Quadra Realty Trust, Inc. - Amended Statement of Ownership: Solicitation (SC 14D9/A)
12 März 2008 - 11:01AM
Edgar (US Regulatory)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION
STATEMENT UNDER
SECTION 14(d)(4) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Amendment No. 2)
Quadra Realty Trust,
Inc.
(Name of Subject Company)
Quadra Realty Trust, Inc.
(Names of Persons Filing Statement)
Common Stock, par value $.001 per share
(Title of Class of Securities)
746945104
(CUSIP Number of Class of
Securities)
Evan F. Denner
President and Chief Executive Officer
622 Third Avenue, 30th Floor
New York, New York 10017
(212) 671-6400
(Name, Address and Telephone Number
of Person
Authorized to Receive Notices and
Communications
on Behalf of the Persons Filing
Statement)
COPY TO:
John A. Good, Esq.
Bass, Berry & Sims PLC
100 Peabody Place, Suite 900
Memphis, Tennessee 38103
(901) 543-5901
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Check the box if the filing relates solely to preliminary
communications made before the commencement of a tender offer.
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This Amendment No. 2 further amends and supplements the
Solicitation/Recommendation Statement on
Schedule 14D-9
filed on February 13, 2008 (the
Schedule 14D-9)
with the Securities and Exchange Commission by Quadra Realty
Trust, Inc., a Maryland corporation (Quadra or the
Company) as amended and supplemented by Amendment
No. 1 to Schedule 14D-9 as filed on March 4,
2008, relating to the offer by HRECC Sub Inc.
(Purchaser) to purchase any and all of the issued
and outstanding shares of common stock, par value $0.001 per
share (the Shares) of the Company not already owned
by Hypo Real Estate Capital Corporation (Parent) and
its affiliates, at a price of $10.6506 per share in cash
(without interest and less applicable withholding taxes), less
the amount of any dividends declared and paid (other than the
$0.3494 dividend to be paid by the Company pursuant to the terms
of the Agreement and Plan of Merger dated as of January 28,
2008 by and among Parent, Purchaser and Quadra) with respect to
the Shares on or between the date of the Offer and the
Acceptance Date (as defined in The Tender
Offer Section 1. Terms of the Offer; Expiration
Date in the Offer to Purchase), upon the terms and subject
to the conditions set forth in the offer to purchase dated
February 13, 2008, as amended (the Offer to
Purchase) and in the related letter of transmittal. Except
as otherwise indicated, the information set forth in the
Schedule 14D-9
remains unchanged. Capitalized terms used but not defined herein
have the meanings ascribed to them in the
Schedule 14D-9.
The Schedule 14D-9 is amended by removing all Item numbers from
the respective headings. In addition, the heading
Solicitation or Recommendation is changed to read
Special Factors and is moved to a place immediately
after the text under the heading Identity and Background
of Filing Persons and immediately before the heading
entitled Past Contracts, Transactions, Negotiations and
Agreements.
Special
Factors.
The section entitled Special Factors as described
immediately above is amended to read as follows up to the
subsection entitled Background of the Offer and
Merger.
Overview of
Special Committees Evaluation Process and
Recommendation
On November 6, 2007, the Quadra Board formed a special
committee consisting solely of Independent Directors of the
Quadra Board (the Special Committee). The purpose of
the Special Committee was to identify, study and evaluate
strategic alternatives for the Company that would maximize value
to the Companys Unaffiliated Stockholders (which are
stockholders excluding Hypo Holding, Parent, Merger Sub, the
Hypo-Affiliated Directors and their respective affiliates), and
recommending to the Unaffiliated Stockholders such alternatives
or transactions that the Special Committee, in its judgment,
believed were fair to and in the best interests of Unaffiliated
Stockholders. The Quadra Board formed the Special Committee to
insure that the process of evaluating and studying all strategic
alternatives available to the Company, including a possible
transaction involving Hypo Holding and its affiliates, was fair
to the Unaffiliated Stockholders. The members of the Special
Committee had no financial or other affiliation with Hypo
Holding, Parent or Merger Sub. The individuals comprising the
Special Committee had a broad range of expertise in mortgage
banking, accounting and financial reporting and law, which the
Quadra Board believed was important to the proper evaluation of
alternatives that would be fair to and in the best interests of
Unaffiliated Stockholders. In furtherance of its independence
from Hypo Holding and its affiliates and its goal of fairly
representing the interests of Unaffiliated Stockholders, the
Special Committee was given authority to, and did, engage Bass,
Berry & Sims PLC (Bass Berry), who had no
prior relationship with Hypo Holding and its affiliates, as its
legal counsel, and Blackstone Advisory Services L.P.
(Blackstone), who likewise had no prior relationship
with Hypo Holding and its affiliates, as its financial advisor.
The Special Committee had ten meetings over an eight week period
and numerous informal conference calls. Bass Berry was present
at each meeting and conference call, and Blackstone
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was present at the majority of the meetings and conference
calls. In addition, the Special Committee, assisted by Bass
Berry, engaged in a lengthy, and sometimes contentious,
negotiation process with Parent and its principals in an attempt
to maximize value for Unaffiliated Stockholders. Other than to
provide information about the Company to the Special Committee
and the Independent Directors and their respective advisors to
assist them in their respective analyses of the transactions
contemplated by the Merger Agreement, the Hypo-Affiliated
Directors did not participate in discussions or actions taken by
the Special Committee and the Independent Directors in
connection with the Merger Agreement.
On December 19, 2007, the Special Committee authorized
Blackstone to develop a list of unaffiliated third parties who
might be interested in acquiring the Company or a substantial
portion of its assets and to begin contacting those persons.
Between December 19, 2007 and January 28, 2008,
Blackstone contacted approximately 27 prospective acquirors, and
the Company executed confidentiality agreements with 7
unaffiliated third parties.
The Special Committee and the Quadra Board (excluding the
Hypo-Affiliated Directors) believe that the process followed by
them is procedurally fair due to the presence of the following
procedural safeguards.
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that the Special Committee consists solely of independent
directors who the Quadra Board has determined are disinterested
in the transaction;
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that the members of the Special Committee will not personally
benefit from the consummation of the Merger in a manner
different from the Companys unaffiliated stockholders,
other than through receipt of cash director fees for service on
the Special Committee or the Quadra Board;
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that the Special Committee engaged and was advised by Bass Berry
as its legal counsel to assist the Special Committee in, among
other things, negotiating the Merger Agreement and evaluating
legal matters relating to the Offer and the Merger;
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that the Special Committee engaged and was advised by Blackstone
as its financial advisor to assist the Special Committee in,
among other things, evaluating the Offer Price from a financial
point of view and to render to the Special Committee an opinion
as to the fairness, from a financial point of view, of the Offer
Price to be received in the Offer and the Merger by holders of
Common Stock (other than Parent and its affiliates);
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that in retaining its advisors, the Special Committee took into
account the absence of conflicts of interest between Blackstone
and Bass Berry, on the one hand, and the Company, Merger Sub,
HRECC and Hypo Holding on the other;
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that Mr. Denner and other members of the Companys
management team and their knowledge of the Company were
available to the Special Committee at all times;
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that the Special Committee was involved in extensive
deliberations and negotiations over a period of approximately
two months regarding the proposed transaction, and the Special
Committee and the Independent Directors held numerous meetings
and additional informal discussions to consider and discuss the
Offer, the Merger and related transactions;
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that the Quadra Board agreed that it would not approve or
recommend to stockholders any transaction that had not been
approved or recommended by the Special Committee;
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that the Quadra Board authorized the Special Committee to
consider alternatives to a transaction with Purchaser or Parent;
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the Merger Agreement contains a provision allowing the Quadra
Board, upon the recommendation of the Special Committee, to
withdraw or change its recommendation, and to terminate the
Merger Agreement, in certain circumstances relating to the
presence
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of a Superior Proposal, subject to a payment by the Company to
Parent of various termination fees;
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that initiating an auction process may have subjected the
Companys business to risks and disruptions;
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that no decision had been made to sell the Company until an
agreement had been reached with Purchaser on the $11.00 price
per share and, in light of Purchasers stated desire to
conclude a transaction quickly, that commencing an auction at
such time could have jeopardized the transaction with Purchaser;
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that the negotiations with Purchaser were on an
arms-length basis, led by the chairman of the Special
Committee;
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that the Special Committee had ultimate authority to decide
whether or not to proceed with a transaction with Purchaser or
any other party;
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that the Special Committee was aware that it had no obligation
to recommend the transaction with Purchaser or any other
transaction and ultimately possessed the authority to reject any
proposed transaction; and
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that the consummation of the Offer is dependent upon acceptance
of the Offer by at least 55% of the stockholders of the Company
unaffiliated with Purchaser or Parent.
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As stated below, the Special Committee and the Quadra Board
(excluding the Hypo-Affiliated Directors have determined that
the Offer and the Merger are fair to the Unaffiliated
Stockholders. In considering the substantive fairness of, and
deciding to recommend to the Unaffiliated Stockholders,
acceptance of the Offer and approval of the Merger, the Special
Committee and the Quadra Board (excluding the Hypo-Affiliated
Directors) considered the following factors, which were all of
the material factors considered by the Special Committee and the
Quadra Board:
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The Companys original business model is not currently
sustainable because of the closure of the CDO market, the
overall disruption in the credit markets, generally, and the
increased potential cost of long-term capital;
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The issuance of equity securities by the Company would likely be
at a price that would be highly dilutive to Unaffiliated
Stockholders;
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The cost of any long-term credit, including a renegotiated term
credit facility with Wachovia, would likely be very high, if
such credit could be obtained at all;
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Due to the potential inability to obtain alternative or
replacement financing to repay amounts owed to Wachovia between
April and July 2008, there is a substantial risk that the
Company could not continue to operate as a going concern, and
the Special Committee and Quadra Board believed that the Offer
Price represents a substantial premium to the Companys
value as a going concern given the financing risks facing the
Company;
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The trading price of the Quadra Common Stock had declined 50%
from its IPO price in February 2007, had last closed above the
Offer price on July 27, 2007, and the Offer Price
represents a 38% premium to the closing price of the Quadra
Common Stock on the New York Stock Exchange on January 28,
2008 (the day immediately preceding the date on which the
transaction was announced), a 41% premium to the average closing
price of the Quadra Common Stock for the 30 trading days
immediately preceding the date of announcement and a 42% premium
to the average closing price of the Quadra Common Stock for the
60 trading days immediately preceding the date of announcement;
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Parent is a significant stockholder of the Company and manages
the day-to-day business of the Company pursuant to the
Management Agreement, and the Companys executive officers
and the Hypo-Affiliated Directors are employees of Parent or
Hypo Holding;
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Parent is the prospective buyer with the lowest cost of capital
together with the highest knowledge of the portfolio and the
greatest ability to realize the greatest synergies from the
transaction and, therefore, likely able to pay a higher price
than other prospective buyers;
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Credit market dislocation in Europe is likely to continue to
worsen, and Hypo Holding could experience future credit losses
that could inhibit its ability to acquire the Company at a later
time;
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Blackstone has been in communication with other prospective
buyers since December 19, 2007, has received on
January 28, 2008 a single indication of interest from a
third party that it would be willing to pay $9.00 of
consideration ($2.00 below the Offer Price) consisting entirely
of common stock of the prospective buyer, and has received no
other indications of interest in acquiring the Company;
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The Merger Agreement permits the Company to continue to solicit
higher offers until February 27, 2008 and to terminate the
Merger Agreement and the Offer if the Company receives a
competing proposal from another offeror that the Special
Committee and the Quadra Board (excluding the Hypo-Affiliated
Directors) believes is superior from a financial point of view
to the Offer and the Merger, and the termination fees payable in
the event of such termination are reasonable under the
circumstances and not likely to deter a prospective buyer from
making a superior offer;
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The structure of the proposed transaction as an all cash tender
offer for 100% of the outstanding Quadra Common Stock not owned
by Parent and its affiliates, the requirement that a minimum of
55% of the total number of shares of outstanding Quadra Common
Stock not owned by Parent and its affiliates be validly tendered
and not withdrawn in order to close the Offer, the willingness
and ability of Parent and Merger Sub to close such transaction
and the opportunity to effectuate the Merger following
consummation of the Offer for the same cash consideration as the
Offer Price, provided Unaffiliated Stockholders with the
potential to recognize fair value for their shares of Quadra
Common Stock in cash within a reasonably short timeframe, while
at the same time mitigating the risk of loss of stockholder
value caused by collapsing credit markets, a potential default
under the Wachovia Facility, the possibility of a going concern
qualification in the Companys auditors report with respect
to its 2007 financial statements, uncertainty regarding ongoing
financing and uncertainty in the value of stock or other
securities that might have been given as consideration by other
offerors;
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The all-cash transaction would be taxable to the Unaffiliated
Stockholders and would preclude Unaffiliated Stockholders from
participating in any future appreciation in the value of the
Companys business;
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The Merger Agreement and the Offer contain certain conditions to
closing which if not met could result in the Offer
and/or
the
Merger not closing, which could have a material adverse effect
on the Companys business and the market price of the
Quadra Common Stock;
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The Merger Agreement contains pre-closing covenants that require
the Company to conduct business in the ordinary course and to
refrain from taking certain actions without Parents
consent, including incurrence of debt, entry into material
contracts and payment of dividends, which restrictions could
adversely affect the Companys ongoing operation of its
business; and
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The Special Committee received an opinion from Blackstone that
the aggregate consideration of $11.00 per Share in cash to be
received by Unaffiliated Stockholders pursuant to the Offer, the
Merger and the Dividend was fair to Unaffiliated Stockholders
from a financial point of view.
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The Special Committee and the Quadra Board considered all of the
foregoing factors and evaluated the interrelationships among the
factors, with no single factor being exclusive of any other
factor. The negative factors weighing against recommendation of
the Offer and the Merger were (i) the pre-closing covenants
and closing conditions that created uncertainty as to closing
and potential disruption to the Companys ongoing business,
(ii) the termination fees payable in the event of a
termination of the Merger Agreement, which could make it more
expensive for a third party to acquire the Company, and
(iii) the position of Parent and the Merger Sub as
substantial stockholders of the Company and manager of the
Companys business, and Parents and Hypo
Holdings employment of the Companys executive
officers and Hypo-Affiliated Directors, all of which was a
conflict of interest with respect to the negotiation and
consummation of the Offer and Merger. The remaining factors were
considered by the Special Committee and the Quadra Board to
weigh in favor of the Offer and the Merger, but the Special
Committee and the Quadra Board did not find it practicable to,
and did not, quantify or otherwise assign relative weights to
the positive factors in reaching their determinations and making
their recommendations. Each member of the Special Committee and
each Independent Director applied his own personal business
judgment to the process and may have given a different weight to
different factors. The Special Committee and the Quadra Board
reasonably believed that the positive factors substantially
outweighed the negative factors.
In making their determinations and recommendations, the Special
Committee and the Quadra Board considered, but assigned no
weight to, the fact that the net book value of the Company as
reflected in its September 30, 2007 unaudited balance sheet
included in the Companys Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2007 exceeded the Offer
Price. The Special Committee and the Quadra Board believed that
the dislocation in the credit markets had caused the aggregate
fair value of its assets to be substantially less than the
aggregate book value reflected in its historical financial
statements due to substantial changes in market interest rates
and marketability of assets of the nature held by the Company.
The Special Committee and the Quadra Board therefore believed
that net book value was not indicative of current market value
of the Company, a belief that was supported by the fact that the
$7.96 closing price of the Quadra Common Stock on the New York
Stock Exchange on January 28, 2008, the $7.80 average
closing price for the 30 trading days preceding announcement of
the transaction and the $7.74 average closing price for the 60
trading days preceding announcement of the transaction were
substantially below the $14.12 net book value of Quadra
Common Stock.
In making their determinations and recommendations, the Special
Committee and the Quadra Board did not consider the liquidation
value of the Company, inasmuch as they believed that the orderly
liquidation of the Company through collection of existing loans
was not a feasible option for the Company due to its substantial
short term obligations and the lack of affordable financing.
However, the Special Committee and the Quadra Board believed
that Blackstones
loan-by-loan
discounted cash flow analysis as set forth in the section
entitled Financial Analyses of Blackstone provided
an approximation of the liquidation value of the Company because
it assumed no further asset acquisitions by the Company, valued
the existing loan portfolio at current interest rate spreads,
which the Special Committee believed approximated what the
assets could be sold for over time in liquidation, and included
the operating expenses that would be required to liquidate the
loan portfolio.
In making their determinations and recommendations, the Special
Committee and the Quadra Board considered the going concern
value of the Company to be below liquidation value because of
the Companys inability to access the CDO market, its small
size and its lack of
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affordable financing alternatives in light of its substantial
short term obligations. In evaluating the Offer and the Merger,
the Special Committee and the Quadra board realized the risk
that these challenges faced by the Company created a risk that
the Company could not continue to operate as a going concern.
Based on the foregoing factors and determinations, the Quadra
Board (exclusive of the Hypo-Affiliated Directors), upon the
unanimous recommendation of the Special Committee, has by
unanimous vote of the Independent Directors (i) determined
that the Offer Price is fair to the Unaffiliated Stockholders,
(ii) determined that the Merger Agreement, and the
transactions contemplated thereby, including the Offer and
Merger, are advisable, fair to and in the best interests of the
Company and its Unaffiliated Stockholders, (iii) approved
the execution, delivery and performance of the Merger Agreement
and the transactions contemplated thereby, including the Offer
and the Merger, and (iv) recommended that the Unaffiliated
Stockholders accept the Offer, tender their shares of the
Companys common stock in response to the Offer, and, if a
vote is required under Maryland law, vote for the consummation
of the Merger.
Reasons for
the Recommendation of the Special Committee and the Quadra
Board.
The first paragraph is hereby deleted in its entirety:
The following bullet point under The Solicitation or
Recommendation Reasons for the Recommendation of the
Special Committee and the Quadra Board is hereby amended
and restated in its entirety as follows:
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Transaction Financial Terms; Premium to Market
Price.
The Special Committee and the Quadra Board
(excluding the Hypo-Affiliated Directors) considered the
relationship of the Offer Price to the current and historical
market prices of the Shares. In light of the Companys
activities to date, the fact that no other person has expressed
serious interest in acquiring the Company for a higher price,
and the fact that Parent is in the best position to realize
synergies in the acquisition of the Company and, therefore,
likely able to provide the best offer, the Special Committee and
the Quadra Board determined that the Offer Price and Merger
Consideration to be paid in the Offer and the Merger represented
the best per share price currently obtainable for the
Companys stockholders. In making that determination, the
Special Committee and the Quadra Board considered that the
trading price of the Quadra Common Stock had declined 50% from
its IPO price in February 2007, had last closed above the Offer
Price on July 27, 2007, and the Offer Price and Merger
Consideration, respectively, represent a premium of
approximately 38% to the closing price of the Quadra Common
Stock on the New York Stock Exchange on January 28, 2008
(the date immediately preceding the date on which the
transaction was announced), an approximately 41% premium to the
average closing price of the Quadra Common Stock for the 30
trading days ending on such date and an approximately 42%
premium to the average closing price of the Quadra Common Stock
for the 60 trading days ending on such date. The Special
Committee and the Quadra Board also considered the relationship
of the Offer Price to the Companys implied price per share
based on various financial metrics, including dividend yield,
earnings and book value per share, of comparable companies. The
Special Committee and the Quadra Board considered the
relationship of the Offer Price to book value per share, but
believed that book value per share was not a proper measure of
fair value due to changes in market interest rates and
marketability of assets of the nature held by the Company, which
changes would result in a decrease in the fair value of those
assets below their book value. The Special Committee and the
Quadra Board did not consider the liquidation value of the
Company, inasmuch as they believed that the orderly liquidation
of the Company through collection of existing loans was not a
feasible option for the Company due to its substantial short
term obligations and the lack of affordable financing. However,
the Special Committee and the Quadra Board believed that
Blackstones
loan-by-loan
discounted cash flow analysis as set
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forth in the section entitled Financial Analyses of
Blackstone provided an approximation of the liquidation
value of the Company because it assumed no further asset
acquisitions by the Company, valued the existing loan portfolio
at current interest rate spreads, which the Special Committee
believed approximated what the assets could be sold for over
time in liquidation, and included the operating expenses that
would be required to liquidate the loan portfolio.
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Item
8.
Additional Information.
The subsection under Additional Information entitled
Opinion of the Special Committees Financial
Advisor is moved to the last section of Special
Factors.
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SIGNATURE
After inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is
true, complete and correct.
QUADRA REALTY TRUST, INC.
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By:
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/s/
Robert
H. Mundheim
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Robert H. Mundheim
Chairman of the Board of Directors
Date: March 12, 2008
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