EXHIBIT (a)(1)(A)
OFFER TO PURCHASE FOR CASH
Up to 2,500,000 but not less than 2,000,000
of the Outstanding Shares of Common Stock
(Including the Associated Common Stock Purchase Rights)
of
Katy Industries, Inc.
at
$8.00 Net Per Share in Cash
by
KKTY Holding Company, L.L.C.
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON TUESDAY, JUNE 5, 2001, UNLESS THE OFFER IS EXTENDED.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY
TENDERED AND NOT WITHDRAWN IMMEDIATELY PRIOR TO THE EXPIRATION OF THE OFFER AT
LEAST 2,000,000 SHARES OF COMMON STOCK, $1.00 PAR VALUE PER SHARE (THE "COMMON
STOCK"), INCLUSIVE OF THEIR RESPECTIVE ASSOCIATED COMMON STOCK PURCHASE RIGHTS
(THE "RIGHTS," AND THE SHARES OF COMMON STOCK INCLUSIVE OF THEIR RESPECTIVE
RIGHTS, THE "SHARES"), OF KATY INDUSTRIES, INC. (THE "COMPANY"). THE OFFER IS
ALSO SUBJECT TO CERTAIN OTHER CONDITIONS CONTAINED IN THIS OFFER TO PURCHASE.
SEE THE "INTRODUCTION" TO THIS OFFER TO PURCHASE AND SECTIONS 1 AND 15 HEREOF.
CERTAIN STOCKHOLDERS OF THE COMPANY HAVE AGREED TO TENDER IN THE AGGREGATE
AT LEAST 1,500,000 OF THEIR SHARES IN THE OFFER AT A PRICE OF $8.00 NET PER
SHARE IN CASH. SEE THE "INTRODUCTION" TO THIS OFFER TO PURCHASE AND SECTION 13
HEREOF.
THIS OFFER IS BEING MADE IN CONNECTION WITH THE PREFERRED STOCK PURCHASE AND
RECAPITALIZATION AGREEMENT, DATED AS OF MARCH 29, 2001 (THE "RECAPITALIZATION
AGREEMENT"), BETWEEN KKTY HOLDING COMPANY, L.L.C. ("PURCHASER") AND THE
COMPANY.
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THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY (OTHER THAN ONE
DIRECTOR WHO DID NOT VOTE BECAUSE OF A POTENTIAL CONFLICT OF INTEREST)
APPROVED THE OFFER AND THE RECAPITALIZATION AGREEMENT, HAS DETERMINED THAT THE
RECAPITALIZATION AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY,
INCLUDING THE OFFER, ARE FAIR TO AND IN THE BEST INTERESTS OF THE COMPANY'S
STOCKHOLDERS AND RECOMMENDS THAT THE COMPANY'S STOCKHOLDERS CONSIDER
ACCEPTANCE OF THE OFFER AND THE TENDER OF ALL OR SOME OF THEIR SHARES IN THE
OFFER.
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IMPORTANT
Any stockholder of the Company desiring to tender all or any portion of such
stockholder's shares should either (1) complete and sign the accompanying
Letter of Transmittal (or a manually signed facsimile thereof) in accordance
with the instructions in the Letter of Transmittal and mail or deliver the
Letter of Transmittal together with the certificate(s) representing the
tendered Shares, and all other required documents, to LaSalle Bank National
Association (the "Depositary"), (2) follow the procedure for book-entry
transfers set forth in Section 3, "Procedures for Tendering Shares," or (3)
request such stockholder's broker, dealer, commercial bank, trust company or
other nominee to effect the transaction for the stockholder. Stockholders
having Shares registered in the name of a broker, dealer, commercial bank,
trust company or other nominee must contact such person if they desire to
tender their Shares.
Any stockholder of the Company who desires to tender Shares and whose
certificates representing such Shares are not immediately available or who
cannot comply with the procedure for book-entry transfers on a timely basis or
who cannot deliver all required documents to the Depositary, in each case
prior to the expiration of the Offer, must tender such Shares by following the
guaranteed delivery procedures set forth in Section 3, "Procedures for
Tendering Shares."
Questions and requests for assistance may be directed to BB&T Capital
Markets, a division of Scott & Stringfellow, Inc. (the "Dealer Manager"), or
Innisfree M&A Incorporated (the "Information Agent"), at their respective
addresses and telephone numbers set forth on the back cover of this Offer to
Purchase. Additional copies of this Offer to Purchase, the Letter of
Transmittal, the Notice of Guaranteed Delivery and other related materials may
be obtained from the Information Agent or from brokers, dealers, commercial
banks and trust companies.
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The Dealer Manager for the Offer is:
[LOGO OF BB&T CAPITAL MARKETS]
909 East Main Street
Richmond, VA 23219
(804) 782-2005
April 25, 2001
TABLE OF CONTENTS
SUMMARY TERM SHEET........................................................ 1
INTRODUCTION.............................................................. 5
THE TENDER OFFER.......................................................... 8
1. Terms of the Offer; Proration..................................... 8
2. Acceptance for Payment and Payment for Shares..................... 9
3. Procedures for Tendering Shares................................... 11
4. Withdrawal Rights................................................. 13
5. Certain Federal Income Tax Consequences........................... 14
6. Price Range of Shares; Dividends on the Shares.................... 15
7. Effect of Offer on Market for Shares; New York Stock Exchange
Listing; Exchange Act Registration; Margin Regulations............ 16
8. Certain Information Concerning the Company........................ 17
9. Certain Information Concerning Purchaser.......................... 20
10. Source and Amount of Funds........................................ 22
11. Background of the Offer........................................... 22
12. Purpose of the Offer; Plans for the Company....................... 31
13. The Transaction Documents and the Recapitalization................ 33
14. Dividends and Distributions....................................... 49
15. Certain Conditions to Purchaser's Obligations..................... 49
16. Certain Regulatory and Legal Matters.............................. 52
17. Fees and Expenses................................................. 54
18. Miscellaneous..................................................... 54
ANNEX I Authorized Managers and Principals of Purchaser, Kohlberg Fund
IV, Kohlberg Management IV and Kohlberg & Co.................... I-1
SUMMARY TERM SHEET
KKTY Holding Company, L.L.C. is offering to purchase up to 2,500,000 shares
of the outstanding common stock of Katy Industries, Inc. ("Katy" or the
"Company"), including the associated common stock purchase rights, for $8.00
per share in cash. The following are some of the questions you, as a
stockholder of Katy, may have, and answers to those questions. We urge you to
read carefully the remainder of this Offer to Purchase and the Letter of
Transmittal because the information in this summary term sheet is not
complete. Additional important information is contained in the remainder of
this Offer to Purchase and the Letter of Transmittal.
Who is Offering to Buy My Securities?
Our name is KKTY Holding Company, L.L.C. We are a Delaware limited
liability company formed for the purpose of investing in Katy. We are a newly
formed limited liability company and have not conducted any business other
than in connection with the offer and the recapitalization agreement described
below. See the "Introduction" to this Offer to Purchase and Section 9,
"Certain Information Concerning Purchaser."
What are the Classes and Amounts of Securities Sought in the Offer?
We are seeking to purchase up to 2,500,000 but not less than 2,000,000 of
Katy's outstanding shares of common stock and the associated common stock
purchase rights. See the "Introduction" to this Offer to Purchase and Section
1, "Terms of the Offer; Proration."
How Much are You Offering to Pay? What is the Form of Payment? Will I Have to
Pay any Fees or Commissions?
We are offering to pay $8.00 per share, net to you, in cash. If you are the
record owner of your shares and you tender your shares to us in the offer, you
will not have to pay brokerage fees or similar expenses. If you own your
shares through a broker or other nominee, and your broker tenders your shares
on your behalf, your broker or nominee may charge you a fee for doing so. You
should consult your broker or nominee to determine whether any charges will
apply. See the "Introduction" to this Offer to Purchase.
Do You Have the Financial Resources to Make Payment?
All of the funds that we will need to acquire up to 2,500,000 outstanding
shares of Katy's common stock and pay related fees and expenses will be
provided through our sale of membership interests for cash to a private equity
fund comprised of four limited partnerships, each of which is our affiliate.
The private equity fund will purchase membership interests using its committed
pool of approximately $420 million of equity capital. See Section 10, "Source
and Amount of Funds."
Is Your Financial Condition Relevant to my Decision to Tender in the Offer?
Our financial condition may be relevant to your decision to tender your
Katy shares in the offer. However, since we were formed solely for the purpose
of investing in Katy, we have no meaningful historical financial information.
See Section 9, "Certain Information Concerning Purchaser." Katy's financial
condition may also be relevant to your decision whether to tender your shares
of Katy in the offer. See Section 8, "Certain Information Concerning the
Company."
How Long Do I Have to Decide Whether to Tender in the Offer?
Unless the offer is extended, you will have until 5:00 p.m., New York City
time, on Tuesday, June 5, 2001 to decide whether to tender your shares in the
offer. Furthermore, if you cannot deliver everything that is required in order
to make a valid tender by that time, you may be able to use a guaranteed
delivery procedure, which is described later in this Offer to Purchase. See
Section 1, "Terms of the Offer; Proration" and Section 3, "Procedures for
Tendering Shares."
1
Can the Offer be Extended and Under What Circumstances?
Subject to the terms of the recapitalization agreement, we may extend the
offer, but not beyond June 30, 2001. We have agreed in the recapitalization
agreement that, at Katy's request and if certain conditions are met, we will
extend the offer for up to an additional 20 business days. We may also extend
the offer in our sole discretion for up to an additional 20 business days. See
Section 1, "Terms of the Offer; Proration."
How Will I be Notified if the Offer is Extended?
If we extend the offer, we will inform LaSalle Bank National Association
(the Depositary for the offer) and Innisfree M&A Incorporated (the Information
Agent for the offer) of that fact and will make a public announcement of the
extension not later than 9:00 a.m., New York City time, on the next business
day after the day on which the offer was scheduled to expire. See Section 1,
"Terms of the Offer; Proration."
What are the Most Significant Conditions to the Offer?
We are not obligated to purchase any shares that are validly tendered
unless, among other things:
. at least 2,000,000 shares have been validly tendered and not properly
withdrawn before the expiration of the offer (we call this the "Minimum
Condition");
. at Katy's upcoming annual stockholders' meeting, Katy's stockholders
have duly (1) elected the directors of the Company's Board of Directors,
including five of our designees, (2) approved and adopted an amendment
to Katy's Certificate of Incorporation authorizing the classification of
Katy's board of directors into two classes and 600,000 shares of
convertible preferred stock and (3) authorized and approved the issuance
and the sale of 400,000 shares of Katy's convertible preferred stock to
us;
. Katy has consummated the sale of Hamilton Metals, L.P., one of Katy's
wholly owned subsidiaries, and has received gross proceeds in cash, net
of any retained liabilities of Hamilton retained by Katy, in an amount
not less than $20 million; and
. Katy has entered into definitive documentation with Bankers Trust
Company with respect to the credit facilities to be established in
connection with the refinancing of Katy's existing loans.
The offer is subject to other conditions as well. See the "Introduction" to
this Offer to Purchase, Section 1, "Terms of the Offer; Proration" and Section
15, "Certain Conditions to Purchaser's Obligations."
How Do I Tender My Shares?
To tender shares, you must deliver the certificates representing your
shares, together with a completed Letter of Transmittal and any other
documents required by the Letter of Transmittal, to LaSalle Bank National
Association, the Depositary for the offer, not later than the time the offer
expires. If your broker holds your shares in "street name," the shares can be
tendered by your nominee through The Depository Trust Company. If you are
unable to deliver any required document or instrument to the Depositary by the
expiration of the tender offer, you may gain some extra time by having a
broker, a bank or other fiduciary that is an eligible institution guarantee
that the missing items will be received by the Depositary within three New
York Stock Exchange trading days from the date of execution of the Notice of
Guaranteed Delivery. For your tender to be valid, however, the Depositary must
receive the missing items within that three trading day period. See Section 3,
"Procedures for Tendering Shares."
Until What Time May I Withdraw Previously Tendered Shares?
You may withdraw shares at any time until the offer has expired and, if we
have not accepted your shares for payment by June 23, 2001, you may withdraw
them at any time after that date until we accept shares for payment. See
Section 1, "Terms of the Offer; Proration" and Section 4, "Withdrawal Rights."
2
How Do I Withdraw Previously Tendered Shares?
To withdraw tendered shares, you must deliver a written notice of
withdrawal, or a facsimile of one, with the required information to the
Depositary while you still have the right to withdraw the shares. See Section
4, "Withdrawal Rights."
What Agreements Have Been Made with Katy's Stockholders?
In connection with entering into the recapitalization agreement with Katy,
we entered into a voting agreement with two Katy directors, trusts for the
benefit of members of the Wallace E. Carroll, Jr. family and entities
associated with the Carroll family, in their capacity as stockholders, in
which these persons agreed, among other things, to tender in the aggregate at
least 1,500,000 of their shares in the offer and to vote 2,500,000 of their
shares in favor of or against certain questions that may be put to them at
Katy's upcoming annual stockholders' meeting in accordance with the terms and
conditions of the voting agreement. See the "Introduction" to this Offer to
Purchase and Section 13, "The Transaction Documents and the Recapitalization."
What Happens if More Than 2,500,000 Shares Are Tendered?
We are seeking to purchase up to 2,500,000 of Katy's outstanding shares of
common stock. If more than that number of shares is validly tendered and not
withdrawn at the expiration of the offer, we will purchase shares on a pro
rata basis. This means that we will purchase from each tendering stockholder a
number of shares equal to the number of shares validly tendered and not
withdrawn by such stockholder multiplied by a proration factor. The proration
factor is equal to 2,500,000 (the number of shares we are offering to
purchase) divided by the total number of shares validly tendered and not
withdrawn by all stockholders. See Section 1, "Terms of the Offer; Proration."
When Will I Know How Many of My Shares Were Accepted for Payment?
Because of the difficulty of determining the number of shares validly
tendered and not withdrawn, we do not expect that we will be able to announce
the final proration factor or commence payment for any shares purchased
pursuant to the offer until approximately four New York Stock Exchange trading
days after the expiration of the offer. The preliminary results of any
proration will be announced by press release as promptly as practicable after
the time we accept shares for payment pursuant to the offer. Stockholders may
obtain such preliminary information from the Information Agent and may be able
to obtain such information from their brokers. See Section 1, "Terms of the
Offer; Proration."
What Happens to the Shares That Are Not Accepted for Purchase?
If any tendered shares are not accepted for payment for any reason, the
certificates for such unpurchased shares will be returned, without expense, to
the tendering stockholder, or such other person as the tendering stockholder
specifies in the letter of transmittal. This includes any shares not accepted
for payment as a result of proration. See Section 2, "Acceptance for Payment
and Payment for Shares."
What Does Katy's Board of Directors Think of the Offer?
We are making the offer pursuant to the recapitalization agreement between
us and Katy. Katy's board of directors unanimously (other than one director
who did not vote because of a potential conflict of interest) approved the
offer and the recapitalization agreement. Katy's board of directors determined
that the recapitalization agreement and the transactions contemplated thereby,
including the offer, are fair to and in the best interests of Katy's
stockholders and recommends that Katy's stockholders consider acceptance of
the offer and the tender of all or some of their shares in the offer. See the
"Introduction" to this Offer to Purchase.
3
Will Katy Remain a Public Company After the Offer?
Yes. We intend to preserve a public market for the shares and continue
making the required filings for Katy with the Securities and Exchange
Commission. After the offer, Katy will remain a public company whose common
stock will continue to trade on the New York Stock Exchange. See Section 12,
"Purpose of the Offer; Plans for the Company." By virtue of our ownership of
certain shares of convertible preferred stock of Katy which we will purchase
at the time we purchase the Shares pursuant to the offer, we will own
approximately 52% of Katy's outstanding shares of common stock calculated on a
fully diluted basis (excluding outstanding options) if we purchase the minimum
2,000,000 shares pursuant to the offer (or approximately 56% of Katy's
outstanding shares of common stock calculated on a fully diluted basis
(excluding outstanding options) if we purchase the maximum 2,500,000 shares
pursuant to the offer). Furthermore, so long as we own shares of convertible
preferred stock, we will have the right to nominate a majority of Katy's board
of directors, subject to election by the holders of shares of Katy's common
stock. See Section 13, "The Transaction Documents and the Recapitalization."
If I Decide Not to Tender, How Will the Offer Affect My Shares?
If fewer than 2,000,000 shares are validly tendered and not withdrawn in
the offer, then we are not obligated to purchase shares in the offer and may
terminate the offer, in which case the shares will remain outstanding and
continue to be traded on the New York Stock Exchange. If more than 2,000,000
shares are validly tendered and not withdrawn in the offer, and all the other
conditions to the offer are satisfied or waived by us, we will purchase up to
2,500,000 shares pursuant to the terms and conditions of the offer. Our
purchase of the shares will reduce the number of the shares that might
otherwise trade publicly and may reduce the number of holders of the shares,
which could adversely affect the liquidity and market value of the remaining
shares held by the public. See the "Introduction" to this Offer to Purchase
and Section 7, "Effect of Offer on Market for Shares; New York Stock Exchange
Listing; Exchange Act Registration; Margin Regulations."
What is the Market Value of My Shares as of a Recent Date?
On March 29, 2001, the last full trading day before we announced the
signing of the recapitalization agreement, the last sale price of Katy's
common stock reported on the New York Stock Exchange was $6.15 per share. On
April 24, 2001, the last trading day before we commenced the tender offer, the
closing price of Katy's common stock reported on the New York Stock Exchange
was $6.60. We encourage you to obtain a recent quotation for Katy's shares of
common stock in deciding whether to tender your shares. See Section 6, "Price
Range of Shares; Dividends on the Shares."
What are Certain United States Federal Income Tax Consequences of Tendering
Shares?
The receipt of cash for shares pursuant to the tender offer will be a
taxable transaction for United States federal income tax purposes. In general,
a stockholder who sells shares pursuant to the tender offer will recognize
gain or loss for United States federal income tax purposes equal to the
difference, if any, between the amount of cash received and the stockholder's
adjusted tax basis in the shares sold pursuant to the tender offer. See
Section 5, "Certain Federal Income Tax Consequences."
To Whom May I Speak if I Have Questions about the Tender Offer?
You may call Innisfree M&A Incorporated at (888) 750-5834 (the Information
Agent for the Offer) or BB&T Capital Markets, a division of Scott &
Stringfellow, Inc. (the Dealer Manager for the Offer) at (804) 782-2005. See
the back cover of this Offer to Purchase.
4
To the Holders of Common Stock of
Katy Industries, Inc.:
INTRODUCTION
KKTY Holding Company, L.L.C., a Delaware limited liability company
("Purchaser"), hereby offers to purchase up to 2,500,000 of the outstanding
shares of common stock, $1.00 par value per share (the "Common Stock"),
inclusive of their respective associated common stock purchase rights (the
"Rights," and the shares of Common Stock inclusive of their respective Rights,
the "Shares"), of Katy Industries, Inc., a Delaware corporation (the
"Company"), at a purchase price of $8.00 per share, net to the seller in cash,
without interest (the "Offer Price"), upon the terms and subject to the
conditions set forth in this Offer to Purchase and in the related Letter of
Transmittal (this Offer to Purchase and the Letter of Transmittal, and any
amendments or supplements hereto or thereto, collectively constitute the
"Offer"). The Rights were issued pursuant to the Rights Agreement, dated
January 13, 1995, as amended (the "Rights Agreement"), between the Company and
LaSalle Bank National Association, as Rights Agent, and are currently
evidenced by and trade with the certificates which evidence Common Stock. In
order to validly tender the Common Stock, the holder of such Common Stock must
tender the associated Rights. Unless a Distribution Date (as defined in the
Rights Agreement) has occurred, the tender of a share of Common Stock will
constitute the tender of the associated Rights. See Section 3, "Procedures for
Tendering Shares."
Purchaser is a limited liability company newly formed in connection with
the Offer and the transactions contemplated by the Recapitalization Agreement
(as hereinafter defined). For information concerning Purchaser, see Section 9,
"Certain Information Concerning Purchaser."
Tendering stockholders who are record owners of their Shares and who tender
directly to LaSalle Bank National Association (the "Depositary") will not be
obligated to pay brokerage fees or commissions or, except as set forth in
Instruction 6 to the Letter of Transmittal, stock transfer taxes with respect
to the purchase of Shares by Purchaser pursuant to the Offer. Stockholders who
hold their Shares through a broker or bank should consult such institution as
to whether it charges any service fees. Purchaser will pay all fees and
expenses of the Depositary and Innisfree M&A Incorporated (the "Information
Agent") for their respective services in connection with the Offer. See
Section 17, "Fees and Expenses."
The Company's Board of Directors has unanimously (other than one director
who did not vote because of a potential conflict of interest) approved the
Offer and the Recapitalization Agreement (as hereinafter defined), has
determined that the Recapitalization Agreement and the transactions
contemplated thereby, including the Offer, are fair to and in the best
interests of the Company's stockholders and recommends that the Company's
stockholders consider acceptance of the Offer and the tender of all or some of
their Shares in the Offer.
The Company's Board of Directors has received the written opinion of Bear,
Stearns & Co. Inc. ("Bear Stearns") to the effect that, as of March 29, 2001,
and subject to the various assumptions and limitations set forth therein, the
Offer and the Preferred Stock Purchase (as hereinafter defined), taken as a
whole, are fair to the Company's stockholders from a financial point of view.
A copy of that opinion is set forth in full as Annex A to the Company's
Definitive Proxy Statement on Schedule 14A (the "Proxy Statement"), which is
being mailed to the Company's stockholders, and stockholders are urged to read
the opinion in its entirety.
The Offer is conditioned upon, among other things: (i) there being validly
tendered and not withdrawn immediately prior to the expiration of the Offer at
least 2,000,000 Shares (the "Minimum Condition"); (ii) at the Company's
upcoming annual stockholders' meeting, the Company's stockholders having duly
(A) elected the directors of the Company's Board of Directors, including five
nominees designated by Purchaser, (B) approved and adopted an amendment to the
Company's Certificate of Incorporation authorizing the classification of the
Company's board of directors into two classes and
5
600,000 shares of convertible preferred stock and (C) authorized and approved
the issuance and the sale of 400,000 shares of the Company's convertible
preferred stock to Purchaser; (iii) the Company having consummated the sale of
Hamilton Metals, L.P., one of its wholly owned subsidiaries, and received
gross proceeds in cash, net of any retained liabilities of Hamilton retained
by the Company, in an amount not less than $20 million; and (iv) the Company
having entered into definitive documentation with Bankers Trust Company with
respect to the credit facilities to be established in connection with the
refinancing of the Company's existing loans. The Offer is also subject to the
satisfaction of certain other conditions. See Section 10, "Source and Amount
of Funds" and Section 15, "Certain Conditions to Purchaser's Obligations."
The Company has represented to Purchaser that, as of April 23, 2001, there
were 8,393,908 Shares issued and outstanding and no preferred shares
outstanding and, as of March 29, 2001, there were outstanding options to
purchase 759,350 Shares.
The Offer is being made pursuant to the Preferred Stock Purchase and
Recapitalization Agreement, dated March 29, 2001 (the "Recapitalization
Agreement"), between Purchaser and the Company. The Recapitalization Agreement
provides, among other things, for the making of the Offer by Purchaser. The
Recapitalization Agreement is more fully described in Section 13, "The
Transaction Documents and the Recapitalization--The Recapitalization
Agreement."
Two of the Company's directors, trusts for the benefit of members of the
Wallace E. Carroll, Jr. family and entities associated with the Carroll family
(collectively, the "Agreement Stockholders") have agreed to tender in the
aggregate at least 1,500,000 of their Shares in the Offer and to vote
2,500,000 of their Shares in favor of or against certain questions that may be
put to them in accordance with the terms and conditions of the Stock Voting
and Tender Agreement, dated March 29, 2001 (the "Voting Agreement"), by and
among Purchaser and the Agreement Stockholders. A copy of the Voting Agreement
is filed as an exhibit to the Tender Offer Statement on Schedule TO (together
with any exhibits, annexes, amendments or supplements thereto, the "Schedule
TO") filed by Offerer with the Securities and Exchange Commission (the "SEC").
As of April 23, 2001, the 2,500,000 Shares subject to the Voting Agreement
represent approximately 29.8% of the issued and outstanding shares of Common
Stock. See Section 13, "The Transaction Documents and the Recapitalization--
The Voting Agreement."
Pursuant to the terms of the Recapitalization Agreement, Purchaser will
purchase from the Company at the same time Purchaser purchases the Shares
pursuant to the Offer 400,000 shares of newly issued convertible preferred
stock, $100.00 par value per share, of the Company (the "Convertible Preferred
Stock") for a purchase price of $100 per share (or an aggregate purchase price
of $40 million). Purchaser's purchase of the Convertible Preferred Stock of
the Company pursuant to the Recapitalization Agreement is hereinafter referred
to as the "Preferred Stock Purchase." The consummation of the Preferred Stock
Purchase will take place concurrently with the acceptance for payment of the
Shares pursuant to the Offer at such time and date to be specified by the
parties (the "Closing Date"); provided that in no event shall such date be
later than June 30, 2001.
The Company has distributed one Right for each outstanding share of Common
Stock pursuant to the Rights Agreement. Based on the information disclosed by
the Company in the Recapitalization Agreement, in connection with the Company
entering into the Recapitalization Agreement, the Company's Board of Directors
determined that, pursuant to the conditions set forth in the Rights Agreement,
the Rights would not be distributed as a result of the execution, delivery or
performance of the Recapitalization Agreement, the announcement, making or
consummation of the Offer, the acquisition of the Shares pursuant to the Offer
or the consummation of any transaction contemplated by the Recapitalization
Agreement. If the Board had not so acted, a distribution of Rights, separate
from the Common Stock, might have resulted from the Offer, the
Recapitalization Agreement or any of the respective transactions contemplated
thereby.
Except as otherwise set forth herein, the information concerning the
Company contained in this Offer to Purchase and in the attached schedules and
annexes has been furnished by the Company or has been taken from or based upon
publicly available documents and records on file with the SEC and other public
sources. Purchaser does not assume any responsibility for the accuracy or
completeness of the information concerning the Company
6
furnished by the Company or contained in such documents and records or for any
failure by the Company to disclose events that may have occurred or may affect
the significance or accuracy of any such information but which are unknown to
Purchaser. Similarly, the Company does not assume any responsibility for the
accuracy or completeness of the information concerning Purchaser or any of its
affiliates contained in this Offer to Purchase or the Schedule TO or for any
failure by Purchaser or any of its affiliates to disclose events that may have
occurred or may affect the significance or accuracy of any such information
but which are unknown to the Company.
This Offer to Purchase and the related Letter of Transmittal contain
important information which should be read carefully before any decision is
made with respect to the Offer. This Offer to Purchase contains statements
that involve risks and uncertainties, including the risks associated with
satisfying the various conditions to the Offer. Additional risks and
uncertainties related to the Company are detailed in the Company's periodic
filings with the SEC. See Section 8, "Certain Information Concerning the
Company--Available Information."
7
THE TENDER OFFER
1. Terms of the Offer; Proration.
Upon the terms and subject to the conditions set forth in the Offer
(including, if the Offer is extended or amended, the terms and conditions of
any extension or amendment), Purchaser will accept for payment and pay for up
to 2,500,000 Shares validly tendered prior to the Expiration Date and not
properly withdrawn in accordance with Section 4, "Withdrawal Rights." If more
than 2,500,000 Shares are validly tendered and not properly withdrawn at the
Expiration Date, Purchaser will purchase Shares on a pro rata basis from all
tendering stockholders as explained herein. The term "Expiration Date" means
5:00 p.m., New York City time, on June 5, 2001, unless Purchaser shall have
extended the period of time for which the Offer is open, in which event the
term "Expiration Date" shall mean the latest time and date at which the Offer,
as so extended by Purchaser, shall expire.
Satisfaction of Offer Conditions. The Offer is conditioned upon
satisfaction of the Minimum Condition. The Offer is also subject to other
terms and conditions. See Section 15, "Certain Conditions to Purchaser's
Obligations." If the Minimum Condition or any of the other conditions to the
Offer described in Section 15 hereof (collectively, the "Offer Conditions")
have not been satisfied by 5:00 p.m. New York City time, on Tuesday, June 5,
2001 (or any other time then set as the Expiration Date), Purchaser may elect
(i) subject to the qualifications described above with respect to the
extension of the Offer, to extend the Offer and, subject to applicable
withdrawal rights, retain all tendered Shares until the expiration of the
Offer, as extended, subject to the terms of the Offer, (ii) subject to
complying with applicable rules and regulations of the SEC and to the terms of
the Recapitalization Agreement (including, if necessary, obtaining the prior
written consent of the Company), to waive all unsatisfied Offer Conditions and
accept for payment all Shares so tendered and not extend the Offer, (iii)
subject to the terms of the Recapitalization Agreement, amend the Offer, or
(iv) subject to the terms of the Recapitalization Agreement, to terminate the
Offer and not accept for payment any Shares and return all tendered Shares to
tendering stockholders.
Proration. Upon the terms and subject to the conditions of the Offer, if
more than 2,500,000 Shares are validly tendered and not properly withdrawn
prior to the Expiration Date, Purchaser will accept for payment and pay for
only 2,500,000 Shares on a pro rata basis (with appropriate adjustments to
avoid the purchase of fractional Shares) from each stockholder who has validly
tendered Shares in the Offer based on the number of Shares properly tendered
by each stockholder prior to the Expiration Date and not properly withdrawn.
In the event that proration of tendered Shares is required, Purchaser shall
determine the proration factor as soon as practicable following the Expiration
Date. Because of the difficulty of determining the precise number of Shares
validly tendered and not properly withdrawn prior to the Expiration Date (due
in part to the guaranteed delivery procedures described in Section 3 hereof),
Purchaser does not expect that it will be able to announce the final results
of such proration or pay for any Shares until approximately four New York
Stock Exchange ("NYSE") trading days after the Expiration Date. Stockholders
may obtain such preliminary information from the Information Agent and may be
able to obtain such information from their broker.
Extension of Offer. Pursuant to the Recapitalization Agreement, at the
Expiration Date the Offer may be extended for up to an additional 20 business
days, but not beyond June 30, 2001. If the period during which the Offer is
open is extended, Purchaser shall give oral or written notice of such
extension to the Information Agent and the Depositary and make a public
announcement of such extension. There can be no assurance that the Offer will
be extended.
Modification of Offer; Waiver of Offer Conditions. In the Recapitalization
Agreement, Purchaser has expressly reserved the right to waive any conditions
to the Offer (although, in some circumstances, only with the Company's
consent). Purchaser can make any other changes in the terms and conditions of
the Offer, subject to the conditions of applicable law or the regulations of
the SEC, except that, without the prior written consent of the Company,
Purchaser shall not decrease the Offer Price or change the form of
consideration payable in the Offer, reduce the minimum number of Shares that
is a condition to the Offer, increase the maximum number of
8
Shares to be purchased pursuant to the Offer, impose additional conditions to
the Offer or amend any other term of the Offer in any manner adverse to the
holders of Shares.
Delay or Termination of Offer. Subject to the terms of the Offer and the
Recapitalization Agreement and the satisfaction of all the Offer Conditions,
as of the Expiration Date Purchaser shall accept for payment and pay for all
Shares validly tendered and not withdrawn pursuant to the Offer (giving effect
to proration if the number of Shares validly tendered in, and not properly
withdrawn from, the Offer exceeds 2,500,000) as soon as practicable after it
is permitted to do so under applicable law. Other than as required by the
Recapitalization Agreement, and subject to the applicable rules and
regulations of the SEC, Purchaser expressly reserves the right, in its sole
discretion, to delay acceptance for payment of any Shares (or delay payment
for any Shares, regardless of whether such Shares were accepted for payment
pending the receipt of required governmental consents), or, subject to the
limitations set forth in the Recapitalization Agreement, to terminate the
Offer and not to accept for payment or pay for any Shares not accepted for
payment or paid for, upon the failure of any of the Offer Conditions, by
giving oral or written notice of such delay or termination to the Depositary.
Purchaser's right to delay payment for any Shares or not to pay for any Shares
accepted for payment is subject to the provisions of the Recapitalization
Agreement and the applicable rules and regulations of the SEC, including Rule
14e-1(c) under the Exchange Act. See Section 2, "Acceptance for Payment and
Payment for Shares."
Public Announcements. Any extension of the period during which the Offer is
open, or delay in acceptance for payment or payment, or termination or
amendment of the Offer, or waiver of an Offer Condition, will be followed, as
promptly as practicable, by public announcement thereof, such announcement in
the case of an extension to be issued not later than 9:00 a.m., New York City
time, on the next business day after the previously scheduled Expiration Date
in accordance with the public announcement requirements of Rules 14d-4(c),
14d-4(d) and 14e-1 under the Exchange Act. Without limiting the obligation of
Purchaser under such rule or the manner in which Purchaser may choose to make
any public announcement, Purchaser currently intends to make announcements by
issuing a press release to the Dow Jones News Service and making any
appropriate filing with the SEC.
Material Changes. If Purchaser makes a material change in the terms of the
Offer or the information concerning the Offer or if it waives a material
condition of the Offer, Purchaser will disseminate additional tender offer
materials and extend the Offer if and to the extent required by Rules 14d-
4(d), 14d-6(c) and 14e-1 under the Exchange Act or otherwise. The minimum
period during which an offer must remain open following material changes in
the terms of the offer or information concerning the offer, other than a
change in price, in the percentage of securities sought or in a dealer's
soliciting fee, will depend upon the facts and circumstances, including the
relative materiality of the terms or information changes. With respect to a
change in price, in the percentage of securities sought or in a dealer's
soliciting fee, a minimum 10 business day period is generally required to
allow for adequate dissemination to stockholders and investor response.
Dissemination to Stockholders. The Company has provided Purchaser with the
Company's list of stockholders and security position listings for the purpose
of disseminating the Offer to holders of Shares. This Offer to Purchase, the
Letter of Transmittal and other relevant materials will be mailed to record
owners of Shares and will be furnished to brokers, dealers, commercial banks,
trust companies and similar persons whose names, or the names of whose
nominees, appear on the list of stockholders or, if applicable, who are listed
as participants in a clearing agency's security position listing for
subsequent transmittal to beneficial owners of Shares.
Business Day. For purposes of the Offer, a "business day" means any day
other than a Saturday, Sunday or a federal holiday, and consists of the time
period from 12:01 a.m. through 12:00 midnight, New York City time.
2. Acceptance for Payment and Payment for Shares.
Upon the terms and subject to the Offer Conditions (including, if the Offer
is extended or amended, the terms and conditions of any such extension or
amendment), and the satisfaction or earlier waiver of all of the
9
Offer Conditions, Purchaser will purchase, by accepting for payment, and will
pay for, up to 2,500,000 Shares validly tendered and not properly withdrawn
prior to the Expiration Date promptly after the Expiration Date. See Section
15, "Certain Conditions to Purchaser's Obligations." Any determination
concerning the satisfaction or waiver of such terms and conditions will be
within the reasonable discretion of Purchaser, and such determination will be
final and binding on all tendering stockholders. As discussed below, subject
to compliance with Rule 14e-1(c) under the Exchange Act, Purchaser expressly
reserves the right to delay payment for Shares in order to comply in whole or
in part with any applicable law.
For purposes of the Offer, Purchaser will be deemed to have accepted for
payment, and thereby purchased, Shares validly tendered and not properly
withdrawn as of and when Purchaser gives oral or written notice to the
Depositary of Purchaser's acceptance of such Shares for payment, giving effect
to proration if the number of Shares validly tendered in, and not properly
withdrawn from, the Offer exceeds 2,500,000. Upon the terms and subject to the
conditions of the Offer, payment for Shares purchased pursuant to the Offer
will be made by deposit of the purchase price with the Depositary, which will
act as agent for tendering stockholders for the purpose of receiving payment
from Purchaser and transmitting such payment to tendering stockholders whose
Shares have been accepted for payment. Upon the deposit of funds with the
Depositary for the purpose of making payments to tendering stockholders,
Purchaser's obligation to make such payment will be satisfied and tendering
stockholders must thereafter look solely to the Depositary for payments of
amounts owed to them by reason of the acceptance for payment of Shares
pursuant to the Offer. In all cases, payment for Shares accepted for payment
pursuant to the Offer will be made only after timely receipt by the Depositary
of (i) certificates evidencing such Shares or timely confirmation (a "Book-
Entry Confirmation") of a book-entry transfer of such Shares into the
Depositary's account at The Depository Trust Company ("DTC"), pursuant to the
procedures set forth in Section 3, "Procedures for Tendering Shares," (ii) a
properly completed and duly executed Letter of Transmittal (or manually signed
facsimile thereof) with any required signature guarantees, or, in the case of
a book-entry transfer, an Agent's Message (as defined below), and (iii) any
other documents required by the Letter of Transmittal.
The term "Agent's Message" means a message transmitted by DTC to, and
received by, the Depositary and forming a part of a Book-Entry Confirmation,
which states that DTC has received an express acknowledgment from the
participant in DTC tendering the Shares that such participant has received and
agrees to be bound by the terms of the Letter of Transmittal and that
Purchaser may enforce such agreement against the participant.
If, for any reason whatsoever (including the extension of the Offer),
acceptance for payment of, or payment for, any Shares tendered pursuant to the
Offer is delayed, or Purchaser is unable to accept for payment, or pay for,
Shares tendered pursuant to the Offer, then, without prejudice to Purchaser's
rights under the Offer, the Depositary may, nevertheless, on behalf of
Purchaser, retain tendered Shares, and such Shares may not be withdrawn except
to the extent that the tendering stockholders are entitled to withdrawal
rights as described in Section 4, "Withdrawal Rights." However, the ability of
Purchaser to delay the payment for Shares that Purchaser has accepted for
payment is limited by (i) Rule 14e-1(c) under the Exchange Act, which requires
that a bidder pay the consideration offered or return the securities deposited
by or on behalf of stockholders promptly after the termination or withdrawal
of such bidder's offer, and (ii) the terms of the Recapitalization Agreement.
Purchaser expressly reserves the right to delay payment for Shares in order to
comply in whole or in part with any applicable law. See Section 15, "Certain
Conditions to Purchaser's Obligations." Under no circumstances will interest
be paid on the purchase price of the Shares to be paid by Purchaser,
regardless of any extension of the Offer or any delay in making such payment.
If any tendered Shares are not accepted for payment pursuant to the terms
and conditions of the Offer because of an invalid tender or for any other
reason (including, without limitation, proration due to tenders of more than
2,500,000 Shares), or if certificates are submitted evidencing more Shares
than are tendered, certificates for such unpurchased or untendered Shares will
be returned, without expense, to the tendering stockholder (or, in the case of
Shares delivered by book-entry transfer, to DTC pursuant to the provisions of
10
Section 3, "Procedures for Tendering Shares," such Shares will be credited to
an account maintained within DTC), as promptly as practicable after the
expiration, termination or withdrawal of the Offer.
If, prior to the Expiration Date, Purchaser increases the consideration
offered to stockholders pursuant to the Offer, such increased consideration
will be paid to all stockholders whose Shares are purchased pursuant to the
Offer.
Subject to obtaining the Company's consent as required pursuant to the
Recapitalization Agreement, Purchaser reserves the right to transfer or
assign, in whole or from time to time in part, to one or more direct or
indirect wholly owned subsidiaries of Purchaser, the right to purchase all or
any portion of the Shares tendered pursuant to the Offer, but any such
transfer or assignment will not relieve Purchaser of its obligations under the
Offer and will in no way prejudice the rights of tendering stockholders to
receive payment for Shares validly tendered and accepted for payment pursuant
to the Offer.
3. Procedures for Tendering Shares.
Valid Tenders. For Shares to be validly tendered pursuant to the Offer, a
properly completed and duly executed Letter of Transmittal (or a manually
signed facsimile thereof), with any required signature guarantees and any
other required documents, or an Agent's Message in the case of a book-entry
delivery, must be received by the Depositary at one of its addresses set forth
on the back cover of this Offer to Purchase prior to the Expiration Date. In
addition, either (i) certificates representing such Shares must be received by
the Depositary along with the Letter of Transmittal or such Shares must be
tendered pursuant to the procedure for book-entry transfers set forth below
(and a Book-Entry Confirmation received by the Depositary), in each case prior
to the Expiration Date, or (ii) the tendering stockholder must comply with the
guaranteed delivery procedure set forth below. No alternative, conditional or
contingent tenders will be accepted.
The method of delivery of certificates representing Shares, the Letter of
Transmittal and all other required documents, including delivery through DTC,
is at the election and sole risk of the tendering stockholder, and Shares will
be deemed delivered only when actually received by the Depositary. If delivery
is by mail, registered mail with return receipt requested, properly insured,
is recommended. In all cases, sufficient time should be allowed to ensure
timely delivery.
Book-Entry Transfer. The Depositary will make a request to establish an
account with respect to the Shares at DTC for purposes of the Offer within two
business days after the date of this Offer to Purchase. Any financial
institution that is a participant in DTC's system may make a book-entry
delivery of Shares by causing DTC to transfer such Shares into the
Depositary's account at DTC in accordance with DTC's procedures for transfer.
However, although delivery of Shares may be effected through book-entry at
DTC, either (i) the Letter of Transmittal (or a manually signed facsimile
thereof), properly completed and duly executed, with any required signature
guarantees and any other required documents, or an Agent's Message in the case
of a book-entry transfer, must, in any case, be transmitted to and received by
the Depositary at one of its addresses set forth on the back cover of this
Offer to Purchase prior to the Expiration Date or (ii) the tendering
stockholder must comply with the guaranteed delivery procedure described
below. Delivery of documents to DTC does not constitute delivery to the
Depositary.
Signature Guarantee. All signatures on a Letter of Transmittal must be
guaranteed by a financial institution (including most banks, savings and loan
associations and brokerage houses) that is a participant in the Security
Transfer Agents Medallion Program, the New York Stock Exchange Medallion
Signature Guarantee Program or the Stock Exchange Medallion Program (each an
"Eligible Institution"), unless the Shares tendered thereby are tendered (i)
by the registered holder(s) (which term, for purposes of this document, shall
include any participant in DTC's system whose name appears on a security
position listing as the owner of Shares) of Shares who has not completed the
box entitled "Special Delivery Instructions" or the box entitled "Special
Payment Instructions" on the Letter of Transmittal or (ii) for the account of
an Eligible Institution. See Instruction 1 to the Letter of Transmittal.
11
If a certificate is registered in the name of a person other than the
signer of the Letter of Transmittal, or if payment is to be made, or a
certificate not accepted for payment or not tendered is to be returned to a
person other than the registered holder(s), then the certificate must be
endorsed or accompanied by appropriate stock powers, in either case signed
exactly as the name(s) of the registered holder(s) appear(s) on the
certificate, with the signature(s) on such certificate or stock powers
guaranteed as described above.
Guaranteed Delivery. If a stockholder desires to tender Shares pursuant to
the Offer and such stockholder's certificates for Shares are not immediately
available, or time will not permit all required documents to reach the
Depositary prior to the Expiration Date, or the procedure for book-entry
transfers cannot be completed on a timely basis, such Shares may nevertheless
be tendered if such tender complies with all of the following guaranteed
delivery procedures:
. the tender is made by or through an Eligible Institution;
. a properly completed and duly executed Notice of Guaranteed Delivery,
substantially in the form provided by Purchaser herewith, is received by
the Depositary, as provided below, prior to the Expiration Date; and
. the certificates representing all tendered Shares, in proper form for
transfer (or a Book-Entry Confirmation with respect to all tendered
Shares), together with a properly completed and duly executed Letter of
Transmittal (or manually signed facsimile thereof), with any required
signature guarantees (or, in the case of a book-entry transfer, an
Agent's Message), and any other documents required by the Letter of
Transmittal, are received by the Depositary within three NYSE trading
days after the date of such Notice of Guaranteed Delivery. If
certificates are forwarded separately to the Depositary, a properly
completed and duly executed Letter of Transmittal (or a manually signed
facsimile thereof) must accompany each such Notice of Guaranteed
Delivery.
The Notice of Guaranteed Delivery may be delivered by hand or by overnight
courier or transmitted by telegram, facsimile transmission or mail to the
Depositary and must include a signature guarantee by an Eligible Institution
in the form set forth in the Notice of Guaranteed Delivery.
Notwithstanding any other provision hereof, payment for Shares accepted for
payment pursuant to the Offer will in all cases be made only after timely
receipt by the Depositary of (i) certificates for the Shares (or a Book-Entry
Confirmation), (ii) a properly completed and duly executed Letter of
Transmittal (or a manually signed facsimile thereof) with any required
signature guarantees (or an Agent's Message in connection with a book-entry
transfer of Shares), and (iii) any other documents required by the Letter of
Transmittal. Accordingly, tendering stockholders may be paid at different
times depending upon when certificates for Shares or Book-Entry Confirmations
are actually received by the Depositary. In all cases, sufficient time should
be allowed to ensure timely delivery. Under no circumstances will interest be
paid on the purchase price of the Shares to be paid by Purchaser.
Backup Federal Income Tax Withholding and Substitute Form W-9. Under the
"backup withholding" provisions of federal income tax law, the Depositary may
be required to withhold 31% of the amount of any payments of cash made
pursuant to the Offer. In order to avoid backup withholding, each stockholder
surrendering Shares in the Offer must, unless an exemption applies, provide
the Depositary with such stockholder's correct taxpayer identification number
("TIN") on a substitute form W-9 and certify, under penalties of perjury, that
such TIN is correct and that such stockholder is not subject to backup
withholding. If a stockholder does not provide its correct TIN or fails to
provide the certifications described above, the Internal Revenue Service
("IRS") may impose a penalty on such stockholder, and payment of cash to such
stockholder pursuant to the Offer may be subject to backup withholding of 31%.
All stockholders surrendering Shares pursuant to the Offer should complete and
sign the substitute Form W-9 included in the Letter of Transmittal to provide
the information and certification necessary to avoid backup withholding
(unless an applicable exemption exists and is proved in a manner satisfactory
to the Depositary). Certain stockholders (including, among others, all
corporations and certain foreign individuals and entities) are not subject to
backup withholding. Noncorporate foreign stockholders should complete and sign
a Form W-8, Certificate of Foreign Status, a copy of which may
12
be obtained from the Depositary, in order to avoid withholding of U.S. federal
income taxes. See Instruction 9 to the Letter of Transmittal for a discussion
of certain federal income tax considerations.
Determinations of Validity. All questions as to the form of documents and
the validity, eligibility (including time of receipt) and acceptance for
payment of any tender of Shares will be determined by Purchaser, in its sole
discretion, and its determination will be final and binding on all parties.
Purchaser reserves the absolute right to reject any or all tenders of any
Shares (i) that are determined by it not to be in proper form or (ii) the
acceptance for payment of or payment for which may, in the opinion of
Purchaser or its counsel, be unlawful. Purchaser also reserves the absolute
right, in its sole discretion, to waive any of the Offer Conditions (other
than as prohibited by the Recapitalization Agreement, as described in Section
1, "Terms of the Offer; Proration") or any defect or irregularity in the
tender of any Shares, whether or not similar defects or irregularities are
waived in the case of other Shares. No tender of Shares will be deemed to have
been validly made until all defects and irregularities have been cured or
waived to the satisfaction of Purchaser. None of Purchaser, the Dealer
Manager, the Depositary, the Information Agent or any other person will be
under any duty to give notification of any defects or irregularities in
tenders or incur any liability for failure to give any such notification.
Purchaser's interpretation of the terms and conditions of the Offer (including
the Letter of Transmittal and the Instructions thereto) will be final and
binding on all parties.
Appointment. By executing the Letter of Transmittal as set forth above, a
tendering stockholder will irrevocably appoint designees of Purchaser as the
attorneys-in-fact and proxies of such stockholder in the manner set forth in
the Letter of Transmittal, each with full power of substitution, to the full
extent of such stockholder's rights with respect to the Shares tendered by
such stockholder and accepted for payment by Purchaser (and any and all other
Shares or other securities or rights issued or issuable in respect of such
Shares on or after the date that the Offer is commenced or the date on which
the Letter of Transmittal is executed), including, without limitation, the
right to vote such Shares in such manner as such designees or their
substitutes shall, in their sole discretion, deem proper. All such powers of
attorney and proxies shall be considered coupled with an interest in the
tendered Shares. Such appointment will be effective when, and only to the
extent that, Purchaser accepts such Shares for payment. Upon such acceptance
for payment, all prior powers of attorney and proxies given by the stockholder
with respect to such Shares will be revoked, without further action, and no
subsequent powers of attorney and proxies may be given (and, if given, will be
deemed ineffective). The designees of Purchaser will, with respect to the
Shares for which such appointment is effective, be empowered to exercise all
voting and other rights of such stockholder as they in their sole judgment
deem proper. Purchaser reserves the right to require that, in order for Shares
to be deemed validly tendered, immediately upon the acceptance for payment of
such Shares, Purchaser or its designees must be able to exercise full voting
rights with respect to such Shares, including voting at any meeting of
stockholders then or thereafter scheduled.
The tender of Shares pursuant to any one of the procedures described above
will constitute the tendering stockholder's acceptance of the terms and
conditions of the Offer as well as the tendering stockholder's representation
and warranty that (a) such stockholder has a net long position in the Shares
being tendered within the meaning of Rule 14e-4 under the Exchange Act and (b)
the tender of such Shares complies with Rule 14e-4. It is a violation of Rule
14e-4 for a person, directly or indirectly, to tender Shares for such person's
own account unless, at the time of tender, the person so tendering (i) has a
net long position equal to or greater than the amount of (x) Shares tendered
or (y) other securities immediately convertible into or exchangeable or
exercisable for the Shares tendered and such person will acquire such Shares
for tender by conversion, exchange or exercise and (ii) will cause such Shares
to be delivered in accordance with the terms of the Offer. Rule 14e-4 provides
a similar restriction applicable to the tender or guarantee of a tender on
behalf of another person. Purchaser's acceptance for payment of Shares
tendered pursuant to the Offer will constitute a binding agreement between the
tendering stockholder and Purchaser upon the terms and subject to the
conditions of the Offer.
4. Withdrawal Rights.
Shares tendered pursuant to the Offer may be withdrawn pursuant to the
procedure set forth below at any time prior to the Expiration Date and, until
accepted for payment pursuant to the Offer, may also be withdrawn at any time
after June 23, 2001.
13
For a withdrawal to be effective, a written or facsimile notice of
withdrawal must be timely received by the Depositary at one of its addresses
set forth on the back cover of this Offer to Purchase. Any notice of
withdrawal must specify the name, address and social security number or
taxpayer identification number of the person who tendered the Shares to be
withdrawn, the number of Shares to be withdrawn and the name of the registered
holder of such Shares, if different from that of the person who tendered the
Shares. If certificates for Shares to be withdrawn have been delivered or
otherwise identified to the Depositary, then, prior to the physical release of
such certificates, the serial numbers shown on such certificates must be
submitted to the Depositary and, unless such Shares have been tendered by an
Eligible Institution, the signatures on the notice of withdrawal must be
guaranteed by an Eligible Institution. If Shares have been tendered pursuant
to the procedure for book-entry transfers set forth in Section 3, "Procedures
for Tendering Shares," such Shares may only be withdrawn by means of the
withdrawal procedures made available by DTC and any notice of withdrawal must
also specify the name and number of the account at DTC to be credited with the
withdrawn Shares and must otherwise comply with DTC's procedures. Withdrawals
of tenders of Shares may not be rescinded, and any Shares properly withdrawn
will thereafter be deemed not validly tendered for any purposes of the Offer.
However, withdrawn Shares may be retendered again following one of the
procedures described in Section 3, "Procedures for Tendering Shares," at any
time prior to the Expiration Date.
If Purchaser extends the Offer, or if purchase of or payment for Shares is
delayed for any reason, or if Purchaser is unable to purchase or pay for
Shares for any reason, then, without prejudice to Purchaser's rights under the
Offer, tendered Shares may be retained by the Depositary on behalf of
Purchaser and may not be withdrawn except to the extent that tendering
stockholders are entitled to withdrawal rights as set forth in this Section 4.
The foregoing is subject to Rule 14e-1(c) under the Exchange Act, which
provides that no person who makes a tender offer shall fail to pay the
consideration offered or return the securities deposited by or on behalf of
security holders promptly after the termination or withdrawal of the Offer,
and subject to Purchaser's obligations under the Recapitalization Agreement.
See Section 2, "Acceptance for Payment and Payment for Shares."
All questions as to the form and validity (including time of receipt) of
notices of withdrawal will be determined by Purchaser, in its sole discretion,
and its determination will be final and binding on all parties. None of
Purchaser, the Dealer Manager, the Depositary, the Information Agent or any
other person will be under any duty to give notification of any defects or
irregularities in any notice of withdrawal or incur any liability for failure
to give any such notification.
5. Certain Federal Income Tax Consequences.
The following is a summary of certain federal income tax consequences of
the Offer to holders whose Shares are purchased pursuant to the Offer. The
summary is based on the provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), applicable current and proposed United States Treasury
Regulations issued thereunder, judicial authority and administrative rulings
and practice, all of which are subject to change, possibly with retroactive
effect, at any time and, therefore, the following statements and conclusions
could be altered or modified. The discussion does not address holders of
Shares in whose hands Shares are not capital assets, nor does it address
holders who received or hold Shares as part of a hedging, "straddle,"
conversion or other integrated transaction, who acquired Shares upon
conversion of securities or exercise of warrants or other rights to acquire
Shares or pursuant to the exercise of employee stock options or otherwise as
compensation, or holders of Shares who are in special tax situations (such as
insurance companies, tax-exempt organizations, financial institutions, United
States expatriates or non-U.S. persons). Furthermore, the discussion does not
address any aspect of foreign, state or local taxation or estate and gift
taxation.
The federal income tax consequences set forth below are included for
general informational purposes only and are based upon current law. The
following summary does not purport to consider all aspects of United States
federal income taxation that might be relevant to stockholders of the Company.
Because individual circumstances may differ, each holder of Shares should
consult such holder's own tax advisor
14
to determine the applicability of the rules discussed below to such
stockholder and the particular tax effects of the Offer, including the
application and effect of state, local and other tax laws.
The receipt of cash for Shares pursuant to the Offer will be a taxable
transaction for federal income tax purposes. In general, for federal income
tax purposes, a holder of Shares will recognize gain or loss equal to the
difference between the holder's adjusted tax basis in the Shares sold pursuant
to the Offer and the amount of cash received therefor. Gain or loss must be
determined separately for each block of Shares (i.e., Shares acquired at the
same cost in a single transaction) sold pursuant to the Offer. Such gain or
loss will be capital gain or loss and will be long-term capital gain or loss
if, on the date of sale, the Shares were held for more than one year. In the
case of an individual, net long-term capital gain generally is subject to tax
at a maximum rate of 20% and net capital losses may be subject to limits on
deductibility.
A holder that tenders Shares pursuant to the Offer may be subject to
"backup withholding" at a 31% rate. Backup withholding generally applies if
the stockholder (i) fails to furnish its social security number or other TIN,
(ii) furnishes an incorrect TIN, or (iii) fails to certify, under penalties of
perjury, that such TIN is correct and that such holder is not subject to
backup withholding; or unless an exemption applies. See "Backup Federal Income
Tax Withholding and Substitute Form W-9" under Section 3 hereof and
Instruction 9 to the Letter of Transmittal.
6. Price Range of Shares; Dividends on the Shares.
According to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 2000 (the "Company 10-K"), the Shares trade on the NYSE
under the symbol "KT."
According to the Company's public filings, the Company has paid regular
cash dividends of $.30 per share in the last two fiscal years. Pursuant to the
Recapitalization Agreement, the Company has agreed that, without the prior
written consent of Purchaser, it will not authorize or pay any dividends on or
make any distribution with respect to its Common Stock from March 29, 2001 to
the Closing Date, except for regular quarterly dividends not in excess of
$.075 per share. On March 30, 2001, the Company announced that its Board of
Directors had determined to suspend payments of quarterly dividends. The
Company anticipates that the new financing arrangements to be entered into
with Bankers Trust Company in connection with the consummation of the Offer
and the Preferred Stock Purchase will restrict the payment of dividends by the
Company. See Section 13, "The Transaction Documents and the Recapitalization--
The Recapitalization--Refinancing with Bankers Trust Company."
The following table sets forth the high and low sales prices per Share on
the NYSE for the periods indicated, as reported in published financial
sources.
High Low
------ ------
Fiscal Year Ended December 31, 1999:
First Quarter (ended March 31, 1999)...................... $17.88 $13.00
Second Quarter (ended June 30, 1999)...................... 18.19 13.00
Third Quarter (ended September 30, 1999).................. 13.38 10.88
Fourth Quarter (ended December 31, 1999).................. 12.25 7.63
Fiscal Year Ended December 31, 2000:
First Quarter (ended March 31, 2000)...................... $12.00 $ 8.13
Second Quarter (ended June 30, 2000)...................... 14.31 8.63
Third Quarter (ended September 30, 2000).................. 12.19 6.75
Fourth Quarter (ended December 31, 2000).................. 10.00 5.13
Fiscal Year Ended December 31, 2001:
First Quarter (ended March 31, 2001)...................... $ 8.00 $ 5.60
Second Quarter (through April 24, 2001)................... 7.12 6.40
15
The closing sale price per Share on the NYSE on March 29, 2001, the last
full day of trading prior to the public announcement of Purchaser's intention
to make the Offer, was $6.15. The closing sale price per Share on the NYSE on
April 24, 2001, the last full day of trading prior to the commencement of the
Offer, was $6.60. Stockholders are urged to obtain current market quotations
for the Shares and to review all information received by them from the
Company, including the materials referred to in Section 8, "Certain
Information Concerning the Company."
7. Effect of Offer on Market for Shares; New York Stock Exchange Listing;
Exchange Act Registration; Margin Regulations.
Market for the Shares. The purchase of the Shares by Purchaser pursuant to
the Offer will reduce the number of Shares that might otherwise trade publicly
and may reduce the number of holders of Shares, which could adversely affect
the liquidity and market value of the remaining Shares held by stockholders
other than Purchaser. Purchaser cannot predict whether the reduction in the
number of Shares that might otherwise trade publicly would have an adverse or
beneficial effect on the market price for, or marketability of, the Shares or
whether it would cause future market prices to be greater or lesser than the
Offer Price.
New York Stock Exchange Listing. Purchaser currently does not intend to
seek delisting of the Shares from the NYSE following consummation of the
Offer, although such Shares may nonetheless be delisted on the NYSE as
described below. The Shares are currently listed and traded on the NYSE, which
constitutes the principal trading market for the Shares. Depending upon the
number of Shares purchased pursuant to the Offer, the Shares may no longer
meet the standards for continued listing on the NYSE. According to the NYSE's
published guidelines, the NYSE would consider delisting the Shares if, among
other things, the number of publicly held Shares falls below 600,000 (Shares
held by officers or directors of the Company or their immediate families, or
by any beneficial owner of 10% or more of the Shares, ordinarily will not be
considered to be publicly held for this purpose) or the number of total
stockholders falls below 400 (or below 1,200 if the average monthly trading
volume is below 100,000 for the last 12 months). In addition, the NYSE would
consider delisting the Shares if either the aggregate market capitalization of
the Shares and the total stockholders' equity of the Company both fall below
$50 million or the aggregate market capitalization of the Shares falls below
$15 million. In determining the aggregate market capitalization, the NYSE will
look at the total Shares outstanding (excluding treasury shares) as well as
any Shares that would be issued upon conversion of the Convertible Preferred
Stock. If, as a result of the purchase of Shares pursuant to the Offer or
otherwise, the Shares no longer meet the requirements of the NYSE for
continued listing and the listing of the Shares is discontinued, the market
for the Shares could be adversely affected. However, Purchaser does not
believe that the purchase of Shares pursuant to the Offer will cause the
Shares to be delisted by the NYSE. If the NYSE were to delist the Shares,
Purchaser would cause the Company to apply to qualify the Shares to trade on
another securities exchange or to be quoted in the over-the-counter market and
it would be possible that price or other quotations would be reported by such
exchange or through the Nasdaq National Market, The Nasdaq SmallCap Market or
through other sources. The extent of the public market for such Shares and the
availability of such quotations would depend, however, upon such factors as
the number of stockholders and/or the aggregate market value of such Shares
remaining at such time, the interest in maintaining a market in the Shares on
the part of securities firms, the possible termination of registration under
the Exchange Act as described below and other factors.
Exchange Act Registration. The Shares are currently registered under the
Exchange Act, and Purchaser currently does not intend to seek the termination
of such registration following consummation of the Offer. Such registration
may be terminated upon application by the Company to the SEC if the Common
Stock is held of record by less than 300 persons. If such registration were
terminated, (i) the Company would no longer be legally required to disclose
publicly in proxy materials distributed to stockholders the information which
it now must provide under the Exchange Act or to make public disclosure of
financial and other information in annual, quarterly and other reports
required to be filed with the SEC under the Exchange Act; (ii) the officers,
directors and 10% stockholders of the Company would no longer be subject to
the "short-swing" insider trading reporting and profit recovery provisions of
Section 16(b) of the Exchange Act, the proxy statement requirements of Section
14(a) of the Exchange Act in connection with stockholders' meetings or the
requirements of Rule 13e-3 under
16
the Exchange Act with respect to "going private transactions"; and (iii) the
Common Stock would no longer be eligible for listing on the NYSE. Furthermore,
if such registration were terminated, persons holding "restricted securities"
of the Company could be deprived of their ability to dispose of such
securities under Rule 144 under the Securities Act of 1933, as amended (the
"Securities Act").
Margin Regulations. The Shares currently are "margin securities" under the
regulations of the Board of Governors of the Federal Reserve System (the
"Federal Reserve Board"), which status has the effect, among other things, of
allowing brokers to extend credit on the collateral of the Shares. Depending
upon factors similar to those described above regarding listing and market
quotations, it is possible that, following the Offer, the Shares would no
longer constitute "margin securities" for the purposes of the margin
regulations of the Federal Reserve Board and therefore could no longer be used
as collateral for loans made by brokers. If registration of Shares under the
Exchange Act were terminated, the Shares would no longer be "margin
securities."
8. Certain Information Concerning the Company.
Except as specifically set forth herein, the information concerning the
Company contained in this Offer to Purchase has been taken from or is based
upon publicly available documents and records on file with the SEC and other
public sources. Purchaser has no knowledge that would indicate that any
statements contained herein based on such documents and records are untrue.
However, Purchaser assumes no responsibility for the accuracy or completeness
of the information concerning the Company, whether furnished by the Company or
contained in such documents and records, or for any failure by the Company to
disclose events which may have occurred or which may affect the significance
or accuracy of any such information but which are unknown to Purchaser.
The Company is a Delaware corporation with its principal executive offices
located at 6300 S. Syracuse Way, Suite 300, Englewood, Colorado 80111-6723,
telephone number (303) 290-9300. According to the Company 10-K, the Company is
a diversified manufacturing company with operations in two primary industry
segments--electrical/electronics and maintenance products--that encompasses a
group of leading businesses that serve the needs of original equipment
manufacturers, commercial organizations and consumer retail outlets.
17
Certain Company Projections. During the course of discussions between
Purchaser and the Company that led to the execution of the Recapitalization
Agreement (see Section 11, "Background of the Offer"), the Company provided
Purchaser with certain information relating to the Company which may not be
publicly available. In October 2000, the Company provided Purchaser with its
forecast for fiscal years 2001 and 2002. In November 2000, the Company
provided Purchaser with a revised forecast for the 2001 fiscal year but did
not provide a revised forecast for the 2002 fiscal year. In March 2001 and
April 2001, the Company provided Purchaser with additional revised forecasts
for the 2001 fiscal year. These projections were for the Company's continuing
segments and exclude any unusual items. That information is summarized below
(the following information has been excerpted from the materials presented to
Purchaser and does not reflect consummation of the Offer or the Preferred
Stock Purchase):
Financial Projections for Fiscal Years 2001 and 2002
as of October 2000 (in millions, except per share amounts)
Fiscal Year Ended Fiscal Year Ended
December 31, 2001 December 31, 2002
----------------- -----------------
Revenues............................... $ 591.8 $ 609.5
EBITDA (range)......................... $47.4-$50.6 $63.0-$69.4
Net income (range)..................... $ 2.5-$ 4.6 $10.3-$14.3
EPS (range)............................ $0.29-$0.54 $1.23-$1.70
Financial Projections for the 2001 Fiscal Year
as of November 2000 (in millions, except per share amounts)
Fiscal Year Ended
December 31, 2001
-----------------
Revenues................................................. $580.5
EBITDA................................................... $ 47.5
Net income............................................... $ 1.8
EPS...................................................... $ 0.21
Financial Projections for the 2001 Fiscal Year
as of March 2001 (in millions, except per share amounts)
Fiscal Year Ended
December 31, 2001
-----------------
Revenues................................................. $568.9
EBITDA................................................... $ 43.9
Net income............................................... $ 2.3
EPS...................................................... $ 0.28
Financial Projections for the 2001 Fiscal Year
as of April 2001 (in millions)
Quarter Ended
----------------------------------------------------------------- Fiscal Year Ended
March 31, 2001 June 30, 2001 September 30, 2001 December 31, 2001 December 31, 2001
-------------- ------------- ------------------ ----------------- -----------------
Revenues................ $119.1 $128.1 $147.9 $149.9 $544.9
EBITDA.................. $ 7.3 $ 8.3 $ 14.1 $ 14.1 $ 43.8
To the knowledge of Purchaser, the Company does not as a matter of course
make public any projections as to future performance or earnings, and the
projections set forth above are included in this Offer to Purchase only
because the information was made available to Purchaser by the Company. Also,
the projections for the fiscal
18
year ended December 31, 2001 were changed by the Company in November 2000,
March 2001 and April 2001. The Company has informed Purchaser that its
internal financial forecasts (upon which the projections provided to Purchaser
were based in part) are, in general, prepared solely for internal use and
capital budgeting and other management decision-making purposes and are
subjective in many respects and thus susceptible to various interpretations
and periodic revision based on actual experience and business developments.
The foregoing projections are based on estimates and assumptions (not all
of which were provided to Purchaser) made by the management of the Company
with respect to industry performance, general business, economic, market and
financial conditions and other matters, all of which are subject to
significant contingencies and are difficult to predict, and many of which are
beyond the control of the Company, Purchaser or their respective advisors. The
Company has advised Purchaser that these projections were prepared by the
Company's management based on numerous assumptions including, among others,
projections of revenues, operating income, benefits and other expenses,
depreciation and amortization, capital expenditures and working capital
requirements. No assurances can be given with respect to any such assumptions.
These projections do not give effect to the Offer or the potential combined
operations of Purchaser and the Company or any alterations Purchaser may make
to the Company's operations or strategy after the consummation of the Offer.
The foregoing projections are presented for the limited purpose of giving the
stockholders access to the material financial projections prepared by the
Company's management that were made available to Purchaser in connection with
the Recapitalization Agreement and the Offer. Risks and uncertainties faced by
the Company are discussed in greater detail in the Company's periodic filings
with the SEC. Also, many of the assumptions upon which the projections were
based, none of which were approved by Purchaser, are dependent upon economic
forecasting (both general and specific to the Company's businesses) which is
inherently uncertain and subjective. 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.
The inclusion of the foregoing projections should not be regarded as an
indication that the Company, Purchaser or any other person who received such
information considers it a reliable prediction of future events, and Purchaser
has not relied (nor should any other person rely) on them as such. Neither
Purchaser nor any of its advisors assumes any responsibility for the
reasonableness, completeness, accuracy or validity of any of the projections.
None of the Company, Purchaser or any of their representatives has made, or
makes, any representation to any person regarding the information contained in
the projections, and none of them intends to update or otherwise revise the
projections to reflect circumstances existing after the date when made or to
reflect the occurrence of future events even in the event that any or all of
the assumptions underlying the projections are shown to be in error.
In addition, the foregoing projections were not prepared in accordance with
generally accepted accounting principles, and neither the Company's nor
Purchaser's independent accountants has examined or compiled any of the
foregoing projections or expressed any conclusion or provided any other form
of assurance with respect to the foregoing projections and accordingly assume
no responsibility for these projections. The foregoing projections were
prepared with a limited degree of precision, and were not prepared with a view
to public disclosure or compliance with the published guidelines of the SEC or
the guidelines established by the American Institute of Certified Public
Accountants regarding projections, which would require a more complete
presentation of data than as shown above. The inclusion of the foregoing
projections herein should not be regarded as a representation by Purchaser or
the Company that the projected results will be achieved. These projections
should be read in conjunction with the historical financial information of the
Company.
Available Information. The Company is subject to the information and
reporting requirements of the Exchange Act and, in accordance therewith, is
obligated to file reports and other information with the SEC relating to its
business, financial condition, and other matters. Information as of particular
dates concerning the Company's directors and officers, their remuneration,
stock options granted to them, the principal holders of the Company's
securities, any material interests of such persons in transactions with the
Company, and other matters is required to be disclosed in proxy statements
distributed to the Company's stockholders and filed with the SEC. Such
reports, proxy statements, and other information (including financial
statements) should be available for
19
inspection at the SEC's Public Reference Room, Room 1024, 450 Fifth Street,
N.W., Washington, D.C. 20549, and copies should be obtainable upon payment of
the SEC's customary charges by writing to the SEC's principal office at 450
Fifth Street, N.W., Washington, D.C. 20549. Such material should also be
available for inspection and copying at the regional offices of the SEC
located at Seven World Trade Center, Suite 1300, New York, New York 10048 and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
The SEC also maintains a World Wide Web site on the Internet at
http://www.sec.gov that contains reports, proxy statements and other
information (including financial statements) regarding registrants that file
electronically with the SEC.
9. Certain Information Concerning Purchaser.
Information Concerning Purchaser. Purchaser, a Delaware limited liability
company, was recently incorporated for the purpose of investing in the Company
and, to date, has engaged in no other activities other than those incidental
to the Offer, the Preferred Stock Purchase and the Recapitalization Agreement.
As of the acceptance of the Shares for purchase pursuant to the Offer, a
majority of Purchaser's outstanding membership interests will be beneficially
owned in the aggregate by Kohlberg Investors IV, L.P. ("Investors IV"),
Kohlberg TE Investors IV, L.P. ("TE Investors IV"), Kohlberg Offshore
Investors IV, L.P. ("Offshore Investors IV") and Kohlberg Partners IV, L.P.
("Partners IV" and, collectively with Investors IV, TE Investors IV and
Offshore Investors IV, "Kohlberg Fund IV"). Until immediately prior to the
time Purchaser purchases Shares pursuant to the Offer, it is not anticipated
that Purchaser will have any significant assets or liabilities or engage in
activities other than those incidental to Purchaser's formation and
capitalization and the transactions contemplated by the Offer. Purchaser is
not subject to the informational filing requirements of the Exchange Act. The
principal executive offices of Purchaser are located at 111 Radio Circle,
Mount Kisco, New York 10549, telephone number (914) 241-7430. The name,
business address, past and present principal occupations and citizenship of
each of the authorized managers of Purchaser are set forth in Annex I to this
Offer to Purchase.
Information Concerning Kohlberg Fund IV. Kohlberg Fund IV is a private
investment fund comprised of four limited partnerships--Investors IV, TE
Investors IV, Offshore Investors IV and Partners IV--each of which was
organized under the laws of the State of Delaware. The Offer and Preferred
Stock Purchase represent Kohlberg Fund IV's first investment and, to date,
Kohlberg Fund IV has engaged in no activities other than the formation of
Purchaser and those other activities incidental to the Offer, the Preferred
Stock Purchase and the Recapitalization Agreement. The general partner of each
of the limited partnerships that comprise Kohlberg Fund IV is Kohlberg
Management IV, L.L.C., a Delaware limited liability company ("Kohlberg
Management IV"), which was formed for the purpose of forming each of Kohlberg
Fund IV's limited partnerships and, to date, has engaged in no other
activities other than those incidental to such formations. The principal
executive offices of Kohlberg Management IV and each of the limited
partnerships that comprise Kohlberg Fund IV are located at 111 Radio Circle,
Mount Kisco, New York 10549, telephone number (914) 241-7430.
Information Concerning Kohlberg & Co., L.L.C. Kohlberg & Co., L.L.C.
("Kohlberg & Co.") is a well known U.S. private equity firm specializing in
middle market investing whose objective has been to realize gains through
control investments in a diversified portfolio of companies. Purchaser was
formed at the direction of Kohlberg & Co., and representatives of Kohlberg &
Co. conducted the initial negotiations with management of the Company in
connection with the Offer and the Recapitalization Agreement. William F.
Andrews, who is a director of the Company, is an operating principal of
Kohlberg & Co. and a director of several of Kohlberg & Co.'s portfolio
companies. Mr. Andrews has assisted Kohlberg & Co. in making a number of
acquisitions and receives a consulting fee from Kohlberg & Co. for his
services. During 1999 and 2000, Mr. Andrews received aggregate consulting fees
of approximately $450,000 from Kohlberg & Co. Mr. Andrews, in his capacity as
a director of the Company, removed himself from consideration of transactions
contemplated by the Recapitalization Agreement because of his affiliation with
Kohlberg & Co. See Section 11, "Background of the Offer." As of March 19,
2001, Mr. Andrews was the beneficial owner of 17,000 Shares, including 12,000
Shares underlying currently exercisable nonqualified stock options under the
Katy Industries, Inc. Non-employee Director Stock Option Plan. This amounts to
less than 1% of the Company's outstanding Shares. Kohlberg & Co. is not
subject to the informational filing requirements of the Exchange Act. The
principal executive offices of Kohlberg & Co. are located at 111 Radio Circle,
Mount Kisco, New York 10549, telephone number
20
(914) 241-7430. The name, business address, past and present principal
occupations and citizenship of each of the principals of Kohlberg & Co. are
set forth in Annex I to this Offer to Purchase.
Ownership Interest in the Company. Pursuant to the Voting Agreement,
Purchaser, Kohlberg Fund IV, Kohlberg Management IV and James A. Kohlberg may
be deemed to beneficially own 2,500,000 Shares (including Shares subject to
options that may be acquired within 60 days) constituting approximately 29.8%
of the issued and outstanding shares of Common Stock of the Company as of
April 23, 2001. All of such 2,500,000 Shares are directly owned beneficially
or of record by the Agreement Stockholders. See the "Introduction" to this
Offer to Purchase and Section 13, "The Transaction Documents and the
Recapitalization--The Voting Agreement." Each of Purchaser, Kohlberg Fund IV,
Kohlberg Management IV, Kohlberg & Co. and James A. Kohlberg expressly
disclaims beneficial ownership of such Shares. In addition, Purchaser,
Kohlberg Fund IV, Kohlberg Management IV and James A. Kohlberg may be deemed
to beneficially own 17,000 Shares beneficially owned by William F. Andrews,
who is a director of the Company and an operating principal of Kohlberg & Co.
Each of Purchaser, Kohlberg Fund IV, Kohlberg Management IV and James A.
Kohlberg expressly disclaims beneficial ownership of any Shares beneficially
owned by Mr. Andrews.
Summary Financial Information. Because Purchaser was formed solely for the
purpose of investing in the Company, Purchaser has minimal assets and
liabilities and no meaningful historical financial information other than the
commitment by Kohlberg Fund IV to provide Purchaser with $60 million of equity
capital. As of the acceptance of the Shares for purchase pursuant to the
Offer, a majority of the outstanding membership interests of Purchaser will be
beneficially owned by Kohlberg Fund IV. Kohlberg Fund IV has a committed pool
of approximately $420 million of equity capital and has committed to provide
Purchaser with $60 million to consummate the purchase of Shares tendered in
the Offer and the Preferred Stock Purchase. See Section 10, "Source and Amount
of Funds." However, because Kohlberg Fund IV has no operating history and
because the Offer and Preferred Stock Purchase represent its first investment,
Kohlberg Fund IV has minimal assets and liabilities and no meaningful
historical financial information other than its committed pool of
approximately $420 million of equity capital.
Past Contacts, Transactions, Negotiations and Agreements. Except as set
forth in this Offer to Purchase:
. none of Purchaser, Kohlberg Fund IV, Kohlberg Management IV nor Kohlberg
& Co. nor, to the best knowledge of Purchaser, Kohlberg Fund IV,
Kohlberg Management IV and Kohlberg & Co., any of the persons listed in
Annex I to this Offer to Purchase, or any associate or majority owned
subsidiary of any of the foregoing, (i) beneficially owns or has a right
to acquire any Shares or any other equity securities of the Company
except for (A) 2,500,000 Shares which may be deemed beneficially owned
by Purchaser, Kohlberg Fund IV, Kohlberg Management IV, Kohlberg & Co.
and James A. Kohlberg by virtue of the Voting Agreement and (B) 17,000
Shares which may be deemed beneficially owned by such persons because
these Shares are beneficially owned by William F. Andrews, who is a
director of the Company and an operating principal of Kohlberg & Co.;
(ii) has any contract, arrangement, understanding or relationship with
any other person with respect to any securities of the Company other
than the Voting Agreement; or (iii) has effected any transaction in the
Shares or any other equity securities of the Company during the past 60
days;
. there have never been any transactions which would be required to be
disclosed under the rules and regulations of the SEC between any of
Purchaser, Kohlberg Fund IV, Kohlberg Management IV, Kohlberg & Co. or
any of their respective subsidiaries, or, to the best knowledge of
Purchaser, Kohlberg Fund IV, Kohlberg Management IV and Kohlberg & Co.,
any of the persons listed in Annex I to this Offer to Purchase, on the
one hand, and the Company or any of its executive officers, directors or
affiliates, on the other hand; and
. there have never been any negotiations, transactions or material
contacts between any of Purchaser, Kohlberg Fund IV, Kohlberg Management
IV, Kohlberg & Co. or any of their respective subsidiaries or, to the
best knowledge of Purchaser, Kohlberg Fund IV, Kohlberg Management IV
and Kohlberg & Co., any of the persons listed in Annex I to this Offer
to Purchase, on the one hand, and the Company or its affiliates, on the
other hand, concerning any merger, consolidation, acquisition, tender
offer or
21
other acquisition of securities of the Company, any election of
directors of the Company, or any sale or other transfer of a material
amount of assets of the Company.
Except as set forth in this Offer to Purchase, none of Purchaser, Kohlberg
Fund IV, Kohlberg Management IV or Kohlberg & Co. had any relationship with
the Company or the Agreement Stockholders prior to the commencement of the
discussions which led to the execution of the Recapitalization Agreement. See
Section 11, "Background of the Offer." Each of Purchaser, Kohlberg Fund IV,
Kohlberg Management IV and Kohlberg & Co. disclaims that it is an "affiliate"
of the Company within the meaning of Rule 13e-3 under the Exchange Act.
Available Information. Purchaser, Kohlberg Fund IV, Kohlberg Management IV
and Kohlberg & Co. are privately-held companies and are generally not subject
to the information filing requirements of the Exchange Act, and are generally
not required to file reports, proxy statements and other information with the
SEC relating to their respective businesses, financial condition and other
matters. However, pursuant to Rule 14d-3 under the Exchange Act, Purchaser and
Kohlberg & Co. filed with the SEC a Schedule TO, together with exhibits,
including this Offer to Purchase and the Recapitalization Agreement, which
provides certain additional information with respect to the Offer, and
Purchaser, Kohlberg Fund IV, Kohlberg Management IV and James A. Kohlberg and
the Agreement Stockholders filed a statement of beneficial ownership on
Schedule 13D with the SEC on April 9, 2001, which describes the filing
persons' ownership interests in the Company. The Schedule TO and the Schedule
13D and any amendments thereto, including exhibits, should be available for
inspection and copies should be obtainable at the public reference facilities
of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of such
information should also be obtainable (i) by mail, upon payment of the SEC's
customary charges, by writing to the SEC's principal office at 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the regional offices of the SEC
located at Seven World Trade Center, Suite 1300, New York, New York 10048 and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661
and (ii) by accessing the SEC's website on the Internet at http://www.sec.gov.
10. Source and Amount of Funds.
If 2,500,000 Shares are tendered in response to the Offer, Purchaser would
be required to pay a total of $20 million to purchase the tendered Shares. In
addition, concurrently with the consummation of the Offer, Purchaser will be
required to pay a total of $40 million to purchase the Convertible Preferred
Stock from the Company. Purchaser expects to obtain the funds required to
consummate the Offer and the Preferred Stock Purchase through the sale of $60
million of membership interests to Kohlberg Fund IV. Kohlberg & Co. has
entered into a commitment letter, dated March 27, 2001, with the Company (a
copy of which is attached as an exhibit to the Schedule TO) in this regard,
evidencing the commitment of Kohlberg Fund IV to purchase up to $60 million of
membership interests in Purchaser, which commitment is conditioned only on the
terms and conditions of the Recapitalization Agreement. The commitment letter
permits Kohlberg Fund IV to allow other investors to participate in the
investment in Purchaser provided that Purchaser receives not less that $60
million in cash and that Kohlberg Fund IV directly or indirectly has economic
and voting control of Purchaser. Kohlberg Fund IV will purchase the $60
million of membership interests in Purchaser using its committed pool of
approximately $420 million of equity capital. Although Purchaser has
sufficient committed funds to consummate the purchase of Shares tendered in
the Offer and the Preferred Stock Purchase, the Offer is conditioned upon the
Company executing definitive documentation with Bankers Trust Company ("BTCo")
with respect to the credit facilities to be established in connection with the
refinancing of the Company's existing loans. See Section 13, "The Transaction
Documents and the Recapitalization--The Recapitalization--Refinancing with
Bankers Trust Company." Purchaser currently has no alternative financing
arrangements or plans in the event that the planned refinancing with BTCo
falls through.
11. Background of the Offer.
In September 2000, the Company recognized that it would fall out of
compliance with its financial ratio covenant under its existing bank credit
agreement governing maximum leverage and commenced negotiations
22
with its bank group with respect to a waiver. On September 28, 2000, the bank
group agreed to waive the covenant defaults through October 27, 2000 to
provide time to arrive at an amendment to the credit agreement satisfactory to
the Company and the bank group. Underlying the waiver and the proposed
amendment was an understanding that the Company would consider strategic
alternatives, including the potential sale of the Company or one or more of
its material subsidiaries. Unless the banks' waiver was extended beyond
October 27, 2000, the Company would have been in default under the credit
agreement, and the banks could have accelerated the debt and demanded
immediate payment from the Company.
In early October 2000, the Company's Board of Directors retained Debevoise
& Plimpton, as legal counsel, to assist in negotiations with the Company's
lenders and with the consideration and negotiation of strategic alternatives.
On October 3, 2000, the Company's Board of Directors determined that the
Company should begin exploring possible strategic alternatives, including
alternatives to remaining an independent company. The Company's Board of
Directors authorized senior management of the Company to contact potential
strategic and financial partners and to provide confidential the Company
information to such persons. In addition, the Company's Board of Directors
requested senior management of the Company to continue to analyze the
Company's financial position in order to determine whether a stand-alone
alternative, with or without the sale of subsidiaries of the Company, was
feasible in the context of the financial covenants in the existing credit
agreement.
After the October 3, 2000 Board of Directors meeting, management of the
Company completed preparation of an information package (the "Information
Package") concerning the Company which contained historical financial
information, segment information, the information memorandum sent to the
Company's bank group in connection with the proposed amendment to the credit
agreement and certain forecasts. The forecasts included an estimate of
earnings before interest, taxes, depreciation and amortization ("EBITDA")
(from continuing segments and before unusual items) for the fourth quarter of
2000 and for the full year 2000 of $12.4 million and $42.0 million,
respectively. The forecasts also included an estimate of EBITDA for 2001 of
between $47.4 million and $50.6 million and EBITDA for 2002 of between $63.0
million and $69.4 million.
In early October 2000, the Company contacted a number of potential
strategic and financial partners inquiring as to their interest in acquiring
the Company. Kohlberg & Co. was introduced to the Company by William F.
Andrews, a director of the Company, who at that time informed the Company that
he was an operating principal of Kohlberg & Co. and received a consulting fee
from that company and also served as a director of several companies
affiliated with Kohlberg & Co. The Information Package was transmitted to
those parties that expressed preliminary interest in the Company, once such
parties executed confidentiality agreements with the Company. In total,
management contacted 16 potential buyers, including 11 strategic buyers (that
is, companies engaged in similar businesses) and five financial buyers. Of the
parties contacted, five strategic buyers and three financial buyers expressed
preliminary interest and executed confidentiality agreements. These interested
recipients included Kohlberg & Co., which signed a confidentiality agreement
on October 11, 2000.
On or about October 12, 2000, representatives of Kohlberg & Co. met with
John R. Prann, Jr., then the Chief Executive Officer and a director of the
Company, and with other representatives of senior management at the Company's
head office at Englewood, Colorado.
At a meeting of the Company's Board of Directors on October 13, 2000, Mr.
Prann reported that Kohlberg & Co. was interested in acquiring the Company in
a transaction in which trusts associated with members of the Carroll family
would exchange a portion of their shareholdings in the Company for shares of
an affiliate that would acquire the publicly held Shares at a price of $14.50
per Share.
In the second half of October 2000, Kohlberg & Co. and two of its
prospective financing sources met with representatives of the Company for
additional business due diligence discussions.
23
In late October 2000, of the potential purchasers that had initially
expressed interest, only two potential strategic buyers ("Public Company 1"
and "Public Company 2") remained interested in considering a transaction to
purchase all or part of the Company.
After negotiations throughout October 2000 with the Company's existing
lenders on an amendment to the existing credit agreement, on October 27, 2000,
an amendment to the credit agreement was signed. As a part of the amendment,
compliance with certain covenants required by the credit agreement was waived
as of September 30, 2000, and new ratio levels for certain covenants were
established for measurement at December 31, 2000. Also as part of the
amendment, the Company agreed to grant the lenders under the credit agreement
a security interest in all of the Company's and its subsidiaries' material
assets on March 31, 2001, if certain events did not occur before February 28,
2001. Under the terms of the amendment, a security interest was not required
if (i) on or before February 28, 2001, a letter of intent (satisfactory to the
bank group) existed for the sale of (A) the Company as a whole or (B) one or
more of its material subsidiaries if (in the case of clause (B)) the Company
demonstrates that following such sale the Company would be in compliance with
a specified leverage ratio, or (ii) the Company was in compliance with certain
covenants at pre-amendment ratio levels.
On October 26, 2000, based on publicly available information and additional
information about the Company that Kohlberg & Co. received from the Company,
including the Company's estimates for its EBITDA for the fourth quarter and
the full year 2000, Kohlberg & Co. submitted a draft preliminary indication of
interest to acquire the Company for a purchase price of up to $14.50 per Share
in cash. At the request of the Company, Kohlberg & Co. submitted a revised
preliminary indication of interest on October 27, 2000, to provide for a firm
purchase price of $14.50 per Share in cash. This signed indication of interest
was accompanied by a letter from one of Kohlberg & Co.'s prospective financing
sources indicating that it was confident that it could arrange the financing
needed to complete the transaction. The Kohlberg & Co. proposal contemplated
the entry into a letter of intent with an exclusivity period and an expense
reimbursement, together with, in the event that negotiations with certain
strategic partners are exempted from the exclusivity covenant, a termination
fee.
The Company's Board of Directors considered the Kohlberg & Co. draft letter
of intent with respect to its proposal at a meeting on October 27, 2000. The
proposal was for the acquisition of all of the Company's outstanding Shares.
Part of the outstanding Shares owned by the Carroll trusts would be exchanged
for shares of a Kohlberg & Co. affiliate, which would acquire the balance of
the outstanding Shares for cash at the price of $14.50 per Share. Also at this
meeting, the Company's Board of Directors authorized the retention of Bear
Stearns to render a fairness opinion with respect to a transaction with
Kohlberg & Co. if requested to do so.
On October 31, 2000, the Company's Board of Directors met with
representatives of Bear Stearns and Debevoise & Plimpton to consider the
expressions of interest that had been received, to be updated on discussions
with the other potential buyers still involved in the process and to consider
the steps to be taken. At the start of the meeting, Mr. Christopher Lacovara,
a principal of Kohlberg & Co., was present and discussed and answered
questions regarding Kohlberg & Co.'s expression of interest. At the October
31, 2000 meeting, Mr. Andrews, one of the Company's directors, reminded the
Company's Board of Directors that he was an operating principal of Kohlberg &
Co., was a director of several of Kohlberg & Co.'s portfolio companies, had
assisted Kohlberg & Co. in making a number of acquisitions and received a
retainer for his services. In light of Kohlberg & Co.'s interest in sponsoring
an acquisition of the Company, Mr. Andrews excused himself from the meeting
and stated that he would not participate in future board meetings as long as a
possible transaction with Kohlberg & Co. was under consideration.
At the October 31, 2000 meeting, after Mr. Andrews excused himself, the
Company's Board of Directors also reviewed other alternatives. While Public
Company 1 had signed a confidentiality agreement, it had not submitted an
expression of interest. One financial sponsor ("Financial Sponsor 1") which
had done only limited due diligence had submitted an expression of interest
for an acquisition at a broad indicated price range ($12.00 to $15.50 per
Share) in a transaction in which the Carroll trusts and management would have
the option of retaining a meaningful equity interest in the Company. The
expression of interest was unaccompanied by expressions of interest from
financing sources and contemplated a period of exclusivity and a break-up fee.
24
On November 2, 2000, Kohlberg & Co. delivered a draft letter of intent to
the Company, which included a purchase price of $14.50 per Share.
Representatives of the Company and of Kohlberg & Co. negotiated the terms of
the draft Letter of Intent between November 2, 2000 and November 6, 2000.
On November 6, 2000, representatives of the Financial Sponsor 1, having
been informed earlier of the state of negotiations with Kohlberg & Co., had
indicated that the timeline for a transaction was too rapid for it and that it
had decided not to proceed at that time.
On November 6, 2000, the Company's Board of Directors was advised of the
decision of Financial Sponsor 1 not to proceed and that Public Company 1 had
decided not to make a proposal at that time. Public Company 2 had scheduled
some due diligence discussions with the Company. Another potential strategic
buyer was interested only in the Company's abrasives businesses. After review
of the improvements in the letter of intent since the initial draft received
from Kohlberg & Co., the Company's Board of Directors (without the
participation of Arthur Miller, a trustee of the Carroll family trusts, or of
Wallace Carroll or Amelia Carroll) authorized the execution of the letter of
intent (the "First Letter of Intent"), which was executed that day.
The First Letter of Intent provided for an acquisition of all of the
Shares. The Carroll family trusts would be permitted to exchange all or part
of their Shares for shares of a newly formed Kohlberg & Co. affiliate, which
would acquire the other Shares at a purchase price of $14.50 per Share in
cash. The First Letter of Intent contemplated a 30-day period during which
Kohlberg & Co. would complete its due diligence and financing arrangements.
The First Letter of Intent provided for a 45-day exclusive negotiation period
with Kohlberg & Co., but specifically exempted ongoing discussions between the
Company and two named strategic buyers and also permitted discussions with
unsolicited other bidders if the Company's Board of Directors determined,
after consultation with its legal and financial advisors, that failure to
participate in such discussions would be inconsistent with the directors'
fiduciary duties. The First Letter of Intent provided for an expense
reimbursement not to exceed $250,000 and a termination fee of $1.5 million
upon the consummation of a competing transaction if, during the term of the
First Letter of Intent, the Company did not enter into a definitive agreement
despite Kohlberg & Co.'s willingness to do so at the price and substantially
on the terms contained in the First Letter of Intent.
Also on November 6, 2000, the Company issued a press release announcing
that it was exploring its strategic alternatives, including the possible sale
of the Company, and that it was in discussions with a potential purchaser
relating to a transaction involving the purchase of the Company at a premium
to its then current price.
In mid-November 2000, representatives of Kohlberg & Co. and one of its
prospective financing sources toured the facilities and met with management of
several of the Company's subsidiaries. During this period, Kohlberg & Co.
reviewed transaction financing alternatives with five commercial banks and two
mezzanine lenders.
In late November 2000, management of the Company informed Kohlberg & Co.
that it was revising downward its EBITDA forecasts for the fourth quarter and
for the year 2000 and provided Kohlberg & Co. with its revised forecasts. The
revised forecasts estimated EBITDA (from continuing segments and before
unusual items) for the fourth quarter of 2000 and for the full year 2000 at
$7.0 million and $37.2 million, respectively. The revised forecasts also
estimated EBITDA for 2001 at $47.5 million but did not include a revised
estimate for 2002.
Kohlberg & Co. thereafter revised its financial analysis based on the new
information provided by management. Kohlberg & Co. also continued discussions
with selected financing institutions to discuss financing for the transaction.
During this period, most of the commercial banks and both of the mezzanine
lenders declined to participate in the financing. Starting in late 2000, an
alternative financing source, an asset-backed lender (BTCo), commenced its due
diligence efforts.
Following the completion of this revised analysis, Kohlberg & Co. informed
the Company that, primarily because of the decline in expected fourth quarter
results, it would not be able to complete a transaction at the
25
price outlined in the First Letter of Intent. On November 28, 2000, Kohlberg &
Co. circulated a proposed amendment to the First Letter of Intent, but without
a specified price per Share, for a transaction with the Company. Mr. Lacovara
informed the Company that the offer price would likely be between $9.00 and
$10.00 per Share. On November 30, 2000, the Company's Board of Directors
decided not to extend the exclusivity period, but to keep working towards a
transaction with Kohlberg & Co. The First Letter of Intent was terminated by
the Company in early December 2000.
On December 14, 2000, Mr. Lacovara telephoned Mr. Prann and confirmed that
Kohlberg & Co. had concluded that the Company's operating results and the
results of Kohlberg & Co.'s review of the Company did not support the
valuation provided in the First Letter of Intent. At that time, the Company
was estimating that its EBITDA (from continuing segments and before unusual
items) for the full year 2000 would be approximately $37.5 million. It also
had increased its estimate of its highest expected total required borrowings
during 2001 to $158 million. Based on this information and the results of
Kohlberg & Co.'s due diligence review, including its estimate of payments
required in the event of a change of control of the Company, Mr. Lacovara
expressed interest in acquiring the Company for a purchase price of $8.25 per
Share in cash.
That day, Mr. Lacovara delivered to the Company a first draft of a merger
agreement, and the Company's Board of Directors met with representatives of
Debevoise & Plimpton and Bear Stearns. The Company's Board of Directors
considered the status of discussions with Kohlberg & Co. and also reviewed the
Company's alternatives. There had been discussions with another financial
sponsor, which had indicated that because of the current state of the
financing markets it would not be able to bid higher than the then trading
price for the Company stock (then about $7.63 per Share). That financial buyer
later decided it did not wish to proceed further. The Company had not heard
back from Public Company 2, which had undertaken some preliminary due
diligence with the Company after the November 6, 2000 meeting. The Company's
Board of Directors also considered the alternative of continuing as an
independent company. The Company's Board had real questions as to the
Company's ability to restructure its debt, and whether, if the Company sold
businesses, the earnings of the remaining businesses would be consistent with
the Company remaining a public company.
Because the Kohlberg & Co. proposal provided for the possibility of
allowing (but not requiring) the Carroll family trusts to exchange their
Shares for common stock of a newly formed Kohlberg & Co. affiliate that would
be the acquisition vehicle, the Company's Board of Directors at the December
14, 2000 meeting formed a special committee of directors (the "Special
Committee") who were not connected with the Carroll family trusts to negotiate
with Kohlberg & Co. The members of the Special Committee were Charles W.
Sahlman, Jacob Saliba and Daniel B. Carroll. The Special Committee was
authorized to consider whether the Kohlberg & Co. proposal was in the best
interests of the Company's stockholders who were not part of the buying group,
to negotiate with Kohlberg & Co. and to consider and negotiate any
alternatives it believed to be available. It was also authorized to give
instructions to Bear Stearns and to Debevoise & Plimpton.
On December 20, 2000, Kohlberg & Co. submitted to the Company a draft of a
second letter of intent (the "Second Letter of Intent"), which included a
purchase price of $8.25 per Share, a renewed exclusivity period and provision
for expense reimbursement and a termination fee. Kohlberg & Co. requested that
this Second Letter of Intent be executed prior to the commencement of
negotiations on the definitive merger agreement.
On December 21, 2000, the Special Committee, Bear Stearns and Debevoise &
Plimpton discussed with Mr. Lacovara Kohlberg & Co.'s insistence on the Second
Letter of Intent, the various factors considered by Kohlberg & Co. in arriving
at the price reduction and the state of Kohlberg & Co.'s financing
negotiations. Mr. Lacovara indicated that Kohlberg & Co. had received an oral
expression of interest from an asset-based financing source, BTCo, in
financing the transaction.
Before the Second Letter of Intent was executed, a member of the Special
Committee and subsequently a senior officer of the Company had contacted
representatives of Public Company 1, and had been advised that Public Company
1 might never submit a proposal and in any event would not consider doing so
unless a transaction with another party were to be announced. The Special
Committee and the Company's Board of
26
Directors also considered the alternative of the Company continuing on a
stand-alone basis, with or without sales of businesses.
Following further negotiation of terms, and preliminary exchanges of
comments on a draft merger agreement provided by Kohlberg & Co.'s counsel, on
January 2, 2001, Kohlberg & Co. and the Company signed the Second Letter of
Intent. The Second Letter of Intent, as executed, provided for a renewed
exclusivity period until the letter was terminated. Either party could
terminate the Second Letter of Intent if, among other things, the definitive
agreement was not signed by January 15, 2001. The Second Letter of Intent also
provided for an expense reimbursement not to exceed $500,000 and, to the
extent that Kohlberg & Co. was able to sign a definitive merger agreement at
$8.25 per Share, a termination fee of $1.5 million payable upon the
consummation of a competing transaction.
By letter dated January 8, 2001, Bear Stearns was formally engaged to
render an opinion as to the fairness of the proposed transaction.
After counsel for the Special Committee gave its comments on a revised
draft merger agreement, representatives of Debevoise & Plimpton met on January
12, 2001 with Mr. Lacovara and representatives of Hunton & Williams, counsel
to Kohlberg & Co., to discuss the outstanding issues associated with the draft
merger agreement. At that meeting, the Kohlberg & Co. representatives
requested a one week extension of the specified dates in the Second Letter of
Intent.
In the evening of January 15, 2000, Mr. Lacovara telephoned Mr. Prann and
representatives of Debevoise & Plimpton, counsel to the Special Committee, to
inform them that Kohlberg & Co. had concerns with the liquidity position of
the Company post-closing, based on the Company's projected debt levels
(excluding severance and other change in control payments) reaching $165
million in May 2001, and that Kohlberg & Co. was considering an additional
equity investment in the transaction. Mr. Lacovara indicated that the Kohlberg
& Co. partnership would be meeting on January 17, 2001 to determine whether to
contribute an additional $15 million of equity, and that without that
contribution, Mr. Lacovara did not feel comfortable that Kohlberg & Co. could
pursue the transaction. Mr. Lacovara also expressed concern over the Company's
debt levels and the lower accounts receivable and inventory balance.
Given the uncertainty raised by Mr. Lacovara's update, on January 16, 2001,
the Company's Board of Directors determined to postpone a decision on the
proposed amendment to the Second Letter of Intent.
On January 17, 2001, Mr. Lacovara informed the Company that the Kohlberg &
Co. principals had voted against the proposed additional $15 million equity
investment and that, as a result, Kohlberg & Co. would be unable to continue
working on the transaction unless an alternative solution to the liquidity
concern was found. On each of January 18, 2001 and January 19, 2001, the
Special Committee and representatives of Debevoise & Plimpton met with Mr.
Lacovara to discuss Kohlberg & Co.'s concerns and to discuss possible
solutions, including the possibility of increasing the level of proposed
subordinated debt financing, negotiating a deferral of payments, which would
be owed upon a change of control, to the holder of preferred units in Contico
International, L.L.C. ("Contico"), a subsidiary of the Company, and proceeding
with sales of subsidiaries of the Company. On January 19, 2001, the Special
Committee authorized Mr. Prann to proceed with discussions in respect of the
proposed sale of Hamilton Metals, L.P. ("Hamilton"), a wholly owned subsidiary
of the Company, and authorized representatives of Kohlberg & Co. to contact
directly the holder of the Contico preferred units.
In late January 2001, representatives of the Special Committee and of
Kohlberg & Co. negotiated the terms of the proposed amendment to the Second
Letter of Intent. Changes requested by representatives of the Special
Committee included exclusions from the exclusivity covenant for discussions
with (i) Public Company 1, (ii) potential purchasers of Contico's retail
division, (iii) potential purchasers of Hamilton and (iv) unsolicited bidders.
In January 2001, the Company began discussion with several potential buyers
of Hamilton.
27
In the second half of January 2001, Kohlberg & Co. representatives, seeking
additional post-closing liquidity for the Company, discussed with the holder
of the Contico preferred units the possible deferral of approximately $33
million otherwise payable to the holder following the closing.
On January 31, 2001, Kohlberg & Co. and the Company executed an amended
letter of intent (the "Third Letter of Intent"). The Third Letter of Intent
contemplated that the Carroll family trusts would convert 727,273 of their
Shares for shares of a newly formed Kohlberg & Co. affiliate, which would
acquire the other Shares at a price of $8.25 per Share. The Third Letter of
Intent contained the requested carve-outs on exclusivity during the term of
the agreement, and provided for a termination fee of $1.5 million, if Kohlberg
& Co. was able to sign the merger agreement by February 5, 2001, payable upon
the consummation of a competing transaction.
On February 2, 2001, representatives of Kohlberg & Co. met with members of
the Company's senior management to provide an overview of the proposed
transaction, to review the proposed business plan and to discuss the proposed
equity program.
In mid-February 2001, Mr. Lacovara informed counsel to the Company of
additional obstacles to the proposed transaction to acquire the Company, which
consisted of the need to obtain an additional $15 million in financing because
of the reduction in the amount Kohlberg & Co.'s proposed asset-based lender
(BTCo) was prepared to lend based on appraisals of the assets, the poor fourth
quarter results, the negative earnings outlook for the first quarter of 2001
and the generally poor economic conditions. Based on these four factors,
Kohlberg & Co. thought it would be difficult to complete the transaction
contemplated by the Third Letter of Intent.
As a result of the above, Mr. Lacovara proposed, as an alternative to the
proposed acquisition transaction with the Company ("Plan A"), a
recapitalization ("Plan B") under which Kohlberg & Co. would buy new equity
from the Company with proceeds used to reduce existing debt to a level which
could be financed by BTCo and would buy a portion of the existing Shares. This
proposal eventually formed the basis for the Preferred Stock Purchase and the
Offer.
On February 17, 2001, Mr. Lacovara sent to the Company Kohlberg & Co.'s
analysis of the components of both Plan A and Plan B. On February 18, 2001,
Mr. Lacovara reviewed the terms of each of Plan A and Plan B with the Special
Committee, and reported on the status of efforts to find the additional
financing for Plan A.
On February 21, 2001, Kohlberg & Co. sent a draft of a revised letter of
intent (the "Fourth Letter of Intent") reflecting Kohlberg & Co.'s Plan B. The
Fourth Letter of Intent contained a proposed price of $7.50 per Share.
Kohlberg & Co. made clear that its interest in exploring Plan B was
conditioned on its acquiring, through a purchase of outstanding Shares and
through a purchase of convertible preferred stock, a majority of the equity
interest in the Company, representing a majority of the Shares after giving
effect to conversion of the convertible preferred stock, and also acquiring
the right to nominate a majority of the Company's Board of Directors. Kohlberg
& Co. informed the Company that it needed these rights to comply with
requirements in the partnerships comprising the investment fund with which
Purchaser is affiliated. As under Plan A, Kohlberg & Co. requested that the
Agreement Stockholders agree to support the transaction by entering into a
voting agreement.
On February 24, 2001, the Company responded to Kohlberg & Co., indicating
that the Company was interested in exploring Plan B as set forth in the Fourth
Letter of Intent, but at a higher price, and provided comments on the Fourth
Letter of Intent to Kohlberg & Co.
During February 2001, after the Third Letter of Intent was signed, the
Company carried on discussions with Public Company 1 and with a potential
strategic buyer of Contico's retail division. In February 2001, Public Company
1 said it was not interested in an acquisition of the Company as a whole, but
was interested in Contico. Discussions with both potential buyers broke off by
the end of February 2001. While Public Company 1 indicated that it continued
to be interested in buying Contico, it concluded that it could not follow
through on such a transaction until the second half of 2001. The other
potential strategic buyer informed the Company that it was not interested in
exploring further the possible purchase of part of Contico.
28
In the latter half of February 2001, Kohlberg & Co. informed
representatives of the Company that it could not complete Plan A because of
the negative EBITDA trends, the expected debt financing shortfall and the
possibility that without adequate liquidity coverage lenders might not provide
financing at closing.
On March 2, 2001, after additional negotiation, Kohlberg & Co. and the
Company executed the Fourth Letter of Intent. The Fourth Letter of Intent, as
executed, incorporated many of the changes requested by the Company, including
(i) an increase in the purchase price from $7.50 to $8.00 per Share, (ii) the
dropping of a request by Kohlberg & Co. that entry into a definitive agreement
trigger the reimbursement by the Company of up to $750,000 of Kohlberg & Co.'s
expenses and (iii) Kohlberg & Co.'s agreement that the definitive agreement
would permit the Company to have discussions with unsolicited competing
bidders and to terminate the definitive agreement (upon payment of a $2
million termination fee in addition to reimbursement of Kohlberg & Co.'s
reasonably documented expenses) if the Company's Board of Directors determined
after consulting with counsel that failure to take these actions would be
inconsistent with the Board's fiduciary duties. The obligation to enter into a
definitive agreement was conditioned on, among other things, the execution of
a letter of intent relating to the divestiture of Hamilton and the negotiation
of a term sheet for the refinancing of the Company's existing bank loans. The
Fourth Letter of Intent provided for expense reimbursement to Kohlberg & Co.
of up to $750,000. The Fourth Letter of Intent formed the basis for the
Recapitalization Agreement, the Preferred Stock Purchase and the Offer.
On March 2, 2001, the Company issued a press release announcing that it was
engaged in discussions with a potential purchaser of a substantial equity
position in the Company. The press release noted that the discussions
contemplated a purchase of a substantial minority stake in the Company. The
press release also noted that the discussions referred to in the Company's
press release of November 6, 2000 had been suspended by these discussions with
the same potential purchaser.
In early March 2001, the Company management informed Kohlberg & Co. that it
was revising downward its EBITDA forecast (from continuing segments, including
Hamilton, and before unusual items) for 2001 to $43.9 million.
In March 2001, Kohlberg & Co. and the Company engaged in discussions with
the Company's existing lenders and with BTCo and other potential financing
sources concerning refinancing the Company's existing credit facilities.
On March 7, 2001, the Company entered into a non-binding letter of intent
with respect to the sale of substantially all of the assets of Hamilton.
On March 7, 2001, representatives of Hunton & Williams delivered to
Debevoise & Plimpton an initial draft of the Recapitalization Agreement. The
draft Recapitalization Agreement was based, in large part, on the merger
agreement that had previously been negotiated by Kohlberg & Co. and the
Company in connection with Plan A. On March 8, 2001, representatives of
Debevoise & Plimpton, on behalf of the Company, delivered to Hunton & Williams
comments on the initial draft of the Recapitalization Agreement.
On March 9, 2001, representatives of the Company discussed the
Recapitalization Agreement with representatives of Kohlberg & Co. and on March
12, 2001, counsel to Kohlberg & Co. distributed a revised draft of the
Recapitalization Agreement.
On March 12, 2001, the Company and Kohlberg & Co. extended from March 9,
2001 to March 26, 2001 the date after which either party could terminate the
Fourth Letter of Intent if a definitive purchase agreement had not been
executed by that date.
On March 13, 2001, counsel to Kohlberg & Co. distributed a first draft of
the Voting Agreement, based in large part on the stock voting and tender
agreement previously negotiated between Kohlberg & Co. and the Company in
connection with Plan A.
During the period from March 12, 2001 through March 28, 2001
representatives of the Company and its legal advisers finalized the terms of
the Recapitalization Agreement with representatives of Kohlberg & Co. and
29
its legal advisers. Representatives of the Agreement Stockholders also
negotiated the terms of the Voting Agreement with representatives of Kohlberg
& Co.
On March 17, 2001, the Company's Board of Directors met with
representatives of Bear Stearns and Debevoise & Plimpton to review the status
of discussions with respect to the Recapitalization Agreement. On March 20,
2001, a revised draft of the Recapitalization Agreement was prepared and
distributed to the Company's Board of Directors. A proposed commitment letter
from BTCo to a Kohlberg & Co. affiliate to refinance the existing loans of the
Company on a secured basis was also distributed to the Company's Board of
Directors.
On March 22, 2001, after meeting with representatives of the Company's
senior management for an update of information about the Company's operating
results and prospects, including the prospects of obtaining stand-alone
financing without an equity infusion, the Company's Board of Directors and
representatives of Bear Stearns and Debevoise & Plimpton met to consider the
terms of the Recapitalization Agreement, as negotiated, and the transactions
contemplated in the Recapitalization Agreement. Bear Stearns presented its
financial analyses to the Company's Board of Directors. Representatives of
Debevoise & Plimpton reviewed the duties of the Company's Board of Directors
and summarized the Recapitalization Agreement and the improvements, from the
perspective of the Company's stockholders, in the terms of the
Recapitalization Agreement negotiated since receiving the initial draft.
On each of March 25, 26 and 29, 2001, the Company's Board of Directors met
again with representatives of Bear Stearns and Debevoise & Plimpton. At the
March 29, 2001 meeting, Bear Stearns delivered to the Company's Board of
Directors its oral opinion, later confirmed in writing, to the effect that, as
of that date, and subject to the matters stated in the opinion, the Preferred
Stock Purchase and the Offer, taken as a whole, were fair to the stockholders
of the Company from a financial point of view. Following further discussion
and deliberation, the Company's Board of Directors, by the unanimous vote of
all directors present (Mr. Andrews was not present because of his relationship
with Kohlberg & Co.): (i) approved the Recapitalization Agreement, the
Preferred Stock Purchase, the Offer and the other transactions contemplated by
the Recapitalization Agreement, (ii) determined that the terms of the
Preferred Stock Purchase and the Offer were fair to and in the best interests
of the Company's stockholders, (iii) approved amendments to the Company's
Certificate of Incorporation to authorize 600,000 shares of Convertible
Preferred Stock and to establish a classified Board of Directors and
recommended they be submitted to the stockholders for approval, (iv) approved
five nominees to the Company's Board of Directors designated by Purchaser, and
Mr. C. Michael Jacobi, who Purchaser has proposed be appointed Chief Executive
Officer, as nominees for director of the Company, subject to election by the
stockholders, and (v) adopted an amendment to the Company's Bylaws fixing at
nine the number of directors constituting the whole Board of Directors of the
Company.
On March 26, 2001, Kohlberg & Co. formed Purchaser.
As of March 29, 2001, authorized representatives of the Company and
Purchaser executed and delivered the Recapitalization Agreement, and Purchaser
and the Agreement Stockholders executed and delivered the Voting Agreement.
On March 30, 2001, the Company publicly announced the execution of the
Recapitalization Agreement through a press release and filed a copy of the
press release with the SEC under cover of Schedule 14D-9 and Schedule 14A.
Also on March 30, 2000, Kohlberg & Co. and Purchaser filed a copy of the press
release with the SEC under cover of Schedule TO.
On April 4, 2001, Wallace E. Carroll, Jr., Amelia M. Carroll, trusts for
the benefit of members of the Wallace E. Carroll, Jr. family and entities
associated with the Carroll family filed a Schedule 13D with the SEC
disclosing that they had entered into the Voting Agreement with Purchaser.
On April 6, 2001, the Company filed preliminary proxy materials (the
"Preliminary Proxy Statement") with the SEC in connection with its upcoming
annual stockholders' meeting.
30
On April 9, 2001, the Company filed Amendment No. 1 to the Preliminary
Proxy Statement. Also, on April 9, 2001, Purchaser, Kohlberg Fund IV, Kohlberg
Management IV and James A. Kohlberg filed a Schedule 13D with the SEC
disclosing that they had entered into the Voting Agreement with Wallace E.
Carroll, Jr., Amelia M. Carroll, trusts for the benefit of members of the
Wallace E. Carroll, Jr. family and entities associated with the Carroll
family.
On April 13, 2001, the Company filed a Current Report on Form 8-K with the
SEC disclosing that it had entered into the Recapitalization Agreement with
Purchaser.
On April 16, 2001, the Company received written comments from the SEC with
respect to the Preliminary Proxy Statement.
On April 16, 2001 and April 17, 2001, representatives of the Company
furnished to Mr. Jacobi revised forecasts (in each case, from continuing
segments, including Hamilton, and before unusual items), which showed EBITDA
of $7.3 million for the first quarter of 2001 and EBITDA of $8.3 million for
the second quarter of 2001.
On April 19, 2001, the Company delivered a written response to the SEC in
connection with the written comments the Company had received from the SEC on
April 16, 2001 and filed Amendment No. 2 to the Preliminary Proxy Statement.
On April 20, 2001, the Company's Board of Directors approved a proposed
amendment to the Company's Certificate of Incorporation creating the
Convertible Preferred Stock to be purchased by Purchaser and recommended that
the Company's stockholders approve this amendment.
12. Purpose of the Offer; Plans for the Company.
Purpose. The purpose of the Offer is for Purchaser to acquire for cash up
to 2,500,000 but not less than 2,000,000 Shares. In addition, one of the
purposes of the Offer is to influence control of the business of the Company.
If Purchaser accepts for payment and pays for Shares pursuant to the terms and
conditions of the Offer, Purchaser will, after the Offer expires and
concurrently with the purchase of the Shares, purchase from the Company
400,000 shares of Convertible Preferred Stock pursuant to the Recapitalization
Agreement, as more fully described below in Section 13, "The Transaction
Documents and the Recapitalization--The Recapitalization Agreement." After
completion of the purchase of Shares pursuant to the Offer and the Convertible
Preferred Stock pursuant to the Preferred Stock Purchase, Purchaser will own
approximately 52% of the fully diluted Shares (excluding outstanding options)
if Purchaser purchases the minimum 2,000,000 Shares pursuant to the Offer (or
approximately 56% of the fully diluted Shares (excluding outstanding options)
if Purchaser purchases the maximum 2,500,000 Shares pursuant to the Offer) and
will have the right to nominate a majority of the board of directors of the
Company (the "Purchaser Designees"), subject to election by the holders of
shares of Common Stock. See Section 13, "The Transaction Documents and the
Recapitalization--The Recapitalization Agreement--Corporate Governance."
Going Private Transactions. The SEC has adopted Rule 13e-3 under the
Exchange Act which is applicable to certain "going private" transactions and
which may, under certain circumstances, be applicable to business combinations
following the purchase of Shares pursuant to the Offer or otherwise in which
Purchaser seeks to acquire the remaining Shares not held by it. If applicable,
Rule 13e-3 requires, among other things, that certain financial information
concerning the Company and certain information relating to the fairness of the
proposed transaction and the consideration offered to minority stockholders in
such transaction be filed with the SEC and disclosed to stockholders prior to
consummation of the transaction. Although the purchase of a substantial number
of Shares pursuant to the Offer may result in the Company being able to
terminate its Exchange Act registration, Purchaser has no current intention to
do so. See Section 7, "Effect of Offer on Market for Shares; New York Stock
Exchange Listing; Exchange Act Registration; Margin Regulations." If such
registration were terminated, Rule 13e-3 would be inapplicable to any such
future business combination with Purchaser.
31
Plans for the Company. Purchaser expects that, initially following the
consummation of the Offer, the business and operations of the Company will
generally continue as they are currently being conducted. So long as Purchaser
owns Convertible Preferred Stock, Purchaser will have the right to nominate a
majority of the Company's Board of Directors, subject to election by the
holders of shares of Common Stock. See Section 13, "The Transaction Documents
and the Recapitalization--The Recapitalization Agreement--Corporate
Governance."
It is anticipated that Mr. C. Michael Jacobi will become the Chief
Executive Officer of the Company effective upon Closing Date. While no
employment contract has been entered into with Mr. Jacobi, there is a written
understanding between Purchaser and Mr. Jacobi that his annual base salary
would be $500,000 with an annual bonus of up to $200,000. In addition, Mr.
Jacobi would be entitled to severance benefits providing for continuing salary
payments for (i) a period of one year in the event of an involuntary
termination other than for cause or (ii) a period of two years in the event of
an involuntary termination as a result of or within six months following a
change in control (which is defined as (A) a sale of 100% of the Company's
outstanding capital stock, (B) a sale of all or substantially all of the
Company's operating assets or (C) a transaction or transactions in which any
third party acquires a stock ownership greater than that held by Purchaser and
in which persons nominated by Purchaser cease to constitute a majority of the
Company's Board of Directors). As Chief Executive Officer, Mr. Jacobi would
also be granted options to purchase 650,000 Shares which would have an
exercise price of $8.00 per share. The options would vest ratably over three
years, subject to the achievement of annual performance goals. All options
would be subject to accelerated vesting in the event of a sale of the Company
or a change in control (as defined above). Mr. Jacobi would also be paid a
bonus of $50,000 on commencement of employment. Purchaser intends to submit to
the Company's Board of Directors for approval the employment of Mr. Jacobi,
commencing on the Closing Date, in accordance with these terms. Purchaser has
conditioned its understanding with Mr. Jacobi upon approval by the Company's
Board of Directors following approval of the matters relating to the
Recapitalization Agreement that are to be voted on by the Company's
stockholders at the Company's upcoming annual stockholders' meeting.
With the exception of Mr. Jacobi, Purchaser currently intends to cause the
Company's operations to continue to be run and managed by, among others, the
Company's existing executive officers. Purchaser will continue to evaluate all
aspects of the business, operations, capitalization and management of the
Company during the pendency of the Offer and after the consummation of the
Offer and will take such further actions as it deems appropriate under the
circumstances then existing. Purchaser intends to seek additional information
about the Company during this period. Thereafter, Purchaser intends to review
such information as part of a comprehensive review of the Company's business,
operations, capitalization and management. Accordingly, Purchaser reserves the
right to change its plans and intentions at any time, as it deems appropriate.
In particular, Purchaser may, subject to the terms of the Recapitalization
Agreement, acquire additional Shares or may dispose of Shares on the NYSE, in
privately negotiated transactions or otherwise. Any such transactions may be
effected at any time and from time to time, and may be made upon such terms
and at such prices as Purchaser shall determine, which may be more or less
than the price paid in the Offer.
Extraordinary Corporate Transactions. Except as indicated in this Offer to
Purchase, Purchaser has no present plans or proposals which relate to or would
result in (i) an extraordinary corporate transaction, such as a merger,
reorganization or liquidation, involving the Company, (ii) any purchase, sale
or transfer of a material amount of assets of the Company or any of its
subsidiaries, (iii) any material change in the present dividend policy, or
indebtedness or capitalization, of the Company, (iv) any change in the
Company's present management, (v) any other material changes in the Company's
corporate structure or business, (vi) any class of equity securities of the
Company being delisted from a national securities exchange or ceasing to be
authorized to be quoted in an automated quotations system operated by a
national securities association, or (vii) any class of equity securities of
the Company becoming eligible for termination of registration under Section
12(g)(4) of the Exchange Act.
32
13. The Transaction Documents and the Recapitalization.
The Recapitalization Agreement.
The following summary of certain material provisions of the
Recapitalization Agreement, a copy of which is filed as an exhibit to the
Schedule TO, is qualified in its entirety by reference to the full text of the
Recapitalization Agreement, which is incorporated herein by reference.
The Offer. The Recapitalization Agreement provides for the commencement of
the Offer by Purchaser concurrently with the mailing of a definitive proxy
statement by the Company to its stockholders recommending, among other things,
that stockholders consider acceptance of the Offer and the tender of all or
some of their Shares in the Offer and authorize the Convertible Preferred
Stock, the issuance of Shares upon conversion of the Convertible Preferred
Stock and the Preferred Stock Purchase at a meeting of the stockholders of the
Company. The obligations of Purchaser to consummate the Offer and to accept
for payment and pay for the Shares validly tendered in the Offer and not
withdrawn are subject to (i) satisfaction of the Offer Conditions (to the
extent not waived by Purchaser), including, without limitation, the condition
that the number of Shares (up to the maximum of 2,500,000) which have been
validly tendered and not withdrawn prior to the expiration of the Offer,
together with the Shares into which the Convertible Preferred Stock to be
purchased by Purchaser are convertible, shall represent not less than a
majority of the Company's Common Stock issuable and outstanding, calculated on
a fully diluted basis (exclusive of outstanding options), on the Closing Date,
and (ii) pro rata acceptance for payment of Shares tendered if the total
number of Shares tendered exceeds the maximum of 2,500,000. The initial
expiration date of the Offer is 5:00 p.m., New York City time, on Tuesday,
June 5, 2001; provided, however, that, subject to the requirements of
applicable law, the term of the Offer shall be extended by Purchaser if so
requested by the Company if the Offer Conditions (other than (i) the Minimum
Condition, (ii) the condition that the tendered Shares, together with the
Shares into which the Convertible Preferred Stock is convertible, represent a
majority of the outstanding Shares calculated on a fully diluted basis
(excluding outstanding options) on the Closing Date, (iii) the condition that
the Company's stockholders shall have duly elected the Company's Board of
Directors, including the Purchaser Designees, authorized the Preferred Stock
Purchase and approved the amendment to the Company's Certificate of
Incorporation authorizing the classification of the Company's Board of
Directors into two classes and 600,000 shares of Convertible Preferred Stock,
(iv) the condition that the Company shall have received an unqualified audit
opinion from Arthur Andersen with respect to its consolidated financial
statements for the fiscal year ended December 31, 2000 and (v) the condition
that the amended Certificate of Incorporation reflecting the authorization of
600,000 shares of Convertible Preferred Stock shall have been filed with the
Secretary of State of the State of Delaware) shall have been satisfied as of
the date of the request, and may in any case be extended in the sole
discretion of Purchaser, for a period of up to 20 business days; provided,
however, that in no event shall the Offer be extended beyond June 30, 2001.
Preferred Stock Purchase. The Company agrees to sell to Purchaser, and
Purchaser agrees to purchase from the Company, on the Closing Date and subject
to the Offer Conditions, 400,000 shares of Convertible Preferred Stock for a
purchase price of $100 per share (or an aggregate purchase price of $40
million) in cash. The consummation of the Preferred Stock Purchase will take
place concurrently with the acceptance for payment of the Shares on the
Closing Date.
Conditions to Obligations of All Parties to Recapitalization Agreement. The
respective obligations of each party to consummate the transactions
contemplated by the Recapitalization Agreement are subject to the satisfaction
or waiver, where permissible, prior to the Closing Date, of the following
conditions:
. no statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or enforced by
any court or other tribunal or governmental body or authority which
prohibits the consummation of the transactions contemplated by the
Recapitalization Agreement substantially on the terms contemplated
thereby. If any order, decree or injunction shall have been issued, each
party shall use its reasonable efforts to remove any such order, decree
or injunction; and
33
. all required approvals shall have been obtained, except where the
failure to obtain such required approvals would not have a material
adverse effect on the Company and its subsidiaries or Purchaser, as the
case may be.
Conditions to Obligation of the Company. The obligation of the Company to
consummate the transactions contemplated by the Recapitalization Agreement is
subject to the satisfaction or waiver, where permissible, prior to the Closing
Date, of the following conditions:
. the representations and warranties of Purchaser contained in the
Recapitalization Agreement shall be true and correct as of the Closing
Date with the same effect as though made as of the Closing Date except
(i) for changes specifically permitted by the terms of the
Recapitalization Agreement, (ii) for the accuracy of representations and
warranties that by their terms speak as of March 29, 2001 or some other
date, which will be determined as of such date and (iii) where any such
failure of the representations and warranties in the aggregate to be
true and correct in all respects would not have a material adverse
effect on Purchaser or the Company and its subsidiaries, and Purchaser
shall have delivered to the Company a certificate, dated the Closing
Date and signed by an executive officer, certifying as to the foregoing;
. Purchaser shall have performed in all material respects all obligations
and complied with all covenants required by the Recapitalization
Agreement to be performed or complied with by it prior to the Closing
Date, and Purchaser shall have delivered to the Company a certificate,
dated the Closing Date and signed by an executive officer, certifying as
to the foregoing;
. Purchaser shall have delivered to the Company the purchase price for the
Convertible Preferred Stock; and
. Purchaser's counsel shall have delivered to the Company a legal opinion
in the form required pursuant to the Recapitalization Agreement.
Conditions to Obligation of Purchaser. The obligation of Purchaser to
consummate the transactions contemplated by the Recapitalization Agreement is
subject to the satisfaction or waiver, where permissible, prior to the Closing
Date, of the following conditions:
. the Offer Conditions shall have been satisfied or, to the extent not
satisfied, waived by Purchaser, where permissible;
. the representations and warranties of the Company contained in the
Recapitalization Agreement shall be true and correct as of the Closing
Date with the same effect as though made as of the Closing Date, except
(i) for changes specifically permitted by the terms of the
Recapitalization Agreement, (ii) for the accuracy of representations and
warranties which speak as of a specific date, which will be determined
as of such date, and (iii) where the failure of any such representation
or warranty to be true and correct as of the Closing Date or as of such
other specific date, as the case may be, individually or in the
aggregate, would not have a material adverse effect on the Company and
its subsidiaries, and the Company shall have delivered to Purchaser a
certificate, dated the Closing Date, signed by its Chairman of the
Board, Chief Executive Officer and President or any Senior Vice
President certifying as to the foregoing;
. the Company shall have performed, or shall have caused one of its
subsidiaries to perform, all obligations and complied with all covenants
required by the Recapitalization Agreement to be performed or complied
with by any of them prior to the Closing Date, except where the failure
so to perform, individually or taken as a whole, would not adversely
affect the ability of the Company to consummate the transactions
contemplated by the Recapitalization Agreement, and the Company shall
have delivered to Purchaser a certificate, dated the Closing Date,
signed by its Chairman of the Board, Chief Executive Officer and
President or any Senior Vice President certifying as to the foregoing;
. the Company shall have delivered a certificate of the registrar of the
Company's Common Stock as to the number of shares outstanding as of the
close of business on the day preceding the Closing Date
34
and a certificate from the Secretary of the Company certifying that the
Shares proposed to be accepted for payment represent less than 30% of
the combined voting power of the outstanding securities of the Company
immediately prior to the acceptance for payment of the tendered Shares;
and
. the Company's outside legal counsel shall have delivered to Purchaser a
legal opinion in the form required pursuant to the Recapitalization
Agreement.
Proxy Statement. Pursuant to the Recapitalization Agreement, the Company
has filed with the SEC the Proxy Statement containing the recommendations of
its Board of Directors with respect to the Offer, the authorization of 600,000
shares of Convertible Preferred Stock on substantially the terms and
conditions set forth in Exhibit C to the Recapitalization Agreement, the
Preferred Stock Purchase, the classification of the Company's Board of
Directors into two classes with staggered terms of office, the election of the
Purchaser Designees and the other transactions contemplated by the
Recapitalization Agreement; provided, however, that the Board of Directors of
the Company may modify, withdraw or change such recommendations solely to the
extent that the Board of Directors and the Company are permitted to do so as
described below under "--Nonsolicitation Obligations and Exceptions." The
Company granted to Purchaser certain rights to review and comment on the
preliminary Proxy Statement, as well as any amendments and supplements to the
Proxy Statement, prior to their filing with the SEC. The Company also agreed
to provide Purchaser and its counsel in writing any comments that the Company
or its counsel may receive from the SEC or its staff with respect to the
preliminary Proxy Statement promptly after receipt thereof, and to disseminate
the Proxy Statement as required by law. The Company shall promptly correct any
information provided by it for use in the Proxy Statement that shall have
become false or misleading in any material respect and take all steps
necessary to cause the Proxy Statement as so corrected to be filed with the
SEC and disseminated to the stockholders of the Company, as and to the extent
required by applicable law.
Schedule TO and Other Offer Documents; State Filings. Pursuant to the
Recapitalization Agreement, Purchaser agreed to file with the SEC, on the day
the Company first mails the Proxy Statement to its stockholders, the Schedule
TO, including this Offer to Purchase and related Letter of Transmittal and
certain other offer documents. Also, Purchaser granted to the Company certain
rights to review and comment on the proposed forms of the Schedule TO and such
offer documents, as well as any amendments and supplements thereto. Purchaser
agreed to provide the Company and its counsel in writing any comments that
Purchaser or its counsel may receive from the SEC or its staff with respect to
such offer documents promptly after the receipt of such comments. Purchaser
shall promptly correct any information provided by it for use in the Schedule
TO or the offer documents that shall have become false or misleading in any
material respect and take all steps necessary to cause the Schedule TO or such
offer documents as so corrected to be filed with the SEC and disseminated to
the stockholders of the Company, as and to the extent required by applicable
law.
Schedule 14D-9. Pursuant to the Recapitalization Agreement, the Company has
agreed to file with the SEC simultaneously with the filing by Purchaser of the
Schedule TO, a Solicitation/Recommendation Statement on Schedule 14D-9 (the
"Schedule 14D-9") containing the recommendations of its Board of Directors
with respect to the Offer; provided, however, that the Board of Directors of
the Company may modify, withdraw or change such recommendations solely to the
extent that the Board of Directors and the Company are permitted to do so as
described below under "--Nonsolicitation Obligations and Exceptions." The
Company granted to Purchaser certain rights to review and comment on the
proposed forms of the Schedule 14D-9, as well as any amendments and
supplements to the Schedule 14D-9, prior to their filing with the SEC. The
Company also agreed to provide Purchaser and its counsel in writing any
comments that the Company or its counsel may receive from the SEC or its staff
with respect to the Schedule 14D-9 promptly after receipt thereof, and to
disseminate the Schedule 14D-9 as required by Rule 14d-9 under the Exchange
Act. The Company shall promptly correct any information provided by it for use
in the Schedule 14D-9 that shall have become false or misleading in any
material respect and take all steps necessary to cause such Schedule 14D-9 as
so corrected to be filed with the SEC and disseminated to the stockholders of
the Company, as and to the extent required by applicable law.
35
Representations and Warranties. Pursuant to the Recapitalization Agreement,
the Company has made customary representations and warranties to Purchaser,
including, but not limited to, representations and warranties relating to the
Company's organization and qualification to do business, the Company's
authority to enter into the Recapitalization Agreement and carry out the
transactions contemplated thereby, the validity, binding effect and
enforceability of the Recapitalization Agreement with respect to the Company,
required consents and approvals, the noncontravention and nonviolation by the
Recapitalization Agreement of the organizational documents and other
agreements of the Company and of laws applicable to it, the Company's
capitalization, the Company's subsidiaries, documents and SEC filings
(including financial statements) relating to the Offer, the absence of certain
material adverse changes or events since September 30, 2000, litigation,
intellectual property rights, employee benefit plans, environmental, health
and safety matters, the payment of taxes and filing of tax returns, the
inapplicability of the Rights Agreement to the Offer, the absence of
arrangements for finders' fees (other than with Bear Stearns), the Company's
compliance with laws and permits, the full force and effect of the Company's
contracts, related party transactions, severance payments, licenses, material
contracts and transactions with affiliates.
Purchaser has also made customary representations and warranties to the
Company, including, but not limited to, representations and warranties
relating to Purchaser's organization and qualification to do business, its
authority to enter into the Recapitalization Agreement and consummate the
transactions contemplated thereby, the validity, binding effect and
enforceability of the Recapitalization Agreement with respect to Purchaser,
required consents and approvals, lack of litigation which would affect the
Offer, lack of prior ownership of Shares by Purchaser, the inapplicability of
a vote of Purchaser stockholders, Purchaser's securities filings, loan
commitments and Purchaser's investment intent with respect to its purchase of
the Convertible Preferred Stock.
Pursuant to the terms of the Recapitalization Agreement, none of the
representations and warranties made in the Recapitalization Agreement will
survive after the Closing Date.
Conduct of Company's Business Pending the Closing Date. In the
Recapitalization Agreement, the Company has entered into certain covenants
concerning the conduct of its business prior to the Closing Date. Except as
otherwise contemplated by the Recapitalization Agreement, set forth in the
schedules to the Recapitalization Agreement or as approved in writing by
Purchaser, during the period from March 29, 2001 to the Closing Date, each of
the Company each of its subsidiaries shall:
. conduct its operations according to the ordinary and usual course of
business;
. use its commercially reasonable efforts to preserve intact its business
organization and goodwill, keep available the services of its officers
and employees as a group, subject to changes in the ordinary course, and
maintain satisfactory relationships with suppliers, distributors,
customers and others having business relationships with the Company and
its subsidiaries;
. confer at such times as Purchaser may reasonably request with one or
more representatives of Purchaser to report operational matters and the
status of ongoing operations; and
. notify Purchaser of any emergency or other change in the normal course
of any of the respective businesses of the Company and its subsidiaries
or in the operation of the respective properties of the Company and its
subsidiaries and of any complaints, investigations or hearings (or
communications indicating that the same may be contemplated) of any
governmental body or authority if such emergency, change, complaint,
investigation or hearing would have a material adverse effect on the
Company and its subsidiaries.
Furthermore, except as otherwise contemplated by the Recapitalization
Agreement, set forth in the schedules to the Recapitalization Agreement or as
approved in writing by Purchaser, during the period from March 29, 2001 to the
Closing Date, the Company and each of its subsidiaries shall not:
. authorize or pay any dividends on or make any distribution with respect
to its outstanding Shares, except for regular dividends not in excess of
$0.075 per Share per quarter;
36
. enter into or amend any employment, severance or similar agreements or
arrangements with its respective directors or executive officers except
with Purchaser's approval (not to be unreasonably withheld);
. except as otherwise permitted under the Recapitalization Agreement,
authorize, propose or announce an intention to authorize or propose, or
enter into an agreement with respect to, any merger, consolidation or
business combination, or, other than in the ordinary course of business,
any acquisition of any material assets or securities, any disposition of
any material amount of assets or securities (other than the Preferred
Stock Purchase) or any release or relinquishment of any contract rights;
. propose or adopt any amendments to its Certificate of Incorporation,
Bylaws or the Rights Agreement (other than the authorization of the
Convertible Preferred Stock or as otherwise contemplated by the
Recapitalization Agreement);
. issue any Shares (other than Shares issued pursuant to the exercise of
options previously granted under the Company's stock option plans), or
effect any stock split or otherwise change its capitalization (other
than the authorization of the Convertible Preferred Stock) as it existed
on March 29, 2001, other than as specifically permitted by the
Recapitalization Agreement;
. except as specifically permitted by the Recapitalization Agreement,
grant, confer or award (i) any options, warrants, conversion rights or
other rights, not existing on March 29, 2001, to acquire any Shares
(other than in connection with the issuance of the Convertible Preferred
Stock) or (ii) any other awards under the Company's stock option plans;
. purchase or redeem any Shares;
. materially amend the terms of its respective employee benefit plans,
programs or arrangements or any severance or similar agreements or
arrangements in existence on March 29, 2001, except as may be required
by applicable law, or adopt any new employee benefit plans, programs or
arrangements or any severance or similar agreements or arrangements
except as contemplated by the Recapitalization Agreement;
. enter into any collective bargaining agreement which contains terms and
conditions which cause, or with the passage of time would cause, a
material adverse effect on the Company and its subsidiaries including,
without limitation, entering into any collective bargaining agreement
which contains a successorship provision or any provision which requires
a purchaser to assume the collective bargaining agreement;
. enter into any material loan agreement except for letters of credit in
the ordinary course of business;
. make any tax election or settle or compromise any material tax liability
other than in the ordinary and usual course of business consistent with
past practice;
. agree, in writing or otherwise, to take any of the foregoing actions or
take any action which would make any representation or warranty of the
Company in Article III of the Recapitalization Agreement untrue or
incorrect;
. grant, confer or award any monetary or non-monetary bonus;
. settle, compromise or otherwise terminate any material litigation, claim
or other settlement negotiation except with the approval of Purchaser,
such approval not to be unreasonably withheld; and
. fail to maintain insurance under substantially the same terms and
conditions as it currently maintains.
If the Company wishes to seek Purchaser's consent to take any of the
foregoing actions, the Company must give notice to Purchaser, and Purchaser
must notify the Company within three business days whether it will grant such
consent. Failure so to notify the Company will be deemed to be consent by
Purchaser, but such consent will not operate as a waiver of, or estoppel with
respect to, any subsequent or other action the Company proposes to take.
37
Nonsolicitation Obligations and Exceptions. The Company must not, and must
not permit any of the subsidiaries to, nor may it authorize or permit any of
its directors, officers or employees or any investment banker, financial
advisor, attorney, accountant or other representative retained by it or any of
its subsidiaries to, directly or indirectly through another person, (i)
solicit, initiate or encourage (including, without limitation, by way of
furnishing information or by taking any action which would make the Rights
Agreement inapplicable to any Company Takeover Proposal (as defined below)
other than the Offer and the Preferred Stock Purchase), or take any other
action designed to facilitate, any inquiries or the making of any proposal
which constitutes any Company Takeover Proposal or (ii) participate in any
discussions or negotiations regarding any Company Takeover Proposal, in each
case without the prior written consent of Purchaser; provided that prior to
the acceptance for payment of Shares pursuant to the Offer, in response to an
unsolicited Company Takeover Proposal that did not result from the breach of
the Recapitalization Agreement, following delivery to Purchaser of notice of
the Company Takeover Proposal in compliance with its obligations under the
Recapitalization Agreement, the Company may participate in discussions or
negotiations with or furnish information (pursuant to a confidentiality
agreement with customary terms) to any third party which makes a bona fide
written Company Takeover Proposal if (A) a majority of the Company's Board of
Directors determines in good faith (after consultation with an independent,
nationally recognized investment bank) that taking such action would be
reasonably likely to lead to the delivery to the Company of a Superior
Proposal (as defined below) and (B) a majority of the Company's Board of
Directors determines in good faith (after consultation with outside legal
counsel) that failure to take such actions would not be consistent with the
fiduciary duties of the directors under applicable law.
For purposes of this Offer to Purchase, (i) "Company Takeover Proposal"
means any inquiry, proposal or offer from any person relating to any direct or
indirect acquisition or purchase of a business that constitutes 25% or more of
the net revenues, net income or the assets of the Company and its
subsidiaries, taken as a whole, or 25% or more of any class of equity
securities of the Company (other than purchases made without the prior
authorization or approval of the Company), any tender offer or exchange offer
that if consummated would result in any person beneficially owning 25% or more
of any class of equity securities of the Company, or any merger,
consolidation, business combination, recapitalization, liquidation,
dissolution or similar transaction involving the Company, other than the
transactions contemplated by the Recapitalization Agreement and (ii) "Superior
Proposal" means a bona fide written Company Takeover Proposal made by a third
party to purchase or otherwise acquire more than 50% of the outstanding equity
securities of the Company pursuant to a tender offer, exchange offer, merger,
recapitalization or other business combination or similar transaction on terms
which a majority of the Company's Board of Directors determines in good faith
(after consultation with an independent, nationally recognized investment
bank) to be superior to the Company's stockholders (in their capacity as
stockholders) from a financial point of view (taking into account, among other
things, the length of time necessary to complete the proposed transaction, the
risk of non-completion, all legal, financial, regulatory and other aspects of
the proposal, and the identity of the offeror) as compared to the transactions
contemplated hereby (including any alternative proposed by Purchaser pursuant
to the Recapitalization Agreement in response to such Company Takeover
Proposal), which is reasonably capable of being consummated.
Neither the Board of Directors of the Company nor any committee thereof may
(i) withdraw or modify, or propose publicly to withdraw or modify, in a manner
adverse to Purchaser, the approval or recommendation by such Board of
Directors or such committee of or with respect to the Offer, the Preferred
Stock Purchase or the Recapitalization Agreement, (ii) approve or recommend,
or propose publicly to approve or recommend, any Company Takeover Proposal, or
(iii) cause the Company to enter into any letter of intent, agreement in
principle, acquisition agreement or other similar agreement (each, a "Company
Acquisition Agreement") related to any Company Takeover Proposal. Nothing in
the foregoing sentence shall prevent the Company, its Board of Directors, or a
committee, from (A) complying with the requirements of Rules 14e-2 and 14d-9
under the Exchange Act, (B) making such disclosure to stockholders or
otherwise which the Board of Directors, after consultation with counsel,
concludes is necessary under applicable law or the rules of the NYSE or (C)
withdrawing or modifying an approval or recommendation of or with respect to
the Offer, the Preferred Stock Purchase, the Recapitalization Agreement or
approving or recommending a Company Takeover Proposal from a
38
third party or causing the Company to enter into a Company Acquisition
Agreement, if the Board of Directors of the Company, after consultation with
outside legal counsel, determines that not doing so would not be consistent
with the fiduciary obligations of the directors under applicable law.
In addition to the obligations of the Company described in the preceding
three paragraphs, the Company must promptly advise Purchaser orally and in
writing of any request for information or of any Company Takeover Proposal,
the material terms and conditions of such request or Company Takeover Proposal
and the identity of the person making such request or Company Takeover
Proposal. The Company must keep Purchaser reasonably informed of the status
and details (including amendments or proposed amendments) of any such request
or Company Takeover Proposal on a daily basis or more frequently as may be
reasonably requested by Purchaser.
Indemnification of Directors and Officers. The Recapitalization Agreement
provides as follows with respect to the indemnification of directors and
officers by the Company:
. the indemnification obligations set forth in the Company's Certificate
of Incorporation and Bylaws as of March 29, 2001 shall survive the
consummation of the transactions contemplated by the Recapitalization
Agreement and shall not be amended, repealed or otherwise modified for a
period of six years after the Closing Date in any manner that would
adversely affect the rights thereunder of the individuals who, on or
prior to the Closing Date, were directors, officers, employees or agents
of the Company or its subsidiaries;
. for six years from the Closing Date, the Company shall provide to the
directors and officers of the Company as of March 29, 2001 liability
insurance protection of the same kind and scope as that provided by the
Company's directors' and officers' liability insurance policies with
respect to claims arising from facts or events that occurred prior to
the Closing Date; provided, however, that in no event shall the Company
be required to expend more than 200% of the amount currently expended by
the Company (the "Insurance Amount") to maintain or procure its current
directors' and officers' liability insurance coverage; provided,
further, that if the Company is unable to maintain or obtain such
insurance, the Company shall use its best efforts to obtain as much
comparable insurance as available for the Insurance Amount;
. in the event Purchaser or the Company or any of their respective
successors or assigns (i) consolidates with or merges into any other
person or shall not be the continuing or surviving corporation or entity
in such consolidation or merger or (ii) transfers all or substantially
all its properties and assets to any person, then, and in each case,
proper provision shall be made so that the successors and assigns of
Purchaser or the Company, as the case may be, honor the indemnification
obligations described in this paragraph; and
. the obligations of the Company described in this paragraph shall not be
terminated or modified in such a manner as to adversely affect any
director, officer, employee, agent or other person to whom this
paragraph applies without the consent of such affected director,
officer, employee, agent or other person.
Corporate Governance. Purchaser has the right to nominate for election at
the meeting of the Company's stockholders to authorize the Convertible
Preferred Stock and approve the Preferred Stock Purchase pursuant to the
Recapitalization Agreement (the "Stockholder Meeting") and, so long as
Purchaser owns Convertible Preferred Stock, at any subsequent annual or
special meeting of the Company's stockholders at which an election for members
of the Company's Board of Directors is held, a number of Purchaser Designees
such that, after the election, the Purchaser Designees represent a simple
majority of the Company's Board of Directors, subject to approval by a vote of
a majority of the holders of Shares present in person or by proxy and voting
at such meeting. Following the closing of the Preferred Stock Purchase and the
Offer, Purchaser's significant ownership of Shares will increase the
likelihood that the Purchaser Designees will be elected. In addition, if the
Agreement Stockholders enter into the voting agreement that is a condition to
the Preferred Stock Purchase and the Offer, under which the Agreement
Stockholders will vote in favor of the Purchaser Designees as directors at
39
stockholder meetings held after the Stockholder Meeting, this agreement would
further increase the likelihood that the Purchaser Designees will be elected.
This voting agreement will not restrict the ability of the Agreement
Stockholders to dispose of their remaining Shares. The directors elected at
the Stockholder Meeting shall be classified into two classes, one class
comprising the four directors who are not Purchaser Designees to be initially
elected for a one-year term expiring at the annual meeting of the Company's
stockholders to be held in 2002, and a second class comprising the five
Purchaser Designees to be elected initially for a two-year term expiring at
the annual meeting of the Company's stockholders to be held in 2003, with the
directors in each class to hold office until their respective successors are
duly elected and qualified. At each succeeding annual meeting of the Company's
stockholders, directors elected to succeed those directors whose terms then
expire shall be elected for a term of office to expire at the second
succeeding annual meeting of stockholders after such election. As contemplated
by the Recapitalization Agreement, the Company has amended its Bylaws to
reduce the number of directors constituting the whole board of the Company to
nine and has agreed to amend its Bylaws to provide that, so long as Purchaser
owns Convertible Preferred Stock, the Company shall not subsequently increase
the size of its Board of Directors, unless at the time of such increase
Purchaser has been given the opportunity to nominate the number of additional
directors necessary, together with incumbent directors nominated by Purchaser,
to constitute a simple majority of the Company's Board of Directors.
Restrictions on Sales of Shares by Purchaser; Fees Paid to Purchaser;
Amendment of Bylaws. Purchaser may not sell, transfer or otherwise dispose of
more than 20% of its Shares (on a fully diluted basis, including for such
purpose the Shares issuable upon the conversion of Convertible Preferred
Stock), unless all holders of Shares other than Purchaser and any of its
affiliates (the "Other Holders") have the right to participate in such sale,
transfer or other disposition on the same terms and conditions and for the
same consideration per Share or Share equivalent on a pro rata basis. In
connection with any merger, consolidation or other business combination
involving the Company in which the Company is not the surviving corporation,
the Other Holders shall receive the same consideration per Share or Share
equivalent as that received by Purchaser. All fees paid by the Company to
Purchaser or any of its affiliates, and any transactions between the Company
and Purchaser or any of its affiliates, shall be subject to approval of the
members of the Company's Board of Directors who are not Purchaser Designees or
affiliates of Purchaser (the "Other Directors"). See "--The Recapitalization--
Transaction and Monitoring Fee." Prior to the Closing Date, the Company's
Bylaws shall be amended to reflect the restrictions described in this
paragraph and in the paragraph above captioned "--Corporate Governance" and to
require that any amendment to the Company's Bylaws modifying these
restrictions be subject to approval by a majority of the Other Directors and
by a majority of the Other Holders.
Registration Rights. Purchaser shall have registration rights with respect
to the Shares purchased pursuant to the Offer and the Shares issued upon
conversion of the Convertible Preferred Stock (collectively, the "Registrable
Securities") on the following terms and conditions:
. Demand Rights. In connection with any conversion of the Convertible
Preferred Stock into Shares, the holders (the "Converting Holders") of
any Registrable Securities shall have the right to request that the
Company file a registration statement (on Form S-3, if available to the
Company at the time) pursuant to the Securities Act (the "Registration
Statement"); provided that the Converting Holders shall not be entitled
to demand a registration on more than three occasions. The Company shall
(i) within 10 days after receiving notice from any Converting Holder
requesting a demand for registration give notice thereof to all other
Converting Holders known to the Company and (ii) promptly (and in any
event within 45 days of receipt of such request) file a Registration
Statement to effect a registration under the Securities Act covering all
Registrable Securities for which the Company receives a request from the
Converting Holders within 30 days of the delivery of the notice by the
Company as described in clause (i) above. In connection with any demand
registration, if the majority of the Converting Holders elect to offer
and sell Registrable Securities in an underwritten offering, they shall
be entitled to select the underwriter, subject to the Company's consent
(such consent not to be unreasonably withheld), and the Company shall
enter into an underwriting agreement (together with the Converting
Holders electing to sell their Registrable Securities in an underwritten
offering) with such underwriter. In the event the underwriter has not
limited the number of Registrable Securities or other securities to
40
be underwritten, the Company may include its securities for its own
account in such registration and underwriting if the underwriter so
agrees and if the number of Registrable Securities included in such
underwriting will not be limited.
. Piggy-Back Rights. In the event the Company registers Shares pursuant to
a Registration Statement (other than registrations on Form S-4 or Form
S-8), the Converting Holders shall have the right to include all or part
of the Registrable Securities owned by them at the time in such
registration. The Company shall promptly (i) give each Converting Holder
written notice of such registration and (ii) include in such
registration, and in any underwriting involved therein, all the
Registrable Securities specified in a written request delivered to the
Company by any such Converting Holder within 20 days after delivery of
such written notice by the Company. If such a registration is
underwritten, all Converting Holders proposing to distribute their
Registrable Securities through such underwriting shall (together with
the Company) enter into an underwriting agreement with the underwriter
for such offering. The Converting Holders shall have no right to
participate in the selection of the underwriters for an offering
pursuant to this paragraph; provided, that the underwriter is of
recognized national standing. In the event the underwriter limits the
number of Shares to be offered and sold in connection with a piggy-back
registration, the number of Registrable Securities to be included in the
registration and the underwriting shall be reduced on a pro rata basis
among the Converting Holders requesting registration.
. Indemnification. The Company shall provide customary indemnification to
each Converting Holder, each underwriter and dealer manager
participating in a distribution, each person who "controls" such persons
(within the meaning of the Securities Act or the Exchange Act) and their
respective officers, directors, employees and agents. Each Converting
Holder shall provide customary indemnification to the Company, each
underwriter and dealer manager participating in a distribution, each
person who "controls" such persons (within the meaning of the Securities
Act or the Exchange Act) and their respective officers, directors,
employees and agents (in the case of underwriters and deal managers, if
requested).
. Expenses. In the case of any demand registration, the Company shall pay
all registration expenses. In the case of any piggy-back registration,
the requesting Converting Holders shall bear the pro rata share of
underwriter's fees, discounts and commissions incurred in such
registration and any incremental registration expenses, in each case,
including (i) incremental registration and qualification fees and
expenses and (ii) any incremental costs and disbursements (including
legal fees and expenses) that result from the inclusion of the
Registrable Securities included in such registration, with such
incremental expenses being borne by the requesting Converting Holders on
a pro rata basis.
Additional Covenants. In addition to the covenants noted above, the parties
to the Recapitalization Agreement have entered into certain other customary
covenants and agreements, including with respect to the issuances of press
releases and other public statements with respect to the transactions
contemplated by the Recapitalization Agreement.
Termination. The Recapitalization Agreement may be terminated at any time
prior to the Closing Date (notwithstanding approval of the Recapitalization
Agreement by the stockholders of the Company):
. by the mutual written consent of the Company and Purchaser;
. by either the Company or Purchaser if the Closing Date shall not have
occurred on or before June 30, 2001; provided that such termination
right shall not be available to any party that has breached in any
material respect its obligations under the Recapitalization Agreement in
any manner that shall have substantially contributed to the failure to
consummate the transactions contemplated by the Recapitalization
Agreement on or before such date;
. by either the Company or Purchaser if (i) a statute, rule, regulation or
executive order shall have been enacted, entered or promulgated
prohibiting the consummation of the transactions contemplated by the
Recapitalization Agreement substantially on the terms contemplated by
the Recapitalization Agreement
41
or (ii) an order, decree, ruling or injunction shall have been entered
permanently restraining, enjoining or otherwise prohibiting the
consummation of the transactions contemplated by the Recapitalization
Agreement substantially on the terms contemplated by the
Recapitalization Agreement and such order, decree, ruling or injunction
shall have become final and non-appealable; provided that the party
seeking to terminate the Recapitalization Agreement pursuant to such
provision shall have used its reasonable best efforts to remove such
order, decree, ruling or injunction;
. by Purchaser if the Offer Conditions are not satisfied on or prior to
the Closing Date;
. by the Company, if Purchaser shall have breached or failed to perform in
any material respect any of its representations, warranties, covenants
or other agreements contained in the Recapitalization Agreement, which
breach or failure to perform (i) would give rise to the failure of a
condition to the obligation of the Company to effect the transactions
contemplated by the Recapitalization Agreement and (ii) is incapable of
being cured by Purchaser or is not cured within 30 days of notice of
such breach or failure;
. by Purchaser, if the Company shall have breached or failed to perform,
or shall have failed to cause any of its subsidiaries to perform, in any
material respect any of its representations, warranties, covenants or
other agreements contained in the Recapitalization Agreement, which
breach or failure to perform (i) would give rise to the failure of a
condition to the obligation of the Purchaser to effect the transactions
contemplated by the Recapitalization Agreement and (ii) is incapable of
being cured by the Company or is not cured within 30 days of notice of
such breach or failure; and
. by the Company, if at any time prior to the Closing Date, a Superior
Proposal is received by the Company and the Company's Board of Directors
determines in good faith (after consultation with outside legal counsel)
that failure to terminate the Recapitalization Agreement and enter into
an agreement to effect the Superior Proposal would be inconsistent with
its fiduciary duties under applicable law; provided that the Company may
not terminate the Recapitalization Agreement pursuant to such provision
unless and until (i) three business days have elapsed following delivery
to Purchaser of a written notice of such good faith determination by the
Company's Board of Directors and during such three business day period
the Company has fully cooperated with Purchaser, including without
limitation, informing Purchaser of the terms and conditions of such
Superior Proposal, and the identity of the person making such Superior
Proposal, with the intent of enabling both parties to agree to a
modification of the terms and conditions of the Recapitalization
Agreement so that the transactions contemplated by the Recapitalization
Agreement may be effected; (ii) at the end of such three business day
period the Company Takeover Proposal continues to constitute a Superior
Proposal and the Company's Board of Directors confirms its good faith
determination (after consultation with outside legal counsel) that
failure to terminate the Recapitalization Agreement and enter into an
agreement to effect the Superior Proposal would be inconsistent with its
fiduciary duties under applicable law; and (iii) at or prior to such
termination, Purchaser has received payment of any termination fee
required by the Recapitalization Agreement to be paid at or prior to
termination, and as soon as practicable following such termination the
Company enters into a definitive acquisition, merger or similar
agreement to effect the Superior Proposal.
If the Recapitalization Agreement is terminated, it will become void and of
no effect with no liability of any party except as described below under "--
Termination Fee; Expenses"; provided, however, that except as otherwise
provided therein, no such termination shall relieve any party of any liability
or damages resulting from any misrepresentation or breach of any covenant or
agreement of the Recapitalization Agreement or from the confidentiality
obligations under the Recapitalization Agreement.
Termination Fee; Expenses. The Company must promptly reimburse Purchaser
for Purchaser's documented expenses (including, without limitation, fees and
expenses of or associated with Purchaser's lenders and their counsel in the
transaction) up to $1 million, payable by wire transfer of same day funds
within five business days of the receipt by the Company of a statement
itemizing and reasonably documenting such
42
expenses, if the Recapitalization Agreement is terminated by Purchaser or the
Company, as the case may be, because:
. the transactions contemplated by the Recapitalization Agreement have not
closed by June 30, 2001;
. a law or judgment prevents the transactions contemplated by the
Recapitalization Agreement;
. the stockholders do not tender at least 2,000,000 Shares in the Offer;
. any of the other Offer Conditions is not satisfied;
. the Company has materially breached its representations or not performed
its covenants under the Recapitalization Agreement (and did not or could
not remedy its breach); or
. in furtherance of the directors' fiduciary duties, the Company wishes to
enter into an agreement with a third party relating to a Superior
Proposal.
If a Company Takeover Proposal shall have been made known to the Company or
has been made directly to its stockholders generally or any person shall have
publicly announced an intention (whether or not conditional) to make a Company
Takeover Proposal and thereafter the Recapitalization Agreement is terminated
by either Purchaser or the Company because:
. any of the Offer Conditions is not satisfied (except for a law or
judgment preventing the transactions, an adverse change in the financing
or credit agreement syndication markets that results in the Company not
obtaining financing, a general suspension of trading in securities
markets (or various other disruptions to financial markets) or merely
that the Recapitalization Agreement has been terminated in accordance
with its terms);
. the Company has materially breached its representations or not performed
its covenants under the Recapitalization Agreement (and did not or could
not remedy its breach); or
. in furtherance of the directors' fiduciary duties, the Company wishes to
enter into an agreement with a third party relating to a Superior
Proposal;
then the Company shall promptly pay Purchaser a fee equal to $2 million (the
"Termination Fee"), payable by wire transfer of same day funds; provided,
however, that no Termination Fee shall be payable to Purchaser pursuant to the
Recapitalization Agreement unless and until within 12 months of such
termination, the Company or any of its subsidiaries enters into any Company
Acquisition Agreement or a Company Takeover Proposal is made, and within 18
months of such termination, the Company or any of its subsidiaries consummates
any Company Takeover Proposal, except that the references to 25% in the
definition of "Company Takeover Proposal" in the "--Nonsolicitation
Obligations and Exceptions" section of this Section 13 shall be deemed to be
references to 40%. The Termination Fee shall be payable within two business
days of the consummation of the Company Takeover Proposal. If the Company
fails promptly to pay the amount due pursuant to the Recapitalization
Agreement, and, in order to obtain such payment, Purchaser commences a suit
which results in a judgment against the Company for the fee set forth in the
Recapitalization Agreement, the Company shall pay to Purchaser its costs and
expenses (including reasonable attorneys' fees and expenses) in connection
with such suit, together with interest on the amount of the fee at the prime
rate of Citibank N.A. in effect on the date such payment was required to be
made.
Other than as set forth above, the Recapitalization Agreement provides that
all costs and expenses incurred in connection with the transactions
contemplated by the Recapitalization Agreement shall be paid by the party
incurring such fees and expenses, whether or not the transactions contemplated
by the Recapitalization Agreement are consummated, except that (i) expenses
incurred in connection with the printing and mailing of the Offer shall be
shared equally by Purchaser and the Company and (i) the Company shall pay all
transfer taxes.
Amendments, Extensions and Waivers. Subject to certain provisions of the
Recapitalization Agreement, the approval of the Board of Directors of the
Company is required for any amendment or modification of the Recapitalization
Agreement, any waiver of any condition to the obligations of the Company under
the
43
Recapitalization Agreement, any waiver of any of the Company's rights under
the Recapitalization Agreement, any consent by the Company to a reduction in
the Minimum Condition to the Offer or to the imposition of additional
conditions to the Offer, any amendment to the Offer that is in any manner
adverse to the Company or holders of Shares and any extension by the Company
of the time for performance of any acts by Purchaser under the
Recapitalization Agreement. The Recapitalization Agreement may be amended by
an instrument in writing signed by the parties thereto by action taken by or
on behalf of their respective Boards of Directors at any time prior to the
Closing Date; provided, however, that no amendment may be made which would
reduce the amount or change the type of consideration offered for each Share
pursuant to the Recapitalization Agreement upon consummation of the
transactions contemplated by the Recapitalization Agreement. Subject to the
foregoing, at any time prior to the Closing Date, the parties to the
Recapitalization Agreement may, by an instrument in writing signed by the
party or parties to be bound thereby, (i) extend the time for the performance
of any of the obligations or other acts of the other party thereto, (ii) waive
any inaccuracies in the representations and warranties of the other party
contained therein or in any document delivered pursuant thereto and (iii)
waive compliance by the other party with any of the agreements or conditions
contained therein; provided, however, that after the approval of stockholders
of the Company of the transactions contemplated by the Recapitalization
Agreement is obtained, there may not be, without further approval of such
stockholders, any extension or waiver of the Recapitalization Agreement or any
portion thereof which reduces the amount or changes the form of the
consideration to be delivered to the holders of Shares other than as
contemplated by the Recapitalization Agreement; provided that any such
extension or waiver or failure to insist on strict compliance with an
obligation, covenant, agreement or condition shall not operate as a waiver of,
or estoppel with respect to, any subsequent or other failure.
Assignment Under Recapitalization Agreement. Neither the Recapitalization
Agreement nor any of the rights, interests or obligations thereunder may be
assigned by either of the parties thereto (whether by operation of law or
otherwise) without the prior written consent of the other party.
The Voting Agreement.
The following summary of certain material provisions of the Voting
Agreement, a copy of which is filed as an exhibit to the Schedule TO, is
qualified in its entirety by reference to the full text of the Voting
Agreement, which is incorporated herein by reference.
In connection with the Recapitalization Agreement, Purchaser and the
Agreement Stockholders entered into the Voting Agreement. Pursuant to the
terms of the Voting Agreement, the Agreement Stockholders have made certain
agreements with respect to 2,500,000 Shares owned beneficially or of record by
them (collectively, the "Agreement Stockholder Securities").
Tender. The Agreement Stockholders have agreed to tender for acceptance by
Purchaser pursuant to the Offer (and not to revoke such tender) not less than
1,500,000 Agreement Stockholder Securities.
Agreement to Vote. During the period commencing on March 29, 2001 and
continuing until the earlier of the Closing Date or the termination of the
Voting Agreement, the Agreement Stockholders must vote the Agreement
Stockholder Securities at any stockholder meeting or in connection with any
consent solicitation in favor of any actions required to authorize and effect
the transactions contemplated by the Recapitalization Agreement, including,
without limitation:
. in favor of the election of all of the directors nominated by the
Company's Board of Directors, including each Purchaser Designee (unless
the Company's stockholders do not approve the amendment to the Company's
Certificate of Incorporation and the issuance of Convertible Preferred
Stock pursuant to the Preferred Stock Purchase as described below);
. in favor of the approval and adoption of an amendment to the Company's
Certificate of Incorporation authorizing (i) classification of the
Company's Board of Directors into two classes with staggered terms of
office and (ii) 600,000 shares of Convertible Preferred Stock;
44
. in favor of the issuance of Convertible Preferred Stock pursuant to the
Preferred Stock Purchase, and the issuance of Shares upon the conversion
of the Convertible Preferred Stock;
. against any action, transaction or agreement that would result in a
breach in any respect of any covenant, representation or warranty or any
other obligation or agreement of the Company under the Recapitalization
Agreement or of such Agreement Stockholder under the Voting Agreement;
and
. except as otherwise agreed to in writing in advance by Purchaser,
against the following actions (other than the transactions contemplated
by the Recapitalization Agreement): (i) any extraordinary corporate
transaction, such as a reorganization, recapitalization, merger,
consolidation or other business combination involving the Company; (ii)
a sale, lease or transfer of a significant part of the assets of the
Company, or a reorganization, recapitalization, dissolution or
liquidation of the Company; (iii) any change in the persons who
constitute the board of directors of the Company; (iv) any change in the
present capitalization of the Company or any amendment of the Company's
Certificate of Incorporation or Bylaws other than the amendment to the
Company's Certificate of Incorporation described above; (v) any other
material change in the Company's corporate structure or business; or
(vi) any other action involving the Company which is intended, or could
reasonably be expected, to impede, interfere with, delay, postpone, or
materially adversely affect the Recapitalization and the transactions
contemplated by the Voting Agreement or the Recapitalization Agreement.
Nonsolicitation. During the period commencing on March 29, 2001 and
continuing until the earlier of the Closing Date or the termination of the
Recapitalization Agreement, the Agreement Stockholders must not, directly or
indirectly:
. solicit, initiate or encourage (including, without limitation, by way of
furnishing information), or take any other action designed to
facilitate, any inquiries or the making of any proposal which
constitutes any Company Takeover Proposal;
. participate in any discussions or negotiations regarding any Company
Takeover Proposal;
. withdraw or modify, or propose publicly to withdraw or modify, in a
manner adverse to Purchaser, the approval or recommendation of such
Agreement Stockholder of the Recapitalization;
. approve or recommend, or propose publicly to approve or recommend, any
Company Takeover Proposal; or
. enter into a Company Acquisition Agreement or any agreement, arrangement
or understanding requiring such Agreement Stockholder to abandon,
terminate or fail to consummate the Voting Agreement or any other
transaction contemplated hereby, in each case without the prior written
consent of Purchaser.
However, these restrictions do not prevent an Agreement Stockholder, in his
or her capacity as a director or officer of the Company, taking any action
permitted by the Recapitalization Agreement.
The Agreement Stockholders also have agreed not to (i) offer for sale,
sell, transfer, tender, pledge, encumber, assign or otherwise dispose of any
or all of the Agreement Stockholder Securities prior to the Closing Date or
(ii) grant any proxies or powers of attorney, deposit any of the Agreement
Stockholder Securities into a voting trust or enter into a voting agreement
with respect to any of the Agreement Stockholder Securities (except pursuant
to the Voting Agreement).
The Recapitalization.
Preferred Stock Purchase; Terms of Convertible Preferred Stock.
As described in the summary of the Recapitalization Agreement above, the
Company has agreed to sell to Purchaser, and Purchaser has agreed to purchase
from the Company, on the Closing Date and subject to the Offer Conditions,
400,000 shares of Convertible Preferred Stock for a purchase price of $100 per
share (or an aggregate
45
purchase price of $40 million) in cash. The consummation of the Preferred
Stock Purchase will take place concurrently with the acceptance for payment of
the Shares pursuant to the Offer on the Closing Date. Set forth below is a
summary of the material terms and conditions of the Convertible Preferred
Stock, which is qualified in its entirety by reference to the term sheet
attached as Exhibit C to the Recapitalization Agreement (a copy of which is
filed as an exhibit to the Schedule TO), which is incorporated herein by
reference.
Conversion Rights. Purchaser can convert, at its option, any whole number
of shares of Convertible Preferred Stock at any time after the earlier of: (i)
the fifth anniversary of the Closing Date; (ii) the approval by the Company's
Board of Directors of a merger, consolidation or other business combination
between the Company and another entity (except where the Company is the
surviving entity and no change of control of the Company occurs as a result of
the transaction) or a sale or other disposition of all or substantially all of
the Company's assets; (iii) the authorization by the Company's Board of
Directors of, or other corporate action taken to effect, the liquidation,
dissolution or winding up of the Company; and (iv) the solicitation of proxies
from the holders of any class or classes of capital stock of the Company for
any annual or special meeting of stockholders, however called, at which an
election for directors of the Company is held, or any solicitation of written
consent of the holders of any class or classes of capital stock of the Company
with respect to the election of directors, against the election as director of
any Purchaser Designee or for removal of any incumbent Purchaser Designee.
Conversion Ratio. For each share of Convertible Preferred Stock converted,
Purchaser will receive 12.5 shares of Common Stock, which ratio will be
adjusted for any stock split, stock combination, stock dividend or other
recapitalization and will be subject to protection provisions in the event of
certain dilutive transactions.
Dividends and Liquidation Preference. Purchaser will not be entitled to
receive any dividends with respect to the Convertible Preferred Stock. If the
Company is liquidated, dissolved or wound up, no distribution will be made to
the holders of shares of Common Stock or any other class of equity security
until the holders of the Convertible Preferred Stock have received their
liquidation preference equal to $100 for each share of Convertible Preferred
Stock held.
Redemption. The Convertible Preferred Stock will not be subject to a
sinking fund or other obligations of the Company to redeem or retire the
Convertible Preferred Stock. Purchaser shall have no right to compel the
Company to redeem the Convertible Preferred Stock. The Convertible Preferred
Stock shall be redeemable in whole, but not in part, at the Company's option
at any time on or after the 20th anniversary of the Closing Date. The
redemption price per share of Convertible Preferred Stock shall be $100.
Registration Rights. Purchaser shall have demand and piggy-back
registration rights with respect to the shares of Common Stock issuable upon
conversion of the Convertible Preferred Stock as described in "The Transaction
Documents and the Recapitalization--The Recapitalization Agreement--
Registration Rights" above.
Voting Rights; Special Rights. Except as required by law, Purchaser shall
have no voting rights with respect to the Convertible Preferred Stock. The
Company shall not, with first obtaining the approval of the holders of at
least a majority of the then outstanding shares of Convertible Preferred
Stock: (i) authorize or issue any class or series of equity security having
equal or superior rights as to payment upon liquidation, dissolution or a
winding up of the Company; (ii) amend its Certificate of Incorporation or
Bylaws in any way, or enter into a merger, consolidation, reorganization,
recapitalization or sale of all or substantially all of its assets, in any
case which adversely affects the rights and preferences of the holders of
Convertible Preferred Stock as a class (except that the Company may complete a
reverse-split of its Common Stock without the consent of the holders of the
Convertible Preferred Stock) or (iii) engage in any transaction which would
impair or reduce the rights of the holders of the Convertible Preferred Stock
as a class.
Refinancing with Bankers Trust Company.
One of the Offer Conditions is that the Company shall have entered into
definitive financing documentation with BTCo with respect to the credit
facilities to be established in connection with the refinancing of the
46
Company's existing loans. Purchaser has entered into a binding commitment
letter, dated March 27, 2001, with BTCo with respect to such refinancing. The
following summary of the material terms and conditions of the commitment
letter, a copy of which is filed as an exhibit to the Schedule TO, is
qualified in its entirety by reference to the full text of the commitment
letter, which is incorporated herein by reference.
Revolver and Term Loan; Security. BTCo has agreed to lend to the Company up
to $150 million for the purpose of retiring existing debt of the Company and
paying related fees and expenses. Purchaser currently expects that BTCo will
syndicate some or all of the BTCo credit facilities to other banks or
financial institutions. Based upon BTCo's commitment letter, Purchaser expects
that the BTCo credit facilities will consist of (i) a $110 million Revolving
Credit Facility (the "Revolver") and (ii) a $40 million Term Loan (the "Term
Loan" and, together with the Revolver, the "BTCo Credit Facilities"). The BTCo
Credit Facilities are expected to have an initial maturity date five years
after the date of the initial funding under the BTCo Credit Facilities. BTCo
reserves the right to change the terms and conditions, pricing and structure
of the BTCo Credit Facilities if Deutsche Banc Alex. Brown Inc., as arranger,
determines that such changes are advisable to ensure the successful
syndication of the BTCo Credit Facilities; provided that the total amount of
the BTCo Credit Facilities remains unchanged. Purchaser anticipates that it
will draw approximately $77 million on the Revolver on the Closing Date. The
BTCo Credit Facilities will be guaranteed by Purchaser and all of the
Company's subsidiaries and secured by all existing and after-acquired real and
personal property of the Company and a pledge of all of the Common Stock of
the Company owned Purchaser. The definitive documentation relating to the BTCo
Credit Facilities will contain customary and appropriate representations and
warranties, affirmative and negative covenants and events of default. Kohlberg
& Co. has agreed to pay certain expenses of, and provide customary indemnities
for, BTCo.
Prepayment. The Company may prepay the BTCo Credit Facilities in whole or
in part without penalty. The Company must prepay the Revolver in amounts equal
to:
. 100% of the net after-tax cash proceeds of the sale or other disposition
of any property or assets of the Company or any of its subsidiaries
(including insurance and other condemnation proceeds) other than (i) net
cash proceeds of sales of inventory in the ordinary course of business
and (i) certain other exceptions to be negotiated;
. 100% of the net cash proceeds received from the issuance of equity
securities and certain issuances of debt securities of Purchaser, the
Company or any of the Company's subsidiaries; and
. 75% of excess cash flow for each fiscal year.
Conditions. The initial borrowing under the BTCo Credit Facilities will be
subject to various conditions including, without limitation, the following:
. Satisfaction of BTCo with respect to: (i) the definitive documentation
evidencing the BTCo Credit Facilities, which shall be prepared by
counsel to BTCo, (ii) the corporate structure and management of the
Company and (iii) the structure used to consummate the transactions
contemplated by the Recapitalization Agreement and the definitive
documentation relating thereto;
. Receipt by Purchaser of a minimum equity contribution of $50 million,
which will be used by Purchaser to purchase the Shares tendered pursuant
to the Offer and consummate the Preferred Stock Purchase;
. Concurrently with the initial funding under the BTCo Credit Facilities,
all of the outstanding indebtedness of the Company and its subsidiaries
shall have been repaid in full;
. The Company's existing indebtedness shall have been permanently reduced
by not less than $20 million as a result of the application of the net
cash proceeds received by the Company from the sale of Hamilton;
. BTCo shall have been granted a perfected security interest in all
collateral described above under "--Revolver and Term Loan; Security";
47
. Receipt by BTCo of certain financial information with respect to the
Company and its subsidiaries, including (i) audited financial statements
for the year ended December 31, 2000, (ii) unaudited quarterly and
monthly financial statements for current periods, (iii) a pro forma
balance sheet and (iv) projected financial statements for the five-year
period following the Closing Date, all to be substantially consistent
with any financial statements previously delivered to BTCo and, in the
case of financial statements for periods after March 27, 2001,
substantially consistent with any projected financial results for such
periods; and
. Other customary conditions precedent to lending including receipt of
certain governmental and third party approvals, no material adverse
change, no disruption of financial and capital markets, effectiveness of
the Company's cash management system, notice of borrowing, borrowing
base certificates, the accuracy of representations and warranties and
the absence of any default or potential event of default.
Fees; Expiration of Commitment. Purchaser has agreed to pay to BTCo a
financing fee in connection with the BTCo Credit Facilities and certain other
fees for administering the BTCo Credit Facilities and providing letters of
credit. BTCo's commitment will expire on June 30, 2001 unless the transactions
contemplated by the Recapitalization Agreement are consummated by June 30,
2001.
Sale of Hamilton Metals, L.P.
One of the Offer Conditions is that the Company shall have consummated the
sale of Hamilton Metals, L.P., one of the Company's wholly owned subsidiaries,
and shall have received gross proceeds in cash, net of any retained
liabilities, in an amount not less than $20 million. The Company has entered
into a non-binding letter of intent, dated March 4, 2001, with a potential
purchaser with respect to the sale of Hamilton on terms which the Company
believes will satisfy the condition. The completion of the sale of Hamilton is
subject to completion of due diligence and negotiation of a definitive
agreement with the potential buyer and satisfaction of any conditions to
closing contained in the agreement. Purchaser will determine whether or not
this condition is satisfied before the expiration of the Offer. The Company
expects to complete the sale of Hamilton before the expiration of the Offer.
Partial Redemption of Preferred Interest in Contico International.
The Company and its subsidiary, Contico International, L.L.C., have entered
into an agreement with Newcastle Industries, Inc ("Newcastle") for Contico to
repurchase 165 of Newcastle's 329 preferred units in Contico for a total of
$9.9 million, plus the accrued and unpaid priority return and profit
participation on those units, if the transactions contemplated by the
Recapitalization Agreement are consummated. Newcastle has agreed that the
transactions contemplated by the Recapitalization Agreement do not trigger
Newcastle's put option (that is, Newcastle's right to require the Company to
buy its preferred units) under the Members Agreement exercisable on a change
of control. The Company and Newcastle have also agreed to amendments to
Contico's Limited Liability Company Agreement and the Members Agreement to
take effect subject to the consummation of the transactions contemplated by
the Recapitalization Agreement, including the following:
. Newcastle can exercise its put option during a period beginning on the
earlier of the fifth anniversary of the Closing Date and the date the
Company repays all outstanding indebtedness for borrowed money the
Company incurs in connection with the transactions contemplated by the
Recapitalization Agreement;
. Newcastle has a new put option exercisable if the Company redeems or
repurchases preferred stock (or any securities into which it is
convertible) or declares a dividend or makes another distribution in
respect of its capital stock;
. the Company can require holders of preferred units to sell to the
Company all or some of their units (although the Company must buy at
least 82 units when it exercises this right);
. on the exercise of a put option, the Company must pay Newcastle in cash,
rather than in the Company's capital stock;
48
. Newcastle's put option exercisable on a change in control (previously
defined to include, among other things, the acquisition of beneficial
ownership by any person or group of 30% or more of the Company's common
stock) will not be triggered by the purchase by Purchaser or any of its
affiliates of up to an additional 1,000,000 Shares (in addition to the
Shares purchased pursuant to the Offer) following the consummation of
the transactions contemplated by the Recapitalization Agreement; and
. Contico is to keep available adequate reserves with respect to working
capital, taxes, future capital expenditures and mandatory distributions.
Transaction and Monitoring Fee.
The Company's current Board of Directors has approved the Company paying a
transaction fee of $3 million to Kohlberg & Co. if the transactions
contemplated by the Recapitalization Agreement are completed. Kohlberg & Co.
has informed the Company that Kohlberg & Co. intends to propose an annual
monitoring fee of $500,000 for investment banking and advisory services on an
ongoing basis and in lieu of director fees for the Purchaser Designees. The
three current directors of the Company who are nominees for election to the
Company's Board of Directors at the Company's upcoming annual stockholders'
meeting have reviewed the terms and conditions of the draft management
agreement (a copy of which is filed as an exhibit to the Schedule TO) pursuant
to which the monitoring fee would be payable and have indicated that, if the
Company's stockholders approve the transactions contemplated by the
Recapitalization Agreement at the Company's upcoming annual stockholders'
meeting, they will vote in favor of the approval of the draft management
agreement if Kohlberg & Co. proposes the agreement to the Board of Directors
following stockholder approval of the transactions contemplated by the
Recapitalization Agreement at the Stockholder Meeting.
14. Dividends and Distributions.
For a discussion of the restrictions imposed by the Recapitalization
Agreement on the ability of the Company and its subsidiaries to pay dividends
or make distributions, see Section 13, "The Transaction Documents and the
Recapitalization--Conduct of Company's Business Pending the Closing Date."
15. Certain Conditions to Purchaser's Obligations.
Notwithstanding any other provision of the Offer, Purchaser is not required
to accept for payment or, subject to any applicable rules and regulations of
the SEC, including Rule 14e-1(c) under the Exchange Act (relating to
Purchaser's obligation to pay for or return tendered Shares promptly after
expiration or termination of the Offer), to pay for any Shares tendered unless
the following conditions have been satisfied: (i) there have been validly
tendered and not withdrawn prior to the time the Offer shall otherwise expire
at least 2,000,000 Shares, (ii) the Shares tendered, together with the Shares
into which the Convertible Preferred Stock is convertible, represent a
majority of the Company's Common Stock issuable and outstanding, calculated on
a fully diluted basis (excluding outstanding options), on the Closing Date,
(iii) the Shares tendered (after proration, if any) represent less than 30% of
the combined voting power of the Company's outstanding securities on the
Closing Date and (iv) none of the following events shall have occurred and be
continuing at the time of acceptance for payment of, or payment for, such
Shares:
. any governmental authority shall have enacted, issued, promulgated,
enforced or entered any statute, rule, regulation, executive order,
decree, injunction or other order which is in effect and which (i)
materially restricts, prevents or prohibits the consummation of the
transactions contemplated by the Recapitalization Agreement or results
in the obligation to pay damages as a result of or in connection with
the transactions contemplated by the Recapitalization Agreement in
amounts that would have an adverse effect on the Company or the
Company's business, (ii) prohibits or limits the ownership or operation
by the Company, Purchaser or any of their subsidiaries of all or any
material portion of the business or assets of the Company and its
subsidiaries or compels the Company, Purchaser or any of their
subsidiaries to dispose of or hold separate all or any material portion
of their business or assets, (iii) imposes limitations on the ability of
Purchaser or any subsidiary of Purchaser to acquire or hold, or to
exercise effectively full rights of ownership of, any Shares, including,
without limitation, the right
49
to vote any Shares acquired pursuant to the Offer, other than
limitations that do not materially restrict or otherwise materially
affect the consummation of the Offer or the Preferred Stock Purchase, or
(iv) requires divestitures by Purchaser or any affiliate of Purchaser of
any Shares;
. any of the representations and warranties of the Company or any of its
subsidiaries set forth in the Recapitalization Agreement (without regard
to any materiality exceptions or provisions therein) shall not be true
and correct in all material respects as if such representations and
warranties were made at the time of such determination except (i) for
changes specifically permitted by the terms of the Recapitalization
Agreement, (ii) for the accuracy of representations or warranties which
speak as of a specific date, which must not be untrue or incorrect as of
such specific date, and (iii) where the failure of any such
representation or warranty to be true and correct, individually or in
the aggregate, would not have a material adverse effect on the Company
and its subsidiaries;
. the Company shall not have performed, or shall not have caused any of
its subsidiaries to perform, in all material respects, all obligations
and complied in all material respects with all covenants necessary to be
performed or complied with by any of them under the Recapitalization
Agreement;
. any change shall have occurred (or any development shall have occurred
involving prospective changes) in the financial condition, businesses,
operations, properties (including tangible properties), results of
operations, assets (including, without limitation, any material
contract) or prospects of the Company and its subsidiaries, taken as a
whole, that has a material adverse effect on the Company and its
subsidiaries;
. any material adverse change after the commencement of the Offer in the
syndication markets for credit facilities similar in nature to the
credit facilities to be furnished to Purchaser by BTCo or a continuing
material disruption of or a material adverse change in the financial,
banking or capital markets that would have an adverse effect on such
syndication market, in each case such that BTCo determines not to fund
such credit facilities;
. the Recapitalization Agreement shall have been terminated in accordance
with its terms;
. the Board of Directors of the Company shall have (i) withdrawn or
materially modified or changed (including by amendment of the Schedule
14D-9) in a manner adverse to Purchaser its recommendation with respect
to the Offer, the Recapitalization Agreement or the Preferred Stock
Purchase, (ii) the Company shall have entered into an agreement (other
than a confidentiality agreement) to consummate a Company Takeover
Proposal other than the Offer and the Preferred Stock Purchase, or (iii)
the Board of Directors of the Company shall have approved or recommended
a the Company Takeover Proposal or resolved to do any of the foregoing;
. fewer than all of the licenses, permits, authorizations, consents,
orders, qualifications or approvals of, or declarations or filings with,
or expirations of waiting periods imposed by, any United States or
foreign governmental body or authority that are necessary for the
consummation of the Preferred Stock Purchase and the transactions
contemplated thereby shall have been filed, occurred or been obtained,
as the case may be, except for any such failure of any of the foregoing
so to have been filed, occurred or been obtained, individually or in the
aggregate, as would not result in a material adverse effect on the
Company and its subsidiaries;
. the Company shall not have received an opinion of Bear Stearns, in a
form and substance satisfactory to the Company and dated March 29, 2001,
to the effect that, as of such date, the Offer and the Preferred Stock
Purchase, taken as a whole, are fair to the Company's stockholders from
a financial point of view, or such opinion shall have been withdrawn, or
Bear Stearns shall not have consented to the dissemination of such
opinion in connection with the Offer;
. holders of Shares present in person or by proxy at the Stockholder
Meeting shall not have duly (i) elected the directors of the Company's
Board of Directors, including the Purchaser Designees and (ii)
authorized and approved the issuance and the sale of the Convertible
Preferred Stock upon substantially the terms and conditions set forth in
Exhibit C to the Recapitalization Agreement, and holders of a majority
of the outstanding Shares shall not have approved and adopted an
amendment of the
50
Company's Certificate of Incorporation authorizing (x) the
classification of the Company's Board of Directors into two classes, and
(y) 600,000 shares of Convertible Preferred Stock, on substantially the
terms and conditions set forth in Exhibit C to the Recapitalization
Agreement;
. it shall have been publicly disclosed or Purchaser shall have otherwise
learned that any person or "group" (as described in Section 13(d)(3) of
the Exchange Act), other than Purchaser or its affiliates or any group
of which any of them is a member, shall have, following March 29, 2001
(i) acquired beneficial ownership (determined pursuant to Rule 13d-3
under the Exchange Act) of more than 20% of the Company's Common Stock
or shall have been granted an option, right or warrant, conditional or
otherwise, to obtain more than 20% of any class or series of capital
stock of the Company (including, without limitation, the Company's
Common Stock); or (ii) without the prior consent of Purchaser, entered
into any binding agreement or understanding other than a confidentiality
agreement with the Company and its subsidiaries with respect to (A) a
merger, consolidation or other business combination with, or acquisition
of a material portion of the assets of, the Company, or (B) a tender or
exchange offer for Shares;
. there shall have occurred and be continuing (i) any general suspension
of trading in securities on any national securities exchange or in the
over-the-counter market, (ii) the declaration of a banking moratorium or
any suspension of payments in respect of banks in the United States
(whether or not mandatory), (iii) any indirect limitation (whether or
not mandatory) by a United States governmental authority or agency on
the extension of credit by banks or other financial institutions, (iv) a
declaration of war by the Congress of the United States or the
commencement of military hostilities involving the United States, in
each case, having had or that will have a material adverse effect on the
Company and its subsidiaries, or (v) in the case of any of the foregoing
occurrences existing on the date of commencement of the Offer, a
material acceleration or worsening thereof;
. the Company's Board of Directors shall not have unanimously (except for
William F. Andrews) approved (i) the nomination for election by the
stockholders of Company of the Purchaser Designees (subject to the
consummation of the transactions contemplated by the Recapitalization
Agreement taking place) and (ii) an amendment to the Company's Bylaws
reducing the number of directors constituting the whole board of the
Company to nine (this condition has been satisfied);
. the Company shall not have received by the Expiration Date (as such date
may be extended in accordance with the Recapitalization Agreement) an
unqualified audit opinion from Arthur Andersen with respect to the
consolidated financial statements of the Company and its subsidiaries
for the fiscal year ended December 31, 2000 (this condition has been
satisfied);
. the Company shall not have consummated the sale of Hamilton and shall
not have received gross proceeds in cash, net of any retained
liabilities of Hamilton retained by the Company, in an amount not less
than $20 million;
. the amended Certificate of Incorporation reflecting the authorization of
600,000 shares of Convertible Preferred Stock on substantially the terms
and conditions set forth in Exhibit C to the Recapitalization Agreement
shall not have been filed with the Secretary of State of the State of
Delaware;
. the Company shall not have entered into definitive documentation with
BTCo with respect to the credit facilities to be established in
connection with the refinancing of the Company's existing loans
(including any modification of the terms of the refinancing that are
inconsistent with the initial terms of the refinancing if such
modifications have been approved by Purchaser); or
. the Agreement Stockholders shall not have entered into a stock voting
agreement with respect to the election of the Purchaser Designees
nominated in accordance with the Recapitalization Agreement (other than
the election of directors in connection with the Stockholder Meeting) on
terms and conditions reasonably satisfactory to Purchaser (the Agreement
Stockholders hold of record or beneficially own approximately 3,104,600
Shares and have agreed to tender in the Offer, in the aggregate, not
less than 1,500,000 shares).
51
The foregoing conditions are for the sole benefit of Purchaser and its
affiliates and, subject to the terms of the Recapitalization Agreement, may be
asserted by Purchaser regardless of the circumstances (including, without
limitation, any action or inaction by Purchaser or any of its affiliates)
giving rise to any such condition or may be waived by Purchaser, in whole or
in part, from time to time in its sole discretion, except as otherwise
provided in the Recapitalization Agreement. The failure by Purchaser at any
time to exercise any of the foregoing rights shall not be deemed a waiver of
any such right and each such right shall be deemed an ongoing right and may be
asserted at any time and from time to time. All of the conditions to the
Offer, other than necessary government approvals, must be satisfied or waived
prior to the expiration of the Offer. Purchaser does not currently have notice
that any of the conditions will not be satisfied on or before the expiration
of the Offer.
16. Certain Regulatory and Legal Matters.
Except as described in this Section 16, based on a review of publicly
available filings made by the Company with the SEC and other publicly
available information concerning the Company, as well as certain
representations made to Purchaser in the Recapitalization Agreement by the
Company, Purchaser is not aware of any material pending legal proceedings
relating to the Offer or of any regulatory requirements which must be complied
with or regulatory approvals which must be obtained in connection with the
Offer, in each case which would be material to a stockholder's decision
whether to sell, tender or hold Shares. Should compliance with any such
regulatory requirement or the obtaining of any such regulatory approval be
required, Purchaser currently contemplates that it would seek to comply with
such requirement or obtain such permit, except as described below under "--
State Takeover Laws," but Purchaser does not presently intend to delay the
acceptance for payment of, or payment for, Shares tendered pursuant to the
Offer pending the outcome of any such matter, subject, however, to Purchaser's
right to decline to purchase Shares if any of the Offer Conditions shall not
have been satisfied. There can be no assurance that, if necessary, any such
requirement would be complied with or approval be obtained, or would be
complied with or obtained without substantial conditions, or that adverse
consequences might not result to the Company's business or that certain parts
of the Company's business might not have to be disposed of if any such
requirement was not complied with or approval obtained, and in certain such
events Purchaser could decline to accept for payment, or pay for, any Shares
tendered. See Section 15, "Certain Conditions to Purchaser's Obligations."
Antitrust. Under the provisions of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), and the regulations
thereunder applicable to the Offer, an acquiring person and the person whose
voting securities are being acquired in a tender offer may be required to make
an HSR Act filing by filing a Notification and Report Form with respect to the
tender offer if the acquiring person or the person whose voting securities are
being acquired is engaged in commerce or in any activity affecting commerce
and either: (i) as a result of such acquisition, the acquiring person would
hold an aggregate total amount of the voting securities and assets of the
acquired person in excess of $200 million; or (ii) as a result of such
acquisition, the acquiring person would hold an aggregate total amount of the
voting securities and assets of the acquired person greater than $50 million
and less than or equal to $200 million and (A) any voting securities or assets
of a person engaged in manufacturing which has annual net sales or total
assets of $10 million or more are being acquired by any person which has total
assets or annual net sales of $100 million or more, (B) any voting securities
or assets of a person not engaged in manufacturing which has total assets of
$10 million or more are being acquired by any person which has total assets or
annual net sales of $100 million or more or (C) any voting securities or
assets of a person with annual net sales or total assets of $100 million or
more are being acquired by any person which has total assets or annual net
sales of $10 million or more.
Purchaser will not hold voting securities valued in excess of $50 million
as a result of the Offer. Therefore, neither Purchaser nor the Company is
required to file a Notification and Report Form with respect to the Offer
under the HSR Act and applicable regulations. If Purchaser subsequently
acquires voting securities in excess of the HSR Act filing thresholds
described above, including, without limitation, the acquisition of Shares upon
conversion of the Convertible Preferred Stock held by Purchaser, Purchaser and
the Company may be required to file a Notification and Report Form with
respect to such acquisition under the HSR Act and applicable regulations prior
to such acquisition.
52
Nevertheless, the Federal Trade Commission (the "FTC") and the Antitrust
Division may scrutinize the legality of transactions such as Purchaser's
proposed acquisition of the Shares pursuant to the Offer under the antitrust
laws. If the Antitrust Division or the FTC raises substantive issues in
connection with a proposed transaction, the parties may engage in negotiations
with the relevant governmental agency concerning possible means of addressing
those issues and may agree to delay consummation of the transaction while such
negotiations continue. At any time before or after Purchaser's purchase of
Shares pursuant to the Offer, the Antitrust Division or FTC could take such
action under the antitrust laws as it deems necessary or desirable in the
public interest, including seeking to enjoin the purchase of Shares pursuant
to the Offer or seeking the divestiture of Shares acquired by Purchaser or the
divestiture of substantial assets of Purchaser or the Company. Private parties
may also bring legal action under the antitrust laws under certain
circumstances. There can be no assurance that a challenge to the Offer on
antitrust grounds will not be made or, if such a challenge is made, of the
results thereof.
Federal Reserve Board Regulations. Federal Reserve Board Regulations T, U
and X promulgated by the Federal Reserve Board place restrictions on the
amount of credit that may be extended for the purpose of purchasing margin
stock (including the Shares) if such credit is secured directly or indirectly
by margin stock. Because no borrowings secured by margin stock will be
borrowed in order to finance the Offer, Purchaser believe that such
regulations are not applicable to the Offer.
State Takeover Laws. The Company is incorporated under the laws of the
State of Delaware. In general, Section 203 of the Delaware General Corporation
Law ("Section 203") prevents an "interested stockholder" (including a person
who owns or has the right to acquire 15% or more of a corporation's
outstanding voting stock) from engaging in a "business combination" with a
Delaware corporation for a period of three years following the date such
person became an interested stockholder. The Company has represented to
Purchaser in the Recapitalization Agreement that its Board of Directors has
unanimously (other than one director who did not vote because of a potential
conflict of interest) approved the Recapitalization Agreement and the
transactions contemplated thereby, including the Offer and the Preferred Stock
Purchase, so that Section 203 shall not prevent any business combination
between the Company and any person that becomes an interested stockholder of
the Company as a result of the Offer.
A number of other states throughout the United States have enacted takeover
statutes that purport, in varying degrees, to be applicable to attempts to
acquire securities of corporations that are incorporated or have assets,
stockholders, executive offices or places of business in such states. In Edgar
v. MITE Corp., the Supreme Court of the United States held that the Illinois
Business Takeover Act, which involved state securities laws that made the
takeover of certain corporations more difficult, imposed a substantial burden
on interstate commerce and therefore was unconstitutional. However, in 1987,
in CTS Corp. v. Dynamics Corp. of America, the Supreme Court held that a state
may, as a matter of corporate law and, in particular, with respect to those
laws concerning corporate governance, constitutionally disqualify a potential
acquirer from voting on the affairs of a target corporation without prior
approval of the remaining stockholders, provided that such laws were
applicable only under certain conditions. In that case, the law of the State
of Indiana before the Supreme Court was by its terms applicable only to
corporations that had a substantial number of stockholders in the state and
were incorporated there.
The Company conducts business in a number of states throughout the United
States, some of which have enacted takeover laws. Purchaser does not know
whether the takeover laws of any state will, by their terms, apply to the
Offer or the other transactions contemplated by the Recapitalization Agreement
or the Voting Agreement, and Purchaser has not attempted to comply with any
such laws. If any other such laws are so applicable, Purchaser and the Company
have agreed, in the Recapitalization Agreement, that they and their respective
Board of Directors will grant such approvals and take such lawful actions as
are reasonably necessary so that such transactions may be consummated as
promptly as practicable on the terms contemplated by the Recapitalization
Agreement, the Voting Agreement and the Offer and otherwise act to eliminate
or minimize the effects of such statute or regulation on such transactions.
Subject to that requirement under the Recapitalization Agreement, should any
person seek to apply any state takeover law, Purchaser reserves the right to
take such action as then
53
appears desirable, which may include challenging the validity or applicability
of any such statute in appropriate court proceedings, and nothing in this
Offer to Purchase or any action taken in connection with the Offer is intended
as a waiver of such right. If it is asserted that the takeover laws of any
state are applicable to the Offer, and an appropriate court does not determine
that it is inapplicable or invalid as applied to the Offer, Purchaser might be
required to file certain information with, or receive approvals from, the
relevant state authorities. In addition, Purchaser might be unable (pursuant
to such laws or an injunction ordered thereunder) to accept for payment, or
pay for, any Shares tendered pursuant to the Offer, or be delayed in
continuing or consummating the Offer. In such case, Purchaser may not be
obligated to accept for payment, or pay for, any Shares tendered pursuant to
the Offer. See Section 15, "Certain Conditions to Purchaser's Obligations."
17. Fees and Expenses.
Except as described in this Section 17, Purchaser (i) will not pay any fees
or commissions to any broker or dealer or other person for soliciting tenders
of Shares pursuant to the Offer and (ii) has not directly or indirectly
employed, retained or agreed to compensate any person to make solicitations or
recommendations in connection with the Offer. Brokers, dealers, commercial
banks and trust companies will, upon request, be reimbursed by Purchaser for
customary mailing and handling expenses incurred by them in forwarding
material to their customers.
Purchaser has retained BB&T Capital Markets, a division of Scott &
Stringfellow, Inc. ("BBTCM") to act as Dealer Manager in connection with the
Offer. Pursuant to the terms of its engagement, Purchaser has agreed to pay
BBTCM customary compensation for its services in connection with the Offer.
Purchaser also has agreed to reimburse BBTCM for its reasonable out-of-pocket
expenses, including reasonable fees and disbursements of legal counsel, and to
indemnify BBTCM and related parties against certain liabilities, including
liabilities under the federal securities law, arising out of its engagement.
In the ordinary course of business, BBTCM and its affiliates may actively
trade securities of the Company and affiliates of Purchaser for their own
account and for the account of customers and, accordingly, may at any time
hold a long or short position in such securities.
Purchaser has retained Innisfree M&A Incorporated as Information Agent and
LaSalle Bank National Association as Depositary in connection with the Offer.
The Information Agent and the Depositary will receive reasonable and customary
compensation for their services and reimbursement for their out-of-pocket
expenses in the Offer. The Depositary will also be indemnified by Purchaser
against certain liabilities and expenses in connection with the Offer,
including certain liabilities under the federal securities laws.
18. Miscellaneous.
The Offer is not being made to, nor will tenders be accepted from or on
behalf of, holders of Shares residing in any jurisdiction in which the making
or acceptance thereof would not be in compliance with the laws of such
jurisdiction. Purchaser is not aware of any jurisdiction in which the making
of the Offer or the tender of Shares in connection therewith would not be in
compliance with the laws of such jurisdiction. If Purchaser becomes aware of
any valid state statute prohibiting the making of the Offer or the acceptance
of Shares pursuant thereto in such state, Purchaser will make a good faith
effort to comply with such state statute. If, after such good faith effort,
Purchaser cannot comply with any such statute, the Offer will not be made to
(nor will tenders be accepted from or on behalf of) the holders of Shares in
such state. In any jurisdiction where the securities, blue sky or other laws
require the Offer to be made by a licensed broker or dealer, the Offer shall
be deemed to be made on behalf of Purchaser by the Dealer Manager or one or
more registered brokers or dealers which are licensed under the laws of such
jurisdiction.
No person has been authorized to give any information or make any
representation on behalf of Purchaser other than as contained in this Offer to
Purchase or in the Letter of Transmittal, and, if any such information or
representation is given or made, it should not be relied upon as having been
authorized by Purchaser. Neither the delivery of this Offer to Purchase nor
any purchase pursuant to the Offer shall, under any circumstances, create any
implication that there has been no change in the affairs
54
of Purchaser or the Company since the date as of which information is
furnished or the date of this Offer to Purchase.
Purchaser has filed with the SEC a Tender Offer Statement on Schedule TO,
pursuant to Section 14(d)(1) of the Exchange Act and Rule 14d-3(a)(1)
thereunder, furnishing certain additional information with respect to the
Offer, and may file amendments thereto. In addition, the Company has filed
with the SEC a Solicitation/Recommendation Statement on Schedule 14D-9,
together with exhibits, pursuant to Rule 14d-9 under the Exchange Act, setting
forth its recommendation of the Company Board of Directors with respect to the
Offer and the reasons for such recommendation of the Company Board of
Directors and furnishing certain additional related information. Copies of
such documents and any amendments thereto, including exhibits, should be
available for inspection and copies should be obtainable at the same places
and in the same manner as set forth with respect to the Company in Section 8,
"Certain Information Concerning the Company" (except that they may not be
available at the regional offices of the SEC).
KKTY HOLDING COMPANY, L.L.C.
April 25, 2001
55
ANNEX I
AUTHORIZED MANAGERS AND PRINCIPALS
OF PURCHASER, KOHLBERG FUND IV, KOHLBERG MANAGEMENT IV AND KOHLBERG & CO.
The names and ages of the directors, executive officers and principals of
Purchaser, Kohlberg Fund IV, Kohlberg Management IV and Kohlberg & Co., and
their present principal occupations or employment and five-year employment
history, are set forth below. Unless otherwise indicated, each individual is a
citizen of the United States, his business address is 111 Radio Circle, Mount
Kisco, New York 10549, and his business telephone number is (914) 241-7430.
Present Principal Occupation or Employment with
KKTY Holding Company, L.L.C., Kohlberg Fund IV,
L.P., Kohlberg Management IV, L.L.C. and
Kohlberg & Co., L.L.C., and Material Positions
Name and Age Held During the Past Five Years
------------ -----------------------------------------------
James A. Kohlberg (43)........ Authorized Manager of KKTY Holding Company,
L.L.C. and Managing Member and member of the
Operating Committee of Kohlberg Management IV,
L.L.C. (the general partner of each of the
limited partnerships that comprise Kohlberg
Fund IV, the controlling member of KKTY Holding
Company, L.L.C.). Mr. Kohlberg has been a
principal of Kohlberg & Co., L.L.C. for more
than the past five years.
Christopher Lacovara (36)..... Authorized Manager of KKTY Holding Company,
L.L.C. and member of the Operating Committee of
Kohlberg Management IV, L.L.C. Mr. Lacovara has
been a principal of Kohlberg & Co., L.L.C. for
more than the past five years.
Samuel P. Frieder (36)........ Authorized Manager of KKTY Holding Company,
L.L.C. and member of the Operating Committee of
Kohlberg Management IV, L.L.C. Mr. Frieder has
been a principal of Kohlberg & Co., L.L.C. for
more than the past five years.
Evan Wildstein (30)........... Mr. Wildstein has been an associate with and/or
principal of Kohlberg & Co., L.L.C. for more
than the past five years.
Ranjit S. Bhonsle (32)........ Mr. Bhonsle has been an associate with and/or
principal of Kohlberg & Co., L.L.C. for more
than the past five years.
Christopher W. Anderson (26).. Authorized Manager of KKTY Holding Company,
L.L.C. Mr. Anderson has been an associate with
Kohlberg & Co., L.L.C. since 1998. From 1997 to
1998, Mr. Anderson was a financial analyst at
Warburg Dillon Read L.L.C.
Shant Mardirossian (33)....... Authorized Manager of KKTY Holding Company,
L.L.C. Mr. Mardirossian has been the Controller
and/or Chief Financial Officer of Kohlberg &
Co., L.L.C. for more than the past five years.
William F. Andrews (69)*...... Mr. Andrews has been an operating principal of
Kohlberg & Co., L.L.C. since 1997. Mr. Andrews
currently serves as Chairman of the following
companies: (i) Corrections Corp. of America, a
private sector provider of detention and
corrections services, since 2000; (ii)
Northwestern Steel & Wire Company, a
manufacturer of steel rods and beams, since
1998; and (iii) Scovill Fasteners, Inc., a
manufacturer of apparel and industrial
fasteners, since 1996. Mr. Andrews served as
the Chairman of Schrader-Bridgeport
International, Inc., a manufacturer of tire
valves and pressure control devices, from 1995
to 1998.
- --------
* Mr. Andrews is a consultant to Kohlberg & Co., L.L.C. and is paid a retainer
fee by the firm for his services. Kohlberg & Co., L.L.C. has designated him
as an "operating principal" of the firm in his capacity as a consultant to
the firm. However, Mr. Andrews is not a controlling person of Kohlberg &
Co., L.L.C. and is listed on this Annex I solely because of the fact that
Mr. Andrews is both an operating principal of Kohlberg & Co., L.L.C. and a
director of Katy Industries, Inc.
I-1
MANUALLY SIGNED FACSIMILE COPIES OF THE LETTER OF TRANSMITTAL, PROPERLY
COMPLETED, WILL BE ACCEPTED. THE LETTER OF TRANSMITTAL, CERTIFICATES FOR
SHARES AND ANY OTHER REQUIRED DOCUMENTS SHOULD BE SENT OR DELIVERED BY EACH
STOCKHOLDER OF THE COMPANY OR THAT STOCKHOLDER'S BROKER, DEALER, COMMERCIAL
BANK, TRUST COMPANY OR OTHER NOMINEE TO THE DEPOSITARY AT ONE OF THE ADDRESSES
SET FORTH BELOW:
The Depositary for the Offer is:
LaSalle Bank National Association
By Mail or Overnight Courier: By Hand in New York:
LaSalle Bank National Association The Bank of New York
135 South LaSalle Street Ground Level -- 7E Window
Room 1811 101 Barclay Street
Chicago, IL 60603 New York, NY 10286
By Facsimile Transmission:
(312) 904-2236
Confirm Facsimile by Telephone:
(312) 904-2458
Any questions and requests for assistance may be directed to the Information
Agent or the Dealer Manager at their respective addresses and telephone
numbers listed below. Additional copies of this Offer to Purchase, the Letter
of Transmittal and other tender offer materials may be obtained from the
Information Agent as set forth below and will be furnished promptly at
Purchaser's expense. A stockholder may also contact its broker, dealer,
commercial bank, trust company or other nominee for assistance concerning the
Offer.
The Information Agent for the Offer is:
[LOGO OF INNISFREE M&A INCORPORATED]
501 Madison Avenue, 20th Floor
New York, NY 10022
Banks and Brokerage Firms, Please Call Collect: (212) 750-5833
Stockholders, Please Call Toll Free: (888) 750-5834
The Dealer Manager for the Offer is:
[LOGO OF BB&T CAPITAL MARKETS]
900 East Main Street
Richmond, VA 23219
(804) 782-2005