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 25, 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.
2 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 20, 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. The Company will comply with Rule 13e-3(f)(2) and Rule 13e-4(d)(2) in
disseminating the new disclosure occasioned by the staff's comments.
The Company has prepared, and has this day filed with the Commission,
a Supplement to its Offer to Purchase (the "Supplement") which will be
used to disseminate the revised disclosure to all of its stockholders.
The Supplement will be mailed to all stockholders of the Company
immediately upon confirmation by you that the staff of the Commission
has no further comments on the Company's revised tender offer
MALIZIA SPIDI & FISCH, PC
Abby Adams, Esq.
Special Counsel
October 25, 2004
Page 2
materials. It is the Company's belief that this method of
dissemination will meet the prompt disclosure requirements of
Rule 13e-3 and Rule 13e-4.
Offer to Purchase
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2. In accordance with your comment, we have filed the Reverse Stock
Split Valuation Analysis of Capital Resources, Inc. dated June
15, 2004. Please see Exhibit (c)(3) to Amendment No. 3 to the
Schedule TO and Schedule 13E-3 filed herewith. A revised summary
of this analysis is also included in the Supplement to be mailed
to all stockholders of the Company. In addition, in the
Supplement we have revised the discussion of the presentations
made by the Company's Minnesota counsel on page 8 of the Offer to
Purchase. Please see the Supplement filed as Exhibit (a)(10) to
Amendment No. 3 to the Schedule TO and Schedule 13E-3. We wish to
advise you supplementally that the written presentation by the
Company's independent auditors referred to on page 8 of the Offer
to Purchase was not a presentation specific to the Company but
rather a generic presentation made to "clients and friends" of
the auditing company.
3. Please see the revised disclosure under the caption "Special
Factors - 4. Fairness Opinion of Financial Advisor" in the
Supplement filed as Exhibit (a)(10) to Amendment No. 3 to the
Schedule TO and Schedule 13E-3.
4. Please see the revised disclosure under the caption "Special
Factors - 2. Purposes of and Reasons for the Offer" in the
Supplement made in response to this comment.
5. Please see the revised disclosure under the caption "Special
Factors - 6. Effects of the Offer" wherein we have broken down
each category of expected cost savings pursuant to your comment.
6. Please see the revised disclosure under the captions "Summary"
and "Special Factors - 2. Purposes of and Reasons for the Offer"
in the Supplement wherein additional disclosure has been added
per your comment.
7. We respectfully disagree with the conclusion that Wells Federal
Bank, fsb, the Company's wholly-owned subsidiary (the "Bank"),
"is an affiliate engaged in a Rule 13e-3 transaction" and,
therefore, should be required to file a Schedule 13E-3. A "Rule
13e-3" transaction is any transaction or series of transactions
involving
MALIZIA SPIDI & FISCH, PC
Abby Adams, Esq.
Special Counsel
October 25, 2004
Page 3
one or more of the transactions described in paragraph (a)(3)(i)
of Rule 13e-3 which has either a reasonable likelihood or a
purpose of producing, either directly or indirectly, any of the
effects described in (a)(3)(ii) of Rule 13e-3. The definition of
a Rule 13e-3 transaction consists of three elements: (i) an
issuer or an affiliate of such issuer; (ii) engaging in one or
more of certain specified transactions; (iii) having a purpose or
reasonable likelihood of resulting in one or more specified
effects. Please see "II. The Definition of a Rule 13e-3
Transaction" in Exchange Act Release No. 17719 (April 20,
1981)(the "Release"). The "specified transactions" set forth in
Rule 13e-3(a)(3)(i), as also described in Note 11 of the Release,
are "(a) a purchase of any equity security made by the issuer of
such security or by an affiliate of such issuer; (b) a tender
offer for or request or invitation for tenders of any equity
security by the issuer of such class of securities or by an
affiliate of such issuer; or (c) a solicitation subject to
Regulation 14A of any proxy, consent or authorization of, or a
distribution subject to Regulation 14C of information statements
to, any equity security holder by the issuer of the class of
securities or by an affiliate of such issuer, in connection with:
a merger, consolidation, reclassification, recapitalization,
reorganization or similar corporate transaction of an issuer or
between an issuer (or its subsidiaries) and its affiliate..."
First, the Bank is not engaged in a "transaction" or "series of
transactions" as described in Rule 13e-3(a)(3)(i). The Bank has
repaid a loan made by the Company to the Bank. This transaction,
by itself, is not a transaction described under Rule
13e-3(a)(3)(i). The loan made by the Company to the Bank was made
prior to the Company initiating a tender offer and the loan would
require repayment to Company, regardless of the Company's tender
offer. The Bank's repayment of the loan is the only transaction
engaged in by the Bank that could be remotely associated with the
Company's tender offer. However, a remote association alone is
not sufficient to fulfill the requirements of being engaged in a
Rule 13e-3 transaction under Rule 13e-3(a)(3)(i). Second, it is
the Company, not the Bank, that is engaged in the "purchase of an
equity security," and it is the Company making a "tender offer
for or request or invitation for tenders of . . ." an equity
security as described under in Rule13e-3(a)(3)(i). 7.ab As such,
the Bank is not, directly or indirectly, making "a tender offer
or request or invitation for tenders." The source of funds used
by the Company does not in and of itself determine that the Bank,
as an affiliate of the Company, is engaged in a Rule 13e-3
transaction. The loan was called by the Company and under the
terms of the loan the Bank was obligated to repay the loan. The
use of the funds was the determination of the Company, not the
Bank. With respect to third party tender offers under Regulation
14D, case law has established that the term "bidder" includes
controlling shareholders "on whose
MALIZIA SPIDI & FISCH, PC
Abby Adams, Esq.
Special Counsel
October 25, 2004
Page 4
behalf" a corporate bidder acts. The defined term does not
include (1) majority shareholders without evidence of financial
participation, or (2) commercial lenders that solely provide
funds to finance a tender offer.1 Applying this line of reasoning
to our facts demonstrates that the source of the funds used by a
person or entity engaged in a particular transaction is not the
determining factor of whether the provider of the funds is also
engaged in the transaction.2 The key question is whether the
person or entity in question is playing a central participatory
role in a tender offer.3 The Bank has no central participatory
role in the Company's tender offer. Third, the Bank is not
engaged in a "purchase" of any equity security as that term is
defined under Rule 13e-3(a)(2). While the Bank clearly is an
"affiliate" of the Company, it is not engaged in any of the
specified transactions set forth in Rule 13e-3(a)(3)(i) in that
it is not purchasing any equity security of the Company, it has
not made a tender offer for any equity security of the Company
and it is not engaged in any solicitation of proxies or otherwise
with respect to any equity security of the Company. Finally, it
is important to note that the loan by the Company to the Bank is
an asset of the Company ( a loan receivable). Therefore, the
Company used its own asset, a loan receivable from the Bank, and
simply converted it into cash by calling the loan. This is no
different from the Company converting any other asset it owns
into cash, such as selling investment securities, bonds, etc., in
order to have sufficient cash on hand to pay the purchase price.
It is arguable, therefore, that the Bank is not financing or
"funding" the offer. For all of the foregoing reasons, it is our
view that the Bank is not engaged in a Rule 13e-3 transaction and
is not required to file a Schedule 13E-3. Please also note that
in October 2003, the staff raised a similar comment in connection
with the modified Dutch auction issuer tender offer and going
private transaction by Crazy Woman Creek Bancorp, Inc. Please see
Comment No. 2 in the staff's comment letter dated October 13,
2003, regarding the Schedule TO filed by Crazy Woman Creek
Bancorp, Inc. (SEC File No. 5-48043) and our response to that
comment in our letter dated October 17, 2003, copies of which we
faxed to you on Friday,
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1 See Revlon, Inc. v. Pantry Pride, Inc., 621 F. Supp. 804, 814, 817 (D. Del.
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1985) (citing that Chemical's interest in this matter is solely that of a
commercial lender providing funds to finance Pantry Pride's tender offer.
Nicole, not Chemical, is the sole purchasing entity of all Revlon stock.)
2 See Gray Drugstores, Inc. v. Simmons.
---------------------------------
3 See Koppers Co., Inc. v. American Express Co., 689 F. Supp. 1371, 1390
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(W.D. Pa. 1988).
MALIZIA SPIDI & FISCH, PC
Abby Adams, Esq.
Special Counsel
October 25, 2004
Page 5
October 22, 2004. (In that case, the bank declared a cash
dividend to the holding company, rather than repaying a loan as
in the instant case, the funds of which were used to pay the
purchase price in the tender offer.) In that case, under similar
facts and circumstances, the staff agreed that the wholly-owned
subsidiary bank did not have to be included as a filing person on
the Schedule TO or Schedule 13E-3.
8. Please see the revised disclosure in "Special Factors - 2.
Purposes of and Reasons for the Offer" in the Supplement wherein
we have made the suggested changes.
9. Please see the revised disclosure in "Special Factors - 3.
Fairness of the Offer" in the Supplement wherein we have made the
suggested changes.
10. Please see the revised disclosure in "Special Factors - 2.
Purposes of and Reasons for the Offer" in the Supplement wherein
we have made the suggested changes.
11. Please see the revised disclosure in "Special Factors - 4.
Fairness Opinion of Financial Advisor" in the Supplement wherein
we have made the suggested changes.
12. Please see the revised disclosure in the Supplement under
"Special Factors - 4. Fairness Opinion of Financial Advisor -
Comparative Pricing Analysis" wherein we have added the following
disclosure to the second paragraph thereunder: "The straight
average of these five trading price metrics was $26.65. Capital
Resources determined it appropriate to round this figure up to
$26.75, which was very close to the average of the Bid/Ask price
at September 20, 2004, for purposes of deriving the recent
average trading price."
13. Please see the revised disclosure in the Supplement under
"Special Factors - 4. Fairness Opinion of Financial Advisor -
Review of Premiums Paid in Other Stock Repurchase Transactions."
The new disclosure clarifies how the comparable transactions are
chosen and what criteria were used. Also, we disclosed that
Capital Resources only selected thrift and bank comparables and
state that because the Company is undertaking a modified Dutch
auction tender offer first, and then possibly a reverse split,
Capital Resources believes both (i) voluntary tender offers
involving modified Dutch auctions or (ii) non-voluntary going
private transactions, are the only appropriate inclusions. The
table on page 21 of the Supplement provides separate median and
range data for the premiums on each of the different types of
transactions. Capital Resources' search of its data base turned
up a total
MALIZIA SPIDI & FISCH, PC
Abby Adams, Esq.
Special Counsel
October 25, 2004
Page 6
of 22 relevant transactions over the last three years. In
response to your comment, there were 42 other transactions that
occurred but that were not included in Capital Resources'
analysis because, as is now disclosed in the Supplement, Capital
Resources excluded companies that (i) did not have meaningful
pricing data, (ii) involved tender offers that were not modified
Dutch auctions and were not going private transactions, (iii)
other tender offers that involved transactions which Capital
Resources believed were not representative of the characteristics
of the Company's offer or (iv) had terminated transactions. We do
not believe it is appropriate or meaningful to stockholders to
include the details of each of the 22 transactions in the
Supplement as the results of the review of such transactions are
summarized in the Supplement on pages 21-22. Capital Resources
did not rely on the raw data of any one particular transaction
but on the overall results of its analysis, as is already
presented in tabular format in the Supplement. Attached hereto
for your reference is a table listing the details of the 22
transactions considered by Capital Resources as referenced in the
Supplement.
14. Please see the revised disclosure in the Supplement in the second
paragraph of the section entitled "Special Factors - 4. Fairness
Opinion of Financial Advisor - Discounted Cash Flow and Terminal
Value Analysis" wherein we have made the suggested deletion. We
wish to advise you supplementally that the Company does still
believe the previous projections are valid.
15. Please see the revised disclosure in the Supplement under
"Special Factors - 4. Fairness Opinion of Financial Advisor -
Stock Repurchase Analysis" and " - Comparative Pricing Analysis."
If 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
TABLE 1
LIST OF PEER GROUP VOLUNTARY TENDER OFFERS AND
NON-VOLUNTARY GOING PRIVATE TRANSACTIONS
SHARES
COMPANY STATE TYPE ANNOUNCED COMPLETED TENDERED PREMIUM
- ------- ----- ---- --------- --------- -------- --------
(% shrs O/S)
VOLUNTARY TENDER OFFERS:
MODIFIED DUTCH AUCTIONS:
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Crazy Woman Creek Bancorp WY Thrift 10/3/2003 11/4/2003 20.0% 21.67% *
1st Independence Financial Group
(formerly Harrodsburg Fst Fincl Bncp) KY Thrift 5/28/2003 6/30/2003 8.3% 7.14%
First Federal Bancshares, Inc. IL Thrift 4/16/2004 5/24/2004 30.0% 3.05%
Capitol Federal Financial (MHC) KS Thrift 8/15/2001 10/15/2001 7.6% 9.11%
HCB Bancshares, Inc. AR Thrift 1/31/2002 4/8/2002 16.2% 5.36%
State Financial Services Corp WI Bank 11/1/2002 12/12/2002 9.3% 13.21%
Summit Bank Corp GA Bank 2/7/2002 3/15/2002 3.6% 14.48%
RSV Bancorp, Inc. PA Thrift 9/14/2004 10/15/2004 30.0% 5.26%
OTHER VOLUNTARY TENDER OFFERS / GOING PRIVATE:
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First Federal Bancorporation MN Thrift 8/22/2001 12/19/2001 0.4% 0.00% *
Washington Bancorp IA Thrift 11/20/2001 2/15/2002 0.3% 18.54% *
Logansport Financial Corp IN Thrift 5/28/2004 7/12/2004 0.2% 13.12% *
Chester Bancorp Inc IL Thrift 4/3/2003 5/16/2003 7.8% 4.76% *
NON-VOLUNTARY GOING PRIVATE TRANSACTIONS
MERGER / ELIMINATING SELECT SHAREHOLDERS:
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First National of Nebraska Inc. NE Bank 6/6/2002 7/10/2002 2.9% 16.67% *
Chesapeake Financial Shares Inc. VA Bank 10/17/2002 2/28/2003 5.7% 18.68% *
Southern Michigan Bancorp, Inc. MI Bank 9/3/2004 TBD 2.4% 20.58% *
HFB Corp KY Thrift 10/28/2003 2/27/2004 1.6% 3.79% *
Capital Directions MI Bank 6/25/2003 1/27/2004 1.9% 5.26% *
InvestorsBancorp Inc WI Thrift 3/26/2003 9/23/2003 40.1% 6.79% *
Intrust Financial Corp KS Bank 1/16/2003 5/6/2003 5.6% 16.92% *
REVERSE SPLIT:
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Hemlock Federal Financial Corp IL Thrift 3/16/2004 6/29/2004 23.4% 1.19% *
Coddle Creek Financial Corp NC Thrift 10/1/2003 11/20/2003 1.0% 12.59% *
BankPlus FSB IL Thrift 5/13/2003 9/15/2003 0.8% 17.34% *
22 Transactions
* Indicates Going Private Transaction