SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
(Amendment No. 1)
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|X| Preliminary Proxy Statement |_| Confidential, For Use of the
Commission Only (as permitted
by Rule 14a-6(e)(2))
|_| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Under Rule 14a-12
SPRINGS INDUSTRIES, INC.
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|_| No fee required.
|X| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
Class A Common Stock, par value $.25 per share, of Springs
Industries, Inc.
Class B Common Stock, par value $.25 per share, of Springs
Industries, Inc.
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(2) Aggregate number of securities to which transaction applies:
12,589,793 shares of Class A and Class B Common Stock (includes
1,944,493 shares underlying options to purchase shares of Class A
Common Stock).
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
$46.00 per share in the cash-out merger plus the difference between
$46.00 and the exercise price for each option to purchase Class A
Common Stock.
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(4) Proposed maximum aggregate value of transaction:
$505,450,630.56
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(5) Total fee paid:
$101,578.82
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|X| Fee paid previously with preliminary materials:
$101,578.82
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|_| Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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PRELIMINARY PROXY MATERIALS-SUBJECT TO COMPLETION, DATED JULY 5, 2001
[SPRINGS LOGO]
SPRINGS INDUSTRIES, INC.
205 NORTH WHITE STREET
FORT MILL, SOUTH CAROLINA 29715
__________, 2001
To Our Shareholders:
You are cordially invited to attend the annual meeting of shareholders
of Springs Industries, Inc. to be held on __________, 2001, at __________,
local time, at ____________________, South Carolina.
At the annual meeting of shareholders, you will be asked to consider
and vote upon a recapitalization agreement that provides for the merger of
Heartland Springs Investment Company with and into Springs. If the
recapitalization is completed, Springs will become a privately owned
corporation and you will receive $46.00 in cash for each of your shares of
Springs common stock. Immediately after the recapitalization, approximately
44% of the outstanding shares of Springs common stock will be owned by
Heartland Industrial Partners, L.P. (and its co-investors, if any) and
approximately 56% of the outstanding common stock will be owned by the Close
family, which consists of my mother, me, my brothers and sisters, certain
trusts for our benefit and our children's benefit, and two private companies
that we control. At the annual meeting, you will also be asked to consider
and vote upon a proposal to amend Springs' articles of incorporation to
exempt Springs from the restrictions on business combinations contained in
the South Carolina Code.
Your board of directors and a special committee of the disinterested
directors of the board formed to consider the recapitalization have
determined that the terms of the recapitalization agreement and the related
amendment to the articles of incorporation are advisable, fair to and in the
best interests of Springs shareholders who are not affiliated with the Close
family or Heartland Industrial Partners. ACCORDINGLY, YOUR BOARD, AFTER
RECEIVING THE UNANIMOUS RECOMMENDATION OF THE SPECIAL COMMITTEE, HAS ADOPTED
THE RECAPITALIZATION AGREEMENT AND THE RELATED AMENDMENT TO THE ARTICLES OF
INCORPORATION, AND RECOMMENDS THAT SPRINGS SHAREHOLDERS VOTE "FOR" APPROVAL
OF THE RECAPITALIZATION AGREEMENT AND "FOR" APPROVAL OF THE AMENDMENT TO THE
ARTICLES OF INCORPORATION.
You are also being asked to vote on a proposal to elect directors as
set forth in the accompanying proxy statement and a resolution ratifying the
appointment of Deloitte & Touche LLP as independent public accountants for
Springs and its subsidiaries for fiscal year 2001.
YOUR VOTE IS VERY IMPORTANT. The proposed recapitalization cannot occur
unless, among other things: (1) the recapitalization agreement is approved by
holders of two-thirds of the outstanding shares of Springs common stock and
by a majority of votes cast by shareholders whose shares are being converted
into cash, in each case with each share of class A and class B common stock
entitled to one vote, and (2) the amendment to the articles of incorporation
is approved by holders of two-thirds of the outstanding shares of Springs
common stock, with each share of class A common stock entitled to one vote
and each share of class B common stock entitled to four votes.
The eleven nominees for directors receiving the highest number of votes
will be elected as directors and each will continue to serve as a director
until the earlier of the completion of the recapitalization, the next annual
meeting or the election of a successor. Shareholders are entitled to cumulate
their votes in electing directors. For the appointment of Deloitte & Touche
as independent public accountants to be ratified, the votes cast in favor of
ratification must exceed the votes cast opposing the ratification.
Whether or not you plan to attend the annual meeting in person, please
sign and return your proxy card as soon as possible in the enclosed
self-addressed envelope so that your vote will be recorded. Even if you
return your proxy card, you may still attend the annual meeting and vote your
Springs shares in person. If you fail to vote by proxy or in person, fail to
instruct your broker how to vote or abstain, it will have the same effect as
a vote against the recapitalization agreement and the amendment to the
articles of incorporation.
The members of the Close family and certain key members of Springs'
management have interests in the recapitalization that are different from, or
in addition to, their interests as Springs shareholders. These interests are
summarized in the section entitled "Special Factors-Interests of Certain
Persons in the Recapitalization" in the accompanying proxy statement. The
members of the Close family have agreed to vote their Springs shares in favor
of the recapitalization agreement and the amendment to the articles of
incorporation and have enough votes as a group to assure the approval of the
amendment to the articles of incorporation. The Close family owns an
aggregate of 171,488 shares of Springs class A common stock and 7,149,291
shares of Springs class B common stock. At one vote per share for Springs
class A common stock and four votes per share for Springs class B common
stock, the Close family holds approximately 73% of the normal voting power in
Springs. In voting to approve the recapitalization agreement, with each share
of class A and class B common stock entitled to only one vote, the Close
family holds approximately 41% of the voting power. Springs is not aware of
how affiliates of Springs other than members of the Close family intend to
vote their shares with respect to the recapitalization agreement and the
amendment to the articles of incorporation.
The accompanying notice of meeting and proxy statement explain the
proposed recapitalization and amendment to the articles of incorporation and
provide specific information concerning the annual meeting. Please read these
materials carefully.
Sincerely,
Crandall Close Bowles,
CHAIRMAN OF THE BOARD AND CHIEF
EXECUTIVE OFFICER
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THIS TRANSACTION OR PASSED UPON THE
MERITS OR FAIRNESS OF SUCH TRANSACTION OR PASSED UPON THE ADEQUACY OR
ACCURACY OF THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
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This proxy statement is dated __________, 2001 and, with the
accompanying proxy card, is first being mailed to shareholders on or about
__________, 2001.
[SPRINGS LOGO]
SPRINGS INDUSTRIES, INC.
205 NORTH WHITE STREET
FORT MILL, SOUTH CAROLINA 29715
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON __________, 2001
Notice is hereby given that the annual meeting of shareholders of
Springs Industries, Inc., a South Carolina corporation, will be held on
__________, 2001, at __________, local time, at ____________________, South
Carolina, for the following purposes:
o To consider and vote upon a proposal to approve the recapitalization
agreement, dated as of April 24, 2001, between Springs and Heartland
Springs Investment Company, pursuant to which Heartland Springs will be
merged with and into Springs. As a result, each outstanding share of
Springs common stock, other than shares held by the Close family, by
Heartland Industrial Partners, L.P. (and its co-investors, if any), by
key management employees who elect prior to the effective time of the
recapitalization to retain their Springs shares and by dissenting
shareholders, will be converted into the right to receive $46.00 in
cash.
o To consider and vote upon a proposal to amend Springs' articles of
incorporation to exempt Springs from the restrictions on business
combinations contained in the South Carolina Code.
o To consider and vote upon a proposal to elect a board of eleven
directors, each of whom will continue to serve as a director until the
earlier of the completion of the recapitalization, the next annual
meeting or the election of a successor.
o To consider and vote upon a resolution ratifying the appointment of
Deloitte & Touche LLP as independent public accountants for Springs and
its subsidiaries for fiscal year 2001.
o To consider and act upon such other matters as may properly come before
the annual meeting or any adjournment or postponement of the annual
meeting.
In order for the recapitalization to be accomplished, shareholders must
approve both the recapitalization agreement and the proposed amendment to the
articles of incorporation.
A list of shareholders will be available for inspection by shareholders
of record during business hours at Springs Industries, Inc., 205 North White
Street, Fort Mill, South Carolina, from the fifth business day following the
date of this proxy statement through and including the date of the annual
meeting and at the annual meeting.
Only those persons who were holders of record of Springs common stock
at the close of business on June 27, 2001 are entitled to notice of, and to
vote at, the annual meeting.
Approval of the recapitalization agreement requires the affirmative
vote of holders of two-thirds of the outstanding shares of Springs common
stock and a majority of votes cast by shareholders whose shares are being
converted into cash, in each case with each share of class A and class B
common stock entitled to one vote. Approval of the amendment to the articles
of incorporation requires the affirmative vote of holders of two-thirds of
the outstanding shares of Springs common stock, with each share of class A
common stock entitled to one vote and each share of class B common stock
entitled to four votes. The members of the Close family have agreed to vote
their Springs shares in favor of the recapitalization agreement and the
amendment to the articles of incorporation and have enough votes as a group
to assure the approval of the amendment to the articles of incorporation. In
voting to approve the recapitalization agreement, the Close family holds
approximately 41% of the voting power.
Your board of directors and a special committee of the disinterested
directors of the board formed to consider the recapitalization have
determined that the terms of the recapitalization agreement and the related
amendment to the articles of incorporation are advisable, fair to and in the
best interests of Springs shareholders who are not affiliated with the Close
family or Heartland Industrial Partners. ACCORDINGLY, YOUR BOARD, AFTER
RECEIVING THE UNANIMOUS RECOMMENDATION OF THE SPECIAL COMMITTEE, HAS ADOPTED
THE RECAPITALIZATION AGREEMENT AND THE RELATED AMENDMENT TO THE ARTICLES OF
INCORPORATION, AND
RECOMMENDS THAT SPRINGS SHAREHOLDERS VOTE "FOR" APPROVAL OF THE
RECAPITALIZATION AGREEMENT AND "FOR" APPROVAL OF THE AMENDMENT TO THE ARTICLES
OF INCORPORATION.
Under South Carolina law, dissenters' rights will be available to
holders of Springs class B common stock who do not vote in favor of the
recapitalization agreement. In order to exercise these dissenters' rights,
holders of Springs class B common stock must follow the procedures required
by South Carolina law, which are summarized in the section entitled
"Dissenters' Rights" in the accompanying proxy statement.
The recapitalization agreement and related amendment to the articles of
incorporation are described in the accompanying proxy statement, which also
contains additional information about the other items being voted upon at the
annual meeting. We urge you to read the proxy statement carefully. A copy of
the recapitalization agreement is attached as Appendix A and the form of
amendment to the articles of incorporation is attached as Appendix C to the
proxy statement.
By order of the Board of Directors,
C. Powers Dorsett,
SENIOR VICE PRESIDENT-GENERAL
COUNSEL AND SECRETARY
Fort Mill, South Carolina
__________, 2001
TABLE OF CONTENTS
PAGE
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SUMMARY TERM SHEET...........................................................1
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION..................8
WHO CAN HELP ANSWER YOUR QUESTIONS...........................................9
THE ANNUAL MEETING..........................................................10
Time and Place........................................................10
Purpose...............................................................10
Record Date; Outstanding Voting Securities............................10
Cumulative Voting for Directors.......................................10
Vote Required.........................................................10
Voting By Proxy.......................................................11
Proxy Solicitation....................................................12
Other Business........................................................12
INFORMATION ABOUT THE RECAPITALIZATION PARTICIPANTS.........................13
Springs Industries, Inc...............................................13
Heartland.............................................................13
The Close Family......................................................14
SPECIAL FACTORS.............................................................19
Structure of the Recapitalization.....................................19
Background of the Recapitalization....................................19
Certain Financial Projections.........................................28
Special Committee.....................................................29
Recommendation of the Special Committee and the Springs Board;
Springs' Purpose and Reasons for the Recapitalization...........30
Springs' Position Regarding the Fairness of the Recapitalization......34
Opinion of UBS Warburg LLC............................................35
The Close Family's Position Regarding the Fairness of the
Recapitalization................................................41
The Close Family's Purpose and Reasons for the Recapitalization.......42
Heartland's Position Regarding the Fairness of the
Recapitalization................................................44
Heartland's Purpose and Reasons for the Recapitalization..............45
Accounting Treatment..................................................46
Interests of Certain Persons in the Recapitalization..................46
Shareholders Agreement................................................48
Certain Effects of the Recapitalization...............................50
Plans for Springs after the Recapitalization..........................51
Shareholder Litigation Challenging the Recapitalization...............51
Conduct of the Business of Springs if the Recapitalization is Not
Consummated.....................................................52
FINANCING FOR THE RECAPITALIZATION..........................................53
THE RECAPITALIZATION........................................................55
Structure and Effective Time..........................................55
Recapitalization Consideration........................................55
Payment Procedures....................................................55
Treatment of Management Incentive Plans...............................55
Articles of Incorporation; Bylaws.....................................56
Directors and Officers................................................56
Representations and Warranties........................................56
Conduct of the Business of Springs Prior to the Recapitalization......57
Access to Information.................................................58
Prohibition Against Solicitation of Competing Transactions............58
State Takeover Laws; Reports..........................................59
Director and Officer Liability........................................59
Financing Arrangements................................................59
Employee Benefit Plans................................................59
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Reasonable Best Efforts to Consummate the Recapitalization............60
Shareholders Meetings; Proxy Material.................................60
Conditions to the Recapitalization....................................60
Termination...........................................................61
Expenses..............................................................62
Amendment and Waiver..................................................62
Estimated Fees and Expenses of the Recapitalization...................63
PROPOSED AMENDMENT TO SPRINGS' ARTICLES OF INCORPORATION....................64
DISSENTERS' RIGHTS..........................................................65
REGULATORY APPROVALS........................................................67
U.S. FEDERAL INCOME TAX CONSEQUENCES........................................68
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA.............................70
COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION.................72
DIRECTORS AND EXECUTIVE OFFICERS OF SPRINGS.................................73
ELECTION OF DIRECTORS.......................................................76
Directors and Nominees................................................76
Information Regarding the Board of Directors..........................77
DIRECTOR AND EXECUTIVE OFFICER COMPENSATION.................................79
Executive Officer Compensation and Related Information................79
Retirement Plans......................................................80
Change-of-Control Agreement...........................................81
Management Compensation and Organization Committee Report.............81
Compensation Committee Interlocks and Insider Participation...........83
Performance Graph.....................................................84
Peer Group Companies..................................................85
Companies in Last Year's Peer Group That Are Not Included in the
Current Peer Group..............................................86
Directors' Compensation...............................................86
OTHER ANNUAL MEETING MATTERS................................................88
Report of the Audit Committee.........................................88
Ratification of Appointment of Public Accountants.....................88
Security Ownership of Certain Beneficial Owners and Management........89
Transactions with Certain Persons.....................................91
Other Transactions....................................................92
Section 16(a) Beneficial Ownership Reporting Compliance...............92
Annual Report and Form 10-K...........................................92
Map and Directions....................................................93
OTHER MATTERS...............................................................94
INDEPENDENT ACCOUNTANTS.....................................................94
FUTURE SHAREHOLDER PROPOSALS................................................94
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.............................94
WHERE YOU CAN FIND MORE INFORMATION.........................................94
APPENDICES
APPENDIX A- RECAPITALIZATION AGREEMENT.....................................A-1
APPENDIX B- OPINION OF UBS WARBURG LLC.....................................B-1
APPENDIX C- FORM OF AMENDMENT TO THE ARTICLES OF INCORPORATION.............C-1
APPENDIX D- SECTIONS 33-13-101 THROUGH 33-13-310 OF THE SOUTH CAROLINA
BUSINESS CORPORATION ACT.......................................D-1
APPENDIX E- SPRINGS AUDIT COMMITTEE CHARTER................................E-1
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SUMMARY TERM SHEET
THE FOLLOWING SUMMARY TERM SHEET BRIEFLY DESCRIBES ALL OF THE MATERIAL TERMS
OF THE PROPOSED RECAPITALIZATION. THIS SUMMARY TERM SHEET IS INTENDED TO
SERVE AS AN OVERVIEW ONLY. FOR A MORE COMPLETE UNDERSTANDING OF THE PROPOSED
RECAPITALIZATION AND RELATED TRANSACTIONS, PLEASE REFER TO THE INFORMATION
CONTAINED ELSEWHERE IN THIS DOCUMENT, THE APPENDICES TO THIS DOCUMENT AND THE
DOCUMENTS REFERRED TO OR INCORPORATED BY REFERENCE IN THIS DOCUMENT.
RECAPITALIZATION PARTICIPANTS
SPRINGS INDUSTRIES, INC.
o Springs Industries, Inc. is engaged in the manufacturing, marketing and
sale of textile and nontextile home furnishings products. We refer to
Springs Industries, Inc. as "Springs" throughout this document. See
"Information About the Recapitalization Participants--Springs Industries,
Inc." on page 13.
HEARTLAND SPRINGS INVESTMENT COMPANY
o Heartland Springs Investment Company is the entity that will be merged
with and into Springs in the recapitalization. It was formed at the
direction of Heartland Industrial Partners, L.P., a private equity fund,
for the purpose of facilitating the recapitalization. We refer to
Heartland Springs Investment Company as "Heartland Springs" throughout
this document. See "Information About the Recapitalization Participants--
Heartland" on pages 13 to 14.
HEARTLAND INDUSTRIAL PARTNERS, L.P.
o Heartland Industrial Partners, L.P. is a private equity fund
established to "invest in, build and grow" industrial companies in sectors
with attractive consolidation opportunities. The firm has equity
commitments of approximately $1.2 billion. We refer to Heartland
Industrial Partners, L.P. as "Heartland Industrial Partners" throughout
this document.
o Heartland Industrial Partners currently owns all of the equity of
Heartland Springs. At the time of and following the recapitalization,
Heartland Industrial Partners may permit certain institutional investors
and associated funds under common management with Heartland Industrial
Partners to purchase a portion of the equity of Heartland Springs. We
refer to Heartland Industrial Partners, together with additional permitted
co-investors, if any, as the "Heartland Investors" throughout this
document.
o For a more detailed description of the various Heartland entities, see
"Information About the Recapitalization Participants--Heartland" on pages
13 to 14.
THE CLOSE FAMILY
o The Close family will be treated differently in the recapitalization
from all other Springs shareholders. The members of the Close family
consist of (1) certain descendants of Leroy Springs, Springs' founder,
including Crandall C. Bowles, chairman and chief executive officer of
Springs, and Leroy S. Close, a director of Springs, (2) certain trusts for
the benefit of these Close family members and their children and (3) two
privately owned companies controlled by these individuals and trusts. We
refer to these individuals and entities as the "Close family" throughout
this document.
o The Close family owns an aggregate of 171,488 shares of Springs class A
common stock and 7,149,291 shares of Springs class B common stock. These
holdings represent approximately 1.6% of the shares of Springs class A
common stock, approximately 99.9% of the shares of Springs class B common
stock and approximately 41% of all Springs common stock, outstanding as of
June 27, 2001. At one vote per share for Springs class A common stock and
four votes per share for Springs class B common stock, the Close family
holds approximately 73% of the normal voting power in Springs. In voting
to approve the recapitalization agreement, with each share of class A and
class B common stock entitled to only one vote, the Close family holds
approximately 41% of the voting power.
o For a more detailed description of the Close family, see "Information
About the Recapitalization Participants--the Close family" on pages 14 to
18.
THE RECAPITALIZATION
o The Close family and Heartland Industrial Partners propose to effect a
recapitalization
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of Springs by means of a merger of Heartland Springs with and into Springs.
o As a result of this recapitalization:
- Each of your shares of Springs common stock will be converted into the
right to receive $46.00 in cash.
- Each share of Heartland Springs common stock will be converted into one
share of Springs class A common stock.
- The shares of Springs common stock held by the Close family, by the
Heartland Investors and by key management employees who elect prior to
the effective time of the recapitalization to retain their Springs
shares, will not be affected by the recapitalization and will remain
outstanding.
o Shares of Springs class A common stock will no longer be listed on the
New York Stock Exchange and price quotations with respect to sales of
shares of class A common stock in the public market will no longer be
available. The registration of Springs shares under the Securities
Exchange Act of 1934 will be terminated, and Springs will cease filing
reports with the Securities and Exchange Commission.
o Springs shareholders whose shares are being converted into cash will no
longer have any financial interest in, and will not be shareholders of,
Springs. As a result, such shareholders will not have the opportunity to
participate in the future earnings, profits and growth of Springs.
o All holders of options with an exercise price per share of Springs
class A common stock below $46.00 may choose (1) a cash-out election,
pursuant to which each such option will be converted at the effective time
of the recapitalization to cash equal to the excess of $46.00 over the
exercise price or (2) a retention election, pursuant to which each such
option will be retained. By their terms, Springs stock options cannot be
cashed out by Springs without optionholder consent. In addition, certain
key management employees may elect a combination of a cash-out election
and retention election and, for those options they elect to retain, will
receive, for no additional consideration, accelerated vesting and an
appreciation right. This appreciation right allows the holder to receive
cash or shares for each exercised option without having to pay the
exercise price in cash. All options with an exercise price per share of
class A common stock above $46.00 will be retained automatically by
employees and will contain an appreciation right.
o Prior to the recapitalization, the Close family intends to sell up to
$50 million in value of its Springs shares, representing approximately 15%
of its holdings, to Heartland Industrial Partners at $46 per share.
Immediately after the recapitalization, the Heartland Investors will own
approximately 44% of the outstanding shares of Springs common stock and
the Close family will own approximately 56% of the outstanding common
stock.
o For a more detailed description of the recapitalization, see "Special
Factors-Structure of the Recapitalization" on page 19.
REASONS FOR THE RECAPITALIZATION
o The Close family and Heartland Industrial Partners believe that it is
desirable to return Springs to private ownership at this time to enable
Springs and its management to respond more effectively to the complex and
rapidly changing conditions in the home furnishings industry and to focus
management's attention on the long-term interests of Springs. The Close
family and Heartland Industrial Partners believe that the periodic
reporting requirements to which Springs is subject as a public company,
and the resulting focus on quarterly performance and short-term stock
price movement, impair Springs' ability to take actions which are believed
necessary to enhance its value over the long term, but which may produce
unattractive near-term results. See "Special Factors--The Close Family's
Purpose and Reasons for the Recapitalization" on pages 42 to 44 and
"Special Factors--Heartland's Purpose and Reasons for the
Recapitalization" on pages 45 to 46.
COMPLETION OF THE RECAPITALIZATION
o Assuming that shareholders approve the recapitalization, we expect to
complete the recapitalization in __________ 2001, although we cannot
assure you that the actual date will not be later. If the recapitalization
is completed, Springs will send you detailed instructions regarding
surrendering your Springs shares and receiving your cash payment. PLEASE
DO NOT SEND YOUR SHARE CERTIFICATES NOW.
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ANNUAL MEETING
At the annual meeting, which will be held on __________, 2001, at __________,
local time, at ____________________, South Carolina, you will be asked to
consider and vote upon the following four matters:
o A proposal to approve the recapitalization agreement, which is the
legal document governing the recapitalization and the related transactions
that we describe in this document. See "The Recapitalization" on pages 55
to 63. A copy of the recapitalization agreement is attached as Appendix A
to this document.
o A proposal to amend Springs' articles of incorporation to exempt
Springs from the restrictions on business combinations contained in the
South Carolina Code. See "Proposed Amendment to Springs' Articles of
Incorporation" on page 64. The form of amendment to the articles of
incorporation is attached as Appendix C to this document.
o A proposal to elect a board of eleven directors, each of whom will
continue to serve as a director until the earlier of the completion of the
recapitalization, the next annual meeting or the election of a successor.
See "Election of Directors" on pages 76 to 78.
o A resolution ratifying the appointment of Deloitte & Touche LLP as
independent public accountants for Springs and its subsidiaries for fiscal
year 2001. See "Other Annual Meeting Matters-Ratification of Appointment
of Public Accountants" on pages 88 to 89.
RECOMMENDATION OF SPRINGS BOARD OF DIRECTORS
o Because one member of the Close family is a director and an executive
officer of Springs and another member is a director of Springs, the
Springs board of directors established a special committee consisting of
the nine disinterested directors of the board to review and evaluate the
proposed recapitalization. None of the members of the special committee is
a member of the Close family or a Springs employee and none will have any
ownership interest in Springs following the recapitalization. The special
committee believes that the terms of the recapitalization agreement and
the amendment to the articles of incorporation are advisable, fair to and
in the best interests of Springs shareholders who are not affiliated with
the Close family or Heartland Industrial Partners. The special committee
unanimously recommended that the Springs board adopt the recapitalization
agreement and the amendment to the articles of incorporation, and that the
Springs board recommend that Springs shareholders vote "FOR" approval of
the recapitalization agreement and "FOR" approval of the amendment to the
articles of incorporation.
o The Springs board of directors believes that the terms of the
recapitalization agreement and the amendment to the articles of
incorporation are advisable, fair to and in the best interests of Springs
shareholders who are not affiliated with the Close family or Heartland
Industrial Partners and recommends that Springs shareholders vote "FOR"
approval of the recapitalization agreement and "FOR" approval of the
amendment to the articles of incorporation.
o The Springs board of directors recommends that Springs shareholders
vote "FOR" the proposal to elect the board of eleven directors and "FOR"
the resolution ratifying the appointment of Deloitte & Touche as
independent public accountants for Springs and its subsidiaries for fiscal
year 2001.
o For a more detailed description of these recommendations, see "Special
Factors-Recommendation of the Special Committee and the Springs Board;
Springs' Purpose and Reasons for the Recapitalization" on pages 30 to 33.
FAIRNESS OF THE RECAPITALIZATION
o The price to be paid for Springs shares in the recapitalization was
negotiated by the special committee, on the one hand, and the Close family
and Heartland Industrial Partners, on the other. The Springs board of
directors formed the special committee to evaluate and negotiate the terms
of the recapitalization agreement and to ensure that the interests of
Springs' public shareholders were appropriately represented. The special
committee independently selected and retained legal and financial advisors
to assist it in its negotiation. The special committee received an
opinion, dated April 24, 2001, from its financial advisor, UBS Warburg
LLC, that as of the date of the opinion and subject to the matters set
forth in the opinion, the $46.00 per share cash consideration to be
received by Springs shareholders whose shares are being converted into
cash in the proposed recapitalization is fair from a financial point of
view to such shareholders. Both the special committee and the Springs
board considered this opinion, among other factors, in arriving at their
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recommendations with respect to the recapitalization. See "Special
Factors-Springs' Position Regarding the Fairness of the Recapitalization"
on page 34.
o The full text of UBS Warburg's written opinion is attached as Appendix
B to this document. We encourage you to read this opinion carefully in its
entirety for a description of the procedures followed, assumptions made,
matters considered and limitations on the review undertaken. UBS Warburg's
opinion is directed to the special committee, relates only to the
fairness, from a financial point of view, of the $46.00 per share cash
consideration to be received by Springs shareholders whose shares are
being converted into cash in the proposed recapitalization, and does not
constitute a recommendation about how to vote on the recapitalization
agreement or on any other matter.
o The members of the Close family believe that the recapitalization is
substantively and procedurally fair to Springs shareholders who are not
affiliated with the Close family or Heartland Industrial Partners. See
"Special Factors-The Close Family's Position Regarding the Fairness of the
Recapitalization" on pages 41 to 42.
o Heartland Industrial Partners and Heartland Springs believe that the
recapitalization is substantively and procedurally fair to Springs
shareholders who are not affiliated with the Close family or Heartland
Industrial Partners. See "Special Factors-Heartland's Position Regarding
the Fairness of the Recapitalization" on pages 44 to 45.
VOTE REQUIRED
o Only holders of shares of Springs common stock who were holders at the
close of business on the record date, June 27, 2001, are entitled to
notice of and to vote at the annual meeting. As of that date, there were
10,814,516 shares of Springs class A common stock and 7,151,563 shares of
Springs class B common stock issued and outstanding. Each share of class A
common stock is entitled to one vote on any matter that may properly come
before the annual meeting. Each share of class B common stock is entitled
to one vote on the proposal to approve the recapitalization agreement and
four votes on any other matter that may properly come before the annual
meeting.
o The recapitalization agreement must be approved by holders of
two-thirds of the outstanding shares of Springs common stock and by a
majority of votes cast by shareholders whose shares are being converted
into cash, in each case with each share of class A and class B common
stock entitled to one vote.
o The amendment to the articles of incorporation must be approved by
holders of two-thirds of the outstanding shares of Springs common stock,
with each share of class A common stock entitled to one vote and each
share of class B common stock entitled to four votes.
o In order for the recapitalization to be accomplished, shareholders must
approve both the recapitalization agreement and the proposed amendment to
the articles of incorporation.
o The members of the Close family have agreed to vote their Springs
shares in favor of the recapitalization agreement and the amendment to the
articles of incorporation and have enough votes as a group to assure the
approval of the amendment to the articles of incorporation. In voting to
approve the recapitalization agreement, the Close family holds
approximately 41% of the voting power. Springs is not aware of how
affiliates of Springs other than members of the Close family intend to
vote their shares with respect to the recapitalization agreement and the
amendment to the articles of incorporation.
o You are being asked to vote on a proposal to elect directors. The
eleven nominees for directors receiving the highest number of votes will
be elected as directors. Shareholders are entitled to cumulate their votes
in electing directors.
o For the appointment of Deloitte & Touche as independent public
accountants to be ratified, the votes cast in favor of ratification must
exceed the votes cast opposing the ratification.
o If you fail to vote by proxy or in person, fail to instruct your broker
how to vote or abstain, it will have the same effect as a vote against the
recapitalization agreement and the amendment to the articles of
incorporation.
o You can change your vote at any time before we vote your proxy at the
annual meeting in any of three ways. First, you can send a written notice
to the Secretary of Springs at the address below stating that you would
like to revoke your proxy. Second, you can complete a new, later-dated
proxy card and send it to the Secretary of Springs, and the new proxy card
will automatically replace
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any earlier proxy card you returned. Third, you can attend the annual meeting
and vote in person. You should send any written notice or new proxy card to
the Secretary of Springs at the following address: Springs Industries, Inc.,
205 North White Street, Fort Mill, South Carolina 29715, Attention: Corporate
Secretary. If you have instructed a broker to vote your shares, you must
follow the instructions received from your broker to change your vote.
o For a more detailed description of these voting requirements, see "The
Annual Meeting" on pages 10 to 12.
FINANCING FOR THE RECAPITALIZATION
o It is estimated that approximately $1.24 billion will be required to
effect the recapitalization, to repay the portion of Springs' existing
debt being refinanced as a result of the completion of the
recapitalization and to pay all related fees and expenses. The completion
of the recapitalization is conditioned on Springs obtaining sufficient
debt and receivables financing from The Chase Manhattan Bank and a
syndicate of other banks to finance the recapitalization and related
transactions. For a more detailed description of the financing for the
recapitalization and for a table summarizing the estimated sources of and
uses for funds in connection with the recapitalization, see "Financing for
the Recapitalization" on pages 53 to 54.
TERMS OF THE RECAPITALIZATION AGREEMENT
o Conditions to the Recapitalization. The completion of the
recapitalization depends on a number of conditions being met. In addition
to customary conditions relating to our compliance with the
recapitalization agreement, these conditions include the following:
- approval of the recapitalization agreement by the holders of two-thirds
of the outstanding shares of Springs common stock and by a majority of
votes cast by shareholders whose shares are being converted into cash,
in each case with each share of class A and class B common stock
entitled to one vote;
- approval of the amendment to the articles of incorporation by holders
of two-thirds of the outstanding shares of Springs common stock, with
each share of class A common stock entitled to one vote and each share
of class B common stock entitled to four votes;
- absence of any law or regulation or any judgment, injunction, order or
decree of any governmental authority prohibiting or restricting
completion of the recapitalization; and
- financing as contemplated by the commitment letter provided by The
Chase Manhattan Bank and JP Morgan having been provided on
substantially the terms and conditions identified in such letter or on
such other terms and conditions, or involving such other financing
sources, as are acceptable to Heartland Springs and are not materially
more onerous.
o Termination of the Recapitalization Agreement. Springs and Heartland
Springs can mutually agree at any time prior to the effective time of the
recapitalization to terminate the recapitalization agreement without
completing the recapitalization, even if Springs shareholders have
approved it. Also, either Springs or Heartland Springs can terminate the
recapitalization agreement, without the consent of the other, in various
circumstances, including the following:
- if the recapitalization has not been completed by October 24, 2001,
unless the party seeking to terminate has caused the failure of
completion by breaching any provision of the recapitalization agreement;
- if there is any law or regulation that makes completion of the
recapitalization illegal or otherwise prohibited, or any judgment,
injunction, order or decree of any governmental authority having
competent jurisdiction enjoining Springs or Heartland Springs from
completing the recapitalization is entered and such judgment,
injunction, order or decree has become final and nonappealable;
- if the recapitalization agreement and the amendment to the articles of
incorporation have not been approved by Springs shareholders; and
- if there has been a material breach of or failure to perform any
representation, warranty, covenant or agreement on the part of the
other party that would cause any condition to the recapitalization not
to be satisfied and such condition is incapable of being satisfied by
October 24, 2001.
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o In addition, Heartland Springs may, without the consent of Springs,
terminate the recapitalization agreement if the special committee has
withdrawn or modified in a manner adverse to Heartland Springs its
recommendation to the Springs board of directors to adopt, or if the
Springs board has withdrawn or modified in a manner adverse to Heartland
Springs its recommendation to Springs shareholders to approve, the
recapitalization agreement and the amendment to the articles of
incorporation.
o Springs may, without the consent of Heartland Springs, terminate the
recapitalization agreement if it has received an acquisition proposal that
the Springs board of directors or the special committee determines is more
favorable to Springs shareholders (even if the consideration to be
received may have less value) and the Springs board or the special
committee determines in good faith, after consultation with outside legal
counsel, that adopting or recommending such offer is reasonably likely to
be required in the exercise of its respective fiduciary duties under
applicable law.
o For a more detailed description of the terms of the recapitalization
agreement, see "The Recapitalization" on pages 55 to 63. The
recapitalization agreement is the legal document that governs the
recapitalization. We have attached the recapitalization agreement as
Appendix A to this document, and we encourage you to read it carefully.
INTERESTS OF CERTAIN PERSONS IN THE RECAPITALIZATION
o The members of the Close family and certain members of Springs'
management have interests in the recapitalization as employees or
directors of Springs, or as shareholders with a continuing equity interest
in Springs, that are different from, or in addition to, yours as a Springs
shareholder. Specifically:
- the members of the Close family will not receive $46.00 per share in
cash for all of their Springs shares, and will instead remain
significant shareholders of Springs, with the ability to share in the
future growth and profits of Springs; and
- certain key management employees of Springs are being given the
opportunity to retain their Springs shares in the recapitalization, and
will receive certain enhancements to the options that they choose to
retain after the recapitalization.
o When making the determination to adopt and recommend approval of the
recapitalization agreement and the amendment to the articles of
incorporation to the Springs board of directors, in the case of the
special committee, and to Springs shareholders, in the case of the Springs
board, both the special committee and the Springs board were aware of and
considered these interests of the Close family and Springs' management.
o For a more detailed description of the interests of certain persons,
see "Special Factors--Interests of Certain Persons in the
Recapitalization" on pages 46 to 47.
SHAREHOLDERS AGREEMENT
o The Close family and Heartland Industrial Partners have entered into a
shareholders agreement to govern certain of their rights, duties and
obligations relating to the recapitalization and their ownership of
Springs stock following the recapitalization. The shareholders agreement
provides that until October 24, 2001, the Close family will vote in favor
of the recapitalization and any other matter that would facilitate
completion of the recapitalization, and against any alternative
transaction. See "Special Factors--Shareholders Agreement" on pages 48 to
50.
ACCOUNTING TREATMENT
o We expect that the merger will be treated as a "recapitalization" for
accounting purposes. See "Special Factors--Accounting Treatment" on page
46.
DISSENTERS' RIGHTS
o If you are a holder of Springs class B common stock, you have the right
to dissent from approval of the recapitalization agreement and, subject to
compliance with the requirements and procedures of South Carolina law, to
receive payment of the "fair value" of your shares of Springs class B
common stock. See "Dissenters' Rights" on pages 65 to 66. A copy of the
relevant articles of the South Carolina Business Corporation Act is
attached as Appendix D to this document.
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o Because Springs class A common stock is traded on the New York Stock
Exchange, under South Carolina law, holders of Springs class A common
stock do not have dissenters' rights in connection with the
recapitalization.
REGULATORY APPROVALS
o In order to complete the recapitalization, Springs and Heartland
Springs are required to make certain filings with and receive clearance
from the U.S. Federal Trade Commission and the Antitrust Division of the
U.S. Department of Justice under federal antitrust laws. On June 1, 2001,
Springs was granted early termination of the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976. The applicable
approvals under Canadian antitrust law were obtained on June 4, 2001.
Although not currently anticipated, there may be other regulatory filings
required in other foreign jurisdictions. See "Regulatory Approvals" on
page 67.
U.S. FEDERAL INCOME TAX CONSEQUENCES
o Your receipt of cash in exchange for your Springs shares will be a
taxable transaction for U.S. federal income tax purposes and may also be a
taxable transaction under applicable state, local and other tax laws. See
"U.S. Federal Income Tax Consequences" on pages 68 to 69.
SHAREHOLDER LITIGATION CHALLENGING THE RECAPITALIZATION
o Springs, Springs' directors and Heartland Industrial Partners are named
as defendants in several purported class actions alleging that the
defendants have breached their duties to Springs shareholders in
connection with the proposed recapitalization, and that the $44.00 per
share price initially proposed by the Close family and Heartland
Industrial Partners was inadequate and unfair. On April 24, 2001, the
parties to the cases described above entered into a memorandum of
understanding in which the plaintiffs have agreed to settle the lawsuits
and dismiss the claims with prejudice, subject to court approval and
certain other contingencies. See "Special Factors--Shareholder Litigation
Challenging the Recapitalization" on page 51.
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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION
This document includes and incorporates by reference statements that
are not historical facts. These forward-looking statements are based on our
current plans and expectations relating to analyses of value, expectations
for anticipated growth in the future and future success under various
efforts, and, as such, these forward-looking statements involve uncertainty
and risk. You can find many of these statements by looking for words such as
"believes," "expects," "anticipates," "estimates," "plans," "intends,"
"projects," "predicts" or similar expressions in this document or in the
documents incorporated in this proxy statement by reference.
These forward-looking statements are subject to numerous assumptions,
risks and uncertainties. These forward-looking statements are not guarantees
of future performance, and actual results may differ materially from those
contemplated by such forward-looking statements. You are cautioned to
consider these statements in light of the following factors:
o the fact that these forward-looking statements are based on
information of a preliminary nature which may be subject to further and
continuing review and adjustment;
o the health of the retail economy in general;
o the risk of fluctuating demand for our home furnishings products;
o the risk of fluctuating prices of cotton and other raw materials;
o our ability to continue manufacturing high-quality products at
competitive costs and maintain or increase product pricing;
o our ability to compete with imports;
o our ability to maintain relationships with key customers;
o competitors not introducing new products that will substantially reduce
our market share in our most significant product lines;
o financing being available on acceptable terms to fund the
recapitalization and future growth; and
o our ability to obtain necessary regulatory approvals.
In addition, actual results could differ materially from the
forward-looking statements contained in this document as a result of the
timing of the completion of the recapitalization or the impact of the
recapitalization on operating results, capital resources, profitability, cash
requirements or liquidity. Except to the extent required under the federal
securities laws, Springs does not intend to make publicly available any
update or other revisions to these forward-looking statements to reflect
circumstances arising after the date of the preparation of such statements.
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WHO CAN HELP ANSWER YOUR QUESTIONS
If you have more questions about the recapitalization or would like
additional copies of this document, you should contact our solicitation agent:
Georgeson Shareholder Communications Inc.
17 State Street
New York, New York 10004
Telephone Number: (212) 440-9800
If you would like to request documents, please do so by __________,
2001 to receive them prior to the annual meeting.
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THE ANNUAL MEETING
TIME AND PLACE
The solicitation of the enclosed proxy is made by the board of
directors of Springs for use at the annual meeting of shareholders of Springs
to be held on __________, 2001, at __________, local time, at
____________________, South Carolina, and at any adjournment thereof. You
should read this document carefully before voting your shares.
PURPOSE
At the annual meeting, shareholders of Springs will be asked to
consider and vote upon the following matters:
o A proposal to approve the recapitalization agreement, dated as of April
24, 2001, between Springs and Heartland Springs, pursuant to which
Heartland Springs will be merged with and into Springs. As a result,
each outstanding share of Springs common stock, other than shares
held by the Close family, by the Heartland Investors, by key
management employees who elect prior to the effective time of the
recapitalization to retain their Springs shares and by dissenting
shareholders, will be converted into the right to receive $46.00 in
cash.
o A proposal to amend Springs' articles of incorporation to exempt
Springs from the restrictions on business combinations contained in
the South Carolina Code.
o A proposal to elect a board of eleven directors, each of whom will
continue to serve as a director until the earlier of the completion
of the recapitalization, the next annual meeting or the election of
a successor.
o A resolution ratifying the appointment of Deloitte & Touche LLP as
independent public accountants for Springs and its subsidiaries for
fiscal year 2001.
o Such other matters as may properly come before the annual meeting or
any adjournment or postponement of the annual meeting.
RECORD DATE; OUTSTANDING VOTING SECURITIES
The close of business on June 27, 2001 has been fixed as the record
date for determining the holders of Springs common stock entitled to vote at
the 2001 annual meeting. On the record date, 10,814,516 shares of class A
common stock and 7,151,563 shares of class B common stock were outstanding.
Each share of class A common stock is entitled to one vote on any matter that
may properly come before the annual meeting. Each share of class B common
stock is entitled to one vote on the proposal to approve the recapitalization
agreement and four votes on any other matter that may properly come before
the annual meeting.
CUMULATIVE VOTING FOR DIRECTORS
The election of Springs directors is conducted by cumulative voting
whereby each shareholder is entitled to cast the number of votes equal to (1)
the number of votes to which his shares are entitled multiplied by (2) the
number of directors to be elected. A shareholder may give one nominee all of
such votes or may distribute such votes among the nominees to be elected in
such manner as he may desire.
VOTE REQUIRED
QUORUM. Under South Carolina law and Springs' bylaws, a quorum is
required to conduct business at the annual meeting. A quorum is the presence,
in person or by proxy, of a majority of the votes entitled to be cast at the
meeting. Abstentions, votes withheld from director nominees and broker
non-votes are counted as present for purposes of determining a quorum.
-10-
VOTE REQUIRED. The recapitalization agreement must be approved by
holders of two-thirds of the outstanding shares of Springs common stock and a
majority of votes cast by shareholders whose shares are being converted into
cash, in each case with each share of class A and class B common stock
entitled to one vote. The amendment to the articles of incorporation must be
approved by holders of two-thirds of the outstanding shares of Springs common
stock, with each share of class A common stock entitled to one vote and each
share of class B common stock entitled to four votes.
The members of the Close family have agreed to vote their Springs
shares in favor of the recapitalization agreement and the amendment to the
articles of incorporation and have enough votes as a group to assure the
approval of the amendment to the articles of incorporation. The Close family
owns an aggregate of 171,488 shares of Springs class A common stock and
7,149,291 shares of Springs class B common stock. At one vote per share for
Springs class A common stock and four votes per share for Springs class B
common stock, the Close family holds approximately 73% of the normal voting
power in Springs. In voting to approve the recapitalization agreement, with
each share of class A and class B common stock entitled to only one vote, the
Close family holds approximately 41% of the voting power. Springs is not
aware of how affiliates of Springs, other than members of the Close family,
intend to vote their shares with respect to the recapitalization agreement
and the amendment to the articles of incorporation.
The eleven nominees for directors receiving the highest number of votes
will be elected as directors. For the appointment of Deloitte & Touche as
independent public accountants to be ratified, the votes cast in favor of
ratification must exceed the votes cast opposing the ratification. If you
fail to vote by proxy or in person, fail to instruct your broker how to vote
or abstain, it will have the same effect as a vote against the
recapitalization agreement and the amendment to the articles of incorporation.
VOTING BY PROXY
VOTING. To vote, just indicate on the enclosed proxy card how you want
to vote, and then date, sign and mail it in the enclosed envelope. Please
vote as soon as possible to ensure that your shares are represented at the
annual shareholders meeting. PLEASE DO NOT SEND ANY STOCK CERTIFICATES WITH
YOUR PROXY CARD.
If you direct that a proxy be voted in a specific manner or specify a
choice with respect to a voting matter, your shares will be voted
accordingly. If no such specifications are made, your shares represented by
each proxy will be voted FOR the recapitalization agreement, FOR the
amendment to the articles of incorporation, FOR the nominees for directors
and FOR ratification of the appointment of Deloitte & Touche. If any other
matters or business should properly come before the annual meeting (or any
adjournment), the person or persons acting under the proxy will vote in
accordance with his or their judgment. Springs will not use discretionary
voting authority to vote in favor of a postponement or adjournment of the
annual meeting in order to solicit additional proxies. In the event the
annual meeting is properly postponed or adjourned, Springs reserves the right
to solicit additional proxies.
If you hold your Springs shares through a broker, your broker will vote
your shares with respect to the recapitalization agreement and the amendment
to the articles of incorporation only if you provide instructions to your
broker on how to vote. You should instruct your broker how to vote your
shares, following the directions your broker provides. If you do not provide
instructions to your broker, your shares will not be voted, which will have
the same effect as a vote against the recapitalization agreement and the
amendment to the articles of incorporation.
REVOKING YOUR PROXY. You can change your vote at any time before we
vote your proxy at the annual meeting in any of three ways. First, you can
send a written notice to the Secretary of Springs at the address below
stating that you would like to revoke your proxy. Second, you can complete a
new, later-dated proxy card and send it to the Secretary of Springs, and the
new proxy card will automatically replace any earlier proxy card you
returned. Third, you can attend the annual meeting and vote in person. You
should send any written notice or new proxy card to the Secretary of Springs
at the following address: Springs Industries, Inc., 205 North White Street,
Fort Mill, South Carolina 29715, Attention: Corporate Secretary. If you have
instructed a broker to vote your shares, you must follow the instructions
received from your broker to change your vote.
-11-
PROXY SOLICITATION
Solicitation of proxies other than by mail may be made by telephone,
telegraph or personal interview by officers and employees of Springs who will
not be additionally compensated. Springs has engaged Georgeson Shareholder
Communications Inc. to make arrangements with brokers, nominees, fiduciaries
and other custodians for distribution of proxy materials to their principals
and to solicit return of proxies from these institutions. Springs will
reimburse these institutions for their expenses in accordance with the rules
of the New York Stock Exchange and will pay Georgeson a fee of approximately
$8,000, plus reimbursement of reasonable expenses for its services. The cost
of soliciting proxies for the annual meeting will be borne by Springs.
OTHER BUSINESS
The Springs board of directors is not aware of any other matters or
business to be presented at the annual meeting of shareholders.
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INFORMATION ABOUT THE RECAPITALIZATION PARTICIPANTS
SPRINGS INDUSTRIES, INC.
205 North White Street
Fort Mill, South Carolina 29715
(803) 547-1500
Founded in 1887 with headquarters in Fort Mill, South Carolina, Springs
supplies leading retailers with a complete line of branded, high quality
coordinated home furnishings. Springs also produces and markets bed and bath
products for institutional and hospitality customers, home sewing fabrics,
and baby bedding and apparel products. Springs' bedding products include
branded and private label sheets and pillowcases, comforters and comforter
accessories, bedspreads, bed skirts, quilts, duvet covers, pillow shams,
decorative and bed pillows, and mattress pads. Bath products include towels,
bath and accent rugs, shower curtains, and ceramic and other bath
accessories. Window products include drapery hardware, vertical and
horizontal blinds in a range of widths and materials, motorized blinds,
pleated and cellular shades, and soft window treatments such as drapes,
valances and balloon shades. Through licensing agreements, Springs has
licensed to third parties certain of its brand names for use on kitchen and
table linen items, decorative napkin rings, flannel and knit sheets, toilet
seat covers, blankets and throws, and fabric-covered lampshades.
Springs' major brands are Wamsutta(R), Springmaid(R), Performance(TM),
Regal(R), Graber(R), Bali(R), Nanik(R), Dundee(R), FashionPleat(R),
CrystalPleat(R), Maestro(TM), Wabasso(R) and Texmade(R). Some of Springs'
major licensed brands are Harry Potter(R), Villager(R), John Deere(R) and
Pokemon(R).
Springs' home furnishings products are sold primarily through its own
sales force to retailers. Springs' retail customers include department
stores, specialty stores, national chains, mass merchandisers, home
improvement stores and catalog operations. Springs also sells bed and bath
products through distributors to institutional customers and directly to
consumers through approximately 60 company-owned outlet stores, and sells
decorative window products directly to large-scale contractors and to
distributor/fabricators. Springs operates facilities in 13 U.S. states and
owns marketing and distribution subsidiaries in Canada and Mexico.
During the last five years, Springs has not been convicted in a
criminal proceeding nor been a party to a civil proceeding (except for
matters that were dismissed without sanction or settlement) of a judicial or
administrative body of competent jurisdiction in which as a result of such
proceeding, Springs was or is subject to a judgment, decree or final order
enjoining future violations of, or prohibiting activities subject to, federal
or state securities laws or a finding of any violation with respect to such
laws.
HEARTLAND
55 Railroad Avenue, 1st Floor
Greenwich, Connecticut 06830
(203) 861-2622
Heartland Springs is a South Carolina corporation organized at the
direction of Heartland Industrial Partners, its sole shareholder, for the
purpose of facilitating the recapitalization. Immediately prior to the
effective time of the recapitalization, the Heartland Investors will invest
in Heartland Springs for purposes of completing the recapitalization. After
this investment is made, Heartland Industrial Partners will continue to
control Heartland Springs.
Heartland Springs is a non-substantive transitory merger vehicle which
will be merged out of existence at the effective time of the
recapitalization. Heartland Springs was formed solely to facilitate the
recapitalization and has not engaged in any activities other than those
relating to the recapitalization agreement and the transactions contemplated
by the recapitalization agreement. Accordingly, it does not and will not have
business activities, assets or liabilities, other than those arising under
the recapitalization agreement.
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Each of David A. Stockman, Daniel P. Tredwell and W. Gerald McConnell
is a director and an executive officer of Heartland Springs. Set forth below
is each individual's present principal occupation and employment and a brief
description of his principal occupation and business experience.
DAVID A. STOCKMAN. Mr. Stockman is a senior managing director and the
founder of Heartland Industrial Partners. Prior to founding Heartland
Industrial Partners, Mr. Stockman was a senior managing director of The
Blackstone Group L.P., a private investment bank, 345 Park Avenue, New York,
New York 10154, and had been with Blackstone since 1988. Mr. Stockman is a
director of Collins & Aikman Corporation and Metaldyne Corporation.
DANIEL P. TREDWELL. Mr. Tredwell is a senior managing director and one
of the founders of Heartland Industrial Partners. Mr. Tredwell has more than
a decade of leveraged financing experience. Mr. Tredwell served as a managing
director at Chase Securities Inc., an investment bank, 270 Park Avenue, New
York, New York 10017, and had been with Chase Securities since 1985. Mr.
Tredwell is a director of Collins & Aikman Corporation and Metaldyne
Corporation.
W. GERALD MCCONNELL. Mr. McConnell is a senior managing director of
Heartland Industrial Partners. Prior to joining Heartland Industrial Partners
in 2000, Mr. McConnell was a managing director at Deutsche Bank Alex. Brown
(formerly Bankers Trust Co.), an investment bank, 130 Liberty Street, New
York, New York 10006, from 1997 until 1999. From 1991 until 1999, Mr.
McConnell specialized in leveraged finance and financial sponsor coverage at
Deutsche Bank Alex. Brown.
Heartland Industrial Partners is a Delaware limited partnership
established in 1999. The general partner of Heartland Industrial Partners is
Heartland Industrial Associates L.L.C. The management, operation and policy
of Heartland Industrial Partners is vested exclusively in Heartland
Industrial Associates L.L.C., as general partner. Heartland Industrial
Partners is a private equity fund established to "invest in, build and grow"
industrial companies in sectors with attractive consolidation opportunities.
The firm has equity commitments of approximately $1.2 billion. It presently
has controlling interests in Collins & Aikman Corporation and Metaldyne
Corporation.
Heartland Industrial Associates L.L.C. is a Delaware limited liability
company. Heartland Industrial Associates was formed in December 1999 to serve
as the general partner of Heartland Industrial Partners and to focus, through
its affiliates, on investments in industrial companies. Mr. Stockman is the
managing member of Heartland Industrial Associates.
None of Heartland Springs, Heartland Industrial Partners, Heartland
Industrial Associates or Messrs. Stockman, Tredwell or McConnell beneficially
owns any securities of Springs or has engaged in any transaction involving
any securities of Springs, other than as contemplated by the recapitalization
agreement and the related shareholders agreement. Prior to the
recapitalization, the Close family intends to sell up to $50 million in value
of its Springs shares, representing approximately 15% of its holdings, to
Heartland Industrial Partners at $46 per share. During the last five years,
none of Heartland Springs, Heartland Industrial Partners, Heartland
Industrial Associates or Messrs. Stockman, Tredwell or McConnell has been
convicted in a criminal proceeding (excluding traffic violations or similar
misdemeanors) nor been a party to a civil proceeding (except for matters that
were dismissed without sanction or settlement) of a judicial or
administrative body of competent jurisdiction in which as a result of such
proceeding, such person was or is subject to a judgment, decree or final
order enjoining future violations of, or prohibiting activities subject to,
federal or state securities laws or a finding of any violation with respect
to such laws. Messrs. Stockman, Tredwell and McConnell are citizens of the
United States.
THE CLOSE FAMILY
The Close family is participating in the recapitalization and will be
treated differently from all other Springs shareholders. The members of the
Close family consist of (1) the following descendants of Leroy Springs,
Springs' founder: Crandall C. Bowles (chairman and chief executive officer of
Springs), Leroy S. Close (a director of Springs), Derick S. Close
(president-Creative Products Group of Springs), Frances A. Close, Patricia
Close, Elliott S. Close, Hugh W. Close, Jr., Katherine A. Close and Anne S.
Close, (2) certain trusts for the benefit of these Close family members and
their lineal descendants, and (3) The Springs Company (a management services
company) and Kanawha Insurance Company (a life and health insurance company),
two privately owned companies controlled by these individuals and trusts. The
directors of The Springs Company are Crandall C. Bowles, James
-14-
Bradley, Anne S. Close, Derick S. Close, Elliott S. Close, Frances A. Close,
Leroy S. Close and William G. Taylor. The executive officers of The Springs
Company are William G. Taylor, Harry B. Emerson, Roy A. Hunt, Randall P.
Vaughn and D. Peyton Worley. The directors of Kanawha Insurance Company are
James Bradley, Elliott S. Close, Norman E. Hill, Stanley D. Johnson and
William G. Taylor. The executive officers of Kanawha Insurance Company are
Stanley D. Johnson, Norman E. Hill, Robert E. Matthews, R. Dale Vaughn and
Larry Higgins. Anne S. Close is the mother of Crandall C. Bowles, Leroy S.
Close, Derick S. Close, Frances A. Close, Patricia Close, Elliott S. Close,
Hugh W. Close, Jr. and Katherine A. Close.
During the last five years, no member of the Close family nor any
director or executive officer of The Springs Company or Kanawha Insurance
Company has been convicted in a criminal proceeding (excluding traffic
violations or similar misdemeanors) nor been a party to a civil proceeding
(except for matters that were dismissed without sanction or settlement) of a
judicial or administrative body of competent jurisdiction in which as a
result of such proceeding, such person was or is subject to a judgment,
decree or final order enjoining future violations of, or prohibiting
activities subject to, federal or state securities laws or a finding of any
violation with respect to such laws. Each member of the Close family is a
citizen of the United States, or a trust or corporation organized under the
laws of South Carolina.
Name and Address Principal Occupation During Last Five Years
- --------------- -------------------------------------------
CRANDALL C. BOWLES Mrs. Bowles has served as Springs'
c/o Springs Industries, Inc. chief executive officer since January
205 North White Street 1998 and will continue in this
Fort Mill, South Carolina 29715 position with the surviving
(803) 547-1500 corporation. She has served as
chairman of the board of Springs since
April 1998. From January 1997 to
January 1998, she served as president
and chief operating officer of
Springs. From April 1992 to January
1997, she served as executive vice
president of Springs. Mrs. Bowles has
been a director of Springs since 1978
and will continue in this position
with the surviving corporation. She is
currently a director of The Springs
Company and Deere & Company.
LEROY S. CLOSE Mr. Leroy Close has served as a
c/o Sandlapper Fabrics, Inc. director of Springs since 1991 and
60 Shelter Rock Road will continue in this position with
Danbury, Connecticut 06810 the surviving corporation. He is
(203) 798-6918 currently a director of The Springs
Company. He has served as the chairman
of Sandlapper Fabrics, Inc., a printer
and converter of textile fabrics,
since January 2001, when the position
of chairman was first created, and
served as president and chief
executive officer of Sandlapper
Fabrics from 1986 until January 2001.
He was a vice president of Springs'
former apparel fabrics division from
1983 to 1986.
DERICK S. CLOSE Mr. Derick Close has served as
c/o Springs Industries, Inc. president of Creative Products, a
420 W. White Street division of Springs, since June 2000,
Rock Hill, South Carolina 29730 and has been employed by Springs since
(803) 547-1500 1982. He is currently a director of
The Springs Company.
-15-
FRANCES A. CLOSE Ms. Frances Close is a philanthropist
c/o The Springs Company and currently a director of The
P.O. Drawer 460 Springs Company. She previously served
Lancaster, South Carolina 29721 as director and chairperson of Energy
(803) 286-3058 Research Foundation, located in
Columbia, South Carolina, a
not-for-profit organization founded in
1980.
PATRICIA CLOSE Ms. Patricia Close is a
c/o The Springs Company philanthropist. From September 1995
P.O. Drawer 460 through June 1999, she was employed as
Lancaster, South Carolina 29721 an educator at the University of
(803) 286-3058 Washington.
ELLIOTT S. CLOSE Mr. Elliott Close has served as
c/o The Lake Club president of Island Harbor
P.O. Box 4200 Development, a South Carolina real
Rock Hill, South Carolina 29732 estate development company, since
(803) 329-9999 1985. He is currently a director of
The Springs Company and Kanawha
Insurance Company.
HUGH W. CLOSE, JR. Mr. Hugh Close is currently the
c/o The Springs Foundation, Inc. president of The Close Foundation,
1826 Second Baxter Crossing Inc. and The Springs Foundation, Inc.,
Fort Mill, South Carolina 29715 both of which are charitable
(803) 548-2002 foundations, and has been employed by
The Springs Foundation, Inc. since
1992.
KATHERINE A. CLOSE Dr. Katherine Close is a
c/o The Springs Company board-certified internist and a
P.O. Drawer 460 medical director of the Smith Medical
Lancaster, South Carolina 29721 Clinic in Pawleys Island, South
(803) 286-3058 Carolina. From 1991 through 1997, she
was on staff at Carolina's Medical
Center, located in Charlotte, North
Carolina.
ANNE S. CLOSE Ms. Anne Close is currently the
c/o The Springs Company chairman of Leroy Springs & Company
P.O. Drawer 460 and The Springs Foundation, Inc., and
Lancaster, South Carolina 29721 a director of The Springs Company. She
(803) 286-3058 has been associated with The Springs
Company since its founding in 1967.
TRUST NOS. 3-M, T-3, 3-3, 11-A-3,
11-B-3, 11-C-3, 12-3, 4-M, T-4, 3-4,
11-A-4, 11-B-4, 11-C-4, 12-4, 5-M, T-5,
3-5, 11-A-5, 11-B-5, 11-C-5, 12-5, 6-M,
T-6, 3-6, 11-A-6, 11-B-6, 11-C-6, 12-6,
T-7, 3-7, 11-A-7, 11-B-7, 11-C-7, 12-7,
8-M, T-8, 3-8, 11-A-8, 11-B-8, 11-C-8,
12-8, 9-M, T-9, 3-9, 11-A-9, 11-B-9,
11-C-9, 12-9, 10-M, 10-A, 10-D, 10-E,
11-A-10, 11-B-10, 11-C-10, 12-10
c/o The Springs Company
P.O. Drawer 460
Lancaster, South Carolina 29721
(803) 286-3058
-16-
THE SPRINGS COMPANY
104 East Springs Street
Lancaster, South Carolina 29720
(803) 286-3058
KANAWHA INSURANCE COMPANY
210 South White Street
Lancaster, South Carolina 29720
(803) 283-5300
JAMES BRADLEY Formerly president of The Springs
c/o The Springs Company Company, Mr. Bradley is currently a
P.O. Drawer 460 director of and consultant to The
Lancaster, South Carolina 29721 Springs Company and a director of
(803) 286-3058 Kanawha Insurance Company. He has been
associated with The Springs Company
since its founding in 1967 and with
Kanawha Insurance Company since its
founding in 1958.
HARRY B. EMERSON Mr. Emerson is currently senior vice
c/o The Springs Company president and secretary of The Springs
104 E. Springs St. Company, and has been employed by The
Lancaster, South Carolina 29720 Springs Company since 1981.
(803) 286-3058
LARRY HIGGINS Mr. Higgins has served as general
c/o Kanawha Insurance Company counsel, vice president and secretary
210 S. White St. of Kanawha Insurance Company since
Lancaster, South Carolina 29720 October 2000. From September 1998
(803) 283-5300 until October 2000, he served as
executive assistant to the director of
the South Carolina Department of
Insurance, located in Columbia, South
Carolina. From April 1994 until
September 1998, he served as associate
counsel of Kanawha Insurance Company.
NORMAN E. HILL Mr. Hill is currently executive vice
c/o Kanawha Insurance Company president, chief actuary and a
210 S. White St. director of Kanawha Insurance Company,
Lancaster, South Carolina 29720 and has been employed by Kanawha
(803) 283-5300 Insurance Company since 1991.
ROY A. HUNT Mr. Hunt is currently vice president
c/o The Springs Company of The Springs Company, and has been
104 E. Springs St. employed by The Springs Company since
Lancaster, South Carolina 29720 1984.
(803) 286-3058
STANLEY D. JOHNSON Mr. Johnson is currently the chairman,
c/o Kanawha Insurance Company president and chief executive officer
210 S. White St. of Kanawha Insurance Company, and has
Lancaster, South Carolina 29720 been employed by Kanawha Insurance
(803) 283-5300 Company since 1985.
-17-
ROBERT E. MATTHEWS Mr. Matthews is currently senior vice
c/o Kanawha Insurance Company president, treasurer and controller of
210 S. White St. Kanawha Insurance Company, and has
Lancaster, South Carolina 29720 been employed by Kanawha Insurance
(803) 283-5300 Company since 1981.
WILLIAM G. TAYLOR Mr. Taylor is currently the president
c/o The Springs Company and treasurer of The Springs Company
104 E. Springs St. and a director of The Springs Company
Lancaster, South Carolina 29720 and Kanawha Insurance Company. He has
(803) 286-3058 been employed by The Springs Company
since October 1990.
R. DALE VAUGHN Mr. R. Dale Vaughn is currently senior
c/o Kanawha Insurance Company vice president of benefit services of
210 S. White St. Kanawha Insurance Company, and has
Lancaster, South Carolina 29720 been employed by Kanawha Insurance
(803) 283-5300 Company since 1990.
RANDALL P. VAUGHN Mr. Randall P. Vaughn is currently
c/o The Springs Company vice president of The Springs Company,
104 E. Springs St. and has been employed by The Springs
Lancaster, South Carolina 29720 Company since 1975.
(803) 286-3058
D. PEYTON WORLEY Mr. Worley has served as vice
c/o The Springs Company president of The Springs Company since
104 E. Springs St. April 1998. From June 1990 until April
Lancaster, South Carolina 29720 1998, he served as tax manager with
(803) 286-3058 the Greensboro, North Carolina office
of Arthur Andersen and Co.
-18-
SPECIAL FACTORS
STRUCTURE OF THE RECAPITALIZATION
The recapitalization involves the merger of Heartland Springs with and
into Springs, with Springs surviving the merger and continuing its
businesses. If the recapitalization is completed, its material effects will
be as follows:
o The current shareholders of Springs, other than the Close family, the
Heartland Investors, key management employees who elect prior to the
effective time of the recapitalization to retain their Springs
shares and dissenting shareholders, will receive $46.00 per share in
cash for their Springs shares and will no longer have any financial
interest in, and will not be shareholders of, Springs.
o Each share of Heartland Springs common stock will be converted into one
share of Springs class A common stock.
o The shares of Springs common stock held by the Close family, by the
Heartland Investors and by key management employees who elect prior
to the effective time of the recapitalization to retain their
Springs shares, will not be affected by the recapitalization and
will remain outstanding.
o All holders of options with an exercise price per share of Springs
class A common stock below $46.00 may choose (1) a cash-out
election, pursuant to which each such option will be converted at
the effective time of the recapitalization to cash equal to the
excess of $46.00 over the exercise price or (2) a retention
election, pursuant to which each such option will be retained. By
their terms, Springs stock options cannot be cashed out by Springs
without optionholder consent. In addition, certain key management
employees may elect a combination of a cash-out election and
retention election and, for those options they elect to retain, will
receive, for no additional consideration, accelerated vesting and an
appreciation right. This appreciation right allows the holder to
receive cash or shares for each exercised option without having to
pay the exercise price in cash. All options with an exercise price
per share of class A common stock above $46.00 will be retained
automatically by employees and will contain an appreciation right.
o Prior to the recapitalization, the Close family intends to sell up to
$50 million in value of its Springs shares, representing
approximately 15% of its holdings, to Heartland Industrial Partners
at $46 per share. Immediately after the recapitalization,
approximately 44% of the outstanding shares of Springs common stock
will be owned by the Heartland Investors and approximately 56% of
the outstanding common stock will be owned by the Close family.
o Shares of Springs class A common stock will no longer be listed on the
New York Stock Exchange and price quotations with respect to sales
of shares of Springs class A common stock in the public market will
no longer be available. The registration of Springs shares under the
Securities Exchange Act of 1934 will be terminated, and Springs will
cease filing reports with the Securities and Exchange Commission.
o After the recapitalization, it is expected that Springs will continue
to be managed by its existing management team.
o Springs will increase its indebtedness by approximately $391 million as
a result of the recapitalization, and the total number of
outstanding shares of common stock will decrease from approximately
18.0 million to approximately 11.1 million.
BACKGROUND OF THE RECAPITALIZATION
Springs' board of directors and management review, on a continuing
basis, Springs' strategic focus in light of conditions in the home
furnishings industry and the long-term interests of Springs. The Springs
board and management have explored various strategic alternatives, including
transactions with potential partners, to enhance growth and attain a more
competitive position in the face of low-cost imported products and the trend
toward industry consolidation.
-19-
On July 13, 2000, the Springs board, at a regularly scheduled meeting,
held a general discussion regarding various strategic alternatives for
Springs, including remaining an independent company, effecting a business
combination with another company and pursuing other transactions. The Springs
board directed management to explore the strategic alternatives available to
Springs. Soon thereafter, Springs retained Robert P. Lee of Sheffield
Merchant Banking Group, a business group of CRT Capital Group LLC, to assist
in reviewing a broad range of strategic alternatives. Sheffield Merchant
Banking Group is an investment bank focused on providing financial advisory
services to middle-market companies such as Springs. Springs retained Mr. Lee
because of his 20 years of investment banking experience and the fact that he
had advised Springs while employed by another investment banking firm prior
to his founding Sheffield in May 2000. From the date of his retention by
Springs through January 2001, Mr. Lee assisted Springs in reviewing strategic
transactions, including acquisition and divestiture opportunities in the home
furnishings industry, investments in foreign sourcing assets and
relationships, and the raising of additional capital from outside investors.
In June 2000, David Stockman, the founding partner of Heartland
Industrial Partners, contacted Crandall C. Bowles, the chairman and chief
executive officer of Springs, and indicated an interest in a potential
transaction between Heartland Industrial Partners and Springs that would
result in Heartland Industrial Partners acquiring an interest in Springs.
Based in part on the reputation of Mr. Stockman, Mrs. Bowles indicated an
interest in pursuing discussions with Heartland Industrial Partners. On
August 9, 2000, representatives of Heartland Industrial Partners, including
Mr. Stockman, met with members of Springs' management. At this meeting,
representatives of Heartland Industrial Partners discussed with members of
Springs' management the investment strategy and philosophy of Heartland
Industrial Partners and the types of transactions that it targets.
On August 17, 2000, Springs and Heartland Industrial Partners entered
into a confidentiality and standstill agreement to facilitate Springs'
ability to make available to Heartland Industrial Partners information
regarding Springs and to encourage further discussions regarding a possible
transaction between the parties.
On September 6, 2000, members of Springs' management and
representatives of Heartland Industrial Partners held further discussions at
Springs' corporate headquarters in South Carolina. At this meeting, Springs'
management provided to Heartland Industrial Partners a general overview of
Springs, information regarding Springs' products, capital expenditures and
information technology systems, and information regarding Springs'
capabilities in areas such as sales and marketing, manufacturing, sourcing
and customer service.
On September 20, 2000, members of Springs' management and
representatives of Heartland Industrial Partners met at Heartland Industrial
Partners' corporate headquarters in Connecticut to hold further discussions
regarding Springs and the home furnishings industry in general. At this
meeting, the parties discussed Springs' new products and outlined a process
for Heartland Industrial Partners to conduct a due diligence review of
Springs. Some of Heartland Industrial Partners' associates toured Springs'
showroom and manufacturing facilities.
On October 5-6, 2000, the Springs board met for a two-day retreat. At
this meeting, Mr. Lee reviewed with the board strategic alternatives for a
potential transaction involving Springs, including possible strategic
acquisitions within the home furnishings industry and stock repurchases. In
addition, Mr. Lee reviewed various other scenarios, including the Close
family obtaining 100% ownership of Springs or sharing ownership with a
financial partner. Mr. Lee reviewed with the Springs board a short list of
potential investors, including Heartland Industrial Partners, based on his
belief that a financial sponsor with operating or industry experience could
enhance Springs' competitiveness. The Springs board authorized management and
Mr. Lee to contact these potential partners regarding the possibility of a
transaction involving Springs.
On October 23, 2000, members of Springs' management met again with
representatives of Heartland Industrial Partners at Heartland Industrial
Partners' headquarters. The parties held further discussions on the strategic
plan relating to Springs' various businesses and Heartland Industrial
Partners' due diligence on Springs.
Between November 6 and December 8, 2000, Springs' management conducted
five due diligence sessions for Heartland Industrial Partners.
-20-
Between November 1, 2000, and January 21, 2001, Springs' management and
representatives of Sheffield also held discussions with five potential
partners other than Heartland Industrial Partners. Springs entered into
confidentiality and standstill agreements with each of these five potential
partners.
On November 3, 2000, representatives of Sheffield met with two of these
potential partners. On November 21, 2000, Springs' management and
representatives of Sheffield held further discussions with these two parties
regarding a possible transaction. These two parties ultimately declined to
pursue an investment in Springs based on their view that the home furnishings
industry did not offer an attractive investment opportunity.
On November 16, 2000, representatives of Sheffield met with another one
of the five other potential partners. This party did not pursue the
opportunity to invest in Springs, and no subsequent discussions were held.
On December 12, 2000, representatives of Sheffield met with another one
of the five other potential partners. On December 21, 2000, Springs'
management and representatives of Sheffield held subsequent discussions with
this party. This party declined to pursue an investment in Springs based on
its perception of the execution risk associated with Springs' strategic plan.
On December 15, 2000, Springs' board met for its regularly scheduled
meeting. At this meeting, Mrs. Bowles and Mr. Lee updated the board as to the
status of discussions regarding strategic alternatives with various potential
partners, including Heartland Industrial Partners.
In January 2001, Mr. Lee discussed with the Close family the
possibility of its involvement in a potential transaction with Springs,
including the possibility of partnering with Heartland Industrial Partners.
Based on the reputation and expertise of Mr. Stockman and Heartland
Industrial Partners, the Close family was receptive to the idea of partnering
with Heartland Industrial Partners. As the likelihood of an offer by the
Close family and Heartland Industrial Partners to take Springs private
increased and the likelihood of Springs pursuing other strategic alternatives
decreased, the Close family asked Mr. Lee and Sheffield to represent it, with
the understanding that if a transaction transpired between the Close family
and Springs, the Springs board would have to obtain independent investment
banking advice. Sheffield agreed to represent the Close family and ended its
representation of Springs.
Up to this point, although there had been no definitive decision on
pricing, both the Close family and Heartland Industrial Partners assumed in
their discussions that the transaction would take place in the $40 to $42 per
share price range.
On January 9, 2001, Springs' management held discussions with another
one of the five other potential partners regarding a possible transaction
substantially similar in structure to that proposed by Heartland Industrial
Partners. Springs' management conducted further due diligence with this party
between January 9 and January 21, 2001. Ultimately, discussions with this
party were terminated when it became clear that this party was not willing to
complete a transaction at the $40 to $42 per share range of values then being
considered by Heartland Industrial Partners and the Close family. The Close
family determined that a transaction with this party at this lower valuation
was infeasible because it did not offer an attractive price to Springs'
public shareholders. This party's expression of interest was also considered
less attractive by the Close family because it involved significantly greater
financial leverage than that favored by Heartland Industrial Partners and the
Close family to enhance expected investment returns.
On February 8, 2001, members of Springs' management met with
representatives of Heartland Industrial Partners at Heartland Industrial
Partners' headquarters to discuss further financial details regarding a
potential transaction.
On February 14, 2001, members of Springs' management met with
representatives of The Chase Manhattan Bank and JP Morgan and representatives
of Heartland Industrial Partners to discuss the debt financing of a potential
transaction. At this meeting, the parties discussed Springs' 2001 budget and
strategic plan.
On February 15, 2001, the Close family held a family meeting to discuss
the possibility of submitting a proposal with Heartland Industrial Partners to
acquire all of the outstanding shares of common stock of Springs not owned by
the Close family. At the meeting, Mr. Stockman made a presentation on behalf of
Heartland Industrial
-21-
Partners, and Mr. Lee responded to questions posed by members of the Close
family. The Close family was receptive to increasing the operating flexibility
of Springs by taking Springs private, and minimizing leverage by doing so with
a partner. The Close family was also receptive to the idea of sharing
ownership of Springs with Heartland Industrial Partners, which brought with it
experience, management skills and the ability to increase Springs' market
profile and thereby attract and retain key executives.
On February 19, 2001, the Close family authorized the joint proposal
with Heartland Industrial Partners at a price of $44.00 per share.
Thereafter, the Close family and Heartland Industrial Partners entered into a
participation agreement in connection with the submission of the joint
proposal to the Springs board. The price of $44.00 per share was selected
jointly by the Close family and Heartland Industrial Partners based on:
o their belief that $44.00 per share represented a significant premium to
recent trading prices for Springs shares and fairly compensated
public shareholders for their investment in Springs;
o the Close family's belief that a transaction at that price could be
accomplished without requiring Springs to incur an excessive amount
of debt; and
o Heartland Industrial Partners' belief that an investment in Springs
based on a $44.00 per share purchase price could yield attractive
investment returns.
On February 20, 2001, the Close family and Heartland Industrial
Partners submitted a written proposal to the Springs board to acquire all of
the outstanding shares of common stock of Springs not owned by the Close
family for $44.00 per share in cash. The proposal of the Close family and
Heartland Industrial Partners was contained in a letter to the Springs board,
the text of which is set forth below.
February 20, 2001
Board of Directors
Springs Industries, Inc.
205 North White Street
Fort Mill, South Carolina 29715
Ladies and Gentlemen:
Members of the Close family (the "Family Shareholders") who own
approximately 41% of the common stock of Springs Industries, Inc. (the
"Company") and Heartland Industrial Partners, L.P. ("Heartland") are pleased
to submit a proposal to acquire all the outstanding common stock of the
Company not owned by the Family Shareholders in a recapitalization for $44.00
per share in cash (the "Transaction").
The total funds necessary to consummate the Transaction (including
refinancing the Company's existing credit facility) are expected to be
approximately $1,195 million. These funds would be provided by $225 million
in new equity from Heartland Industrial Partners and committed debt financing
from The Chase Manhattan Bank ("Chase"). Copies of the commitment letters
received by Heartland from Chase are attached hereto as Exhibit A and a copy
of the equity commitment letter of Heartland is attached hereto as Exhibit B.
We anticipate that the Transaction would close within 90 days of
signing a definitive recapitalization agreement. We will provide you and your
legal and financial advisors shortly a draft recapitalization agreement and
are prepared to expeditiously negotiate a definitive agreement. Obviously,
neither the Company on the one hand nor Heartland and the Family Shareholders
on the other will have any legal obligation relating to the Transaction until
mutually satisfactory definitive agreements have been executed by all parties.
The Family Shareholders have confirmed to and agreed with Heartland
that they are not sellers of their equity in the Company, other than
approximately one million shares which may be sold prior to the Transaction,
and therefore would not support any alternative transaction.
-22-
We welcome the opportunity to discuss with you all aspects of this
proposal and are prepared to commence negotiations with respect to the
Transaction immediately. If you have any questions regarding, or wish to
discuss, this proposal, please contact for the Family Shareholders Crandall
C. Bowles at (803) 547-3795 and for Heartland David Stockman or Dan Tredwell
at (203) 861-2622.
Sincerely,
/s/ Crandall Bowles
------------------------------
Crandall C. Bowles
On behalf of the Family Shareholders
HEARTLAND INDUSTRIAL PARTNERS,
L.P.
By: HEARTLAND INDUSTRIAL
ASSOCIATES, L.L.C.,
its General Partner
By: /s/ David A. Stockman
---------------------------
Name: David A. Stockman
Title: Senior Managing Director
On February 20, 2001, Springs issued a press release confirming receipt
of this letter and announcing that the Springs board would consider the
proposal at its regularly scheduled meeting on February 22, 2001.
On February 22, 2001, the Springs board met for its regularly scheduled
meeting. After attending to the regular business of Springs, the Springs
board discussed the going-private proposal. The Springs board determined that
in order to ensure that the interests of the public shareholders of Springs
were appropriately represented, it would create a special committee of the
disinterested directors of the board to consider the proposal. The Springs
board decided that the special committee would consist of all nine members of
the Springs board who were independent of the Close family and Heartland
Industrial Partners, namely John F. Akers, John L. Clendenin, Charles W.
Coker, William G. Kelley, John H. McArthur, Aldo Papone, Robin Smith,
Sherwood H. Smith, Jr., and Stewart Turley. Because of their participation in
the proposed recapitalization, Mrs. Bowles and Mr. Close were not included on
such committee. The Springs board mandate to the special committee was to
consider, evaluate and negotiate the proposed recapitalization with the Close
family and Heartland Industrial Partners on behalf of the public
shareholders, and to make a recommendation to the Springs board as to whether
to approve or reject the proposal as it might ultimately be revised. The
Springs board also authorized the special committee to retain, at Springs'
expense, independent financial and legal advisors.
Following the February 22, 2001 Springs board meeting, the special
committee held its initial meeting in which it selected Mr. Coker to be the
chairman of the special committee and retained Sullivan & Cromwell as its
independent legal counsel. Representatives of Sullivan & Cromwell reviewed
the responsibilities and legal duties of the special committee. The special
committee discussed the criteria that it would use to evaluate investment
banking firms to advise it with respect to the proposed recapitalization and
decided to interview several investment banks before retaining a financial
advisor. After reviewing the relationship between Heartland Industrial
Partners and a number of prominent investment banking firms, the special
committee concluded, with the advice of Sullivan & Cromwell, that a number of
those firms would have conflicts of interest if they were to act as financial
advisor to the special committee. The special committee then met with two
firms which were active in engagements of this type and for which interviews
had been arranged for later in the day. Both interviews involved discussions
with representatives of each investment bank regarding that firm's experience
in transactions of this type, its expertise in the home furnishings and
similar industries, the methodologies that the firm would use, if it were
retained, to determine the value of Springs and the fee proposed to be
charged. After reviewing written presentations and oral proposals from the
two investment banks, the special committee retained UBS Warburg LLC as its
financial advisor
-23-
in connection with its consideration of the proposal from the Close family and
Heartland Industrial Partners. UBS Warburg was selected based upon its
experience in going private transactions, its proposed methodology and process
for analyzing the value of Springs, the UBS Warburg team's familiarity with
and experience in the home furnishings and similar industries, and the fee
proposed. In addition, the special committee retained South Carolina legal
counsel.
On February 22, 2001, Springs issued a press release announcing that it
had formed the special committee and that the special committee had retained
financial and legal advisors.
Between February 23, 2001 and March 19, 2001, eight purported class
action lawsuits were filed against Springs and all of Springs' directors
(including the members of the special committee), three of which were filed
in the United States District Court for the District of South Carolina, four
of which were filed in state courts in South Carolina, and one of which was
filed in state court in New York. Heartland Industrial Partners was also
named a defendant in three of these lawsuits. Each lawsuit alleged that the
initial $44.00 offer by the Close family and Heartland Industrial Partners
for Springs' publicly held shares of common stock was unfair, and that the
members of the Springs board were not capable of negotiating a fair
transaction with the Close family and Heartland Industrial Partners without
breaching their fiduciary duties to Springs and the plaintiffs. For relief in
the lawsuits the plaintiffs sought, among other things, an injunction against
completion of the proposed recapitalization, or, in the alternative,
rescission or damages.
On March 9, 2001, the special committee met by telephone conference
with representatives of Sullivan & Cromwell and UBS Warburg. The purpose of
the meeting was to discuss with the special committee's financial and legal
advisors a possible negotiation strategy and with its legal advisors its
legal duties. Representatives of Sullivan & Cromwell reviewed the status of
the litigation and the responsibilities and legal duties of the special
committee. UBS Warburg reported that it had begun its financial due diligence
investigation of Springs and the financing arrangements of the Close family
and Heartland Industrial Partners for the proposed recapitalization for the
purpose of developing its valuation analysis for the special committee. UBS
Warburg reported that senior management of Springs had made themselves
readily available for discussions with representatives of UBS Warburg
regarding all aspects of Springs' business and financial condition and that
Springs was promptly satisfying UBS Warburg's requests for business reports,
plans and projections, accounting information and other relevant documents of
Springs. UBS Warburg discussed with the special committee its schedule and
plan for its continuing financial due diligence and reported that it expected
to provide its preliminary views on valuation to the special committee at the
special committee meeting scheduled for March 19, 2001. The special committee
agreed that it would not be in a position to form a view as to the value of
Springs until UBS Warburg made its presentation on March 19, 2001 and
directed UBS Warburg to continue its research and analysis of Springs.
During the period of March 9 through March 19, 2001, representatives of
UBS Warburg continued their financial due diligence of Springs and had
further discussions with senior managers of Springs. UBS Warburg also
reviewed the financing commitments obtained by the Close family and Heartland
Industrial Partners and had discussions with several partners and other
representatives of Heartland Industrial Partners.
On March 19, 2001, the special committee met in person and by telephone
conference with representatives of Sullivan & Cromwell and UBS Warburg. The
purpose of the meeting was to review the preliminary views of UBS Warburg
regarding valuation and to discuss possible negotiation strategy with the
special committee's financial and legal advisors. Representatives of UBS
Warburg gave an overview of the proposed recapitalization, including the
structure and proposed debt and equity financing by the Close family and
Heartland Industrial Partners, a financial overview of Springs, and discussed
UBS Warburg's preliminary valuation analyses. UBS Warburg explained that its
preliminary valuation analyses were based upon projections provided to UBS
Warburg by the management of Springs. Springs' management had provided UBS
Warburg with two sets of projections - Scenario 1 (Lower Risk) and Scenario 2
(Higher Risk). (See "Certain Financial Projections" on pages 28 to 29
below.) Scenario 2 had been presented to the Springs board on February 22,
2001, but there had been insufficient time at that meeting for a full
discussion of the assumptions underlying those projections. Representatives
of UBS Warburg reviewed both sets of projections with the special committee
and both the special committee and UBS Warburg pointed out that the two sets
of projections produced quite disparate valuations of Springs. The special
committee discussed the broad range of valuations based upon the two sets of
projections and determined that before it could establish a view on valuation
and a negotiating strategy, and authorize UBS Warburg to open negotiations
-24-
on its behalf with the Close family and Heartland Industrial Partners and
their representatives with respect to valuation, it ought to meet with the
management of Springs regarding its business plan and projections for the next
five years and the assumptions underlying them.
At the March 19, 2001 meeting, representatives of Sullivan & Cromwell
also discussed the structure of the recapitalization as proposed by the Close
family and Heartland Industrial Partners in the draft recapitalization
agreement provided to the special committee, pursuant to which Heartland
Springs would merge with and into Springs and each public shareholder of
Springs would receive a yet undetermined amount in cash for each share of
Springs held by such shareholder. The special committee's legal counsel
summarized the draft recapitalization agreement for the special committee and
highlighted what it believed to be the primary outstanding issues. Sullivan &
Cromwell noted that the draft recapitalization agreement did not provide for
any break-up fee to be paid to the Close family or Heartland Industrial
Partners in the event an agreement was signed but the recapitalization was
not consummated, which was a positive element in their proposal from the
point of view of the public shareholders. The special committee discussed the
issues raised by its legal counsel and authorized its legal counsel to open
negotiations, on behalf of the special committee, with the Close family and
Heartland Industrial Partners' counsel with respect to the draft
recapitalization agreement.
On March 23, 2001, two members of the special committee and
representatives of Sullivan & Cromwell and UBS Warburg met in person with
members of the senior management of Springs, including Mrs. Bowles and
Jeffrey Atkins, who was at the time the chief financial officer of Springs,
to discuss management's business plan and financial projections for the next
five years. All of the other members of the special committee participated by
telephone conference. Mrs. Bowles and Mr. Atkins discussed their expectations
for the various areas of Springs' business and what management believed was
necessary to achieve the goals provided for in its projections. Mr. Atkins
highlighted the differences between the two sets of projections that Springs
provided to UBS Warburg. The special committee engaged in a question and
answer session with members of management regarding the business plan and
projections. Following such discussion and outside the presence of the
management of Springs, the special committee discussed the projections and
the preliminary valuation analyses presented by UBS Warburg at the March 19,
2001 meeting of the special committee. Several members of the special
committee pointed out that based upon their meeting with members of Springs'
senior management that morning, in which the members of senior management
expressed their view that the projections set forth in Scenario 2 were
substantially less likely to be achieved that those in Scenario 1, and based
upon the fact that Springs' historical financial results of operations and
general economic and industry trends were much more consistent with the
assumptions underlying Scenario 1 than Scenario 2, the projections contained
in Scenario 1 were more appropriate projections for analyzing the value of
Springs than the Scenario 2 projections. The special committee as a whole
agreed, and UBS Warburg concurred in this assessment.
The special committee then discussed the preliminary valuation analyses
prepared by UBS Warburg using the Scenario 1 projections. The special
committee believed that a potential recapitalization with the Close family
and Heartland Industrial Partners might potentially be in the best interests
of the public shareholders of Springs, however, at a price higher than $44.00
per share. The special committee then concluded that a higher price per share
should be sought from the Close family and Heartland Industrial Partners and
authorized UBS Warburg to open negotiations, on behalf of the special
committee, with the Close family, Heartland Industrial Partners and their
advisors. The special committee instructed UBS Warburg to begin negotiations
on behalf of the special committee at a price of around $50.00 per share.
On March 29, 2001, representatives of UBS Warburg met with
representatives of Sheffield, the financial advisor to the Close family and
Heartland Industrial Partners, to report the special committee's position.
UBS Warburg informed the representatives of Sheffield that a price of $44.00
per share was not acceptable to the special committee, but a price around
$50.00 per share would be.
Representatives of UBS Warburg and Sheffield met again on April 2, 2001
to continue negotiations on price. At such meeting, they reviewed several
preliminary valuation analyses and discussed the special committee's views on
the valuation of Springs. On April 4, 2001, representatives of Sheffield
stated that the Close family and Heartland Industrial Partners would be
prepared to increase their offer to $45.00 per share.
-25-
On April 2, 2001, Springs notified the New York Stock Exchange that it
was postponing its annual meeting of shareholders.
On April 5, 2001, the special committee met by telephone conference
with its financial and legal advisors to discuss the status of the ongoing
negotiations with the Close family and Heartland Industrial Partners.
Representatives of UBS Warburg informed the special committee that they had
met with representatives of Sheffield and that the Close family and Heartland
Industrial Partners had indicated their willingness to increase their offer
to $45.00 per share. UBS Warburg also reviewed the current trading markets
for the shares of Springs and its most comparable competitors. The members of
the special committee discussed further their respective views on the
appropriate per share price for a recapitalization involving Springs. The
special committee remained of the opinion that a price of $45.00 per share
did not adequately value Springs. The special committee directed UBS Warburg
to continue to negotiate for a higher price with the Close family and
Heartland Industrial Partners and their advisors.
On April 6, 2001, representatives of UBS Warburg held a telephonic
meeting with representatives of Sheffield to discuss the special committee's
belief that the Close family and Heartland Industrial Partners had yet to
value Springs adequately. After continued discussion of valuation methods and
analyses, and after additional consultation with the Close family and
Heartland Industrial Partners, representatives of Sheffield indicated that
the Close family and Heartland Industrial Partners would be prepared to raise
their offer to $45.50 per share.
The special committee then met by telephone conference again with its
financial and legal advisors on April 9, 2001 to discuss the $45.50 per share
offer. Although the special committee was encouraged that the price offered
by the Close family and Heartland Industrial Partners was well within the
range of preliminary valuations provided by UBS Warburg and therefore would
be, in the special committee's opinion when considered together with all
other factors, potentially fair to Springs' public shareholders, the special
committee still believed that it should seek a higher price. The special
committee then unanimously agreed to instruct UBS Warburg to engage in
another round of negotiations with the Close family and Heartland Industrial
Partners regarding price.
Later on April 9, 2001, representatives of UBS Warburg relayed the
special committee's position regarding the $45.50 per share offer to
representatives of Sheffield. Representatives of Sheffield then discussed the
special committee's position with the Close family and Heartland Industrial
Partners, and UBS Warburg and Sheffield discussed further the parties'
respective views on the appropriate per share price for the recapitalization.
During these discussions, representatives of UBS Warburg, on behalf of the
special committee, negotiated a higher offer of $46.00 per share which
Sheffield stated would be the best and final offer of the Close family and
Heartland Industrial Partners.
On April 10, 2001, subsequent to these discussions, the special
committee met by telephone conference to discuss the offer of $46.00 per
share. Two members of the special committee were not present at this meeting.
Representatives of Sullivan & Cromwell reviewed the special committee's legal
duties, legal issues in connection with the draft recapitalization agreement
and the status of the shareholder litigation related to the proposal of the
Close family and Heartland Industrial Partners. Each member of the special
committee present expressed his belief that $46.00 per share would be fair to
Springs shareholders who are not affiliated with the Close family or
Heartland Industrial Partners. The members of the special committee present,
constituting a quorum for the conduct of business, unanimously:
o determined that the proposed recapitalization at $46.00 per share was
advisable, fair to and in the best interests of Springs shareholders
who are not affiliated with the Close family or Heartland Industrial
Partners; and
o recommended that the Springs board adopt a definitive recapitalization
agreement substantially in its current form reflecting the proposed
recapitalization at a price of $46.00 per share and recommend
approval of the recapitalization agreement by Springs shareholders,
subject in each case to the plaintiffs in the shareholder litigation
agreeing to settle that litigation based upon the $46.00 per share
price.
Between April 10 and 24, 2001, the special committee, representatives
of Sullivan & Cromwell, the Close family, representatives of Wachtell,
Lipton, Rosen & Katz, special counsel to the Close family, Heartland
Industrial Partners, and representatives of Cahill Gordon & Reindel, special
counsel to Heartland Industrial Partners and
-26-
Heartland Springs, negotiated the remaining open terms of the draft
recapitalization agreement and the related shareholder agreement between the
Close family and Heartland Industrial Partners, of which Springs was made a
third-party beneficiary with respect to certain provisions. The remaining open
terms of the recapitalization agreement included, among other things, the
treatment of the shares, options and other equity-based awards held by
Springs' management, the vote required of shareholders whose shares are being
converted into cash to approve the recapitalization agreement and the content
of the disclosure schedules. The remaining open terms of the shareholders
agreement included, among other things, the nature of the tie-breaking
mechanism for the Springs board following the recapitalization and the
structure of the consulting arrangement with Heartland Industrial Partners.
During this period, each of the Close family and Heartland Industrial Partners
selected, pursuant to the shareholders agreement, its initial directors to
serve following the completion of the proposed recapitalization. One of the
directors selected by the Close family was Mr. Lee.
On April 24, 2001, the parties to the shareholder litigation agreed in
principle on a settlement of the litigation, and executed a memorandum of
understanding to reflect the terms of the settlement. The settlement is based
on the increase of the offer price from $44.00 per share to $46.00 per share
and the agreement of the Close family and Heartland Industrial Partners to
condition the recapitalization on the recapitalization agreement being
approved by a majority of the votes cast at the annual meeting not held by
the Close family, certain key members of management and Heartland Industrial
Partners and its affiliates. The parties also agreed to enter into a formal
settlement agreement, cooperate in public disclosures related to the
settlement, and use their respective best efforts to gain approval of the
settlement from the South Carolina state court. Without any admission of
fault by any defendant, the memorandum of understanding provides for a
dismissal of all claims with prejudice and a release in favor of all
defendants of any and all claims that have been or could have been asserted
by the plaintiffs or any members of the purported class of public
shareholders of Springs. The settlement is subject to, among other things,
completion of confirmatory discovery by the plaintiffs, execution of a
settlement agreement, final approval of the settlement by the South Carolina
court, and completion of the recapitalization.
On April 24, 2001 the entire Springs board (including the special
committee), except for one member, met by telephone conference with
representatives of UBS Warburg and Sullivan & Cromwell. Representatives of
Sullivan & Cromwell reviewed the special committee's legal duties in
connection with the recapitalization and informed the special committee that
an agreement to settle the shareholder litigation related to the proposal of
the Close family and Heartland Industrial Partners had been reached with
plaintiffs' counsel. Sullivan & Cromwell also reviewed the final changes in
the terms of the recapitalization agreement and representatives of UBS
Warburg presented their financial analyses of the Close family's and
Heartland Industrial Partners' $46.00 per share proposal.
Representatives of UBS Warburg then delivered an oral opinion to the
special committee (which was subsequently confirmed in a written opinion to
the special committee) that as of April 24, 2001 and, on the basis of and
subject to the matters discussed with the special committee, the $46.00 per
share cash consideration to be received by Springs shareholders whose shares
are being converted into cash in the proposed recapitalization was fair from
a financial point of view to such shareholders.
The Springs board then considered the proposed recapitalization. Having
received the recommendation of the special committee, the Springs board
determined that the proposed recapitalization was advisable, fair to and in
the best interests of Springs shareholders who are not affiliated with the
Close family or Heartland Industrial Partners. The members of the Springs
board present, with Mrs. Bowles and Mr. Close abstaining, constituting a
quorum for the conduct of business, unanimously voted to adopt the
recapitalization agreement and the amendment to Springs' articles of
incorporation to exempt Springs from the restrictions on business
combinations contained in the South Carolina Code and recommend that Springs
shareholders approve the recapitalization agreement and the amendment to the
articles of incorporation.
Later in the day on April 24, 2001, the recapitalization agreement was
signed. On April 25, 2001, Springs and the Close family and Heartland
Industrial Partners issued a joint press release announcing the execution of
the recapitalization agreement.
-27-
CERTAIN FINANCIAL PROJECTIONS
Springs does not as a matter of course make public projections as to
its future performance or earnings. However, in connection with the
discussions concerning the proposed recapitalization, Springs and its
financial advisors furnished to Heartland Industrial Partners certain
information which was not publicly available, including certain projected
financial data for the fiscal years 2001 through 2005. These projections
("Scenario 2") included, among other things, the following forecasts of
Springs' net sales, earnings before interests and taxes (referred to in this
document as "EBIT") and capital spending:
Scenario 2
----------
(in millions)
2001 2002 2003 2004 2005
NET SALES $2,322.7 $2,477.2 $2,637.7 $2,766.3 $2,902.4
EBIT $151.5 $180.4 $223.9 $236.8 $250.1
CAPITAL SPENDING $110.0 $123.0 $114.0 $125.0 $110.0
In addition, Springs furnished to the special committee and UBS Warburg the
following forecasts of net income per share (in dollars) associated with these
Scenario 2 projections:
NET INCOME PER SHARE $4.14 $5.00 $6.40 $6.80 $7.20
Springs also furnished to Heartland Industrial Partners an alternative
set of projections indicating lower profitability based upon more
conservative assumptions. In particular, the Scenario 2 projections assume
the successful implementation of several initiatives within Springs to
significantly improve operating results through, among other things, more
efficient manufacturing, more rigorous quality controls, more effective
purchasing and overhead reductions. In addition, the Scenario 2 projections
assume that Springs is able to increase its share of sales of key products at
the expense of competitors who have been financially weakened by the
combination of declining industry conditions and high levels of indebtedness.
The alternative projections assume improvements in these areas that are more
consistent with Springs' historical results. These alternative projections
("Scenario 1") included, among other things, the following forecasts of
Springs' net sales, EBIT and capital spending:
Scenario 1
----------
(in millions)
2001 2002 2003 2004 2005
NET SALES $2,264.8 $2,320.7 $2,388.0 $2,446.6 $2,512.7
EBIT $138.6 $145.3 $155.6 $158.8 $165.1
CAPITAL SPENDING $110.0 $123.0 $114.0 $125.0 $110.0
In addition, Springs furnished to the special committee and UBS Warburg the
following forecasts of net income per share (in dollars) associated with these
Scenario 1 projections:
NET INCOME PER SHARE $3.95 $3.92 $4.31 $4.40 $4.48
-28-
Heartland Industrial Partners and the Close family have informed
Springs that they believe that, with Heartland Industrial Partners'
participation in the governance of Springs following the recapitalization,
the results described in Scenario 2 should be adopted as the primary
projections and the basis for company budgets and management incentive
compensation. Scenario 2 projections were also provided to ratings agencies
in connection with the seeking of a rating on financing related to the
recapitalization. Under the assumption that the recapitalization does not
occur and Springs continues as a public company in essentially its current
form, the special committee concluded, as described in greater detail below,
that the projections set forth in Scenario 1 were substantially more likely
to be achieved than those set forth in Scenario 2.
IMPORTANT INFORMATION ABOUT THE PROJECTIONS. The projections referred
to above were not prepared with a view to public disclosure, and are included
in this document only because such information was made available to
Heartland Industrial Partners. The projections were not prepared with a view
to compliance with published guidelines of the Securities and Exchange
Commission, the guidelines established by the American Institute of Certified
Public Accountants regarding projections or forecasts, or generally accepted
accounting principles. Neither the independent auditors of Springs, nor any
other independent accountants, have compiled, examined or performed any
procedures with respect to the projections. The projections were not prepared
with the approval of the Springs board of directors or the special committee.
The projections are included in this document to give Springs' shareholders
access to information that was not publicly available and that Springs
provided to Heartland Industrial Partners.
The projections are forward-looking statements that are subject to
certain risks and uncertainties and should be read with caution. See
"Cautionary Statement Concerning Forward-Looking Information" on page 8. The
projections are subjective in many respects and thus susceptible to
interpretation and periodic revision based on actual experience and recent
developments. While presented with numeric specificity, the projections
reflect numerous assumptions made by Springs' management with respect to
industry performance, general business, economic, market and financial
conditions and other matters, including assumed interest rates and effective
tax rates consistent with historical levels for Springs, all of which are
difficult to predict, many of which are beyond Springs' control and none of
which were subject to approval by Heartland Industrial Partners. In addition,
the projections do not take into account any of the transactions contemplated
by the recapitalization agreement. Accordingly, there can be no assurance
that the assumptions made in preparing the projections will prove accurate,
and actual results may be materially greater or less than those contained in
the projections. Except to the extent required under the federal securities
laws, Springs does not intend to make publicly available any update or other
revisions to the projections to reflect circumstances existing after the date
of the preparation of the projections or the occurrence of future events even
in the event that any or all of the assumptions are shown to be in error.
SPECIAL COMMITTEE
Because two of the directors of Springs are members of the Close
family, the Springs board of directors appointed a special committee of the
nine disinterested directors of the board to evaluate the proposed
recapitalization. The members of the special committee are: John F. Akers,
John L. Clendenin, Charles W. Coker, William G. Kelley, John H. McArthur,
Aldo Papone, Robin B. Smith, Sherwood H. Smith, Jr. and Stewart Turley.
No member of the special committee is a member of the Close family or
an employee of Springs, nor does any member of the special committee have
interests in the recapitalization inconsistent with the interests of Springs
public shareholders generally. The Springs shares held by the members of the
special committee will be cashed out in the same manner as those held by
other Springs shareholders whose shares are being converted into cash, and
the deferred stock credits held by members of the special committee will be
deemed reinvested, as of the effective date of the recapitalization, in other
investment vehicles under the Springs deferred compensation plan for outside
directors at a rate of $46.00 per share. The chairman of the special
committee received $25,000 for his services on the committee, and each other
member of the special committee received $15,000 for his or her services on
the committee. In addition, each member of the special committee is entitled
to certain indemnification rights and to directors' and officers' liability
insurance that will be continued by Springs following the recapitalization as
described below under "Interests of Certain Persons in the Recapitalization"
for the current and former officers and directors of Springs. The Springs
board and the special committee believe that the foregoing arrangements did
not affect the special committee's independence or impartiality.
-29-
RECOMMENDATION OF THE SPECIAL COMMITTEE AND THE SPRINGS BOARD; SPRINGS'
PURPOSE AND REASONS FOR THE RECAPITALIZATION
The special committee believes that the recapitalization agreement and
the amendment to the articles of incorporation are advisable, fair to and in
the best interests of Springs shareholders who are not affiliated with the
Close family or Heartland Industrial Partners. The special committee
unanimously recommended that the Springs board of directors adopt the
recapitalization agreement and the amendment to the articles of incorporation
and that the Springs board recommend that Springs shareholders approve the
recapitalization agreement and the amendment to the articles of
incorporation. In reaching these conclusions, the special committee
considered the following positive factors:
o the belief that the $46.00 per share cash consideration is attractive
in light of Springs' historical and current financial performance,
results of operations, prospects, business strategy, and competitive
position in its industry, and in light of general economic, stock
market, and industry conditions;
o the special committee's belief, based on, among other things, the
detailed financial and valuation advice provided to the special
committee by UBS Warburg during the period from March 19 to April
24, 2001, that the $46.00 per share cash consideration:
- represented an attractive multiple of historical revenue, earnings
before interest, taxes, depreciation and amortization, free cash
flow, and earnings before interest and taxes, and of historical
and projected net income;
- represented an attractive multiple of historical revenue, earnings
before interest, taxes, depreciation and amortization, free cash
flow, and earnings before interest and taxes, and of historical
and projected net income, as compared to implied multiples based
on financial and market statistics for a range of companies in
the textile and non-textile home furnishings business in the
United States;
- represented an attractive multiple of historical revenue, earnings
before interest, taxes, depreciation and amortization, free cash
flow, earnings before interest and taxes, and net income, as
compared to implied multiples from recent acquisitions in the
textile and non-textile home furnishings business in the United
States;
- was within the range of implied valuations derived from a discounted
cash flow analyses based on the Scenario 1 projections provided
to UBS Warburg by Springs; and
- compared favorably to the implied equity value reference range for
Springs based on a present value of hypothetical future stock
price analysis using the Scenario 1 projections;
o the opinion of UBS Warburg, the financial advisor to the special
committee, described in detail under "-Opinion of UBS Warburg LLC"
on pages 35 to 41, that, as of April 24, 2001 and on the basis of
and subject to the matters reviewed with the special committee, the
$46.00 per share cash consideration to be received by Springs
shareholders whose shares are being converted into cash in the
proposed recapitalization was fair from a financial point of view to
such shareholders;
o the historical market prices of Springs common stock and recent trading
activity, including the substantial equity premiums implied by the
$46.00 per share cash consideration of 27.4% and 42.4%,
respectively, over Springs' stock prices one day and one month prior
to the initial announcement of the Close family's and Heartland
Industrial Partners' proposal on February 20, 2001;
o the fact that shares of Springs common stock closed at a range from a
low of $22.63 to a high of $48.81 during the 52 weeks prior to
February 16, 2001, the historical market price of Springs common
stock and the fact that despite the general economic downturn in the
U.S. financial markets, which began in mid-2000, the $46.00 per
share cash consideration offered a premium of 36.5% over the 52-week
average trading price of $33.70 for Springs common stock;
-30-
o that the increase in the market price of Springs common stock following
the initial Close family and Heartland Industrial Partners proposal
probably largely reflected anticipation of a possible acquisition by
the Close family and Heartland Industrial Partners, rather than a
higher intrinsic value for Springs common stock;
o the belief that based on a comparison of the risks and benefits of the
recapitalization against the risks and benefits of the other
strategic alternatives available to Springs, including continuing as
an independent entity, that the recapitalization was more favorable
to the public shareholders because Springs would continue to
experience significant competitive and margin pressures within the
textile and non-textile home furnishings business and that Springs
would better be able to realize additional value and growth as a
private company with greater operating flexibility to focus on
long-term goals without the constraint of the public market's
emphasis on near-term earnings;
o the special committee's negotiations with the Close family and
Heartland Industrial Partners, which resulted in an increase in the
cash consideration from $44.00 to $46.00 per share, and the judgment
of the special committee that, based upon the negotiations that had
transpired, a price higher than $46.00 per share in all likelihood
could not be obtained;
o given the Close family's ownershipof approximately 73% of the voting
power of Springs in any transaction with a disinterested party and
ownership of approximately 41% of the voting power of Springs in the
proposed recapitalization, the fact that, as a practical matter, no
alternative transaction could be effected without the support of the
Close family, and the Close family's publicly stated intention that
they would oppose any such alternative transaction;
o the fact that in light of the public announcement of the Close family
and Heartland Industrial Partners proposal on February 20, 2001 and
that there was no break-up fee or other structural impediment
included in the recapitalization agreement that would preclude a
proposal concerning an alternative transaction prior to the Springs
shareholder meeting, no third parties contacted the Springs board,
the special committee or the special committee's financial or legal
advisors concerning an alternative transaction;
o the fact that there are no unusual requirements or conditions to the
recapitalization, that the consideration to be paid in the
recapitalization is all cash, and that the Close family and
Heartland Industrial Partners have arranged financing for the
recapitalization such that absent material changes in market
conditions or in Springs' condition (financial or otherwise),
business or results of operation, they have the financial resources
to complete the recapitalization expeditiously, thereby resulting in
a high probability that the transaction will be consummated on the
terms contained in the recapitalization agreement;
o the requirement that in addition to the affirmative vote of the holders
of at least two-thirds of the outstanding shares of Springs common
stock as required by South Carolina law, it is a condition to the
recapitalization that the recapitalization agreement be approved by
the affirmative vote of the holders of a majority of the votes cast
at the annual meeting not held by the Close family, certain key
members of management and Heartland Industrial Partners and its
affiliates (a condition that will not be waived by either Springs or
Heartland Springs); and
o the composition of the membership of the special committee, consisting
of nine independent directors and sophisticated businesspeople each
of whom is quite familiar with Springs and its business and each of
whom does not have interests inconsistent with the interests of
Springs public shareholders generally, and its empowerment by
Springs to retain independent legal and financial advisors selected
by it.
The special committee, as well as the board of directors, relied on
Springs management to provide UBS Warburg with accurate and complete
financial information, projections and assumptions, and did not independently
verify the accuracy or completeness of the information provided. The special
committee and the board of directors believed that UBS Warburg's reliance on
the financial information, projections, assumptions and other information
provided to UBS Warburg by Springs management was reasonable, and adopted the
financial analyses and conclusions of UBS Warburg.
-31-
The special committee did not consider it significant that Sheffield,
which had previously advised Springs with respect to strategic alternatives
but had terminated its engagement with Springs in January 2001 to become the
Close family's financial advisor, no longer represented Springs. The special
committee believed that it was well advised by UBS Warburg in its financial
analysis of the recapitalization and the negotiations with the Close family
and Heartland Industrial Partners. UBS Warburg was given unrestricted access
to information about Springs, including certain information concerning
strategic alternatives produced by Sheffield during its engagement by
Springs. Accordingly, the special committee did not believe that Sheffield's
representation of the Close family and Heartland Industrial Partners in any
way put the special committee at a disadvantage in acting on behalf of the
Springs shareholders who are not affiliated with the Close family or
Heartland Industrial Partners.
The special committee also considered the following adverse factors
associated with the recapitalization:
o that, although $46.00 per share was within the range of implied per
share values for Springs indicated by UBS Warburg's discounted cash
flow analysis, which was based on the Scenario 1 projections
provided to UBS Warburg by Springs' management, the upper end of
this range exceeded $46.00 per share;
o that because the Close family desired to retain its approximate 41%
economic equity interest and its approximate 73% voting interest in
Springs and had publicly stated its intention to oppose any
alternative transaction with a third party, public shareholders were
not afforded an opportunity to participate in any control premium
that might have been generated by the sale of the entire company to
a third party;
o that the proposed recapitalization will be a taxable transaction for
Springs shareholders whose shares are being converted into cash; and
o that the public shareholders of Springs would have no ongoing equity
participation in the surviving corporation following the
recapitalization, meaning that the public shareholders would cease
to participate in Springs' future earnings or growth, if any, or to
benefit from increases, if any, in the value of their common stock
in Springs.
The special committee believed that the ranges of implied per share
values derived from the valuation analyses used by UBS Warburg based on
management's Scenario 1 projections were substantially more reflective of the
fair value of Springs than the ranges of preliminary implied per share values
derived by UBS Warburg using management's Scenario 2 projections because the
Scenario 1 projections were substantially more consistent with Springs'
historical financial results of operations, management's historic ability to
meet its budgets, and growth expectations in light of the state of the United
States economy generally, and the textile and non-textile home furnishings
industry specifically. For this reason, the special committee did not
attribute importance to the preliminary valuation analyses based upon
management's Scenario 2 projections, such as UBS Warburg's preliminary
analyses based on the Scenario 2 projections that had produced implied per
share values substantially in excess of $46.00 per share.
The special committee also considered the advantages and disadvantages
of the only apparently available alternative to the acquisition of the public
shareholder interest in Springs by the Close family and Heartland Industrial
Partners, which was Springs continuing as a publicly held company with the
Close family maintaining its approximate 41% economic equity interest and its
approximate 73% voting interest in Springs.
In the view of the special committee, the principal advantage of
Springs continuing as a publicly traded company was that it would allow
public shareholders to continue to participate in any growth in the value of
Springs equity. The disadvantages of Springs continuing as a publicly traded
company that were considered by the special committee included the exposure
to the risks and uncertainties attendant to continuing as a publicly traded
company in light of the state of the United States economy generally and the
competitive and market pressures on the textile and non-textile home
furnishings industry specifically. The special committee concluded that under
all of the relevant circumstances and in light of the proposed $46.00 per
share price in cash, the disadvantages of Springs continuing as a publicly
traded company significantly outweighed the advantages, and accordingly that
alternative was rejected.
-32-
In view of the large number of factors considered by the special
committee in connection with the evaluation of the recapitalization and the
complexity of these matters, the special committee did not consider it
practicable to, nor did it attempt to, quantify, rank or otherwise assign
relative weights to the specific factors it considered in reaching its
decision, nor did it evaluate whether these factors were of equal importance.
In addition, each member of the special committee may have given different
weight to the various factors. The special committee held extensive
discussions with, and relied on the experience and expertise of, UBS Warburg
with respect to the quantitative and qualitative analysis of the financial
terms of the recapitalization. The special committee conducted a discussion
of, among other things, the factors described above, including asking
questions of Springs' management and the special committee's financial and
legal advisors, and reached the conclusion that the recapitalization was
advisable, fair to and in the best interests of Springs shareholders who are
not affiliated with the Close family or Heartland Industrial Partners.
The special committee did not consider any factors, other than as
stated above, regarding the fairness of the recapitalization to Springs
shareholders who are not affiliated with the Close family or Heartland
Industrial Partners, as they believed the factors they considered provided a
reasonable basis to form their belief. Specifically, the special committee
did not independently consider with respect to such fairness:
o net book value, which the special committee did not believe had any
systematic connection with the economic value of Springs;
o liquidation value, which the special committee did not view as relevant
since it believed that substantial value was tied to Springs as a
going concern and that liquidation would destroy this value;
o purchase prices paid by Springs or by the Close family for past
purchases of Springs common stock, which, in recent years, involved
too few shares to be used as a reliable basis for valuation; or
o recent other firm offers for Springs, of which there had been none.
The Springs board consists of eleven directors, nine of whom served on
the special committee. At the April 24, 2001 meeting of the Springs board,
the special committee, with its legal and financial advisors participating,
reported to the other members of the Springs board on its review of the
recapitalization agreement, the amendment to the articles of incorporation
and the related financing commitments and the factors taken into account by
the special committee in reaching its determination that the proposed
recapitalization is advisable, fair to and in the best interests of Springs
shareholders who are not affiliated with the Close family or Heartland
Industrial Partners.
The Springs board, with Mrs. Bowles and Mr. Close abstaining and Mr.
Akers not present at such meeting, unanimously determined that the
recapitalization agreement and the amendment to the articles of incorporation
are advisable, fair to and in the best interests of Springs shareholders who
are not affiliated with the Close family or Heartland Industrial Partners and
unanimously voted to adopt the recapitalization agreement and the amendment
to the articles of incorporation and recommend that Springs shareholders
approve the recapitalization agreement and the amendment to the articles of
incorporation. The Springs board, with Mrs. Bowles and Mr. Close abstaining
and Mr. Akers not present at such meeting, considered the following factors
in deciding to recommend that shareholders vote "FOR" the approval of the
recapitalization agreement and the amendment to the articles of incorporation:
o the recommendation of the special committee;
o the factors referred to above as having been taken into account by the
special committee; and
o the fact that the recapitalization consideration and the terms of the
recapitalization agreement were the result of negotiations between
the special committee and the Close family and Heartland Industrial
Partners and their respective advisors.
In view of the variety of factors considered by the Springs board, the
Springs board did not find it practicable to, and it did not, quantify or
otherwise attempt to assign specific or relative weights to the factors
considered in making its determination. In considering the factors described
above, individual members of the Springs board may have given different
weight to different factors.
-33-
SPRINGS' POSITION REGARDING THE FAIRNESS OF THE RECAPITALIZATION
The Springs board of directors, including the members of the special
committee, adopted the special committee's analysis as to the fairness of the
recapitalization and UBS Warburg's analysis as to the fairness, from a
financial point of view, of the $46.00 per share cash consideration to be
received by Springs shareholders whose shares are being converted into cash
in the recapitalization. In addition, the Springs board of directors,
including the members of the special committee, believes that the
recapitalization is procedurally fair to Springs shareholders who are not
affiliated with the Close family or Heartland Industrial Partners because,
among other things:
o The $46.00 per share cash consideration and the other terms and
conditions of the recapitalization agreement resulted from active
negotiations between the special committee and its representatives,
on the one hand, and the Close family and Heartland Industrial
Partners and their representatives, on the other hand.
o The special committee consisted of the nine non-employee, disinterested
directors of the board appointed by the Springs board to represent
solely the interests of Springs shareholders who are not affiliated
with the Close family or Heartland Industrial Partners.
o No member of the special committee is a member of the Close family. No
member of the special committee will have any ownership interest in
Springs after the recapitalization.
o The special committee retained and was advised by its own independent
financial advisor, UBS Warburg, to assist it in evaluating the
recapitalization and provide it with financial advice.
o The special committee retained and was advised by its own independent
legal counsel, Sullivan & Cromwell.
o The special committee engaged in extensive negotiations and
deliberations in evaluating the recapitalization, the
recapitalization consideration and the recapitalization agreement.
o Crandall C. Bowles and Leroy S. Close, both of whom are members of the
Close family and Springs directors, abstained from the vote of the
Springs board regarding the adoption of the recapitalization
agreement.
o Even though the special committee consisted of directors of Springs and
was therefore not completely unaffiliated with Springs, committees
of independent directors are a commonly used mechanism that is
recognized under applicable law as a procedural safeguard to help
ensure fairness in transactions of this type.
o In addition to the affirmative vote of the holders of at least
two-thirds of the outstanding shares of Springs common stock as
required by South Carolina law, it is a condition to the
recapitalization that the recapitalization agreement be approved by
the affirmative vote of the holders of a majority of the votes cast
at the annual meeting not held by the Close family and certain key
members of management and Heartland Industrial Partners and its
affiliates. This condition will not be waived by either Springs or
Heartland Springs.
It follows from each of the foregoing factors that neither the members
of the special committee nor the special committee's advisors, who are the
parties that negotiated the terms and conditions of the recapitalization
agreement with Heartland Springs, had an ownership interest in the
recapitalization that could present them with actual or potential conflicts
of interest. In view of the foregoing, the Springs board believes that
sufficient procedural safeguards existed to ensure the fairness of the
proposed recapitalization and to permit the special committee to effectively
represent the interests of Springs shareholders who are not affiliated with
the Close family or Heartland Industrial Partners and therefore that
additional unaffiliated representatives to act on behalf of those
shareholders were not necessary.
-34-
OPINION OF UBS WARBURG LLC
Under the terms of an engagement letter dated March 13, 2001, the
special committee retained UBS Warburg LLC to provide financial advisory
services and a financial fairness opinion to the special committee in
connection with the recapitalization. At the meeting of the special committee
held on April 24, 2001, UBS Warburg delivered its oral opinion to the effect
that, as of the date of the opinion and based on and subject to the matters
described in the opinion, the $46.00 per share cash recapitalization
consideration to be received by Springs shareholders whose shares are being
converted into cash in the proposed recapitalization is fair from a financial
point of view to such shareholders. The opinion was confirmed by delivery of
a written opinion dated April 24, 2001.
The following summary of the UBS Warburg opinion is qualified in its
entirety by reference to the full text of the opinion. The full text of the
opinion sets forth the assumptions made, procedures followed, matters
considered and limitations on the scope of the review undertaken, by UBS
Warburg and is attached as Appendix B to this document and incorporated in
this document by reference. We encourage you to read carefully the UBS
Warburg opinion in its entirety.
UBS Warburg's opinion:
o is directed to the special committee;
o relates only to the fairness from a financial point of view of the
$46.00 per share cash recapitalization consideration to be received
by Springs shareholders whose shares are being converted into cash
in the proposed recapitalization;
o does not address Springs' underlying business decision to effect the
recapitalization;
o does not constitute a recommendation to any shareholder about how to
vote with respect to the recapitalization agreement or any other
matter; and
o is necessarily based upon economic, monetary, market and other
conditions as in effect on, and the information made available to
UBS Warburg as of, the date of the opinion.
In arriving at its opinion, UBS Warburg, among other things:
o reviewed selected publicly available business and historical financial
information relating to Springs;
o reviewed the reported prices and trading activity for the Class A
common stock;
o reviewed selected internal financial information and other data
relating to the business and financial prospects of Springs,
including estimates and financial forecasts prepared by the
management of Springs, which were provided to UBS Warburg by Springs
and not publicly available;
o conducted discussions with members of the senior management of Springs;
o reviewed publicly available financial and stock market data with
respect to selected other companies in lines of business UBS Warburg
believed to be generally comparable to those of Springs;
o compared the financial terms of the recapitalization with the publicly
available financial terms of selected other transactions which UBS
Warburg believed to be generally relevant;
o reviewed drafts of the recapitalization agreement; and
o conducted such other financial studies, analyses and investigations and
considered such other information as UBS Warburg deemed necessary or
appropriate.
-35-
In connection with its review, with the special committee's consent,
UBS Warburg:
o assumed that the final executed form of the recapitalization agreement
did not differ in any material respect from the drafts that UBS
Warburg examined, and that Springs and Heartland Springs will comply
with all material terms of the recapitalization agreement;
o did not assume any responsibility for independent verification of any
of the information referred to above and relied on it as being
complete and accurate in all material respects;
o did not make any independent evaluation or appraisal of any of the
assets or liabilities (contingent or otherwise) of Springs, nor was
UBS Warburg furnished with any such evaluation or appraisal; and
o assumed that the five-year financial forecast entitled "Scenario 1
(Lower Risk)" provided to UBS Warburg by Springs' management had
been reasonably prepared on a basis reflecting the best currently
available estimates and judgments of Springs' management as to the
future performance of Springs.
UBS Warburg was not asked to, and did not, at the special committee's
direction, offer any opinion as to the material terms of the recapitalization
agreement or the form of the transactions contemplated by the
recapitalization agreement. In addition, in connection with its engagement by
the special committee, UBS Warburg was not authorized to and did not solicit
indications of interest from any third party with respect to a business
combination with Springs.
In connection with UBS Warburg's review, Springs' management provided
UBS Warburg with two sets of five-year financial forecasts for Springs, with
one set entitled "Scenario 2 (Higher Risk)" and the other set entitled
"Scenario 1 (Lower Risk)". In preparing the financial and comparative
analyses in connection with the rendering of its opinion, UBS Warburg was
instructed by the special committee to disregard and not take into
consideration the five-year financial forecast for Springs entitled "Scenario
2 (Higher Risk)" because, based on general economic and industry trends,
Springs' past experience and the view of Springs' management as to the
likelihood of achievement, the special committee did not believe, with UBS
Warburg's concurrence, that the financial forecast entitled "Scenario 2
(Higher Risk)" was likely to be achieved.
The preparation of a fairness opinion is a complex analytical process
involving various determinations as to the most appropriate and relevant
methods of financial analysis and the application of those methods to the
particular circumstances and, therefore, is not susceptible to partial
analysis or summary descriptions. In arriving at its opinion, UBS Warburg
made qualitative judgments as to the significance and relevance of each
analysis and factor considered by it. Accordingly, UBS Warburg believes that
its analyses must be considered as a whole and that selecting portions of its
analyses and the factors considered by it, without considering all analyses
and factors, could create an incomplete view of the processes underlying the
analyses set forth in its opinion.
In performing its analyses, UBS Warburg made numerous assumptions with
respect to industry performance, general business, financial, market and
economic conditions and other matters, many of which are beyond the control
of Springs. No company, transaction or business used in those analyses as a
comparison is identical to Springs or its businesses or the recapitalization,
nor is an evaluation of the results entirely mathematical. Rather, the
analyses involve complex considerations and judgments concerning financial
and operating characteristics and other factors that could affect the
operating results, public trading or other values of the companies or
transactions being analyzed.
The estimates contained in the analyses performed by UBS Warburg and
the ranges of valuations resulting from any particular analysis are not
necessarily indicative of actual values or predictive of future results or
values, which may be significantly more or less favorable than suggested by
these analyses. In addition, analyses relating to the value of securities do
not purport to be appraisals or to reflect the prices at which a business
might actually be sold or the prices at which any securities may trade at the
present time or at any time in the future.
The following is a summary of the material financial analyses used by
UBS Warburg in connection with the rendering of its opinion. The financial
analyses summarized below include information presented in tabular format. In
order to understand the financial analyses fully, the tables must be read
together with the text of each summary. Considering the data set forth below
without considering the full narrative description of the financial analyses,
-36-
including the methodologies and assumptions underlying the analyses, could
create a misleading or incomplete view of the financial analyses.
HISTORICAL STOCK PERFORMANCE. UBS Warburg reviewed historical trading
prices for the Class A common stock. This stock price performance review
indicated that, for the latest twelve months ended February 16, 2001, the low
and high closing prices for the Class A common stock were $22.63 and $48.81,
respectively. UBS Warburg also reviewed the closing price of the Class A
common stock on February 16, 2001 and average closing prices and the low and
high closing prices over periods prior to February 16, 2001 as set forth in
the following table:
---------------------------------------
SELECTED STATISTICS CLOSING
PRICE
---------------------------------------
February 16, 2001 $36.10
30 Day Average $35.05
90 Day Average $31.21
52 Week Average $33.70
52 Week High $48.81
52 Week Low $22.63
3 Year Average $38.53
3 Year High $60.75
3 Year Low $22.63
---------------------------------------
SELECTED COMPARABLE PUBLIC COMPANY ANALYSIS. UBS Warburg compared
selected financial information, ratios and public market multiples for
Springs to the corresponding data for the following six publicly-traded home
furnishings companies:
o Burlington Industries, Inc.
o Crown Crafts, Inc.
o Dan River, Inc.
o Galey & Lord, Inc.
o Mohawk Industries, Inc.
o WestPoint Stevens, Inc.
UBS Warburg chose the selected companies because they were
publicly-traded companies that, for purposes of the analysis, UBS Warburg
considered reasonably similar to Springs in that these companies operate in
the home furnishings industry. The selected public companies may
significantly differ from Springs based on, among other things, the size of
the companies, the geographic coverage of the companies' operations and the
particular segments of the home furnishings industry in which the companies
focus.
UBS Warburg reviewed, among other information, the comparable
companies' multiples of total enterprise value, referred to as TEV, which
consists of the market value of the particular company's equity plus the
market value (when available) of the particular company's total debt (and
certain unfunded liabilities), minus cash, cash equivalents and marketable
securities to:
o latest twelve months, referred to as LTM, revenue;
o LTM earnings before interest, taxes, depreciation and amortization,
referred to as EBITDA;
o LTM free cash flow, referred to as FCF, which equals LTM EBITDA minus
LTM capital expenditures; and
o LTM earnings before interest and taxes, referred to as EBIT.
-37-
UBS Warburg also reviewed, among other information, the comparable
companies' price/earnings multiples, referred to as P/E, for the calendar
year ending December 31, 2000 and projected P/E multiples, based on I/B/E/S
International Inc., referred to as IBES, consensus earnings estimates for the
calendar year ending December 31, 2001.
The Springs comparable companies analysis resulted in the following
ranges of multiples as of April 23, 2001:
--------------------------------------------------------------
SPRINGS IMPLIED
MULTIPLE ANALYSIS MULTIPLE RANGE MULTIPLE @
$46.00/SHARE
--------------------------------------------------------------
TEV / LTM Revenue 0.32x to 1.01x 0.57x
TEV / LTM EBITDA 4.3x to 7.9x 5.2x
TEV / LTM FCF 6.7x to 7.8x 7.9x
TEV / LTM EBIT 7.2x to 8.4x 9.4x
2000 P/E 4.2x to 10.1x 12.8x
2001E P/E -- IBES 2.3x to 16.9x 11.7x
--------------------------------------------------------------
Actual LTM data for Springs and the selected companies were based on
the respective companies' Forms 10-K and 10-Q as well as certain internal
financial reports for Springs.
PREMIUMS PAID ANALYSIS. UBS Warburg reviewed selected purchase price
per share premiums paid both in cash acquisitions of publicly-traded domestic
companies in non-financial industries and in minority close-out transactions
announced, pending or completed, excluding withdrawn transactions and certain
transactions that in UBS Warburg's judgment were non-representative, from
January 1, 1999 through April 23, 2001, with deal sizes between $500.0
million and $2.0 billion, except for minority close-out transactions for
which no size limitations were imposed. This analysis indicated mean and
median and high and low premiums to the target's closing stock prices on
dates prior to the announcement as set forth in the following table.
- -------------------------------------------------------------------------------
PREMIUM TO STOCK PRICE (%)
-----------------------------------------
ONE DAY ONE WEEK ONE MONTH
NUMBER OF PRIOR TO PRIOR TO PRIOR TO
DEALS ANNOUNCEMENT ANNOUNCEMENT ANNOUNCEMENT
- -------------------------------------------------------------------------------
DEALS ANNOUNCED IN 2001
Control 32
-------
Mean/Median 35.7 / 30.6 43.3 / 41.5 51.8 / 50.0
High/Low 92.7 / 2.7 96.3 / 4.0 111.1 / (0.3)
Minority Close-out 13
------------------
Mean/Median 39.0 / 42.5 48.8 / 44.3 37.4 / 41.1
High/Low 85.5 / 3.9 108.2 / 3.9 75.4 / 5.3
DEALS ANNOUNCED IN 2000
Control 39
-------
Mean/Median 34.7 / 30.2 43.5 / 40.7 53.0 / 50.6
High/Low 116.8 /(5.3) 121.0 / 4.0 130.3 / (0.3)
Minority Close-out 19
------------------
Mean/Median 29.4 / 22.4 37.0 / 37.6 36.4 / 31.9
High/Low 85.5 / (4.5) 108.2 / 0.0 98.8 / 1.2
DEALS ANNOUNCED IN 1999
Control 65
-------
Mean/Median 30.1 / 27.3 37.0 / 34.8 44.5 / 41.9
- ------------------------------------------------------------------------------
-38-
High/Low 95.3 / (7.9) 115.4 /(11.4) 120.3 /(2.1)
Minority Close-out 18
------------------
Mean/Median 34.7 / 30.5 35.9 / 43.4 48.6 / 48.6
High/Low 83.6 / 5.5 63.3 /(1.5) 107.4 / 7.3
- --------------------------------------------------------------------------------
Implied Premium of Proposed 27.4 26.8 42.4
Recapitalization of Springs @ $46.00/share
- --------------------------------------------------------------------------------
SELECTED COMPARABLE TRANSACTION ANALYSIS. UBS Warburg reviewed publicly
available financial information relating to the following selected
transactions in the home furnishings industry since February 1995:
Acquiror Target
-------- ------
Berkshire Hathaway, Inc. Shaw Industries, Inc.
Investor Group Conso International Corp.
CGW Southeast Partners IV, L.P. Johnston Industries, Inc.
Dan River, Inc. The Bibb Company
Pillowtex Corp. Fieldcrest Cannon, Inc.
Springs Industries, Inc. Dundee Mills, Inc.
UBS Warburg chose the selected transactions because they were business
combinations that, for the purposes of the analysis, UBS Warburg considered
to be reasonably similar to the recapitalization in that these transactions
involved companies in the home furnishings industry. The selected
transactions may differ significantly from the recapitalization based on,
among other things, the size of the transactions, the structure of the
transactions and the dates that the transactions were announced and
consummated.
UBS Warburg reviewed, among other things, the TEVs implied in the
relevant transactions as a multiple of LTM revenue, LTM EBITDA, LTM FCF and
LTM EBIT and the equity market value, referred to as EMV, implied in the
relevant transactions as a multiple of LTM net income.
The analysis indicated the following implied multiples for the selected
transactions and for the recapitalization:
-------------------------------------------------------
SPRINGS
MULTIPLE ANALYSIS MULTIPLE RANGE IMPLIED
MULTIPLE @
$46.00/SHARE
-------------------------------------------------------
TEV / LTM Revenue 0.53x to 1.10x 0.57x
TEV / LTM EBITDA 5.9x to 18.4x 5.2x
TEV / LTM FCF 7.2x to 47.3x 7.9x
TEV / LTM EBIT 7.9x to 40.7x 9.4x
EMV / LTM Net Income 11.5x to 23.9x 12.8x
-------------------------------------------------------
All multiples for the selected transactions were based on publicly
available information at the time of the announcement of the particular
transaction. Actual LTM data for Springs and the selected companies were
based on the respective companies' Forms 10-K and 10-Q as well as certain
internal financial reports for Springs.
DISCOUNTED CASH FLOW ANALYSIS. UBS Warburg performed a discounted cash
flow analysis, using the Scenario 1 financial forecast prepared by management
of Springs, in order to derive an implied equity value reference range for
Springs. The discounted cash flow analysis determined the discounted present
value of the unleveraged after-tax cash flows generated over the five-year
period covered by the Scenario 1 financial forecast and then added a terminal
value based upon ranges of EBITDA, FCF and EBIT multiples and a growth
perpetuity based on unleveraged after-tax free cash flow from 4.5x to 5.5x,
6.5x to 7.5x, 6.5x to 7.5x, and 0.5% to 2.5%, respectively. The unleveraged
after-tax cash flows and terminal values were discounted using a range of
discount rates (8.75% to 11.75%) that UBS Warburg deemed appropriate, based
on Springs' weighted average cost of capital. The valuation ranges implied by
this analysis are summarized in the following table:
-39-
------------------------------------------------------------
TERMINAL VALUE TERMINAL VALUE IMPLIED PER SHARE
BASED UPON MULTIPLE RANGE VALUE RANGE ($)
------------------------------------------------------------
EBITDA 4.5x to 5.5x 38.61 to 56.12
EBIT 6.5x to 7.5x 28.13 to 39.80
FCF 6.5x to 7.5x 34.39 to 47.58
Perpetuity Growth 0.5% to 2.5% 23.92 to 56.75
------------------------------------------------------------
LEVERAGED RECAPITALIZATION ANALYSIS. UBS Warburg performed a leveraged
recapitalization analysis of Springs to show the internal rates of return,
referred to as IRR, to a typical financial buyer that might be produced
assuming the sale of Springs to such a financial buyer at various per share
purchase prices. A leveraged recapitalization involves the acquisition or
recapitalization of a company financed primarily by incurring indebtedness
that is serviced by the post-recapitalization operating cash flow of Springs.
For purposes of the leveraged recapitalization analysis UBS Warburg assumed,
among other things: (i) a purchase price per share range from $38.00 to
$50.00; (ii) recapitalization accounting (no push-down of goodwill); (iii) a
closing date of June 30, 2001; and (iv) that the hypothetical investor sells
Springs in 4.5 years (i.e., at the end of 2005) at an EBITDA multiple of
5.0x. The results of these analyses are summarized in the table below:
- --------------------------------------------------------------------------------
Purchase Price Per Share
- --------------------------------------------------------------------------------
$38.00 $42.00 $46.00 $50.00
- --------------------------------------------------------------------------------
2000 Pro Forma (x):
Total Debt/EBITDA 2.5 2.7 2.9 3.1
EBITDA/Interest Expense 5.2 4.9 4.7 4.4
(EBITDA-CAPEX)/Interest 3.3 3.2 3.0 2.8
Expense
IRR (%) 20.5 17.5 14.6 11.8
- --------------------------------------------------------------------------------
PRESENT VALUE OF HYPOTHETICAL FUTURE STOCK PRICE ANALYSIS. UBS Warburg
performed a present value of hypothetical future stock price analysis using
the Scenario 1 financial forecast prepared by management of Springs, in order
to derive an implied equity value reference range for Springs. The future
stock price range was determined by applying a P/E multiple range of
7.0x-9.0x. The P/E multiple range used in this analysis was selected by UBS
Warburg after considering the implied P/E multiple range derived from the
comparable public companies analysis and the implied P/E multiples for
Springs for various periods prior to the announcement of the proposed
recapitalization. This hypothetical future stock price and the forecasted
constant per share dividend stream generated over the five-year period
(2001-2005) were then discounted at a levered cost of equity of 11.75%. The
valuation range indicated by this analysis is summarized in the following
table:
- --------------------------------------------------------------------------------
($ per share) 2001P 2002P 20030 2004P 2005P
- --------------------------------------------------------------------------------
Projected Springs EPS(1) 3.95 3.92 4.31 4.40 4.48
Hypothetical Future Stock
Price
P/E Multiple
- ------------
7.0x 27.65 27.44 30.17 30.80 31.36
8.0x 31.60 31.36 34.48 35.20 35.84
9.0x 35.55 35.28 38.79 39.60 40.32
Dividends per share(2) 1.27 1.27 1.27 1.27 1.27
Present Value of Hypothetical Stock Price
P/E Multiple:
- ------------
-40-
7.0x 26.76 24.91 25.50 24.38 23.30
8.0x 30.49 28.22 28.76 27.36 26.02
9.0x 34.23 31.54 32.03 30.35 28.73
- --------------------------------------------------------------------------------
(1)Projected Springs earnings per share, referred to as EPS, based on
Scenario 1 financial forecast prepared by management of Springs.
(2)Assumes constant blended per share dividend policy as per Springs'
management Scenario 1 financial forecasts.
FEE ARRANGEMENT. Pursuant to the engagement letter dated March 13, 2001
among UBS Warburg, Springs and the special committee, UBS Warburg earned a
fee of $2,000,000 payable by Springs for rendering its financial fairness
opinion, independent of the result of the opinion. Springs also agreed to
reimburse UBS Warburg for its expenses incurred in performing its services.
UBS Warburg will not be entitled to any additional fees or compensation with
respect to the recapitalization. In addition, Springs has agreed to indemnify
UBS Warburg and its affiliates, their respective directors, officers, agents
and employees and each person, if any, controlling UBS Warburg or any of its
affiliates against certain liabilities and expenses related to or arising out
of UBS Warburg's engagement and any related transactions.
The special committee selected UBS Warburg based on its experience,
expertise and reputation. UBS Warburg is an internationally recognized
investment banking firm that regularly engages in the valuation of securities
in connection with mergers and acquisitions, negotiated underwritings,
competitive bids, secondary distributions of listed and unlisted securities,
private placements and valuations for estate, corporate and other purposes.
Prior to this engagement, UBS Warburg had not provided investment banking and
other financial services to Springs, the Close family or Heartland Industrial
Partners. In the ordinary course of business, UBS Warburg, its successors and
affiliates may trade or have traded securities of Springs for their own
accounts and, accordingly, may at any time hold a long or short position in
such securities.
THE CLOSE FAMILY'S POSITION REGARDING THE FAIRNESS OF THE RECAPITALIZATION
The rules of the Securities and Exchange Commission require the members
of the Close family to express their belief as to the fairness of the
recapitalization to Springs shareholders who are not affiliated with the
Close family or Heartland Industrial Partners. The views set forth in this
section and under the heading "The Close Family's Purposes and Reasons for
the Recapitalization" are held by each member of the Close family.
The members of the Close family believe that the recapitalization is
substantively and procedurally fair to Springs shareholders who are not
affiliated with the Close family or Heartland Industrial Partners.
exclusively on the basis of their observations that:
o Before deciding to propose the recapitalization in conjunction with
Heartland Industrial Partners, Springs held discussions with five
other potential investors in an effort to structure a transaction
that would provide an attractive price to the public and at the same
time allow the Close family to continue its ownership of Springs and
maintain the moderately leveraged capital structure that the Close
family believes is necessary to enable Springs to operate
successfully in the future. Most of the private equity funds that
were contacted were unwilling to pursue a significant investment in
Springs. Aside from Heartland Industrial Partners, only one other
contacted investor was willing to participate in a transaction
involving Springs, but only if significantly higher financial
leverage were used to effect such transaction at a price
significantly below the $46.00 per share cash consideration being
offered in the recapitalization.
o Following the offer by the Close family and Heartland Industrial
Partners, Springs has not received any other proposals from
potential investors or acquirors.
o The $46.00 per share cash consideration being offered in the
recapitalization represents an approximately 47.4% premium over the
average per share closing price for the 90 days prior to February
16, 2001, the last full business day prior to the announcement of
the proposed recapitalization, an approximately 31.2% premium over
the average per share closing price for the 30 days prior to
February 16, 2001, and an
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approximately 27.4% premium over the per share closing price of
$36.10 of Springs common stock on February 16, 2001.
o A special committee of independent directors was established. The
special committee retained its own financial and legal advisors and
conducted a vigorous process of evaluation and negotiation.
o The special committee unanimously recommended to the Springs board of
directors that the recapitalization agreement and proposed amendment
to the articles of incorporation be adopted by the Springs board and
that the Springs board recommend approval of the recapitalization
agreement and proposed amendment to the articles of incorporation by
Springs shareholders. Both the special committee and the Springs
board determined that the recapitalization agreement and the
proposed amendment to the articles of incorporation are advisable,
fair to and in the best interests of Springs shareholders who are
not affiliated with the Close family or Heartland Industrial
Partners.
o UBS Warburg LLC, the financial advisor to the special committee,
delivered its opinion dated April 24, 2001 to the special committee
as to the fairness, from a financial point of view, of the $46.00
per share cash recapitalization consideration to be received by
Springs shareholders whose shares are being converted into cash in
the proposed recapitalization. The Close family adopts UBS Warburg's
analysis as to the fairness, from a financial point of view, of the
$46.00 per share cash consideration.
o In addition to the affirmative vote of the holders of at least
two-thirds of the outstanding shares of Springs common stock as
required by South Carolina law, it is a condition to the
recapitalization that the recapitalization agreement be approved by
the affirmative vote of the holders of a majority of the votes cast
at the annual meeting not held by the Close family and certain key
members of management and Heartland Industrial Partners and its
affiliates (a condition that will not be waived by either Springs or
Heartland Springs).
This belief, however, should not be construed as a recommendation to
any shareholder as to how you should vote on the recapitalization. The
members of the Close family have not considered any factors, other than as
stated above, regarding the fairness of the recapitalization to Springs
shareholders who are not affiliated with the Close family or Heartland
Industrial Partners, as they believe the factors they considered provided a
reasonable basis to form their belief. Specifically, the members of the Close
family have not independently considered with respect to such fairness:
o net book value, which the Close family does not believe has any
systematic connection with the economic value of Springs;
o liquidation value, which the Close family does not view as relevant
since it believes that substantial value is tied to Springs as a
going concern and that liquidation would destroy this value;
o purchase prices paid by Springs or by the Close family for past
purchases of Springs common stock, which, in recent years, involved
too few shares to be used as a reliable basis for valuation; or
o recent other firm offers for Springs, of which there has been none.
THE CLOSE FAMILY'S PURPOSE AND REASONS FOR THE RECAPITALIZATION
The Close family believes that it is desirable to return Springs to
private ownership at this time to enable Springs and its management to
respond more effectively to the complex and rapidly changing conditions in
the home furnishings industry and to focus management's attention on the
long-term interests of Springs. The Close family believes that Springs will
be a stronger and more competitive company in the years ahead as a result of
the recapitalization. The Close family has chosen to engage in the
recapitalization because it believes Springs is a leader in its industry,
with strengths that the Close family believes will provide a foundation to
further enhance growth and its industry position. Although the Close family
recognizes that the recapitalization will expose its investment in Springs to
certain additional risks as compared to Springs' continuation as a public
company, it believes that the recapitalization will ultimately enhance the
value of its investment in Springs.
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The Close family believes that as a private company, Springs will have
greater operating flexibility to focus on enhancing value by emphasizing
growth (both internally and through acquisitions) and operating cash flow
without the constraint of the public market's emphasis on near-term earnings.
The Close family believes that the public markets tend to focus on short-term
results, and often do not react favorably to business strategies that are
perceived as dilutive to operating results for more than a few fiscal
quarters. In contrast, the owners of private companies are less sensitive to
quarter-to-quarter results and are able to focus more on long-term strategies.
The Close family believes that current industry conditions create an
opportunity for Springs to significantly enhance its position in the home
furnishings industry through infrastructure investment and acquisitions, but
that a strategy to capitalize on this opportunity will require a long-term
commitment and a willingness to tolerate negative effects on earnings in the
short term. The Close family believes that the new ownership structure will
support these strategies, as well as Springs' strategy of focusing on key
customers, product breadth, building Springs' brands, cost reductions through
purchasing and manufacturing efficiencies, and increased sourcing.
The Close family views Heartland Industrial Partners as an excellent
partner for the recapitalization. Heartland Industrial Partners has the
financial and industry expertise to provide Springs with advice in critical
areas, including advice on general developments in the textile and nontextile
home furnishings industry, on market developments concerning the purchase of
other home furnishings manufacturers, on designing financing structures, on
relationships with lenders, bankers and lessors, on structuring and timing
public and private offerings of debt and equity securities, on asset
dispositions, divestitures and acquisitions, on operational improvements, on
quality and supply chain management, on information systems and on sourcing.
The Close family believes that Heartland Industrial Partners' support,
interest and expertise in these critical areas will be a valuable resource to
Springs, its associates and customers.
While the Close family believes that there will be significant
opportunities associated with the recapitalization of Springs, there are also
substantial risks that such opportunities may not be realized. Such risks
include risks associated with holding equity of privately held companies as
opposed to public companies (such as a lack of liquidity in the investment),
risks associated with the level of debt of Springs following the
recapitalization (which is being increased and will require that a
significant portion of the cash generated by Springs in the future be used to
pay for principal and interest, decreasing the cash available to operate its
businesses) and risks associated with the operations of these businesses
(which operate in very competitive environments).
Furthermore, while the other Springs shareholders will receive a
significant premium in cash over the pre-announcement market price of their
Springs shares, the value of the Close family's ongoing investment remains at
risk and may decrease, or be lost in the future, especially in light of the
risks discussed above. However, the Close family regards the recapitalization
as an attractive investment opportunity because they believe that the
substantial increase in the debt-to-equity ratio of Springs from
approximately 40% to 114% after the recapitalization, although importing
greater investment risks, will create the potential for increased investment
returns. The increase in the debt-to-equity ratio is presented based on the
assumption that the recapitalization was completed on June 30, 2001, using
management's current projected balance sheet as of that date, that no shares
or options are retained, except those of the Close family, and that the
estimated changes in debt and equity are as discussed under "Financing For
The Recapitalization" on pages 53 to 54. Debt excludes the $165 million of
receivables facility proceeds, which is presented as a reduction in accounts
receivable, and equity includes an estimated $6.4 million of unrealized
losses on derivative financial instruments recorded in accumulated other
comprehensive income. Springs' debt-to-equity ratio is a measure of the
extent to which its equity capital is leveraged. A higher ratio indicates a
greater degree of leverage, thus magnifying any positive or negative returns
to Springs' stockholders.
While the Close family considered alternatives to taking Springs
private with Heartland Industrial Partners, it rejected such alternatives.
The Close family contemplated taking Springs private, without a partner.
However, the Close family concluded that taking Springs private without a
partner would require Springs to incur too much debt. With Heartland
Industrial Partners' equity investment, the Close family could participate in
a recapitalization of Springs with lower leverage, giving Springs increased
flexibility to make acquisitions and capital expenditures and pay dividends.
The Close family also contemplated a growth strategy, with Springs remaining
a public company, driven by the acquisition of other home furnishings
companies. However, the Close family rejected this option because the most
attractive target required substantial operational restructuring, while other
targets either posed antitrust complications or, upon further review, did not
have attractive businesses or valuations. Finally, the Close family
considered a share repurchase program, but rejected this alternative since it
lacked the qualitative benefits associated with having a partner
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like Heartland Industrial Partners, which brought with it experience,
management skills and the ability to increase Springs' market profile and
thereby attract and retain key executives.
The recapitalization of Springs has been structured as a merger with
Springs continuing as the surviving corporation and the Close family
retaining an interest in Springs in order to (1) bind all shareholders,
subject to dissenters' rights, (2) preserve the corporate identity of Springs
and its existing contractual arrangements with third parties and (3) effect a
recapitalization of Springs for accounting purposes.
The Close family presently intends that the businesses of Springs will
be conducted substantially as they have been conducted historically. The
Close family is continuing to evaluate Springs' business, assets, practices,
operations, properties, corporate structure, capitalization and personnel and
will implement changes as they deem appropriate. The Close family has no
present intention to dispose of its equity investment in Springs, other than
the up to $50 million in value of its Springs shares, representing
approximately 15% of its holdings, that it intends to sell to Heartland
Industrial Partners at $46 per share prior to the recapitalization, or to
cause Springs to engage in a significant business combination. Springs
intends to pursue potential acquisitions it considers appropriate at any time
they become available.
HEARTLAND'S POSITION REGARDING THE FAIRNESS OF THE RECAPITALIZATION
The rules of the Securities and Exchange Commission require Heartland
Industrial Partners and Heartland Springs to express their belief as to the
fairness of the recapitalization to Springs shareholders who are not
affiliated with the Close family or Heartland Industrial Partners.
Heartland Industrial Partners and Heartland Springs believe that the
recapitalization is substantively and procedurally fair to Springs
shareholders who are not affiliated with the Close family or Heartland
Industrial Partners exclusively on the basis of their observations that:
o Following the offer by the Close family and Heartland Industrial
Partners, Springs has not received any other proposals from
potential investors or acquirors.
o The $46.00 per share cash consideration being offered in the
recapitalization represents an approximately 47.4% premium over the
average per share closing price for the 90 days prior to February
16, 2001, the last full business day prior to the announcement of
the proposed recapitalization, an approximately 31.2% premium over
the average per share closing price for the 30 days prior to
February 16, 2001, and an approximately 27.4% premium over the per
share closing price of $36.10 of Springs common stock on February
16, 2001.
o A special committee of independent directors was established. The
special committee retained its own financial and legal advisors and
conducted a vigorous process of evaluation and negotiation.
o The special committee unanimously recommended to the Springs board of
directors that the recapitalization agreement and proposed amendment
to the articles of incorporation be adopted by the Springs board and
that the Springs board recommend approval of the recapitalization
agreement and proposed amendment to the articles of incorporation by
Springs shareholders. Both the special committee and the Springs
board determined that the recapitalization agreement and the
proposed amendment to the articles of incorporation are advisable,
fair to and in the best interests of Springs shareholders who are
not affiliated with the Close family or Heartland Industrial
Partners.
o UBS Warburg LLC, the financial advisor to the special committee,
delivered its opinion dated April 24, 2001 to the special committee
as to the fairness, from a financial point of view, of the $46.00
per share cash recapitalization consideration to be received by
Springs shareholders whose shares are being converted into cash in
the proposed recapitalization. Heartland Industrial Partners and
Heartland Springs adopt UBS Warburg's analysis as to the fairness,
from a financial point of view, of the $46.00 per share cash
consideration.
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o In addition to the affirmative vote of the holders of at least
two-thirds of the outstanding shares of Springs common stock as
required by South Carolina law, it is a condition to the
recapitalization that the recapitalization agreement be approved by
the affirmative vote of the holders of a majority of the votes cast
at the annual meeting not held by the Close family, certain key
members of management and Heartland Industrial Partners and its
affiliates (a condition that will not be waived by either Springs or
Heartland Springs).
This belief, however, should not be construed as a recommendation to
any shareholder as to how you should vote on the recapitalization. Heartland
Industrial Partners and Heartland Springs have not considered any factors,
other than as stated above, regarding the fairness of the recapitalization to
Springs shareholders who are not affiliated with the Close family or
Heartland Industrial Partners, as they believe the factors they considered
provided a reasonable basis to form their belief. Specifically, Heartland
Industrial Partners and Heartland Springs have not independently considered
with respect to such fairness:
o net book value, which Heartland Industrial Partners and Heartland
Springs do not believe has any systematic connection with the
economic value of Springs;
o liquidation value, which Heartland Industrial Partners and Heartland
Springs do not view as relevant since they believe that substantial
value is tied to Springs as a going concern and that liquidation
would destroy this value; or
o purchase prices paid by the Close family for past purchases of Springs
common stock, which, in recent years, involved too few shares to be
used as a reliable basis for valuation.
Because Heartland Industrial Partners and Heartland Springs did not have any
access to information concerning purchase prices paid by Springs for past
purchases of Springs common stock or firm offers that might have been made
for Springs, they have not considered these factors in evaluating the
fairness of the recapitalization to Springs shareholders who are not
affiliated with the Close family or Heartland Industrial Partners.
HEARTLAND'S PURPOSE AND REASONS FOR THE RECAPITALIZATION
Heartland Industrial Partners has targeted the home furnishings sector
as ideal for its buy, build and grow investment strategy in sectors that are
attractive for consolidation and long-term growth. Heartland Industrial
Partners believes that its proposed investment in Springs and partnership
with the Close family is an attractive investment and in furtherance of this
investment strategy.
Heartland Industrial Partners believes that as a private company, Springs
will have greater operating flexibility to focus on enhancing value by
emphasizing growth (both internally and through acquisitions) and operating
cash flow without the constraint of the public market's emphasis on near-term
earnings. Heartland Industrial Partners believes that the public markets tend
to focus on short-term results, and often do not react favorably to business
strategies that are perceived as dilutive to operating results for more than a
few fiscal quarters. In contrast, the owners of private companies are less
sensitive to quarter-to-quarter results and are able to focus more on
long-term strategies. Heartland Industrial Partners believes that current
industry conditions create an opportunity for Springs to significantly enhance
its position in the home furnishings industry through infrastructure
investment and acquisitions, but that a strategy to capitalize on this
opportunity will require a long-term commitment and a willingness to tolerate
negative effects on earnings in the short term. Heartland Industrial Partners
believes that the new ownership structure will support these strategies, as
well as Springs' strategy of focusing on key customers, product breadth,
building Springs' brands, cost reductions through purchasing and manufacturing
efficiencies, and increased sourcing.
While Heartland Industrial Partners believes that there will be
significant opportunities associated with the recapitalization of Springs,
there are also substantial risks that such opportunities may not be realized.
Such risks include risks associated with holding equity of privately held
companies as opposed to public companies (such as a lack of liquidity in the
investment), risks associated with the level of debt of Springs following the
recapitalization (which is being increased and will require that a significant
portion of the cash generated by Springs in the future be used to pay for
principal and interest, decreasing the cash available to operate its
businesses) and risks associated with the
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operations of these businesses (which operate in very competitive
environments). However, Heartland Industrial Partners regards the
recapitalization as an attractive investment opportunity because they believe
that the substantial increase in the debt-to-equity ratio of Springs from
approximately 40% to 114% after the recapitalization, although importing
greater investment risks, will create the potential for increased investment
returns.
ACCOUNTING TREATMENT
We expect that the merger will be treated as a "recapitalization" under
generally accepted accounting principles. Accordingly, no adjustment of
assets or liabilities will occur.
INTERESTS OF CERTAIN PERSONS IN THE RECAPITALIZATION
THE CLOSE FAMILY
The members of the Close family have interests in the recapitalization
as employees or directors of Springs, or as shareholders with a continuing
equity interest in Springs, that are different from, or in addition to, yours
as a Springs shareholder. In particular, the members of the Close family will
not receive $46.00 per share in cash for all of their Springs shares, and
will instead remain significant shareholders of Springs, with the ability to
share in the future growth and profits of Springs. Prior to the
recapitalization, the Close family intends to sell up to $50 million in value
of its Springs shares, representing approximately 15% of its holdings, to
Heartland Industrial Partners at $46 per share. When making the determination
to adopt and recommend approval of the recapitalization agreement and the
amendment to the articles of incorporation to the Springs board of directors,
in the case of the special committee, and to Springs shareholders, in the
case of the Springs board, both the special committee and the Springs board
were aware of the interests of the Close family and considered these
interests, effects and terms together with the other factors described under
"Special Factors-Recommendation of the Special Committee and the Springs
Board; Springs' Purpose and Reasons for the Recapitalization" and "-Springs'
Position Regarding the Fairness of the Recapitalization" on pages 30 to 34.
TREATMENT OF CONTINUING SHARES AND OPTIONS
The following members of Springs' management will be designated as key
management employees, and have interests in the recapitalization that are
different from, or in addition to, yours as a Springs shareholder: Blakely
Bell, Richard Canter Sr., Gracie Coleman, Thomas Coughlin, John Cowart, John
De La Roche, Miller Deaton, C. Powers Dorsett, William Easley, Thomas
Gaffney, Ray Greer, Samuel Ilardo, Charles McJunkin Jr., Charles Metzler,
Jeffrey Nigh, Thomas O'Connor, John Palmer, Daniel Robertson, Torrence
Shealy, Harvey Simon, Elizabeth Turner, Ben Watkins III, Nancy Webster and
Ron Zabel.
In connection with the recapitalization, all holders of options
(whether or not key management employees) with an exercise price per share of
class A common stock below $46.00 may choose (1) a cash-out election,
pursuant to which each such option will be deemed to be fully vested and will
be converted at the effective time of the recapitalization to cash equal to
the excess of $46.00 over the exercise price or (2) a retention election,
pursuant to which each such option will be retained. By their terms, Springs
stock options cannot be cashed out by Springs without optionholder consent.
Key management employees will be guaranteed certain enhancements to options
with respect to which they make a retention election. Specifically, key
management employees may elect a combination of a cash-out election and
retention election and, for those options they elect to retain, will receive,
for no additional consideration, accelerated vesting and an appreciation
right. This appreciation right allows the holder to receive, for each
exercised option, a cash payment or, if the key management employee is still
employed by Springs at the time of exercise, Springs shares, equal in value
to the difference between the fair market value of a Springs share and the
exercise price of the option. Holders of options other than key management
employees will neither benefit from any accelerated vesting of retained
options nor receive an appreciation right with respect to any retained
options with an exercise price of less than $46.00 per share.
All options (whether or not held by key management employees) with an
exercise price per share of class A common stock above $46.00 will be
retained automatically by employees, and holders will receive, for no
additional consideration, an appreciation right that allows the holder to
receive, for each exercised option, cash or, if so elected by
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a holder who is a key management employee of Springs at the time of exercise,
Springs shares. All such options held by key management employees will be
fully vested as of the completion of the recapitalization. All restrictions
will lapse on outstanding restricted stock held by employees or directors at
the time of the recapitalization.
All currently outstanding performance units under the 1991 Incentive
Stock Plan and the 1999 Incentive Stock Plan were granted with respect to the
1999-2001 performance cycle, which was originally scheduled to end on
December 29, 2001. If the recapitalization occurs, this cycle will instead
end effective as of 10 days before shareholders vote to approve the
recapitalization. Under the performance unit agreements relating to these
awards, half of each performance unit award that is actually earned is to be
distributed in cash as soon as practicable following the end of the cycle and
the other half is to be distributed two years after the conclusion of the
performance cycle in Springs shares. If the recapitalization occurs, it is
currently anticipated that key management employees will still receive the
second half of each performance unit in Springs shares at that time, but
other performance unit holders will instead receive cash for each Springs
share that they would have received. In addition, all deferred stock awards
and deferred unit stock awards held by any Springs employees, former
employees or directors that currently are required to be distributed in
Springs shares or in cash amounts tracking the value of Springs shares will
be deemed reinvested, as of the effective date of the recapitalization, in
other investment vehicles under the Springs deferred compensation plan and
the Springs deferred compensation plan for outside directors at a rate of
$46.00 per share. In addition, with respect to deferred stock awards, the
post-termination covenants that are a condition of distribution will be
shortened from two years to one year, and all other vesting conditions will
be waived. Distribution will commence one year after termination of
employment.
In December 2000, Springs had planned to make its annual grants of
options to its senior management, and had prepared a schedule indicating the
size of each employee's grant. However, because of the uncertainties
surrounding its review of strategic alternatives, Springs decided not to
grant the options at that time. Springs plans in connection with the
recapitalization to grant stock options or to pay cash to each employee who
would have received an option in December in lieu of the options that would
have been granted at that time. Individuals who are key management employees
will receive stock options, while other individuals will receive cash. Such
cash payments granted in lieu of the 2000 options will vest and be
distributed in two equal installments, the first of which will occur at the
end of 2001, and the second of which will occur at the end of 2002. Stock
options granted in lieu of the 2000 options will be granted pursuant to, and
subject to the terms of, the stock option plan that Springs plans to adopt
after the closing of the recapitalization.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Springs has agreed that, for a period of six years after the effective
time of the recapitalization, it will indemnify and hold harmless the present
and former officers and directors of Springs and each of its subsidiaries in
respect of acts or omissions occurring at or prior to the effective time to
the fullest extent permitted by applicable law or provided under the Springs'
articles of incorporation and bylaws. The surviving corporation has also
agreed that, for a period of six years after the effective time of the
recapitalization, it will provide officers' and directors' liability
insurance in respect of acts or omissions occurring at or prior to the
effective time to each present and former officer and director of Springs and
each of its subsidiaries covered as of April 24, 2001 by Springs' officers'
and directors' liability insurance policy with terms, conditions and coverage
amounts no less favorable than those of such policy in effect on such date.
However, the surviving corporation is not obligated to make annual premium
payments for such insurance to the extent such annual premiums exceed 200% of
the annual premiums paid as of such date by Springs for such insurance. If
premiums with respect to such insurance exceed 200% of the annual premiums
paid as of such date by Springs for such insurance, the surviving corporation
will be obligated to obtain such insurance with the maximum coverage as can
be obtained at an annual premium equal to 200% of the annual premiums paid by
Springs as of such date.
OTHER INTERESTS
Some of the members of Springs' board of directors and management have
other interests in the recapitalization different from, or in addition to,
yours as a Springs shareholder that are described below under "-Shareholders
Agreement."
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SHAREHOLDERS AGREEMENT
After the recapitalization, the Close family and the Heartland
Investors will own almost all of the equity of Springs. Accordingly, the
Close family and Heartland Industrial Partners have entered into a
shareholders agreement creating various rights and obligations among them,
including as follows:
COVENANTS OF FAMILY SHAREHOLDERS
Under the shareholders agreement, the Close family has agreed that
until the effective time of the recapitalization, it would not offer or
transfer any shares of Springs common stock. However, the Close family is
allowed to sell up to 1,086,956 shares of common stock, and to transfer
common stock by intra-family gift, will or pursuant to the laws of descent
and distribution, or to the intra-family beneficiary of a trust. In addition,
the Close family has agreed that until October 24, 2001, it will vote in
favor of the recapitalization, and any other matter that would facilitate
completion of the recapitalization, and against any alternative transaction.
COVENANTS OF HEARTLAND
Under the shareholders agreement, the Heartland Investors have agreed
to purchase $225 million of Heartland Springs common stock, reduced by the
amount of Springs class A common stock that it purchases from the Close
family. If, as intended, the Heartland Investors purchase $50 million of
Springs class A common stock from the Close family, the Heartland Investors
will purchase $175 million of Heartland Springs stock and retain the $50
million of class A common stock purchased from the Close family. Pursuant to
the recapitalization agreement, the Heartland Investors' Heartland Springs
common stock will be converted into Springs common stock. The amount
contributed by the Heartland Investors to Heartland Springs (and therefore to
Springs) will be used to fund the recapitalization, repay the portion of
Springs' existing debt being refinanced in the recapitalization and pay
related fees and expenses. See "Financing for the Recapitalization" on pages
53 to 54.
BOARD OF DIRECTORS AND CHIEF EXECUTIVE OFFICER
The shareholders agreement provides for the composition of the Springs
board of directors following the effective time of the recapitalization. The
Springs board will initially consist of six directors, three nominated by the
Close family and three nominated by the Heartland Investors. Thereafter, the
number of directors that the Close family is entitled to nominate is subject
to reduction if the Close family disposes of shares of Springs common stock
in excess of certain limitations. Similarly, the number of directors that the
Heartland Investors are entitled to nominate is subject to reduction if the
Heartland Investors dispose of shares of Springs common stock in excess of
certain limitations.
Immediately following the effective time of the recapitalization, the
chief executive officer of Springs will be Crandall C. Bowles. If Mrs. Bowles
ceases to serve as chief executive officer of Springs, a new chief executive
officer will be appointed who is acceptable to both the Close family and the
Heartland Investors and the Springs board will be enlarged to include the new
chief executive officer as a seventh director.
All actions of the Springs board will require the affirmative vote of
at least a majority of the directors. However, certain specified significant
actions, such as the issuance of equity securities, significant purchases or
sales of assets and incurrence of debt above certain limits, require the
affirmative vote of at least two directors nominated by the Close family and
two directors nominated by the Heartland Investors. In the event that the six
directors are evenly divided with respect to a proposed action and so long as
Mrs. Bowles is the chief executive officer, the proposed action would be
presented to a special approval committee consisting of Mrs. Bowles, one
other director chosen by the Close family and one director chosen by the
Heartland Investors. The proposed action would be deemed approved by the
Springs board if it is approved by at least two of the directors serving on
the special approval committee.
CHARITABLE CONTRIBUTIONS
In continuation of Springs' historical practice of supporting
charitable causes, Springs will establish a charitable contribution committee
consisting of all of the directors chosen by the Close family. This
charitable
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contribution committee has the authority to direct charitable contributions to
be made by Springs of up to $3 million per year.
DIVIDEND POLICY
The yearly cash dividend on Springs common stock will be $1.20 per
share and will continue to be paid on a quarterly basis, subject to such
dividend being in compliance with Springs' debt instruments and the existence
of legally available funds to pay such dividend.
RESTRICTIONS ON TRANSFER
Under the shareholders agreement, neither the members of the Close
family nor the Heartland Investors may transfer their shares of Springs
common stock after the effective time of the recapitalization, except to
certain permitted transferees, through the exercise of their registration
rights, through the exercise of their rights to pursue a transaction that
allows for the realization of the value of their investment in Springs or
through certain transfers under Rule 144 of the Securities Act of 1933, as
amended.
REGISTRATION RIGHTS
At any time after the earlier of the third anniversary of the effective
time of the recapitalization and 180 days after an initial public offering of
Springs common stock, each of the Close family and the Heartland Investors
will be entitled to demand that Springs register their shares under the
Securities Act of 1933, as amended, on no more than three separate occasions.
If Springs proposes to register shares of Springs common stock for sale for
cash, the Close family and the Heartland Investors will be entitled to have
their shares of Springs common stock sold as part of the same registration
process.
REALIZATION PROCESS
After the fifth anniversary of the effective time of the
recapitalization and assuming that certain other conditions are met, both the
members Close family and the Heartland Investors have the right to initiate a
transaction that allows for the realization of the value of their investment
in Springs by means of a purchase by the Close family or the Heartland
Investors of the other's equity in Springs, a recapitalization of Springs or
the sale of Springs to a third party. If either the Close family or the
Heartland Investors arranges a sale of all of the shares of Springs common
stock held by the Close family and Heartland Investors to a third party for
cash, the other group will have the right to purchase at the same price per
share all (but not less than all) of the shares of Springs common stock held
by the group arranging the sale. If the other group does not elect to
exercise this right of first refusal, the group arranging the sale will have
the right to compel the other group to sell all (but not less than all) of
its shares of Springs common stock in the arranged sale.
PREEMPTIVE RIGHTS
So long as an initial public offering of Springs has not occurred
following the effective time of the recapitalization and so long as they have
the right to nominate Springs directors, the members of the Close family and
the Heartland Investors have preemptive rights with respect to Springs common
stock and securities convertible into Springs common stock. However,
Heartland Industrial Partners is entitled, to the exclusion of the Close
family, to preemptive rights on the first issuances of such common stock and
securities for which Springs receives aggregate gross proceeds of $108.6
million less an amount equal to the value of any Springs common stock that
the Close family transfers prior to the effective time of the
recapitalization.
ADDITIONAL HEARTLAND INVESTMENT
Until the third anniversary of the effective time of the
recapitalization, Heartland Industrial Partners is obligated, under certain
conditions, to purchase additional shares of Springs common stock to fund
certain acquisitions and capital expenditure programs.
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FEES AND OTHER PAYMENTS
Immediately after the effective time of the recapitalization, Springs
will pay Heartland Industrial Associates L.L.C. a fee related to obtaining
financing, meeting with rating agencies and other recapitalization-related
advisory assistance equal to 1% of the total enterprise value of Springs
calculated as of the effective time. At or immediately following the
effective time of the recapitalization, Springs will reimburse the Close
family and the Heartland Investors for all out-of-pocket expenses incurred at
or prior to the effective time of the recapitalization by the Close family
and the Heartland Investors, respectively, with respect to the
recapitalization and the related financing.
In addition, from the effective time of the recapitalization until this
arrangement is terminated by either party, Springs will pay a fee of $4
million per year, plus reasonable out-of-pocket expenses, to Heartland
Industrial Group LLC, an entity related to Heartland Industrial Partners, for
various advisory and consulting services. These services include, among other
things, advice regarding general developments in the home furnishings
industry, market developments concerning the purchase and sale of other home
furnishings manufacturers and other potential entrants into the home
furnishings industry, Springs' financial and strategic plans, operational
improvements and quality and supply chain management, information systems and
sourcing.
TERMINATION
The shareholders agreement will terminate (1) upon either the Close
family or the Heartland Investors ceasing to own at least 3% of the shares of
Springs common stock outstanding, calculated on a fully diluted basis,
following the effective time of the recapitalization (with registration
rights surviving), (2) at any time by written agreement among the Close
family, the Heartland Investors and Springs and (3) upon the termination of
the recapitalization agreement in accordance with its terms. If the
shareholders agreement terminates upon the termination of the
recapitalization agreement, the Close family's agreement to vote in favor of
the recapitalization, to refrain from soliciting alternative proposals and to
refrain from voting in favor of any alternative proposals will continue in
effect until October 24, 2001.
CERTAIN EFFECTS OF THE RECAPITALIZATION
Immediately after the recapitalization, approximately 44% of the
outstanding shares of Springs common stock will be owned by the Heartland
Investors and approximately 56% of the outstanding common stock will owned by
the Close family. Springs shareholders whose shares are being converted into
cash will no longer have any financial interest in, and will not be
shareholders of, Springs. As a result, such shareholders will not have the
opportunity to participate in the future earnings, profits and growth of
Springs.
The shareholders agreement provides that the initial board of directors
of the surviving corporation will consist of six members: Crandall C. Bowles,
Leroy S. Close and Robert P. Lee, designated by the Close family, and David
A. Stockman, Cynthia L. Hess and Gerald McConnell, designated by the
Heartland Investors. The management of Springs immediately prior to the
effective time of the recapitalization will be the management of the
surviving corporation immediately after the recapitalization.
Following the recapitalization, Springs intends to delist the shares of
Springs class A common stock from the New York Stock Exchange, and the
registration of Springs shares under the Securities Exchange Act of 1934 will
be terminated. It is anticipated that there will be no active trading market
for Springs shares unless and until Springs determines at a future date to
conduct an initial public offering of its shares.
Upon completion of the recapitalization, the Close family and the
Heartland Investors will have the following percentage interests in Springs'
net book value (shareholders' equity), which was approximately $821 million
as of March 31, 2001, and net income, which was approximately $13 million for
the thirteen weeks ended March 31, 2001 and approximately $67 million for the
fiscal year ended December 31, 2000:
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- -------------------------------------------------------------------------------
| Pre- | Post-Recapitalization
|Recapitalization|--------------------------------------------
| | Assuming no shares | Assuming all shares
| | or options are | and options that may
| | retained, except | be retained are
| | those of the Close | retained and that
| | family | all such options are
| | | exercised for shares
- -------------------------------------------------------------------------------
The Close Family | 41% | 56% | 48%
- -------------------------------------------------------------------------------
The Heartland | 0% | 44% | 37%
Investors | | |
- -------------------------------------------------------------------------------
PLANS FOR SPRINGS AFTER THE RECAPITALIZATION
The Close family and Heartland Industrial Partners are continuing to
evaluate Springs' business, assets, practices, operations, properties,
corporate structure, capitalization and personnel and implement changes as
they deem appropriate. However, neither the Close family nor Heartland
Industrial Partners has any present intention to dispose of its equity
investment in Springs, other than the Close family's intention to sell up to
$50 million in value of its Springs shares, representing approximately 15% of
its holdings, to Heartland Industrial Partners at $46 per share prior to the
recapitalization, or to cause Springs to engage in a significant business
combination following the recapitalization. Springs intends to pursue
potential acquisitions it considers appropriate at any time they become
available.
SHAREHOLDER LITIGATION CHALLENGING THE RECAPITALIZATION
Springs and its directors are named as defendants in several purported
class actions brought on behalf of an alleged class consisting of
shareholders of Springs other than the defendants and their affiliates. Such
purported class actions have been filed in South Carolina state court, York
County; South Carolina state court, Beaufort County; federal court for the
District of South Carolina; and New York state court, New York County. The
complaints in the state court actions, which are substantially similar,
allege that the defendants have breached their duties to the public
shareholders of Springs in connection with the proposed recapitalization, and
that the $44.00 per share price initially proposed by the Close family and
Heartland Industrial Partners was inadequate and unfair. In particular, the
complaints allege that the proposed recapitalization involves a conflict of
interest in that the Close family shareholders allegedly control the Springs
board of directors. As relief, the complaints seek, among other things, an
injunction blocking completion of the recapitalization, or if it is
consummated, rescinding the recapitalization; damages for an unspecified
amount; an accounting; and attorneys' fees in an unspecified amount.
Defendants believe the allegations of the complaints are without merit.
On April 24, 2001, the parties to the cases described above entered
into a memorandum of understanding. Under the terms of the memorandum of
understanding, the plaintiffs have agreed to settle the lawsuits and dismiss
the claims with prejudice on the basis of an acknowledgement by the
defendants that the pendency of the litigation was a material factor that led
to (1) increasing the consideration offered from $44.00 to $46.00 per share
and (2) conditioning the completion of the recapitalization on the vote of
the majority of shareholders whose shares are being converted into cash. The
settlement is subject to confirmatory discovery by the plaintiffs, the
drafting and execution of settlement documents, the dismissal of the
lawsuits, final court approval of the settlement and the completion of the
recapitalization. In addition, the defendants have agreed not to oppose the
plaintiffs' application to the court for an award of attorneys' fees.
Other than allowing the plaintiffs to conduct confirmatory discovery on
Springs, which may include document discovery and depositions, Springs has
not made any provision to grant unaffiliated shareholders access to Springs'
corporate files or to obtain counsel or appraisal services at Springs'
expense.
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CONDUCT OF THE BUSINESS OF SPRINGS IF THE RECAPITALIZATION IS NOT CONSUMMATED
If the recapitalization is not consummated, the Springs board of
directors expects to operate Springs' business under current management in a
manner substantially similar to that in which it is presently operated.
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FINANCING FOR THE RECAPITALIZATION
It is estimated that approximately $1.24 billion will be required to
effect the recapitalization, to repay the portion of Springs' existing debt
being refinanced as a result of the completion of the recapitalization and to
pay all related fees and expenses. The completion of the recapitalization is
conditioned on Springs obtaining sufficient debt and receivables financing
from The Chase Manhattan Bank and a syndicate of other banks to finance the
recapitalization and related transactions. J.P. Morgan Securities Inc. will
act as sole advisor, lead arranger and sole book runner, and will manage the
syndication of the credit facilities. Heartland Springs has committed in the
recapitalization agreement to use its reasonable best efforts to have The
Chase Manhattan Bank and J.P. Morgan Securities Inc. provide the committed
debt and receivables financing to Springs and have Heartland Industrial
Partners provide the committed equity financing to Heartland Springs.
However, if the debt financing cannot be secured for any reason and
alternative sources of financing are not available, the recapitalization will
not be consummated. The following table summarizes the estimated sources of
and uses for funds in connection with the recapitalization:
Sources Uses
- ------- ----
($ in millions)
Revolving Facility Loans...... $ 34.1 Merger consideration........ $ 563.7
Term Loans.................... 500.0 Equity Retention............ 286.8
Receivables Facility Proceeds. 165.0 Repaid Indebtedness......... 308.4
Industrial Revenue Bonds and Industrial Revenue Bonds
Other Debt.................... 27.4 and Other Debt.............. 27.4
Equity Retention.............. 286.8 Transaction Costs........... 52.0
Cash Equity Contribution...... 225.0
-------- --------
TOTAL.........................$1,238.3 TOTAL.................... $1,238.3
-------- --------
o Prior to the recapitalization, the Close family intends to sell up to
$50 million in value of its Springs shares, representing
approximately 15% of its holdings, to Heartland Industrial Partners
at $46 per share. Some or all of these shares may be sold by members
of the Close family to the Heartland Investors prior to the
effective time of the recapitalization in lieu of a cash equity
contribution from the Heartland Investors for such amount. In such
event, the Springs shares held by the Heartland Investors will not
be cashed out in the recapitalization but will instead be treated as
additional equity retention and the cash equity contribution will be
reduced by an amount equal to such direct share purchase.
o Revolving facility loans and receivables balances amounts may vary
depending on working capital and receivables levels at the closing
date.
o The industrial revenue bonds are in seven series, with outstanding
principal amounts of between $1.4 million and $5.85 million and an
aggregate principal amount of $26.3 million. Final maturity dates of
the series range from 2009 to 2019, with a weighted average
remaining term of approximately 11 years. Four of the series bear
fixed interest rates ranging from 6.85% to 8.25% and three series
bear floating interest rates. As of June 3, 2001, the weighted
average interest rate of the industrial revenue bonds was 5.3%.
Springs may use borrowings under the credit facilities to repay all
or a portion of the industrial revenue bonds.
o Transaction costs are itemized under "The Recapitalization--Estimated
Fees and Expenses of the Recapitalization" on page 63.
EQUITY COMMITMENT. Heartland Industrial Partners has delivered a
commitment letter for an equity investment in Heartland Springs of $225.0
million. Heartland Industrial Partners' commitment is subject only to the
satisfaction of the conditions for Heartland Springs' benefit in the
recapitalization agreement.
SENIOR DEBT AND RECEIVABLES FINANCING. On April 24, 2001 Heartland
Springs received an executed commitment letter from The Chase Manhattan Bank
and JP Morgan, in which The Chase Manhattan Bank agreed to provide credit
facilities to Springs consisting of a $200.0 million tranche A senior secured
term loan facility, a $300.0 million tranche B senior secured term loan
facility, a $200.0 million senior secured revolving credit facility and a
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$200.0 million receivables purchase facility. These funds (other than
revolving credit amounts in excess of approximately $40.0 million) will be
available to finance the recapitalization, including to repay the portion of
Springs' existing debt required to be repaid in the recapitalization and to
pay related fees and expenses. The full amount of the term loan facilities
must be drawn in a single drawing on the closing date.
o The tranche A loan and the revolving facility will each mature five and
a half years after the closing of the recapitalization. The tranche
B loan will mature seven years after the closing of the
recapitalization. The receivables purchase facility will mature 364
days after the recapitalization and may be extended for additional
364-day periods by mutual agreement.
o Loans under the tranche A, tranche B and revolving facilities will bear
interest at the alternate base rate or at adjusted LIBOR plus, in
each case, an applicable margin. Based on current negotiations and
market conditions, the applicable margins for borrowings to be made
on the closing date of the recapitalization under the tranche A,
tranche B and revolving facilities are expected to __%, __% and __%,
respectively, for alternate base rate loans and __%, __% and __%,
respectively, for adjusted LIBOR loans. Amounts outstanding under
the receivables facility will bear interest at the base rate or at
adjusted LIBOR plus, in each case, an applicable margin, or at the
commercial paper rate. Based on current negotiations and market
conditions, the applicable margins for borrowings to be made on the
closing date of the recapitalization under the receivables facility
are expected to be __% and __% for the base rate and adjusted LIBOR
loan, respectively. In each case, these margins remain subject to
further negotiations and market conditions.
o Loans under the senior credit facilities will be guaranteed by each
U.S. subsidiary of Springs and secured by all assets (other than
real property and certain assets to be identified) of Springs and
its U.S. subsidiaries.
The commitments are subject to customary conditions, including the
negotiation, execution and delivery of definitive documentation. Springs
expects that the final terms of these facilities will be materially
consistent with the terms set forth in the commitment letter filed as
exhibit (b)(1) to the Rule 13e-3 Transaction Statement on Schedule 13E-3,
which is incorporated by reference in this document. Springs does not have
any plans or arrangements to refinance or repay the credit facilities to be
entered into in connection with the recapitalization, other than to make
payments to the lenders at maturity and otherwise, in accordance with the
credit facilities' terms.
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THE RECAPITALIZATION
The following is a brief summary of the material provisions of the
recapitalization agreement and the estimated fees and expenses of the
recapitalization. This summary may not contain all of the information that
you would consider to be important, and is qualified in its entirety by
reference to the recapitalization agreement, a copy of which is attached as
Appendix A to this document.
STRUCTURE AND EFFECTIVE TIME
The recapitalization agreement provides for the merger of Heartland
Springs with and into Springs, with Springs continuing as the surviving
corporation following the recapitalization. The closing of the
recapitalization will occur no later than the second business day immediately
following the date upon which all conditions to the recapitalization (other
than the filing of the articles of amendment giving effect to the amendment
to the articles of incorporation) have been satisfied or waived, or at such
other time as the parties to the recapitalization agreement agree. The
parties will file the articles of amendment giving effect to the amendment to
the articles of incorporation promptly after the satisfaction or waiver of
all conditions in the recapitalization agreement and, immediately thereafter,
file the articles of merger. The recapitalization will become effective at
the time the articles of merger are duly filed with the South Carolina
Secretary of State or at such later time as the parties to the
recapitalization agreement agree. We cannot assure you when, or if, all the
conditions of the recapitalization will be satisfied or waived. See
"-Conditions to the Recapitalization" on pages 60 to 61. We expect, however,
to complete the recapitalization in __________ 2001.
RECAPITALIZATION CONSIDERATION
The recapitalization agreement provides that each share of Springs
common stock outstanding immediately prior to the completion of the
recapitalization, other than shares held by the Close family, by the
Heartland Investors, by key management employees who elect prior to the
effective time of the recapitalization to retain their Springs shares and by
dissenting shareholders, will be converted upon the completion of the
recapitalization into the right to receive $46.00 in cash from Springs,
without interest. Each such converted share will no longer be outstanding and
will automatically be canceled and retired. In addition, each share of
Heartland Springs common stock will be converted into one share of Springs
class A common stock. The Springs shares held by the Close family, by the
Heartland Investors and by key management employees who elect prior to the
effective time of the recapitalization to retain their Springs shares, will
not be affected by the recapitalization and will remain outstanding. No
payment will be made for Springs shares owned by Springs or any of Springs'
subsidiaries.
PAYMENT PROCEDURES
Heartland Springs will appoint an exchange agent that will pay the
recapitalization cash consideration in exchange for certificates representing
Springs shares. The surviving corporation will serve in the capacity of
exchange agent with respect to the Heartland Springs shares to be converted
into shares of Springs class A common stock. At or prior to the effective
time of the recapitalization, Heartland Springs will deposit sufficient cash
with the exchange agent in order to permit the payment of the
recapitalization cash consideration and any dividends or distributions
payable with respect to shares of Springs common stock. Promptly following
the effective time of the recapitalization agreement, the exchange agent will
send Springs shareholders whose shares are being converted into cash a letter
of transmittal and instructions for effecting the surrender of stock
certificates to the exchange agent. Upon the due surrender of stock
certificates, the exchange agent will pay the holder of the certificates the
appropriate recapitalization cash consideration, minus any withholding taxes
required by law.
TREATMENT OF MANAGEMENT INCENTIVE PLANS
Some key management employees have been given the option to retain
their Springs shares in the recapitalization. Furthermore, all holders of
options with an exercise price per share of Springs class A common stock
below $46.00 may choose (1) a cash-out election, pursuant to which each such
option will be converted at the effective time of the recapitalization to
cash equal to the excess of $46.00 over the exercise price or (2) a retention
election, pursuant to which each such option will be retained. By their
terms, Springs stock options cannot be cashed out by Springs without
optionholder consent. In addition, certain key management employees may elect
a combination of a
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cash-out election and retention election and, for those options they elect to
retain, will receive, for no additional consideration, accelerated vesting and
an appreciation right. This appreciation right allows the holder to receive
cash or shares for each exercised option without having to pay the exercise
price in cash. All options with an exercise price per share of class A common
stock above $46.00 will be retained automatically by employees and will
contain an appreciation right.
Immediately prior to the effective time of the recapitalization, the
restrictions on each share of class A common stock not held by a member of
the Close family that is subject to a restricted stock award as to which the
restrictions have not lapsed will lapse and be treated as unrestricted shares
of class A common stock as of the effective time. With respect to all
outstanding performance award agreements, the performance cycle shall be
deemed to have terminated 10 business days prior to the effective time and
any cash amounts payable at the conclusion of the cycle will be paid as soon
as practicable thereafter.
Springs will take all steps reasonably necessary or appropriate so
that, as of the effective time of the recapitalization, all other outstanding
equity-based awards held by current and former employees and directors,
including all deferred stock awards, stock credits and other stock
equivalents, are converted into cash-based awards and paid on a deferred
basis.
ARTICLES OF INCORPORATION; BYLAWS
Springs' articles of incorporation as in effect immediately after
giving effect to the amendment to the articles of incorporation will be the
articles of incorporation of the surviving corporation. The Springs bylaws in
effect immediately prior to the effective time of the recapitalization will
be the bylaws of the surviving corporation.
DIRECTORS AND OFFICERS
The recapitalization agreement provides that the directors of Heartland
Springs immediately prior to the effective time of the recapitalization will
be the initial directors of the surviving corporation. See "Special
Factors--Certain Effects of the Recapitalization" on pages 50 to 51. The
officers of Springs immediately prior to the effective time of the
recapitalization will continue as the initial officers of the surviving
corporation.
REPRESENTATIONS AND WARRANTIES
The recapitalization agreement contains representations and warranties
made by Springs to Heartland Springs, including representations and
warranties relating to:
o due organization, good standing and corporate power, and other
corporate matters;
o authorization, execution, delivery, performance and enforceability of
the recapitalization agreement;
o the adoption of the recapitalization agreement and the amendment to the
articles of incorporation by the Springs board of directors;
o receipt of a fairness opinion from the financial advisor to the special
committee;
o non-applicability of takeover laws;
o authorization of governmental entities;
o finders' fees with respect to the recapitalization;
o non-contravention of the recapitalization agreement with Springs'
articles of incorporation and bylaws and applicable law;
o required consents, licenses, permits and approvals;
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o capital structure;
o subsidiaries and equity investments;
o proper filing of all required Securities and Exchange Commission
reports and financial statements and the accuracy of information
used in their preparation;
o conduct of business since December 30, 2000;
o absence of undisclosed liabilities;
o compliance with applicable law;
o litigation;
o tax matters;
o employee benefit matters; and
o environmental matters;
The recapitalization agreement also contains representations and
warranties made by Heartland Springs to Springs, including representations
and warranties relating to:
o due organization, good standing and corporate power, and other
corporate matters;
o authorization, execution, delivery, performance and enforceability of
the recapitalization agreement;
o authorization of governmental entities;
o non-contravention of the recapitalization agreement with Heartland
Springs' articles of incorporation and bylaws and applicable law;
o required consents, licenses, permits and approvals;
o capital structure;
o finders' fees with respect to the recapitalization;
o availability of financing to effect the recapitalization;
o solvency of the surviving corporation; and
o litigation
CONDUCT OF THE BUSINESS OF SPRINGS PRIOR TO THE RECAPITALIZATION
Until the effective time of the recapitalization, Springs and its
subsidiaries are subject to certain restrictions on their conduct and
operations. Springs has agreed, and has agreed to cause its subsidiaries, to
conduct their business in the ordinary course of business, consistent with
past practice. In addition, Springs has agreed that, except as provided under
the recapitalization agreement or with the prior written consent of Heartland
Springs, Springs will not and will cause its subsidiaries not to:
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o amend their respective articles of incorporation, bylaws or equivalent
organizational documents;
o split, combine or reclassify any of its capital stock or issue or
authorize the issuance of any other securities in respect of shares
of its capital stock; and
o except for issuances upon exercise of presently outstanding benefit
plan awards or in the ordinary course of business consistent with
past practice, authorize, issue, deliver, sell, pledge or otherwise
encumber any shares of its capital stock or the capital stock of its
subsidiaries.
ACCESS TO INFORMATION
Until the effective time of the recapitalization, Springs will, and
will cause its subsidiaries and each of their authorized representatives to,
provide Heartland Springs and its authorized representatives and
representatives of its financing sources with reasonable access to the
offices and other facilities and to the books and records of Springs and its
subsidiaries. In addition, Springs will cause its authorized representatives
and subsidiaries to furnish Heartland Springs and its authorized
representatives and representatives of its financing sources with such
financial and operating data and such other information with respect to the
business and operations of Springs and its subsidiaries as Heartland Springs
and representatives of its financing sources may from time to time reasonably
request.
PROHIBITION AGAINST SOLICITATION OF COMPETING TRANSACTIONS
The recapitalization agreement provides that Springs will not, directly
or indirectly through any officer, subsidiary, affiliate, director, employee,
shareholder, representative, agent or other person:
o seek, initiate, solicit or encourage any person to make an acquisition
proposal;
o engage in discussions or negotiations concerning an acquisition
proposal with any person;
o disclose any non-public information relating to Springs or give access
to the properties, employees, books or records of Springs or any of
its subsidiaries to any person in connection with any acquisition
proposal; or
o adopt or recommend or agree to adopt or recommend any acquisition
proposal.
However, none of the above will prevent the Springs board of directors
from
o furnishing information to any person that has made an unsolicited
acquisition proposal, or
o entering into or participating in discussions or negotiations
concerning an unsolicited acquisition proposal,
so long as the Springs board or the special committee has concluded in good
faith, after receiving and considering the advice of outside counsel, that
failing to furnish such information or participate in such discussions or
negotiations would be reasonably likely to cause the Springs board or the
special committee to be in breach of its respective fiduciary
responsibilities to Springs shareholders under applicable law. Prior to
furnishing any such information or participating in such discussions or
negotiations, Springs and the party making the offer must agree to a
confidentiality agreement on terms that are, in the aggregate, no less
favorable to Springs that those of the confidentiality agreement between
Springs and Heartland Springs (other than with respect to the standstill
provision). In addition, Heartland Springs must be given concurrent or
advance written notice of the furnishing of any such information or such
discussions or negotiations, unless the Springs board or the special
committee has concluded in good faith, after receiving and considering the
advice of outside counsel, that doing so would be reasonably likely to cause
it to be in breach of its respective fiduciary responsibilities to Springs
shareholders under applicable law.
The Springs board of directors or the special committee may fail to
make, withdraw or modify in a manner adverse to Heartland Springs its
recommendation to Springs shareholders to approve the recapitalization
agreement and
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the amendment to the articles of incorporation if it determines in good faith,
after consultation with outside legal counsel, that such action is reasonably
likely to be required in the exercise of its respective fiduciary duties under
applicable law. The Springs board or the special committee may also take and
disclose to Springs shareholders a position contemplated by Rule 14e-2 under
the Securities Exchange Act of 1934.
Springs will notify Heartland Springs in writing no later than the end
of the next business day after receipt of the receipt of any acquisition
proposal, the terms and conditions of such acquisition proposal and the
identity of the person making it, and any change to or modification of such
acquisition proposal.
STATE TAKEOVER LAWS; REPORTS
Springs will, upon the request of Heartland Springs, use its reasonable
best efforts to assist in any challenge by Heartland Springs to the validity
or applicability to the recapitalization of any state takeover law. In
addition, until the effective time of the recapitalization, Springs will
provide Heartland Springs with monthly financial statements, broken out by
operating unit.
DIRECTOR AND OFFICER LIABILITY
The surviving corporation has agreed that, for a period of six years
after the effective time of the recapitalization, it will indemnify and hold
harmless the present and former officers and directors of Springs and each of
its subsidiaries in respect of acts or omissions occurring at or prior to the
effective time to the fullest extent permitted by applicable law or provided
under Springs' existing articles of incorporation and bylaws. The surviving
corporation has also agreed that, for a period of six years after the
effective time of the recapitalization, it will provide officers' and
directors' liability insurance in respect of acts or omissions occurring at
or prior to the effective time to each present and former officer and
director of Springs and each of its subsidiaries covered as of April 24, 2001
by Springs' officers' and directors' liability insurance policy with terms,
conditions and coverage amounts no less favorable than those of such policy
in effect on such date. However, the surviving corporation is not obligated
to make annual premium payments for such insurance to the extent such annual
premium exceed 200% of the annual premiums paid as of such date by Springs
for such insurance. If premiums with respect to such insurance exceed 200% of
the annual premiums paid as of such date by Springs for such insurance, the
surviving corporation will be obligated to obtain such insurance with the
maximum coverage as can be obtained at an annual premium equal to 200% of the
annual premiums paid by Springs as of such date.
FINANCING ARRANGEMENTS
Heartland Springs has agreed to use its reasonable best efforts to have
The Chase Manhattan Bank and JP Morgan (a division of Chase Securities, Inc.)
provide the financing to Springs in accordance with the terms of the
commitment letter, dated as of April 24, 2001, to provide financing to
Springs or a subsidiary of Springs. Heartland Springs has also agreed to use
its reasonable best efforts to have Heartland Industrial Partners provide
funds to Heartland Springs in accordance with the terms of the equity
commitment letter, dated as of April 24, 2001, pursuant to which Heartland
Industrial Partners has committed to make available to Heartland Springs
funds for the purpose of completing the recapitalization.
EMPLOYEE BENEFIT PLANS
During the period from the effective time of the recapitalization
through the first anniversary of the effective time, employees of Springs and
its subsidiaries will participate in employee benefit plans which are
substantially comparable, in the aggregate, to those provided to these
employees immediately prior to the effective time.
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REASONABLE BEST EFFORTS TO CONSUMMATE THE RECAPITALIZATION
In connection with the recapitalization agreement, Springs and
Heartland Springs have agreed to use reasonable best efforts to take and do
all things necessary, proper or advisable under applicable laws and
regulations, including antitrust laws, to consummate the recapitalization and
to cooperate with The Chase Manhattan Bank and JP Morgan and other lenders in
order for Heartland Springs to obtain its contemplated debt financing.
SHAREHOLDERS MEETINGS; PROXY MATERIAL
Springs agreed to call a meeting of its shareholders for the purpose of
voting on the approval of the recapitalization agreement and the amendment to
the articles of incorporation. Subject to their fiduciary duties, the special
committee agreed to recommend that the Springs board of directors recommend
approval of the recapitalization agreement and the amendment to the articles
of incorporation by Springs shareholders, and the Springs board agreed to
recommend approval of the recapitalization agreement and the amendment to the
articles of incorporation by Springs shareholders. In connection with the
shareholders meeting, Springs also agreed to prepare and file with the
Securities and Exchange Commission and mail to Springs shareholders a proxy
statement in connection with the recapitalization agreement and the amendment
to the articles of incorporation, and to prepare and file a statement on
Schedule 13E-3.
CONDITIONS TO THE RECAPITALIZATION
The obligations of Springs and Heartland Springs to complete the
recapitalization are subject to the satisfaction or waiver of the following
conditions at or prior to the effective time of the recapitalization:
(1) the approval of the recapitalization agreement by holders of
two-thirds of the outstanding shares of Springs common stock and a
majority of votes cast by shareholders whose shares are being
converted into cash, in each case with each share of class A and
class B common stock entitled to one vote;
(2) the approval of the amendment to the articles of incorporation by
holders of two-thirds of the outstanding shares of Springs common
stock, with each share of class A common stock entitled to one vote
and each share of class B common stock entitled to four votes;
(3) the absence of any law or regulation that makes completion of the
recapitalization illegal or otherwise prohibited and the absence of
any judgment, injunction, order or decree of any governmental
authority enjoining Springs or Heartland Springs from completing the
recapitalization; and
(4) the expiration or earlier termination of the applicable antitrust
waiting period under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (which termination occurred on June 1,
2001), the satisfaction of the requirements of the Canadian
Competition Act and the making or obtaining of all necessary
notices, reports, consents, registrations, approvals, permits and
authorizations with or from governmental authorities.
Springs and Heartland Springs will not waive the condition that the
recapitalization agreement be approved by a majority of votes cast by
shareholders whose shares are being converted into cash. In addition, the
obligations of Heartland Springs to complete the recapitalization are subject
to the satisfaction or waiver of the following further conditions:
(1) Springs having performed all of its obligations under the
recapitalization agreement in all material respects;
(2) the representations and warranties of Springs contained in the
recapitalization agreement being true and correct in all material
respects as of the effective date of the recapitalization (except to
the extent that such representations and warranties speak as of an
earlier date);
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(3) no arbitrator or governmental authority having issued any judgment,
injunction, order or decree, and there being no law or regulation,
restraining or prohibiting the effective operation of any material
portion of the business of the surviving corporation and its
subsidiaries after the effective time of the recapitalization
agreement;
(4) the financing contemplated by the commitment letter, dated as of
April 24, 2001, provided by The Chase Manhattan Bank and JP Morgan
having been provided on substantially the terms and conditions
identified in such letter or on such other terms and conditions, or
involving such other financing sources, as are acceptable to
Heartland Springs and are not materially more onerous;
(5) each member of the Close family having performed in all material
respects all of its obligations required to be performed by it under
the shareholders agreement at or prior to the effective time of the
recapitalization, and the representations and warranties of each
member of the Close family contained in the shareholders agreement
being true and correct in all material respects as if made at the
effective time of the recapitalization; and
(6) Springs having executed and delivered a services agreement to be
entered into with The Heartland Industrial Group LLC, governing an
arrangement in which following the effective time of the
recapitalization, Springs will pay an annual fee of $4 million per
year, plus reasonable out-of-pocket expenses, to The Heartland
Industrial Group LLC for various consulting services provided by
Heartland Industrial Partners.
In addition, the obligation of Springs to complete the recapitalization
is subject to the satisfaction or waiver of the following additional
conditions:
(1) Heartland Springs having performed all of its obligations under the
recapitalization agreement in all material respects; and
(2) the representations and warranties of Heartland Springs contained in
the recapitalization agreement being true and correct in all
material respects as of the effective date of the recapitalization
(except to the extent that such representations and warranties speak
as of an earlier date).
If any conditions to the recapitalization are waived, Springs will
re-solicit proxies only if such waiver would have been material to
shareholders in voting on the proposal to approve the recapitalization
agreement.
TERMINATION
The recapitalization agreement may be terminated and the
recapitalization may be abandoned at any time prior to the effective time of
the recapitalization (regardless of any approval of the recapitalization
agreement by Springs shareholders):
(1) by mutual written consent of Springs and Heartland Springs;
(2) by either Springs or Heartland Springs, if the recapitalization has
not been completed by October 24, 2001, unless the party seeking to
terminate has caused the failure of completion by breaching of any
provision of the recapitalization agreement;
(3) by either Springs or Heartland Springs, if there is any law or
regulation that makes completion of the recapitalization illegal or
otherwise prohibited or any judgment, injunction, order or decree of
any governmental authority having competent jurisdiction enjoining
Springs or Heartland Springs from completing the recapitalization is
entered and such judgment, injunction, order or decree has become
final and nonappealable;
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(4) by either Springs or Heartland Springs, if the recapitalization
agreement and the amendment to the articles of incorporation have
not been approved by Springs shareholders;
(5) by either Springs or Heartland Springs, if there has been a material
breach of or failure to perform any representation, warranty,
covenant or agreement on the part of the other party that would
cause any condition to the recapitalization not to be satisfied and
such condition is incapable of being satisfied by October 24, 2001;
(6) by Heartland Springs, if the special committee has withdrawn or
modified in a manner adverse to Heartland Springs its recommendation
to the Springs board of directors or if the Springs board has
withdrawn or modified in a manner adverse to Heartland Springs its
recommendation to Springs shareholders to approve the
recapitalization agreement and the amendment to the articles of
incorporation; and
(7) by Springs, if Springs has received an acquisition proposal that the
Springs board of directors or the special committee determines is
more favorable to Springs shareholders (even if the consideration to
be received may have less value) and the Springs board or the
special committee determines in good faith, after consultation with
outside legal counsel, that adopting or recommending such offer is
reasonably likely to be required in the exercise of its respective
fiduciary duties under applicable law.
EXPENSES
The recapitalization agreement provides that in general, all costs and
expenses incurred in connection with the recapitalization agreement will be
paid by the party incurring such cost or expense. Springs will promptly upon
request reimburse Heartland Springs, Heartland Industrial Partners and the
Close family for their reasonable and documented out-of-pocket expenses,
including for legal counsel and investment advisors and for the reasonable
and documented out-of-pocket expenses incurred by The Chase Manhattan Bank
and JP Morgan (including for legal counsel), if:
(1) this recapitalization agreement is terminated by Heartland Springs
due to Springs' breach or failure to perform a representation,
warranty, covenant or agreement of the recapitalization agreement,
or the special committee has withdrawn or modified in a manner
adverse to Heartland Springs its recommendation to the Springs board
of directors, or the Springs board has withdrawn or modified in a
manner adverse to Heartland Springs its recommendation to Springs
shareholders to approve the recapitalization agreement and the
amendment to the articles of incorporation;
(2) this recapitalization agreement is terminated by Springs after
Springs has received an acquisition proposal that the Springs board
of directors or the special committee determines is more favorable
to Springs shareholders (even if the consideration to be received
may have less value) and the Springs board or the special committee
determines in good faith, after consultation with outside legal
counsel, that adopting or recommending such offer is reasonably
likely to be required in the exercise of its respective fiduciary
duties under applicable law; or
(3) a third party has made, proposed, communicated or disclosed an
acquisition proposal in a manner which is or otherwise becomes
public prior to the termination of the recapitalization agreement
and the recapitalization agreement is terminated by either Springs
or Heartland Springs if the recapitalization has not been completed
on or before October 24, 2001 or if the recapitalization agreement
and the amendment to the articles of incorporation have not been
approved by Springs shareholders.
AMENDMENT AND WAIVER
Any provision of the recapitalization agreement may be amended or
waived prior to the effective time of the recapitalization if such amendment
or waiver is in writing and is signed, in the case of an amendment, by each
party to the recapitalization agreement or, in the case of a waiver, by each
party against whom the waiver is to be effective.
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However, after the approval of the recapitalization agreement by Springs
shareholders and without their further approval, no amendment or waiver may
reduce the amount or change the kind of consideration to be received in
exchange for shares held by Springs shareholders whose share are to be
converted into cash.
ESTIMATED FEES AND EXPENSES OF THE RECAPITALIZATION
Estimated fees and expenses incurred or to be incurred by Springs in
connection with the recapitalization, including expenses of Heartland
Industrial Partners and the Close family that Springs will reimburse upon
completion of the recapitalization, are approximately as follows:
Financial advisory and arrangement fees...... $ 19.8 million
Financing fees and expenses.................. 26.3 million
Legal, accounting and printing fees and
expenses..................................... 5.1 million
Securities and Exchange Commission filing fee 0.1 million
Miscellaneous and other expenses............. 0.7 million
- --------------------------------------------------------------------
Total..................................... $ 52.0 million
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PROPOSED AMENDMENT TO SPRINGS' ARTICLES OF INCORPORATION
Under South Carolina law, any business combination of a South Carolina
corporation with an interested shareholder of the South Carolina corporation
or with an entity affiliated or associated with an interested shareholder of
the South Carolina corporation is subject to certain restrictions. One of
these restrictions is that such a business combination is not permitted for a
period of two years following the interested shareholder's share acquisition
date, unless the business combination is approved by a majority of
disinterested members of the board of directors of the South Carolina
corporation before the interested shareholders' share acquisition date.
On February 19, 2001, the Close family and Heartland Industrial
Partners entered into a participation agreement pursuant to which the Close
family agreed to vote in favor of the recapitalization. If this participation
agreement is viewed under South Carolina law as providing Heartland Springs
with beneficial ownership over the shares of the Close family, then Heartland
Industrial Partners might be deemed an interested shareholder of Springs
under South Carolina law as of a share acquisition date of February 19, 2001.
Since Heartland Industrial Partners controls Heartland Springs, Heartland
Industrial Partners is both an affiliate and an associate of Heartland
Springs. Accordingly, a business combination of Springs with Heartland
Springs may be subject to South Carolina's restrictions on business
combinations.
Since the Heartland Industrial Partners' share acquisition date may
have already occurred, the business combination could not be pre-approved by
a majority of disinterested Springs directors. As a result, if South
Carolina's restrictions on business combinations is applicable to the
recapitalization, the business combination would not be permitted until
February 19, 2003.
However, South Carolina law allows a corporation to amend its articles
of incorporation to provide that South Carolina's restrictions on business
combinations do not apply to the corporation. Therefore, we propose amending
Springs' articles of incorporation to exempt Springs from South Carolina's
restrictions on business combinations.
The Springs board of directors and the special committee believe that
the amendment to the articles of incorporation is advisable, fair to and in
the best interests of Springs shareholders who are not affiliated with the
Close family or Heartland Industrial Partners, and the Springs board
recommends that Springs shareholders vote "FOR" approval of the amendment to
the articles of incorporation. The recapitalization will not occur unless
shareholders approve the proposed amendment to the articles of incorporation.
The amendment to the articles of incorporation must be approved by
holders of two-thirds of the outstanding shares of Springs common stock, with
each share of class A common stock entitled to one vote and each share of
class B common stock entitled to four votes. The members of the Close family
have agreed to vote their Springs shares in favor of the amendment to the
articles of incorporation. The Close family owns an aggregate of 171,488
shares of Springs class A common stock and 7,149,291 shares of Springs class
B common stock. At one vote per share for Springs class A common stock and
four votes per share for Springs class B common stock, the Close family holds
approximately 73% of the normal voting power in Springs and has enough votes
as a group to assure approval of the amendment to the articles of
incorporation.
We have attached the form of amendment to the articles of incorporation
as Appendix C to this document, and we encourage you to read it carefully.
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DISSENTERS' RIGHTS
In the event that the recapitalization agreement is approved, holders
of Springs class B common stock on June 27, 2001, who did not vote in favor
of the recapitalization agreement, will have the right to dissent from the
recapitalization and to demand "fair value" for their Springs class B shares
in accordance with Sections 33-13-101 through 33-13-310 of the South Carolina
Business Corporation Act, the text of which is reproduced in full as Appendix
D to this document. The brief summary below regarding these dissenters'
rights is qualified in its entirety by reference to these sections of the
South Carolina Business Corporation Act.
Springs is a South Carolina corporation, and is organized under and
governed by the South Carolina Business Corporation Act of 1988, as amended.
The South Carolina Business Corporation Act governs the rights of dissent of
the stockholders of Springs. Pursuant to Sections 33-13-101 through 33-13-310
of the South Carolina Business Corporation Act, each holder of Springs class
B common stock is entitled to dissent from, and obtain payment of the fair
value of, his shares in the event a merger transaction upon which he is
entitled to vote occurs. The holders of Springs class B shares have
dissenters' rights with respect to the proposed recapitalization. A Springs
shareholder who wishes to assert his dissenters' rights: (1) must give
Springs, before the vote on the recapitalization is taken, written notice of
his intent to demand payment for his shares if the proposed recapitalization
is effectuated and (2) must not vote his shares in favor of the proposed
recapitalization. A vote in favor of the proposed recapitalization cast by
the holder of a proxy solicited by Springs does not disqualify a stockholder
from demanding payment for his shares under the South Carolina Business
Corporation Act.
A vote against the proposed recapitalization will not, by itself, be
deemed to satisfy the notice requirements under South Carolina law with
respect to dissenters' rights. Springs shareholders must give written notice
regarding their intent to assert their dissenters' rights to Secretary,
Springs Industries, Inc., 205 North White Street, Fort Mill, South Carolina
29715.
If the recapitalization agreement is approved at the annual meeting,
Springs will deliver a written dissenters' notice to all Springs shareholders
who satisfied the above-described notification requirements. The dissenters'
notice must be sent no later than ten (10) days after the annual meeting and
must, in addition to other items, provide the following:
(1) State where the payment demand must be sent and where certificates
for shares must be deposited.
(2) Inform holders of uncertificated shares of the extent to which
transfer of such shares will be restricted after the payment demand
is received.
(3) Supply a form for demanding payment that includes certain specific
information.
(4) Set a date by which Springs must receive the payment demand, which
date may not be fewer than thirty (30) days, nor more than sixty
(60) days, after the date the dissenters' notice is delivered, and
set a date by which certificates must be deposited, which may not be
earlier than twenty (20) days after the demand date.
(5) Be accompanied by a copy of Sections 33-13-101 through 33-13-310 of
the South Carolina Business Corporation Act.
Following the receipt of the dissenters' notice, the dissenter must
timely demand payment and timely deposit his shares as set forth in the
dissenters' notice.
A SPRINGS SHAREHOLDER WHO DOES NOT SATISFY THE ABOVE REQUIREMENTS IS
NOT ENTITLED TO PAYMENT FOR HIS SHARES PURSUANT TO HIS DISSENTERS' RIGHTS.
A Springs shareholder who demands payment and otherwise complies with
the terms of the dissenters' notice will retain all other rights as a Springs
shareholder, until such rights are cancelled or modified by the completion of
the recapitalization. A Springs shareholder who does not comply with the
requirement that he demand
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payment and deposit his share certificates where required, each by the date
set forth on the dissenters' notice, is not entitled to payment for his shares
as a dissenter.
Except as otherwise provided by law, as soon as the proposed
recapitalization is completed, or upon receipt of a payment demand, Springs
shall pay each dissenting Springs shareholder who complied with the law, the
amount Springs estimates to be the fair value of his shares, plus accrued
interest. The payment must be accompanied by certain information, including
certain financial information, a statement of Spring's estimate of the fair
value of his shares and method of calculation, and a statement informing the
dissenter of his right to demand additional payment. Springs may withhold
immediate payment from a dissenting shareholder, if such dissenting
shareholder was not the beneficial owner of the shares on the date set forth
in the dissenters' notice.
A dissenter may reject Spring's offer of fair value and demand in
writing payment of his estimated fair value and interest due, if within
thirty (30) days after Springs makes payment: (1) the dissenter believes the
amount paid is less than the fair value of his shares or that interest due is
incorrectly calculated or (2) Springs fails to make payment within sixty (60)
days after the date for demanding payment. If a demand for payment remains
unsettled after a demand for additional payment, within sixty (60) days of
the dissenter's payment demand, Springs shall commence a proceeding and
petition the court to determine the fair value of the dissenter's shares and
accrued interest. If Springs does not commence the proceedings within the
sixty (60) day period, it shall pay each dissenter whose demand remains
unsettled the amount demanded.
In an appraisal proceeding, the court shall determine all costs of the
proceeding. The costs shall be assessed against Springs, unless the court
finds that the dissenter acted arbitrarily, vexatiously or not in good faith
in demanding payment. The court also may assess fees and expenses of counsel
and experts for the respective parties.
THE FOREGOING SUMMARIZES THE MATERIAL PROVISIONS OF SOUTH CAROLINA LAW
RELATING TO DISSENTERS' RIGHTS. THE SUMMARY IS SUBJECT IN ITS ENTIRETY TO THE
TEXT OF THE STATUTE AND DOES NOT EXPAND SHAREHOLDERS' RIGHTS BEYOND THOSE
GRANTED BY STATUTE. ANY SPRINGS SHAREHOLDER WHO INTENDS TO EXERCISE RIGHTS TO
DISSENT SHOULD CAREFULLY READ SECTIONS 33-13-101 THROUGH 33-13-310 OF THE
SOUTH CAROLINA BUSINESS CORPORATION ACT OF 1988, AS AMENDED, ATTACHED TO THIS
DOCUMENT AS APPENDIX D AND INCORPORATED INTO THIS DOCUMENT BY REFERENCE.
FAILURE TO COMPLY CAREFULLY WITH THE STATUTORY PROCEDURES IN THE SOUTH
CAROLINA BUSINESS CORPORATION ACT MAY RESULT IN THE FORFEITURE OF DISSENTERS'
RIGHTS.
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REGULATORY APPROVALS
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, and the
premerger notification rules issued by the Federal Trade Commission, Springs
and Heartland Springs were required to file notifications with the U.S.
Federal Trade Commission and the Antitrust Division of the U.S. Department of
Justice in connection with the recapitalization, and the proposed
recapitalization could not be completed until after the applicable waiting
period expired or was earlier terminated by the U.S. federal antitrust
regulatory authorities. Springs and Heartland Springs filed their Premerger
Notification and Report Forms pursuant to the Hart-Scott-Rodino Antitrust
Improvements Act with the Federal Trade Commission and the Antitrust Division
on May 21, 2001. On June 1, 2001, Springs was granted early termination of
the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act.
Even though the waiting period has been terminated, the Federal Trade
Commission or the Antitrust Division can take such action under the antitrust
laws as it deems necessary or desirable in the public interest, including
seeking to enjoin the recapitalization or compel a divestiture of the shares.
The proposed recapitalization may be a "notifiable transaction" for the
purposes of Part IX of the Competition Act (Canada). As such, the proposed
recapitalization may not be completed before the expiration or earlier
termination of the applicable waiting period after notice of the proposed
recapitalization, together with certain prescribed information, has been
provided to the Commissioner of Competition. The waiting period is either 14
or 42 days from the time complete notification is provided to the
Commissioner, depending on whether a short form or long form filing has been
made. Alternatively, a party to a proposed merger may apply to the
Commissioner for an Advanced Ruling Certificate, which may be issued by the
Commissioner if he is satisfied that there are not sufficient grounds on
which to apply in respect of the transaction to the competition Tribunal for
an order under the merger provisions of the Act. The merger provisions of the
Competition Act (Canada) permit the Commissioner to apply to the Competition
Tribunal to seek relief in respect of a merger transaction which prevents or
lessens, or would be likely to prevent or lessen, competition substantially.
On May 18, 2001, Heartland Springs applied to the Commissioner for an
Advanced Ruling Certificate, which was issued on June 4, 2001.
Although not currently anticipated, Springs and Heartland Springs may
need to obtain the approval or clearance of certain other foreign antitrust
authorities. The parties anticipate, but cannot guarantee, that they would be
able to obtain any requisite approvals and clearances.
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U.S. FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material U.S. federal income tax
considerations of the recapitalization to holders of Springs common stock,
including members of the Close family. This discussion is based current
provisions of the Internal Revenue Code of 1986, as amended, Treasury
Regulations promulgated thereunder, published positions of the Internal
Revenue Service, and all other applicable authorities, all of which are
subject to change, possibly with retroactive effect. Any such change could
alter the tax consequences discussed below. This discussion is not tax advice
and does not address all aspects of U.S. federal income taxation that may be
relevant to a holder of Springs common stock in light of such holder's
particular circumstances or who is subject to special provisions of such law,
including financial institutions, broker-dealers, persons who are not citizens
or residents of the United States or who are foreign corporations, foreign
partnerships, or foreign estates or trusts as to the United States, persons,
other than members of the Close family, who will own, actually or
constructively, stock of Springs after the recapitalization, and holders who
acquired their stock through the exercise of an employee stock option or
otherwise as compensation. In addition, the discussion does not address any
aspect of U.S. state, local or foreign taxes. Accordingly, we urge you to
consult with your own tax advisor to determine the particular tax consequences
of the recapitalization to you, including the application and effect of U.S.
federal, state, local, and other tax laws and the possible effect of changes
in such tax laws.
U.S. FEDERAL INCOME TAX CONSEQUENCES TO HOLDERS OF SPRINGS COMMON STOCK, OTHER
THAN THE CLOSE FAMILY
Your receipt of the recapitalization cash consideration will be a taxable
transaction for U.S. federal income tax purposes and may also be a taxable
transaction under applicable U.S. state, local or foreign income or other tax
laws. Your gain or loss for U.S. federal income tax purposes will be equal to
the difference between the amount of cash received in the recapitalization and
the aggregate tax basis in your shares of Springs common stock converted into
cash in the recapitalization. Gain or loss will be calculated separately for
each block of Springs common stock converted into cash in the
recapitalization.
If shares of Springs common stock are held by you as capital assets, gain
or loss recognized with respect to such shares will be capital gain or loss,
and will be long-term capital gain or loss if your holding period for the
shares exceeds one year. In addition, the deductibility of capital losses is
subject to limitations for both individuals and corporations.
You may be subject to backup withholding at the rate of 31% with respect
to the recapitalization cash consideration received by you, unless you (1) are
a corporation or come within certain other exempt categories and, when
required, demonstrate this fact or (2) provide a correct taxpayer
identification number, certify as to no loss of exemption from backup
withholding and otherwise comply with applicable requirements of the backup
withholding rules. To prevent the possibility of backup withholding on
payments made pursuant to the recapitalization, you must provide the exchange
agent with your correct taxpayer identification number by completing a Form
W-9 or substitute Form W-9. If you do not provide Springs with your correct
taxpayer identification number, you may be subject to penalties imposed by the
Internal Revenue Service as well as backup withholding. Any amount withheld
under these rules is not additional tax and may be refunded or credited
against your U.S. federal income tax liability, provided that the required
information is furnished to the Internal Revenue Service in a timely manner.
U.S. FEDERAL INCOME TAX CONSEQUENCES TO THE CLOSE FAMILY
The shares of Springs common stock held by the Close family will not be
converted in the recapitalization and will remain outstanding. No gain or loss
will be recognized for U.S. federal income tax purposes by members of the
Close Family (which include certain individuals, certain trusts for the
benefit of such individuals, and two privately owned companies controlled by
these individuals and trusts, see "Information about the Recapitalization
Participants-The Close Family") who continue to hold their shares of Springs
common stock.
Springs common stock held by the Close family not exceeding $50 million
in value may be sold by members of the Close family to Heartland Industrial
Partners prior to the effective time of the recapitalization. Such sales of
Springs common stock will be taxable transactions for U.S. federal income tax
purposes and may also be taxable transactions under applicable U.S. state,
local or foreign income or other tax laws. Gain or loss for U.S. federal
income tax purposes should generally be equal to the difference between the
amount of cash received and the
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aggregate tax basis in the shares of Springs common stock sold by each member
of the Close family. If shares of Springs common stock sold are held as
capital assets, gain or loss recognized with respect to such shares should be
capital gain or loss, and will be long-term capital gain or loss if the
holding period for the shares exceeds one year.
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SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
Our selected historical consolidated financial information for the five
fiscal years 2000, 1999, 1998, 1997 and 1996 set forth below has been derived
from our audited consolidated financial statements, and for the 13-week
periods ended March 31, 2001 and April 1, 2000 has been derived from our
unaudited consolidated financial statements. The financial data should be
read in conjunction with the financial statements and related notes that have
been filed with the Securities and Exchange Commission. See "Incorporation of
Certain Documents by Reference" on page 94.
Thirteen Weeks
Ended
----------------------------
March 31, April 1, 2000 1999 1998 1997(c) 1996
2001 2000
- ---------------------------------------------------------------------------------------------------------------------
SUMMARY OF OPERATIONS:
(in millions)
Net sales................ $570.4 $593.2 $2,275.1 $2,220.4 $2,180.5 $2,226.1 $2,221.0
Income from continuing
operations............... 13.1 20.1 67.1 69.0 37.3 69.0 88.4(d)
Net income............... 13.1(a) 20.1 67.1 69.0 37.3(b) 69.0 84.9(e)
Class A cash dividends
declared................. 3.6 3.6 14.2 14.1 14.9 16.9 16.7
Class B cash dividends
declared................. 2.1 2.1 8.6 8.6 8.7 8.8 9.0
- ---------------------------------------------------------------------------------------------------------------------
PER SHARE OF COMMON STOCK:
Income from continuing
operations-diluted....... $ 0.72 $ 1.10 $ 3.70 $ 3.80 $ 1.97 $ 3.34 $ 4.29(d)
Net income-diluted....... 0.72(a) 1.10 3.70 3.80 1.97(b) 3.34 4.12(e)
Class A cash dividends
declared ................ 0.33 0.33 1.32 1.32 1.32 1.32 1.32
Class B cash dividends
declared ................ 0.30 0.30 1.20 1.20 1.20 1.20 1.20
Shareholders' equity..... 45.74 44.08 45.72 43.28 40.62 40.69 38.75
Class A stock price range:
High.................... 45.20 39.94 48.81 43.63 61.00 54.75 50.50
Low..................... 30.63 34.00 22.63 27.06 31.75 41.00 38.38
- ---------------------------------------------------------------------------------------------------------------------
STATISTICAL DATA: (f)
Net income to net sales.. 2.3%(a) 3.4% 3.0% 3.1% 1.7%(b) 3.1% 3.8%(e)
Net income to average
shareholders' equity (g). 6.4% 10.2% 8.4% 9.2% 5.0%(b) 8.6% 11.1%(e)
Operating return on assets
employed (h)............. 7.0% 9.8% 8.6% 9.1% 5.8% 8.6% 8.8%
Inventory turnover (i)... 3.7 3.9 3.7 4.2 4.1 4.6 4.8
Accounts receivable
turnover (j)............. 7.2 6.9 7.1 6.9 6.6 6.4 6.4
Net sales divided by
average assets (k)....... 1.4 1.5 1.4 1.5 1.5 1.6 1.5
Current ratio............ 3.0 3.1 3.1 2.7 3.5 3.3 3.1
Capital expenditures (in
millions)................ $18.1 $26.7 $93.3 $166.8 $115.0 $99.3 $75.1
Depreciation (in millions) $25.4 $23.7 $98.0 $90.5 $81.9 $78.8 $80.8
Approximate number of
shareholders............. 2,412 2,524 2,459 2,548 2,636 2,856 3,000
Average number of
associates............... 17,800 18,300 18,200 18,300 18,000 20,100 21,700
- ---------------------------------------------------------------------------------------------------------------------
SELECTED BALANCE SHEET DATA:
(in millions)
Net working capital...... $582.7 $ 606.3 $565.4 $ 523.0 $555.8 $546.4 $537.4
Net property............. 620.7 628.4 617.9 625.6 549.7 541.2 534.6
Total assets............. 1,630.9 1,646.8 1,584.1 1,575.0 1,425.5 1,409.3 1,398.5
Long-term debt........... 305.1 360.4 283.3 283.5 268.0 164.3 177.6
Shareholders' equity..... 820.7 789.5 819.8 774.9 724.1 804.6 780.8
- ---------------------------------------------------------------------------------------------------------------------
See Notes to Selected Historical Consolidated Financial Data on page 71.
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NOTES:
(a) First quarter 2001 net income included a pre-tax charge of $2.3 million
for financial advisory and legal services associated with the
evaluation by the Special Committee of the Board of Directors of the
proposal from the Close family and Heartland Industrial Partners, L.P.
to take Springs private in a recapitalization transaction. Without this
unusual item, net income would have been $14.5 million, or $0.80 per
diluted share, and net income to net sales would have been 2.5 percent.
(b) Net income included after-tax gains of $8.6 million on Springs' sale of
its UltraSuede business and its Rock Hill, South Carolina facility,
losses of $1.7 million on Springs' sale of its Industrial Products and
Springfield businesses, and an impairment charge of $3.0 million
recorded in connection with Springs' decision to close a terry
manufacturing facility. Without these unusual items, net income would
have been $33.4 million, or $1.76 per diluted share, net income to net
sales would have been 1.5 percent, and the return on average
shareholders' equity would have been 4.5 percent.
(c) Fiscal year 1997 includes 53 weeks, whereas all other years include 52
weeks.
(d) Differs from net income by an extraordinary loss of $3.6 million due to
an early extinguishment of debt, net of an income tax benefit of $2.2
million, or $0.17 per diluted share.
(e) Net income included an after-tax gain of $50.1 million on the sale of
Clark-Schwebel, Inc. and an extraordinary loss, net of an income tax
benefit of $2.2 million, of $3.6 million. Without these unusual items,
net income would have been $38.3 million, or $1.86 per diluted share,
net income to net sales would have been 1.7 percent, and the return on
average shareholders' equity would have been 5.3 percent.
(f) The quarterly statistical data has been annualized by multiplying the
appropriate quarterly income statement component by four.
(g) Annualized net income divided by average of month-end total
shareholders' equity. For first quarter 2001, net income included
expenses related to the recapitalization proposal. Excluding the impact
of these expenses, net income to average shareholders' equity would
have been 7.1 percent.
(h) Annualized pretax income before interest expense divided by average of
month-end total assets used in operations. For first quarter 2001,
pretax income included expenses related to the recapitalization
proposal. Excluding the impact of these expenses, operating return on
assets employed would have been 7.6 percent. For 1998, pretax income
was net of gains on Springs' sales of its UltraSuede business and its
Rock Hill, South Carolina facility, losses on Springs' sales of its
Industrial Products and Springfield businesses, and an impairment
charge in connection with Springs' decision to close a terry
manufacturing facility. Without these unusual items, operating return
on assets employed would have been 5.3 percent. For 1996, pretax income
was net of a gain on the sale of Clark-Schwebel, Inc. Without this
unusual item, operating return on assets employed would have been 3.2
percent.
(i) Annualized cost of goods sold divided by average of month-end
inventories.
(j) Annualized net sales divided by average month-end receivables.
(k) Annualized net sales divided by average month-end assets.
NOTE: Selected Historical Consolidated Financial Data includes the following
since their respective dates of acquisition: American Fiber Industries, LLC,
January 1999; and Regal Rugs, Inc., January 1999; and Maybank Textile Corp.,
January 2001. Selected Financial Data also includes the following until their
respective dates of disposition: Clark-Schwebel, Inc., April 1996; Springs'
UltraSuede business, August 1998; Springs' Industrial Products business,
December 1998; Springs' Springfield business, December 1998; and Springs'
UltraFabrics business, March 1999.
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COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION
Springs class A common stock is traded on the New York Stock Exchange
under the symbol "SMI." The following table sets forth the high and low sale
prices on the New York Stock Exchange and dividend information for shares of
Springs class A common stock for the periods indicated:
High Low Cash
---- --- ----
Dividends
---------
Per Share
---------
1999
First Quarter............................. $42.50 $27.06 $0.33
Second Quarter............................ 43.63 27.81 0.33
Third Quarter............................. 43.31 33.69 0.33
Fourth Quarter............................ 43.44 32.94 0.33
2000
First Quarter............................. $39.94 $34.00 $0.33
Second Quarter............................ 48.81 32.00 0.33
Third Quarter............................. 34.06 27.13 0.33
Fourth Quarter............................ 32.44 22.63 0.33
2001
First Quarter............................. $45.20 $30.63 $0.33
Second Quarter............................ 45.34 42.23 0.33
Third Quarter (through __________, 2001).. ----
There is no established public trading market for Springs class B
common stock. The following table sets forth dividend information for shares
of Springs class B common stock for the periods indicated:
Cash Dividends
--------------
Per Share
---------
1999
First Quarter.............................. $0.30
Second Quarter............................. 0.30
Third Quarter.............................. 0.30
Fourth Quarter............................. 0.30
2000
First Quarter.............................. $0.30
Second Quarter............................. 0.30
Third Quarter.............................. 0.30
Fourth Quarter............................. 0.30
2001
First Quarter.............................. $0.30
Second Quarter............................. 0.30
The following table sets forth the high and low sale prices and the
closing price on the New York Stock Exchange for shares of Springs class A
common stock on April 24, 2001, the last full trading day before the public
announcement of the execution of the recapitalization agreement, and on
__________, 2001, the most recent date for which quotations were available
prior to the printing of this document. Shareholders are urged to obtain a
current market quotation for the shares.
Date High Low Close
---- ---- --- -----
April 24, 2001 $43.84 $43.52 $43.69
________, 2001
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DIRECTORS AND EXECUTIVE OFFICERS OF SPRINGS
The following persons are the directors and executive officers of
Springs as of the date of this document. During the last five years, none of
these persons nor Springs has been convicted in a criminal proceeding
(excluding traffic violations or similar misdemeanors) nor been a party to a
civil proceeding (except for matters that were dismissed without sanction or
settlement) of a judicial or administrative body of competent jurisdiction in
which as a result of such proceeding, such person was or is subject to a
judgment, decree or final order enjoining future violations of, or
prohibiting activities subject to, federal or state securities laws or a
finding of any violation with respect to such laws. Unless otherwise
specified, each of the directors and executive officers of Springs is a
citizen of the United States and has his or her principal business address
and telephone at 205 North White Street, Fort Mill, South Carolina 29715,
(803) 547-1500.
Name and Address Principal Occupation During Last Five Years
---------------- -------------------------------------------
JOHN F. AKERS See "Election of Directors-Directors
290 Harbor Drive and Nominees"
Stamford, Connecticut 06902-7441
CRANDALL C. BOWLES See "Election of Directors-Directors
and Nominees"
JOHN L. CLENDENIN See "Election of Directors-Directors
P.O. Box 210818 and Nominees"
West Palm Beach, Florida 33411
LEROY S. CLOSE See "Election of Directors-Directors
Sandlapper Fabrics and Nominees"
60 Shelter Rock Road
Danbury, Connecticut 06810
CHARLES W. COKER See "Election of Directors-Directors
Sonoco Products Company and Nominees"
One North 2nd Street
Hartsville, South Carolina 29550
GRACIE P. COLEMAN Senior Vice President-Human Resources
(February 1999 to present). Vice
President-Marketing and Corporate
Support for Government Solutions,
Lucent Technologies, a communications
systems manufacturer, 600 Mountain
Avenue, Murray Hill, New Jersey 07974
(1997 to February 1999). Human
Resources Vice President, Lucent
Technologies (1996 to 1997). Human
Resources Vice President-Strategic
Partners Network Systems, AT&T, a
telecommunications company, 32 Avenue
of the Americas, New York, New York
10013-2412 (1995 to 1996).
JOHN R. COWART Senior Vice President & Chief
Purchasing Officer (August 1999 to
present). Director of Sourcing-Europe,
General Electric, an industrial
corporation, 3135 Easton Turnpike,
Fairfield, Connecticut 06431-0001
(October 1997 to August 1999).
Director of Sourcing-Asia, General
Electric (May 1996 to October 1997).
General Manager-Sourced Products,
General Electric (September 1994 to
May 1996).
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C. POWERS DORSETT Senior Vice President-General Counsel
and Secretary (February 1996 to
present). Vice President-General
Counsel and Secretary (February 1990
to January 1996).
WILLIAM K. EASLEY Senior Vice President (February 1996
to present). President-Textile
Manufacturing (May 1995 to present).
RAY GREER Senior Vice President and Chief
Information Officer (October 1999 to
present). Vice President-Information
Technology, Philips Electronics China
Group, Koninklijke Philips Electronics
N.V., an electronics company,
Rembrandt Tower, Amstelplein 1, 1096
Ha Amsterdam, The Netherlands (1998 to
October 1999). General
Manager-Information Technology,
Philips Electronics China Group
(1996-1998). Principal, IBM
Corporation, an information technology
company, Armonk, New York 10504
(1992-1996).
SAMUEL J. ILARDO Vice President and Treasurer (April
1998 to present). Treasurer (May 1995
to April 1998).
STEPHEN P. KELBLEY Executive Vice President (September
1991 to present). President-Home
Furnishings Operating Group (February
1998 to present).
President-Diversified Home Products
Group (January 1997 to February 1998).
President-Diversified Products Group
(May 1995 to January 1997).
WILLIAM G. KELLEY See "Election of Directors-Directors
P.O. Box 10548 and Nominees"
Naples, Florida 34101-0548
JOHN H. MCARTHUR See "Election of Directors-Directors
Graduate School of Business and Nominees"
Administration
Harvard University
Fowler 31, Soldiers Field
Boston, Massachusetts 02163
CHARLES M. METZLER Vice President-Controller (February
1996 to present). Controller-Springs
Canada, Inc. (September 1992 to
January 1996).
THOMAS P. O'CONNOR Executive Vice President (August 1992
to present). President-Sales and
Marketing Group (February 1998 to
present). President-Bed Fashions Group
(May 1995 to February 1998).
ALDO PAPONE See "Election of Directors-Directors
American Express and Nominees"
American Express Tower, World Financial
Center
200 Vessey Street, 50th Floor
New York, New York 10285-5007A
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ROBIN B. SMITH See "Election of Directors-Directors
Publishers Clearing House and Nominees"
382 Channel Drive
Port Washington, New York 11050
SHERWOOD H. SMITH, JR. See "Election of Directors-Directors
Carolina Power & Light Company and Nominees"
P.O. Box 1551
410 South Wilmington Street
Raleigh, North Carolina 27602
STEWART TURLEY See "Election of Directors-Directors
Eckerd Corporation and Nominees"
Suite 201
1465 South Forth Harrison Avenue
Clearwater, Florida 33756
ELIZABETH M. TURNER Vice President-Public Affairs (March
1999 to present). Director of Public
Relations (September 1997 to February
1999); Director-Corporate Affairs for
Coca-Cola Bottling Company
Consolidated, a beverage distributor,
4100 Coca-Cola Plaza, Charlotte, North
Carolina 28211 (September 1996 to
August 1997). Manager-Corporate
Affairs for Coca-Cola Bottling Company
Consolidated (October 1990 to August
1996).
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ELECTION OF DIRECTORS
DIRECTORS AND NOMINEES
Pursuant to Springs' bylaws, the Springs board of directors has
established the number of directors of Springs to be eleven as of the date of
the annual meeting. Each of the nominees named below was elected as a
director of Springs at last year's annual meeting, and has consented to being
named in this document and to serve if elected. Each person has been
nominated for election as a director to hold office until the earlier of the
completion of the recapitalization, the next annual meeting of shareholders
or the election of a successor.
Shares represented by the enclosed proxy will be voted FOR the election
of the nominees unless authority is withheld for all or any of the nominees.
Although the Springs board does not contemplate that any of the eleven
nominees named will be unavailable for election, if a vacancy should occur,
the proxy will be voted for such substitute nominee or nominees as the
Springs board may recommend, or the Springs board may reduce the size of the
board.
The election of Springs directors is conducted by cumulative voting
whereby each shareholder is entitled to cast the number of votes equal to (1)
the number of votes to which his shares are entitled multiplied by (2) the
number of directors to be elected. A shareholder may give one nominee all of
such votes or may distribute such votes among the nominees to be elected in
such manner as he may desire. In addition, Springs is soliciting
discretionary authority to cumulate votes.
The following information is submitted respecting the nominees for
election:
[PHOTO]
JOHN F. AKERS, AGE 66, RETIRED CHAIRMAN AND CHIEF EXECUTIVE OFFICER OF
INTERNATIONAL BUSINESS MACHINES CORPORATION. Mr. Akers served as chairman and
chief executive officer of IBM from 1986 until his retirement in May 1993. A
director of Springs since December 1993, Mr. Akers is also a director of
Hallmark Cards, Inc., Lehman Brothers Holdings, Inc. (New York), The New York
Times Company, PepsiCo., Inc., and W. R. Grace & Co.
[PHOTO]
CRANDALL CLOSE BOWLES, AGE 53, CHAIRMAN, PRESIDENT, AND CHIEF EXECUTIVE
OFFICER OF SPRINGS. Mrs. Bowles served as executive vice president of Springs
from April 1992 until January 1997, when she became president and chief
operating officer. She served in these positions until January 1, 1998, when
she became chief executive officer. She was elected to the additional
position of chairman of the board in April 1998. A director of Springs since
1978, Mrs. Bowles is also a director of Deere & Company.
[PHOTO]
JOHN L. CLENDENIN, AGE 67, CHAIRMAN EMERITUS OF BELLSOUTH CORPORATION. Mr.
Clendenin served as chairman and chief executive officer of BellSouth, a
communications services company, 1155 Peachtree Street, N.E., Room 15G03,
Atlanta, Georgia 30309-3610, from 1984 until December 1996 and as chairman
through December 1997. A director of Springs since 1990, Mr. Clendenin is
also a director of Coca-Cola Enterprises Inc., Equifax Inc., Home Depot Inc.,
The Kroger Company, National Service Industries, Inc., Nabisco Group Holdings
and Nabisco Holdings, Inc., Powerwave Technologies Inc. and Wachovia
Corporation.
[PHOTO]
LEROY S. CLOSE, AGE 51, CHAIRMAN OF SANDLAPPER FABRICS, INC., A PRINTER AND
CONVERTER OF TEXTILE FABRICS, SINCE JANUARY 2001, WHEN THE POSITION OF
CHAIRMAN WAS FIRST CREATED. Mr. Close served as president and chief executive
officer of Sandlapper Fabrics from 1986 until January 2001. A director of
Springs since 1991, Mr. Close was a vice president of Springs' former Apparel
Fabrics Division from 1983 to 1986. Mr. Close is a brother of Mrs. Bowles.
-76-
[PHOTO]
CHARLES W. COKER, AGE 68, CHAIRMAN OF SONOCO PRODUCTS COMPANY SINCE 1990. A
director of Springs since 1977, Mr. Coker served as chief executive officer
of Sonoco, a packaging company, from 1976 to 1998. Mr. Coker is also a
director of Bank of America Corporation, Carolina Power & Light Company and
Sara Lee Corporation.
[PHOTO]
WILLIAM G. KELLEY, AGE 55, FORMER CHAIRMAN, CHIEF EXECUTIVE OFFICER AND
PRESIDENT OF CONSOLIDATED STORES CORPORATION, A SPECIALTY RETAIL COMPANY,
FROM 1990 UNTIL 2000. Mr. Kelley is a consumer products/retailing consultant
and became a director of Springs in February 2000. The address of
Consolidated Stores Corporation is 300 Phillipi Road, P.O. Box 28512,
Columbus, Ohio 43228.
[PHOTO]
JOHN H. MCARTHUR, AGE 67, DEAN OF THE FACULTY, HARVARD UNIVERSITY GRADUATE
SCHOOL OF BUSINESS ADMINISTRATION, FROM 1980 UNTIL HIS RETIREMENT IN 1995.
Mr. McArthur presently serves as senior advisor to the president of the World
Bank, a provider of development assistance, 1818 H Street, N.W., Washington,
D.C. 20433. A director of Springs since 1989, Mr. McArthur is also a director
of AES Corporation, Ardais Corporation, BCE Inc., BCE Emergis, Inc., Cabot
Corporation, GlaxoSmithKline plc, HCA, Inc., KOC Holdings, A.S., Reuters
Founders Share Company Limited, Rohm and Haas Company, and Telsat Canada.
[PHOTO]
ALDO PAPONE, AGE 68, SENIOR ADVISOR, AMERICAN EXPRESS COMPANY, 1991 TO
PRESENT. A director of Springs since April 1993, Mr. Papone served as chairman
and chief executive officer from 1989 to 1990, and as president and chief
operating officer from 1985 to 1989, of American Express Travel Related
Services Company, Inc. Mr. Papone served as a director of American Express
Company from 1990 to 1998. Mr. Papone is also a director of Hyperion Solutions
Corporation.
[PHOTO]
ROBIN B. SMITH, AGE 61, CHAIRMAN AND CHIEF EXECUTIVE OFFICER OF PUBLISHERS
CLEARING HOUSE. Ms. Smith served as president of Publishers Clearing House, a
subscription agency, from 1981 to August 1996, when she was elected chairman,
and has served as its chief executive officer since 1988. Ms. Smith has
served as a director of Springs since 1993 and is also a director of
BellSouth Corporation, Kmart Corporation, Texaco, Inc., and two clusters of
mutual funds administered by Prudential Investments Mutual Fund Management
LLC.
[PHOTO]
SHERWOOD H. SMITH, JR., AGE 66, CHAIRMAN EMERITUS OF CP&L. Mr. Smith served
as chief executive officer of Carolina Power & Light, a predecessor of
Progress Energy Company, a public utility holding company, from September
1979 until October 1996, as chairman from 1980 to 1999, and as president from
1976 to 1992. A director of Springs since 1991, Mr. Smith is also a director
of Nortel Networks Corp., and a trustee of Northwestern Mutual Life Insurance
Company.
[PHOTO]
STEWART TURLEY, AGE 66, RETIRED CHAIRMAN OF ECKERD CORPORATION. Mr. Turley
served as chief executive officer of Eckerd Corporation, a drugstore chain,
from 1974 to February 1996, as its chairman from 1975 until February 1997,
and as its president from 1974 to 1993. A director of Springs since 1984, Mr.
Turley is also a director of MarineMax, Inc., Sprint Corp., and Watermark
Communities, Inc.
INFORMATION REGARDING THE BOARD OF DIRECTORS
During 2000, the Springs' board of directors held five meetings.
Springs' ten non-employee directors serve as the committee members of all
committees with the exception of the audit committee which is composed of
Messrs. Akers, Clendenin, and Smith and Ms. Smith. All directors attended at
least 75% of the total number of meetings of the Springs board and committees
of the board on which they serve during 2000. Except for the audit committee,
the committees do not meet on a regular basis but only as circumstances
require. The audit committee, which is responsible for review of the
integrity of Springs' financial reporting, review of its internal controls
and recommendation of independent auditors, met three times during 2000. The
management compensation and organization committee met
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five times. This committee approves the annual compensation of the chief
executive officer and has responsibility for approval of compensation
arrangements for key executives, approval of executive compensation plans,
evaluation of the chief executive officer's performance, and ensuring management
continuity and succession, including recommending a successor to the chief
executive officer in the event of a vacancy. The committee on directors and
corporate governance, which is responsible for making recommendations to the
Springs board with respect to the governance of Springs and the board,
directors' compensation, nomination of candidates for director and evaluation of
the board's performance, met one time. This committee will consider any
recommendations made in writing by shareholders regarding possible candidates
for the Springs board. Such recommendations should be directed to the Secretary
of Springs. The finance committee, which is responsible for review of Springs'
financial policies and planning, review of methods of financing and
recommendations with respect to acquisitions and divestitures, and which has
certain fiduciary responsibilities under benefit plans, did not meet in 2000.
-78-
DIRECTOR AND EXECUTIVE OFFICER COMPENSATION
EXECUTIVE OFFICER COMPENSATION AND RELATED INFORMATION
SUMMARY COMPENSATION TABLE
The following table sets forth a summary of compensation for the chief
executive officer and each of the four other most highly compensated
executive officers of Springs.
SUMMARY COMPENSATION TABLE
Annual Compensation(1) Long-Term Compensation
------------------------- --------------------------------
Awards
Other -------------------- Long-Term
Principal Annual Restricted Options/ Incentive All Other
Name Position Year Salary Bonus Comp Stock SARs Payouts Comp(2)
- ------- --------- ---- ------ ------- ------- ----------- --------- --------- ----------
Bowles, Chairman 2000 $637,504 $ 0 0 0 0 0 $79,482
C.C. and
Chief 1999 569,170 418,340 0 0 0 0 52,289
Executive 1998 540,000 137,700 0 0 0 0 53,572
Officer
Atkins, Executive 2000 $333,136 $20,988 $ 0 0 0 0 $30,585
J.A.(3) Vice
President 1999 128,429 67,426 36,158(4) 0 35,000 0 3,356
and
CFO 1998 0 0 0 0 0 0 0
Dorsett, Senior 2000 $269,720 $15,293 0 0 0 0 $28,962
C.P. Vice
President- 1999 256,936 121,402 0 0 10,000 0 51,919
General 1998 244,728 45,000 0 0 9,000 0 21,525
Counsel &
Secretary
Kelbley, Executive 2000 $366,672 $23,101 0 0 0 0 $40,619
S.P. Vice
President 1999 338,672 177,803 0 0 15,000 0 79,174
1998 328,008 73,500 0 0 20,000 0 32,355
O'Connor, Executive 2000 $366,672 $30,000 0 0 0 0 $40,617
T.P. Vice
President 1999 325,136 177,803 0 0 15,000 0 78,909
1998 296,679 70,000 0 0 20,000 0 28,672
- ----------------------
(1)Includes amounts earned in fiscal year, regardless of whether deferred.
(2)Includes the following:
(a) Springs' contributions to the Springs of Achievement Partnership
Plan, which is a tax qualified profit sharing and savings plan in
which a majority of Springs' associates participate. Amounts credited
for 2000 are as follows:
Profit
Sharing
Retirement
Savings Fund Fund
----------------- -------------
Mrs. Bowles....... $3,400 $8,758
Mr. Atkins........ 3,400 8,758
Mr. Dorsett....... 3,400 8,758
Mr. Kelbley....... 3,400 8,758
Mr. O'Connor...... 3,400 8,758
(b) For 1999, credits to a contingent compensation plan. In this plan,
amounts credited to the participant's account are contingent upon
continued employment with Springs and through 2000 vested at a rate
of 10 percent per year until termination of employment. A
participant's entire account, however, is fully vested
-79-
upon retirement on or after age 65, death, or total disability.
Beginning in January 2001, the unvested portion of each participant's
account will vest in full over three years. The account balance
through 2000 has been adjusted each year by an adjustment factor which
is equivalent to an interest rate selected by the Springs board's
management compensation and organization committee. Beginning in
January 2001, the accounts were transferred to the participants'
accounts within Springs' Deferred Compensation Plan and will be
adjusted by the choices available under that plan as well as the
interest rate previously approved by the committee with respect to the
Contingent Compensation Plan. No amounts were credited during 1998 or
2000 under this plan.
(c) Credits to an excess benefit plan and a deferred compensation plan,
which provide for credits equivalent to contributions under the
Springs of Achievement Partnership Plan for deferred compensation and
compensation in excess of limitations provided under the Internal
Revenue Code. Amounts credited for 2000 are as follows:
Mrs. Bowles.................. $67,324
Mr. Atkins................... 18,427
Mr. Dorsett.................. 16,804
Mr. Kelbley.................. 28,461
Mr. O'Connor................. 28,459
(3)Mr. Atkins joined Springs on August 9, 1999.
(4)Payments pursuant to Springs' moving allowance and home sale program.
OPTION TABLES
No options were granted to executive officers in 2000. The following
table provides information about options held by the named executive officers.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL-YEAR-END OPTION/SAR VALUES
Value of Unexercised
Number of Unexercised In-The-Money
Options/SARs Options/SARs
Shares at Fiscal Year End at Fiscal Year End(1)
Acquired Value ------------------------- ------------------------
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- -------- ----------- -------- ----------- ------------- ----------- -------------
Bowles, C.C.... 0 0 68,500 0 $ 0 $0
Atkins, J.A.... 0 0 0 35,000 0 0
Dorsett, C.P... 0 0 66,000 19,000 85,938 0
Kelbley, S.P... 0 0 83,500 35,000 103,125 0
O'Connor, T.P.. 0 0 83,500 35,000 103,125 0
- ------------------
(1)Value is based on the difference between the closing market price of the
underlying class A common stock at December 29, 2000 ($32.4375), and the
exercise or base price.
LONG-TERM INCENTIVE PLANS - AWARDS IN LAST FISCAL YEAR
No long-term incentive awards were granted in 2000.
RETIREMENT PLANS
In 1996, the Springs board of directors adopted a Supplemental
Executive Retirement Income Plan for certain executives who are designated as
participants by the management compensation and organization committee.
Target benefit amounts payable under this plan are reduced by one half of
social security benefits and by the equivalent value
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of (1) profit-sharing and Springs matching benefits payable under the Springs of
Achievement Partnership Plan and Deferred Compensation Plan, (2) benefits under
Springs' Excess Benefit Plan and Contingent Compensation Plan, and (3) certain
deferred compensation attributable to a defined benefit plan previously
maintained by Springs. The years of credited service as of January 1, 2001, for
the named executive officers who participate in this plan are as follows: Mrs.
Bowles, nine years; Mr. Atkins, one year; Mr. Dorsett, ten years; Mr. Kelbley,
nine years; and Mr. O'Connor, 32 years. The following table sets forth target
benefit amounts payable (before the reductions described above) in the form of a
straight-life annuity beginning at age 62 for various levels of final average
compensation and years of service:
PENSION PLAN TABLE
Years of Service
Final Average --------------------------------------------
Compensation(1) 10 15 20 25
----------------- ---------- ----------- ---------- ----------
$300,000 $72,000 $108,000 $144,000 $180,000
500,000 120,000 180,000 240,000 300,000
700,000 168,000 252,000 336,000 420,000
900,000 216,000 324,000 432,000 540,000
1,100,000 264,000 396,000 528,000 660,000
- ------------
(1)Final average compensation means the average of salary and bonus (which
are shown in the summary compensation table) paid or earned for the five
years of the last ten years of employment that provide the highest average.
CHANGE-OF-CONTROL AGREEMENT
On August 9, 1999, Springs entered into a change of control and
severance agreement with its chief financial officer, Jeffrey A. Atkins.
Pursuant to the agreement, Mr. Atkins is entitled to receive lump-sum
severance of one year's base salary and target bonus (computed based on his
highest rate of compensation during the 24-month period ending on his
termination date), as well as a prorated bonus for the year of termination,
upon any termination of his employment by Springs without cause, or upon a
termination by Mr. Atkins for "good reason" (as defined in the agreement)
during certain periods preceding the date of a "change of control" (as
defined in the agreement) of Springs or the date of the signing of an
agreement pursuant to which Springs would undergo a change of control and
during the 36 months following a change of control. Mr. Atkins has resigned
from Springs, effective July 14, 2001. Although he is not technically
entitled to the severance benefits described above, Springs has agreed to
continue Mr. Atkins' base salary and certain fringe benefits for one year
after termination, and to pay him $291,600 in severance shortly after his
termination. He will also receive a prorated bonus for 2001, which will be
determined after Springs' financial results for 2001 are available. In
return, Mr. Atkins will waive any claims against Springs or rights to other
severance, and will agree, through June 30, 2002, neither to compete with
Springs nor to solicit Springs employees with whom he worked during the two
years preceding his termination.
MANAGEMENT COMPENSATION AND ORGANIZATION COMMITTEE REPORT
This report describes the compensation policies of the management
compensation and organization committee (the compensation committee)
applicable to the executive officers of Springs named in the summary
compensation table, including the specific relationship of corporate
performance to compensation of executive officers for 2000. The report also
discusses the 2000 compensation of Mrs. Bowles, Springs' chief executive
officer.
COMPENSATION PHILOSOPHY
Springs' executive compensation program is linked to corporate
performance and return to shareholders. To this end, Springs has developed an
overall compensation strategy and specific compensation plans that tie a
significant portion of executive compensation to Springs' success in meeting
specified performance goals and to appreciation in Springs' stock price. To
allow monitoring of the strategy, a benchmark of median compensation levels
for median performance is used. The overall objectives of this strategy are
to attract and retain the best possible executive talent, to motivate these
executives to achieve the goals inherent in Springs' business strategy, to
link executive and shareholder
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interests through equity-based plans and to provide a compensation program
that recognizes individual contributions as well as overall business results.
MANAGEMENT COMPENSATION AND ORGANIZATION COMMITTEE
The compensation committee is composed of Springs' ten non-employee
directors and is responsible for approval of compensation arrangements for
key executives and executive compensation plans. The compensation committee
reviews compensation recommendations from the chief executive officer for
executive officers who report to the chief executive officer, including those
officers named in the summary compensation table. The compensation committee
also approves Mrs. Bowles' salary following the committee's review of her
performance.
The compensation committee periodically conducts reviews of Springs'
executive compensation program. In 2000, the compensation committee received
reports from management regarding assessments conducted by independent
compensation consultants of the effectiveness of Springs' compensation
program and its comparison to peer groups of public corporations recommended
by the consultants. In making comparisons, the primary consideration is the
competitiveness of Springs' annual and long term components of compensation.
The compensation reviews permit an ongoing evaluation of the link between
Springs' performance and its executive compensation as compared to the
compensation programs of other similarly positioned companies.
COMPENSATION PROGRAM
Springs' compensation program reflects a weighting of annual base
salary and bonuses (the annual component) and equity-based incentives (the
long-term component). For 2000, the annual bonus opportunity for the chief
executive officer was based solely on the achievement of a specific corporate
financial target. For Springs' other executive officers 75% of the
executive's bonus opportunity was based on achievement of a specific
corporate financial target and 25% was based on individual performance.
(1) ANNUAL COMPONENT: BASE SALARY AND ANNUAL BONUS
Base Salary. Base salaries for executive officers are determined with
reference to a salary grade level for each job. These levels are determined
by evaluating the responsibilities of each position and comparing it with
other comparable executive officer positions in the marketplace. Salary
adjustments for executive officers are currently made in twelve-month
intervals under Springs' compensation policy. The amount of adjustment is
determined by the compensation committee for all executive officers who
report to the chief executive officer within specified limits adopted for all
of Springs' associates. The committee bases its determination upon the chief
executive officer's evaluation of each executive officer's personal
performance. The base salaries of the named executive officers generally are
at or less than the midpoint of comparable positions at those companies
within the compensation peer group. Increases in base salary for the named
executive officers in 2000 were based on subjective evaluations of individual
performance as well as the need to maintain salaries at competitive levels.
Annual Bonus. Executive bonuses in 2000 were earned pursuant to
Springs' Achievement Incentive Plan. Under the Achievement Incentive Plan for
2000, the chief executive officer's bonus opportunity was based solely on
performance of Springs as measured by specific corporate financial targets.
For other executive officers, the Achievement Incentive Plan for 2000 links
compensation to the performance of Springs as measured by specific corporate
financial targets and to individual personal performance. The maximum
potential bonuses range from 80% to 140% of annual base salary depending on
the executives' salary grades.
(2) LONG-TERM COMPONENT
To align shareholders' and executive officers' interests, Springs'
compensation program includes long-term compensation in the form of
performance unit awards and stock options. The value of these awards is
related to the value of Springs' common shares. These awards are made under
Springs' Incentive Stock Plan.
In 2000, no performance unit awards or stock options were granted to
executive officers. Springs did, however, initiate a review in 2000 of the
long-term component of executive compensation.
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CHIEF EXECUTIVE OFFICER COMPENSATION
Under the compensation committee's policy regarding chief executive
officer compensation, over one-half of Mrs. Bowles' compensation opportunity
is at risk based on Springs' performance. Mrs. Bowles' salary rate was
increased in March 2000 as a result of the committee's evaluation of her
performance and because of her low base compensation relative to the median
of her peer group. The committee also considered her performance in prior
years.
Mrs. Bowles did not receive any bonus under the Achievement Incentive
Plan for 2000 because Springs did not achieve its corporate financial target.
The compensation committee has concluded that Mrs. Bowles' performance
warrants the compensation for 2000 as reflected in the summary compensation
table.
The compensation committee has considered the limitations on
deductibility of certain compensation under Section 162(m) of the Internal
Revenue Code. The compensation committee's current policy is to assure that
all compensation is deductible under Section 162(m) when paid.
Management Compensation and Organization Committee
C. W. Coker, Chairman
J. F. Akers
J. L. Clendenin
L. S. Close
W.G. Kelley
J. H. McArthur
A. Papone
R. B. Smith
S. H. Smith, Jr.
S. Turley
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Leroy S. Close, a member of the compensation committee, is chairman
of Sandlapper Fabrics, Inc., which received payments from Springs in 2000
totaling $1,356,068 for printed fabric and printing services. Additionally,
Mr. Close was a divisional officer of Springs from 1983 to 1986 and is
affiliated with Kanawha Insurance Company, which received $4.18 million in
2000 for administrative services provided to Springs' self-funded medical
plan and for group life insurance premiums, and with The Springs Company and
affiliated or related entities, which received $18,159 from Springs for rent,
reimbursement of property taxes on the Founder's House, railroad track
maintenance, and miscellaneous goods and services, and which paid Springs
$33,989 in 2000 for administrative, maintenance, and courier services. These
transactions are also described under "Other Annual Meeting
Matters-Transactions with Certain Persons" on pages 91 to 92.
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PERFORMANCE GRAPH
Comparative Five-Year Total Returns*
Springs Industries, Inc., S&P 500, Peer Group
[Line Graph showing total Springs Industries Shareholder Returns for the Years
Ending: Dec 95, Dec 96, Dec 97, Dec 98, Dec 99 and Dec 00 against the
S&P SMALLCAP 600 Index and Peer Group #2]
- ------------
* Cumulative total return assumes reinvestment of dividends.
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ANNUAL RETURN PERCENTAGE
YEARS ENDING
COMPANY NAME / INDEX DEC96 DEC97 DEC98 DEC99 DEC00
-------------------------------------------------------------------------------
SPRINGS INDUSTRIES -CL A 6.96 24.14 -17.85 0.07 -15.41
S&P SMALLCAP 600 INDEX 21.32 25.58 -1.31 12.40 11.80
PEER GROUP 10.20 17.98 -15.18 -19.15 25.83
INDEXED RETURNS
YEARS ENDING
BASE
PERIOD
COMPANY NAME / INDEX DEC95 DEC96 DEC97 DEC98 DEC99 DEC00
-------------------------------------------------------------------------------
SPRINGS INDUSTRIES -CL A 100 106.96 132.77 109.08 109.15 92.34
S&P SMALLCAP 600 INDEX 100 121.32 152.36 150.37 169.02 188.96
PEER GROUP 100 110.20 130.01 110.27 89.15 112.18
Assumes $100 invested at the close of trading on the last trading day
preceding the first day of the fifth preceding fiscal year in Springs' class
A common stock, S&P 500, and peer group.
The peer group is composed of those fifty S&P 500 companies with market
capitalizations closest to Springs' as of the beginning of Springs' 2000
fiscal year, which the compensation committee believes is the most
representative group for purposes of comparing Springs' shareholders' return.
The compensation committee believes a representative group of reporting
companies cannot be identified in the same industry or lines of business as
Springs and that published industry indexes are not representative of Springs
and its lines of business.
Peer Group Companies
Alberto-Culver Co -CL B Dillards Inc. -CL A Pactiv Corp.
Allegheny Technologies Inc. EOG Resources Inc. Peoples Energy Corp.
Allied Waste Inds. Inc. FMC Corp. Perkinelmer Inc.
American Greetings -CL A Great Lakes Chemical Corp. Potlatch Corp.
Andrew Corp. HealthSouth Corp. Power-One Inc.
Autodesk Inc. Homestake Mining Pulte Corp.
Ball Corp. Humana Inc. Reebok International Ltd.
Bemis Co. KB Home Rowan Cos. Inc.
Briggs & Stratton Longs Drug Stores Inc. Ryder System Inc.
Brunswick Corp. Louisiana-Pacific Corp. Snap-On Inc.
Centex Corp. Manor Care Inc. Sunoco Inc.
Consolidated Stores Corp. McDermott Intl. Inc. Tektronix Inc.
Cooper Tire & Rubber Meredith Corp. Thomas & Betts Corp.
Coors (Adolph) -CL B Millipore Corp. Timken Co.
Crane Co. National Service Inds. Tupperware Corp.
Cummins Engine Inc. Worthington Industries
Deluxe Corp. Nicor Inc.
Oneok Inc.
-85-
COMPANIES IN LAST YEAR'S PEER GROUP THAT ARE NOT INCLUDED IN THE CURRENT PEER
GROUP
Aeroquip-Vickers, Inc. Fosterwheeler Corporation Milacron, Inc.
ASARCO Incorporated Fruit of the Loom, Ltd. Moore Corporation Ltd.
Battle Mountain Gold Co. W R Grace & Co. Nacco Industries Inc.
Bethlehem Steel Great Atlantic & Pacific Oryx Energy Co.
Corporation Tea Co., Inc. Pep Boys Manny Moe &
Cabletron Systems Harnischfeger Industries, Jack
Case Corp Inc. Polaroid Corporation
Cyprus Amax Minerals Harrahs Entertainment Inc. Russell Corp
Company Helmerich & Payne, Inc. Shared Medical Systems
Data General Corp IKON Office Solutions, Inc. Corporation
Eastern Enterprises Jostens, Inc. Venator Group, Inc.
Fleetwood Enterprises, Kaufman & Broad Home Corp
Inc.
DIRECTORS' COMPENSATION
Directors who are not employees of Springs (outside directors) receive
an annual cash retainer of $24,000 and, as described below, restricted shares
of Spring's class A common stock under Springs' Restricted Stock Plan for
Outside Directors equal in value to the cash retainer received during the
preceding year. In addition, each outside director receives a fee of $2,500
for attendance at each special meeting of the Springs board and $1,000 for
each special meeting conducted by telephone. Chairmen of board committees
each receive an additional annual fee of $3,000.
Under the terms of the Restricted Stock Plan for Outside Directors,
each outside director receives an annual grant of shares of class A common
stock (restricted shares) as of the day before each annual meeting of
shareholders having a market value equal to the annual cash retainer fee
earned by the director for the preceding year. The shares are subject to
forfeiture and restrictions on transfer and become vested upon the
termination of the outside director's service on the Springs board on account
of (1) retirement in compliance with the board's mandatory retirement policy;
(2) failure to be reelected; or (3) death or disability. In addition, the
restriction period may end with the approval of the board on a case-by-case
basis if an outside director terminates his or her service as a member of the
board (1) for reasons of personal or financial hardship; (2) to serve in any
governmental, diplomatic or any other public service position or capacity;
(3) to avoid or protect against a conflict of interest; (4) on the advice of
legal counsel; or (5) as a result of any other extraordinary circumstances
that the board determines to be comparable to the foregoing.
Upon the completion of the restriction period, all restricted shares
granted to an outside director and any distributions thereon retained by
Springs during the restriction period become vested. If an outside director
leaves the Springs board for any reason other than as set forth above, then
all restricted shares issued to such outside director would be forfeited to
Springs.
An outside director may elect deferral of compensation, including the
restricted shares, under Springs' Deferred Compensation Plan for Outside
Directors. Under this plan, amounts deferred are (1) held as units equivalent
to Springs' class A common stock and credited with additional units equal to
the number of shares which could be purchased with dividends paid on an
equivalent number of shares of class A common stock, or (2) credited to an
interest account which is credited quarterly with interest equal to the
Lehman Brothers Corporate Long-Term Baa Index.
Three directors have a deferral account under an Outside Directors COLI
Deferred Compensation Plan related to fees earned during the four-year period
ending April 1990. Those accounts are credited with interest at an annualized
rate equal to Moody's Seasoned Corporate Bond Yield Index, plus 2% to age 55
and plus 4% thereafter and are paid out when board service ends.
Credits under the COLI Plan and the Deferred Compensation Plan are only
contractual obligations of Springs and create no rights superior to other
unsecured, general creditors.
During 2000, Mr. Papone provided consulting services to Springs for
which he was paid $58,000. These services included meetings and consultations
with Springs' Market Strategy Group regarding consumer advertising and
contacts with Springs' primary advertising agency. In addition, Mr. Papone
reviewed certain of Springs' advertising
-86-
programs and consumer packaging. Mr. Papone will provide similar services in
2001 and has been paid a retainer of $50,000. The retainer may be adjusted
depending on the extent of consulting services provided in 2001.
-87-
OTHER ANNUAL MEETING MATTERS
REPORT OF THE AUDIT COMMITTEE
The audit committee of the Springs board of directors oversees Springs'
financial reporting process on behalf of the Springs board pursuant to an
audit committee charter adopted by the Springs board, which is attached as
Appendix E. The Springs board has determined that members of the audit
committee are independent as defined in the rules of the New York Stock
Exchange.
Springs' management has primary responsibility for Springs' financial
reporting process and internal controls. Springs' independent auditors are
responsible for performing an independent audit of Springs' consolidated
financial statements in accordance with accounting standards generally
accepted in the United States and have provided their opinion that Springs'
financial statements fairly present financial position, results of operations
and cash flows for fiscal year 2000 in accordance with generally accepted
accounting principles. The audit committee's responsibility is to provide
oversight on behalf of the Springs board regarding the financial reporting
processes and internal controls and to recommend to the Springs board the
engagement of Springs' independent auditors.
In performing its responsibilities, the audit committee met three times
during fiscal year 2000. During the year, the audit committee discussed with
Springs' independent auditors the overall scope and plans for their audit.
These discussions included those matters required to be discussed by the
Statement on Auditing Standards No. 61 relating to conduct of the audit. In
addition, the audit committee met with the independent auditors, with and
without management being present, to discuss the results of their
examinations, their evaluations of Springs' internal controls and the overall
quality of Springs' financial reporting. The audit committee also reviewed
the non-audit services and the fees billed for these services by the
independent auditors. These services and fees are set forth in the following
schedule:
Financial Information
Systems Design and
Audit Fees Implementation Fees All Other Fees
- ---------- --------------------- --------------
$591,000 0 $494,000
Springs' independent auditors have provided to the audit committee the
written disclosures required by Independence Standards Board Standard No. 1
(Independence Discussion with Audit Committees) and the audit committee
discussed with the independent auditors that firm's independence. Based on
these disclosures and discussions, the audit committee has determined that
the provision of the non-audit services described in the above table is
compatible with maintaining the independent auditors' independence.
In reliance on the reviews and discussions with management and the
independent auditors, the audit committee recommended to the Springs board
that the audited financial statements be included in Springs' annual report
on Form 10-K for the fiscal year ended December 30, 2000, and that the
Springs board engage, subject to shareholder approval, Deloitte & Touche as
Springs' independent auditors for fiscal year 2001.
Audit Committee
---------------
John L. Clendenin, Chairman
John F. Akers
Robin B. Smith
Sherwood H. Smith, Jr.
RATIFICATION OF APPOINTMENT OF PUBLIC ACCOUNTANTS
Upon the recommendation of the audit committee of the Springs board of
directors, the Springs board has appointed Deloitte & Touche LLP as
independent certified public accountants for Springs to audit the
consolidated financial statements of Springs and its subsidiaries for the
2001 fiscal year.
-88-
Deloitte & Touche has acted for Springs in this capacity since 1940.
Its representatives will attend the annual meeting, will be given the
opportunity to make a statement if they desire and will respond to questions
directed to them relating to their audit or to Springs' financial statements.
Springs' board of directors recommends ratification of the appointment
of Deloitte & Touche as independent certified public accountants for Springs
to audit the consolidated financial statements of Springs and its
subsidiaries for the 2001 fiscal year. If a majority of the votes cast at the
annual meeting, in person or by proxy, should not approve such appointment,
the audit committee and the Springs board will reconsider the appointment of
independent certified public accountants.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(AS OF MAY 25, 2001):
CLASS A PERCENT CLASS B PERCENT
COMMON OF COMMON OF
NAME STOCK(1),(2) CLASS A STOCK CLASS B
------------------ ---------- ----------- ----------- ----------
DIRECTORS &
Nominees
J. F. Akers....... 4,034 0.04% ----- -----
C. C. Bowles...... 84,998(3) 0.79% 135,600(4) 1.90%
J. L. Clendenin... 3,927 0.04% ----- -----
L. S. Close....... 7,727 0.07% 73,305(4) 1.03%
C. W. Coker....... 5,227 0.05% ----- -----
W. G. Kelley...... ----- ----- ----- -----
J. H. McArthur.... 3,727 0.03% ----- -----
A. Papone......... 4,384 0.04% ----- -----
R. B. Smith....... 3,041 0.03% ----- -----
S. H. Smith, Jr... 3,911 0.04% ----- -----
S. Turley......... 5,270 0.05% ----- -----
EXECUTIVE OFFICERS
J. A. Atkins...... 3,000 0.03% ----- -----
G. P. Coleman..... ----- ----- ----- -----
J. R. Cowart...... 2,534 0.02% ----- -----
C. P. Dorsett..... 67,729(3) 0.63% ----- -----
W.K. Easley....... 68,302(3) 0.63% ----- -----
R. Greer.......... 2,453 0.02% ----- -----
S. J. Ilardo...... 328 0.00% ----- -----
S. P. Kelbley..... 85,093(3) 0.79% ----- -----
C. M. Metzler..... 25,500(3) 0.24% ----- -----
T. P. O'Connor.... 87,947(3) 0.81% ----- -----
E. M. Turner...... 100 0.00% ----- -----
ALL DIRECTORS,
NOMINEES AND
EXECUTIVE OFFICERS
AS A GROUP........ 469,232(3) 4.34% 208,905 2.92%
- ------------
(1)Includes shares held under the Outside Directors' Restricted Stock Plan as
follows: Mr. Akers, 3,034; Mrs. Bowles, 487; Messrs. Clendenin, Close,
Coker, and McArthur, 3,727 each; Mr. Papone, 3,384; Ms. Smith, 2,841; Mr.
Smith, 3,411; and Mr. Turley, 4,270. The directors have sole voting power
as to these shares but do not have investment power until lapse of
restrictions on the restricted shares.
(2)Includes shares held in the Springs of Achievement Partnership Plan as
follows: Mrs. Bowles, 318; Mr. Dorsett, 816; Mr. Ilardo, 228; Mr. Kelbley,
906; and Mr. O'Connor, 863. These persons have sole voting and investment
power as to these shares.
(3)Includes beneficial ownership of class A common stock that may be acquired
within 60 days pursuant to stock options awarded under the Incentive Stock
Plan as follows: for Mrs. Bowles, 68,500; Mr. Dorsett, 66,000; Mr. Easley,
66,000; Mr. Kelbley, 83,500; Mr. Metzler, 25,000; and Mr. O'Connor, 83,500.
(4)See text under "-Close Family Ownership" for additional information about
ownership of class B common stock.
-89-
CLOSE FAMILY OWNERSHIP
Mrs. Bowles and Mr. Close are members of the Close family which,
together with the Close Foundation, beneficially owned, as of May 25, 2001, a
total of 174,880 shares (1.62%) of Springs class A common stock and 7,149,291
shares (99.97%) of Springs class B common stock. As of May 25, 2001, the
Close family trusts, The Springs Company, Kanawha Insurance Company and the
Close Foundation held Springs class A and class B common stock as follows:
Class A Class B
Common Percentage Common Percentage
Name Stock of Class A Stock of Class B
----------------------- -------- ------------ --------- ------------
Close family trusts... ----- ----- 5,020,158(1) 70.20%
The Springs Company... ----- ----- 1,401,930(2) 19.60%
Kanawha Insurance
Company............... ----- ----- 175,000(3) 2.45%
Close Foundation(4)... 3,392 0.03% ------ ------
- ------------
(1)These shares are held in different trusts by Mrs. Anne Springs Close, and
by certain children of Mrs. Close, as trustees for the children of Mrs.
Close. While Mrs. Close, Mrs. Bowles and Mr. Close each disclaim
beneficial ownership of these shares, they have shared voting and
dispositive power with respect to 4,115,156; 2,655,610; and 1,849,743 of
these shares, respectively.
(2)All outstanding shares of The Springs Company are owned by trusts for the
benefit of certain members of the Close family. Mrs. Close and Mr. Close
are directors of The Springs Company.
(3)All outstanding shares of Kanawha Insurance Company are owned by trusts
for the benefit of certain members of the Close family.
(4)The Close Foundation is a nonprofit foundation established by the Close
family. Mrs. Close, Mr. Close, and Mrs. Bowles have shared voting and
dispositive power with respect to these shares.
As of May 25, 2001, the members of the Close family, as well as the directors
and executive officers of The Springs Company and Kanawha Insurance Company,
beneficially owned Springs class A and class B common stock as follows:
|
Class B Shares Class A Shares | Class B Shares Class A Shares
Name (% of Class B) (% of Class A) | Name (% of Class B) (% of Class A)
- ----------------------------------------------------------------|-----------------------------------------------------------
Crandall C. Bowles 135,600 (1.90%)(1) 84,998 (0.79%)(2) | Trust No. T-6 37,201 (0.52%) -----
Frances A. Close 132,619 (1.85%)(1) ----- | Trust No. 3-6 263,692 (3.69%) -----
Leroy S. Close 73,305 (1.03%)(1) 7,727 (0.07%) | Trust No. 11-A-6 95,288 (1.33%) -----
Patricia Close ----- 78,154 (0.72%)(1) | Trust No. 11-B-6 121,756 (1.70%) -----
Elliott S. Close ----- ----- | Trust No. 11-C-6 92,642 (1.30%) -----
Hugh W. Close, Jr. 82,364 (1.15%)(1) ----- | Trust No. 12-6 7,250 (0.10%) -----
Derick S. Close 63,855 (0.89%)(1) 609 (0.01%)(1) | Trust No. T-7 24,591 (0.34%) -----
Katherine A. Close 64,460 (0.90%)(1) ----- | Trust No. 3-7 263,692 (3.69%) -----
Anne S. Close ----- ----- | Trust No. 11-A-7 95,288 (1.33%) -----
The Springs Company 1,953,929(27.32%)(1) 78,763 (0.73%)(1) | Trust No. 11-B-7 121,756 (1.70%) -----
Kanawha Insurance 175,000 (2.45%) ----- | Trust No. 11-C-7 92,642 (1.30%) -----
Company |
James Bradley ----- 100 (0.00%) | Trust No. 12-7 7,250 (0.10%) -----
Trust No. 3-M 135,600 (1.90%) ----- | Trust No. 8-M 82,364 (1.15%) -----
Trust No. T-3 35,827 (0.50%) ----- | Trust No. T-8 61,604 (0.86%) -----
Trust No. 3-3 263,696 (3.69%) ----- | Trust No. 3-8 263,694 (3.69%) -----
-90-
Class B Shares Class A Shares | Class B Shares Class A Shares
Name (% of Class B) (% of Class A) | Name (% of Class B) (% of Class A)
- ----------------------------------------------------------------|-----------------------------------------------------------
Trust No. 11-A-3 95,288 (1.33%) ----- | Trust No. 11-A-8 95,288 (1.33%) -----
Trust No. 11-B-3 121,758 (1.70%) ----- | Trust No. 11-B-8 121,756 (1.70%) -----
Trust No. 11-C-3 92,640 (1.30%) ----- | Trust No. 11-C-8 92,642 (1.30%) -----
Trust No. 12-3 7,250 (0.10%) ----- | Trust No. 12-8 7,250 (0.10%) -----
Trust No. 4-M 132,619 (1.85%) ----- | Trust No. 9-M 63,855 (0.89%) 609 (0.01%)
Trust No. T-4 35,829 (0.50%) ----- | Trust No. T-9 72,527 (1.01%) -----
Trust No. 3-4 263,694 (3.69%) ----- | Trust No. 3-9 263,696 (3.69%) -----
Trust No. 11-A-4 95,288 (1.33%) ----- | Trust No. 11-A-9 95,288 (1.33%) -----
Trust No. 11-B-4 121,758 (1.70%) ----- | Trust No. 11-B-9 121,756 (1.70%) -----
Trust No. 11-C-4 92,640 (1.30%) ----- | Trust No. 11-C-9 92,642 (1.30%) -----
Trust No. 12-4 7,250 (0.10%) ----- | Trust No. 12-9 7,250 (0.10%) -----
Trust No. 5-M 73,101 (1.02%) ----- | Trust No. 10-M 64,460 (0.90%) -----
Trust No. T-5 36,586 (0.51%) ----- | Trust No. 10-A 53,471 (0.75%) -----
Trust No. 3-5 263,692 (3.69%) ----- | Trust No. 10-D 175,306 (2.45%) -----
Trust No. 11-A-5 95,288 (1.33%) ----- | Trust No. 10-E 105,874 (1.48%) -----
Trust No. 11-B-5 121,758 (1.70%) ----- | Trust No. 11-A-10 95,288 (1.33%) -----
Trust No. 11-C-5 92,640 (1.30%) ----- | Trust No. 11-B-10 121,756 (1.70%) -----
Trust No. 12-5 7,250 (0.10%) ----- | Trust No. 11-C-10 92,640 (1.30%) -----
Trust No. 6-M ----- 78,154 (0.72%) | Trust No. 12-10 7,250 (0.10%) -----
- -------------------
(1)Includes shares held under revocable, grantor management trust accounts.
(2)Of these shares, 16,498 are held and the remainder are beneficially
owned as a result of options to purchase shares that are currently
exercisable.
OTHER PRINCIPAL HOLDERS OF COMMON STOCK
CLASS NAME & ADDRESS AMOUNT PERCENTAGE OF CLASS
- -------------------- -------------------------- ----------- --------------------
Class A Common Stock Dimensional Fund 626,900(1) 5.8%
Advisors, Inc.
1299 Ocean Avenue
Santa Monica, CA 90401
- ------------
(1)Based on its Schedule 13G filed February 2, 2001, Dimensional Fund
Advisors, Inc., has sole voting and dispositive power with respect to all
of these shares.
TRANSACTIONS WITH CERTAIN PERSONS
For many years, Springs has transacted business with certain companies
that are controlled by members of the Close family. Mrs. Bowles and Mr. Close
are affiliated with these companies. The amounts paid or received by Springs
for these transactions are set forth below.
Springs paid The Springs Company and certain of its affiliates $18,159
for rent, reimbursement of property taxes on the Founder's House, railroad
track maintenance and miscellaneous goods and services in 2000.
Kanawha Insurance Company writes certain group insurance policies for
Springs and provides administrative services under certain of Springs'
self-funded medical benefit programs. Premiums paid to Kanawha for the group
policies totaled approximately $2.45 million in 2000. Springs also paid
Kanawha approximately $1.73 million in 2000 for administrative services under
certain of Springs' medical benefit programs.
Payments by Springs to Sandlapper Fabrics, Inc. for printed fabric and
printing services totaled approximately $1.36 million in 2000. Mr. Close is
chairman of Sandlapper Fabrics.
-91-
Springs believes that the services, property, and facilities described
in the foregoing paragraphs, which have been reviewed by the audit committee,
have been obtained by it on terms as favorable as those available from
unaffiliated parties.
Charges by Springs for services in 2000 to The Springs Company and its
affiliates were approximately $33,989. These services consisted primarily of
administrative, maintenance, and courier services.
Springs, as a service to its employees and pursuant to individual
authorization, provides at no charge a payroll deduction program for payment
of premiums on individual insurance policies purchased directly from Kanawha
Insurance Company.
In 1987, Springs entered into a 50-year agreement with Springland,
Inc., a wholly-owned subsidiary of The Springs Company, to lease the
Founder's House in Fort Mill, South Carolina, which is listed in the National
Register of Historic Structures. Springs uses the Founder's House to provide
quarters for visiting directors, associates, and guests of Springs. The
Founder's House is also used for meetings by Springs.
Springs is obligated to pay rent of $1.00 per year under the lease and
to pay for all utilities, insurance, maintenance and taxes on the Founder's
House. Springland has the right to terminate the lease upon six months'
notice after the year 2019. If Springland elects to terminate the lease, it
must pay Springs the unamortized book value of improvements made by Springs
computed on a straight line amortization basis over a forty-year useful life.
OTHER TRANSACTIONS
In addition to the transactions described in the preceding section,
Springs and its subsidiaries purchase products and services from and/or sell
products to companies of which certain other of the Springs directors are
executive officers or directors or otherwise affiliated. Springs does not
consider the amounts involved in such transactions material. Such purchases
from and sales to each company were conducted on an arm's-length basis and
were in the ordinary course of business. Some of such transactions are
continuing, and it is anticipated that similar transactions may continue in
the future.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires Springs'
directors and executive officers and any beneficial owner of more than ten
percent of any class of Springs' shares to file reports relating to their
ownership and changes in ownership of Springs common stock with the
Securities and Exchange Commission and the New York Stock Exchange. Based on
information provided to Springs and a review of such reports submitted to
Springs, Springs believes that all required reports were filed on a timely
basis during 2000.
ANNUAL REPORT AND FORM 10-K
The annual report to shareholders for the year ended December 30, 2000,
including consolidated financial statements, has been mailed to all
shareholders of record. The annual report is not part of this document.
A copy of Springs' annual report to shareholders and the annual report
on Form 10-K filed with the Securities and Exchange Commission may be
obtained by shareholders without charge by writing: Springs Industries, Inc.,
P.O. Box 70, Fort Mill, South Carolina 29716, Attention: Secretary.
-92-
Map and Directions
Directions to shareholders meeting
-93-
OTHER MATTERS
Springs' management is not aware of any other matters to be presented
at the annual meeting. If other matters should arise, however, it is intended
that the shares represented by the proxies will be voted, in the absence of
contrary instructions, in the discretion of the persons named in the proxy.
INDEPENDENT ACCOUNTANTS
The consolidated financial statements of Springs are incorporated in
this document by reference to Springs' annual report on Form 10-K for the
fiscal year ended December 30, 2000 and have been audited by Deloitte &
Touche LLP, independent accountants, as indicated in their report
incorporated by reference in this document. A representative of Deloitte &
Touche will be at the annual meeting to answer questions from shareholders
and will have the opportunity to make a statement.
FUTURE SHAREHOLDER PROPOSALS
Shareholders are reminded that they may, if qualified, present
resolutions which, if proper for inclusion in next year's proxy statement,
may be considered at the 2002 annual meeting. Any shareholder proposals so
submitted must be received by Springs by __________, 2001. Springs will have
the right to exercise discretionary voting authority on any matter presented
at the 2002 annual meeting that has not been presented to Springs by
__________, 2001.
If the recapitalization is completed, Springs will no longer be a
public company and, accordingly, there will be no 2002 annual meeting.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Springs hereby incorporates the following documents previously filed
with the Securities and Exchange Commission (SEC File No. 001-05315) into
this document:
(1) Springs' annual report on Form 10-K for the fiscal year ended
December 30, 2000.
(2) Springs' current report on Form 8-K dated February 23, 2001.
(3) Springs' current report on Form 8-K dated April 30, 2001.
(4) Springs' quarterly report on Form 10-Q for the quarter ended March
31, 2001.
Springs incorporates by reference in this document additional documents
that it may file with the Securities and Exchange Commission between the date
of this document and the date of the annual meeting. These documents include
periodic reports, such as annual reports on Form 10-K, quarterly reports on
Form 10-Q and current reports on Form 8-K, as well as its proxy statements.
Any statements contained in a document incorporated by reference in this
proxy statement will be deemed to be modified or superseded for purposes of
this document to the extent that a statement contained in this document (or
in any other subsequently filed document which also is incorporated by
reference in this document) modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed to be a part of this
document except as so modified or superseded.
WHERE YOU CAN FIND MORE INFORMATION
Springs files annual, quarterly, and current reports, proxy statements,
and other information with the Securities and Exchange Commission. You may
read and copy any reports, statements, or other information that Springs
files at the Securities and Exchange Commission's public reference rooms in
Washington, D.C., New York, New York, and Chicago, Illinois. Please call the
Securities and Exchange Commission at 1-800-SEC-0330 for further information
on the public reference rooms. Springs public filings are also available to
the public from commercial document retrieval services and at the Internet
website maintained by the Securities and Exchange Commission at
http://www.sec.gov.
-94-
Reports, proxy statements, and other information concerning Springs also may
be inspected at the offices of the New York Stock Exchange at 20 Broad Street,
New York, NY 10005.
The Securities and Exchange Commission allows Springs to "incorporate
by reference" information into this document, which means that Springs can
disclose important information to you by referring you to another document
filed separately with the Securities and Exchange Commission. The information
incorporated by reference is deemed to be a part of this document, except for
any information superseded by information contained directly in this
document. This document incorporates by reference certain documents that
Springs has previously filed with the Securities and Exchange Commission.
These documents contain important business information about Springs and its
financial condition.
Springs may have sent to you some of the documents incorporated by
reference, but you can obtain any of them through Springs or the Securities
and Exchange Commission or the Securities and Exchange Commission's Internet
website described above. Documents incorporated by reference are available
from Springs without charge, excluding all exhibits unless specifically
incorporated by reference as an exhibit to this document. Shareholders may
obtain documents incorporated by reference in this document upon written or
oral request to the following address or telephone number:
SPRINGS INDUSTRIES, INC.
205 North White Street
Fort Mill, South Carolina 29715
(803) 547-3760
Attention: C. Powers Dorsett
If you would like to request documents from us, please do so by
__________, 2001 to receive them before the annual meeting. Springs will send
any document so requested to the requesting shareholder by first class mail
or other equally prompt means within one business day of receiving such
request.
Springs has filed a Schedule 13E-3 with the Securities and Exchange
Commission with respect to the recapitalization. As permitted by the
Securities and Exchange Commission, this document omits certain information
contained in the Schedule 13E-3. The Schedule 13E-3, including any amendments
and exhibits filed or incorporated by reference as a part thereof, is
available for inspection or copying as set forth above. Statements contained
in this document or in any document incorporated herein by reference as to
the contents of any contract or other document referred to herein or therein
are not necessarily complete and in each instance reference is made to such
contract or other document filed as an exhibit to the Schedule 13E-3 or such
other document, and each such statement shall be deemed qualified in its
entirety by such reference.
IF YOU WOULD LIKE TO REQUEST DOCUMENTS FROM SPRINGS, PLEASE DO SO AT
LEAST FIVE BUSINESS DAYS BEFORE THE DATE OF THE ANNUAL MEETING IN ORDER TO
RECEIVE TIMELY DELIVERY OF SUCH DOCUMENTS PRIOR TO THE ANNUAL MEETING.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS DOCUMENT TO VOTE YOUR SPRINGS SHARES AT THE ANNUAL MEETING.
SPRINGS HAS NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS
DIFFERENT FROM WHAT IS CONTAINED IN THIS DOCUMENT. THIS DOCUMENT IS DATED
__________, 2001. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN
THIS DOCUMENT IS ACCURATE AS OF ANY DATE OTHER THAN THAT DATE, AND THE
MAILING OF THIS DOCUMENT TO SHAREHOLDERS DOES NOT CREATE ANY IMPLICATION TO
THE CONTRARY.
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APPENDIX A
Conformed Copy
--------------
RECAPITALIZATION AGREEMENT
dated as of
April 24, 2001
between
SPRINGS INDUSTRIES, INC.
and
HEARTLAND SPRINGS INVESTMENT COMPANY
TABLE OF CONTENTS
Page
----
ARTICLE 1
DEFINITIONS
SECTION 1.01. DEFINITIONS..............................................A-2
ARTICLE 2
THE MERGER
SECTION 2.01. THE AMENDMENT; THE MERGER...............................A-9
SECTION 2.02. THE CLOSING; EFFECTIVE TIME.............................A-9
SECTION 2.03. EFFECT OF THE MERGER....................................A-9
SECTION 2.04. EFFECT OF THE MERGER ON CAPITAL STOCK..................A-10
SECTION 2.05. TREATMENT OF MANAGEMENT INCENTIVE PLANS................A-10
SECTION 2.06. SURRENDER OF SHARES....................................A-13
SECTION 2.07. LOST, STOLEN OR DESTROYED CERTIFICATES.................A-15
SECTION 2.08. DISTRIBUTIONS..........................................A-16
SECTION 2.09. ADJUSTMENTS TO PREVENT DILUTION........................A-16
SECTION 2.10. DISSENTERS' RIGHTS.....................................A-16
SECTION 2.11. FURTHER ACTION.........................................A-16
ARTICLE 3
THE SURVIVING CORPORATION
SECTION 3.01. ARTICLES OF INCORPORATION; BY-LAWS.....................A-17
SECTION 3.02. DIRECTORS AND OFFICERS.................................A-17
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
SECTION 4.01. CORPORATE EXISTENCE AND POWER..........................A-18
SECTION 4.02. CORPORATE AUTHORIZATION................................A-18
SECTION 4.03. OPINION OF FINANCIAL ADVISOR...........................A-19
SECTION 4.04. ANTITAKEOVER STATUTES..................................A-19
SECTION 4.05. GOVERNMENTAL AUTHORIZATION.............................A-19
SECTION 4.06. FINDERS' FEES..........................................A-20
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Page
----
SECTION 4.07. NON-CONTRAVENTION......................................A-20
SECTION 4.08. CAPITALIZATION.........................................A-20
SECTION 4.09. SUBSIDIARIES; EQUITY INVESTMENTS.......................A-21
SECTION 4.10. SEC FILINGS............................................A-22
SECTION 4.11. FINANCIAL STATEMENTS...................................A-22
SECTION 4.12. ABSENCE OF CERTAIN CHANGES.............................A-23
SECTION 4.13. NO UNDISCLOSED MATERIAL LIABILITIES....................A-24
SECTION 4.14. COMPLIANCE WITH LAWS AND COURT ORDERS..................A-24
SECTION 4.15. LITIGATION.............................................A-24
SECTION 4.16. TAXES..................................................A-25
SECTION 4.17. EMPLOYEE BENEFIT PLANS.................................A-25
SECTION 4.18. ENVIRONMENTAL MATTERS..................................A-28
SECTION 4.19. DISCLAIMER OF OTHER REPRESENTATIONS AND WARRANTIES.....A-28
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF MERGER SUBSIDIARY
SECTION 5.01. CORPORATE EXISTENCE AND POWER..........................A-29
SECTION 5.02. CORPORATE AUTHORIZATION................................A-29
SECTION 5.03. GOVERNMENTAL AUTHORIZATION.............................A-29
SECTION 5.04. NON-CONTRAVENTION......................................A-30
SECTION 5.05. CAPITALIZATION.........................................A-30
SECTION 5.06. FINDERS' FEES..........................................A-31
SECTION 5.07. FINANCING..............................................A-31
SECTION 5.08. LITIGATION.............................................A-31
ARTICLE 6
COVENANTS OF THE COMPANY
SECTION 6.01. CONDUCT OF THE COMPANY.................................A-32
SECTION 6.02. ACCESS TO INFORMATION..................................A-33
SECTION 6.03. NO SOLICITATION........................................A-33
SECTION 6.04. STATE TAKEOVER LAWS....................................A-34
SECTION 6.05. REPORTS................................................A-34
SECTION 6.06. CONFIDENTIALITY AGREEMENT..............................A-35
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Page
----
ARTICLE 7
COVENANTS OF MERGER SUBSIDIARY
SECTION 7.01. DIRECTOR AND OFFICER LIABILITY.........................A-35
SECTION 7.02. FINANCING ARRANGEMENTS.................................A-36
SECTION 7.03. EMPLOYEE BENEFIT PLANS.................................A-36
ARTICLE 8
COVENANTS OF MERGER SUBSIDIARY AND THE COMPANY
SECTION 8.01. REASONABLE BEST EFFORTS................................A-37
SECTION 8.02. DISCLOSURE DOCUMENTS; CERTAIN FILINGS..................A-37
SECTION 8.03. PUBLIC ANNOUNCEMENTS...................................A-39
SECTION 8.04. NOTICES OF CERTAIN EVENTS..............................A-39
SECTION 8.05. CONFIDENTIALITY........................................A-39
SECTION 8.06. SOLVENCY LETTER........................................A-40
ARTICLE 9
CONDITIONS TO THE MERGER
SECTION 9.01. CONDITIONS TO THE OBLIGATIONS OF EACH PARTY............A-40
SECTION 9.02. CONDITIONS TO THE OBLIGATIONS OF MERGER SUBSIDIARY.....A-41
SECTION 9.03. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY...........A-42
ARTICLE 10
TERMINATION
SECTION 10.01. TERMINATION............................................A-43
SECTION 10.02. EFFECT OF TERMINATION..................................A-44
ARTICLE 11
MISCELLANEOUS
SECTION 11.01. NOTICES................................................A-44
SECTION 11.02. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.............A-46
SECTION 11.03. AMENDMENTS; NO WAIVERS.................................A-46
SECTION 11.04. EXPENSES...............................................A-47
-iii-
Page
----
SECTION 11.05. SUCCESSORS AND ASSIGNS.................................A-47
SECTION 11.06. GOVERNING LAW..........................................A-47
SECTION 11.07. JURISDICTION...........................................A-48
SECTION 11.08. WAIVER OF JURY TRIAL...................................A-48
SECTION 11.09. COUNTERPARTS; EFFECTIVENESS............................A-48
SECTION 11.10. ENTIRE AGREEMENT.......................................A-48
SECTION 11.11. CAPTIONS...............................................A-48
SECTION 11.12. SEVERABILITY...........................................A-48
SECTION 11.13. SPECIFIC PERFORMANCE...................................A-49
EXHIBITS
- --------
Exhibit A - Shareholders Agreement
Exhibit B - Form of Articles of Amendment
Exhibit C - Form of Articles of Merger
SCHEDULES
- ---------
Schedule A - Knowledge of the Company
-iv-
RECAPITALIZATION AGREEMENT
RECAPITALIZATION AGREEMENT (the "AGREEMENT") dated as of April 24,
2001 between Springs Industries, Inc., a South Carolina corporation (the
"COMPANY"), and Heartland Springs Investment Company, a South Carolina
corporation ("MERGER SUBSIDIARY").
W I T N E S S E T H :
WHEREAS, the shareholders of Merger Subsidiary seek to acquire an
interest in the Company through a transaction to be accounted for as a
recapitalization under generally accepted accounting principles ("GAAP"); and
WHEREAS, the Company wishes to amend its Articles of Incorporation
(as defined herein) in order to render the Company not subject to the
restrictions on "business combinations" contained in Sections 35-2-201 through
35-2-226 of the South Carolina Code (the "SCC"); and
WHEREAS, the Special Committee (as defined herein) of the board of
directors of the Company (the "BOARD OF DIRECTORS") has (i) determined that the
Amendment (as defined herein) and this Agreement are advisable, fair to and in
the best interests of the holders (the "COMPANY SHAREHOLDERS") of the Company's
capital stock (other than the Continuing Shareholders (as defined herein)), (ii)
recommended that the Board of Directors adopt the Amendment and this Agreement,
and (iii) recommended that the Board of Directors recommend approval by the
Company Shareholders of the Amendment and this Agreement; and
WHEREAS, the Board of Directors (including a majority of the
Continuing Directors (as defined herein) for the purpose of rendering the
provisions of Article 7(a) of the Articles of Incorporation not applicable to
the Merger (as defined herein)), subsequent to the recommendation of the Special
Committee, has (i) determined that the Amendment and this Agreement are
advisable, fair to and in the best interests of the Company Shareholders (other
than the Continuing Shareholders), (ii) adopted the Amendment and this
Agreement, and (iii) resolved to recommend that the Company Shareholders approve
the Amendment and this Agreement; and
WHEREAS, as an inducement to the parties to enter into this
Agreement, the Family Shareholders (as defined herein) have entered into a
Shareholders Agreement with Merger Subsidiary in substantially the form attached
hereto as Exhibit A (the "SHAREHOLDERS AGREEMENT"), in which, among other
things, (i) the Family Shareholders have agreed to vote their Shares in favor of
approval of the Amendment and this Agreement and (ii) the Company is named a
beneficiary of, with the right to enforce, Sections 3.1, 3.2(c), 3.3, 10.1,
10.4, 10.5(b) and 10.6 of the Shareholders Agreement; and
A-1
WHEREAS, the recapitalization will involve a merger (the "MERGER")
in which Merger Subsidiary will merge with and into the Company, with the shares
of capital stock of the Company (other than the Continuing Shareholder Shares
(as defined herein)) being converted into the right to receive the Cash Merger
Consideration (as defined herein), subject to certain exceptions described in
this Agreement, and the Continuing Shareholder Shares not being converted and
remaining outstanding; and
WHEREAS, the board of directors of Merger Subsidiary has (i)
determined that this Agreement is advisable, fair to and in the best interests
of the shareholders of Merger Subsidiary, (ii) adopted this Agreement, and (iii)
recommended that the shareholders of Merger Subsidiary approve this Agreement;
and
WHEREAS, the shareholders of Merger Subsidiary have approved this
Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises herein made, and in consideration of the representations, warranties
and covenants herein contained, the parties hereto hereby agree as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.01. DEFINITIONS. (a) The following terms, as used
herein, have the following meanings:
"ACQUISITION PROPOSAL" means any offer or proposal for, or any
indication of interest in, (i) any acquisition or purchase of more than 50% of
the consolidated assets of the Company and its Subsidiaries, (ii) any
acquisition or purchase of an equity interest in the Company representing in
excess of 50% of the Class A Shares or any tender offer or exchange offer for
the Class A Shares as a result of which the offeror would hold such an equity
interest in the Company or (iii) any merger, consolidation, business
combination, sale of substantially all assets, recapitalization, liquidation,
dissolution or similar transaction involving the Company or any of its
Subsidiaries whose assets, individually or in the aggregate, constitute more
than 50% of the consolidated assets of the Company and its Subsidiaries, in each
case other than the transactions contemplated by this Agreement.
"AFFILIATE" means, with respect to any Person, any other Person that
directly or indirectly controls, is controlled by, or is under common control
with such Person. As used in this definition, "control" (including, with
correlative meanings, "controlled by" and "under common control with") shall
mean possession, directly or indirectly, of power to direct or
A-2
cause the direction of management or policies (whether through ownership of
securities or partnership or other ownership interests, by contract or
otherwise).
"AMENDMENT" means an amendment to the Articles of Incorporation
rendering the Company not subject to Sections 35-2-201 through 35-2-226 of the
SCC, substantially in the form attached hereto as Exhibit B.
"ANTITRUST LAWS" means the Sherman Act, as amended, the Clayton Act,
as amended, the HSR Act, the Federal Trade Commission Act, as amended, and all
other federal, state and foreign statutes, rules, regulations, orders, decrees,
administrative and judicial doctrines and other laws that are designed or
intended to prohibit, restrict or regulate actions having the purpose or effect
of monopolization or restraint of trade or lessening of competition through
merger or acquisition.
"ARTICLES OF INCORPORATION" means the Company's amended and restated
articles of incorporation, restated as of April 18, 1994.
"BENEFIT PLAN" means any Plan, other than a Multiemployer Plan or a
Foreign Plan, maintained or contributed to by the Company or any Subsidiary
thereof, or any predecessor of the Company or any Subsidiary thereof, or with
respect to which the Company or any Subsidiary is a party, under which any
employee, former employee, director or former director of the Company or any
Subsidiary thereof, or any beneficiary thereof, is covered, is eligible for
coverage or has benefit rights in respect of service to the Company or any
Subsidiary thereof and any other Plan with respect to which the Company or any
Subsidiary currently has or could incur liability.
"BUSINESS DAY" means a day other than Saturday, Sunday or any other
day on which commercial banks in New York, New York are authorized or required
by law to close.
"CLASS A SHARE" means a share of Class A common stock, par value
$.25 per share, of the Company.
"CLASS B SHARE" means a share of Class B common stock, par value
$.25 per share, of the Company.
"CODE" means the Internal Revenue Code of 1986, as amended.
"CO-INVESTORS" has the meaning given in the Shareholders Agreement.
"COMPANY BALANCE SHEET" means the consolidated balance sheet of the
Company as of December 30, 2000 and the footnotes thereto set forth in the
Company 10-K.
"COMPANY BALANCE SHEET DATE" means December 30, 2000.
A-3
"COMPANY RESTRICTED STOCK PLAN" means each Incentive Stock Plan
under which restricted stock has been issued or granted to any employee or
director of the Company or any of its Subsidiaries.
"CONTINUING DIRECTORS" means the Continuing Directors as defined in
Article 7 of the Company's Articles of Incorporation.
"CONTINUING SHAREHOLDERS" means, collectively, (i) the Family
Shareholders, (ii) each Management Shareholder who elects prior to the Effective
Time not to have Shares converted into the right to receive the Cash Merger
Consideration, (iii) Heartland, (iv) the Heartland Entities and (v) any
Co-Investor.
"CREDIT AGREEMENTS" means the $225,000,000 Credit Agreement dated as
of December 17, 1997, as amended, the $125,000,000 Credit Agreement dated as of
August 12, 1996, as amended, and the $100,000,000 Credit Agreement dated as of
March 31, 1995, as amended, each among the Company, the Banks listed therein and
Wachovia Bank, N.A., as Agent.
"ENVIRONMENTAL LAWS" means the common law and any federal, state,
local or foreign law, treaty, judicial decision, regulation, rule, judgment,
order, decree, injunction, permit or governmental restriction or requirement, in
each case as currently in effect, relating to pollution or protection of the
environment (including, without limitation, ambient air, indoor air, surface
water, groundwater, land surface, subsurface strata, and natural resources).
"ENVIRONMENTAL PERMITS" means all permits, licenses, franchises,
certificates, approvals and other similar authorizations of governmental
authorities relating to or required by Environmental Laws and affecting, or
relating to, the business of the Company or any Subsidiary as currently
conducted.
"ERISA" means the Employee Retirement Income Security Act of 1974.
"ERISA AFFILIATE" of any entity means any other Person that,
together with such Person, would be treated as a single employer under Section
414 of the Code.
"FACILITIES" means the "Facilities" as defined in the Commitment
Letter or any replacement, refinancing, extension, amendment or restatement of
the Facilities.
"FAMILY SHAREHOLDERS" has the meaning given in the Shareholders
Agreement.
"GOVERNMENTAL AUTHORITY" means any federal, state or local
government or any court, administrative agency or commission or other
governmental or regulatory agency, authority or official, whether domestic,
foreign or supranational.
A-4
"HEARTLAND" means Heartland Industrial Partners, L.P., a Delaware
limited partnership.
"HEARTLAND ENTITIES" has the meaning given in the Shareholders
Agreement.
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and the rules and regulations promulgated thereunder.
"INCENTIVE STOCK PLANS" means the Restricted Stock Plan, the 1999
Incentive Stock Plan, the 1991 Incentive Stock Plan, as amended, the 1991
Restricted Stock Plan for Outside Directors and the Deferred Unit Stock Plan, as
amended effective November 11, 1996.
"KNOWLEDGE" of (A) the Company means the actual knowledge of any of
the senior officers of the Company listed on Schedule A attached hereto and (B)
Merger Subsidiary means the actual knowledge of any of the directors and
officers of Merger Subsidiary.
"LIEN" means, with respect to any property or asset, any mortgage,
lien, pledge, charge, security interest or encumbrance of any kind in respect of
such property or asset.
"MANAGEMENT SHAREHOLDERS" means the persons listed on a schedule to
be delivered to the Company by Merger Subsidiary in accordance with the
provisions of Section 2.05(a), as such schedule may be amended from time to time
by Merger Subsidiary prior to the Effective Time.
"MATERIAL ADVERSE EFFECT" means, with respect to an entity, a
material adverse effect on the condition (financial or otherwise), business or
results of operations of the entity and its Subsidiaries, taken as a whole;
provided that any such effect resulting from (x) changes in circumstances or
conditions affecting textile and nontextile home furnishing product
manufacturing companies in general, and not specifically relating to such entity
and its Subsidiaries, (y) changes in United States or global economy or
financial market conditions, or (z) changes in GAAP, shall not be considered a
Material Adverse Effect.
"MULTIEMPLOYER PLAN" means a multiemployer plan within the meaning
of Section 4001(a)(3) of ERISA with respect to which the Company has an
obligation to contribute or has or could have withdrawal liability under Section
4201 of ERISA.
"1934 ACT" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
A-5
"1933 ACT" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"PBGC" means the Pension Benefit Guaranty Corporation established
pursuant to Section 4002 of ERISA, or any successor thereto.
"PERSON" means an individual, corporation, partnership, limited
liability company, association, trust or other entity or organization, including
a Governmental Authority.
"PLAN" means any bonus, incentive compensation, deferred
compensation, pension, profit sharing, retirement, stock purchase, stock option,
stock ownership, stock appreciation rights, phantom stock, leave of absence,
layoff, vacation, day or dependent care, legal services, cafeteria, life,
health, accident, disability, material severance, material separation, other
employee benefit, employment, material consulting or change of control
agreement, plan, practice, policy or arrangement of any kind, whether written or
oral, or whether for the benefit of a single individual or more than one
individual, including, without limitation, any "employee benefit plan" within
the meaning of Section 3(3) of ERISA (whether or not subject thereto).
"SCBCA" means the South Carolina Business Corporation Act of 1988.
"SEC" means the Securities and Exchange Commission.
"SHARES" means the outstanding Class A Shares and the Class B Shares
of the Company.
"SIGNIFICANT SUBSIDIARY" means, with respect to any Person, a
Subsidiary that would constitute a "significant subsidiary" of such Person
within the meaning of Rule 1-02 (w) of Regulation S-X under the 1934 Act.
"SPECIAL COMMITTEE" means the Special Committee of the Board of
Directors formed by the Board of Directors on February 22, 2001, among other
things, to evaluate the Transactions.
"SUBSIDIARY" means, with respect to any Person, any corporation,
partnership, association, limited liability company or other organization,
whether incorporated or unincorporated, of which the stock or other ownership
interests having ordinary voting power to elect a majority of the board of
directors or other persons performing similar functions with respect to such
corporation, partnership, association, limited liability company or other
organization are at any time directly or indirectly owned or controlled by such
Person or by any one or more of its Subsidiaries, or by such Person and one or
more of its Subsidiaries.
A-6
"THIRD PARTY" means any Person as defined in Section 13(d) of the
1934 Act, other than Merger Subsidiary, Heartland, any of Heartland's Affiliates
or any Continuing Shareholder.
"TRANSACTIONS" means the Amendment, this Agreement and the
consummation of the Merger and other transactions contemplated by this
Agreement.
Any reference in this Agreement to a statute shall be to such
statute, as amended from time to time, and to the rules and regulations
promulgated thereunder.
(b) Each of the following terms is defined in the Section set forth
opposite such term:
TERM SECTION
Agreement............................... Recitals
Amendment Effective Time................ 2.01
Appraiser............................... 8.06
Appreciation Right...................... 2.05
Articles of Merger...................... 2.02
Bank.................................... 5.07
Board of Directors...................... Recitals
Cash Merger Consideration............... 2.04
Cash-Out Election....................... 2.05
Cash-Out Payment........................ 2.05
Certificate............................. 2.06
Closing................................. 2.02
Closing Date............................ 2.02
Commitment Letter....................... 5.07
Company................................. Recitals
Company Proxy Statement................. 8.02
Company Representatives................. 6.02
Company SEC Documents................... 4.10
Company Securities...................... 4.08
Company Shareholders.................... Recitals
Company Shareholders Meeting............ 8.02
Company Subsidiary Securities........... 4.09
Company 10-K............................ 4.10
Confidentiality Agreement............... 6.02
Continuing Shareholder Share............ 2.04
Converted Share......................... 2.04
Dissenting Shareholders................. 2.04
DOJ..................................... 8.01
A-7
TERM SECTION
Effective Time.......................... 2.02
Employees............................... 7.03
End Date................................ 10.01
Equity Commitment Letter................ 5.07
Exchange Agent.......................... 2.06
Exchange Fund........................... 2.06
Financing Agreements.................... 7.02
Foreign Plan............................ 4.17
FTC..................................... 8.01
GAAP.................................... Recitals
Indemnified Person...................... 7.01
In-the-Money Options.................... 2.05
IRS..................................... 4.16
Liabilities............................. 4.13
Management Equity Schedule.............. 2.05
Merger.................................. Recitals
Merger Subsidiary....................... Recitals
Merger Subsidiary Common Shares......... 2.04
Merger Subsidiary Representatives....... 6.02
Option.................................. 2.05
Other Equity Awards..................... 2.05
Out-of-the-Money Options................ 2.05
Preferred Stock......................... 4.08
Required Amount......................... 5.07
Rollover Election....................... 2.05
SCC..................................... Recitals
Schedule 13E-3.......................... 8.02
Shareholders Agreement.................. Recitals
Solvency Letter......................... 8.06
Surviving Corporation................... 2.01
Tax Return.............................. 4.16
Taxes................................... 4.16
Taxing Authority........................ 4.16
A-8
ARTICLE 2
THE MERGER
SECTION 2.01. THE AMENDMENT; THE MERGER. Prior to the Effective Time
(as defined below), and subject to and upon the terms and conditions of this
Agreement and the SCBCA, the Company shall duly file with the Secretary of State
of the State of South Carolina the articles of amendment giving effect to the
Amendment (the time of such filing, the "AMENDMENT EFFECTIVE TIME"). Promptly
following the Amendment Effective Time and at the Effective Time, and subject to
and upon the terms and conditions of this Agreement and the SCBCA, Merger
Subsidiary shall be merged with and into the Company, the separate existence of
Merger Subsidiary shall cease, and the Company shall continue as the surviving
corporation under the name "Springs Industries, Inc." (hereinafter sometimes
referred to as the "SURVIVING Corporation").
SECTION 2.02. THE CLOSING; EFFECTIVE TIME. (a) Unless this Agreement
shall have been terminated and the transactions herein contemplated shall have
been abandoned pursuant to Section 10.01, the closing of the Merger (the
"CLOSING") shall take place at (i) 10:00 a.m., New York City time, at the
offices of Cahill Gordon & Reindel, 80 Pine Street, New York, New York 10005, as
promptly as practicable (but no later than the second Business Day) following
the date on which the last to be satisfied or waived of the conditions set forth
in Article 9 hereof (other than those conditions relating to the filing and
effectiveness of the articles of amendment giving effect to the Amendment and
other than those other conditions that by their nature cannot be satisfied until
the Closing Date, but subject to the satisfaction or, where permitted, waiver of
all such conditions) shall be satisfied or waived in accordance with this
Agreement or (ii) such other place, time and/or date as the Company and Merger
Subsidiary shall agree (the date of the Closing, the "CLOSING DATE").
(b) Immediately following the Closing, the parties hereto shall file
articles of merger (the "ARTICLES OF MERGER"), substantially in the form of
Exhibit C attached hereto, together with any required related certificates, with
the Secretary of State of the State of South Carolina, in such form as is
required by, and executed in accordance with the relevant provisions of, the
SCBCA and make all other filings or recordings required by the SCBCA. The Merger
shall become effective at the time the Articles of Merger are duly filed with
the Secretary of State of the State of South Carolina or at such later time as
the parties shall agree and as shall be specified in the Articles of Merger (the
date and time the Merger becomes effective being the "EFFECTIVE TIME").
SECTION 2.03. EFFECT OF THE MERGER. At the Effective Time, the
effect of the Merger shall be as provided in this Agreement, the Articles of
Merger and the applicable provisions of the SCBCA, including Section 33-11-106
thereof.
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SECTION 2.04. EFFECT OF THE MERGER ON CAPITAL STOCK. At the
Effective Time, by virtue of the Merger and without any action on the part of
the Company, Merger Subsidiary or their respective shareholders:
(a) TREATMENT OF SHARES. Each Share issued and outstanding
immediately prior to the Effective Time (other than (i) Class B Shares that are
owned by shareholders ("DISSENTING SHAREHOLDERS") who have the right to and who
exercise dissenters' rights pursuant to Sections 33-13-102 and 33-13-210(a) of
the SCBCA with respect to such Class B Shares, and (ii) Continuing Shareholder
Shares) (a "CONVERTED SHARE") shall, by virtue of the Merger, be converted into
the right to receive from the Surviving Corporation cash in an amount equal to
$46.00 (the "CASH MERGER CONSIDERATION"). Each such Converted Share shall no
longer be outstanding, shall automatically be canceled and retired, and each
registered or beneficial owner of a Converted Share shall cease to have any
rights with respect thereto, except the right to receive the Cash Merger
Consideration applicable thereto and any distribution or dividend pursuant to
Section 2.08, upon surrender of a certificate representing such Shares in
accordance with Section 2.06 hereof or an affidavit in accordance with Section
2.07 hereof. Each Share held by (A) a Family Shareholder immediately prior to
the Effective Time, (B) a Management Shareholder immediately prior to the
Effective Time with respect to which such Management Shareholder elects prior to
the Effective Time not to have converted into the right to receive the Cash
Merger Consideration, (C) Heartland immediately prior to the Effective Time, (D)
any Heartland Entity immediately prior to the Effective Time and (E) any
Co-Investor immediately prior to the Effective Time (each of (A) through (E), a
"CONTINUING SHAREHOLDER SHARE") shall not be converted and shall not be
otherwise affected by the Merger and shall remain outstanding as one Class A
Share or Class B Share, as the case may be.
(b) TREATMENT OF CAPITAL STOCK OF MERGER SUBSIDIARY. Each share of
common stock, no par value per share, of Merger Subsidiary ("MERGER SUBSIDIARY
COMMON SHARES") issued and outstanding immediately prior to the Effective Time
shall by virtue of the Merger, be converted into one duly authorized, validly
issued, fully paid and non-assessable Class A Share.
(c) SHARES OWNED BY THE COMPANY. At the Effective Time, no cash or
other consideration shall be delivered or deliverable in exchange for any Share
that is owned by the Company or any direct or indirect Subsidiary of the Company
and not held on behalf of any other Person.
SECTION 2.05. TREATMENT OF MANAGEMENT INCENTIVE PLANS.
(a) DELIVERY OF MANAGEMENT EQUITY SCHEDULE AND ELECTIONS. To provide
certain Employees with the opportunity to elect whether or not to have a
continuing equity interest in the Surviving Corporation, Merger Subsidiary will
use its reasonable best efforts to deliver a schedule (the "MANAGEMENT EQUITY
SCHEDULE") on or prior to the 30th day
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following the date of this Agreement, but in any event no later than the mailing
date for the Company Proxy Statement, which will include the following
information: (1) the name of each employee of the Company and its Subsidiaries
to be given an option to have such employee's Shares not be converted and remain
outstanding following the Merger, each such employee to be treated as a
Management Shareholder for purposes of this Agreement; (2) all material terms of
any elections that will be offered to employees and former employees of the
Company and its Subsidiaries (including but not limited to the Management
Shareholders) to defer cash payments which would otherwise be made in connection
with the consummation of the Transactions, including the applicable expiration
dates for the exercise of such elections; and (3) all material terms applicable
to the options, restricted shares and other equity-based incentive awards that
employees and former employees will be entitled to elect to receive in
substitution for options, restricted shares, performance units and other
equity-based awards held by an employee or former employee prior to the
Effective Time, as more fully provided below. Merger Subsidiary will be deemed
to represent, by virtue of delivering the Management Equity Schedule to the
Company, that such Management Equity Schedule has been agreed to by the Chief
Executive Officer of the Company and Merger Subsidiary. Merger Subsidiary has
received the commitment of the Chief Executive Officer of the Company that she
will use her reasonable best efforts to cooperate with and assist Merger
Subsidiary in delivering the Management Equity Schedule pursuant to this Section
2.05(a). Upon delivery of the Management Equity Schedule to the Company pursuant
to this Section 2.05(a), the Management Equity Schedule will form a part of this
Agreement as if such Management Equity Schedule had been a schedule to this
Agreement as of the date hereof.
(b) STOCK OPTIONS.
(i) ELECTIONS WITH RESPECT TO OPTIONS. All holders of options (each,
an "OPTION") with an exercise price per Class A Share below the Cash
Merger Consideration ("IN-THE-MONEY OPTIONS") will be given an option to
make a cash-out election as described in subclause (ii) of this Section
2.05(b) (a "CASH-OUT ELECTION") or a rollover election as described in
subclause (iii) of this Section 2.05(b) (a "ROLLOVER ELECTION"). In the
event that a holder of an In-the-Money Option fails to make such an
election on or before the deadline established by the Company for the
election, such holder shall be deemed to have made (A) a Rollover
Election, if the holder is a Management Shareholder, and (B) a Cash-Out
Election, if the holder is not a Management Shareholder.
(ii) CASH-OUT OF OPTIONS. Any In-the-Money Option with respect to
which a Cash-Out Election is made or deemed made shall be converted at the
Effective Time into the right to receive from the Surviving Corporation
(subject to any applicable withholding taxes) an amount equal to the
product of (A) the excess of the Cash Merger Consideration over the
exercise price per Class A Share of such In-the-Money-Option times (B) the
number of Class A Shares subject to such In-the-Money-Option
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(the "CASH-OUT PAYMENT"), and such In-the-Money-Option shall be canceled
at the Effective Time. The Cash-Out Payment shall be due, and paid at (or
as soon as practicable following) the Effective Time, unless the holder of
the option in question has previously elected to defer such payment in
accordance with procedures set forth in the Management Equity Schedule.
(iii) ROLLOVER OF OPTIONS. Any In-the-Money Option with respect to
which a Rollover Election is made or deemed made and each option with an
exercise price per Class A Share that exceeds the Cash Merger
Consideration (an "OUT-OF-THE-MONEY OPTION") shall be converted at the
Effective Time into a new option providing for the right to acquire the
same number of Class A Shares subject to such Option prior to conversion
and shall be on such terms and conditions as are specified in the
Management Equity Schedule or otherwise determined pursuant to the terms
of the Rollover Election. Any such new option held by a Management
Shareholder shall vest and be fully exercisable immediately following the
Effective Time. Such new option shall also include an Appreciation Right
unless it was converted from an In-the-Money Option held by a person who
is not a Management Shareholder. An "APPRECIATION RIGHT" means the right
to receive upon exercise of such new option, in lieu of Class A Shares, a
cash payment from the Surviving Corporation (subject to any applicable
withholding taxes) equal to the product of (I) the excess of the fair
market value (to be determined based on a reasonable methodology to be
developed by the Company, with the consent of Merger Subsidiary) of a
Class A Share at the time of exercise over the exercise price per Class A
Share of such new option times (II) the number of Class A Shares as to
which such new option is exercised, subject to such other terms and
conditions as may be provided in the Management Equity Schedule.
(c) RESTRICTED STOCK. Immediately prior to the Effective Time, the
restrictions on each Class A Share not held by a Family Shareholder which is
subject to a restricted stock award pursuant to any of the Company Restricted
Stock Plans as to which the restrictions have not lapsed shall lapse and such
Class A Shares shall be treated as provided in Section 2.04(a) of this
Agreement.
(d) PERFORMANCE UNITS. With respect to all outstanding performance
unit award agreements, the performance cycle (as defined in such agreements)
shall be deemed to have terminated 10 Business Days prior to the Effective Time.
The determination of the Company's performance for the applicable performance
cycle shall be made by the Management Compensation and Organization Committee of
the Company's Board of Directors prior to the Effective Time and any cash
amounts payable with respect to such performance unit awards shall be paid as
soon as practicable thereafter. Class A Shares payable following the Effective
Time with respect to any such performance unit awards shall be paid in
accordance with the terms and conditions set forth in the Management Equity
Schedule.
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(e) OTHER EQUITY-BASED AWARDS. The Company shall take all steps
reasonably necessary or appropriate so that, as of the Effective Time, all other
outstanding equity-based awards held by current and former employees and
directors, including all deferred stock awards, stock credits and other stock
equivalents (collectively, "OTHER EQUITY AWARDS"), are converted into cash-based
awards and paid on a deferred basis in accordance with the terms of such Other
Equity Awards. The Company may also, after consultation with Merger Subsidiary,
allow each of the holders of Other Equity Awards to elect whether and on what
basis to modify the distribution schedule for his or her payments.
(f) Notwithstanding any other provision of this Agreement, if Merger
Subsidiary and the Chief Executive Officer of the Company determine that it
would be desirable, and would not result in any significant negative tax impact
on the affected employees, to provide for an extension of (i) the deadline for
any employee or group of employees to make the Cash-Out Elections and Rollover
Elections, and/or any deferral or other elections permitted by this Section
2.05, and/or (ii) the deadline for delivering the Management Equity Schedule to
provide for the identification of the Management Shareholders, then they may
agree to extend any such deadline, with respect to any employee or group of
employees, until not later than the Effective Time. If any such deadline is
extended, then the references in the above provisions of this Section 2.05 to
the Effective Time (other than the first sentence of Section 2.05(b)(iii) and
the first sentence of Section 2.05(d)) shall be deemed, to the extent
appropriate, to refer to the last day of such extension. To the extent such
extension results in the delay of any cash payment that would otherwise have
been made at the Effective Time until the expiration of the extended deadline
(as opposed to a deferral beyond the end of the extended deadline under a
deferred compensation plan or arrangement), such cash payment shall be made with
interest at an annual rate to be determined by the Company after consultation
with Merger Subsidiary, from the Effective Time through the date of actual
payment.
SECTION 2.06. SURRENDER OF SHARES. (a) Prior to the Effective Time,
Merger Subsidiary shall appoint a bank or trust company which is reasonably
satisfactory to the Company to act as the exchange agent (the "EXCHANGE AGENT")
for the benefit of the holders of Converted Shares for the payment of the Cash
Merger Consideration. All of the fees and expenses of the Exchange Agent shall
be borne by the Surviving Corporation. The Surviving Corporation will serve in
the capacity of exchange agent with respect to the Merger Subsidiary Common
Shares and will, at the Effective Time, upon receipt of the stock certificates
for the Merger Subsidiary Common Shares duly endorsed and in form for transfer
with accompanying stock powers duly executed in blank, exchange such stock
certificates for new stock certificates representing Class A Shares in
accordance with Section 2.04(b).
(b) At or prior to the Effective Time, Merger Subsidiary will
deposit or will cause to be deposited with the Exchange Agent cash in an amount
equal to the aggregate Cash Merger Consideration (in an amount equal to the
number of Converted Shares multiplied by
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the Cash Merger Consideration), together with the aggregate amount of dividends
or other distributions payable with respect thereto pursuant to Section 2.08
hereof, in immediately available funds (the "EXCHANGE FUND"). The Exchange Agent
shall invest the funds as directed by the Surviving Corporation on a daily
basis; provided that substantially all such investments shall be in obligations
of or guaranteed by the United States of America, in commercial paper
obligations receiving the highest rating from either Moody's Investors Services,
Inc. or Standard & Poor's Corporation, or in certificates of deposit, bank
repurchase agreements or banker's acceptances of commercial banks with capital
exceeding $1,000,000,000. Any interest and other income resulting from such
investments shall be paid to the Surviving Corporation.
(c) Promptly following the Effective Time, the Surviving Corporation
shall instruct the Exchange Agent to mail, no later than three Business Days
after the Effective Time, to each holder of record at the Effective Time of
Converted Shares at such holder's address of record (i) a letter of transmittal
(which shall specify that delivery shall be effected, and risk of loss and title
to the certificates formerly representing Converted Shares ("CERTIFICATES")
shall pass, only upon delivery of Certificates (or affidavits pursuant to
Section 2.07 hereof) to the Exchange Agent and shall be in such form and have
such other provisions as the Company and Merger Subsidiary may reasonably agree)
and (ii) instructions for effecting the delivery for surrender of the
Certificates (or delivery of such affidavits) in exchange for the Cash Merger
Consideration and any unpaid dividends and other distributions. The Exchange
Agent shall accept Certificates (or such affidavits) upon compliance with such
reasonable terms and conditions as the Exchange Agent may impose to effect an
orderly exchange thereof in accordance with normal exchange practices. Each
holder of a Certificate may thereafter deliver such Certificate to the Exchange
Agent, as agent for such holder, to effect the surrender of such Certificate on
such holder's behalf for a period ending six months after the Effective Time.
Upon the due surrender of such Certificate, the Surviving Corporation shall
cause the Exchange Agent to pay, within three Business Days after the Exchange
Agent is in receipt of such Certificate, to the holder of such Certificate in
exchange therefor the Cash Merger Consideration multiplied by the number of
Converted Shares represented by such Certificate that has been so surrendered
and any unpaid dividends and other distributions in accordance with Section
2.08. Following the Effective Time and until so surrendered, any Certificate or
other evidence of beneficial ownership of Shares shall represent solely the
right to receive the Cash Merger Consideration and any unpaid dividends and
other distributions in accordance with Section 2.08.
(d) If any payment in respect of Converted Shares under this Section
2.06 is to be made to a Person other than the Person in whose name such Shares
are registered, it shall be a condition to such payment that any surrendered
Certificate relating thereto shall be properly endorsed or shall be otherwise in
proper form for transfer and that the Person requesting such payment shall have
paid any transfer and other taxes required by reason of such payment in a name
other than that of the registered holder of the Certificate or
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instrument surrendered or shall have established to the satisfaction of the
Exchange Agent, or after the date specified in paragraph (g) below, the
Surviving Corporation, that such tax either has been paid or is not payable.
(e) In the event that, after the Effective Time, Certificates or
affidavits pursuant to Section 2.07 hereof or other evidence of transfer is
presented to the Surviving Corporation for the transfer of Shares, they shall be
canceled and exchanged in the manner contemplated by Section 2.04 and as
provided in this Section 2.06.
(f) The Cash Merger Consideration paid in the Merger shall be paid
in full to the holder of Converted Shares without interest thereon, and shall be
subject to reduction only for any applicable United States federal or other
withholding or stock transfer taxes payable by such holder.
(g) Promptly following the date which is six months after the
Effective Time, the Exchange Agent shall pay to the Surviving Corporation any
portion of the Exchange Fund (including the proceeds of any investment thereof)
that remains unclaimed and shall deliver to the Surviving Corporation all
documents in its possession relating to the Merger, and the Exchange Agent's
powers and duties hereunder shall terminate upon the date of such payments.
Thereafter, each holder of a Certificate may surrender such Certificate (or
affidavits pursuant to 2.07 hereof) only to the Surviving Corporation and
(subject to any applicable abandoned property, escheat or similar law) receive
in consideration therefor the consideration due to such holder pursuant to
Sections 2.04 and 2.08 of this Agreement, without any interest thereon.
(h) None of Merger Subsidiary, the Surviving Corporation or the
Exchange Agent shall be liable to any holder of Converted Shares for any cash
delivered to a public official pursuant to any abandoned property, escheat or
similar law, rule, regulation, statute, order, judgment or decree.
SECTION 2.07. LOST, STOLEN OR DESTROYED CERTIFICATES. In the event
any Certificate shall have been lost, stolen or destroyed, the Surviving
Corporation or the Exchange Agent, as applicable, shall deliver the Cash Merger
Consideration pursuant to Section 2.06 hereof, in exchange for such lost, stolen
or destroyed Certificate upon the making of an affidavit of that fact by the
holder thereof; provided, however, that the Surviving Corporation may, in its
discretion and as a condition precedent to the issuance thereof, require the
person making such affidavit to deliver an indemnity against any claim that may
be made against the Surviving Corporation or the Exchange Agent with respect to
the Certificate alleged to have been lost, stolen or destroyed.
SECTION 2.08. DISTRIBUTIONS. Following surrender of any Converted
Share, there shall be paid to the holder of such Converted Share, without
interest, at the time of payment of the Cash Merger Consideration, any dividends
or other distributions with a
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record date prior to the Effective Time theretofore payable with respect to such
Converted Share and not yet paid.
SECTION 2.09. ADJUSTMENTS TO PREVENT DILUTION. In the event that
following the date hereof the Company changes the number of Class A Shares or
Class B Shares or securities convertible or exchangeable into or exercisable for
Class A Shares or Class B Shares, as the case may be, issued and outstanding
prior to the Effective Time as a result of a reclassification, stock split
(including a reverse split), stock dividend or distribution, recapitalization,
subdivision, or other similar transaction, the Cash Merger Consideration shall
be equitably adjusted.
SECTION 2.10. DISSENTERS' RIGHTS. (a) Notwithstanding any provision
of this Agreement to the contrary, any Class B Shares issued and outstanding
immediately prior to the Effective Time and held by a Dissenting Shareholder
shall not be converted into or represent a right to receive the Cash Merger
Consideration with respect to such Class B Shares, but the Dissenting
Shareholder shall be entitled to only such rights as are granted by the SCBCA.
(b) Notwithstanding the provisions of Section 2.10(a), if any
Dissenting Shareholder shall lose dissenters' rights, then as of the Effective
Time or the occurrence of such event, whichever occurs later, such Dissenting
Shareholder's Class B Shares shall thereafter represent only the right to
receive the Cash Merger Consideration, without interest thereon, upon surrender
of the Certificates representing such Class B Shares.
(c) The Company shall give Merger Subsidiary, prior to the Effective
Time, (i) prompt notice of any dissenters' notices and/or payment demands and
any other instruments served pursuant to the SCBCA received by the Company after
the date hereof and (ii) the opportunity to direct all negotiations and
proceedings with respect to any such notices and payment demands made pursuant
to Chapter 13 of the SCBCA. The Company shall not voluntarily make any payment
with respect to any payment demands and shall not, except with the prior written
consent of Merger Subsidiary, settle or offer to settle any such demands.
SECTION 2.11. FURTHER ACTION. If, at any time after the Effective
Time, any further action is necessary or desirable to carry out the purposes of
this Agreement and to put the Surviving Corporation in possession of all assets
and property of every description and every interest, wherever located, and the
rights, privileges, immunities, powers, franchises and authority, of a public as
well as of a private nature, of the Company and Merger Subsidiary, the officers
and directors of the Surviving Corporation, the Company and Merger Subsidiary
are fully authorized in the name of their respective corporations immediately
prior to the Effective Time or otherwise to take, and will take, all such lawful
and necessary action.
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ARTICLE 3
THE SURVIVING CORPORATION
SECTION 3.01. ARTICLES OF INCORPORATION; BY-LAWS. (a) ARTICLES OF
INCORPORATION. The articles of incorporation of the Company, as in effect
immediately after the Amendment Effective Time and immediately prior to the
Effective Time, shall from and after the Effective Time be the articles of
incorporation of the Surviving Corporation until thereafter amended in
accordance with the SCBCA and such articles of incorporation.
(b) BY-LAWS. The by-laws of the Company, as in effect immediately
prior to the Effective Time, shall be the by-laws of the Surviving Corporation
until thereafter amended in accordance with the SCBCA, the articles of
incorporation of the Surviving Corporation and such by-laws.
SECTION 3.02. DIRECTORS AND OFFICERS. (a) The directors of Merger
Subsidiary immediately prior to the Effective Time shall be the initial
directors of the Surviving Corporation, each to hold office in accordance with
the articles of incorporation and by-laws of the Surviving Corporation.
(b) The officers of the Company immediately prior to the Effective
Time shall be the initial officers of the Surviving Corporation, in each case
until their respective successors are duly appointed or until their earlier
resignation, removal from office or death.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Merger Subsidiary that,
except as set forth in the corresponding section or subsection of the disclosure
schedule delivered by the Company to Merger Subsidiary immediately prior to
execution of this Agreement:
SECTION 4.01. CORPORATE EXISTENCE AND POWER. The Company is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of South Carolina and has all corporate powers and all
governmental licenses, authorizations, permits, consents and approvals required
to carry on its business as now conducted, except for those licenses,
authorizations, permits, consents and approvals the absence of which would not
be reasonably expected to have, individually or in the aggregate, a Material
Adverse Effect on the Company. The Company is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction where such
qualification is
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necessary, except for those jurisdictions where failure to be so qualified would
not be reasonably expected to have, individually or in the aggregate, a Material
Adverse Effect on the Company. The Company has heretofore delivered to Merger
Subsidiary true and complete copies of the Articles of Incorporation and by-laws
of the Company as currently in effect.
SECTION 4.02. CORPORATE AUTHORIZATION. (a) The adoption by the
Company of the Amendment and the approval by the Company of the execution,
delivery and performance by the Company of this Agreement and the consummation
by the Company of the Transactions are within the Company's corporate powers
and, except for the required approval by the Company Shareholders of the
Amendment and this Agreement, have been duly authorized by all necessary
corporate action on the part of the Company. The affirmative vote of the holders
of two-thirds of the votes of the Company's outstanding capital stock entitled
to vote for directors, with the Class A Shares and the Class B Shares voting
together as a single class (and with the holders of Class B Shares entitled to
four votes per share), is the only vote of the Company's capital stock necessary
for adoption of the Amendment. The affirmative vote of the holders of two-thirds
of the votes of the Company's outstanding capital stock entitled to vote for
directors, with the Class A Shares and the Class B Shares voting together as a
single class (and with the holders of Class B Shares entitled to one vote per
share), is the only vote of the Company's capital stock necessary in connection
with the approval by the Company Shareholders of this Agreement and the plan of
merger included herein. Assuming the due authorization, execution and delivery
of this Agreement by Merger Subsidiary, this Agreement constitutes a valid and
binding agreement of the Company.
(b) At a meeting duly called and held, the Special Committee has (i)
determined that the Amendment and this Agreement are advisable, fair to and in
the best interests of the Company Shareholders (other than the Continuing
Shareholders), (ii) recommended that the Board of Directors adopt the Amendment
and this Agreement, and (iii) recommended that the Board of Directors recommend
approval by the Company Shareholders of the Amendment and this Agreement.
(c) At a meeting duly called and held, the Board of Directors
(including a majority of the Continuing Directors for the purpose of rendering
the provisions of Article 7(a) of the Articles of Incorporation not applicable
to the Merger), subsequent to the unanimous recommendation of the Special
Committee, has (i) determined that the Amendment and this Agreement are
advisable, fair to and in the best interests of the Company Shareholders (other
than the Continuing Shareholders), (ii) adopted the Amendment and this
Agreement, and (iii) resolved to recommend that the Company Shareholders approve
the Amendment and this Agreement.
SECTION 4.03. OPINION OF FINANCIAL ADVISOR. The Special Committee
has received the opinion of UBS Warburg LLC, the financial advisor to the
Special Committee, to
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the effect that, as of the date of this Agreement, the Cash Merger Consideration
is fair, from a financial point of view, to the holders of Converted Shares.
SECTION 4.04. ANTITAKEOVER STATUTES. (a) The Company has taken all
action necessary to exempt this Agreement, the Shareholders Agreement and the
Merger from the restrictions on "control share acquisitions" contained in
Sections 35-2-101 through 35-2-111 of the SCC and at the Amendment Effective
Time, from the restrictions on "business combinations" contained in Sections
35-2-201 through 35-2-226 of the SCC, and, accordingly, neither the restrictions
of such Sections nor any other antitakeover or similar statute or regulation
applies or purports to apply to the Amendment, this Agreement, the Shareholders
Agreement or the Merger.
(b) The Amendment will be effective upon (i) the affirmative vote of
the holders of two-thirds of the votes of the Company's outstanding capital
stock entitled to vote for directors, with the Class A Shares and the Class B
Shares voting together as a single class (and with the holders of Class B Shares
entitled to four votes per share), and (ii) the filing of the articles of
amendment giving effect to the Amendment with the Secretary of State of the
State of South Carolina.
SECTION 4.05. GOVERNMENTAL AUTHORIZATION. The adoption of the
Amendment and the execution, delivery and performance by the Company of this
Agreement require no action by or in respect of, or filing with, or notification
or reporting to, any Governmental Authority, other than (i) the filing of the
articles of amendment giving effect to the Amendment with the Secretary of State
of the State of South Carolina, (ii) the filing of articles of merger with
respect to the Merger with the Secretary of State of the State of South Carolina
and appropriate documents with the relevant authorities of other states in which
the Company is qualified to do business, (iii) compliance with any applicable
requirements of the HSR Act and of the Antitrust Laws of the foreign
jurisdictions set forth on Section 4.05 of the Company's disclosure schedule,
(iv) compliance with any applicable requirements of the 1933 Act and the 1934
Act and (v) any actions or filings the absence of which would not be reasonably
expected to have, individually or in the aggregate, a Material Adverse Effect on
the Company or prevent the Company from performing its obligations under this
Agreement prior to the End Date.
SECTION 4.06. FINDERS' FEES. Except for UBS Warburg LLC, there is no
investment banker, broker, finder or other intermediary that has been retained
by or is authorized to act on behalf of the Company or any of its Subsidiaries
who might be entitled to any fee or commission from the Company or any of its
Affiliates in connection with the Transactions.
SECTION 4.07. NON-CONTRAVENTION. The execution, delivery and
performance by the Company of this Agreement and the consummation of the
Transactions do not and will not (i) contravene, conflict with, or result in any
violation or breach of any
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provision of the Articles of Incorporation or by-laws of the Company, (ii)
assuming that the actions, filings, notifications or reports referred to in
Section 4.05 hereof are made and any approvals required in connection therewith
are received, contravene, conflict with or result in a violation or breach of
any provision of any applicable law, statute, ordinance, rule, regulation,
judgment, injunction, order or decree, (iii) require any consent or other action
by any Person under, constitute a default under, or cause or permit the
termination, cancellation, acceleration or other change of any right or
obligation or the loss of any benefit to which the Company or any of its
Subsidiaries is entitled under any provision of any agreement or other
instrument binding upon the Company or any of its Subsidiaries or any license,
franchise, permit, certificate, approval or other similar authorization
affecting, or relating in any way to, the assets or business of the Company and
its Subsidiaries or (iv) result in the creation or imposition of any Lien on any
asset of the Company or any of its Subsidiaries, except for such contraventions,
conflicts, violations and breaches referred to in clause (ii) and for such
failures to obtain any such consent or other action, default, termination,
cancellation, acceleration, change, loss or Lien referred to in clauses (iii)
and (iv) that would not be reasonably expected to have, individually or in the
aggregate, a Material Adverse Effect on the Company or prevent the Company from
performing its obligations under this Agreement prior to the End Date.
SECTION 4.08. CAPITALIZATION. (a) The authorized capital stock of
the Company consists of 40,000,000 Class A Shares, 20,000,000 Class B Shares,
and 1,000,000 shares of preferred stock, par value $1.00 per share (the
"PREFERRED STOCK"). As of the close of business on March 30, 2001, (i)
10,790,474 Class A Shares were issued and outstanding, (ii) 7,151,563 Class B
Shares were issued and outstanding, and (iii) no shares of Preferred Stock were
issued or outstanding. All outstanding Shares have been duly authorized and
validly issued and are fully paid and non-assessable.
(b) As of the close of business on March 30, 2001:
(i) 1,971,873 Shares were reserved for issuance pursuant to options
granted under the Incentive Stock Plans, which options are outstanding on
the date hereof, and, of such options, 1,018,608 are vested and
exercisable as of the date hereof,
(ii) 48,728 Shares were the subject of awards under the Company
Restricted Stock Plans and will remain subject to restrictions until the
End Date (as defined in Section 10.01 hereof) (disregarding matters
contemplated by Section 2.05 hereof and the effect of the Transactions)
under the Company Restricted Stock Plans or an award agreement governing
them, and
(iii) 228,467.8 shares of deferred stock were the subject of awards
under the Company's Incentive Stock Plans, which awards are outstanding on
the date hereof.
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(c) Except as set forth in this Section 4.08, there are no
outstanding (i) shares of capital stock or voting securities of the Company,
(ii) securities of the Company convertible into or exchangeable for shares of
capital stock or voting securities of the Company, (iii) options or other rights
to acquire from the Company, or other obligation of the Company to issue, any
capital stock, voting securities or securities convertible into or exchangeable
for capital stock or voting securities of the Company or (iv) stock
appreciation, phantom stock or similar rights with respect to the Company (the
items in clauses (i), (ii), (iii) and (iv) being referred to collectively as the
"COMPANY SECURITIES"). Since March 30, 2001, except for issuances (x) upon
exercise of presently outstanding awards under any Plan or (y) in the ordinary
course of business consistent with past practice, the Company has not authorized
for issuance, issued, delivered, sold or agreed or committed to issue, sell or
deliver any Company Securities. There are no outstanding obligations of the
Company or any of its Subsidiaries to repurchase, redeem or otherwise acquire
any of the Company Securities.
SECTION 4.09. SUBSIDIARIES; EQUITY INVESTMENTS. (a) Each Subsidiary
of the Company is an entity duly organized, validly existing and in good
standing under the laws of its jurisdiction of formation and has all requisite
powers and all governmental licenses, authorizations, permits, consents and
approvals required to carry on its business as now conducted, except where the
failure to be so organized or in good standing or to have such power or have
such licenses, authorizations, permits, consents or approvals would not be
reasonably expected to have, individually or in the aggregate, a Material
Adverse Effect on the Company. Each such Subsidiary is duly qualified to do
business as a foreign entity and is in good standing in each jurisdiction where
such qualification is necessary, except for those jurisdictions where the
failure to be so qualified or in good standing would not be reasonably expected
to have, individually or in the aggregate, a Material Adverse Effect on the
Company.
(b) All of the outstanding capital stock of, or other voting
securities or ownership interests in, each Subsidiary of the Company that is
owned by the Company, directly or indirectly, is owned free and clear of any
Lien and free of any other limitation or restriction (including any restriction
on the right to vote, sell or otherwise dispose of such capital stock or other
voting securities or ownership interests). All of the outstanding shares of
capital stock of each Subsidiary of the Company have been validly issued and are
fully paid and non-assessable. There are no outstanding (i) securities of the
Company or any of its Subsidiaries convertible into or exchangeable for shares
of capital stock or other voting securities or ownership interests in any
Subsidiary of the Company or (ii) options or other rights to acquire from the
Company or any of its Subsidiaries, or other obligation of the Company or any of
its Subsidiaries to issue, any capital stock or other voting securities or
ownership interests in, or any securities convertible into or exchangeable for
any capital stock or other voting securities or ownership interests in, any
Subsidiary of the Company (the items in clauses (i) and (ii) being referred to
collectively as the "COMPANY SUBSIDIARY SECURITIES"). There are no outstanding
obligations of the Company or any of its Subsidiaries to repurchase, redeem or
otherwise acquire any of the Company Subsidiary Securities.
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(c) Section 4.09(c) of the Company's disclosure schedule lists any
equity interest in any corporation, partnership, joint venture or other business
association or entity (other than a Subsidiary) owned directly or indirectly by
the Company and having a fair market value or book value in excess of $1.0
million.
SECTION 4.10. SEC FILINGS. (a) Each of (i) the Company's annual
report on Form 10-K for its fiscal year ended December 30, 2000 (the "COMPANY
10-K"), (ii) its proxy statements relating to meetings of the Company
Shareholders held since December 31, 1999 and (iii) all of its other reports,
statements, schedules and registration statements filed with the SEC since
December 30, 2000 (the documents referred to in this Section 4.10(a),
collectively, the "COMPANY SEC DOCUMENTS") as of its filing date complied as to
form in all material respects with the applicable requirements of the 1934 Act
and the 1933 Act, as applicable.
(b) As of their respective dates (or, if amended prior to the date
hereof, as of the date of such amendment), each Company SEC Document did not
contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading.
SECTION 4.11. FINANCIAL STATEMENTS. The audited consolidated
financial statements of the Company included in the Company SEC Documents fairly
present, in conformity with GAAP applied on a consistent basis (except as may be
indicated in such financial statements or the notes thereto), the consolidated
financial position of the Company and its consolidated Subsidiaries as of the
dates thereof and their consolidated results of operations and cash flows for
the periods then ended.
SECTION 4.12. ABSENCE OF CERTAIN CHANGES. Except as disclosed in the
Company SEC Documents filed prior to the date hereof, since the Company Balance
Sheet Date, the business of the Company and its Subsidiaries has been conducted
in the ordinary course consistent with past practices and there has not been:
(a) any event, occurrence, development or state of circumstances or
facts that has had or would be reasonably expected to have, individually
or in the aggregate, a Material Adverse Effect on the Company;
(b) any declaration, setting aside or payment of any dividend or
other distribution with respect to any shares of capital stock of the
Company (other than quarterly cash dividends on the Class A Shares and the
Class B Shares not in excess of $.33 and $.30 per share, respectively), or
any repurchase, redemption or other acquisition by the Company or any of
its Subsidiaries of any outstanding shares of capital stock or other
securities of, or other ownership interests in, the Company or any
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of its Subsidiaries (other than ordinary course open market purchases made
in connection with the Company's Incentive Stock Plans);
(c) any amendment of any material term of any outstanding security
of the Company or any of its Significant Subsidiaries;
(d) any incurrence, assumption or guarantee by the Company or any of
its Subsidiaries of any indebtedness for money borrowed in excess of $1.0
million, individually or in the aggregate, other than (i) under the Credit
Agreements in the ordinary course of business to fund general corporate
purposes, (ii) between the Company and its Subsidiaries or between two or
more of the Company's Subsidiaries or (iii) trade payables in the ordinary
course of business;
(e) any making of any material loan, advance or capital contribution
to or investment in any Person, other than loans, advances or capital
contributions to or investments in its Subsidiaries or by its Subsidiaries
to or in the Company or other Subsidiaries of the Company;
(f) any change in any method of accounting, method of tax accounting
or accounting principles or practice by the Company or any of its
Subsidiaries, except for any such change required by reason of a
concurrent change in GAAP, Regulation S-X under the 1934 Act, the Code or
the rules promulgated thereunder, or other applicable law or regulation;
or
(g) except as required by law, any adoption or amendment in any
respect of any bonus, profit sharing, compensation, severance,
termination, stock option, stock appreciation right, pension, retirement,
employment or other employee benefit agreement, trust, plan or other
arrangement for the benefit or welfare of any director or elected officer
of the Company or increase in any manner of the compensation or fringe
benefits of any director or elected officer of the Company or payment of
any benefit not required by any existing agreement or placement of any
assets in any trust for the benefit of any director or elected officer of
the Company not required by any existing agreement, other than any
adoption, amendment, increase, payment or placement made in the ordinary
course of business consistent with past practice.
SECTION 4.13. NO UNDISCLOSED MATERIAL LIABILITIES. There are no
liabilities or obligations of the Company or any of its Subsidiaries of any kind
whatsoever, whether accrued, contingent, absolute, determined, determinable or
otherwise ("LIABILITIES"), other than:
(a) Liabilities disclosed or provided for in the Company Balance
Sheet or in the notes thereto or in the Company SEC Documents;
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(b) Liabilities incurred in the ordinary course of business since
the Company Balance Sheet Date;
(c) Liabilities under this Agreement; and
(d) Liabilities that would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on the
Company.
SECTION 4.14. COMPLIANCE WITH LAWS AND COURT ORDERS. The Company and
each of its Subsidiaries are and, since the Company Balance Sheet Date, have
been, in compliance with any applicable law, statute, ordinance, rule,
regulation, judgment, injunction, order or decree, except for failures to comply
or violations that do not have and would not be reasonably expected to have,
individually or in the aggregate, a Material Adverse Effect on the Company.
SECTION 4.15. LITIGATION. There are no actions, suits,
investigations or proceedings pending against, or, to the knowledge of the
Company, threatened against, the Company or any of its Subsidiaries or any of
their respective properties before any court or arbitrator, or before or by any
Governmental Authority, that would reasonably be expected to have, individually
or in the aggregate, a Material Adverse Effect on the Company.
SECTION 4.16. TAXES. (a) The Company and each of its Subsidiaries
has timely filed (or has had timely filed on its behalf), taking into account
any extension of time within which to file, all Tax Returns required to be filed
by it on or before the Closing Date and all such Tax Returns are true and
complete in all material respects, except for failures to file or failures to be
true and complete that do not have and would not be reasonably expected to have,
individually or in the aggregate, a Material Adverse Effect on the Company.
(b) The Company and each of its Subsidiaries have paid (or have had
paid on their behalf), or, where payment is not yet due, have established (or
have had established on their behalf) or will establish or cause to be
established in accordance with GAAP on or before the Effective Time an adequate
accrual for the payment of, all taxes shown to be due on such Tax Returns.
(c) There are no material Liens or encumbrances for Taxes on any of
the assets of the Company or any of its Subsidiaries.
(d) No material federal, state, local or foreign audits or
administrative proceedings are pending or, to the knowledge of the Company,
threatened, with regard to any Taxes or any Tax Return of the Company or its
Subsidiaries that, if determined adversely to the Company (or any of its
Subsidiaries) would reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on the Company.
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"TAXES" shall mean any and all taxes, charges, fees, levies or other
assessments, including income, gross receipts, excise, real or personal
property, sales, withholding, social security, retirement, unemployment,
occupation, use, goods and services, service use, license, value added, capital,
net worth, payroll, profits, withholding, franchise, transfer and recording
taxes, fees and charges, and any other taxes, assessments or similar charges
imposed by the Internal Revenue Service ("IRS") or any taxing authority (whether
domestic or foreign including any state, county, local or foreign government or
any subdivision or taxing agency thereof (including a United States possession))
(a "TAXING AUTHORITY"), whether computed on a separate, consolidated, unitary,
combined or any other basis; and such term shall include any interest whether
paid or received, fines, penalties or additional amounts attributable to, or
imposed upon, or with respect to, any such taxes, charges, fees, levies or other
assessments. "TAX RETURN" shall mean any report, return, document, declaration
or other information or filing required to be supplied to any taxing authority
or jurisdiction (foreign or domestic) with respect to Taxes, including
information returns, any documents with respect to or accompanying payments of
estimated Taxes, or with respect to or accompanying requests for the extension
of time in which to file any such report, return, document, declaration or other
information.
SECTION 4.17. EMPLOYEE BENEFIT PLANS. (a) Section 4.17 of the
Company's disclosure schedule lists all Benefit Plans and Multiemployer Plans.
With respect to all Benefit Plans, copies of all plan documents, amendments,
summary plan descriptions and trust agreements, and the most recent actuarial
valuation reports and annual return and IRS determination letters have been made
available to Merger Subsidiary.
(b) Except as would not be reasonably expected to have, individually
or in the aggregate, a Material Adverse Effect on the Company:
(i) each Benefit Plan has at all times been maintained and
administered in substantial compliance with its terms and with the
requirements of all applicable law, including ERISA and the Code. Each
Benefit Plan intended to qualify under Section 401(a) of the Code has
received a favorable determination letter from the IRS, and to the
knowledge of the Company there is no fact or circumstance giving rise to a
material likelihood that the plan would not be treated as so qualified by
the IRS;
(ii) all required contributions to any Benefit Plans and
Multiemployer Plans that are "defined benefit pension plans" required to
be made by the Company or any Subsidiary or an ERISA Affiliate in
accordance Section 302 of ERISA or Section 412 of the Code, have been
timely made; there has been no application for or waiver of the minimum
funding standards imposed by Section 412 of the Code with respect to any
Benefit Plan; and no Benefit Plan has incurred any "accumulated funding
deficiency" within the meaning of Section 302 of ERISA or Section 412 of
the Code;
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(iii) all contributions to, and, to the knowledge of the Company,
payments from, the Benefit Plans that are required to have been made in
accordance with the Benefit Plans have been timely made;
(iv) no "reportable event" (within the meaning of Section 4043 of
ERISA) has occurred within the six-year period ending on the date hereof
with respect to any Benefit Plan or any Plan maintained by an ERISA
Affiliate with respect to which the 30-day notice requirement has not been
waived;
(v) no liability has been incurred that has not been satisfied, and
no liability is expected to be incurred, by the Company or any Subsidiary
thereof under Title IV of ERISA with respect to any Benefit Plan or
Multiemployer Plan, or with respect to any other Plan presently or
heretofore maintained or contributed to during the five-year period prior
to the Effective Time by any ERISA Affiliate;
(vi) with respect to any Benefit Plan subject to Title IV of ERISA,
there is not any amount of "unfunded benefit liabilities" (as defined in
Section 4001(a)(18) of ERISA) under such plan (as determined on the basis
of the actuarial assumptions contained in such plan's most recent
actuarial valuation report), and the Company is not aware of any facts or
circumstances that would materially change the funded status of any such
plan;
(vii) with respect to each Multiemployer Plan, (A) no withdrawal
liability (within the meaning of Section 4201(b) of ERISA) has been
incurred by the Company or any ERISA Affiliate that has not been
satisfied, and the Company has no reason to believe that any such
withdrawal liability will be incurred, (B) to the knowledge of the
Company, no such Multiemployer Plan is in "reorganization" (within the
meaning of Section 4241 of ERISA), (C) no notice has been received that
increased contributions may be required to avoid a reduction in plan
benefits or the imposition of an excise tax, or that such Multiemployer
Plan is or may become "insolvent" (within the meaning of Section 4241 of
ERISA), (D) to the knowledge of the Company or any Subsidiary thereof, no
proceedings have been instituted by the PBGC against such Multiemployer
Plan, (E) to the knowledge of the Company, neither the Company nor any
Subsidiary thereof has sold assets in a transaction intended to satisfy
the requirements of Section 4204 of ERISA, and (F) to the knowledge of the
Company, if the Company or any ERISA Affiliate were to have a complete or
partial withdrawal under Section 4203 of ERISA as of the Effective Time,
no withdrawal liability would exist on the part of the Company or any
ERISA Affiliate;
(viii) neither the Company nor any ERISA Affiliate has incurred any
liability that has not been fully satisfied for any tax imposed under
Sections 4971 through 4980E of the Code or civil liability under Section
502(i) or (l) of ERISA;
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(ix) no Tax has been incurred under Section 511 of the Code with
respect to any Benefit Plan (or trust or other funding vehicle pursuant
thereto);
(x) the Company, its Subsidiaries, and any ERISA Affiliates which
maintain a "group health plan" within the meaning of Section 5000(b)(1) of
the Code have complied in all material respects with the "COBRA" notice
and continuation requirements;
(xi) no action which is still pending (excluding claims for benefits
incurred in the ordinary course of Plan activities) has been brought or,
to the knowledge of the Company, threatened against or with respect to any
Benefit Plan and there are no facts or circumstances known to the Company
or any Subsidiary thereof that could reasonably be expected to give rise
to any such action;
(xii) except as set forth in Section 2.05 hereof, the consummation of
the Transactions will not result in an increase in the amount of
compensation or benefits or accelerate the vesting or timing of payment of
any benefits or compensation payable to or in respect of any employee of
the Company or any of its Subsidiaries; and
(xiii) the consummation of the Transactions will not result in or
satisfy a condition to the payment of compensation that would, in
combination with any other payment, result in an "excess parachute
payment" within the meaning of Section 280G(b) of the Code.
(c) Except as would not, individually or in the aggregate, be
reasonably expected to have a Material Adverse Effect on the Company, during the
six-year period ending on the date hereof (i) all contributions required to be
made by the Company or any Subsidiary with respect to a Foreign Plan have been
timely made, (ii) each Foreign Plan has been maintained in substantial
compliance with its terms and with the requirements of any and all applicable
laws and has been maintained, where required, in good standing with the
applicable Governmental Authority, and (iii) neither the Company nor any
Subsidiary has incurred any obligation in connection with the termination or
withdrawal from any Foreign Plan. To the knowledge of the Company, each of the
Foreign Plans that is a defined benefit plan that is required to be funded has
plan assets with aggregate fair market value that is greater than such plan's
liabilities, as determined in accordance with applicable laws using reasonable
actuarial assumptions. For purposes hereof, the term "FOREIGN PLAN" shall mean
any plan, program, policy, arrangement or agreement maintained or contributed to
by, or entered into with, the Company or any Subsidiary with respect to
employees (or former employees) employed outside the United States who are not
otherwise covered under the Benefit Plans.
SECTION 4.18. ENVIRONMENTAL MATTERS. Except as disclosed in the
Company SEC Documents filed prior to the date hereof, except as to which the
Company, in
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its reasonable judgment, has adequate reserves and except as would not be
reasonably expected to have, individually or in the aggregate, a Material
Adverse Effect on the Company:
(i) no notice, notification, demand, request for information,
citation, summons or order has been received, no complaint has been filed,
no penalty has been assessed, and no investigation, action, claim, suit,
proceeding or review is pending or, to the knowledge of the Company, is
threatened by any governmental entity or other Person, nor is the Company
subject to any judgment, decree, or agreement, relating to or arising out
of any Environmental Law; and
(ii) the Company is in compliance with all, and has incurred no
Liabilities under any, Environmental Laws and all Environmental Permits.
SECTION 4.19. DISCLAIMER OF OTHER REPRESENTATIONS AND WARRANTIES.
The Company does not make, and has not made, any representations or warranties
in connection with this Agreement or the Transactions other than those expressly
set forth herein. It is understood that any data, any financial information or
any memoranda or offering materials or presentations are not and shall not be
deemed to be or to include representations or warranties of the Company. Except
as expressly set forth herein, no Person has been authorized by the Company to
make any representation or warranty relating to the Company or any Subsidiary
thereof or their respective businesses, or otherwise in connection with this
Agreement or the Transactions and, if made, such representation or warranty may
not be relied upon as having been authorized by the Company.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF MERGER SUBSIDIARY
Merger Subsidiary represents and warrants to the Company that except
as set forth in the corresponding section or subsection of the disclosure
schedule delivered by Merger Subsidiary to the Company immediately prior to the
execution of this Agreement:
SECTION 5.01. CORPORATE EXISTENCE AND POWER. Merger Subsidiary is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of South Carolina and has all corporate powers and all
governmental licenses, authorizations, permits, consents and approvals required
to carry on its business as now conducted. Merger Subsidiary was incorporated
solely for the purpose of entering into this Agreement and engaging in the
Transactions. Since the date of its formation, Merger Subsidiary has not engaged
in any activities other than in connection with or as contemplated by this
Agreement. Merger Subsidiary has no Subsidiaries.
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SECTION 5.02. CORPORATE AUTHORIZATION. The execution, delivery and
performance by Merger Subsidiary of this Agreement and the consummation by
Merger Subsidiary of the Transactions are within the corporate powers of Merger
Subsidiary and have been duly authorized by all necessary corporate action on
the part of Merger Subsidiary and its shareholders. Assuming the due
authorization, execution and delivery of this Agreement by the Company, this
Agreement constitutes a valid and binding agreement of Merger Subsidiary
enforceable against Merger Subsidiary in accordance with its terms. The Board of
Directors of Merger Subsidiary has (i) determined that this Agreement is
advisable, fair to and in the best interests of Merger Subsidiary and its
shareholders, (ii) adopted this Agreement, and (iii) recommended that the
shareholders of Merger Subsidiary approve this Agreement. The shareholders of
Merger Subsidiary have approved this Agreement and the plan of merger included
herein.
SECTION 5.03. GOVERNMENTAL AUTHORIZATION. The execution, delivery
and performance by Merger Subsidiary of this Agreement requires no action by or
in respect of, or filing with, or notification or reporting to, any Governmental
Authority other than (i) compliance with any applicable requirements of the HSR
Act and of the Antitrust Laws of the foreign jurisdictions set forth on Schedule
5.03 of Merger Subsidiary's disclosure schedule, (ii) compliance with any
applicable requirements of the 1933 Act and the 1934 Act, (iii) compliance with
the applicable requirements of the SCBCA and (iv) any actions or filings the
absence of which would not be reasonably expected to have a Material Adverse
Effect on Merger Subsidiary or prevent Merger Subsidiary from performing its
obligations under this Agreement prior to the End Date.
SECTION 5.04. NON-CONTRAVENTION. The execution, delivery and
performance by Merger Subsidiary of this Agreement and the consummation by
Merger Subsidiary of the Transactions do not and will not (i) contravene,
conflict with, or result in any violation or breach of any provision of the
articles of incorporation or by-laws of Merger Subsidiary, (ii) assuming that
the actions, filings, notifications or reports referred to in Section 5.03
hereof are made and any approvals required in connection therewith are received,
contravene, conflict with or result in a violation or breach of any provision of
any applicable law, statute, ordinance, rule, regulation, judgment, injunction,
order or decree, (iii) require any consent or other action by any Person under,
constitute a default under, or cause or permit the termination, cancellation,
acceleration or other change of any right or obligation or the loss of any
benefit to which Merger Subsidiary is entitled under any provision of any
agreement or other instrument binding upon Merger Subsidiary or any license,
franchise, permit, certificate, approval or other similar authorization
affecting, or relating in any way to, the assets or business of Merger
Subsidiary or (iv) result in the creation or imposition of any Lien on any asset
of Merger Subsidiary, except for such contraventions, conflicts, violations and
breaches referred to in clause (ii) and for such failures to obtain any such
consent or other action, default, termination, cancellation, acceleration,
change, loss or Lien referred to in clauses (iii) and (iv) that would not be
reasonably expected to have a Material Adverse Effect on Merger
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Subsidiary or prevent Merger Subsidiary from performing its obligations under
this Agreement prior to the End Date.
SECTION 5.05. CAPITALIZATION. The authorized capital stock of Merger
Subsidiary consists of 10,000,000 shares of common stock, no par value per
share. As of the close of business on the date hereof, 100 shares of common
stock of Merger Subsidiary were issued and outstanding and, subject to Section
3.2(a) of the Shareholders Agreement, immediately prior to the Effective Time
there will be 4,891,305 shares of common stock of Merger Subsidiary issued and
outstanding. All outstanding shares of common stock of Merger Subsidiary have
been and immediately prior to the Effective Time will have been duly authorized
and validly issued and are and will be fully paid and non-assessable. Heartland
owns, and immediately prior to the Effective Time, Heartland, the Heartland
Entities and the Co-Investors will own, all of the outstanding shares of common
stock of Merger Subsidiary. Merger Subsidiary does not beneficially own any
Shares and as of the date of this Agreement, Heartland does not beneficially own
any Shares.
SECTION 5.06. FINDERS' FEES. Except for (i) Credit Research &
Trading which is the investment advisor for Heartland and the Family
Shareholders and (ii) JP Morgan Chase & Co. which is the investment advisor for
Merger Subsidiary, there is no investment banker, broker, finder or other
intermediary that has been retained by or is authorized to act on behalf of
Heartland, the Continuing Shareholders or Merger Subsidiary who might be
entitled to any fee or commission from the Company or any of its Affiliates in
connection with the Transactions.
SECTION 5.07. FINANCING. (a) Merger Subsidiary has received and
furnished copies to the Company of (i) a commitment letter dated as of April 24,
2001, to provide financing to the Company or a Subsidiary of the Company
(including the Summary of Terms and Conditions annexed thereto, the "COMMITMENT
LETTER") with The Chase Manhattan Bank and JP Morgan, a Division of Chase
Securities, Inc. (the "BANK"), (ii) the equity commitment letter (the "EQUITY
COMMITMENT LETTER") dated as of April 24, 2001 addressed to Merger Subsidiary
from Heartland pursuant to which Heartland has committed to make available to
Merger Subsidiary certain funds for the purpose of consummating the
Transactions, and (iii) the Shareholders Agreement. The funds which the Bank has
agreed, subject to the terms and conditions of the Commitment Letter, to provide
and which Heartland has agreed, subject to the terms and conditions of the
Equity Commitment Letter, to provide will be sufficient, when taken together
with other funds otherwise available and assuming compliance by the Family
Shareholders with the Shareholders Agreement, to enable it (A) to provide to the
Exchange Agent cash in an amount equal to the Exchange Fund, (B) to refinance
substantially all of the existing debt of the Company and its Subsidiaries to
the extent contemplated by the Transactions as contemplated by the Commitment
Letter, and (C) to pay all related fees and expenses (collectively, the
"REQUIRED AMOUNT").
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(b) As of the date hereof, (i) the Commitment Letter has not been
withdrawn and is in full force and effect and Merger Subsidiary has no reason to
believe that any of the conditions set forth in the Commitment Letter will not
be satisfied, (ii) the Equity Commitment Letter has not been withdrawn and is in
full force and effect and Merger Subsidiary has no reason to believe that any of
the conditions set forth in the Equity Commitment Letter will not be satisfied
and (iii) the Shareholders Agreement has not been terminated and is in full
force and effect.
(c) Immediately after the consummation of the Transactions, the
Surviving Corporation (i) will not be insolvent, (ii) will not be left with
unreasonably small capital and (iii) will not have debts beyond its ability to
pay such debts as they mature.
SECTION 5.08. LITIGATION. There are no actions, suits,
investigations or proceedings pending against, or, to the knowledge of Merger
Subsidiary, threatened against, Merger Subsidiary or Heartland or any of their
respective properties before any court or arbitrator, or before or by any
Governmental Authority, that would reasonably be expected to have, individually
or in the aggregate, a Material Adverse Effect on Merger Subsidiary or prevent
Merger Subsidiary from performing its obligations under this Agreement prior to
the End Date.
ARTICLE 6
COVENANTS OF THE COMPANY
The Company agrees that, except as set forth in the corresponding
section or subsection of the disclosure schedule delivered by the Company to
Merger Subsidiary immediately prior to the execution of this Agreement:
SECTION 6.01. CONDUCT OF THE COMPANY. (a) Except as contemplated by
this Agreement or as expressly agreed to in writing by Merger Subsidiary, during
the period from the date of this Agreement to the Effective Time, the Company
shall, and shall cause each of its Subsidiaries to, expend funds for capital
expenditures, acquire or sell assets, purchase inventory and supplies, settle or
compromise any material litigation and otherwise conduct its operations
according to its ordinary and usual course of business and consistent with past
practice and use reasonable best efforts to preserve intact their current
business organizations, keep available the services of their current officers
and employees and preserve their relationships with customers, suppliers,
licensors, licensees, advertisers, distributors and others having business
dealings with them and to preserve goodwill.
(b) Prior to the Effective Time, the Company shall not, and shall
cause its Subsidiaries not to, without the consent of Merger Subsidiary:
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(i) amend the Articles of Incorporation (other than the Amendment),
by-laws or equivalent organizational documents or alter through merger,
liquidation, reorganization, restructuring or in any other fashion the
corporate structure or ownership of any Significant Subsidiary of the
Company; or split, combine or reclassify any of its capital stock or issue
or authorize the issuance of any other securities in respect of, in lieu
of or in substitution for shares of its capital stock; or
(ii) except for issuances (x) upon exercise of presently outstanding
awards under any Plan or (y) in the ordinary course of business consistent
with past practice, authorize for issuance, issue, deliver, sell or agree
or commit to issue, sell or deliver (whether through the issuance or
granting of options, warrants, commitments, subscriptions, rights to
purchase or otherwise), pledge or otherwise encumber any shares of its
capital stock or the capital stock of any of its Subsidiaries, any other
voting securities or any securities convertible into, or any rights,
warrants or options to acquire, any such shares, voting securities or
convertible securities or any other securities or equity equivalents
(including without limitation stock appreciation rights).
SECTION 6.02. ACCESS TO INFORMATION. From the date of this Agreement
until the Effective Time, the Company shall, and shall cause its Subsidiaries,
and each of their respective officers, directors, employees, counsel, advisors
and representatives (collectively, the "COMPANY REPRESENTATIVES") to, give
Merger Subsidiary and its officers, directors, employees, counsel, advisors and
representatives (collectively, the "MERGER SUBSIDIARY REPRESENTATIVES") and
representatives of financing sources identified by Merger Subsidiary reasonable
access, upon reasonable notice and during normal business hours, to the offices
and other facilities and to the books and records of the Company and its
Subsidiaries and will cause the Company Representatives and the Company's
Subsidiaries to furnish Merger Subsidiary and the Merger Subsidiary
Representatives and representatives of financing sources identified by Merger
Subsidiary with such financial and operating data and such other information
with respect to the business and operations of the Company and its Subsidiaries
as Merger Subsidiary and representatives of financing sources identified by
Merger Subsidiary may from time to time reasonably request. Merger Subsidiary
agrees that any information furnished pursuant to this Section 6.02 shall be
subject to the provisions of the letter agreement dated August 17, 2000 between
Heartland and the Company (the "CONFIDENTIALITY AGREEMENT").
SECTION 6.03. NO SOLICITATION. (a) The Company agrees that it will
not (except with respect to the Continuing Shareholders and their counsel,
advisors, and representatives), directly or indirectly through any officer,
Subsidiary, Affiliate, director, employee, shareholder, representative, agent or
other Person, (i) seek, initiate, solicit or encourage any Person to make an
Acquisition Proposal, (ii) engage in discussions or negotiations concerning an
Acquisition Proposal with any Person, (iii) disclose any non-
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public information relating to the Company or give access to the properties,
employees, books or records of the Company or any of its Subsidiaries to any
Person in connection with any Acquisition Proposal or (iv) adopt or recommend or
agree to adopt or recommend any Acquisition Proposal; provided that nothing
herein shall prevent the Board of Directors from (a) furnishing information to
any person that has made an Acquisition Proposal not solicited in violation of
this paragraph or (b) entering into or participating in discussions or
negotiations concerning an Acquisition Proposal not solicited in violation of
this paragraph so long as, in the case of each of clause (a) and (b), (x) the
Board of Directors or the Special Committee shall have concluded in good faith
(after receiving and considering the advice of its outside legal counsel) that
failing to furnish such information or participate in such discussions or
negotiations would be reasonably likely to cause the Board of Directors or the
Special Committee to be in breach of its respective fiduciary responsibilities
to the Company Shareholders under applicable law, and (y) prior to furnishing
any such information or participating in such discussions or negotiations, the
Company and the party making such offer agree to a confidentiality agreement on
terms that are, in the aggregate, no less favorable to the Company than those of
the Confidentiality Agreement (other than the standstill provisions thereof) and
Merger Subsidiary is given concurrent or advance written notice thereof unless
the Board of Directors or the Special Committee shall have concluded in good
faith (after receiving and considering the advice of its outside counsel) that
doing so would be reasonably likely to cause it to be in breach of its
respective fiduciary responsibilities to the Company Shareholders under
applicable law. The Board of Directors or the Special Committee may (x) fail to
make, withdraw or modify in a manner adverse to Merger Subsidiary its
recommendation referred to in Section 8.02 hereof and/or (y) take and disclose
to the Company Shareholders a position contemplated by Rule 14e-2 under the 1934
Act, but only, in the case of clause (x), if the Board of Directors or the
Special Committee determines in good faith (after consultation with outside
legal counsel to the Company) that such action is reasonably likely to be
required in the exercise of its respective fiduciary duties under applicable
law.
(b) The Company shall notify Merger Subsidiary in writing no later
than the end of the next Business Day after receipt thereof of the receipt of
any Acquisition Proposal (including a copy thereof if in writing), the terms and
conditions of such Acquisition Proposal and the identity of the Person making
it. The Company also shall promptly notify Merger Subsidiary no later than the
end of the next Business Day after receipt thereof of any change to or
modification of such Acquisition Proposal.
(c) The Company shall, and shall cause its Subsidiaries and the
advisors, employees and other agents of the Company and any of its Subsidiaries
to, cease immediately and cause to be terminated any and all existing
activities, discussions or negotiations, if any, with any Third Party conducted
prior to the date hereof with respect to any Acquisition Proposal and shall use
reasonable best efforts to cause any such Third Party (or its agents or
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advisors) in possession of confidential information about the Company that was
furnished by or on behalf of the Company to return or destroy all such
information.
SECTION 6.04. STATE TAKEOVER LAWS. The Company shall, upon the
request of Merger Subsidiary, use its reasonable best efforts to assist in any
challenge by Merger Subsidiary to the validity or applicability to the
Transactions, including the Merger, of any state takeover law.
SECTION 6.05. REPORTS. During the period from the date of this
Agreement to the Effective Time, the Company shall provide Merger Subsidiary
with monthly financial statements in the existing reporting format (balance
sheet, cash flow statement, income statement and, if available and consistent
with past practice, notes thereto), broken out by operating unit (except as to
the cash flow statement, which shall be a consolidated statement), no later than
the fifteenth Business Day following the end of each fiscal month following the
date of this Agreement; provided that for fiscal months that are also the end of
a fiscal quarter, the Company may provide such financial information to Merger
Subsidiary on the same date such information is publicly released in accordance
with the past practice of the Company.
SECTION 6.06. CONFIDENTIALITY AGREEMENT. The Company agrees to
waive the application of the standstill provisions of the Confidentiality
Agreement to this Agreement, the Transactions and the Shareholders Agreement.
ARTICLE 7
COVENANTS OF MERGER SUBSIDIARY
Merger Subsidiary agrees that:
SECTION 7.01. DIRECTOR AND OFFICER LIABILITY. The Surviving
Corporation hereby agrees to do the following:
(a) For six years after the Effective Time, the Surviving
Corporation shall indemnify and hold harmless the present and former
officers and directors of the Company and each of its Subsidiaries (each,
an "INDEMNIFIED PERSON") in respect of acts or omissions occurring at or
prior to the Effective Time to the fullest extent permitted by the SCBCA
or any other applicable laws or provided under the Articles of
Incorporation and by-laws in effect on the date hereof; provided that such
indemnification shall be subject to any limitation imposed from time to
time under applicable law.
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(b) For six years after the Effective Time, the Surviving
Corporation shall provide officers' and directors' liability insurance in
respect of acts or omissions occurring at or prior to the Effective Time
covering each Indemnified Person covered as of the date hereof by the
Company's officers' and directors' liability insurance policy with terms
and conditions and coverage amounts no less favorable than those of such
policy in effect on the date hereof; provided that the Surviving
Corporation shall not be obligated to make annual premium payments for
such insurance to the extent such annual premiums exceed 200% of the
annual premiums paid as of the date hereof by the Company for such
insurance; and provided, further, that if the premiums with respect to
such insurance exceed 200% of the annual premiums paid as of the date
hereof by the Company for such insurance, the Surviving Corporation shall
be obligated to obtain such insurance with the maximum coverage as can be
obtained at an annual premium equal to 200% of the annual premiums paid by
the Company as of the date hereof.
(c) If the Surviving Corporation or any of its successors or assigns
(i) consolidates with or merges into any other Person and shall not be the
continuing or surviving corporation or entity of such consolidation or
merger, or (ii) transfers or conveys all or substantially all of its
properties and assets to any Person, then, and in each such case, proper
provision shall be made so that the successors and assigns of Merger
Subsidiary or the Surviving Corporation, as the case may be, shall assume
all of the obligations set forth in this Section 7.01.
(d) The rights of each Indemnified Person under this Section 7.01
shall be in addition to any rights such Person may have under the Articles
of Incorporation or by-laws of the Company or any of its Subsidiaries, or
under the SCBCA or any other applicable laws or under any agreement of any
Indemnified Person with the Company or any of its Subsidiaries. These
rights shall survive consummation of the Merger and are intended to be for
the benefit of, and shall be enforceable by, each Indemnified Person,
their heirs and their representatives .
SECTION 7.02. FINANCING ARRANGEMENTS. Merger Subsidiary shall use
its reasonable best efforts to (a) have the Bank provide the financing to the
Company in accordance with the terms of the Commitment Letter and (b) have
Heartland provide the funds to Merger Subsidiary in accordance with the terms of
the Equity Commitment Letter. The Commitment Letter and the Equity Commitment
Letter and the definitive agreements for the Facilities (along with any other
document pursuant to which Merger Subsidiary intends to obtain financing or
funding of all or a portion of the Required Amount) are referred to herein
collectively as the "FINANCING AGREEMENTS." Merger Subsidiary will promptly
notify the Company if at any time there is a reasonable likelihood that the
financing or funding to be provided under the Commitment Letter or the Equity
Commitment Letter, as the case may be, will not be available.
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SECTION 7.03. EMPLOYEE BENEFIT PLANS. During the period from the
Effective Time through the first anniversary of the Effective Time, employees of
the Company and its Subsidiaries (the "EMPLOYEES") shall participate in employee
benefit plans which are substantially comparable, in the aggregate, to those
provided to the Employees immediately prior to the Effective Time.
ARTICLE 8
COVENANTS OF MERGER SUBSIDIARY AND THE COMPANY
The parties hereto agree that:
SECTION 8.01. REASONABLE BEST EFFORTS. (a) Subject to the terms and
conditions of this Agreement and to the fiduciary duties of the Board of
Directors and the Special Committee under applicable law (as determined by such
directors in good faith), the Company and Merger Subsidiary will use reasonable
best efforts to take, or cause to be taken, all actions and to do, or cause to
be done, all things necessary, proper or advisable under applicable laws and
regulations to consummate the Transactions, including, in the case of the
Company, to assist Merger Subsidiary and cooperate with Merger Subsidiary and
the Bank and any other lenders in order for Merger Subsidiary to obtain its
contemplated debt financing, through the Facilities or otherwise.
(b) In connection with the efforts referenced in Section 8.01(a) to
obtain all requisite approvals and authorizations for the Transactions each of
Merger Subsidiary and the Company shall, in connection with any Antitrust Law,
use reasonable best efforts to (i) cooperate in all respects with each other in
connection with any filing or submission and in connection with any
investigation or other inquiry, including any proceeding initiated by a private
party, (ii) keep the other party informed in all respects of any material
communication received by such party from, or given by such party to, the
Federal Trade Commission (the "FTC"), the Antitrust Division of the Department
of Justice (the "DOJ") or any other Governmental Authority and of any material
communication received or given in connection with any proceeding by a private
party, in each case regarding any of the Transactions and (iii) permit the other
party to review any material communication made by it to, and consult with each
other in advance of any meeting or conference with, the FTC, the DOJ or any such
other Governmental Authority or, in connection with any proceeding by a private
party, with any other Person.
SECTION 8.02. DISCLOSURE DOCUMENTS; CERTAIN FILINGS. (a) The Company
shall cause a meeting of the Company Shareholders (the "COMPANY SHAREHOLDERS
MEETING") for the purpose of voting on the approval of the Amendment and this
Agreement to be duly called and held as soon as reasonably practicable following
the execution of this
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Agreement. Subject to their fiduciary duties generally, Section 6.03 hereof and
this Section 8.02, (I) the Special Committee shall recommend that the Board of
Directors recommend approval by the Company Shareholders of the Amendment and
this Agreement and (II) the Board of Directors shall submit to the Company
Shareholders and recommend approval of the Amendment and this Agreement by the
Company Shareholders. In connection with the Company Shareholders Meeting, (i)
(A) the Company and Merger Subsidiary will cooperate and promptly prepare, (B)
the Company will file with the SEC, (C) the Company and Merger Subsidiary will
use their respective reasonable best efforts to have cleared by the SEC, and (D)
the Company will thereafter mail to the Company Shareholders as promptly as
practicable, a proxy statement of the Company in connection with the Amendment
and this Agreement (the "COMPANY PROXY STATEMENT") and all other proxy materials
for such meeting, (ii) the Company will, subject to Section 6.03, use its
reasonable best efforts to have the Company Shareholders approve the Amendment
and this Agreement and (iii) the Company will otherwise comply with all legal
requirements applicable to the Company Shareholders Meeting. The Company and
Merger Subsidiary will cooperate and promptly prepare and the Company will file
concurrently with the filing of the Company Proxy Statement a statement on
Schedule 13E-3 (the "SCHEDULE 13E-3").
(b) The Company and Merger Subsidiary (with respect to the
information supplied by it, its Affiliates and Heartland) will cause each of (i)
the Company Proxy Statement and any amendment or supplement thereto and (ii) the
Schedule 13E-3 and any amendment or supplement thereto, when filed, to comply as
to form in all material respects with the applicable requirements of the 1934
Act. The Company and Merger Subsidiary (with respect to itself, its Affiliates
and Heartland) each agree that none of the information supplied or to be
supplied by it for inclusion in the Company Proxy Statement or any amendment or
supplement thereto or in the Schedule 13E-3 or any amendment or supplement
thereto will, at the time the Company Proxy Statement or any amendment or
supplement thereto is first mailed to Company Shareholders and at the time of
the Company Shareholders Meeting, contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements made therein, in the light of the circumstances under which they were
made, not misleading; it being understood that any information regarding the
Continuing Shareholders included in such Company Proxy Statement or any
amendment or supplement thereto or the Schedule 13E-3 or any amendment or
supplement thereto shall be deemed to not have been supplied by the Company for
inclusion therein. If at any time prior to the date of the Company Shareholders
Meeting any information relating to the Company or Merger Subsidiary (including
its Affiliates and Heartland) or their respective officers or directors should
be discovered by the Company or Merger Subsidiary which should be set forth in
an amendment or supplement to the Company Proxy Statement or the Schedule 13E-3,
as the case may be, so that such document would not contain any untrue statement
of a material fact or omit to state any material fact necessary in order to make
the statements made therein, in the light of the circumstances under which they
were made, not misleading, the party which discovers such information will
promptly notify the other party and, to the extent required by
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applicable law, an appropriate amendment or supplement describing such
information shall be filed promptly with the SEC and, to the extent required by
law, disseminated to the Company Shareholders.
(c) The Company and Merger Subsidiary shall cooperate with one
another (i) in determining as promptly as practicable whether any action by or
in respect of, or filing with, any Governmental Authority is required, or any
actions, consents, approvals or waivers are required to be obtained from parties
to any material contracts, in connection with the consummation of the
Transactions and (ii) in taking such actions or making any such filings,
furnishing information required in connection therewith and seeking timely to
obtain any such actions, consents, approvals or waivers.
SECTION 8.03. PUBLIC ANNOUNCEMENTS. The Company and Merger
Subsidiary will consult with each other before issuing any press release or
making any public statement with respect to this Agreement or the Transactions
and, except as may be required by applicable law or any listing agreement with
any national securities exchange, will not issue any such press release or make
any such public statement prior to such consultation.
SECTION 8.04. NOTICES OF CERTAIN EVENTS. Each of the Company and
Merger Subsidiary shall promptly notify the other of:
(a) any notice or other communication from any Person alleging that
the consent of such Person is or may be required in connection with the
Transactions;
(b) any notice or other communication from any Governmental
Authority in connection with the Transactions;
(c) any actions, suits, claims, investigations or proceedings
commenced or, to its knowledge, threatened against, relating to or
involving or otherwise affecting the Company or any of its Subsidiaries
that, if pending on the date of this Agreement, would have been required
to have been disclosed pursuant to Section 4.14 or 4.15 hereof, or that
relate to the consummation of the Transactions; and
(d) the occurrence or non-occurrence of any fact or event which
would be reasonably likely:
(i) to cause any representation or warranty contained in this
Agreement to be untrue or inaccurate in any material respect at any
time from the date hereof to the Effective Time, or
(ii) to cause any covenant, condition or agreement under this
Agreement not to be complied with or satisfied; provided, however,
that no
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such notification shall affect the representations or warranties of
any party or the conditions to the obligations of any party
hereunder.
SECTION 8.05. CONFIDENTIALITY. Prior to the Effective Time and
after any termination of this Agreement, each of Merger Subsidiary and the
Company will comply with the terms of the Confidentiality Agreement.
SECTION 8.06. SOLVENCY LETTER. If Merger Subsidiary is required
pursuant to the Financing Agreements to engage an appraisal firm (the
"APPRAISER") to deliver to the Bank a solvency letter or certificate (the
"SOLVENCY LETTER"), Merger Subsidiary shall, at its sole cost and expense, cause
the Appraiser to deliver the Solvency Letter (in form and substance identical to
that required to be delivered to the Bank) to the Company at the Closing, with
the Special Committee as an additional addressee. If a Solvency Letter is to be
delivered, the parties agree to cooperate with the Appraiser in connection with
the preparation of the Solvency Letter, including providing the Appraiser with
any information reasonably available to them and reasonably requested by the
Appraiser in connection with the preparation of such letter.
ARTICLE 9
CONDITIONS TO THE MERGER
SECTION 9.01. CONDITIONS TO THE OBLIGATIONS OF EACH PARTY. The
obligations of the Company and Merger Subsidiary to consummate the Merger are
subject to the satisfaction or waiver at or prior to the Effective Time of the
following conditions:
(a) (i) the Amendment shall have been approved by the affirmative
vote of holders of two-thirds of the votes of the Company's outstanding
capital stock entitled to vote for directors, with the Class A Shares and
the Class B Shares voting together as a single class (and with the holders
of Class B Shares entitled to four votes per share), and the articles of
amendment of the Company giving effect to the Amendment shall have been
filed with the Secretary of State of the State of South Carolina and
become effective and (ii) this Agreement shall have been approved by the
affirmative vote of (x) holders of two-thirds of the votes of the
Company's outstanding capital stock entitled to vote for directors, with
the Class A Shares and the Class B Shares voting together as a single
class (and with the holders of Class B Shares entitled to one vote per
share), and (y) a majority of the votes cast at the Company Shareholders
Meeting (with the Class A Shares and the Class B Shares voting together as
a single class with each having one vote per share) but excluding any
votes cast by the Continuing Shareholders;
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(b) there shall not be any law or regulation that makes consummation
of the Merger illegal or otherwise prohibited and no judgment, injunction,
order or decree of any Governmental Authority having competent
jurisdiction enjoining the Company or Merger Subsidiary from consummating
the Merger shall have been entered; and
(c) the waiting period applicable to the consummation of the Merger
under the HSR Act shall have expired or been terminated, the requirements
of the Canadian Competition Act shall have been satisfied and, other than
the filings provided for in Sections 2.01 and 2.02, all notices, reports
and other filings required to be made prior to the Effective Time by the
Company or any of its Subsidiaries or Merger Subsidiary with, and all
consents, registrations, approvals, permits and authorizations required to
be obtained prior to the Effective Time by the Company or any of its
Subsidiaries or Merger Subsidiary from, any Governmental Authority in
connection with the execution and delivery of this Agreement and
consummation of the Merger and the Transactions by the Company and Merger
Subsidiary shall have been made or obtained (as the case may be), except
those that the failure to make or obtain would not, individually or in the
aggregate, be reasonably expected to have a Material Adverse Effect on the
Company or Merger Subsidiary.
SECTION 9.02. CONDITIONS TO THE OBLIGATIONS OF MERGER SUBSIDIARY.
The obligations of Merger Subsidiary to consummate the Merger are subject to the
satisfaction or waiver at or prior to the Effective Time of the following
further conditions:
(a) (i) the Company shall have performed in all material respects
all of its obligations hereunder required to be performed by it at or
prior to the Effective Time, (ii) the representations and warranties of
the Company contained in this Agreement (without regard to any
qualification with respect to materiality or to having a Material Adverse
Effect) shall be true and correct as of the date of this Agreement and as
of the Effective Time (except to the extent any such representation or
warranty expressly speaks as of an earlier date); provided, however, that
notwithstanding anything herein to the contrary, this Section 9.02(a)(ii)
shall be deemed to have been satisfied even if such representations or
warranties are not so true and correct unless the failure of such
representations or warranties to be so true and correct, individually or
in the aggregate, has had or would be reasonably likely to have a Material
Adverse effect on the Company, and (iii) Merger Subsidiary shall have
received a certificate signed by a duly authorized officer of the Company
to the foregoing effect;
(b) no arbitrator or Governmental Authority shall have issued any
judgment, injunction, order or decree and there shall not be any law or
regulation, restraining or prohibiting the effective operation of any
material portion of the business of the Surviving Corporation and its
Subsidiaries after the Effective Time;
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(c) the financing contemplated by the Commitment Letter to be
provided by the Bank shall have been provided on substantially the terms
and conditions identified in such Commitment Letter or on such other terms
and conditions or involving such other financing sources, as are
acceptable to Merger Subsidiary and are not materially more onerous;
provided, however, that this condition shall be deemed satisfied if the
failure of this condition is due to an intentional breach by Merger
Subsidiary of any covenant or intentional failure to perform any agreement
or an intentional breach by Merger Subsidiary of any representation or
warranty contained in any of the Financing Agreements with the Bank;
(d) each of the Family Shareholders shall have performed in all
material respects all of its obligations required to be performed by it
under the Shareholders Agreement at or prior to the Effective Time and the
representations and warranties of each of the Family Shareholders
contained in the Shareholders Agreement shall be true and correct in all
material respects as if made at the Effective Time; and
(e) the Company shall have executed and delivered the services
agreement in the form set forth in Section 9.02(e) of the disclosure
schedule delivered by Merger Subsidiary to the Company.
SECTION 9.03. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY. The
obligations of the Company to consummate the Merger are subject to the
satisfaction or waiver at or prior to the Effective Time of the following
further conditions:
(a) Merger Subsidiary shall have performed in all material respects
all of its obligations hereunder required to be performed by it at or prior to
the Effective Time;
(b) the representations and warranties of Merger Subsidiary
contained in this Agreement (without regard to any qualification with respect to
materiality or to having a Material Adverse Effect) shall be true and correct,
as of the date of this Agreement and as of the Effective Time (except to the
extent any such representation or warranty expressly speaks as of any earlier
date); provided, however, that notwithstanding anything herein to the contrary,
this Section 9.03(b) shall be deemed to have been satisfied even if such
representations or warranties are not so true and correct unless the failure of
such representations or warranties to be so true and correct, individually or in
the aggregate, has had or would be reasonably likely to have a Material Adverse
Effect on Merger Subsidiary; and
(c) the Company shall have received a certificate signed by a duly
authorized officer of Merger Subsidiary to the foregoing effect.
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ARTICLE 10
TERMINATION
SECTION 10.01. TERMINATION. This Agreement may be terminated and
the Merger may be abandoned at any time prior to the Effective Time
(notwithstanding any approval of this Agreement by the Company Shareholders):
(a) by mutual written agreement of the Company and Merger
Subsidiary;
(b) by either the Company or Merger Subsidiary, if:
(i) the Merger has not been consummated on or before October
24, 2001 (the "END DATE"); provided that the right to terminate this
Agreement pursuant to this Section 10.01(b)(i) shall not be
available to any party whose breach of any provision of this
Agreement results in the failure of the Merger to be consummated by
such time;
(ii) there shall be any law or regulation that makes
consummation of the Merger illegal or otherwise prohibited or any
judgment, injunction, order or decree of any Governmental Authority
having competent jurisdiction enjoining the Company or Merger
Subsidiary from consummating the Merger is entered and such
judgment, injunction, order or decree shall have become final and
nonappealable; or
(iii) the Amendment and this Agreement shall not have been
approved in accordance with this Agreement and the SCBCA by the
Company Shareholders at the Company Shareholders Meeting (or any
adjournment thereof);
(c) by Merger Subsidiary, if:
(i) a breach of or failure to perform any representation,
warranty, covenant or agreement on the part of the Company set forth
in this Agreement shall have occurred that would cause any condition
set forth in Section 9.02(a) hereof not to be satisfied, and such
condition is incapable of being satisfied by the Company by the End
Date; or
(ii) the Board of Directors or the Special Committee shall have
failed to make, withdrawn or modified in a manner adverse to Merger
Subsidiary its recommendation referred to in Section 8.02 hereof;
(d) by the Company, if:
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(i) a breach of or failure to perform any representation,
warranty, covenant or agreement on the part of Merger Subsidiary set
forth in this Agreement shall have occurred that would cause any
condition set forth in Section 9.03 hereof not to be satisfied, and
such condition is incapable of being satisfied by Merger Subsidiary
by the End Date; or
(ii) the Company shall have received from any Third Party an
Acquisition Proposal which the Board of Directors or the Special
Committee determines is more favorable to the Company Shareholders
(even if the consideration to be received by the Company
Shareholders for each Share may have less value than the Cash Merger
Consideration) and the Board of Directors or the Special Committee
determines in good faith (after consultation with outside legal
counsel to the Company) that adopting or recommending such offer is
reasonably likely to be required in the exercise of its respective
fiduciary duties under applicable law.
The party desiring to terminate this Agreement pursuant to this
Section 10.01 (other than pursuant to Section 10.01(a)) shall give notice of
such termination to the other party.
SECTION 10.02. EFFECT OF TERMINATION. If this Agreement is
terminated pursuant to Section 10.01 hereof, this Agreement shall become void
and of no effect without liability of any party (or any stockholder, member,
manager, director, officer, employee, agent, consultant or representative of
such party) to the other party hereto. The provisions of Sections 8.05, this
Section 10.02 and Article 11 shall survive any termination hereof pursuant to
Section 10.01.
ARTICLE 11
MISCELLANEOUS
SECTION 11.01. NOTICES. All notices, requests and other
communications to any party hereunder shall be in writing (including facsimile
transmission) and shall be given,
A-43
if to Merger Subsidiary, to:
Heartland Springs Investment Company
c/o Heartland Industrial Partners, L.P.
55 Railroad Avenue
Greenwich, Connecticut 06830
Fax: (203) 861-2722
Attn: David A. Stockman
and
---
Crandall C. Bowles
Springs Industries, Inc.
205 North White Street
Fort Mill, South Carolina 29715
Fax: (803) 547-1636
with a copy to:
Cahill Gordon & Reindel
80 Pine Street
New York, New York 10005
Fax: (212) 269-5420
Attn: W. Leslie Duffy, Esq.
Jonathan A. Schaffzin, Esq.
and
---
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Fax: (212) 403-2228
Attn: Elliott V. Stein, Esq.
if to the Company, to:
Springs Industries, Inc.
205 North White Street
Fort Mill, South Carolina 29715
Fax: (803) 547-1636
Attn: Chairman of Board
with a copy to:
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Springs Industries, Inc.
205 North White Street
Fort Mill, South Carolina 29715
Fax: (803) 547-3766
Attn: C. Powers Dorsett, Esq.
and to:
The Special Committee of the Company
c/o Charles W. Coker, Chairman
Sonoco Products Company
1 North 2nd Street
Hartsville, South Carolina 29550
Fax: (843) 339-6409
Attn: Charles W. Coker
with a copy to:
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
Fax: (212) 558-3588
Attn: Benjamin F. Stapleton, Esq.
or such other address or facsimile number as such party may hereafter specify
for the purpose by notice to the other parties hereto. All such notices,
requests and other communications shall be deemed received on the date of
receipt by the recipient thereof if received prior to 5:00 p.m., and such day is
a Business Day, in the place of receipt. Otherwise, any such notice, request or
communication shall be deemed not to have been received until the next
succeeding Business Day in the place of receipt.
SECTION 11.02. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties and agreements contained herein and in any
certificate or other writing delivered pursuant hereto shall not survive the
Effective Time, except for the agreements set forth in Sections 2.03, 2.04,
2.05, 2.06, 2.07, 2.08, 2.10, 2.11, 7.01, 8.05 and Article 11.
SECTION 11.03. AMENDMENTS; NO WAIVERS. (a) Any provision of this
Agreement may be amended or waived prior to the Effective Time if, but only if,
such amendment or waiver is in writing and is signed, in the case of an
amendment, by each party to this Agreement or, in the case of a waiver, by each
party against whom the waiver is to be effective; provided that, after the
approval of this Agreement by the Company Shareholders
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and without their further approval, no such amendment or waiver shall reduce the
amount or change the kind of consideration to be received in exchange for any
Converted Shares.
(b) No failure or delay by any party in exercising any right, power
or privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
SECTION 11.04. EXPENSES. (a) Except as otherwise provided in this
Section 11.04, all costs and expenses incurred in connection with this Agreement
shall be paid by the party incurring such cost or expense.
(b) If (i) this Agreement is terminated by Merger Subsidiary
pursuant to Section 10.01(c), (ii) this Agreement is terminated by the Company
pursuant to Section 10.01(d)(ii), or (iii) any Third Party shall have made,
proposed, communicated or disclosed an Acquisition Proposal in a manner which is
or otherwise becomes public prior to the termination of this Agreement and this
Agreement is terminated pursuant to Section 10.01(b)(i) or Section
10.01(b)(iii), the Company shall promptly upon request reimburse Merger
Subsidiary, Heartland and the Family Shareholders for their reasonable and
documented out-of-pocket expenses, including for legal counsel and investment
advisors and for the reasonable and documented out-of-pocket expenses incurred
by the Bank (including for its legal counsel) in connection with the
Transactions and the other matters contemplated by this Agreement, and the
financing thereof.
SECTION 11.05. SUCCESSORS AND ASSIGNS. The provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns; provided that no party may assign,
delegate or otherwise transfer any of its rights or obligations under this
Agreement without the consent of the other party hereto, except that Merger
Subsidiary may transfer or assign, in whole or from time to time in part, to one
or more of its Affiliates, the right to enter into the Transactions, but any
such transfer or assignment will not relieve Merger Subsidiary of its
obligations hereunder. Except as provided in Sections 7.01 and 11.04, no
provision of this Agreement is intended to confer any rights, benefits,
remedies, obligations or liabilities hereunder upon any Person other than the
parties hereto and their respective successors and assigns.
SECTION 11.06. GOVERNING LAW. The validity, construction and effect
of this Agreement shall be governed by and construed and enforced in accordance
with the laws of the State of South Carolina, without giving effect to the
principles of conflicts of law of such state.
SECTION 11.07. JURISDICTION. Any suit, action or proceeding seeking
to enforce any provision of, or based on any matter arising out of or in
connection with, this
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Agreement or the Transactions shall be brought in any federal court located in
the State of South Carolina or any South Carolina state court, and each of the
parties hereby consents to the jurisdiction of such courts (and of the
appropriate appellate courts therefrom) in any such suit, action or proceeding
and irrevocably waives, to the fullest extent permitted by law, any objection
that it may now or hereafter have to the laying of the venue of any such suit,
action or proceeding in any such court or that any such suit, action or
proceeding brought in any such court has been brought in an inconvenient forum.
Process in any such suit, action or proceeding may be served on any party
anywhere in the world, whether within or without the jurisdiction of any such
court. Without limiting the foregoing, each party agrees that service of process
on such party as provided in Section 11.01 hereof shall be deemed effective
service of process on such party.
SECTION 11.08. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO
HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL
PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS.
SECTION 11.09. COUNTERPARTS; EFFECTIVENESS. This Agreement may be
signed in any number of counterparts, each of which shall be an original, with
the same effect as if the signatures thereto and hereto were upon the same
instrument. This Agreement shall become effective when each party hereto shall
have received counterparts hereof signed by the other party hereto.
SECTION 11.10. ENTIRE AGREEMENT. This Agreement and the
Confidentiality Agreement constitute the entire agreement between the parties
with respect to the subject matter of this Agreement and supersede agreements
and understandings, both oral and written, between the parties with respect to
the subject matter of this Agreement. Exhibits and Schedules referred to herein
are incorporated by reference herein and shall constitute a part of this
Agreement.
SECTION 11.11. CAPTIONS. The captions herein are included for
convenience of reference only and shall be ignored in the construction or
interpretation hereof.
SECTION 11.12. SEVERABILITY. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void, unenforceable or against its regulatory
policy, the remainder of the terms, provisions, covenants and restrictions of
this Agreement shall remain in full force and effect and shall in no way be
affected, impaired or invalidated so long as the economic and legal substance of
the transactions contemplated hereby, taken as a whole, is not affected in a
manner materially adverse to either party hereto.
SECTION 11.13. SPECIFIC PERFORMANCE. The parties hereto agree that
irreparable damage would occur if any provision of this Agreement were not
performed in
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accordance with the terms hereof and that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement or to enforce
specifically the performance of the terms and provisions hereof in any federal
court located in the State of South Carolina or any South Carolina state court,
in addition to any other remedy to which they are entitled at law or in equity.
A-48
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorized officers as of the day and year
first above written.
SPRINGS INDUSTRIES, INC.
By: /s/ Crandall C. Bowles
-----------------------------------
Name: Crandall C. Bowles
Title: Chairman and CEO
HEARTLAND SPRINGS INVESTMENT COMPANY
By: /s/ David A. Stockman
-----------------------------------
Name: David A. Stockman
Title: President
A-49
APPENDIX B
[UBS WARBURG LOGO]
April 24, 2001
Special Committee of the Board of Directors
Springs Industries, Inc.
205 North White Street
Fort Mill, South Carolina 29715
Members of the Special Committee:
We understand that Springs Industries, Inc., a South Carolina corporation
(the "Company"), is considering a transaction (the "Transaction") whereby,
through a merger (the "Merger") of Heartland Springs Investment Company, a South
Carolina corporation ("Merger Subsidiary"), with the Company, Heartland
Industrial Partners, L.P. will acquire a significant interest in the Company and
the Company's shareholders (other than Continuing Shareholders (as defined in
the Recapitalization Agreement (as defined below)) and Dissenting Shareholders
(as defined in the Recapitalization Agreement)) will receive cash for their
Shares (as defined below). Pursuant to the terms of the Recapitalization
Agreement, dated as of April 24, 2001 (the "Recapitalization Agreement"),
between the Company and Merger Subsidiary, in connection with the Merger, among
other things, each issued and outstanding share of Class A common stock, par
value $.25 per share (the "Class A Shares"), and Class B common stock, par value
$.25 per share (the "Class B Shares" and, together with the Class A Shares, the
"Shares"), of the Company (other than Class B Shares that are owned by
Dissenting Shareholders and Continuing Shareholder Shares (as defined in the
Recapitalization Agreement)) will be converted into the right to receive an
amount equal to $46.00 in cash (the "Merger Consideration"). The Continuing
Shareholder Shares will not be converted and will not be otherwise affected by
the Merger and will remain outstanding as Class A Shares or Class B Shares, as
the case may be. The terms and conditions of the Transaction are more fully set
forth in the Recapitalization Agreement.
You have requested our opinion as to the fairness from a financial point of
view to the holders of Shares (other than holders of Continuing Shareholder
Shares and Dissenting Shareholders) of the Merger Consideration to be received
by such holders in the Merger.
UBS Warburg LLC ("UBSW") has acted as financial advisor to the Special
Committee of the Board of Directors of the Company in connection with the
Transaction. UBSW will receive a fee from the Company in connection with the
rendering of this opinion. In the ordinary course of business, UBSW, its
successors and affiliates may trade or have traded securities of the Company
B-1
for their own accounts and, accordingly, may at any time hold a long or short
position in such securities.
Our opinion does not address the Company's underlying business decision to
effect the Transaction or the Merger or constitute a recommendation to any
shareholder of the Company as to how such shareholder should vote with respect
to the Recapitalization Agreement or any other matter. We have not been asked
to, nor do we, at your direction, offer any opinion as to the material terms of
the Recapitalization Agreement or the form of the transactions contemplated
thereby. In rendering this opinion, we have assumed, with your consent, that the
final executed form of the Recapitalization Agreement does not differ in any
material respect from the drafts that we have examined, and that the Company and
Merger Subsidiary will comply with all the material terms of the
Recapitalization Agreement. We have not been authorized to and have not
solicited indications of interest from any party with respect to a business
combination with the Company.
In arriving at our opinion, we have, among other things: (i) reviewed
certain publicly available business and historical financial information
relating to the Company, (ii) reviewed the reported prices and trading activity
for the Class A Shares, (iii) reviewed certain internal financial information
and other data relating to the business and financial prospects of the Company,
including estimates and financial forecasts prepared by management of the
Company, that were provided to us by the Company and not publicly available,
(iv) conducted discussions with members of the senior management of the Company,
(v) reviewed publicly available financial and stock market data with respect to
certain other companies in lines of business we believe to be generally
comparable to those of the Company, (vi) compared the financial terms of the
Transaction with the publicly available financial terms of certain other
transactions which we believe to be generally relevant, (vii) reviewed drafts of
the Recapitalization Agreement, and (viii) conducted such other financial
studies, analyses, and investigations, and considered such other information as
we deemed necessary or appropriate.
In connection with our review, the Company's management provided us with
two sets of five-year financial forecasts for the Company, with one set entitled
"Scenario 1 (Lower Risk)" and the other set entitled "Scenario 2 (Higher Risk)."
In preparing the financial and comparative analyses in connection with the
rendering of this opinion, we were instructed by the Special Committee to
disregard and not take into consideration Scenario 2 (Higher Risk) because,
based on general economic and industry trends, the Company's past experience,
and the view of the Company's management as to the likelihood of achievement,
the Special Committee did not believe, with our concurrence, that Scenario 2
(Higher Risk) was likely to be achieved.
In addition, in connection with our review, with your consent, we have not
assumed any responsibility for independent verification of any of the
information reviewed by us for the purpose of this opinion and have, with your
consent, relied on its being complete and accurate in all material respects. In
addition, with your consent, we have not made any independent evaluation or
appraisal of any of the assets or liabilities (contingent or otherwise) of the
Company,
B-2
nor have we been furnished with any such evaluation or appraisal. With respect
to Scenario 1 (Lower Risk) financial forecasts referred to above, we have
assumed, with your consent, that they have been reasonably prepared on a basis
reflecting the best currently available estimates and judgements of the
management of the Company as to the future performance of the Company. Our
opinion is necessarily based on economic, monetary, market and other conditions
as in effect on, and the information made available to us as of, the date
hereof.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Merger Consideration to be received by the holders of Shares
(other than holders of Continuing Shareholder Shares and Dissenting
Shareholders) in the Merger is fair from a financial point of view to such
holders.
Very truly yours,
/s/ UBS Warburg LLC
------------------------------------
UBS WARBURG LLC
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APPENDIX C
Form of Amendment to the Articles of Incorporation
--------------------------------------------------
STATE OF SOUTH CAROLINA
SECRETARY OF STATE
ARTICLES OF AMENDMENT
Pursuant to Section 33-10-106 of the South Carolina Business Corporation
Act of 1988, the undersigned corporation adopts the following Articles of
Amendment ("Amendment") to its Restated Articles of Incorporation:
1. The name of the corporation is Springs Industries, Inc.
2. On [ ], 2001, the corporation adopted the following
Amendment to its Restated Articles of Incorporation pursuant to which the
following new Article 10 is added at the end thereof:
"10. INAPPLICABILITY OF BUSINESS COMBINATIONS ACT.
--------------------------------------------
Article 2 entitled "Business Combinations" of Chapter 2 entitled
"Take-Over Bid Disclosure Act" of Title 35 entitled "Securities" of
Code Laws of South Carolina, 1976 shall not apply to the corporation."
3. At the date of approval of this Amendment by the shareholders
of the corporation, the number of outstanding shares of each voting group
entitled to vote separately on the Amendment and the vote of such shares were:
Number of Votes
Number of Represented at Total Number
Number of Votes Represented at of Votes Cast
Outstanding Entitled -------------
Designation Shares to be Cast the Meeting For Against
- ----------- ----------- --------- --------------- --- -------
4. The effective date and time of these Articles of Amendment
shall be the date and time of acceptance for filing by the Secretary of State.
Date: [ ], 2001 SPRINGS INDUSTRIES, INC.
By:
----------------------------------
Name:
Title:
C-1
APPENDIX D
CHAPTER 13. DISSENTERS' RIGHTS
ARTICLE 1. RIGHTS TO DISSENT AND OBTAIN PAYMENT FOR SHARES
33-13-101 DEFINITIONS.--IN THIS CHAPTER:
(1) "Corporation" means the issuer of the shares held by a dissenter
before the corporate action, or the surviving or acquiring corporation by merger
or share exchange of that issuer.
(2) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under Section 33-13-102 and who exercises that right when and
in the manner required by Sections 33-13-200 through 33-13-280.
(3) "Fair value", with respect to a dissenter's shares, means the value of
the shares immediately before the effectuation of the corporate action to which
the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action to which the dissenter objects, excluding
any appreciation or depreciation in anticipation of the corporate action unless
exclusion would be inequitable. The value of the shares is to be determined by
techniques that are accepted generally in the financial community.
(4) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at a rate that is fair and
equitable under all the circumstances.
(5) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares to
the extent of the rights granted by a nominee certificate on file with a
corporation.
(6) "Beneficial shareholder" means the person who is a beneficial owner of
shares held by a nominee as the record shareholder.
(7) "Shareholder" means the record shareholder or the beneficial
shareholder.
33-13-102 RIGHT TO DISSENT.--(A) A shareholder is entitled to dissent from,
and obtain payment of the fair value of, his shares in the event of any of the
following corporate actions:
(1) consummation of a plan of merger to which the corporation is a party
(i) if shareholder approval is required for the merger by Section 33-11-103 or
the articles of incorporation and the shareholder is entitled to vote on the
merger or (ii) if the corporation is a subsidiary that is merged with its parent
under Section 33-11-104 or 33-11-108 or if the corporation is a parent that is
merged with its subsidiary under Section 33-11-108;
(2) consummation of a plan of share exchange to which the corporation is a
party as the corporation whose shares are to be acquired, if the shareholder is
entitled to vote on the plan;
(3) consummation of a sale or exchange of all, or substantially all, of the
property of the corporation other than in the usual and regular course of
business, if the shareholder is entitled to vote on the sale or exchange,
including a sale in dissolution, but not including a sale pursuant to court
order or a sale for cash pursuant to a plan by which all or substantially all of
the net proceeds of the sale must be distributed to the shareholders within one
year after the date of sale;
(4) an amendment of the articles of incorporation that materially and
adversely affects rights in respect of a dissenter's shares because it:
(i) alters or abolishes a preferential right of the shares;
(ii) creates, alters, or abolishes a right in respect of redemption,
including a provision respecting a sinking fund for the redemption or
repurchase, of the shares;
(iii) alters or abolishes a preemptive right of the holder of the shares to
acquire shares or other securities;
(iv) excludes or limits the right of the shares to vote on any matter, or
to cumulate votes, other than a limitation by dilution through issuance of
shares or other securities with similar voting rights; or
(v)reduces the number of shares owned by the shareholder to a fraction of a
share if the fractional share so created is to be acquired for cash under
Section 33-6-104; or
(5) IN THE CASE OF CORPORATIONS WHICH ARE NOT PUBLIC CORPORATIONS, the
approval of a control share acquisition under Article 1 of Chapter 2 of Title
35;
(6) any corporate action to the extent the articles of incorporation,
bylaws, or a resolution of the board of directors provides that voting or
nonvoting shareholders are entitled to dissent and obtain payment for their
shares.
(B) Notwithstanding subsection (A), no dissenters' rights under this
section are available for shares of any class or series of shares which, at the
record date fixed to determine shareholders entitled to receive notice of a vote
at the meeting of shareholders to act upon the agreement of merger or exchange,
were either listed on a national
D-1
securities exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities Dealers,
Inc.
33-13-103 DISSENT BY NOMINEES AND BENEFICIAL OWNERS.--(a) A record
shareholder may assert dissenters' rights as to fewer than all the shares
registered in his name only if he dissents with respect to all shares
beneficially owned by any one person and notifies the corporation in writing of
the name and address of each person on whose behalf he asserts dissenters'
rights. The rights of a partial dissenter under this subsection are determined
as if the shares to which he dissents and his other shares were registered in
the names of different shareholders.
(b) A beneficial shareholder may asserts dissenters' rights as to shares
held on his behalf only if he dissents with respect to all shares of which he is
the beneficial shareholder or over which he has power to direct the vote. A
beneficial shareholder asserting dissenters' rights to shares held on his behalf
shall notify the corporation in writing of the name and address of the record
shareholder of the shares, if known to him.
ARTICLE 2. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS
33-13-200 NOTICE OF DISSENTERS' RIGHTS.--(a) If proposed corporate action
creating dissenters' rights under Section 33-13-102 is submitted to a vote at a
shareholders' meeting, the meeting notice must state that shareholders are or
may be entitled to assert dissenters' rights under this chapter and be
accompanied by a copy of this chapter.
(b) If corporate action creating dissenters' rights under Section 33-13-102
is taken without a vote of shareholders, the corporation shall notify in writing
all shareholders entitled to assert dissenters' rights that the action was taken
and send them the dissenters' notice described in Section 33-13-220.
33-13-210 NOTICE OF INTENT TO DEMAND PAYMENT.--(a) If proposed corporate
action creating dissenters' rights under Section 33-13-102 is submitted to a
vote at a shareholders' meeting, a shareholder who wishes to assert dissenters'
rights (1) must give to the corporation before the vote is taken written notice
of his intent to demand payment for his shares if the proposed action is
effectuated and (2) must not vote his shares in favor of the proposed action. A
vote in favor of the proposed action cast by the holder of a proxy solicited by
the corporation shall not disqualify a shareholder from demanding payment for
his shares under this chapter.
(b) A shareholder who does not satisfy the requirements of subsection (a)
is not entitled to payment for his shares under this chapter.
33-13-220 DISSENTERS' NOTICE.--(a) If proposed corporate action creating
dissenters' rights under Section 33-13-102 is authorized at a shareholders'
meeting, the corporation shall deliver a written dissenters' notice to all
shareholders who satisfied the requirements of Section 33-13-210(a).
(b) The dissenters' notice must be delivered no later than ten days after
the corporate action was taken and must:
(1) state where the payment demand must be sent and where certificates for
certificated shares must be deposited;
(2) inform holders of uncertificated shares to what extent transfer of the
shares is to be restricted after the payment demand is received;
(3) supply a form for demanding payment that includes the date of the first
announcement to news media or to shareholders of the terms of the proposed
corporate action and requires that the person asserting dissenters' rights
certify whether or not he or, if he is a nominee asserting dissenters' rights on
behalf of a beneficial shareholder, the beneficial shareholder acquired
beneficial ownership of the shares before that date;
(4) set a date by which the corporation must receive the payment demand,
which may not be fewer than thirty nor more than sixty days after the date the
subsection (a) notice is delivered and set a date by which certificates for
certificated shares must be deposited, which may not be earlier than twenty days
after the demand date; and
(5) be accompanied by a copy of this chapter.
33-13-230 SHAREHOLDER'S PAYMENT DEMAND.--(a) A shareholder sent a
dissenters' notice described in Section 33-13-220 must demand payment, certify
whether he (or the beneficial shareholder on whose behalf he is asserting
dissenters' rights) acquired beneficial ownership of the shares before the date
set forth in the
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dissenters' notice pursuant to Section 33-13-220(b)(3), and deposit his
certificates in accordance with the terms of the notice.
(b) The shareholder who demands payment and deposits his share certificates
under subsection (a) retains all other rights of a shareholder until these
rights are canceled or modified by the taking of the proposed corporate action.
(c) A shareholder who does not comply substantially with the requirements
that he demand payment and deposit his share certificates where required, each
by the date set in the dissenters' notice, is not entitled to payment for his
shares under this chapter.
33-13-240 SHARE RESTRICTIONS.--(a) The corporation may restrict the
transfer of uncertificated shares from the date the demand for payment for them
is received until the proposed corporate action is taken or the restrictions are
released under Section 33-13-260.
(b) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until these
rights are canceled or modified by the taking of the proposed corporate action.
33-13-250 PAYMENT.--(a) Except as provided in Section 33-13-270, as soon as
the proposed corporate action is taken, or upon receipt of a payment demand, the
corporation shall pay each dissenter who substantially complied with Section
33-13-230 the amount the corporation estimates to be the fair value of his
shares, plus accrued interest.
(b) The payment must be accompanied by:
(1) the corporation's balance sheet as of the end of a fiscal year ending
not more than sixteen months before the date of payment, an income statement for
that year, a statement of changes in shareholders' equity for that year, and the
latest available interim financial statements, if any;
(2) a statement of the corporation's estimate of the fair value of the
shares and an explanation of how the fair value was calculated;
(3) an explanation of how the interest was calculated;
(4) a statement of the dissenter's right to demand additional payment under
section 33-13-280; and
(5) a copy of this chapter.
33-13-260 FAILURE TO TAKE ACTION.--(a) If the corporation does not take the
proposed action within sixty days after the date set for demanding payment and
depositing share certificates, the corporation, within the same sixty-day
period, shall return the deposited certificates and release the transfer
restrictions imposed on uncertificated shares.
(b) If, after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must send a new
dissenters' notice under Section 33-13-220 and repeat the payment demand
procedure.
33-13-270 AFTER-ACQUIRED SHARES.--(a) A corporation may elect to withhold
payment required by Section 33-13-250 from a dissenter as to any shares of which
he (or the beneficial owner on whose behalf he is asserting dissenters' rights)
was not the beneficial owner on the date set forth in the dissenters' notice as
the date of the first announcement to news media or to shareholders of the terms
of the proposed corporate action, unless the beneficial ownership of the shares
devolved upon him by operation of law from a person who was the beneficial owner
on the date of the first announcement.
(b) To the extent the corporation elects to withhold payment under
subsection (a), after taking the proposed corporate action, it shall estimate
the fair value of the shares, plus accrued interest, and shall pay this amount
of each dissenter who agrees to accept it in full satisfaction of his demand.
The corporation shall send with its offer a statement of its estimate of the
fair value of the shares, an explanation of how the fair value and interest were
calculated, and a statement of the dissenter's right to demand additional
payment under Section 33-13-280.
33-13-280 PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER.--(a)
A dissenter may notify the corporation in writing of his own estimate of the
fair value of his shares and amount of interest due and demand payment of his
estimate (less any payment under Section 33-13-250) or reject the corporation's
offer under Section 33-13-270 and demand payment of the fair value of his shares
and interest due, if the:
(1) dissenter believes that the amount paid under Section 33-13-250 or
offered under Section 33-13-270 is less than the fair value of his shares or
that the interest due is calculated incorrectly;
D-3
(2) corporation fails to make payment under Section 33-13-250 or to offer
payment under Section 33-13-270 within sixty days after the date set for
demanding payment; or
(3) corporation, having failed to take the proposed action, does not return
the deposited certificates or release the transfer restrictions imposed on
uncertificated shares within sixty days after the date set for demanding
payment.
(4) A dissenter waives his right to demand additional payment under this
section unless he notifies the corporation of his demand in writing under
subsection (a) within thirty days after the corporation made or offered payment
for his shares.
ARTICLE 3. JUDICIAL APPRAISAL OF SHARES
33-13-300 COURT ACTION.--(a) If a demand for additional payment under
Section 33-13-280 remains unsettled, the corporation shall commence a proceeding
within sixty days after receiving the demand for additional payment and petition
the court to determine the fair value of the shares and accrued interest. If the
corporation does not commence the proceeding within the sixty-day period, it
shall pay each dissenter whose demand remains unsettled the amount demanded.
(b) The corporation shall commence the proceeding in the circuit court of
the county where the corporation's principal office (or, if none in this State,
its registered office) is located. If the corporation is a foreign corporation
without a registered office in this State, it shall commence the proceeding in
the county in this State where the principal office (or, if none in this State,
the registered office) of the domestic corporation merged with or whose shares
were acquired by the foreign corporation was located.
(c) The corporation shall make all dissenters (whether or not residents of
this State) whose demands remain unsettled parties to the proceedings as in an
action against their shares and all parties must be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication, as provided by law.
(d) The jurisdiction of the court in which the proceeding is commenced
under subsection (b) is plenary and exclusive. The court may appoint persons as
appraisers to receive evidence and recommend decisions on the question of fair
value. The appraisers have the powers described in the order appointing them or
in any amendment to it. The dissenters are entitled to the same discovery rights
as parties in other civil proceedings.
(e) Each dissenter made a party to the proceeding is entitled to judgment
for the amount, if any, by which the court finds the fair value of his shares,
plus interest, exceeds the amount paid by the corporation.
33-13-310 COURT COSTS AND COUNSEL FEES.--(a) The court in an appraisal
proceeding commenced under Section 33-13-300 shall determine all costs of the
proceeding, including the reasonable compensation and expenses of appraisers
appointed by the court. The court shall assess the costs against the
corporation, except that the court may assess costs against all or some of the
dissenters, in amounts the court finds equitable, to the extent the court finds
the dissenters acted arbitrarily, vexatiously, or not in good faith in demanding
payment under Section 33-13-280.
(b) the court also may assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable:
(1) against the corporation and in favor of any or all dissenters if the
court finds the corporation did not comply substantially with the requirements
of Sections 33-13-200 through 33-13-280;
(2) against either the corporation or a dissenter, in favor of any other
party, if the court finds that the party against whom the fees and expenses are
assessed acted arbitrarily, vexatiously, or not in good faith with respect to
the rights provided by this chapter.
(c) If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the corporation, the court may
award to these counsel reasonable fees to be paid out of the amounts awarded the
dissenters who were benefited.
(d) In a proceeding commenced by dissenters to enforce the liability under
Section 33-13-300(a) of a corporation that has failed to commence an appraisal
proceeding with the sixty-day period, the court shall assess the costs of the
proceeding and the fees and expenses of dissenters' counsel against the
corporation and in favor of the dissenters.
D-4
APPENDIX E
AUDIT COMMITTEE CHARTER
This charter shall be approved by the board of directors, and it shall be
reviewed and its adequacy reassessed annually by the audit committee.
Role and Independence
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The audit committee of the board of directors assists the board in fulfilling
its responsibility for oversight of the quality and integrity of the accounting,
auditing, and reporting practices of the corporation and other such duties as
directed by the board. The membership of the committee shall consist of at least
three directors who, in the opinion of the board of directors, are generally
knowledgeable in financial and auditing matters. Each member shall be free of
any relationship that, in the opinion of the board, would interfere with his or
her individual exercise of independent judgment, and shall meet the audit
committee independence and expertise requirements for serving on audit
committees as set forth in the corporate governance standards of the New York
Stock Exchange.
Responsibilities
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The audit committee's primary responsibilities include:
1. Annually recommend to the board the independent auditor to be selected
or retained to audit the financial statements of the corporation. In so
doing, the committee will request from the auditor a written affirmation
that the auditor is in fact independent, discuss with the auditor any
relationships that may impact the auditor's independence, consider whether
the provision of non-audit services, if any, is compatible with maintaining
the auditor's independence, and, if so determined by the committee,
recommend to the board any actions necessary to oversee the auditor's
independence. The independent auditor is ultimately accountable to the
board of directors and the audit committee. The audit committee and the
board of directors have the ultimate authority to select, evaluate and,
when appropriate, replace the auditor.
2. Approve in advance any non-audit service to be provided by the independent
auditor which is expected to exceed a cost greater than $100,000.
3. Oversee the independent auditor relationship by discussing with the auditor
the nature and rigor of the audit process, receive and review audit
reports, audit and non-audit fees, and provide the auditor full access to
the committee (and the board) to report on any and all appropriate matters.
4. Provide guidance and oversight to the internal audit activities of the
corporation including reviews of the organization, plans and results of
such activity.
5. Review the audited financial statements and discuss them with management
and the independent auditor. Based on the review, the committee shall make
its recommendation to the board as to the inclusion of the company's
audited financial statements in the company's annual report on Form 10-K.
6. Review with management and the independent auditor the quarterly financial
information prior to the company's filing of Form 10-Q. This review may be
performed by the committee or its chairperson.
7. Discuss with management, the internal auditors, and the external auditors
the quality and adequacy of the company's internal controls.
8. Discuss with management the status of pending litigation, taxation matters,
and other areas of compliance with applicable laws and regulations and with
the company's code of conduct.
E-1
9. Report audit committee activities to the full board and issue annually a
report to be included in the proxy statement (including appropriate
oversight conclusions) for submission to the shareholders.
10. Review with independent auditor any problems or difficulties the auditor
may have encountered, as well as any significant reports prepared by
internal auditor or independent auditor, together with management response.
11. While the Audit Committee has the responsibilities and powers set forth in
this Charter, it is not the duty of the Audit Committee to plan or conduct
audits or to determine that the Company's financial statements are complete
and accurate and are in accordance with generally accepted accounting
principles This is the responsibility of management and the independent
auditor. Nor is it the duty of the Audit Committee to conduct
investigations, to resolve disagreements, if any, between management and
the independent auditor, or to assure compliance with laws and regulations
and the Company's Code of Conduct.
E-2
PRELIMINARY COPIES
SPRINGS INDUSTRIES, INC.
CLASS A COMMON STOCK
The Springs board of directors recommends a vote "FOR" the proposed
recapitalization agreement, a vote "FOR" the proposed amendment to the articles
of incorporation, a vote "FOR" all nominees and a vote "FOR" the ratification of
independent auditors.
1. Amendment to the Articles of Incorporation
FOR [ ] AGAINST [ ] ABSTAIN [ ]
2. Recapitalization Agreement
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. Election of Directors.
John F. Akers, Crandall C. Bowles, John L. Clendenin, Leroy S. Close,
Charles W. Coker, William G. Kelley, John H. McArthur, Aldo Papone,
Robin B. Smith, Sherwood H. Smith, Jr., and Stewart Turley
NOTE: If you do not wish your shares voted "FOR" a particular nominee, mark the
"FOR ALL EXCEPT" box and strike a line through that nominee's name. Your shares
will be voted for the remaining nominees.
FOR [ ] WITHHOLD [ ] FOR ALL EXCEPT [ ]
4. Ratification of the appointment of Deloitte & Touche LLP as independent
auditors.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
Mark box at right if comments or address [ ]
change has been noted on the reverse side
of this card.
Please be sure to sign and date this Proxy.
Date:
------------------------------------
------------------------------------
Shareholder sign here
------------------------------------
Co-owner sign here
Sign exactly as your name or names appear.
When signing in a representative capacity,
give title such as Trustee, Executor or
President.
- --------------------------------------------------------------------------------
DETACH CARD
PRELIMINARY COPIES
SPRINGS INDUSTRIES, INC.
Dear Shareholder:
Please take note of the important information enclosed with this Voting
Instruction Card regarding our Annual Meeting of Shareholders. Your vote counts,
and you are encouraged to exercise your right to vote your shares. Please mark
the boxes on the card to indicate how your shares are to be voted. Then sign the
card, detach it and return your proxy vote in the enclosed postage paid
envelope.
Your vote must be received prior to the Annual Meeting of Shareholders,
__________, 2001.
Thank you in advance for your prompt consideration of these matters.
Sincerely yours,
Chairman and Chief Executive Officer
PRELIMINARY COPIES
CLASS A COMMON CLASS A COMMON
SPRINGS INDUSTRIES, INC.
205 NORTH WHITE STREET
FORT MILL, SC 29715
Solicited by the Board of Directors
for the Annual Meeting of Shareholders on __________, 2001
The undersigned hereby appoints as Proxies Crandall C. Bowles and Charles W.
Coker, with the power of substitution to each, and hereby authorizes each to
represent and to vote all shares of Class A common stock of Springs Industries,
Inc. (the "Company") held of record by the undersigned as of the close of
business on June 27, 2001, at the Annual Meeting of Shareholders to be held on
__________, 2001, and any adjournments thereof, subject to any directions
indicated on the reverse side of this card. IF NO DIRECTIONS ARE GIVEN, THE
PROXIES WILL VOTE FOR THE PROPOSALS LISTED ON THE REVERSE SIDE AND AT THEIR
DISCRETION WITH RESPECT TO ANY OTHER MATTER THAT MAY COME BEFORE THE MEETING.
PLEASE MARK, DATE, SIGN, AND RETURN THIS PROXY CARD PROMPTLY, USING THE
ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES OF
AMERICA.
HAS YOUR ADDRESS CHANGED?
- ------------------------------------------------
- ------------------------------------------------
- ------------------------------------------------
DO YOU HAVE ANY COMMENTS?
- ------------------------------------------------
- ------------------------------------------------
- ------------------------------------------------
PRELIMINARY COPIES
SPRINGS INDUSTRIES, INC.
CLASS B COMMON STOCK
The Springs board of directors recommends a vote "FOR" the proposed
recapitalization agreement, a vote "FOR" the proposed amendment to the articles
of incorporation, a vote "FOR" all nominees and a vote "FOR" the ratification of
independent auditors.
1. Amendment to the Articles of Incorporation
FOR [ ] AGAINST [ ] ABSTAIN [ ]
2. Recapitalization Agreement
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. Election of Directors.
John F. Akers, Crandall C. Bowles, John L. Clendenin, Leroy S. Close,
Charles W. Coker, William G. Kelley, John H. McArthur, Aldo Papone,
Robin B. Smith, Sherwood H. Smith, Jr., and Stewart Turley
NOTE: If you do not wish your shares voted "FOR" a particular nominee, mark the
"FOR ALL EXCEPT" box and strike a line through that nominee's name. Your shares
will be voted for the remaining nominees.
FOR [ ] WITHHOLD [ ] FOR ALL EXCEPT [ ]
4. Ratification of the appointment of Deloitte & Touche LLP as independent
auditors.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
Mark box at right if comments or address [ ]
change has been noted on the reverse side
of this card.
Please be sure to sign and date this Proxy.
Date:
------------------------------------
------------------------------------
Shareholder sign here
------------------------------------
Co-owner sign here
Sign exactly as your name or names appear.
When signing in a representative capacity,
give title such as Trustee, Executor or
President.
- --------------------------------------------------------------------------------
DETACH CARD
PRELIMINARY COPIES
SPRINGS INDUSTRIES, INC.
Dear Shareholder:
Please take note of the important information enclosed with this Proxy Ballot
regarding our Annual Meeting of Shareholders. Your vote counts, and you are
encouraged to exercise your right to vote your shares. Please mark the boxes on
the proxy card to indicate how your shares are to be voted. Then sign the card,
detach it and return your proxy vote in the enclosed postage paid envelope.
Your vote must be received prior to the Annual Meeting of Shareholders,
__________, 2001.
Thank you in advance for your prompt consideration of these matters.
Sincerely yours,
Chairman and Chief Executive Officer
PRELIMINARY COPIES
CLASS B COMMON CLASS B COMMON
SPRINGS INDUSTRIES, INC.
205 NORTH WHITE STREET
FORT MILL, SC 29715
SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF SHAREHOLDERS ON __________, 2001
The undersigned hereby appoints as Proxies Crandall C. Bowles and Charles W.
Coker, with the power of substitution to each, and hereby authorizes each to
represent and to vote all shares of Class A common stock of Springs Industries,
Inc. (the "Company") held of record by the undersigned as of the close of
business on June 27, 2001, at the Annual Meeting of Shareholders to be held on
__________, 2001, and any adjournments thereof, subject to any directions
indicated on the reverse side of this card. IF NO DIRECTIONS ARE GIVEN, THE
PROXIES WILL VOTE FOR THE PROPOSALS LISTED ON THE REVERSE SIDE AND AT THEIR
DISCRETION WITH RESPECT TO ANY OTHER MATTER THAT MAY COME BEFORE THE MEETING.
PLEASE MARK, DATE, SIGN, AND RETURN THIS PROXY CARD PROMPTLY, USING THE
ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES OF
AMERICA.
HAS YOUR ADDRESS CHANGED?
- ------------------------------------------------
- ------------------------------------------------
- ------------------------------------------------
DO YOU HAVE ANY COMMENTS?
- ------------------------------------------------
- ------------------------------------------------
- ------------------------------------------------
PRELIMINARY COPIES
SPRINGS INDUSTRIES, INC.
SPRINGS OF ACHIEVEMENT PARTNERSHIP PLAN
CLASS A COMMON STOCK
The Springs board of directors recommends a vote "FOR" the proposed
recapitalization agreement, a vote "FOR" the proposed amendment to the articles
of incorporation, a vote "FOR" all nominees and a vote "FOR" the ratification of
independent auditors.
1. Amendment to the Articles of Incorporation
FOR [ ] AGAINST [ ] ABSTAIN [ ]
2. Recapitalization Agreement
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. Election of Directors.
John F. Akers, Crandall C. Bowles, John L. Clendenin, Leroy S. Close,
Charles W. Coker, William G. Kelley, John H. McArthur, Aldo Papone,
Robin B. Smith, Sherwood H. Smith, Jr., and Stewart Turley
NOTE: If you do not wish your shares voted "FOR" a particular nominee, mark the
"FOR ALL EXCEPT" box and strike a line through that nominee's name. Your shares
will be voted for the remaining nominees.
FOR [ ] WITHHOLD [ ] FOR ALL EXCEPT [ ]
4. Ratification of the appointment of Deloitte & Touche LLP as independent
auditors.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
Mark box at right if comments or address [ ]
change has been noted on the reverse side
of this card.
Please be sure to sign and date this Proxy.
Date:
------------------------------------
------------------------------------
Shareholder sign here
- --------------------------------------------------------------------------------
DETACH CARD
PRELIMINARY COPIES
SPRINGS INDUSTRIES, INC.
Dear Shareholder:
Please take note of the important information enclosed with this Proxy Ballot
regarding our Annual Meeting of Shareholders. Your vote counts, and you are
encouraged to exercise your right to vote your shares. Please mark the boxes on
the proxy card to indicate how your shares are to be voted. Then sign the card,
detach it and return your proxy vote in the enclosed postage paid envelope.
Your vote must be received prior to the Annual Meeting of Shareholders,
__________, 2001.
Thank you in advance for your prompt consideration of these matters.
Sincerely yours,
Chairman and Chief Executive Officer
PRELIMINARY COPIES
SPRINGS OF ACHIEVEMENT SPRINGS OF ACHIEVEMENT
PARTNERSHIP PLAN PARTNERSHIP PLAN
CLASS A COMMON CLASS A COMMON
SPRINGS INDUSTRIES, INC.
205 NORTH WHITE STREET
FORT MILL, SC 29715
SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF SHAREHOLDERS ON __________, 2001
The undersigned hereby directs Bankers Trust Company, or its proxy, to vote
shares of Springs Class A common stock allocated to my account under the Springs
of Achievement Partnership Plan as of the close of business on June 27, 2001, at
the Annual Meeting of Shareholders to be held on __________, 2001, and any
adjournments thereof, subject to any directions indicated on the reverse side of
this card. IF NO DIRECTIONS ARE GIVEN, THE PROXY WILL VOTE FOR THE PROPOSALS
LISTED ON THE REVERSE SIDE AND AT ITS DISCRETION WITH RESPECT TO ANY OTHER
MATTER THAT MAY COME BEFORE THE MEETING.
PLEASE MARK, DATE, SIGN, AND RETURN THIS PROXY CARD PROMPTLY, USING THE
ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES OF
AMERICA.
HAS YOUR ADDRESS CHANGED?
- ------------------------------------------------
- ------------------------------------------------
- ------------------------------------------------
DO YOU HAVE ANY COMMENTS?
- ------------------------------------------------
- ------------------------------------------------
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