2009 Dole Food Automatic Common Exchange Securities Trust

The Seeking Alpha reader who was asking my opinion on Dole now that it has sold some assets to pay down debt, also brought something to my attention that I have now done quite a bit of research on and what I have been waiting to hear back from Dole about.

I had a call in to Dole investor relations and they called back yesterday saying they could not answer questions about this agreement and referred me to the bank who is handling the trust.  The trust has also not called me back so I am going to tell you what I think about the situation and ask your opinion on if I am right about the situation or not.

Mr. Murdock, the chairman of Dole and also the man who has been buying a lot of Dole shares in the past few months, started the 2009 Dole Food Automatic Common Exchange Security Trust upon IPO’ing Dole back into the markets in 2009.  Here is the 2009 Trust Offering agreement.

As described in the Registration Statement, concurrent with the IPO, a newly formed trust not affiliated with the Issuer, the 2009 Dole Food Automatic Common Exchange Security Trust (the “2009 Trust”), offered up to 24,000,000 of its $0.875 automatic common exchange securities (the “Securities”), with the option for the initial purchasers to purchase up to an additional 3,600,000 Securities from the 2009 Trust at the initial offering price (the “Trust Offering”).

 

The Securities are exchangeable, at the Trust’s option, for shares of Common Stock or the cash equivalent value of such shares of Common Stock, beginning on November 1, 2012 (the “Exchange Date”). In connection with the Trust Offering, on October 22, 2009, (i) Mr. Murdock entered into a Forward Purchase Agreement (the “Forward Purchase Agreement”) with the 2009 Trust pursuant to which Mr. Murdock agreed to deliver to the 2009 Trust on the Exchange Date a number of shares of Common Stock equal to the product of the exchange rate times the 24,000,000 Securities offered in the Trust Offering, or 27,600,000 Securities, if the initial purchasers exercise their option to purchase additional Securities; and (ii) Mr. Murdock entered into a Collateral Agreement (the “Collateral Agreement”) with U.S. Bank, National Association, as Collateral Agent (the “Collateral Agent”), and the 2009 Trust, pursuant to which Mr. Murdock agreed to grant a security interest in the maximum number of shares of Common Stock initially deliverable under the Forward Purchase Agreement.

 

The foregoing summaries of the Forward Purchase Agreement and Collateral Agreement are qualified in entirety by reference to the complete text of the Forward Purchase Agreement and Collateral Agreement copies of which are filed herewith as Exhibits 99.6 and 99.7, respectively, and are incorporated herein by reference. As of the date of this filing, the 2009 Trust sold 24,000,000 Securities, resulting in Mr. Murdock’s pledge to the Collateral Agent of 24,000,000 shares of Common Stock. Pursuant to the Collateral Agreement, Mr. Murdock has the right to vote these shares of Common Stock for so long as such shares are beneficially owned by him and pledged under the Collateral Agreement, unless an event of default occurs under the Forward Purchase Agreement or the Collateral Agreement.

 

In addition, pursuant to the Forward Purchase Agreement and Collateral Agreement, if the initial purchasers exercise their option to purchase an additional 3,600,000 Securities from the 2009 Trust at the initial offering price, Mr. Murdock is obligated to deliver to the 2009 Trust and pledge to the Collateral Agent an additional 3,600,000 shares of Common Stock. The Reporting Persons intend to review on a continuing basis their investment in the Issuer.

The Reporting Persons may decide to increase or, subject to, among other things, the Lockup Agreements, decrease their investment in the Issuer depending upon estate planning considerations, the price and availability of the Issuer’s securities, subsequent developments affecting the Issuer, the Issuer’s business and prospects, other investment and business opportunities available to the Reporting Persons, general stock market and economic conditions, tax considerations and other factors. Mr. Murdock, as a member of the Issuer’s Board of Directors and its Chairman, expects to continue to be involved in the Issuer’s policies and activities.

 

Except as set forth herein and except for changes in the composition of the Board of Directors of the Issuer previously disclosed in the Registration Statement related to bringing the Board of Directors in compliance with the rules of the New York Stock Exchange regarding director independence in accordance with the transition rules related thereto, the Reporting Persons presently do not have any plans or proposals that relate to or would result in:
(a) The acquisition by any person of additional securities of the Issuer or the disposition of securities of the Issuer.
(b) An extraordinary corporate transaction, such as a merger, reorganization or liquidation, involving the Issuer or any of its subsidiaries.
(c) A sale or transfer of a material amount of assets of the Issuer or of any of its subsidiaries.
(d) Any change in the present board of directors or management of the Issuer, including any plans or proposals to change the number or term of directors or to fill any existing vacancies on the board.
(e) Any material change in the present capitalization or dividend policy of the Issuer.
(f) Any other material change in the Issuer’s business or corporate structure.
(g) Any changes in the Issuer’s charter, bylaws or instruments corresponding thereto or other actions which may impede the acquisition of control of the Issuer by any person.
(h) Causing a class of securities of the Issuer to be delisted from a national securities exchange or to cease to be authorized to be quoted in an inter-dealer quotation system of a registered national securities association.
(i) A class of equity securities of the Issuer becoming eligible for termination of registration pursuant to
Section 12(g)(4) of the Act.
(j) Any action similar to any of those enumerated above.

The way I am understanding the above, after also doing a bunch of other research into the subject, is that Mr. Murdock treated this as kind of a quasi loan in 2009, and now after November 1st 2012 the quasi loan, the $0.875 automatic common exchange securities, has to be paid back in the form of either full Dole shares or cash, to the tune of as much as 27.6 million Dole shares at the original IPO price of $12.50 per share or the cash equivalent, which is $345 million?

Yesterday this came out in regards to what happened: http://xml.10kwizard.com/filing_raw.php?repo=tenk&ipage=8541842

I was worried that Dole would issue as many as 27.6 million shares to cover this transaction, diluting current Dole shareholders in the process. It seems that Mr. Murdock sold some of his own personal stake in Dole to cover the transaction thus not diluting current shareholders by as much as 24%, which is obviously a good thing.

Please let me know if my assumptions are wrong in any case since other than what I already read online and some of which I share above, I do not have any other concrete information as I have not been able to get answers from either Dole or the Trust up to this point.

Also what do you think were Mr. Murdock’s reasons for setting up this transaction in 2009, could there be anything more than the short term quasi loan?  I just want to make sure that I might not be missing anything here.