corresp
H.S. Sangra
5000.148
(604) 692-3022
hsangra@sangramoller.com
November 4, 2009
VIA EDGAR AND FACSIMILE
SECURITIES AND EXCHANGE COMMISSION
Division of Corporation Finance
100F Street, N.E., Mail Stop 3561
Washington, D.C. 20549
Attention: Cathey Baker
Dear Sirs/Mesdames:
| Re: |
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Mercer International Inc. (the “Company”) Registration
Statement on Form S-3 Filed on October 19, 2009 — File No.
333-159617 |
We act as counsel for the Company and write in connection with the letter dated October 29, 2009
(the “Comment Letter”) from the Securities and Exchange Commission (the “Commission”) commenting on
the Company’s Registration Statement on Form S-3 filed with the Commission on October 19, 2009
(File No. 333-159617). On behalf of the Company, we provide the following response to your comment.
For your ease of reference, we have reproduced the numbering in the Comment Letter and have set out
below, in italics, the text of your question followed by the Company’s response thereto.
Form S-3
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1. |
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Please advise us of the basis on which you are conducting the offering on Form S-3.
Based on recent market prices and shares held by non-affiliates, it appears that the
company’s market float is less than $75 million. |
The Company respectfully submits that in accordance with the calculation method described in
General Instruction I.B.1 to Form S-3 (“Instruction I.B.1”) the Company’s market float is in
excess of the $75 million threshold required to utilize Form S-3.
Instruction I.B.1 provides, in part, that: (i) Form S-3 may be used for a primary offering where
the aggregate market value of the outstanding voting and non-voting common equity held by
non-affiliates of the registrant is $75 million or more; and
(ii) the aggregate market value
November 3, 2009
Page 2
may be computed by using the last price at which such common equity was last sold as of a date within 60 days prior to the date of filing.
The Company’s shares of common stock, par value $1.00 per share (the “Shares”) are listed on the
NASDAQ Global Market (“NASDAQ”) and the Toronto Stock Exchange, with NASDAQ being the primary
trading market for the Shares. According to data obtained from NASDAQ, on September 22, 2009, the
last sale price of the Shares was $3.73. In addition, as of October 19, 2009 (the “Filing Date”),
the Company had 36,443,487 Shares issued and outstanding. As a result, according to the
calculation established in Instruction I.B.1, the Company has an aggregate market value (held by
both affiliates and non-affiliates) of $135,934,206.50.1
Of the 36,443,487 Shares currently outstanding an aggregate of 2,215,004 are held by persons the
Company considers to be affiliates. Accordingly, even when the Shares held by affiliates are
excluded, the aggregate market value of the Shares held by non-affiliates of the Company still
exceeds the $75 million Form S-3 eligibility requirement.
Affiliate Status
The term “affiliate” is defined under Rule 405 (“Rule 405”) promulgated under the Securities Act
of 1933, as amended (the “Securities Act”), as “a person that directly, or indirectly through one
or more intermediaries, controls or is controlled by, or is under common control with, the person
specified.”2 Furthermore, Rule 405 defines the concept of “control” as the “possession,
direct or indirect, of the power to direct or cause the direction of management and policies of a
person, whether through the ownership of voting securities, by contract or otherwise.”3
In addition, the Commission’s Division of Corporation Finance has previously articulated that “a
person’s status as an officer, director, or owner of 10% of the voting securities of a company is
not necessarily determinative of whether such a person is a control person or member of a
controlling group of persons”, and that his or her status as an officer, director or 10%
shareholder is only one fact which must be taken into consideration.4 The Commission
also stated that “an individual’s status as a control person or as a member of a controlling group
is still a factual question which must be determined by considering other relevant facts in
accordance with the test set forth in Rule 405.”5
As a result, whether a person who meets one or more of the three criteria for presumed affiliate
status, officers, directors or beneficial owners of 10% or more of the then outstanding Shares, is
actually a controlling person of the Company depends on the facts and circumstances of each
particular case, as examined in accordance with the test of “control” set forth in Rule 405.
Share Ownership
Directors and Officers
The following table sets forth information regarding the ownership of the Shares as of the Filing
Date by each of the Company’s directors, Chief Executive Officer, Chief Financial Officer, the
Company’s three other most highly compensated executive officers and all of the Company’s directors
and executive officers as a group.
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| 1 |
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Based on 36,443,487 Shares outstanding. |
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| 2 |
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17 C.F.R. Section 230.405 |
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| 3 |
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Id. |
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| 4 |
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American Standard, SEC No-Action Letter,
[1972-1973Transfer Binder] Fed. Sec. L. Rep. (CCH) para. 79,071, at 82,313
(Oct. 4,1972). |
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| 5 |
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Id. |
November 3, 2009
Page 3
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Number of |
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Outstanding Shares |
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Percent of |
| Name of Owner |
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Owned |
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Outstanding Shares(1) |
Jimmy S.H. Lee |
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1,679,679 |
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4.6 |
% |
Kenneth A. Shields |
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118,000 |
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* |
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Guy W. Adams |
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24,000 |
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* |
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William D. McCartney |
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19,000 |
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* |
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Graeme A. Witts |
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31,685 |
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* |
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Eric Lauritzen |
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40,500 |
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* |
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George Malpass |
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39,000 |
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* |
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David M. Gandossi |
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120,000 |
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* |
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Wolfram Ridder |
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20,000 |
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* |
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Leonhard Nossol |
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50 |
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* |
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Claes-Inge Isacson |
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15,000 |
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* |
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Directors and Executive Officers as a Group (16 persons) |
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2,215,004 |
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6.1 |
% |
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| * |
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Less than one percent (1%) of issued and outstanding Shares. |
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| (1) |
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Based on 36,443,487 Shares outstanding on the Filing Date. |
Largest Beneficial Owners of Outstanding Shares
The following table sets forth information regarding the beneficial ownership of the Shares as of
the Filing Date by each holder of the Shares known by the Company to own more than five percent
(5%) of the outstanding Shares.
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| Name and Address of Owner |
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Number of
Shares Owned |
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Percent of
Shares Outstanding(6) |
Peter R. Kellogg(1) |
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8,046,394 |
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22.1 |
% |
120 Broadway, 6th Floor
New York, NY 10271 |
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Platinum Investment Management Ltd.(2) |
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5,669,847 |
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15.6 |
% |
Level 4, 55 Harrington Street
Sydney, NSW 2000, Australia |
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Harbinger Capital Partners Master Fund I, Ltd.(3) |
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1,995,100 |
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5.5 |
% |
Third Floor Bishop’s Square
Redmond’s Hill, Dublin 2, Ireland |
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Franklin Resources, Inc.(4) |
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1,982,388 |
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5.4 |
% |
One Franklin Parkway
San Mateo, CA 94403 |
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William R. Huff(5) |
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1,841,701 |
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5.1 |
% |
67 Park Place
Morristown, NJ 07960 |
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| (1) |
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Based on a Form 4 (the “Kellogg September Form 4”) filed on September 29, 2008 jointly with
IAT Reinsurance Co Ltd. (“IAT Reinsurance”). Does not include 1,645,161 Shares issuable upon
conversion of the Company’s 8.5% senior subordinated convertible notes due October 2010 (the
"Convertible Notes”). |
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| (2) |
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Based on a Schedule 13G filed on February 11, 2009. |
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| (3) |
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Based on a Schedule 13G filed on September 21, 2009 jointly with Harbinger Capital Partners
LLC, Harbinger Holdings, LLC and Philip Falcone. |
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| (4) |
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Based on a Schedule 13G filed February 9, 2009 jointly with Charles B. Johnson, Rupert H.
Johnson, Jr. and Franklin Advisory Services, LLC. Does not include 903,210 Shares issuable
upon conversion of the Convertible Notes. |
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| (5) |
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Based on a Schedule 13G filed on December 19, 2008. |
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| (6) |
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The percentage of outstanding Shares is calculated out of a total of 36,443,487 Shares issued
and outstanding on the Filing Date. |
November 3, 2009
Page 4
Analysis
The Company considers the Shares held by directors and executive officers to be Shares held by
affiliates of the Company. After excluding such Shares, the Company has 34,228,483 outstanding
Shares held by non-affiliates, representing an aggregate market value of $127,672,241.60.
The Company respectfully submits that when applying the control test in Rule 405 in the context of
federal jurisprudence, Commission actions and the Company’s current situation, the largest
beneficial owners of the Shares should not be considered affiliates of the Company.
Control depends in part on the influence of the individual and stock ownership is but one aspect
of control.6 Specifically, federal courts have held that the determination of whether a
person is an affiliate depends upon “the totality of the circumstances, including an appraisal of
the influence upon management and policies of a corporation by the person involved.”7
Since acquiring Shares of the Company, neither Peter Kellogg nor his affiliated company, IAT
Reinsurance, has exerted any control or influence over the Company’s board of directors, or the
Company’s management even though Mr. Kellogg owns over eight million Shares. According to his
filed Kellogg September Form 4, Mr. Kellogg himself directly owns only 160,162 Shares.
Furthermore, both the Kellogg September Form 4 and the most recent Schedule 13G filed by Peter
Kellogg and IAT Reinsurance, dated December 31, 2007, explicitly
state that Peter Kellogg “disclaims beneficial ownership” of the Shares held by IAT Reinsurance or
its subsidiaries. The percentage of share ownership is not dispositive of affiliate status for
purposes of Rule 405.
Although Platinum Investment Management Ltd. (“Platinum”) has beneficial interest in over 10% of
the outstanding Shares, such holdings represent only a very small component of a significant
worldwide investment portfolio. Platinum is a large Australian based fund manager which currently
manages in excess of $14 billion in investments around the world. In addition, Platinum has never
exerted, or attempted to exert, any control or influence over the Company’s management or board of
directors. Further, since Platinum is not the largest shareholder of the Company and has no
connection to Peter Kellogg or any material shareholder, director or officer of the Company, it is
highly unlikely that they would have the ability to exert control or influence over the Company.
Similarly, the Shares held by Harbinger Capital Partners Master Fund I, Ltd. (“Harbinger”) and
Franklin Resources, Inc. (“Franklin”) represent only a small portion of significant worldwide
investment portfolios. In addition, the Shares held by Harbinger and Franklin represent only 5.5%
and 5.4% of the outstanding Shares, respectively, each well below 10% of the total Shares
outstanding. Harbinger also only recently acquired its Shares on September 9, 2009 and both
Harbinger and Franklin have never attempted to exert any control or influence over the Company’s
board of directors, or the Company’s management. Further, given the fact that they have no
connection to each other or to any other shareholder, director or officer of the Company and
individually hold only a small percentage of the outstanding Shares; it is also very unlikely that
they would have the ability to exert any such control or influence over the Company.
Finally, William R. Huff holds only a very small percentage of Shares (5.1%), has no connection to
any other shareholder, director or officer of the Company and has also not attempted to control or
exert any influence over the Company’s management and operations.
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| 6 |
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United States v. Corr, 543 F.2d 1042, 1050 (2d Cir.
1976). |
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| 7 |
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U.S. v. Sprecher, 783 F.Supp. 133, 159 (S.D.N.Y. 1992). |
November 3, 2009
Page 5
Conclusion
Based on the foregoing, the Company respectfully submits that only the 2,215,004 Shares held by its
officers and directors should be considered to be held by affiliates of the Company and excluded
for purposes of the $75 million market float requirement of Instruction I.B.1. After exclusion of
such Shares, the Company has a market float of $127,672,241.59 and satisfies the requirement to
utilize Form S-3.
The Company further submits that even if Peter Kellogg were determined to be an affiliate of the
Company and by reason thereof Form S-3 eligibility was calculated by excluding the 8,046,394 Shares
attributable to Mr. Kellogg, the Company would have 26,182,089 Shares outstanding not held by
affiliates and an aggregate market value of $97,659,191.97, thus satisfying the Form S-3 threshold.
We trust the foregoing to be in order, but should you have any questions or concerns, please do not
hesitate to contact the undersigned at (604) 692-3022 or Andrew Bond at (604) 692-3059.
Yours truly,
SANGRA MOLLER LLP
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| Per: |
/s/ Harjit S. Sangra |
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Harjit S. Sangra |
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| Per: |
/s/ Andrew J. Bond |
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Andrew J. Bond |
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California State Bar No. 257763
Washington State Bar No. 39502 |
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bmj/ab
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Mercer International Inc.
Attention: Jimmy S.H. Lee
David M. Gandossi |
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David Wilson, Esq.
David Wright Tremaine LLP |