Of course, there are also downsides to going private, including:

� The loss of prestige that attaches to being public;

� The loss of the potential to eventually reap the benefits of public ownership (i.e., access to the capital markets and use of stock for acquisitions and management retention) should the markets, analyst coverage or institutional interest for a company improve; and

� The time and cost necessary to complete a going private transaction.

Accomplishing a Going Private Transaction

1) Choosing a transaction structure. There are four basic routes that companies with more than 300 shareholders take to go private: (a) a cash-out merger in which the public company is merged with an entity controlled by a buyout group and the public shareholders receive cash for their shares; (b) a tender offer by a buyout group, typically followed by a short-form cash-out merger; (c) an issuer self-tender offer in which the issuer repurchases its shares; and (d) a reverse stock split in which the public company solicits shareholder approval to amend its charter to provide for the combination of a large number of outstanding shares into one share, and then cashes out the small holders that are left with only fractional shares. The first two structures are the most common.

Once the transaction is consummated and the company shareholders are fewer than 300, the company can proceed to delist its shares from the applicable exchange or NASDAQ and deregister its shares under the Exchange Act.

In deciding on a structure, a company needs to evaluate several factors, including the make-up of its shareholder base, the percentage of stock held by insiders, the existence and commitment of a buyout/management group and various tax ramifications. It must also consider the likelihood of competing bids for the company, the need for outside financing vs. available cash in the company and, possibly, the applicable standard of review under state law.

2) SEC filings. All of the above require SEC filings to disclose information regarding the transaction to the public shareholders. If the structure involves a merger (other than a short-form merger) or a reverse stock split, the company will be required to file a proxy statement soliciting shareholder approval for the merger or the charter amendment, as the case may be. If the structure involves a tender offer, the buyout group or the issuer will be required to file a tender-offer statement. A special committee appointed by the board to evaluate the fairness of the tender offer will be required to file a statement advising whether it recommends the transaction to the public shareholders. In all events, if management, directors or controlling shareholders involved in the going private transaction are going to continue to retain an interest in the company once it goes private, Rule 13e-3 of the Exchange Act, requiring additional disclosures, will likely be triggered. This additional information can be included in the proxy statement or tender-offer statement. The key provisions of Rule 13e-3 address the fairness of the proposed going private transaction.

3) The participants. The participants in a going private transaction will largely be dictated by the structure used. In the typical going private transaction in which management or other affiliate is part of the buyout group, the board of directors appoints a special committee with the authority to engage counsel as well as a financial advisor to render an opinion as to the fairness of the consideration from a financial point of view to the public shareholders unaffiliated with the company or the buyout group.

Accordingly, at some point in the transaction’s evolution, there are likely to be multiple counsel and financial advisors on behalf of the company as well as the special committee and the buyout group.

4) State law considerations. A company engaging in a going private transaction must also comply with applicable state statutes, such as merger (including short-form) statutes, appraisal rights for minority shareholders in merger transactions and the technical requirements of state antitakeover laws, such as Section 203 of the Delaware General Corporation Law.

Conclusion

What public company has not been exasperated by recent events, changes in the law and an increasingly aggressive and skeptical shareholder base. The original allure to a company’s founder, majority shareholder or group of executives with significant equity positions, of access to capital markets and limited, predictable regulatory oversight has changed.

A relatively friendly or, at worst, neutral regulatory environment has turned into a feeding frenzy of scrutiny by state and federal regulators (including prosecutors) as well as shareholders emboldened by an increasingly aggressive plaintiff’s bar. CEOs, CFOs and other executives and board members, now face increased personal liability, including the possibility of prison time.

For many small and midsized public companies, the benefits of being public are beginning to be outweighed by the burdens, costs and liabilities. Going private is frequently the answer for transferring value to the shareholders and moving to a way of corporate life removed from most of the recent headaches and heartaches that accompany being public.

Crane is a member of Sills Cummis Epstein & Gross of Newark, where he co-chairs the Corporate Practice Group and chairs the Professional Personnel Committee.