OFFER TO PURCHASE FOR CASH
l,000,000 Shares
Of Common Stock, Non-Voting
Of
LINCOLN INTERNATIONAL CORPORATION
At $0.35 Per Share
By
LINCOLN INTERNATIONAL CORPORATION
_________________________________________________________________
THE OFFER, WITHDRAWAL RIGHTS, AND THE PRO-RATION PERIOD
WILL EXPIRE AT _____ O'CLOCK PM, LOUISVILLE, KENTUCKY TIME,
ON ___________________ __, 1995, UNLESS THE OFFER IS EXTENDED
_________________________________________________________________
LINCOLN INTERNATIONAL CORPORATION (the "COMPANY") IS
OFFERING TO PURCHASE UP TO l,000,000 SHARES OF ITS COMMON, NON-
VOTING SHARES FOR CASH AT $0.35 PER SHARE (the "OFFER"). THE
OFFER IS NOT CONDITIONED UPON A MINIMUM NUMBER OF SHARES BEING
TENDERED. IF MORE THAN l,000,000 SHARES (65% OF THE OUTSTANDING
SHARES) ARE VALIDLY TENDERED, THE COMPANY WILL ACCEPT ONLY
l,000,000 SHARES, WITH SUCH SHARES PURCHASED, WITH CERTAIN
EXCEPTIONS, ON A PRO-RATA BASIS.
THE COMPANY'S BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED
THE OFFER. HOWEVER, NEITHER THE COMPANY NOR THE COMPANY'S BOARD
OF DIRECTORS NOR ANY AFFILIATE, OFFICER OR DIRECTOR OF THE
COMPANY MAKES ANY RECOMMENDATION AS TO WHETHER ANY SHAREHOLDER
SHOULD TENDER OR REFRAIN FROM TENDERING SHARES PURSUANT TO THE
OFFER, AND EACH SHAREHOLDER MUST MAKE HIS OR HER OWN DECISION AS
TO WHETHER TO TENDER SHARES.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED
UPON THE FAIRNESS OR MERITS OF SUCH TRANSACTION NOR UPON THE
ACCURACY NOR ADEQUACY OF THE INFORMATION CONTAINED IN THIS
DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
_______________ _______, 1995.
1
INTRODUCTION
------------
TO THE HOLDERS OF COMMON, NON-VOTING
STOCK OF THE COMPANY
The Company hereby offers to purchase up to l,000,000 shares
of its Common, Non-Voting stock, (the "Shares") at $0.35 per
share, net to the seller in cash and 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. Each person tendering Shares hereunder will be
responsible for paying any stock transfer taxes due in connection
with the purchase of their Shares hereunder. Each stockholder
who tenders hereunder must tender all Shares that he or she owns.
Tenders of less than all Shares owned by the Tenderer will not be
accepted.
This Offer was approved by the Directors of the Company, Mr.
Lee Sisney and Mr. Charles Hamilton, on March l5, l995. The
Board of Directors determined to make no recommendation to its
shareholders with respect to this Offer, and each stockholder
should make their own decision as to whether to tender Shares in
this Offer, and should review the totality of this Offer to
Purchase, and ask such additional questions of the Company as
they deem appropriate, in making that decision.
Messrs. Sisney and Hamilton are equal owners of Drivers &
Drovers Diversified, Inc. ("D&D"), a Kentucky corporation, which
owns 9l,469 (91.5%) and 287,429 (l8.9%) of the outstanding
Voting, and Non-voting, Shares of the Common stock of the
Company, respectively. D&D purchased these securities between
October l9, l994, and February 2, l995, from sixteen (16)
individuals, some of whom were officers and directors of the
Company at the time of the purchase.
The Board of Directors of the Company is making this Offer
in an effort to decrease the number of Common, Non-Voting
shareholders of the Company to less than 300, with the objective
of terminating the Company's registration under the Securities
Exchange Act of l934. There are l,537,26l Common, Non-Voting
Shares outstanding held by approximately 1,800 shareholders.
Such a termination of registration would entail the termination
of the obligation of the Company to file reports with the
Securities and Exchange Commission and to provide certain
information, financial and otherwise, to its stockholders.
Therefore, stockholders should consider whether they wish to
continue to remain stockholders of a company that may not provide
this type of information to the public and its stockholders.
At the termination of this Offer, various alternatives are
2
available to the Company with respect to the non-tendering
Shares. The Company could, among other things, take no action,
effect another Offer, buy Shares in the sporadic public market,
or in negotiated transactions or engage in a reorganization of
the Company pursuant to which cash consideration would be given
to all shareholders in the reorganization in exchange for their
Shares, with the exception of D&D. The result of such a
reorganization would be that D&D would become the sole
shareholder of the Company, and each shareholder would receive
cash in an amount not determined for their Shares. Prices that
might be paid for Shares in these procedures could be higher, or
lower, than the Offer Price. The Company has not made a decision
as to whether to take any action and such a decision will not be
made until the termination of this Offer to Purchase. In any
such reorganization, stockholders of the Company would have
dissenters' rights available to them as a part of that procedure.
Since Messrs. Sisney and Hamilton have become directors of
the Company, the Company's sole remaining consumer finance unit
and the Ice Cream Churn store franchise business have been sold.
Additionally, the Company has negotiated a ten-year lease with
Michigan Livestock Exchange, d/b/a Kentucky Livestock Exchange
("KLE") whereby KLE will lease and operate the livestock auction
business at the Company's facilities in Louisville, Kentucky,
with the Company to receive rent based upon a minimum amount
adjusted according to an agreed-upon schedule. Further, the
Company has received an unsolicited offer to purchase its main
office facility and parking lot from a Louisville, Kentucky, bank
holding company (SY Bancorp) for a purchase price of $800,000.
Although discussions are being conducted on this matter, no
statement can be made as to whether such an agreement will be
entered into. The Board of Directors has made no decision with
respect to this unsolicited offer or with regard to the manner in
which the remainder of the assets of the Company, including the
real estate owned in Louisville, Kentucky, will be used in the
future. (See "Purpose and Structure of the Transaction; Plans
for the Company").
Any stockholder desiring to tender Shares in this Offer,
should either (i) complete and sign the Letter of Transmittal (or
a facsimile thereof) in accordance with the instructions therein
and deliver it with the Shares and all other required documents
to the Company; or (ii) request his broker, dealer, commercial
bank, trust company or other nominee to effect the transaction
for him. A stockholder having Shares registered in the name of a
broker, dealer, commercial bank, trust company or other nominee
must contact such person if the stockholder desires to tender
such Shares. Questions and requests for assistance or additional
copies of this Offer may be directed to the Company at Suite 6,
l20 Village Square, Middletown, Kentucky, 40243; (502) 245-8814.
Stockholders are urged to read this Offer to Purchase
3
carefully before deciding whether to tender their Shares.
SPECIAL FACTORS
---------------
BACKGROUND OF THE TRANSACTION.
The Shares of the Common Non-Voting stock of the Company
have never paid a dividend and are not traded nor listed on any
stock exchange or public market system. The Common Non-Voting
Shares are occasionally quoted in the "pink sheets" by two non-
Kentucky brokerage firms with a "bid" and "asked" prices. To
management's knowledge, only 947 Shares were reported as traded
in l994, at a price of six and one-quarter cents. No Shares have
been traded in l995. Since August l, l992, the high and low bid
prices in the pink sheets for Shares of the Company's Common Non-
Voting stock were as follows:
Price
------
Period Low Bid High Bid
------- ------- --------
Quarter ended October 3l, l992 $0.0625 $0.l25
Quarter ended January 3l, l993 0.0625 0.l25
Quarter ended April 30, l993 0.0625 0.l25
Quarter ended July 3l, l993 0.0625 0.l25
Quarter ended October 3l, l993 0.0625 0.0625
Quarter ended January 3l, l994 0.0625 0.0625
Quarter ended April 30, l994 0.0625 0.l25
Quarter ended July 3l, l994 0.0625 0.l25
Quarter ended October 3l, l994 0.0625 0.l25
Quarter ended January 3l, l995 0.0625 0.l25
Quarter ended April 30, l995 0.0625 0.l25
In approximately June of l993, Mr. Sisney and Mr. Hamilton,
directors of the Company, and owners of D&D, considered
purchasing a significant portion of the Company's assets. In
that effort, these persons, along with four other persons,
established a Kentucky general partnership in l993, and made an
offer to the then management of the Company in January, l994, to
purchase the livestock auction assets of the Company, along with
the real estate on which it is operated in Louisville, Jefferson
County, Kentucky, for the sum of $2,400,000. That offer was
contingent, among other things, on the general partnership
obtaining suitable financing to effect the purchase and upon the
financial condition of this portion of the Company's business
being acceptable after due diligence investigation. Management
of the Company at that time retained the services of Galloway
Appraisal, an independent unaffiliated real estate organization,
to appraise the assets of the Company. Galloway provided an
Appraisal Report dated December 7, l993, to the Company which
4
concluded that, in its opinion, the subject assets had a fair
market value of $2,800,000 (See "Special
Factors - Purpose and Structure of the Transaction; Plans for the
Company"). On January 26, l994, the Board of Directors
considered the offer of the general partnership and voted to
decline that offer, based upon the Appraisal Report. No further
efforts were made by the general partnership to acquire assets
from the Company.
In or around June of l994, Mr. Sisney spoke with Mr.
DeCoursey Combs, then President and Chairman of the Board of the
Company, concerning the possibility of buying Mr. Combs' stock in
the Company. Mr. Combs' indicated his willingness to consider
selling, because of his age and recent illnesses in his family.
Thereafter, Messrs. Sisney and Hamilton formed D&D to acquire
control of the Company and individually spoke with the other two
directors of the Company at that time, and with thirteen (13)
additional shareholders, negotiating the purchase of their stock
in the Company by D&D. D&D is equally owned by Messrs. Sisney and
Hamilton. On October l9, l994, D&D purchased 8l,469 (81.5%) and
269,029 (17.6%) of the Common Voting and Common, Non-Voting
Shares of the Company for an aggregate purchase price of
$471,967. On February 2, l995, D&D bought l0,000 Voting, and
l8,400 Non-Voting Common Shares for an aggregate price of
$38,400. In these transactions in which D&D obtained control of
the Common stock of the Company, the average price paid for each
Common Voting Share was $2.00 and for each Common, Non-Voting
Share was $l.00.
The Company, at that time, also entered into an Agreement
with Mr. Combs to retain him as a consultant for one (l) year at
an annual salary of $25,000 to provide his assistance and advice
to the Company in the disposition of its remaining finance
operation located in Greensburg, Kentucky, and its interest in
the Ice Cream Churn franchise. Mr. Combs' health insurance
benefits were continued, as were the lease payments on an
automobile for that same period of time. Upon the acquisition of
the stock by D&D on October l9, l994, the then directors of the
Company resigned and were replaced by Mr. Sisney and Mr.
Hamilton. Mr. Combs also resigned as President on that date.
Since October l9, l994, no officer, director or affiliate of
the Company, or D&D has purchased any Shares of the Company,
except for the February, l995 purchase by D&D referred to above.
Preceding October l9, l994, Messrs. Sisney and Hamilton had
reviewed the operations of the Company and its business segments.
As a result, as directors of the Company, they voted on December
l, l994, to sell the remaining finance business assets of the
Company to an unaffiliated third party for $673,000. On December
9, l994, the Board of Directors voted to dispose of the Company's
interest in its Ice Cream Churn business, due to the amount of
5
capital that would be required to meet the requirements of the
Franchise Agreement that additional stores be opened and
operating within various timeframe segments. As a result, on May
5, l995, the Ice Cream Churn business assets and franchise rights
of the Company were returned to the franchisor in exchange for
$5,000, and a total release of the Company of all future
obligations under the Agreement. On March l5, l995, the Board of
Directors of the Company determined to make this Offer to its
stockholders holding Common Non-Voting Shares, with the objective
of terminating its registration under the Securities Exchange Act
of l934, as amended (the "Act"), and to pay for Shares tendered
in this Offer from funds of the Company (See "Special Factors -
Purpose and Structure of the Transaction; Plans for the
Company"). Expenses anticipated to be incurred in this Offer are
as follows:
EXPENSES AMOUNT
-------- -------
Attorneys' fees ........................ $l3,000
Accounting fees ........................ l,000
Printing fees .......................... ______
Filing fees ............................ 70
Mailing expense ........................ 2,500
Other .................................. 2,000
Total $______
In connection with D&D's acquisition of stock of the Company
on October l9, l994, D&D borrowed $490,000 from Producers
Association, an unaffiliated Kentucky agribusiness cooperative
("Producers"). Producers is managed by MLE. As a part of that
borrowing, D&D executed a Promissory Note to Producers which
provided that the obligation be secured by 50,001 shares of the
Common Voting stock of the Company. D&D could effect payment of
the obligation at any time by assigning to Producers one-third
(l/3) of the issued and outstanding Shares of D&D at the time of
payment, if the consent of Producers was obtained to that manner
of payment. If such payment procedure was not implemented by
September 30, l996, and the indebtedness had not been paid, then
the obligation would convert to a term note with a twenty (20)
year amortization of principal with interest payable at eight
(8%) percent per year, with all remaining payments being due and
payable on September 30, 2006. D&D additionally agreed with
Producers to negotiate in good faith toward a contract for KLE to
serve as the manager of the livestock auction function of the
Company within ninety (90) days of October l9, l994.
On May l5, l995, D&D agreed to execute an Amended Promissory
Note, and Pledge Agreement, with similar terms, except that
maturity will occur on May l5, 2005. Also, on July l5, l995, the
Company entered into a Lease with MLE to lease the livestock
auction assets of the Company to KLE for ten (l0) years. The
6
Company is to receive as rent the indicated percentage of pre-tax
profits from these operations for the years specified below:
YEARS PERCENTAGE
----- ----------
l and 2 75%
3 and 4 25%
5 through l0 50%
The monthly rent from July l5, l995, through June l5, l997, shall
be a minimum of $l8,000.
KLE will receive a monthly administrative fee of between $2,500
and $3,000 and the Company and KLE will agree upon annual budget
and capital expenditures for the operation and will agree to non-
compete covenants covering an area within a radius of fifty (50)
miles of the facilities. Management will have the right to
terminate the arrangement and, upon termination, D&D's obligation
to Producers shall be paid in full.
The union representing Company employees in the livestock
auction business have expressed dissatisfaction with the
arrangement with MLE who did not retain all such employees and
does not consider the employees unionized for its business
operations. No formal grievance or complaint has been filed with
any labor agency and the Company cannot state what the result
would be if one were filed.
DIVERGENT INTEREST WITH RESPECT TO THE OFFER.
The Board of Directors, consisting of Messrs. Sisney and
Hamilton, have divergent interest with respect to the Offer. For
example, as directors of the Company, and as the sole
shareholders of D&D, these persons have an interest in the
Company purchasing Shares at a low price. Whereas, Common Non-
Voting shareholders who desire to sell have an interest in
selling their Shares at a high price. Additionally, D&D's equity
ownership in the Company will increase to the extent that Shares
are purchased by the Company in this Offer.
CONSIDERATION BY THE BOARD OF DIRECTORS; FAIRNESS.
Messrs. Sisney and Hamilton, and the Board of Directors of
the Company, consisting of Messrs. Sisney and Hamilton, which
unanimously voted in favor of the transaction, and have
determined that they consider the terms of the Offer to be fair
to, and in the best interest of, the Company's shareholders. No
opinions, analyses or reports by independent parties were
solicited or obtained in connection with the Offer. Though the
7
Board determined that it considers the Offer to be fair to the
Company's share- holders, neither the Board of Directors, nor Mr.
Sisney nor Mr. Hamilton make any recommendation with respect to
the Offer. Shareholders should make their own decisions as to
whether to accept or reject this Offer.
In considering the fairness of the Offer to the
shareholders, the Board of Directors based its decision upon,
among other things, the following factors:
(l) The relationship of the Offering Price and the
historical sales prices for the Common Non-Voting Shares, as
described in "Background of the Transaction". The fact that the
Offer Price of $0.35 per Share represents a premium of
approximately 600% to the $.0.06 per Share sales prices of the
Common Non-Voting Shares over the last two years provides the
shareholders with the opportunity to dispose of their Shares at
prices in excess of those otherwise available to them; and
(2) The fact that Common Non-Voting shareholders will be
able to sell their Shares to the Company without brokers'
commissions or other expenses that would typically be incurred in
the sale of such Shares through a broker; and
(3) The fact that there is no active public market for the
Shares. Shareholders have very little ability to sell their
Shares at this time and the Offer provides a method of
disposition not otherwise available; and
(4) The fact that, to the knowledge of present management
of the Company, no other offer, other than that described under
"Background of the Transaction" and "Purpose and Structure of the
Transaction; Plans for the Company", has been made or furnished
to the Company to purchase its assets or its securities by any
person. Therefore, there is no evidence of any prospect of a
purchase of the Company's Shares by any other persons, and
without the Offer, the illiquid nature of the Shares will
continue; and
(5) The fact that, currently, almost all revenue production
of the Company arises from an inner-city livestock auction
business, one of the few remaining in the Country. Its future in
such business is uncertain as changes occur in this market. The
Company's real estate is currently structured for a highly
specialized use, and costs attendant to changing the nature of
such use are thought to be very significant; and
(6) The fact that the Offering Price approximates the net
book value of a Share, as of April 30, l995, which may be
considered relevant to the price at which Shares can be disposed
of; and
8
(7) The fact that no dividends have ever been paid on the
Shares, with the result that shareholders have not realized any
return on their Shares. The Offer provides a means of disposing
of a non-income producing asset in the hands of the Shareholders.
In considering the fairness of the transaction, the Board of
Directors did not find it practical to, and did not, quantify or
otherwise assign relevant weights to specific factors considered
in reaching its decision. The Board of Directors did not
consider going concern, or liquidation values for the Company
because it did not have sufficient information, and no
independent analysis of opinion, as to such values. The
anticipated high demolition costs for the livestock holding and
auction facilities were felt to mitigate against the ability to
recognize good net value for these assets through liquidation and
the Company's experience of annual losses for the last two years
and the trends in the Company's specialized industry did not
appear to support such a consideration. As stated, the Company
did not obtain independent analyses or opinions on these matters.
The Board of Directors (Messrs. Sisney and Hamilton)
determined it believed the Offer is fair to shareholders even
though no dissenters' rights exist, no unaffiliated
representative was retained to act on behalf of unaffiliated
shareholders and no independent directors existed to consider the
Offer, as discussed above, and based on the fact that
shareholders may accept or decline the Offer.
It should be noted that, as discussed in "Background of the
Transaction", D&D, owned by Messrs. Sisney and Hamilton, paid
$l.00 per Share in l994 and early l995 in transactions in which
$2.00 was paid for Company voting shares and in which D&D became
a controlling person for the Company. Because these transactions
were for control of the Company, Messrs. Sisney and Hamilton, and
the Board of Directors, did not consider the prices so paid to be
indicative of, or relevant to, whether the price of the Offer is
fair to shareholders.
Common Non-Voting stockholders should note that the Offer
Price has been established by the Company, which is controlled by
Messrs. Sisney and Hamilton, and is not the result of arm's-
length negotiations. Additionally, such stockholders should note
that the book value of the Company's Shares would be greater if
the Company's assets could be sold at the amount specified in the
Appraisal Report. However, no facts exist to evidence that these
assets could be disposed of for the amount specified in the
Appraisal Report.
PURPOSE AND STRUCTURE OF THE TRANSACTION; PLANS FOR THE COMPANY.
The primary purpose of the Offer is to reduce the number of
9
holders of record of Common Non-Voting Shares to less than 300 to
enable the Company to terminate the registration of its stock
under Section l2(g) of the Securities Exchange Act of l934, as
amended, and thereby cease to be obligated to file periodic
reports under the Act, such as annual reports on Form 10-K and
quarterly reports on Form 10-Q. Being a reporting company
subject to the reporting and other requirements of the Act
imposes significant costs, which the Company seeks to eliminate
through the Offer. The Company estimates that it spends
approximately $35,000 annually in direct costs complying with the
Act's periodic reporting requirements and other requirements
associated with Section l2(g) registration. Such direct costs
include, among other things, legal fees for periodic reports,
legal and printing costs for annual and other reports and certain
personnel costs. Such costs and expenses do not include
substantial indirect costs in the form of the time and attention
of the financial personnel of the Company and other Company
officers needed to prepare and review such filings and to comply
with other requirements. The Company would expect to no longer
to incur these direct expenses if the stock is de-registered. As
of _______ __, l995, there were l,537,26l Shares of Common Non-
Voting stock outstanding and 1,795 stockholders of record. On
the same date, the Company believes there were 643 shareholders
who owned less than l00 Shares of the Common Non-Voting stock and
l,337 shareholders who owned less than 500 Shares of the Common
Non-Voting stock.
The Offer is not conditioned upon enough Shares being
tendered to reduce the number of stockholders to less than 300.
Thus, it is possible that after the Offer is terminated, the
Company will still be unable to de-register its stock and will
still be required to incur the expenses of preparing periodic
reports and complying with other requirements of the Act. In
such a case, the Company will then determine if other acceptable
means are available to reduce the number of its stockholders to
less than 300, including the purchase of additional Shares
through the brokerage firms who periodically provide a bid and
asked price for the Shares, through a reorganization or in
privately negotiated transactions. Such additional purchases
could be at prices that may be higher or lower than the Offer
Price.
The Company believes that the Offer is the best means
available to reduce its number of shareholders to less than 300,
before its fiscal year ends on July 3l, l996, and it is required
to prepare, based upon regulations promulgated under the
Securities Exchange Act of l934, an annual report relating to the
l995-l996 fiscal year.
Another intended purpose of the Offer is to provide a means
by which the Common Non-Voting stockholders of the Company may
dispose of their Shares at a price the Board of Directors
10
considers to be fair. In view of the lack of an active trading
market for the Shares, and the range of brokerage firms' periodic
bid and ask prices, the Offer provides such a alternative in the
opinion of management of the Company. If the Offer is successful
in allowing the Company to terminate the registration under the
Act, it is believed that the brokerage firms' bid and asked
pricing for the Shares that has occurred in the past will cease,
which would have the effect of limiting further the non-tendering
Common Non-Voting stockholders' ability to dispose of their
Shares in the future. Additionally, such registration
termination will have the effect of reducing the public
information available regarding the Company, because it will not
longer be required to file reports under the Act.
To the extent that Common Non-Voting Shares are tendered in
the Offer, the percentage of ownership of the Shares by the
Company's directors and by D&D will increase. If l,000,000
Shares had been repurchased by the Company at April 30, l995, the
net book value, and net earnings, of the Company as of April 30,
l995, as represented by Mr. Sisney's and Mr. Hamilton's indirect
ownership of securities of the Company would have changed as
follows:
Current If l,000,000 Shares
Indirect Ownership: Had Been Purchased:
------------------- -------------------
Mr. Sisney: Net book value - Net book value -
$53,435 (9.3%) $l52,927 (26.7%)
Net earnings - Net earnings -
$ 6,834 (9.3%) $ l9,555 (26.7%)
Mr. Hamilton: Net book value - Net book value -
$53,684 (9.4%) $l53,568 (26.9%)
Net earnings - Net earnings -
$ 6,863 (9.4%) $ l9,64l (26.9%)
The Offer does not require approval of shareholders of the
Company. The Offer was approved by the two directors of the
Company, Messrs. Sisney and Hamilton, the only directors of the
Company. Mr. Sisney is also an employee of the Company. No
unaffiliated representative or person was retained by the Company
to analyze the Offer, or to represent the interests of the
unaffiliated shareholders for purposes of negotiating or
determining the terms of the Offer or for preparing a report
concerning the fairness of the transaction. At the conclusion of
the Offer, the Company will continue to be managed by its current
Board of Directors and officers. The Company's business now
11
principally consists of leasing the livestock auction business,
which is conducted from its facilities in Louisville, Jefferson
County, Kentucky. Traditionally, the Company has used its
contacts with farmers and cattlemen, and its reputation in the
industry, as the means of obtaining livestock to be marketed
through its auction process at those facilities. The Company
used a number of commission agents whose function was to use
their contacts and relationships with farmers to induce them to
utilize the Company's services.
However, as indicated under "Special Factors - Background of
the Transaction", the Company has entered into a ten-year Lease
with MLE, an unaffiliated cooperative organization, under which
that Organization assumed control of the livestock auction
services of the Company, paying the Company a rent based upon a
percentage of pre-tax profits from the auction business. The
number of head of livestock utilizing the Company's facility has
decreased over the last two years. MLE is located in East
Lansing, Michigan, and has extensive experience and contacts in
the cattle business, managing over 50 livestock auctions or
buying stations. Management believes that KLE has the ability to
increase the number of livestock utilizing the Company's auction
facilities. The Lease also provides that KLE will operate the
Company's vehicle-washing facility and the Lease is cancelable by
Lessor upon six month prior written notice to KLE.
The Company's livestock auction facilities occupy
approximately l4 acres of the 22 acres owned by the Company in
Louisville, Kentucky. The facility consists of a two-story main
office building with a two-story livestock storage and auction
facility at the back of it, a vehicle-washing facility and one
warehouse. The building and auction facilities are principally
constructed of concrete, concrete-block and brick, with some wood
improvements. The building and the livestock facilities were
erected between l908 and l924.
Most of the remaining acres were purchased from a railroad
company and are gravel road-bed and transit areas. Portions of
the property are located in a Zone B flood plain area.
As indicated in "Special Factors - Background of the
Transaction", prior management of the Company obtained an
Appraisal Report of the properties which now compose the
Company's sole properties from Galloway Appraisal, an
unaffiliated real estate appraisal organization located in
Louisville, Kentucky. The Appraisal was conducted by Ronald L.
Galloway, MAI, a Kentucky certified general appraiser and
Patricia G. Brown, SRA, a Kentucky certified general appraiser.
Current management is not aware of the process by which Galloway
was selected.
Current management has reviewed that Appraisal Report and
12
considered its conclusion in making their determination that the
Offer is fair to shareholders. Current management is of the
opinion that due to the special character of the Company's
property, the conclusion of the Report that the property has a
fair market value of $2,800,000 is subject to question. On a per
share basis, without considering the Company's mortgage debt of
approximately $730,000, this $2,800,000 equates to approximately
$l.74 per share, and $l.28 per share giving consideration to the
mortgage debt. Considering all of the Company's long-term debt,
it would equate to $l.08 per share. The Report utilized an
income and comparable sales approach in reaching its conclusion.
The Report utilized comparable sales for the Company's offices
and warehouses and an income approach was for the livestock pens
and holding areas, no comparables being available. The income
approach portion was based upon the operations of the Company in
late l993, which have decreased since that time. The amount of
space rented in the Company's property and the number of head of
livestock utilizing the Company's auction facility has decreased.
In fact, there is an increasing trend within the livestock
industry for farmers to sell their livestock directly to
slaughter houses or dealers, by-passing the auction process.
Since June l993, the Company has experienced an average annual
sales decrease of 6,288 feeder cattle, 675 slaughter cattle and
3,437 hogs. The average annual decrease in space rented for that
same period was approximately l0% per year.
Management believes that the Company's livestock auction
facilities are now singularly suited only for the purpose for
which they are currently utilized. That is, a livestock auction
business. While a portion of the facilities might be rented or
used for storage, or similar purposes, a great percentage are of
concrete or concrete block or brick construction which do not
suit them to any other purpose. As to alternative use,
management believes that the cost of demolition and excavation of
the present facilities in order to construct alternative
facilities could approximate $l,500,000 to $2,000,000.
Management has obtained no independent report or analysis for
such a demolition and excavation project, but because of the
entrenched and disbursed character of the facilities, management
believes the process would be labor and time intensive, thereby
entailing significant expense.
With respect to the approximate 5-l/2 acres of vacant land
located at the Company livestock auction facilities, a portion
are adjacent to Beargrass Creek and within a flood plain. The
property was formally a railway roadbed for numerous tracks and
is now used for parking, ingress and egress and a turn around
area for vehicles.
Management has not undertaken to determine whether there are
potential purchasers of either its improved or unimproved
properties, nor has it had conducted another appraisal of the
13
properties themselves. Various unrelated parties have previously
expressed unsolicited interest in either utilizing or acquiring
portions of the Company's properties. None of these indications
of interest resulted in specific proposals or terms. On August
l0, l995, the Company received an unsolicited draft Agreement to
Purchase the Company's principal office facilities, with parking
lot and attached office building, from SY Bancorp, Inc., a
Kentucky bank holding company for $800,000. The Agreement
contained numerous contingencies, including obtaining
governmental permission for the purchaser to build a ped-way to
the facilities and the lack of environmental problems. The
Agreement also contained provisions for the Company to lease back
l0,200 square feet of the facility, at $8.00 per square foot,
annually for five years. The Board of Directors is considering
the proposal and is engaging in discussions with the bank holding
company on the matter. No decision has been reached and no date
is specified as to a date by which the Agreement must be executed
and the Board of Directors cannot make any statement as to
whether such an Agreement, or under what terms such an Agreement,
might be entered into in the future.
With the leasing of the livestock auction facilities to KLE,
if the Company's principal office facility was sold, the Company
would then retain approximately 769 acres not used in the auction
business.
While it might be possible to lease or sell portions of the
Company's remaining property to persons having need of property
with a specialized location, or for other specialized purposes,
management is not aware of any potential purchasers or users of
this remaining property, and no statement can be made as to what
use, if any, the Company could, or will, make of the property.
A copy of the Appraisal Report will be made available for
inspection and copying at the principal executive offices of the
Company during its regular business hours by any interested
shareholder, or his representative designated in writing, or a
copy of such Report will be provided to any such person upon
written request and at the expense of the requesting person(s).
THE OFFER
---------
TERMS OF THE OFFER.
Upon the terms and subject to the conditions of the Offer,
(including, if the Offer is extended or amended, the terms of any
such extension or amendment), the Company will accept for payment
and pay for up to 1,000,000 Shares validly tendered on or prior
to the Expiration Date, and not withdrawn in accordance with the
Offer. The term "Expiration Date" shall mean _________ o'clock
PM, Louisville, Kentucky time, on __________________ __, l995,
14
unless the Company in its sole discretion 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 on
which the Offer, as so extended by the Company, shall expire.
The Offer Price is $.35 per Share.
The Offer is conditioned on satisfaction of certain
conditions as set forth herein. The Company reserves the right
(but shall not be obligated), in its sole discretion and for any
reason, to waive any and all of such conditions. If by the
Expiration Date, any or all of such conditions have not been
satisfied or waived, the Company reserves the right (but shall
not be obligated) to (i) decline to purchase any of the Shares
tendered and terminate the Offer; (ii) waive all of the
unsatisfied conditions and, subject to complying with applicable
rules and regulations of the Securities and Exchange Commission,
purchase all Shares validly tendered; (iii) extend the Offer and,
subject to the right of Common Non-Voting stockholders to
withdraw Shares until the Expiration Date, retain the Shares that
have been tendered during the period or periods for which the
Offer is extended; or (iv) amend the Offer.
Drivers & Drovers Diversified, Inc., a controlling
corporation for the Company which is owned equally by Messrs.
Sisney and Hamilton, owns 287,429 (l8.9%) of the Common Non-
Voting Shares and has indicated that it does not intend to tender
those Shares in the Offer. Also, Mr. Hamilton owns 600 of the
Shares and has indicated that he does not intend to tender these
Shares.
PRO-RATION; ACCEPTANCE FOR PAYMENT AND PAYMENT FOR SHARES.
If the number of Shares validly tendered prior to the
Expiration Date and not withdrawn is not more than l,000,000, the
Company, upon the terms and subject to the conditions of the
Offer, will accept for payment all Shares so tendered.
If the number of Shares validly tendered and not withdrawn
prior to the Expiration Date is more than l,000,0000 Shares, the
Company, upon the terms and subject to the conditions of the
Offer, unless the Offer is amended or extended, will accept for
payment only l,000,000 Shares, with such Shares purchased on a
pro-rata basis; provided, however, that all persons tendering all
Shares owned by them and who own less than l00 Shares of the
Company shall have all of their Shares purchased before pro-
ration is applied to the remaining tendering shareholders.
In the event that pro-ration of tendered Shares is required,
the Company will determine the final pro-ration factor as
promptly as practicable after the Expiration Date.
15
Upon the terms and subject to the conditions of the Offer
(including, if the Offer is extended or amended, the terms and
conditions of any extension or amendment), the Company will
accept for payment, and will pay for, Shares validly tendered and
not withdrawn in accordance with the Offer, as promptly as
practicable following the Expiration Date. In all cases, payment
for Shares purchased to the Offer will be made only after timely
receipt by the Company of a properly completed and duly executed
Letter of Transmittal and any other documents required by the
Letter of Transmittal.
For purposes of the Offer, the Company shall be deemed to
have accepted for payment (and thereby purchase) tendered Shares
when, as and if, the Company, by action of its Board of
Directors, votes for the acceptance for payment of such Shares
pursuant to the Offer. Upon the terms and subject to the
conditions of the Offer, payment for Shares pursuant to the Offer
will in all cases be made by forwarding the requisite purchase
price to the tendering shareholder. Under no circumstances will
interest be paid on the purchase price by reason of any delay in
making payment.
If, prior to the Expiration Date, the Company shall increase
the consideration offered to shareholders pursuant to the Offer,
such increase shall be paid for all Shares accepted for payment
pursuant to the Offer, whether or not such Shares were tendered
prior to such increase.
The Company reserves the right to transfer or assign, at any
time, and from time to time, in whole or in part, to one or more
affiliates or direct or indirect subsidiaries of the Company, the
right to purchase Shares tendered pursuant to the Offer, but no
such transfer or assignment will relieve the Company of its
obligations under the Offer or prejudice the rights of tendering
shareholders to receive payment for Shares validly tendered and
accepted for payment pursuant to the Offer.
If any Shares are not properly tendered, the Company will
attempt to contact the stockholder in order to assist him or her
to make a proper tender. The Company can give no assurance
however, that it will have the time or personnel to contact each
shareholder who may not properly tender Shares. Any Shares not
properly tendered by the Expiration Date, will be returned to the
tendering stockholder as promptly as practicable after the
expiration of the Offer.
PROCEDURE FOR TENDERING SHARES.
For Shares to be properly tendered pursuant to the Offer, a
properly completed and duly executed Letter of Transmittal, and
any other documents required by the Letter of Transmittal, must
16
be received by the Company at Suite 6, l20 Village Square,
Middletown, Kentucky, 40243, on or prior to the Expiration Date.
In order for a tendering stockholder to participate in the Offer,
Shares must be validly tendered and not withdrawn prior to the
Expiration Date, which is ________ o'clock PM, Louisville,
Kentucky time, on _______ ___, l995 (unless extended).
The method of delivery of the Letter of Transmittal and all
other required documents is at the option and risk of the
tendering shareholder, and delivery will be deemed to be 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, sufficient time should be
allowed to insure timely delivery.
All questions as to the validity, form, eligibility
(including time of receipt) and acceptance for payment of any
tender of Shares pursuant to the procedures described above, will
be determined by the Company, in its sole discretion, which
determination shall be final and binding. The Company reserves
the absolute right to reject any and all tenders if not in proper
form or if acceptance of, or payment for, the Shares tendered
may, in the opinion of the Company's counsel, be unlawful. The
Company also reserves the right to waive any defect or
irregularity in any tender with respect to any particular Shares
of any particular stockholder, and the Company's interpretation
of the terms and conditions of the Offer (including the Letter of
Transmittal and the Instructions thereto), will be final and
binding.
A tender of Shares pursuant to any of the procedures
described above will constitute a binding agreement between the
tendering shareholder and the Company upon the terms and subject
to the conditions of the Offer, including the tendering
shareholder's representation and warranty that such shareholder
owns the Shares being tendered.
WITHDRAWAL RIGHTS.
Except as provided in the Offer, all tenders of Shares
pursuant to the Offer are irrevocable, provided that Shares
tendered pursuant to the Offer may be withdrawn at any time prior
to the Expiration Date and, unless accepted for payment as
provided in this Offer to Purchase, may also be withdrawn at any
time after forty (40) business days from the commencement of this
Offer.
For withdrawal to be effective, a written or facsimile
transmission of Notice of Withdrawal must be timely received by
the Company at Suite 6, l20 Village Square, Middletown, Kentucky,
40243. Any such Notice of Withdrawal must specify the name of
17
the person who tendered the Shares to be withdrawn and must be
signed by the person(s) who signed the Letter of Transmittal in
the same manner as the Letter of Transmittal was signed. The
signature(s) on the Notice of Withdrawal must be guaranteed by an
eligible signature guaranty institution (a bank, stock
brokerage firm, savings and loan association or credit union with
membership in an approved signature guaranty medallion program).
EXTENSION OF TENDER PERIOD; TERMINATION AND AMENDMENT.
The Company expressly reserves the right, in its sole
discretion, at any time and from time to time: (i) To extend the
period of time during which the Offer is open and thereby delay
acceptance for payments of, and the payment for, any Shares by
giving oral or written notice of such extension to all Common
Non-Voting shareholders (during any such extension, all Shares
previously tendered and not withdrawn will remain subject to the
Offer); (ii) determine to terminate the Offer and not accept for
payment any Shares not theretofore accepted for payment or paid
for by giving oral or written notice of such termination to
Common Non-Voting shareholders; (iii) upon the occurrence of any
of the conditions specified in the Offer, delay the acceptance
for payment of, or payment for, any Shares not theretofore
accepted for payment or paid for, by giving oral or written
notice of such termination or delay to Common Non-Voting
shareholders; and (iv) to amend the Offer in any respect
(including, without limitation by increasing or decreasing the
number of Shares being sought in the Offer) by giving oral
written notice of such amendment to Common Non-Voting
shareholders.
If the Company extends the Offer, or if the Company (whether
before or after its acceptance for payments of Shares) is delayed
in its payment for Shares or is unable to pay for Shares pursuant
to the Offer for any reason, then without prejudice to the
Company's rights under the Offer, the Company may retain the
Shares, and such Shares may not be withdrawn except to the extent
tendering shareholders are entitled to withdrawal rights as
described in the Offer. However, the ability of the Company to
delay payment for Shares that the Company has accepted for
payment is limited by Rule l4e-1(c) under the Securities Exchange
Act of l934, as amended, which requires that the Company pay the
consideration offered or return the securities deposited by or on
behalf of holders of securities promptly after the termination or
withdrawal of the Offer.
In effecting a material change in the Offer, or the
information concerning the Offer, the Company will comply with
the Securities and Exchange Commission's Rules and Regulations.
Those Rules require that, among other things, the minimum period
during which an Offer must remain open following a material
18
change in the terms of the Offer or information concerning the
Offer, other than a change in price or percentage of securities
sought, will depend upon the facts and circumstances, including
the relative materiality of the change in the terms or
information. With respect to a change in price or percentage of
securities sought, a minimum of ten (10) business days is
required to allow for adequate dissemination to security holders
and appropriate response.
Following the termination of the Offer, the Company may make
an Offer for Shares not tendered in this Offer, which may be on
terms similar or different to those described in the Offer.
There is no assurance that, following the Expiration Date, the
Company will make another offer for Shares not tendered in the
Offer.
SOURCE OF FUNDS.
The Company intends to use funds which it now holds to
effect this Offer, and to pay for Shares, and no borrowings for
this purpose are intended. If l,000,000 Shares are tendered,
total consideration paid will be $350,000.
19
CONDITIONS ON THE OFFER.
The obligation of the Company to complete the purchase of
tendered Shares is subject to each and all the following
conditions:
(i) There shall not be threatened, instituted or
pending any action or proceeding before any domestic or
foreign court or governmental agency or other
regulatory or administrative agency or commission;
(a) challenging the acquisition by the Company of
the Shares, seeking to restrain or prohibit the
making or consummation of the Offer, seeking to
obtain any material damages or otherwise directly
or indirectly relating to the transactions
contemplated by the Offer;
(b) seeking to prohibit or restrict the Company's
ownership or operation of any material portion of
the Company's business or assets, to compel the
Company to dispose of or hold separate all or any
portion of its business or assets as a result of
the Offer;
(c) seeking to make the payment of, or payment
for, some or all of the Shares illegal;
(d) resulting in a delay of the ability of the
Company to accept for payment or pay for some or
all of the Shares;
(e) imposing material limitations on the ability
of the Company effectively to acquire or hold or
exercise full ownership of the Shares;
(f) which, in the sole judgment of the Company,
could materially or adversely effect the treatment
of the Offer for Federal income tax purposes;
(g) which otherwise is reasonably likely to
materially effect in an adverse manner the Company
or the value of the Shares or;
(h) which imposes any material condition
unacceptable to the Company;
(ii) No statute, rule, regulation or order shall be
enacted, promulgated, entered or deem applicable to the
Offer, no legislation shall be pending and no other
action shall have been taken, posed or threatened or
20
any domestic governmental authority or by any court,
domestic or foreign, which in the sole judgment of the
Company, is likely, directly or indirectly, to result
in any of the consequences referred to in paragraph (i)
above; and
(iii) There shall not have occurred any declaration of
a banking moratorium or any suspension of payments with
respect to banks in the United States, or the
commencement of a war, armed hostilities or other
international or national calamity effecting the United
States.
The foregoing conditions are for the sole benefit of the
Company. The conditions may be waived by the Company at any
time, and from time to time, in its sole discretion. Any
determination by the Company will be final and binding on the
parties.
FEES AND EXPENSES.
Assuming l,000,000 Shares are tendered and accepted for
payment, expenses of the Offer (exclusive of the purchase price
of the Shares) are estimated at $_________: including legal and
accounting fees and expenses ($l4,000), printing ($_______),
filing fees ($70.00), distribution of Offer materials ($2,500),
and miscellaneous ($2,000).
NO DISSENTERS' RIGHTS.
Under Kentucky law, no stockholder has any right to have
their Shares appraised or redeemed in connection with or as a
result of the Offer. Each stockholder has the opportunity to
make an individual decision on whether or not to accept the
Offer. Under applicable law, each stockholder has a right, upon
reasonable written request, to inspect and copy the corporate
documents, if for a valid and proper purpose.
FEDERAL INCOME TAX CONSEQUENCES.
The tender of Shares for cash will be treated for Federal
income tax purposes as a taxable sale of the tendered Shares.
The particular tax consequences of a tender for a stockholder
will depend upon factors relating to that stockholder's tax
situation, including the stockholder's tax basis in his or her
Shares and whether the stockholder will be able to utilize any
capital losses that might result from the sale of the Shares. To
the extent that a stockholder recognizes a capital loss, such
loss can be applied to offset capital gains from other sources.
21
Any capital losses that are not currently used can be carried
forward and used in subsequent years. BECAUSE THE INCOME TAX
CONSEQUENCES TO A TENDER OF SHARES WILL NOT BE THE SAME FOR ALL
SHAREHOLDERS, SHAREHOLDERS CONSIDERING TENDERING THEIR SHARES
SHOULD CONSULT WITH THEIR OWN TAX ADVISORS WITH RESPECT TO THEIR
OWN TAX SITUATIONS, AND RELY SOLELY UPON THEIR ADVICE.
MISCELLANEOUS
-------------
This Offer is being made to all stockholders of Common Non-
Voting Shares of the Company; provided, however, that the Offer
is not being made (or tenders being accepted from or on behalf
of) to shareholders in any jurisdiction in which the making of
the Offer or the acceptance thereof would not be in compliance
with the laws of such jurisdiction. The Company is not aware of
any jurisdiction within the United States in which the making of
the Offer or the acceptance thereof would be illegal. However,
if any such jurisdiction exists, the Company may, in its
discretion, take such actions as it deems necessary to make the
Offer in such jurisdiction.
EFFECT OF OFFER OF NON-TENDERING
--------------------------------
COMMON NON-VOTING SHAREHOLDERS
------------------------------
CONTROL OF THE COMPANY - D&D will continue to control the
Company, at the termination of the Offer, through its ownership
of over fifty (50%) percent of the Voting stock of the Company.
EFFECT ON TRADING MARKET - No public market for the Shares
exists, but the Shares are sporadically listed on the pink sheets
by one or two brokerage firms. If the Offer is successful in
reducing the number of Common Non-Voting shareholders to less
than 300 at July 3l, l995, then it is believed that the pink
sheet listing will cease to exist.
COMPANY BUSINESS - The Offer will not materially effect the
operation of the properties owned by the Company since the
Company will continue to own those properties regardless of the
outcome of the Offer. At the termination of the Offer, the
Company will have various options available to it for future
action with respect to shareholders, including other purchases
either in the open market or on a negotiated basis, or additional
offers to shareholders. Additionally, the Company could affect a
reorganization pursuant to which all shareholders cease to be
shareholders of the Company and instead had the right to receive
cash for their Shares. The Company is aware of its options in
22
this respect but has made no decision to utilize any particular
action, or any action. Subsequent to this Offer, if the Company
determines to pursue any of these alternatives, the prices at
which any additional offer or purchases, or which a shareholder
could receive for his Shares in a reorganization, cannot be
determined at this time, and could be more than, or less than,
the price of this Offer. In any reorganization that the Company
might undertake, shareholders would have dissenters' rights
available to them, pursuant to which they could utilize the
procedure of voting against and dissenting from such a
reorganization and seeking a determination as to the "Fair Value"
of their Shares under Kentucky law.
RELATED TRANSACTIONS
--------------------
CONTROL OF THE COMPANY.
The Company is controlled by Drivers & Drovers Diversified,
Inc., a Kentucky Corporation, that is equally owned by Lee Sisney
and Charles Hamilton, who serve as Directors of the Company, and
as President and Chairman of the Board of the Company,
respectively. See "Special Factors - Background of the
Transaction".
COMPENSATION BY THE COMPANY.
Mr. Sisney serves as an employee of the Company, and
receives annual compensation from the Company in the amount of
$55,000. No other compensation or remuneration is received by
either Mr. Sisney or Mr. Hamilton from the Company.
No person has been authorized to give any information or to
make any representation on behalf of the Company not contained
herein or in the Letter of Transmittal and if given or made, such
information or representation must be not be relied on as having
been authorized.
LINCOLN INTERNATIONAL CORPORATION
Suite 6 - l20 Village Center
Middletown, Kentucky 40243
By ________________________________
Lee Sisney, President
_____________________ __, l995.
23