Consent Solicitation and Offer to Redeem for Cash
Certain Outstanding Shares of Common Stock
of
HAYNES HOLDINGS, INC.
Held by Certain Stockholders of Haynes Holdings, Inc.
at $10.15 Per Share
THE REDEMPTION OFFER DESCRIBED HEREIN WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON MONDAY, MARCH 3, 1997, UNLESS EXTENDED
CONSUMMATION OF THE OFFER IS SUBJECT TO CERTAIN CONDITIONS.
SEE "TERMS AND CONDITIONS OF THE REDEMPTION OFFER."
IMPORTANT
Any stockholder desiring to tender all or any portion of his or her
shares of Common Stock, $.01 par value ("Holdings Common Stock"), of Haynes
Holdings, Inc., a Delaware corporation (the "Company"), for redemption in
accordance with the terms and conditions hereof must cause the Letter of
Transmittal included herewith (or a facsimile copy thereof) to be completed,
signed in accordance with the instructions contained therein, and mailed or
delivered (together with all other required documents) to the Company, and
must deliver the certificates for such shares of Holdings Common Stock to the
Company along with the Letter of Transmittal. A person owning shares of
Holdings Common Stock registered in the name of a broker, dealer, commercial
bank, trust company or other nominee must contact such broker, dealer,
commercial bank, trust company or other nominee if the owner desires to tender
such shares.
The Company is also seeking the consent of each stockholder of the
Company to the amendment of the Company's existing Stockholders Agreement.
Any stockholder receiving this Consent Solicitation and Offer to Redeem and
thereafter executing the signature page to the Amended Stockholders Agreement
(as defined) included with the Letter of Transmittal will have the rights of
an "Investor" as such term is defined in the Amended Stockholders Agreement.
See "Acceptance for Redemption and Redemption of Shares."
Questions and requests for assistance may be directed to the Company at
its address and telephone number set forth in the Letter of Transmittal
included herewith. Additional copies of this Offer to Redeem and the Letter
of Transmittal may be obtained from the Company.
OFFEREE STOCKHOLDERS ARE URGED TO READ THIS CONSENT SOLICITATION AND
OFFER TO REDEEM AND THE ACCOMPANYING LETTER OF TRANSMITTAL CAREFULLY PRIOR TO
TAKING ANY ACTION WITH RESPECT THERETO.
January 30, 1997
TABLE OF CONTENTS
Page
INTRODUCTION 1
TERMS AND CONDITIONS OF THE REDEMPTION OFFER 3
PROCEDURE FOR TENDERING SHARES 4
ACCEPTANCE FOR REDEMPTION AND REDEMPTION OF SHARES 6
WITHDRAWAL RIGHTS 7
CERTAIN TAX CONSEQUENCES 8
PRICE RANGE OF HOLDINGS COMMON STOCK; DIVIDENDS 9
THE PURCHASE TRANSACTION 10
Terms of the Purchase Agreement 10
Terms of the Amended Stockholders Agreement 11
Amendment to the Loan and Security Agreement 13
The Change of Control Offer 14
REDEMPTION OF HOLDINGS COMMON STOCK HELD BY THE OTHER STOCKHOLDERS 14
Terms of the Fund Redemption Agreement 14
Terms of the Management Redemption Agreement 15
CERTAIN INFORMATION WITH RESPECT TO THE COMPANY 16
CERTAIN INFORMATION WITH RESPECT TO BLACKSTONE 16
Exhibit A - Stock Purchase Agreement dated as of January 24, 1997 by and
among Blackstone Capital Partners II Merchant Banking Fund L.P., Blackstone
Offshore Capital Partners II Merchant Banking Fund L.P., Blackstone Family
Investment Partnership L.P., Haynes Holdings, Inc. and Haynes International,
Inc.
Exhibit B - Stock Redemption Agreement dated as of January 24, 1997 by and
among MLGA Fund II, L.P., MLGAL Partners, L.P. and Haynes Holdings, Inc.
Exhibit C - Form of Amended Stockholders Agreement
Exhibit D - Escrow Agreement dated as of January 29, 1997 by and among
MLGA Fund II, L.P., MLGAL Partners, L.P., Haynes Holdings, Inc. and National
City Bank, N.A.
Exhibit E - Exercise and Repurchase Agreement by and among the Company and
certain members of management
Exhibit F - Annual Report on Form 10-K of Haynes International, Inc. for
the fiscal year ended September 30, 1996
Exhibit G - Current Report on Form 8-K of Haynes International, Inc. dated
January 22, 1996.
Exhibit H - Press Release Dated January 30, 1997.
Exhibit I - Prospectus dated August 20, 1996 of Haynes International, Inc.
Related to Sale of Senior Notes
To: The Holders of Common Stock of Haynes Holdings, Inc. specified herein
("Offeree Stockholders")
INTRODUCTION
The Company hereby offers to redeem a number of outstanding shares of
Holdings Common Stock (determined in the manner set forth in the following
paragraph) held by Offeree Stockholders at $10.15 per share, net to the seller
in cash, without interest, upon the terms and subject to the conditions set
forth in this Consent Solicitation and Offer to Redeem and in the related
Letter of Transmittal (which together constitute the "Redemption Offer"). The
Redemption Offer is being made to all stockholders of the Company other than
MLGA Fund II, L.P. (the "Fund"); MLGAL Partners, L.P., the general partner of
the Fund ("MLGAL"); and certain members of management of the Company who
currently own options to acquire Holdings Common Stock ("the "Management
Holders," and together with the Fund and MLGAL, the "Other Stockholders").
Tendering Offeree Stockholders will not be obligated to pay brokerage fees or
commissions or, except as set forth in the Letter of Transmittal, transfer
taxes with respect to the redemption of Holdings Common Stock by the Company
pursuant to the Redemption Offer.
The Company intends to redeem from the Fund, MLGAL and the Offeree
Stockholders an aggregate of 5,217,685 shares of Holdings Common Stock.
Subject to the terms and conditions of this Redemption Offer, the Company will
redeem from each Offeree Stockholder (a) first, up to 79.575% of the
outstanding shares of Holdings Common Stock held by such Offeree Stockholder,
and (b) second, to the extent that less than all Offeree Stockholders tender
for redemption 79.575% of their shares of Holdings Common Stock, such
additional shares of Holdings Common Stock desired to be redeemed by such
Offeree Stockholder as represents such Offeree Stockholder's pro rata portion
(based on the total number of shares of Holdings Common Stock owned by such
Offeree Stockholder prior to any redemption in relation to the total number of
shares of Holdings Common Stock owned prior to any redemption by all Offeree
Stockholders desiring to sell additional shares of Holdings Common Stock plus
the total number of shares of Holdings Common Stock owned by the Fund and
MLGAL prior to the transactions described below) of the additional shares of
Holdings Common Stock needed for the Company to redeem from the Fund, MLGAL
and the Offeree Stockholders an aggregate of 5,217,685 shares of Holdings
Common Stock. The effect of the formula described in the foregoing sentence
is to give all Offeree Stockholders the opportunity to have redeemed the same
percentage of their shares of Holdings Common Stock as the percentage of the
shares of Holdings Common Stock owned by the Fund and MLGAL to be redeemed.
Because the exact number of shares of Holdings Common Stock which may be
redeemed by each Offeree Stockholder cannot be determined at this time,
Offeree Stockholders are encouraged to tender for redemption the maximum
number of shares of Holdings Common Stock which such Offeree Stockholder
desires to redeem without regard to the number which may actually be redeemed.
The Redemption Offer is being made in connection with the following
transactions:
(1) The purchase by Blackstone Capital Partners II Merchant Banking Fund
L.P., a Delaware limited partnership ("Blackstone"), and two of its affiliates
(the "Blackstone Affiliates," and together with Blackstone, the "Purchasers")
of 5,323,799 shares of Holdings Common Stock, which will constitute 79.9% of
the Holdings Common Stock outstanding after giving effect to all of the
redemptions of Holdings Common Stock described herein (the "Purchase
Transaction"). See "The Purchase Transaction-Terms of the Purchase
Agreement."
(2) The redemption by the Company of a number of shares of Holdings
Common Stock held by the Fund and MLGAL equal to (i) 5,217,685 minus (ii) the
number of shares of Holdings Common Stock redeemed by the Offeree Stockholders
pursuant to this Redemption Offer. See "Redemption of Holdings Common Stock
Held by Other Stockholders-Terms of the Fund Redemption Agreement."
(3) The exercise of certain options held by certain of the Management
Holders, and the simultaneous redemption by the Company of the 106,114 shares
of Holding Common Stock acquired by certain of the Management Holders pursuant
to the exercise of such options. See "Redemption of Holdings Common Stock by
Other Stockholders-Terms of the Management Redemption Agreement."
(4) The amendment of the existing Stockholders Agreement among the
Company and certain stockholders of the Company (the "Existing Stockholders
Agreement") including the Purchasers as parties to that agreement and to
substantially revise the terms and conditions of that agreement (as amended,
the "Amended Stockholders Agreement"). See "The Purchase Transaction-Terms of
the Amended Stockholders Agreement."
(5) The amendment of the Amended and Restated Loan and Security
Agreement with respect to the revolving credit facility (the "Loan and
Security Agreement") of Haynes International, Inc., the Company's wholly-owned
subsidiary ("International"). See "The Purchase Transaction-Amendment to the
Loan and Security Agreement."
As a result of the transactions described above, which constitute a
change of control of the Company as defined in the Indenture (the "Indenture")
with respect to International's 11 5/8% Senior Notes due 2004 (the "Senior
Notes"), the Company will be required to offer to redeem for cash any and all
outstanding Senior Notes at a redemption price equal to 101% of the principal
amount of the Senior Notes plus accrued and unpaid interest thereon to the
date of redemption. See "The Purchase Transaction - The Change of Control
Offer."
The effect of the transactions referred to above is to transfer control
of the Company and International from the Fund to the Purchasers, which will
permit the existing stockholders to sell a majority of their shares of
Holdings Common Stock for cash at a price of $10.15 per share, enable
International to increase the maximum amount available for borrowing under
International's revolving credit facility from $50 million to $60 million and
give International greater access to additional sources of financing by reason
of its affiliation with the Purchasers, and to amend the Existing Stockholders
Agreement and effect the other transactions described herein.
If none of the Offeree Stockholders determine to accept the Redemption
Offer, then a total of 5,217,685 shares of Holdings Common Stock will be
purchased from the Fund and MLGAL, and the Fund and MLGAL will continue to
beneficially own approximately 4.5% of the shares of Holdings Common Stock
outstanding after giving effect to all of the redemptions of Holdings Common
Stock described herein. If Offeree Stockholders tender for redemption the
maximum number of shares of Holdings Common Stock which will be redeemed
pursuant to the Redemption Offer, then the Fund and MLGAL will continue to
beneficially own approximately 16.7% of the shares of Holdings Common Stock
outstanding after giving effect to all of the redemptions of Holdings Common
Stock described herein.
The Board of Directors of the Company has not obtained any appraisal or
fairness opinion to the effect that the price at which shares of Holdings
Common Stock will be sold to the Purchasers and redeemed from the Fund, MLGAL,
the Management Holders and the Offeree Stockholders (the "Transaction Price")
is fair to the Company or any person from a financial point of view. See
"Price Range of Holdings Common Stock; Dividends."
TERMS AND CONDITIONS OF THE REDEMPTION OFFER
Upon the terms and subject to the conditions of this Redemption Offer,
the Company will redeem from each Offeree Stockholder the number of shares of
Holdings Common Stock determined in the manner set forth in the following
paragraph, assuming such shares are validly tendered on or prior to the
Expiration Date (as hereinafter defined). The term "Expiration Date" shall
mean 5:00 p.m., New York City time, on March 3, 1997, unless extended by the
Company, in which case the Company will notify each Offeree Stockholder in
writing as to the new Expiration Date.
The Company intends to redeem from the Fund, MLGAL and the Offeree
Stockholders an aggregate of 5,217,685 shares of Holdings Common Stock.
Subject to the terms and conditions of this Redemption Offer, the Company will
redeem from each Offeree Stockholder (a) first, up to 79.575% of the
outstanding shares of Holdings Common Stock held by such Offeree Stockholder,
and (b) second, to the extent that less than all Offeree Stockholders tender
for redemption 79.575% of their shares of Holdings Common Stock, such
additional shares of Holdings Common Stock desired to be redeemed by such
Offeree Stockholder as represent such Offeree Stockholder's pro rata portion
(based on the total number of shares of Holdings Common Stock owned by such
Offeree Stockholder prior to any redemption in relation to the total number of
shares of Holdings Common Stock owned prior to any redemption by all Offeree
Stockholders desiring to sell additional shares of Holdings Common Stock plus
the total number of shares of Holdings Common Stock owned by the Fund and
MLGAL prior to the transactions described below) of the additional shares of
Holdings Common Stock needed for the Company to redeem from the Fund, MLGAL
and the Offeree Stockholders an aggregate of 5,217,685 shares of Holdings
Common Stock. The effect of the formula described in the foregoing sentence
is to give all Offeree Stockholders the opportunity to have redeemed the same
percentage of their shares of Holdings Common Stock as the percentage of the
shares of Holdings Common Stock owned by the Fund and MLGAL to be redeemed.
Because the exact number of shares of Holdings Common Stock which may be
redeemed by each Offeree Stockholder cannot be determined at this time,
Offeree Stockholders are encouraged to tender for redemption the maximum
number of shares of Holdings Common Stock which such Offeree Stockholder
desires to redeem without regard to the number which may actually be redeemed.
The Company expressly reserves the right, in its sole discretion (i) to
waive any condition to its obligation to redeem shares of Holdings Common
Stock pursuant to the Redemption Offer, (ii) to terminate this Redemption
Offer at any time, (iii) to extend the Expiration Date, and (iv) at any time,
or from time to time, to amend the Redemption Offer in any respect. Any
waiver, termination, extension or amendment will be followed as promptly as
practicable by written notice thereof to the Offeree Stockholders.
This Offer to Redeem and the related Letter of Transmittal will be mailed
to the Offeree Stockholders and will be furnished to brokers, dealers, banks
and similar persons whose names, or the names of whose nominees, appear on the
stockholder lists for subsequent transmittal to Offeree Stockholders who are
beneficial owners of Holdings Common Stock.
The redemption of the shares of Holdings Common Stock tendered for
redemption in accordance with this Offer to Redeem and the Letter of
Transmittal is subject to each redeeming Offeree Stockholder consenting to the
amendment of the Existing Stockholders Agreement. See "The Purchase
Transaction - Terms of the Amended Stockholders Agreement" and "- Terms of the
Purchase Transaction." Consents to the Amended Stockholders Agreement will
become effective upon the acceptance for payment pursuant to this Redemption
Offer of all shares of Holdings Common Stock validly tendered pursuant hereto
prior to the Expiration Date.
Whether or not an Offeree Stockholder determines to redeem Holdings
Common Stock pursuant to this Redemption Offer, Offeree Stockholders may
consent to the Amended Stockholders Agreement by following the procedures
outlined below and the Offeree Stockholders are encouraged to carefully
consider the benefits of becoming a party to the Amended Stockholder
Agreement.
PROCEDURE FOR TENDERING SHARES
For shares of Holdings Common Stock to be validly tendered pursuant to
the Redemption Offer, a properly completed and duly executed Letter of
Transmittal (or manually signed facsimile copy thereof) with any required
signature guarantees and any other documents required by the Letter of
Transmittal must be received by the Company at its address set forth in the
Letter of Transmittal included with this Offer to Redeem. In addition,
certificates for such shares of Holdings Common Stock must be received by the
Company along with the Letter of Transmittal at such address. Also, as a
condition to the redemption of any shares of Holdings Common Stock held by an
Offeree Stockholder, the Offeree Stockholder must consent to the amendment of
the Existing Stockholders Agreement by executing a signature page for, and
becoming a party to, the Amended Stockholders Agreement.
Except as otherwise provided below, all signatures on a Letter of
Transmittal must be guaranteed by a firm which is a member of a registered
national securities exchange or of the National Association of Securities
Dealers, Inc., or by a commercial bank or trust company having an office,
branch, agency or correspondent in the United States (an "Eligible
Institution"). Signatures on a Letter of Transmittal need not be guaranteed
(i) if the Letter of Transmittal is signed by the registered holder of the
shares of Holdings Common Stock tendered therewith and such holder has not
completed either the box entitled "Special Payment Instructions" or the box
entitled "Special Delivery Instructions" on the Letter of Transmittal or (ii)
if such shares of Holdings Common Stock are tendered for the account of an
Eligible Institution. See Instruction 1 of the Letter of Transmittal. If the
certificates are registered in the name of a person or person other than the
signer of the Letter of Transmittal, or if payment is to be made or
unpurchased shares of Holdings Common Stock are to be returned to a person
other than the registered owner or owners, then the certificates must be
endorsed or accompanied by appropriate stock powers, in either case signed
exactly as the name or names of the registered owner or owners appear on the
certificates, with the signatures on the certificates or stock powers
guaranteed as provided in the instructions to the Letter of Transmittal. See
Instruction 2 of the Letter of Transmittal.
The method of delivery of shares of Holdings Common Stock, the Letter of
Transmittal and all other required documents is at the option and risk of the
tendering stockholder and, except as otherwise provided in the Letter of
Transmittal, the delivery will be deemed made only when actually received by
the Company. If delivery is by mail, registered mail with return receipt
requested, properly insured, is recommended.
In all cases, payment for shares of Holdings Common Stock tendered and
accepted for redemption pursuant to the Redemption Offer will be made only
after timely receipt by the Company of (i) certificates for such shares, (ii)
a properly completed and duly executed Letter of Transmittal (or a manually
signed facsimile copy thereof) with any required signature guarantees; (iii) a
signature page for the Amended Stockholders Agreement; and (iv) any other
documents required by the Letter of Transmittal.
To prevent backup federal income tax withholding with respect to payment
of the purchase price for shares of Holdings Common Stock purchased pursuant
to the Redemption Offer, stockholders must provide the Company with their
taxpayer identification number and certify that they are not subject to backup
federal income tax withholding by completing the Substitute Form W-9 included
in the Letter of Transmittal.
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
of Holdings Common Stock pursuant to the procedures described above will be
determined by the Company, in its sole discretion, which determination shall
be final and binding on all parties. The Company reserves the absolute right
to reject any or all tenders of shares of Holdings Common Stock determined by
it not to be in proper form or the acceptance for redemption of or redemption
of which may, in the opinion of the Company's counsel, be unlawful. The
Company also reserves the absolute right to waive any of the conditions of the
Redemption Offer or any defect or irregularity in any tender of shares of
Holdings Common Stock for redemption. The Company's interpretation of the
terms and conditions of the Redemption Offer (including the Letter of
Transmittal and its instructions) will be final and binding on all parties.
No tender of shares of Holdings Common Stock will be deemed to have been
validly made until all defects and irregularities have been cured or waived.
Neither the Company nor any other person will be under any duty to give
notification of any defect or irregularity in the tender of any shares of
Holdings Common Stock or will incur any liability for failure to give any such
notification.
It is a violation of Section 10(b) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and Rule 10b-4 promulgated thereunder,
for a person to tender shares of Holdings Common Stock for his own account
unless the person so tendering (i) owns such shares or (ii) owns other
securities convertible into or exchangeable for such shares or owns an option,
warrant or right to purchase such shares and intends to acquire such shares
for tender by conversion, exchange or exercise of such option, warrant or
right. Section 10(b) and Rule 10b-4 provide a similar restriction applicable
to the tender or guarantee of a tender on behalf of another person. The
tender of shares to the Company pursuant to any one of the procedures
described above will constitute a binding agreement between the tendering
stockholder and the Company upon the terms and subject to the conditions of
the Redemption Offer, including the tendering stockholder's representations
that (i) such stockholder owns the shares of Holdings Common Stock being
tendered within the meaning of Rule 10b-4 under the Exchange Act and (ii) the
tender of such shares complies with Rule 10b-4.
ACCEPTANCE FOR REDEMPTION AND REDEMPTION OF SHARES
Upon the terms and subject to the conditions of the Redemption Offer
(including, if the Redemption Offer is amended, the terms and conditions of
any such amendment), the Company will accept for redemption and will redeem
promptly after the Expiration Date validly tendered shares of Holdings Common
Stock. Payment of the redemption price for shares of Holdings Common Stock
accepted for redemption will be made with a portion of the proceeds received
by the Company as a result of the Purchase Transaction. In all cases, payment
for shares of Holdings Common Stock to be redeemed pursuant to the Redemption
Offer will be made only after timely receipt by the Company of certificates
for such shares, a properly completed and duly executed Letter of Transmittal
(or manually signed facsimile copy thereof), a signature page for the Amended
Stockholders Agreement, and any other documents required by the Letter of
Transmittal.
If any tendered shares of Holdings Common Stock are not redeemed for any
reason, or if certificates submitted represent more shares of Holdings Common
Stock than are tendered for redemption, certificates for such shares not
redeemed or tendered will be returned, without expense to the tendering
stockholder as soon as practicable following the expiration, termination or
withdrawal of the Redemption Offer. Under no circumstances will interest be
paid on the redemption price by the Company by reason of any delay in
accepting for payment or paying for any shares or otherwise.
Because the other requirements to amend the Existing Stockholders
Agreement have been met, if a majority of the Institutional Holders (as
defined in the Existing Stockholders Agreement) consent to the Amended
Stockholders Agreement, all parties to the Existing Stockholders Agreement
will be bound by the Amended Stockholders Agreement. Unless and until the
foregoing condition is satisfied, such Institutional Holders will retain
whatever rights and will be subject to the obligations and restrictions of the
Existing Stockholder Agreement. Any Offeree Stockholder executing the
signature page to the Amended Stockholders Agreement included with the Letter
of Transmittal will have the rights of an "Investor" as such term is defined
in the Amended Stockholders Agreement.
WITHDRAWAL RIGHTS
Except as otherwise provided in this Consent Solicitation and Offer to
Redeem, tenders of shares of Holdings Common Stock made pursuant to the
Redemption Offer are irrevocable. Shares of Holdings Common Stock tendered
pursuant to the Redemption Offer may be withdrawn at any time prior to 5:00
p.m., New York City time, on Monday, March 3, 1997, or, if the Company shall
have extended the time for which the Redemption Offer is open, at any time
prior to the latest time and date on which the Redemption Offer, as so
extended by the Company, shall expire (i.e., the Expiration Date).
For a withdrawal to be effective, a written, telegraphic, telex or
facsimile transmission of a notice of withdrawal must be timely received by
the Company at its address set forth in the Letter of Transmittal included
with this Consent Solicitation and Offer to Redeem. Any such notice must
specify the name of the person who tendered the shares of Holdings Common
Stock to be withdrawn, the number of shares of Holdings Common Stock to be
withdrawn and the name of the registered holder of the shares of Holdings
Common Stock to be withdrawn, if different from that of the person tendering
such shares.
If, for any reason whatsoever, the Company extends the Redemption Offer,
is delayed in its redemption of or payment for shares of Holdings Common Stock
or is unable to redeem or pay for shares of Holdings Common Stock for any
reason, tendered shares of Holdings Common Stock may be retained by the
Company and may not be withdrawn except to the extent that tendering Offeree
Stockholders are entitled to withdrawal rights as set forth herein.
Withdrawals may not be revoked, and any shares of Holdings Common Stock
properly withdrawn will be deemed not to be validly tendered for purposes of
the Redemption Offer. However, withdrawn shares of Holdings Common Stock may
be retendered at any subsequent time prior to the Expiration Date by following
the procedures described herein.
All questions as to the form and validity (including time of receipt) of
any notice of withdrawal will be determined by the Company, in its sole
discretion, which determination shall be final and binding on all parties.
Neither the Company nor any other person will be under any duty to give
notification of any defect or irregularity in any notice of withdrawal or
incur any liability for failure to give any such notification.
CERTAIN TAX CONSEQUENCES
Offeree Stockholders whose shares of Holdings Common Stock are accepted
for redemption pursuant to the Redemption Offer will realize income or incur a
loss which will be recognized for federal income tax purposes. If the Company
redeems the shares of any stockholder for cash, receipt of the cash will be
taxed to the stockholder as a dividend (resulting in the possible recognition
of ordinary income) and will not be taxed as a capital gain unless it meets
one of the following three tests set forth in Section 302(b) of the Internal
Revenue Code of 1986, as amended (the "Code"):
(1) The redemption is "not essentially equivalent to a dividend"
within the meaning of Code Section 302(b)(1);
(2) The distribution to the stockholder is "substantially
disproportionate" with respect to the stockholder within the meaning of Code
Section 302(b)(2). This test is met if:
(a) After the redemption, the stockholder owns less than 50% of
the total combined voting power of all classes of shares entitled to vote, and
(b) The redemption has the effect of reducing the stockholder's
proportionate interest in Holdings Common Stock following the redemption to an
amount less than 80% of the proportionate interest of such stockholder prior
to the redemption; or
(3) The redemption is in complete redemption of all of the shares of
Holdings Common Stock which are owned by the stockholder as described in Code
Section 302(b)(3).
In light of the foregoing, a stockholder who redeems a sufficient amount
of such stockholder's shares (including shares which such stockholder owns or
is deemed to own under the constructive ownership rules discussed below) will
be treated for federal income tax purposes as realizing capital gain or loss,
provided the shares of Holdings Common Stock were held as a capital asset in
the hands of such stockholder. As provided in Code Section 1001, gain or loss
will be realized and recognized by such stockholder in an amount equal to the
difference between the cash received and the adjusted tax basis of the shares
of Holdings Common Stock surrendered.
In determining whether the foregoing tests set forth in Code Section
302(b) are satisfied, the constructive ownership rules of Code Section 318
apply when making computations of share ownership both before and after the
redemption. Under the rules of Code Section 318, stockholders will be treated
as also holding shares owned by certain related persons and entities.
THE FOREGOING IS INTENDED TO BE MERELY AN OVERVIEW OF CERTAIN FEDERAL
INCOME TAX CONSEQUENCES AND SHOULD NOT BE CONSIDERED TO BE TAX ADVICE.
OFFEREE STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS REGARDING THE
FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES WITH RESPECT TO THE
FOREGOING MATTERS AND ANY OTHER CONSIDERATIONS WHICH MAY BE APPLICABLE TO
THEM.
PRICE RANGE OF HOLDINGS COMMON STOCK; DIVIDENDS
There is no established trading market for the Holdings Common Stock.
However, the Board of Directors of the Company is aware that several recent
transactions involving Holdings Common Stock have occurred, at net prices to
stockholders ranging from $8.00 to $10.00 per share. In addition, in
November, 1996, the Board of Directors of the Company issued to certain
members of management of International options to acquire shares of Holdings
Common Stock at a price of $8.00 per share, which price was determined by the
Board of Directors of the Company to represent the fair market value of
Holdings Common Stock at that date.
The Company has not previously declared or paid dividends on the Holdings
Common Stock. The payment of dividends on the Holdings Common Stock would
require that International declare and pay a dividend to the Company. The
payment of dividends by International is limited by the terms of certain debt
agreements to which International is a party. As a result, the Company does
not anticipate paying dividends in the foreseeable future.
THE PURCHASE TRANSACTION
Terms of the Purchase Agreement
The following summary does not purport to be complete and is qualified in
its entirety by the actual terms and provisions of the Purchase Agreement,
which is attached hereto as Exhibit A.
The Company and International entered into the Purchase Agreement with
the Purchasers pursuant to which the Purchasers purchased (the "Closing") from
the Company on January 29, 1997 (the "Closing Date") Holdings Common Stock
representing approximately 79.9% of the shares of Holdings Common Stock
outstanding after giving effect to the redemptions described herein at a
purchase price of $10.15 per share. At the Closing, in addition to the other
deliveries required, International paid fees to an affiliate of the Purchasers
in the amount of $2,300,000, to PaineWebber Incorporated, the investment
banker for the Purchasers, in the amount of $1,250,000, and to MLGAL in the
amount of $1,750,000.
Representations and Warranties
The Company and International made certain representations and warranties
in the Purchase Agreement regarding: their organization, power and
qualifications; authorization of the Purchase Agreement and the other
agreements contemplated thereby; that, with certain exceptions, the Purchase
Agreement and the other agreements contemplated thereby do not violate or
conflict with the organizational documents of the Company or its subsidiaries,
any governmental order to which the Company or its subsidiaries is subject, or
any material agreement to which the Company or International is a party; that
no governmental or third party consent was necessary to consummate the
transactions contemplated by, and to comply with the terms of, the Purchase
Agreement, other than pursuant to the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR Act"), and from Congress Financial
Corporation (Central) and Core States Bank N.A., lenders pursuant to the Loan
and Security Agreement; the capitalization of the Company, International, and
certain subsidiaries of International (the "Subsidiaries"); the financial
condition of the Company and International; the absence of certain changes and
events since September 30, 1996; certain tax matters; the Company's and
International's employee benefit plans, collective bargaining agreements,
employee agreements, intellectual property, environmental matters, compliance
with applicable laws, whether brokers or finders fees were due in connection
with the Purchase Transaction and certain other matters.
The Purchasers made representations and warranties to the Company
regarding: their organization; authorization of the Purchase Agreement; that
the Purchase Agreement does not violate or conflict with the organizational
documents of the Purchasers, any governmental order to which any of the
Purchasers is subject or any material agreement to which any of the Purchasers
is a party; that no governmental or third party consent was necessary to
consummate the transactions contemplated by, and to comply with the terms of,
the Purchase Agreement, other than pursuant to the HSR Act; their solvency;
their investment intent; access to information about the Company and
International; their sophistication; the source of the funds used to purchase
the shares; that each is an accredited investor as defined under federal
securities laws; and whether brokers or finders fees were due in connection
with the Purchase Transaction.
Certain Covenants
Pursuant to the Purchase Agreement, the Company agreed that from the date
of the Purchase Agreement until Closing of the Purchase Transaction it would,
and would cause International and the Subsidiaries to, take or not take
certain actions, as described in the Purchase Agreement.
The Purchasers also made certain covenants with respect to their actions
prior to the Closing. All covenants of the Company and the Purchasers were
either satisfied or waived prior to the Closing.
Terms of the Amended Stockholders Agreement
The following summary does not purport to be complete and is qualified in
its entirety by the actual terms and provisions of the Amended Stockholders
Agreement, which is attached hereto as Exhibit C.
In connection with the Closing of the Purchase Transaction, the Existing
Stockholders Agreement will be substantially amended. The parties to the
Amended Stockholders Agreement will include the Purchasers, the Fund, MLGAL,
the Management Holders and Offeree Stockholders who determine to become
parties thereto (collectively, the "Investors"). Offeree Stockholders who
desire to redeem shares of Holdings Common Stock pursuant to the Redemption
Offer must consent and become parties to the Amended Stockholders Agreement,
but other Offeree Stockholders may become parties thereto. The Offeree
Stockholders are encouraged to carefully consider the benefits of becoming a
party to the Amended Stockholders Agreement.
Pursuant to the Amended Stockholders Agreement, the Purchasers, the Fund
and MLGAL agree to vote all shares of Holdings Common Stock owned by such
parties in favor of the election as members of the Board of Directors of (i)
those individuals nominated by the Purchasers and (ii) one individual
nominated by the Fund and MLGAL, so long as the Fund and MLGAL continue to own
25% of the Holdings Common Stock held by such parties immediately following
the second closing under the Fund Redemption Agreement. See Redemption of
Holdings Common Stock Held by the Other Stockholders-Terms of the Fund
Redemption Agreement. The Amended Stockholders Agreement imposes certain
restrictions on, and provides Investors with certain rights in connection
with, transfers of shares of Holdings Common Stock, including provisions that
(i) with certain exceptions, the parties may not grant any proxy or enter into
or agree to be bound by any voting trust with respect to the Holdings Common
Stock; (ii) if the Purchasers or certain of their transferees propose to sell
any of their shares of Holdings Common Stock, the other Investors shall,
subject to certain exceptions, have the right to participate ratably in the
proposed sale; (iii) if the Purchasers propose to sell all of their Holdings
Common Stock to a third party, the Purchasers, so long as they collectively
own a majority of the shares of Holdings Common Stock, can compel the
Investors and certain transferees of the Investors (other than transferees of
the Fund, MLGAL and their current and former partners and employees) to sell
their shares of Holdings Common Stock, (iv) give the Purchasers rights of
first refusal with respect to transfers by management holders, and (v) subject
to certain exceptions, require the Fund and MLGAL to obtain the consent of the
Purchasers before selling or otherwise disposing of, in one transaction or
series of transactions, 25% or more of the shares of Holdings Common Stock
owned by the Fund and MLGAL immediately following the second closing under the
Fund Redemption Agreement. Pursuant to the Amended Stockholders Agreement,
the Investors are able to transfer shares of Holdings Common Stock in a
private transaction to any person, other than certain affiliates of the
Investors, and those transferees will have (A) the right to participate in the
sale of shares of Holdings Common Stock by the Purchasers (as described in
(iii) in the preceding sentence), (B) the right to participate in the
registration of shares of Holdings Common Stock (as described below) and (C)
no other material restrictions of the further transfer of such shares of
Holdings Common Stock other than those imposed by applicable securities laws.
The Amended Stockholders Agreement also contains a commitment on the
part of the Company to, under certain circumstances, register shares of
Holdings Common Stock held by the Investors under the Securities Act of 1933,
as amended (the "Securities Act"), upon request by the Fund, MLGAL or the
Purchasers, or if the Company otherwise proposes to register shares of
Holdings Common Stock, subject to certain conditions and limitations. Each
time the Company proceeds to register shares of Holdings Common Stock, each
Investor will have the right, subject to certain conditions and limitations,
to include a certain number of its shares of Holdings Common Stock in such
registration.
In addition, the Amended Stockholders Agreement provides for the
payment of a monitoring fee of $500,000 per annum to Blackstone Management
Partners, L.P. ("Blackstone Partners"), provided that Blackstone Partners
shall not, without additional approval of the Board of Directors of
International and a majority of the disinterested directors of the Board of
Directors of International, receive total fees pursuant to the Amended
Stockholders Agreement in excess of $2,500,000. The Amended Stockholders
Agreement requires the Company, in certain instances, to disclose information
and to file reports necessary to permit the Investors to sell shares of
Holdings Common Stock pursuant to Rule 144 promulgated under the Securities
Act. Furthermore, the Amended Stockholders Agreement prohibits the Company
and its subsidiaries from entering into any transaction or conducting any
business with the Purchasers and their affiliates (other than payment of the
monitoring fees and reasonable and customary investment banking fees for
services rendered by the Purchasers or their affiliates) unless such
transaction or business: (i) has been either (A) approved by a majority of the
disinterested directors of the Company, or (B) the Company has received a
written opinion from an independent investment banking firm that such
transaction is fair to the Company and its subsidiaries from a financial point
of view, and (ii) in the case of any transaction or series of related
transactions involving an aggregate payment in excess of $5 million by or to
the Purchasers and their affiliates, the Company has received a written
opinion from a nationally recognized independent investment banking firm that
the transaction or the series of related transactions is fair to the Company
and its subsidiaries from a financial point of view. The Amended Stockholders
Agreement terminates upon the tenth anniversary of the initial effective date
of the Amended Stockholders Agreement.
Because the other requirements to amend the Existing Stockholders
Agreement have been met, if a majority of the Institutional Holders (as
defined in the Existing Stockholders Agreement) consent to the Amended
Stockholders Agreement, all parties to the Existing Stockholders Agreement
will be bound by the Amended Stockholders Agreement. Unless and until the
foregoing condition is satisfied, such Institutional Holders will retain
whatever rights and will be subject to the obligations and restrictions of the
Existing Stockholder Agreement. Any Offeree Stockholder executing the
signature page to the Amended Stockholders Agreement included with the Letter
of Transmittal will have the rights of an "Investor" as such term is defined
in the Amended Stockholders Agreement.
Amendment to the Loan and Security Agreement
The following summary does not purport to be complete and is qualified in
its entirety by the actual terms and provisions of the Loan Agreement
Amendment being described, a copy of which will be provided upon request to
the Company.
On January 24, 1997, the Company entered into Amendment No. 2 (the "Loan
Agreement Amendment") to the Amended and Restated Loan and Security Agreement
with CoreStates Bank, N.A. and Congress Financial Corporation (Central), as
lenders (the "Lenders"), and Congress Financial Corporation (Central), as
agent for the lenders (the "Loan Agreement"). The Loan Agreement Amendment
provides that: (i) the maximum amount available for borrowing under the Loan
and Security Agreement is increased from $50 million to $60 million, and a fee
of $100,000 was paid to the Lenders in consideration for such increase; (ii)
the Lenders and the Agent consent to the Purchase Transaction and the Fund
Redemption; (iii) the commissions, fees, costs, expenses and other charges
incurred by International in connection with the Purchase Transaction and the
redemptions of shares of Holdings Common Stock contemplated herein will not be
considered in determining International's compliance with covenants related to
the adjusted net worth or consolidated net income of International; (iv) the
amount used to calculate the unused line fee will be the amount by which
$48,000,000 (instead of $40,000,000) exceeds the average daily principal
balance of the outstanding loans; and (v) International will be permitted to
incur such indebtedness as is necessary to finance any redemptions pursuant to
the change of control offer described below in respect to the Senior Notes.
The proceeds received by the Company from the Purchase Transaction were
and will be applied by the Company to finance the redemptions of Holdings
Common Stock from the Fund, MLGAL and the Offeree Stockholders as described
herein. The transaction fees in connection with the purchase and redemption
transactions described herein were funded through additional borrowings under
the Loan and Security Agreement.
The Change of Control Offer
The Purchase Transaction constitutes a Change of Control as defined in
the Indenture. As a result, International is required to offer to redeem the
Senior Notes (the "Change of Control Offer") at a price of 101% of the
principal balance of the Senior Notes (the "Note Redemption Price"). The
Company currently anticipates making the Change of Control Offer soon after
the date of this Offer to Redeem, and the Change of Control Offer will expire
approximately thirty (30) days after the Change of Control Offer is made.
Because the Board of Directors of the Company is aware that the Senior Notes
have recently been trading at prices significantly above the Note Redemption
Price, the Company currently does not anticipate that any of the Senior Notes
will be tendered for redemption pursuant to the Change of Control Offer. If
any of the Senior Notes are tendered pursuant to the Change of Control Offer,
the Company currently anticipates that replacement financing will be obtained
through additional borrowings under the Loan and Security Agreement or through
the issuance of additional Senior Indebtedness as defined therein.
REDEMPTION OF HOLDINGS COMMON STOCK HELD
BY THE OTHER STOCKHOLDERS
In connection with the Purchase Agreement, the Company entered into (a) a
Stock Redemption Agreement with the Fund and MLGAL (the "Fund Redemption
Agreement") and (b) an Exercise and Repurchase Agreement with the Management
Holders (the "Management Redemption Agreement").
Terms of the Fund Redemption Agreement
The following summary does not purport to be complete and is qualified in
its entirety by the actual terms and provisions of the Fund Redemption
Agreement, which is attached hereto as Exhibit B.
Pursuant to the Fund Redemption Agreement, the Company has agreed to
redeem that number of shares of Holdings Common Stock held by the Fund and
MLGAL which, when combined with the number of shares of Holdings Common Stock
held by the Management Holders and the Offeree Stockholders and redeemed by
the Company, equals 79.9% of the issued and outstanding shares of Holdings
Common Stock.
In the Fund Redemption Agreement, the Fund and MLGAL make several
representations to the Company, including representations regarding: their
organization, power and qualifications; title to the shares of Holdings Common
Stock to be redeemed; their authority to execute and deliver the Fund
Redemption Agreement; that the Fund Redemption Agreement does not violate or
conflict with the organizational documents of the Fund or MLGAL or any
governmental order or material agreement to which the Fund or MLGAL is subject
or is a party; and that no consents are necessary. The Company also makes
similar representations to the Fund and MLGAL.
The redemption of the shares of Holdings Common Stock pursuant to the
Fund Redemption Agreement occurs on two separate dates, the first of which has
already occurred. At the first closing, which occurred on the same date as
the Closing of the Purchase Transaction, the Company redeemed from the Fund
and MLGAL 4,393,915 shares of Holdings Common Stock, which is the number of
shares of Holdings Common Stock which, when combined with the shares of
Holdings Common Stock to be redeemed by the Management Holders and the maximum
number of shares to be redeemed by the Offeree Stockholders if this Redemption
Offer is fully subscribed, will equal the number of shares of Holdings Common
Stock purchased by the Purchasers. The Company will redeem the shares of
Holdings Common Stock tendered for redemption by the Offeree Stockholders in
accordance with the Redemption Offer and such additional shares of Holdings
Common Stock held by the Fund and MLGAL so that the total shares of Holdings
Common Stock held by the Fund, MLGAL, the Management Holders and the Offeree
Stockholders and redeemed by the Company equals the number of shares of
Holdings Common Stock purchased by the Purchasers. At the time of the first
closing, the funds necessary to redeem the shares of Holdings Common Stock
from the Fund, MLGAL and the Offeree Stockholders were placed in escrow
pursuant to the Escrow Agreement, a copy of which is attached hereto as
Exhibit D.
Terms of the Management Redemption Agreement
The following summary does not purport to be complete and is qualified in
its entirety by the actual terms and provisions of the Management Redemption
Agreement, which is attached hereto as Exhibit E.
Pursuant to the Management Redemption Agreement, the Management Holders
exercised options to acquire 106,114 shares of Holdings Common Stock which
were already fully vested, and the Company redeemed the shares of Holdings
Common Stock acquired pursuant to such exercises for $10.15 per share. The
members of management of the Company redeeming shares of Holdings Common Stock
and the numbers of shares each such person redeemed are as follows: Michael
D. Austin, 40,000 shares; Joseph F. Barker, 23,644 shares; F. Galen Hodge,
35,470 shares; and Charles J. Sponaugle, 7,000 shares. Because of the
simultaneous exercise of options and redemption by the Company pursuant to the
Management Redemption Agreement, no shares of Holdings Common Stock were
issued to the Management Holders and the aggregate exercise price with respect
to the options held by each Management Holder was deducted, together with
required tax withholdings, from the proceeds to be received by the Management
Holders pursuant to the redemption of their respective shares.
Each of the Management Holders made certain representations and
warranties with respect to the shares of Holdings Common stock redeemed
pursuant to the Management Redemption Agreement, including that: the
Management Redemption Agreement constitutes valid and legally binding
obligations of the Management Holder; the Management Redemption Agreement did
not and will not cause a default or breach with respect to any agreement to
which the Management Holder is a party; no other party has any rights with
respect to the applicable option agreements or the shares of Holdings Common
Stock acquired upon exercise of the options; the Management Holder has
adequate knowledge and experience, and had access to all material information,
in order to evaluate the redemption; and the Management Holder is an
accredited investor under the securities laws.
CERTAIN INFORMATION WITH RESPECT TO THE COMPANY
The Company is a Delaware corporation which owns all of the outstanding
Common Stock of International. Included herewith as Exhibit F is a copy of
the Annual Report on Form 10-K filed by International with the Securities and
Exchange Commission relating to International's fiscal year ending September
30, 1996. Included herewith as Exhibit G is a copy of the Current Report on
Form 8-K filed by International with the Securities and Exchange Commission
for the purpose of filing the press release announcing the pending purchase of
shares of Holdings Common Stock by the Purchasers. Included herewith as
Exhibit H is a copy of the press release dated January 30, 1997 issued by
International announcing results for the first quarter of fiscal 1997.
International completed the sale of $140,000,000 of its Senior Notes in
August, 1996 (the "Notes Offering"), and included as Exhibit I is a copy of
the final Prospectus used in connection with the Notes Offering. The
information set forth in Exhibits F, G, H and I is hereby incorporated by
reference as if fully set forth herein.
In connection with the consummation of the Purchase Transaction and the
other transactions contemplated thereby, all of the members of the Board of
Directors of the Company and International resigned except for Michael D.
Austin and Ira Starr. Pursuant to the terms of the Amended Stockholders
Agreement, the following representatives of the Purchasers were elected to the
Board of Directors of the Company and International: David A. Stockman, Chin
Chu, David Blitzer, and Glenn Hutchins. Michael D. Austin remained on the
Board of Directors of the Company and International as a nominee of the
Purchasers. Ira Starr, a general partner of MLGAL, which is the general
partner of the Fund, remained on the Board of Directors of the Company and
International as a nominee of the Fund and MLGAL.
CERTAIN INFORMATION WITH RESPECT TO BLACKSTONE
The Purchasers are affiliates of The Blackstone Group, a private
investment bank based in New York and founded in 1985 by Peter G. Peterson,
its current Chairman, and Stephen A. Schwarzman, its current Chief Executive
Officer. The Blackstone Group's main businesses include strictly friendly
principal investments, real estate investing and asset management,
restructuring and merger and acquisition advisory services. Blackstone, the
group's principal investment vehicle, has approximately $1.3 billion of
committed equity capital.