PART II: 

The Target: Tally Ho Corporation ("T")
The "Hostile" Acquirer: Andrews Corporation ("A")
(100 POINTS)

On 5/1/01, Susan Andrews, Chief Executive Officer (CEO) and majority shareholder of Andrews Corporation, a Texas publicly held corporation ("A"), sent a "bear hug" letter to Joseph Tallman, Board Chairman, CEO and President of Tally Ho Corporation, a Delaware publicly traded corporation ("T"). A and T are active competitors and both manufacture advanced missile technology parts for the United States Air Force. The letter from Andrews informed Tallman that A would be willing to take either of the following actions with regards to T:  

(1) Form a "strategic alliance" in a friendly merge r, on terms acceptable to A, providing for: 

* an agreed upon price per T share valued at "up to $65 per share of T common stock," to be received in the form of A stock and other securities; 

* the retention of key T management personnel, including Mr. Tallman (to serve as co-chairman of the combined companies); 

* The management retention offer would also allow T's core management group to continue as core division managers in A, with substantial annual cash awards based on reaching defined productivity and growth targets; 

* In addition, Andrews would be willing, as a "special accommodation," to cause A to make a one-time "hello and welcome to the team" cash payment of $250,000 to each inside director and/or member of senior management joining A's new team and a special $1 Million "goodbye payment" to each terminated inside board member; and 

* A would guaranty payment, on a private purchase basis, of $85 per share for each share of director's and management's "insider" private, preferred shares held as of the date of Andrews's letter.

* a likely per common share of T offer price substantially lower than the friendly offer (perhaps in the $30-$40 per share range); 

* no tender offer for T preferred shares, just a downstream forced exchange of A 

* common and other securities in the second step freezeout merger; 

* a subsequent "take no prisoners" "freezeout merger" of T into A, and 

* upon takeover, the termination from employment of all T senior officers.

Finally, Andrews's letter states that T must respond to her letter by signing an enclosed binding Letter of Intent no later than 5/22/01, or else, the hostile tender offer will be commenced. The current common stock price of T is $25 per share.

Mr. Tallman was on vacation at the time the Andrews letter was received by T. Consequently, he didn't read the letter and the attached Letter of Intent until 5/9/01. After reading the correspondence, he immediately called for a special meeting of the board of directors of T to discuss the Andrews letter and the Letter of Intent The meeting was scheduled for May 15, 2001.

The T board is comprised of 7 directors, 4 of whom are also officers of T. The other 3 directors are outside directors. T is a New York Stock Exchange listed corporation with one class of publicly traded common stock and two classes of nontraded (private) preferred stock. Currently the inside directors own approximately 30%, or 18 million common shares of the 60 Million  issued and outstanding shares of common stock of T. The outside directors own an insignificant number of common shares (less than .0001 %).

The first class of T preferred stock is voting redeemable preferred. As such, this class of stock is entitled to vote on an equal basis (one share, one vote) with the common stockholders on all matters that the common shares vote on, and pursuant to the terms pursuant to which this class of preferred was issued, the redeemable preferred may be reacquired by T at any time, in a cash distribution at a per share purchase price of 125% times the previous month's daily closing average price of the T common stock. The redeemable preferred stock is owned privately by nonaffiliated investors who are not controlled by or subject to the influence of either T or A.

The second class of preferred stock is nonvoting except that each share of preferred stock is entitled to vote alone with the common shares and redeemable preferred shares on an equal basis (one share, one vote) in a merger or significant asset sale transaction. The preferred stock is entirely owned by the T directors and officers, having been issued prior to T corporation becoming a public company. In summary, the classes and number of shares of T stock outstanding are as follows:

o (18 MM common shares + 20 MM "nonvoting" preferred).

Note that T is obligated to numerous classes of bondholders holding unsecured corporate debts of T of various midterm maturities. Further, there are various significant trade accounts payable. In fact, the overall ratio of debt to equity is 3 to 1, the debt securities comprising the most significant aspect of the equity/liability side of T's balance sheet.

As counsel to the target T, you have been asked by Mr. Tallman to advise the board of your initial views of the following matters: