MALIZIA SPIDI & FISCH, PC
ATTORNEYS AT LAW
1100 NEW YORK AVENUE, N.W. 1900 SOUTH ATHERTON STREET
SUITE 340 WEST STATE COLLEGE, PENNSYLVANIA 16801
WASHINGTON, D.C. 20005 (814) 272-3502
(202) 434-4660 FACSIMILE: (814) 272-3514
FACSIMILE: (202) 434-4661
JOHN J. SPIDI WRITER'S DIRECT DIAL NUMBER
SPIDI@MALIZIALAW.COM (202) 434-4670
VIA EDGAR
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October 13, 2004
Abby Adams, Esq.
Special Counsel
Office of Mergers and Acquisitions
Securities and Exchange Commission
450 5th Street, N.W.
Washington, D.C. 20549
Re: Wells Financial Corp.
Schedule TO and Schedule 13E-3
SEC File No. 5-45455
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Dear Ms. Adams:
Transmitted with this letter for filing with the Commission on behalf
of the above-referenced registrant are manually executed copies of Amendment
No. 1 to the registrant's Tender Offer Statement on Schedule TO and Schedule
13E-3 Transaction Statement.
On behalf of Wells Financial Corp. (the "Company"), we hereby submit
the following responses to your comment letter dated October 7, 2004, with
respect to the above-referenced filings. We have keyed our responses to the
captions and paragraph numbering used in your comment letter.
Schedule 13E-3
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1. In accordance with your comment, Item 6(c) of Schedule TO has
been amended to add the incorporation by reference in paragraph
7, "Special Factors - 6. Effects of the Offer," wherein the
information required by Instruction 2 to Item 1013 of Regulation
M-A is required. Please see the disclosure on pages 19 through 21
under the caption "Special Factors - 6. Effects of the Offer"
wherein the Company has disclosed the benefits and detriments of
the offer to the Company and its stockholders and has quantified
such discussion to the extent practicable. For
MALIZIA SPIDI & FISCH, PC
Abby Adams, Esq.
Special Counsel
October 13, 2004
Page 2
example, in the third full paragraph on page 20 of the Offer to
Purchase, the Company has quantified the cost of maintaining its
status as a public company to be approximately $440,000 per year.
One benefit of the offer, if the Company is able to deregister as
a result of the offer, will be the elimination of such expense.
Additional benefits to the Company and its stockholders, as well
as the detriments of the offer, are also disclosed throughout
this section of the Offer to Purchase.
2. The Company has this day filed an amendment to its Schedule TO
and Schedule 13E-3 with the Commission on EDGAR which include
responses to the staff's comments. The Company believes this is
adequate and prompt dissemination of the revised information. The
new information occasioned by the staff's comments is immediately
available to all stockholders of the Company via the Internet on
the Commission's website. We are aware of similar circumstances
where the staff has concurred with this method of dissemination.
In addition, it appears that Rule 13e- 4(e)(3)(iv) requires the
offer to remain open for an additional 20 business days only in
the case of a registered securities offering wherein the initial
prospectus was materially deficient. The Company's offer is not a
registered securities offer but rather an offer to purchase for
all cash and a prospectus was not utilized. Therefore, the
Company does not believe it is required to keep the offer open
for 20 business days after dissemination of the revised
information. In addition, the Company is not required to keep the
offer open for any additional period as there has not been a
material change in the terms of the offer as set forth in Rule
13e- 4(f)(1)(ii) .
Offer to Purchase
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Cover Page
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3. We have added the legend required by Rule 13e-3(e)(1)(iii) to the
amended Schedule TO pursuant to your comment.
Summary
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4. We have made the requested change to "Item 1. Summary Term Sheet"
of Amendment No. 1 to the Schedule TO filed herewith.
MALIZIA SPIDI & FISCH, PC
Abby Adams, Esq.
Special Counsel
October 13, 2004
Page 3
Background of the Offer, page 7
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5. We have revised the Offer to Purchase to indicate that the June
15, 2004 analysis presented to the Board related to a possible
reverse stock split rather than to an issuer tender offer. Since
such analysis did not materially relate to the transaction, we do
not believe it is required to be filed as an exhibit. We wish to
advise the staff supplementally that, to the Company's best
knowledge, there are no additional reports, opinions or
appraisals of the kind required to be disclosed and summarized by
Item 1015 of Regulation M-A. Please note that Capital Resources'
final valuation analysis dated September 21, 2004, has been
summarized on pages 9 and 10 and pages 12 through 14 of the Offer
to Purchase and was filed with the Commission as Exhibit (c)(2)
to the Schedule TO. As is summarized on page 8 of the Offer to
Purchase, the Board of Directors did receive presentations from
the Company's Minnesota counsel and independent auditors
regarding the Company's status as a public company, the legal and
accounting requirements of the Sarbanes- Oxley Act of 2002 and
the various legal consequences and alternatives to deregistering
the Company's stock from the Nasdaq Stock Market and the
reporting requirements of the Exchange Act. We do not believe
these presentations, which are fully summarized in the Offer to
Purchase, are reports, opinions or appraisals required to be
filed as exhibits to the Schedule 13E-3 pursuant to Item 1016(c)
of Regulation M-A as they do not materially relate to the
consideration or the fairness of the offer to the Company or its
stockholders. Rather, these presentations discuss mainly legal
and accounting requirements imposed on the Company by the
Exchange Act and the alternative procedures and methods for
terminating such requirements.
6. Please see the revised disclosure under the caption "Schedule
13e-3, Item 8(b). Fairness of Transaction" wherein additional
disclosure has been added concerning the non-public information
furnished to the Company's financial advisor. We wish to advise
the staff supplementally that the "loan schedules, non-performing
assets, investment securities, deposit and borrowing schedules"
referred to in item (v) on page 15 of the Offer to Purchase, as
referenced in your comment, consist of publicly available
information derived from the Company's Thrift Financial Report
filed with the Office of Thrift Supervision ("OTS"). Such
information, which is also routinely disclosed in the Company's
periodic reports filed with the Commission, is available to the
public on the OTS website at www.ots.treas.gov. Consequently, the
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only non-public information furnished to the Company's
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Abby Adams, Esq.
Special Counsel
October 13, 2004
Page 4
financial advisor was the Company's business plan and budget
which contained the financial projections disclosed under
"Special Factors -- 4. Fairness Opinion of Financial Advisor" on
pages 14 through 18 of the Offer to Purchase and in the Valuation
Analysis dated September 21, 2004, filed as Exhibit (c)(2) to the
Schedule TO. In particular, we wish to direct your attention to
the disclosure on pages 17 and 18 of the Offer to Purchase under
the subcaption "Discounted Cash Flow and Terminal Value Analysis"
and to Table 3 in the Valuation Analysis where all the non-public
financial forecasts and projections furnished to Capital
Resources are disclosed. In both places, disclosure has been made
regarding the assumptions for growth in net income and dividend
rates, price to earnings multiples, rates of return, trading
prices and present and terminal values of the foregoing. The
Company does not generally make these forecasts and projections
public.
7. Please see the revised disclosure to Amendment No. 1 to the
Schedule TO under the caption "Item 6. Purposes of the
Transaction and Plans or Proposals."
Purposes of and Reasons for the Offer, page 10
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8. Please see the third full paragraph on page 20 of the Offer to
Purchase under the caption "Special Factors -- 6. Effects of the
Offer." wherein the Company estimates that deregistering from
reporting under the Exchange Act and listing on the Nasdaq Stock
Market will save it approximately $440,000 per year as result of
reduced legal fees, accounting fees, transfer agent fees, Nasdaq
listing fees and expenses associated with communicating with its
stockholders. We believe that this disclosure is more
appropriately included in the section of the Offer to Purchase
that covers the effects the offer will have on the Company.
9. We believe that the potential for proration in the offer is
adequately disclosed both in the Summary Term Sheet (page 2,
second question) and throughout the body of the Offer to Purchase
(pages 24, 26, 28, 29, 35, 36 and 37). In addition, the
disclosure in the second paragraph on page 11 of the Offer to
Purchase states that stockholders, who because of the size of
their holdings may not be able to sell their shares without
disruption to the share price, will be provided with an
opportunity to obtain liquidity with respect to their shares
without potential disruption to the share price. Moreover, the
disclosure regarding avoiding the usual transaction costs
associated with a market sale is accurate even in the event
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Abby Adams, Esq.
Special Counsel
October 13, 2004
Page 5
of significant proration. The referenced disclosure makes no
representation, and does not imply, however, that large
stockholders will be fully cashed-out in the offer.
Fairness of the Offer, page 12
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10. Please see the revised disclosure in "Item 8. Fairness of
Transaction" in Amendment No. 1 to the Schedule 13E-3 wherein we
have revised the second paragraph under "Special Factors - 3.
Fairness of the Offer" to clarify that the factors listed
thereunder are all of the factors taken into account by the Board
of Directors in support of its determination that the offer is
fair and in the best interests of stockholders.
11. Please see the revised disclosure on page 5 of Amendment No. 1 to
the Schedule TO under the caption "Special Factors - 3. Fairness
of the Offer" wherein the disclosure regarding the factors has
been augmented in accordance with your comment.
12. Wells Federal Bank, fsb (the "Bank") is a wholly-owned subsidiary
of the Company and is not an "offeror," "third party bidder" or
"other person" required to be included as a filing person on the
Company's Schedule TO. General Instruction K(1) of Schedule TO
defines an offeror as "any person who makes a tender offer or on
whose behalf a tender offer is made." Rule 13e-4(a)(2) defines an
"issuer tender offer" as a "tender offer for .... any class of
equity security, made by the issuer of such class of equity
security or by an affiliate of such issuer." In our case, the
tender offer is being made by the Company, not the Bank or on
behalf of the Bank, and it is being self-financed by the Company.
We are aware of numerous similar transactions filed with the
Commission under exactly the same or similar circumstances where
subsidiaries of bank and thrift holding companies were not deemed
"filing persons" by the Commission. In addition, wholly-owned
subsidiaries of issuers are not defined by Rule 13e-4 or
Regulation 14D as "offerors" or "third party bidders." In the
Company's tender offer, the Bank is a functioning business
subsidiary that was not created as an acquisition subsidiary or
otherwise to facilitate the tender offer in any way. In fact, the
Bank has been in existence as a functioning business since 1934.
While the funds to complete the acquisition of the Company's
stock were derived from the repayment to the Company of a loan
from the Company to the Bank, it was not necessary for
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Abby Adams, Esq.
Special Counsel
October 13, 2004
Page 6
the Bank or any other party "to obtain financing" for the tender
offer, as a current asset of the Company, a loan receivable from
the Bank, was used. Because the Company owns 100% of the Bank,
this is merely an intra-company transfer of Company funds within
a consolidated entity (for financial reporting and tax purposes),
and should not be considered separate, third-party financing of
the tender offer. While there is substantial overlap between the
management and directors of the Bank and the Company, given the
small size of the two entities, this in and of itself does not
make the Bank a filing person under Regulation 14D or Schedule
TO. The Bank played no separate role in initiating, structuring
or negotiating the tender offer, did not control the terms of the
tender offer, did not play a primary role in obtaining the
financing for the tender offer and is prohibited by federal
banking laws and regulations from owning the stock of the Company
before or after the offer is completed. While the Company does
not conduct significant operations apart from its ownership of
the Bank, it is an established entity with separate operations
and assets apart from the offer. Therefore, we do not believe the
Bank should be made a filing party or deemed a bidder in the
Company's issuer tender offer. If the staff were to take a
contrary view, it would mean that every wholly-owned subsidiary
of a bank or thrift holding company is a filing person when the
parent holding company tenders for its own shares. This result
does not appear to be consistent with prior positions of the
Commission or with the tender offer regulations.
13. Please see the revised disclosure in "Item 8. Fairness of
Transaction" in Amendment No. 1 to the Schedule 13E-3 wherein the
Offer to Purchase has been revised to disclose that the Board did
not attempt to calculate a going concern value or liquidation
value and the reasons therefor. The Offer to Purchase has also
been revised to disclose the prior purchase prices considered by
the Board, the consideration given to those prices and the
Board's consideration of net book value and current and
historical market prices for the common stock. With respect to
the stock having traded at a price in excess of the price range,
we note that the Company's historical price data shows that the
common stock did trade above the price range in the first quarter
of 2004 and April 2004, but has not traded above the maximum of
the range since that date. While the Company's common stock is
traded on the Nasdaq Stock Market, the stock is not actively
traded, generally exhibiting low trading volume with very wide
Bid/Ask spreads of between $0.50 and $1.00 or more. In just over
50% of the trading days during the last six months, daily volume
in the Company's common stock ranged from zero to 600
MALIZIA SPIDI & FISCH, PC
Abby Adams, Esq.
Special Counsel
October 13, 2004
Page 7
shares. As a result of this limited liquidity, actual trades in
the stock have reflected a high degree of price variability.
During 2004, the stock traded to above $34 per share in February
and March and traded down to $22 per share in May. Since May, the
stock has traded in the $23 to $28 range. The Company believes
that the decline in its trading price since the first quarter of
2004 reflects two primary factors: (i) the overall decline in the
market for thrift stocks, and (ii) investors' recognition that
the Company's recurring earnings stream has declined in 2004 from
the higher levels experienced in 2003. In addition, stock prices
may be affected by factors outside of the Company's control; for
example, heightened activity for mergers and acquisitions
involving financial institutions. While historical prices were
examined by the Board, these prices were of less significance
than current market prices and net book value in the Board's
fairness determination.
14. We wish to direct your attention to the second full paragraph on
page 14 of the Offer to Purchase wherein the Company has
disclosed its fairness determination with respect to each group
of unaffiliated stockholders in accordance with Item 8 of
Schedule 13E-3 and Question 19 of Exchange Act Release No. 17719
(the "Release"). Item 8 and the Release each require the Board of
Directors to set forth its belief whether the transaction is fair
to each group of unaffiliated stockholders. In this case, there
are two groups of unaffiliated stockholders: those who will
accept the offer and be cashed out, and those who do not tender
and remain stockholders of the Company. The Board's belief that
the offer is fair to both groups of unaffiliated stockholders is
expressed in the second paragraph on page 14 of the Offer to
Purchase as follows [emphasis added]:
"The Board believes that the offer is fair and in the best
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interests of our stockholders, including unaffiliated
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stockholders, whether or not such stockholders retain their
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interest in the Company. As set forth above, the offer is a
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voluntary transaction which is open to all stockholders on
the same terms and conditions. Based upon the aforementioned
factors, our Board believes that the offer is both
substantively and procedurally fair to affiliated and
unaffiliated stockholders alike. For those stockholders who
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tender shares and are no longer stockholders of the Company,
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our Board has determined that such stockholders will receive
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a fair price for their shares. The Board also believes that
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the transaction is fair to those stockholders who remain
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stockholders of the Company following the completion of the
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offer because they will retain a greater equity interest in
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the Company. See "Special Factors-6. Effects of the Offer"
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for a detailed discussion of the
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Abby Adams, Esq.
Special Counsel
October 13, 2004
Page 8
consequences that result from remaining a continuing
stockholder of the Company.
15. With respect to the possibility that some stockholders may not be
able to cash out their entire holdings due to the small size of
the offer and the possibility of proration, the Company
considered that such stockholders, if they ended up owning less
than 100 shares, would subsequently be cashed out if the Company
opted to proceed with the reverse stock split. Stockholders are
not required to tender in the offer and, if any such holder
wanted to ensure that all of its shares would be purchased, such
holder could sell his or her shares in the open market. Please
also see our response to Comment No. 9.
Fairness Opinion of Financial Advisor, page 14
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16. Please see the revised disclosure in "Item 9. Reports, Opinions,
Appraisals and Negotiations" in Amendment No. 1 to the Schedule
13E-3 wherein page 16 of the Offer to Purchase has been revised
to disclose the fifteen comparable thrift institutions considered
by the financial advisor.
17. We believe that the disclosure in the Offer to Purchase
adequately addresses how each analysis performed by the financial
advisor supports or does not support the fairness determination.
Beginning on page 15 of the Offer to Purchase, the five financial
and pricing factors considered by the financial advisor
supporting its fairness opinion are specifically identified. Each
factor's contribution in supporting the fairness opinion is
disclosed as follows:
a. On page 16, under "Stock Repurchase Analysis," it is
disclosed that the pro forma financial results would be
favorable to the remaining non-tendering stockholders after
the offer is consummated;
b. On page 16 under "Comparative Pricing Analysis," it is
disclosed that based on the financial advisor's comparative
peer pricing analysis, while the Company's common stock
traded at a moderate pricing discount to reflect the limited
liquidity, the Company's stock was trading at a reasonable
level based on its recent average trading price of $26.75.
Following a discussion of this comparative pricing analysis,
under "Review of Premiums Paid in Other Stock Repurchase
Transactions" and "Pricing Analysis Related to Tender Offer
Price Range" on pages 16 and 17 of the Offer to Purchase, it
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Abby Adams, Esq.
Special Counsel
October 13, 2004
Page 9
is disclosed that Capital Resources concluded that the
tender offer price range of $29.50 to $31.50 resulted in
premiums of between 10% and 18% being offered to Company
stockholders that were reasonable and fair when compared to
representative premiums paid in other repurchase
transactions. Also, it is disclosed on page 17 that Capital
Resources concluded the Price/Earnings and Price/Tangible
Book Value ratios compared to the Company's tender offer
price range was reasonable when compared to the pricing
ratios of the peer group of publicly traded thrifts;
c. Finally, under "Discounted Cash Flow and Terminal Value
Analysis" on page 18, it is disclosed that Capital Resources
has concluded that its calculation of the Company's present
value, which ranged between $26.98 to $27.19, falls very
close to the Company's recent average trading price of
$26.75. This analysis provided support to Capital Resources'
determination that $26.75 represented a reasonable estimate
of the fair value of the Company's common stock. These
results also serve to confirm the fairness of the tender
offer price range of $29.50 to $31.50 to those stockholders
who sell their stock to the Company, because those
stockholders would be receiving a reasonable and fair
premium in relation to the stock's estimated fair market
value.
18. Please see the revised disclosure in "Item 9. Reports, Opinions,
Appraisals and Negotiations" in Amendment No. 1 to the Schedule
13E-3 wherein the Offer to Purchase has been revised to disclose
how the financial advisor calculated the recent average trading
price for the Company's common stock.
19. Please see the revised disclosure in "Item 9. Reports, Opinions,
Appraisals and Negotiations" in Amendment No. 1 to the Schedule
13E-3 wherein the Offer to Purchase has been revised to provide
the additional disclosure requested by the staff.
20. We wish to advise the staff supplementally that we do not believe
including the language referenced in your comment amounts to
disclaiming responsibility for the information included in the
Offer to Purchase. The entire sentence in question reads as
follows: "Because the assumptions and resulting projections are
subject to significant uncertainties, including changes in the
interest rate environment and the mortgage refinancing market, as
well as the competitive and economic environment, no assurance
can be given that actual net income and dividends will
MALIZIA SPIDI & FISCH, PC
Abby Adams, Esq.
Special Counsel
October 13, 2004
Page 10
meet these projections, and you should not rely on these
---------------------------------
projections as an indication as to whether or not tendering your
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stock is an appropriate decision for you." [emphasis added] While
----------------------------------------
it is necessary for financial advisors to utilize such
information in performing this type of financial analysis, it is
wholly inappropriate for investors to rely on these financial
projections in deciding whether or not to tender in the offer. It
is important to note that these types of financial forecasts or
projections are inherently unreliable, based on assumptions that
may or may not be accurate, and are subject to risks and
uncertainties such that it is very appropriate to include a
warning to investors not to rely on such information in deciding
whether or not to tender in the offer. In fact, it may be
misleading not to include such a warning. In the Company's view,
including such a warning does not amount to a disclaimer of
responsibility by the Company for its disclosure in the Offer to
Purchase. Accordingly, we do not believe it is appropriate to
make the requested deletion.
21. Please see the revised disclosure in "Item 9. Reports, Opinions,
Appraisals and Negotiations" in Amendment No. 1 to the Schedule
13E-3 wherein the Offer to Purchase has been revised to disclose
why the financial advisor chose the variables used in the
Discounted Cash Flow and Terminal Value Analysis. We have been
advised that this was the only analysis in which an explanation
of the variables appears appropriate.
Federal Income Tax Consequences, page 22
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22. Please see the revised disclosure in "Item 4. Terms of the
Transaction" in Amendment No. 1 to the Schedule TO. Per your
request, we have revised the concluding paragraph of the section
titled "Special Factors - 8. Federal Income Tax Consequences" on
page 22 deleting the statement "[t]he discussion set forth above
is included for general information only."
Procedures for Tendering Shares, page 29
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23. Please see the revised disclosure in "Item 4. Terms of the
Transaction" in Amendment No. 1 to the Schedule TO. Per your
request, in the Offer to Purchase, we have revised (a)"The
Offer-- 2. Procedures for Tendering Shares -- Return of
Unpurchased Shares" on page 33, (b) the first paragraph on page
35 under the heading "The Offer -- 4. Purchase of Shares and
Payment of Purchase Price," and (c) the last paragraph of "The
Offer -- 5. Conditional Tender Procedures", by
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Abby Adams, Esq.
Special Counsel
October 13, 2004
Page 11
replacing in each section with the phrase "as soon as
practicable" with "promptly." We note that paragraph 4 of the
letter of transmittal does not discuss the return of unpurchased
shares and paragraph 6 does not include the language "as soon as
practicable."
Conditions of Our Offer, page 37
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24. Please see the revised disclosure in "Item 4. Terms of the
Transaction" in Amendment No. 1 to the Schedule TO. Per your
request, we have revised the penultimate paragraph in the Offer
to Purchase under the section titled "The Offer -- 6. Conditions
to Our Offer" by deleting the parenthetical phrase "including any
action or inaction by us."
Information About Us and the Shares, page 40
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25. In both places in the Offer to Purchase where the Company's
Annual Report on Form 10-KSB is referenced (pages 40 and 46), the
Annual Report is described as being for the fiscal year ended
December 31, 2003. We believe, therefore, that the date of the
Annual Report is sufficiently clear.
Closing Comments
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The Company has authorized us to advise you that the Company
acknowledges that it (i) is responsible for the adequacy and accuracy of the
disclosure in its tender offer materials filed with the Commission, (ii) is
aware that staff comments or changes to disclosure in response to staff comments
in the filings reviewed by the staff do not foreclose the Commission from taking
any action with respect to the filing and (iii) 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.
MALIZIA SPIDI & FISCH, PC
Abby Adams, Esq.
Special Counsel
October 13, 2004
Page 12
Should you have any additional comments or questions, please direct
such inquiries to the undersigned at the above direct-dial number or to Joan
Guilfoyle, Esq. of this office at (202) 434- 4677. Thank you for your prompt
attention to this matter.
Sincerely,
/s/John J. Spidi
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John J. Spidi
cc: Mr. Lonnie Trasamar, President and CEO