hellenic sufficient to deem
them "engaged" in the transaction pursuant to Rule 13e-3(b)(2).
The staff refers to Section II.D.3 of the Division of Corporation
Finance's Current Issues Outline for guidance in determining whether
the management-related stockholders should be filing persons. However,
we understand that the staff's guidance in Section II.D.3 relates
primarily to when members of senior management of the subject company
may be deemed affiliates engaged in the transaction requiring the
individual senior management members to be filing persons. This is the
case where members of senior management will control the surviving
company by holding a material amount of equity of the surviving
company as well as occupying board seats and management positions. The
second part of the Section II.D.3 interpretation deals with the
situation where the otherwise unaffiliated purchaser is tainted by its
involvement with the senior management of the subject company thereby
causing the purchaser to become an affiliate.
Our situation is different than that discussed in the staff's
interpretation in Section II.D.3 of the Current Issues Outline. Here,
the directors of Avoca who are affiliated with Whitney and Hellenic
(Messrs. Baird, Powell and Tucker) do not own any shares of Common
Stock (other than 200 shares owned by Mr. Tucker's spouse that are
attributed to him). Therefore, there should be no concern of
self-dealing by Messrs. Baird, Powell and Tucker. Also, the staff's
interpretation focuses on transactions with third parties such as a
merger transaction or other change of control transactions. Here, the
decision to propose the reverse split was a decision by Avoca alone
and the transaction does not involve a third party or a change of
control.
MILLING BENSON WOODWARD L.L.P.
September 27, 2004
Page 4
To summarize, we believe that the management-related stockholders
should not be filing persons on the Schedule 13E-3 because they do not
have the control sufficient to approve the Split Transaction nor are
they engaged in the transaction. We believe our position is supported
by the following facts: 1) Whitney and Hellenic alone do not have
sufficient voting control to approve the transaction; 2) Whitney does
not have a sufficient number of representatives on the board of Avoca
to control the board's approval of the transaction; 3) likewise,
Hellenic does not have a sufficient number of representatives on the
board of Avoca to control the board's approval of the transaction; 4)
there are no agreements between Whitney and Hellenic to act together
with respect to the transaction; 5) likewise, there are no agreements
between Whitney's representatives on the board and Hellenic's
representative to act together with respect to the transaction; 6)
Whitney's and Hellenic's representatives on the board do not own any
Common Stock (other than 200 shares owned by Mr. Tucker's spouse that
are attributed to him); 7) Whitney and Hellenic, as stockholders of
Avoca and outside of their representatives on the board, have not been
involved in Avoca's decision to propose the reverse split; 8) Whitney
and Hellenic participate on the same terms as all of the unaffiliated
stockholders that own greater than 100 shares; and, lastly, 9) as a
result of the Split Transaction, the ownership of Whitney and Hellenic
is not significantly increased (only .82% and .22%, respectively).
2. Please see revisions to Item 9 and Item 16 of Schedule 13E-3.
3. Please see additions to first page of the proxy statement and the
proxy card.
4. Please see revised legend at page 4 of the proxy statement.
5. Please see revisions to Factors Considered by the Board at pages 14-16
of the proxy statement.
6. Please see Table of Contents at page 9 of the proxy statement.
7. All written materials provided by Chaffe, Merrick and Collarini have
now been included as exhibits, except for portions of the Merrick
appraisal of the fee interest in the land owned by Avoca. The full
Merrick appraisal consists of 78 pages of text, approximately 65 of
which contain detailed descriptions of the subject property, the
local economy and 25 sales of comparable properties, plus an
additional 20 pages of photographs and maps. These descriptions,
photographs and maps are not material for the exercise of prudent
MILLING BENSON WOODWARD L.L.P.
September 27, 2004
Page 5
judgment with respect to the split transaction, and so they are not
being filed as an exhibit to the Schedule 13E-3. Rather, an excerpt
of the Merrick appraisal is being filed, and, as set forth on page
7 of the Schedule 13E-3, and on pages 29 and 34 of the proxy
statement, we have advised how shareholders may obtain the full
Merrick appraisal from Avoca. There were no additional materials
(board books, slides, etc.) provided to the board.
8. We have deleted the references to telegraph and the Internet. There
will be no written solicitation materials other than the proxy
statement.
9. Please see revisions to the Summary Term Sheet. Please note that we
did not provide markups relating to this item, as the entire Summary
Term Sheet would have been deleted and then re-inserted in bullet
point format.
10. Please see additions to the Summary Term Sheet, beginning at page 7 of
the proxy statement.
11. Please see revisions to Background at page 12 of the proxy statement.
12. Please see revisions to Summary Term Sheet, Vote Required at page 7,
and to Vote Required at page 30 of the proxy statement.
13. Please see revisions to Introduction at page 10 of the proxy
statement. Similar revisions have been made as appropriate throughout
the proxy statement.
14. Please see revisions to Background, Purpose, Structure and Effect of
the Split Transaction, beginning at page 12 of the proxy statement.
With respect to alternative ratios, please see original discussion in
Factors Considered by the Board, particularly the paragraph on page16
beginning with "After careful consideration of several different
proposed ratios . . . ."
15. Please see additions to Background at page 12 of the proxy statement.
With respect to timing of the going private transaction in light of
earlier discussions of the "historically high prices for oil and gas,"
the current prices for oil and gas was not a factor in the timing of
the Company's decision, but undoubtedly increased the Purchase price
to be paid.
16. Please see table showing breakdown at page 13 of the proxy statement,
and estimation of time devoted by management to compliance with
federal securities in the following paragraph.
17. Please see revisions to Factors Considered by the Board at page 16 of
the proxy statement.
MILLING BENSON WOODWARD L.L.P.
September 27, 2004
Page 6
18. Actually, the board did not consider other methods to reduce
expenses other than going private. As now more fully discussed in
Background at page 12 of the proxy statement, the concept of going
private had been discussed by the board for many years. The reduction
of expenses, while significant, was only one of several reasons
considered by the board in making its determination, and recent
increased expenses in the wake of Sarbanes-Oxley merely tipped the
scales in favor of going private. A third party buy-out was not
considered, as the Company is, and should remain, successful
and profitable for its shareholders. The proposed split transaction
is a much less disruptive transaction for over 95% of Avoca's
shareholders, and provides a premium over market value at the time
of announcement to those shareholders who are being cashed out in the
split transaction.
19. Please see added discussion in Purpose and Reasons for the Split
Transaction at page 14 of the proxy statement.
20. Please see revisions to Factors Considered by the Board at page 15 of
the proxy statement.
21. Avoca disagrees with your characterization of the $775,000 as the
"expense" of the going private transaction, and your resulting
conclusion that "it will take approximately 14 years to recoup the
value of the initial expense." To the contrary, as we stated in Source
of Funds and Financial Effect of the Split Transaction at page 18 of
the proxy statement, the "expense" of the going private transaction is
$150,00, which will be recouped in less than three years. The
remaining $625,000 is not an expense, but merely the reacquisition of
capital shares at fair market value.
22. Avoca disagrees with your characterization of Chaffe's findings, but
admits that our initial presentation may have contributed to your
error. Chaffe's dividend yield analysis for All Guideline Companies
was significantly higher, but the dividend yield analysis for the
Selected Guideline Companies resulted in a value very similar to the
proposed Per Share Consideration. Please see revisions to Opinion of
Independent Financial Advisor at page 28 of the proxy statement.
23. Avoca's board of directors engaged Chaffe & Associates, Inc. as
experienced and well regarded experts to advise it as to its opinion
of a range of fairness as to the price to be paid for fractional
shares. The board did not make any independent determinations of a
going concern value or a liquidation value, but was advised by Chaffe
as to its determinations of those amounts (which are set forth in the
Chaffe presentation materials of August 10, 2004 and the proxy
statement). The board was aware of net book value, but deemed such
number irrelevant because of the low historical cost attributed to
Avoca Island.
MILLING BENSON WOODWARD L.L.P.
September 27, 2004
Page 7
24. There were no financial forecasts provided to Chaffe, Merrick or
Collarini, other than to assume that the performance of the Company
for the balance of the fiscal year would approximate that of the first
portion of the fiscal year.
25. Avoca's board of directors made its determination of price based on
the midpoint of the range of fairness determined by Chaffe. This
determination was deemed the fairest amount to shareholders of only
fractional shares and the continuing shareholders. The board was
mindful of prices at which its shares have traded in recent years, but
because the trades were for relatively few shares and because the
price selected is substantially higher than those prices, it was not a
factor in the end determination.
26. Please see discussion in Factors Considered by the Board at top of
page 18 of the proxy statement.
27. Please see revisions to Material Federal Tax Consequences at page 23
of the proxy statement.
28. A copy of the Chaffe engagement letter is attached hereto.
29. Please see revisions to Opinion of Independent Financial Advisor at
page 24 of the proxy statement.
30. Please see revision to Opinion of Independent Financial Advisor
beginning at page 24 of the proxy statement.
31. Please see revisions to Opinion of Independent Financial Advisor at
page 24 of the proxy statement.
32. Please see revisions to Opinion of Independent Financial Advisor at
page 27 of the proxy statement.
33. Please see revisions to Opinion of Independent Financial Advisor at
page 28 of the proxy statement.
34. These statements have been deleted from the proxy.
35. Please see discussion in Land and Mineral Appraisals at page 29 of the
proxy statement.
36. Please see discussions in Land and Mineral Appraisals beginning at
page 29 of the proxy statement.
37. Please see revisions to Appraisal Rights at page 31 of the proxy
statement.
MILLING BENSON WOODWARD L.L.P.
September 27, 2004
Page 8
38. We intend to rely upon Item 13(b)(2) to incorporate the required items
by reference. The materials have been added as exhibits to the proxy
statement.
39. The ratio of earnings to fixed charges is inapplicable to Avoca.
Item 503(d) of Regulation S-K, referenced in Item 1010(c) of
Regulation M-A, defines the term "fixed charges" as "the sum of the
following: (a) interest expensed and capitalized, (b) amortized
premiums, discounts and capitalized expenses related to indebtedness,
(c) an estimate of the interest within rental expense, and (d)
preference security dividend requirements of consolidated
subsidiaries."
The ratio of earnings to fixed charges is calculated by dividing net
income by interest expense plus amortized capital expenses related to
indebtedness (closing costs and fees, etc.). Avoca has no interest
expense or amortized indebtedness expense and therefore a ratio does
not exist because the denominator is zero.
Please see revisions to Summary Historical and Pro Forma Financial
Information at page 33 of the proxy statement for book value per share
information.
40. We believe that no revisions are necessary with respect to our
statements contained in the section captioned "Other Matters." As you
point out, Rule 14a-4(c)(3) contemplates the use of discretionary
authority for matters unknown "a reasonable time before the
solicitation." We make the statement in "Other Matters" that
"Management is not aware of any other matters to come before the
meeting." This statement is being made in, and as of the date of, the
solicitation. We do not agree that the statement needs clarification.
See revision to proxy card for the requested clarification.
Finally, the letter of acknowledgment from Avoca which you requested
in your letter of August 30 is attached.
Yours very truly,
/s/ Charles A. Snyder
Charles A. Snyder
CAS/kj325296
Attachments
[CHAFFE & ASSOCIATES, INC. LETTERHEAD]
May 14, 2004
Avoca, Incorporated
228 St. Charles Avenue
Suite 838
New Orleans, LA 70130
Gentlemen:
We understand that the Board of Directors (the "Board of Directors") of
Avoca, Incorporated, a Louisiana corporation, ("Avoca" or the "Company") wishes
to consider a proposal for the Company to effect a reverse stock split (the
Transaction"). The purpose of this letter is to establish the terms of an
engagement under which the Board of Directors has selected and wishes to employ
Chaffe & Associates, Inc. ("Chaffe") to assist it in evaluating the Transaction
and, if the Board of Directors determines to proceed with the Transaction, to
render an opinion addressed to the Board of Directors as to the fairness and
adequacy, from a financial point-of-view, of the price at which the Company
would intend to repurchase fractional shares of Avoca common stock resulting
from the reverse split. The exact terms of the Transaction upon which Chaffe is
to opine are to be specified by the Board of Directors to Chaffe in writing
prior to Chaffe's issuance of an opinion. Chaffe shall not be required to issue
more than one such opinion under this engagement.
In this assignment, we agree to use professional care and diligence as
investment bankers in our review of material provided to us or developed by us
and in our consideration of the factors there presented. Our compensation is not
based upon our findings or the completion of a Transaction. Chaffe agrees that
its opinion will be based upon a review and analysis of the Company consistent
with the standards of the investment banking industry, and it will determine
fair market value of the stock of the Company, if and as necessary, in
accordance with the following definition:
Fair market value is the price at which the stock would change
hands between a willing buyer and a willing seller, neither
being under any compulsion to buy or sell and both having
reasonable knowledge of all relevant facts.
In addition, Chaffe will, to the extent it deems relevant in accordance
with the standards of the investment banking industry, consider the following
factors in rendering its opinion on fairness: current market prices, historical
market prices, net book value, going concern value, liquidation value, cash flow
analysis, purchase prices paid in previous similar transactions, if any, and any
other factors customarily considered in a transaction of the type being
addressed by Chaffe and deemed relevant by Chaffe.
Upon completion of Chaffe's analysis, Chaffe will submit to the Board
of Directors a preliminary written analysis, consistent with investment banking
industry standards, setting forth the data, analysis and conclusions that formed
the basis for its advice to the Board of Directors. The Board of Directors and
management of the Company will review Chaffe's preliminary analysis and notify
Chaffe promptly of any material errors or omissions contained in the materials
presented if known to the Company. Upon completion of the aforementioned review,
and following the Board of Director's compliance with the second-to-last
sentence of the first paragraph of this letter, Chaffe will then deliver
Chaffe's opinion to the Board of Directors.
Board of Directors May 14, 2004
Re: Avoca, Incorporated Page 2
Chaffe consents to the inclusion of its name and its fairness opinion,
together with such other information as is legally required, in any proxy
statement or other document filed by the Company with the Securities and
Exchange Commission, provided that Chaffe and its counsel are given a reasonable
opportunity to review and comment on the portions of such proxy statement or
other document that relate to Chaffe or its services or opinion prior to any
filing or dissemination of such proxy statement or document. No other opinion or
advice (written or oral) given by Chaffe shall be reproduced, disseminated,
quoted or referred to at any time, in any manner, nor shall any public or other
references to Chaffe (or to such opinions or advice) be made by the Board of
Directors or the Company's management or directors without the prior written
consent of Chaffe.
The provisions of the four preceding paragraphs may, with Chaffe's
consent, be varied by the Board of Directors.
This agreement is also subject to the following:
1) The Company will supply to Chaffe certain information
(including information requested by Chaffe) related to Avoca
and the Transaction, upon which Chaffe will rely in
formulating its advice and its opinion letter. Said
information will be described in the opinion letter. The
Company represents to Chaffe that the information which it
provides to Chaffe will be accurate and complete. It is
understood that Chaffe may rely completely upon publicly
available information and such other information as may be
supplied by the Company, without independent investigation,
and that the Company is not retaining Chaffe to verify the
accuracy of such publicly available information or the
information which the Company supplies to Chaffe. Chaffe will
not be responsible or obligated to investigate or analyze
events which may occur subsequent to the date of such
information. Also Chaffe may, without investigation, rely upon
reports of experts, including without limitation the reports
of independent public accountants or appraisers. Chaffe will
maintain the confidentiality of all non-public information
supplied to it by the Company in keeping with the letter
agreement signed between the Company and Chaffe dated January
8, 2004, which is incorporated herein by reference.
2) The Company agrees to pay Chaffe a fee of $20,000 for the
issuance of the fairness opinion, including the work as
described in the first four paragraphs of this letter. Such
fee will be due and payable upon delivery of the opinion. In
addition, the Company will reimburse Chaffe for its reasonable
out-of-pocket expenses (other than those referred to in
paragraphs 3, 5(b) and 8 below, which expenses will be
reimbursed only as provided in those paragraphs) which,
together with the fee mentioned above, will be billed to the
Company upon delivery of the opinion letter. [As used in this
engagement letter, out-of-pocket expenses includes (without
limitation) the fees and expenses of Chaffe's outside
counsel.]
3) In regard to any advisory services ("the "Advisory Services")
related to the Transaction and the structure thereof,
including, but not limited to, assistance with preparation of
regulatory filings or shareholder materials, attendance at
additional meetings of the Board of Directors or shareholders
meetings, responding to inquiries of shareholders of the
Company (other than officers and directors of the Company as
such) concerning the fairness opinion and any amendments or
supplements thereto, or the Advisory Services, or the
Transaction, the Company agrees to pay Chaffe on the basis of
actual time expended at the rate of $225 per hour for
principals' time, $160-$145 per hour for associates' time, and
Board of Directors May 14, 2004
Re: Avoca, Incorporated Page 3
$120-$70 per hour for analysts' time. In addition, the Company
will reimburse Chaffe for its reasonable out-of-pocket
expenses in connection with the Advisory Services (other than
those referred to in paragraphs 5(b) and 8 below, which
expenses will be reimbursed only as provided in those
paragraphs). Chaffe must notify the Company at such time that
services are requested that such services fall within the
scope of this paragraph. Fees and expenses under this
paragraph will become due and payable when billed by Chaffe.
4) If the transaction is abandoned or deferred by the Company, or
the Company wishes to withdraw from this engagement for
reasons not involving cause on the part of Chaffe, "cause"
being defined as an act of bad faith or any material breach of
this Agreement that is not remedied promptly following notice,
and if such abandonment, deferral or withdrawal occurs prior
to Chaffe's delivery of its fairness opinion, then the Company
will promptly pay Chaffe for actual time expended in
connection with the opinion or preparation for it at the rates
outlined in paragraph 3 above, and will reimburse Chaffe for
its reasonable out-of-pocket expenses as provided in paragraph
2, which fees and expenses shall not exceed in the aggregate
those which would have been due under paragraph 2 had the
opinion been issued and delivered. Any unbilled hourly fees
and expenses related to Advisory Services will also become due
and payable at that time.
5) a) For any additional services the Company may request in
writing (including a request made via e-mail) and Chaffe
may agree to render in connection with the Transaction,
the fairness opinion and/or the Advisory Services, and
for any additional services the Board of Directors may
request in writing (including a request made via e-mail)
and Chaffe may agree to render in connection with any
claims, litigation or other proceedings relating to the
fairness opinion and any amendments or supplements
thereto or the Transaction or the Advisory Services, the
Company will reimburse Chaffe for its reasonable out-of-
pocket expenses (other than those referred to in
paragraphs 5(b) and 8 below, which expenses will be
reimbursed only as provided in those paragraphs), and
will compensate Chaffe on the basis of actual time
expended at the rates outlined in paragraph 3 above.
b) In connection with this engagement, if any officer,
director, employee or agent of Chaffe is requested or
commanded by any person, entity, court or governmental
body to testify or to produce any documents or records
of Chaffe relative to, or in connection with, the
fairness opinion and any amendments or supplements
thereto, or the Transaction, or the Advisory Services,
the Company, promptly upon being billed by Chaffe
therefor, will reimburse Chaffe for its reasonable out-
of-pocket expenses (including fees and expenses of its
counsel) and will compensate Chaffe on the basis of
actual time expended in complying with such request or
command, including preparation thereof, at the rates
outlined in paragraph 3 above, provided, however, that
no such reimbursement or compensation shall be due Chaffe
under this paragraph 5(b) with respect to testimony or
production of documents or records in connection with
claims asserted directly against Chaffe (it being the
parties' intention that such claims will be governed by
Paragraph 8 below).
6) Avoca recognizes that Chaffe has been retained by and for the
benefit of the Company and that Chaffe's opinion and advice
(i) are to be provided to and for the benefit of the Company,
and (ii) will not constitute a recommendation to any
shareholder of the Company as to how that shareholder should
vote or otherwise act with respect to the transaction covered
by such opinion. Chaffe's opinion shall so state and shall
Board of Directors May 14, 2004
Re: Avoca, Incorporated Page 4
otherwise be in a form determined by it in keeping with the
standards of the investment banking industry. The Company and
Board of Directors acknowledge that it is not the intent of
this engagement letter to create a fiduciary or agency
relationship with Chaffe and that Chaffe is an independent
contractor with respect to each of them.
7) The Company agrees that neither Chaffe nor any of its
affiliates, counsel and other professional advisors, nor the
respective directors, officers, agents and employees of each
of the foregoing, shall have any liability to the Company or
the Company's affiliates, partners, directors, officers,
agents, employees, or shareholders for any losses, claims,
damages and liabilities related to or arising out of this
engagement, or transactions or conduct in connection
therewith, except to the extent that such losses, claims,
damages and liabilities are determined, in a final judgment
by a court of competent jurisdiction, to have resulted
primarily from Chaffe's negligence or willful misconduct in
performing its services.
8) a) The Company agrees to indemnify, hold harmless and
defend Chaffe and its affiliates, counsel and other
professional advisors, and the respective directors,
officers, shareholders, partners, agents and employees of
each of the foregoing (collectively, the "Indemnified
Parties"), from and against all losses, claims, damages
and liabilities resulting from any claim, lawsuit or
other proceeding by any person to which Chaffe or any
other Indemnified Party may become subject which is
related to, or arises out of, work undertaken by Chaffe
as part of this engagement, or transactions or conduct in
connection therewith, and the Company will reimburse
Chaffe and any other Indemnified Party for all reasonable
expenses (including reasonable counsel fees, as set forth
hereinafter) incurred by Chaffe or any other Indemnified
Party in connection with investigating or defending any
such claim, lawsuit or other proceeding.
b) Notwithstanding the foregoing, the Company shall not be
liable to a particular Indemnified Party in respect to
any losses, claims, damages and liabilities to the extent
the same is determined, in a final judgment by a court of
competent jurisdiction, to have resulted primarily from
the negligence or willful misconduct of that Indemnified
Party.
c) The scope of the foregoing indemnification extends to
work performed by Chaffe in connection with this
engagement prior to the date of this letter, and said
indemnification shall remain in effect indefinitely
following the conclusion, or earlier termination, of this
engagement.
d) The Company shall not, without the prior written consent
of Chaffe, settle any pending or threatened claim,
lawsuit or other proceeding to which Chaffe or any other
Indemnified Party may become subject which is related to
or arises out of work undertaken by Chaffe as part of
this engagement, or transactions or conduct in connection
therewith, unless the settlement includes a provision
releasing all of the Indemnified Parties subject to
such claim, lawsuit or other proceeding from all
liability in connection therewith.
e) Expenses, including reasonable attorney's fees and costs
that Chaffe or another Indemnified Party is entitled to
receive under this agreement, shall be paid in advance of
any final, non-appealable judgment, as such expenses are
incurred, payment being due 30 days after each invoice
for expenses is presented to the Company by Chaffe or
another Indemnified Party; provided that if a court
determines in a final, non-appealable judgment that an
Indemnified Party is not entitled to indemnification, any
such expenses paid to such Indemnified Party shall be
reimbursed to the Company by such Indemnified Party who
or which is not so entitled, to the extent provided in
such judgment.
Board of Directors May 14, 2004
Re: Avoca, Incorporated Page 5
f) If the foregoing indemnity is unavailable to any
Indemnified Party for any reason (other than any
unavailability that results from paragraph 8(b)), the
Company agrees to contribute to any losses, claims,
damages and liabilities and related expenses of such
Indemnified Party in accordance with the following. The
Company (on the one hand) and such Indemnified Party (on
the other hand) shall contribute in such proportion as is
appropriate to reflect the relative benefits received (or
anticipated to be received) by such Indemnified Party, on
the one hand, and by the Company or its shareholders, on
the other hand, from the actual or proposed transaction.
If the allocation provided by the immediately preceding
sentence is unavailable for any reason, the Company (on
the one hand) and such Indemnified Party (on the other
hand) shall contribute in such proportion as is
appropriate to reflect not only the relative benefits as
set forth above, but also the relative fault of each in
connection with the conduct that resulted in such losses,
claims, damages and liabilities and related expenses, as
well as any other relevant equitable considerations.
Relative fault shall be determined by reference to, among
other things, whether any alleged conduct relates to
information provided by or other conduct by the Company,
on the one hand, or by such Indemnified Party, on the
other hand. Chaffe and the Company agree that it would
not be just and equitable if contribution were determined
by pro rata allocation or by any other method of
allocation that does not take account of the equitable
considerations referred to above. Notwithstanding
anything to the contrary above, in no event shall the
Indemnified Parties be responsible in the aggregate for
any amounts of contribution in excess of the amount of
the compensation actually paid to Chaffe in connection
with the engagement (exclusive of amounts paid for
reimbursement of expenses or paid under this
indemnification agreement).
9) The obligation of the Company to pay the fees and to reimburse
out-of-pocket expenses provided for herein, and the provisions
of paragraphs 7 and 8, shall survive the completion by Chaffe
of the engagement described herein, or the termination of the
engagement.
10) This engagement shall terminate when it has been completed or
upon any abandonment or deferral of the transaction by the
Company. It may be terminated by Chaffe or the Board of
Directors upon notice for cause by the other of them or, in
the case of termination by Chaffe, for cause by the Company;
or upon 30 days advance written notice without cause.
11) The Company agrees that it will not merge or consolidate with
another entity, or sell a material portion of its assets
outside the ordinary course of business, or enter into any
other business combination, unless, in any such case, the
surviving or successor entity, or purchaser of such assets,
expressly agrees in writing, in a form reasonably acceptable
to Chaffe, to be bound by the Company's obligations to Chaffe
and the Indemnified Parties under this letter.
If the foregoing is in accordance with our understanding, kindly
confirm your acceptance and agreement by signing and returning the enclosed
duplicate of this letter, which will thereupon constitute a binding agreement
between us that is governed by the laws of Louisiana (which is the Company's
state of incorporation), without regard to the conflicts of laws principles
thereof. This letter, when so signed, will be the entire agreement between the
parties with respect to its subject matter. THE COMPANY AND THE BOARD OF
DIRECTORS AGREE TO WAIVE ANY RIGHT THEY MAY HAVE TO A TRIAL BY JURY IN ANY
ACTION, PROCEEDING, CLAIM OR COUNTER-CLAIM ARISING OUT OF THIS LETTER OR ANY OF
THE SERVICES TO BE PROVIDED BY CHAFFE HEREUNDER OR ANY OTHER INDEMNIFIED PARTY.
Board of Directors May 14, 2004
Re: Avoca, Incorporated Page 6
Very truly yours,
CHAFFE & ASSOCIATES, INC.
/s/ G. F. Gay LeBreton
- --------------------------------------------
G. F. Gay LeBreton
Managing Director
Agreed to and accepted this 25th day of May, 2004.
AVOCA, INCORPORATED
By: /s/ Robert C. Baird, Jr.
---------------------------------
Authorized Officer
[AVOCA INCORPORATED LETTERHEAD]
September 13, 2004
Mr. Michael Pressman
Office of Mergers and Acquisitions
Division of Corporation Finance
U.S. Securities and Exchange Commission
450 West Fifth Street, N.W.
Washington, D.C. 20549-0303
Re: Avoca, Incorporated
Schedule 13E-3 filed August 13, 2004
File No. 5-32043
Preliminary Schedule 14A filed August 16, 2004
File No. 0-9219
Dear Mr. Pressman:
In response to your letter of August 30, 2004, addressed to our
attorney, Charles Snyder of Milling Benson Woodward L.L.P., please accept this
acknowledgment, on behalf of Avoca, Incorporated, that:
Avoca, Incorporated is responsible for the adequacy and accuracy of
the disclosure in the referenced filings;
SEC staff comments or changes to disclosures in response to staff
comments in the filings reviewed by the staff do not foreclose the SEC
from taking any action with respect to the filings; and
Avoca may not assert SEC staff comments as a defense in any proceeding
initiated by the Commission or any person under the federal securities
laws of the United States.
We appreciate your attention to and assistance with the referenced
filings.
Very truly yours,
/s/ Robert C. Baird, Jr.
Robert C. Baird, Jr.
President