1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<Table>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Under Rule 14a-12
</Table>
SPRINGS INDUSTRIES, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
Class A Common Stock, par value $.25 per share, of Springs Industries,
Inc.
Class B Common Stock, par value $.25 per share, of Springs Industries,
Inc.
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
12,589,793 shares of Class A and Class B Common Stock (includes
1,944,493 shares underlying options to purchase shares of Class A
Common Stock).
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
$46.00 per share in the cash-out merger plus the difference between
$46.00 and the exercise price for each option to purchase Class A
Common Stock.
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
$505,450,630.56
------------------------------------------------------------------------
(5) Total fee paid:
$101,578.82
------------------------------------------------------------------------
[X] Fee paid previously with preliminary materials.
$101,578.82
----------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount previously paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
2
[SPRINGS LOGO]
SPRINGS INDUSTRIES, INC.
205 North White Street
Fort Mill, South Carolina 29715
August 7, 2001
To Our Shareholders:
You are cordially invited to attend the annual meeting of shareholders of
Springs Industries, Inc. to be held on September 5, 2001, at 9:30 a.m., local
time, at Baxter M. Hood Continuing Education Center, York Technical College, 452
S. Anderson Road, Rock Hill, South Carolina.
At the annual meeting of shareholders, you will be asked to consider and
vote upon a recapitalization agreement that provides for the merger of Heartland
Springs Investment Company with and into Springs. If the recapitalization is
completed, Springs will become a privately owned corporation and you will
receive $46.00 in cash for each of your shares of Springs common stock.
Immediately after the recapitalization, approximately 44% of the outstanding
shares of Springs common stock will be owned by Heartland Industrial Partners,
L.P. (and its co-investors, if any) and approximately 56% of the outstanding
common stock will be owned by the Close family, which consists of my mother, me,
my brothers and sisters, certain trusts for our benefit and our children's
benefit, and two private companies that we control. At the annual meeting, you
will also be asked to consider and vote upon a proposal to amend Springs'
articles of incorporation to exempt Springs from the restrictions on business
combinations contained in the South Carolina Code.
Your board of directors and a special committee of the disinterested
directors of the board formed to consider the recapitalization have determined
that the terms of the recapitalization agreement and the related amendment to
the articles of incorporation are advisable, fair to and in the best interests
of Springs shareholders who are not affiliated with the Close family or
Heartland Industrial Partners. ACCORDINGLY, YOUR BOARD, AFTER RECEIVING THE
UNANIMOUS RECOMMENDATION OF THE SPECIAL COMMITTEE, HAS ADOPTED THE
RECAPITALIZATION AGREEMENT AND THE RELATED AMENDMENT TO THE ARTICLES OF
INCORPORATION, AND RECOMMENDS THAT SPRINGS SHAREHOLDERS VOTE "FOR" APPROVAL OF
THE RECAPITALIZATION AGREEMENT AND "FOR" APPROVAL OF THE AMENDMENT TO THE
ARTICLES OF INCORPORATION.
You are also being asked to vote on a proposal to elect directors as set
forth in the accompanying proxy statement and a resolution ratifying the
appointment of Deloitte & Touche LLP as independent public accountants for
Springs and its subsidiaries for fiscal year 2001.
YOUR VOTE IS VERY IMPORTANT. The proposed recapitalization cannot occur
unless, among other things: (1) the recapitalization agreement is approved by
holders of two-thirds of the outstanding shares of Springs common stock and by a
majority of votes cast by shareholders whose shares are being converted into
cash, in each case with each share of class A and class B common stock entitled
to one vote, and (2) the amendment to the articles of incorporation is approved
by holders of two-thirds of the outstanding shares of Springs common stock, with
each share of class A common stock entitled to one vote and each share of class
B common stock entitled to four votes.
The eleven nominees for directors receiving the highest number of votes will
be elected as directors and each will continue to serve as a director until the
earlier of the completion of the recapitalization, the next annual meeting or
the election of a successor. Shareholders are entitled to cumulate their votes
in electing directors. For the appointment of Deloitte & Touche as independent
public accountants to be ratified, the votes cast in favor of ratification must
exceed the votes cast opposing the ratification.
Whether or not you plan to attend the annual meeting in person, please sign
and return your proxy card as soon as possible in the enclosed self-addressed
envelope so that your vote will be recorded. Even if you return your proxy card,
you may still attend the annual meeting and vote your Springs shares in person.
IF YOU FAIL TO VOTE BY PROXY OR IN PERSON, FAIL TO INSTRUCT YOUR BROKER HOW TO
VOTE OR ABSTAIN, IT WILL HAVE THE SAME EFFECT AS A VOTE AGAINST THE
RECAPITALIZATION AGREEMENT AND THE AMENDMENT TO THE ARTICLES OF INCORPORATION.
The members of the Close family and certain key members of Springs'
management have interests in the recapitalization that are different from, or in
addition to, their interests as Springs shareholders. These interests are
summarized in the section entitled "Special Factors -- Interests of Certain
Persons in the Recapitalization" in the accompanying proxy statement. The
members of the Close family have agreed to vote their Springs shares in favor of
the recapitalization agreement and the amendment to the articles of
incorporation and have enough votes as a group to assure the approval of the
amendment to the articles of incorporation. The Close family owns an aggregate
of 171,488 shares of Springs class A common stock and 7,149,291 shares of
Springs class B common stock. At one vote per share for Springs class A common
stock and four votes per share for Springs class B common stock, the Close
family holds approximately 73% of the normal voting power in Springs. In voting
to approve the recapitalization agreement, with each share of class A and class
B common stock entitled to only one vote, the Close family holds approximately
41% of the voting power. Springs is not aware of how affiliates of Springs other
than members of the Close family intend to vote their shares with respect to the
recapitalization agreement and the amendment to the articles of incorporation.
The accompanying notice of meeting and proxy statement explain the proposed
recapitalization and amendment to the articles of incorporation and provide
specific information concerning the annual meeting. Please read these materials
carefully.
Sincerely,
/s/ Crandall C. Bowles
CRANDALL CLOSE BOWLES,
Chairman of the Board and Chief Executive
Officer
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THIS TRANSACTION OR PASSED UPON THE
MERITS OR FAIRNESS OF SUCH TRANSACTION OR PASSED UPON THE ADEQUACY OR ACCURACY
OF THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
This proxy statement is dated August 7, 2001 and, with the accompanying
proxy card, is first being mailed to shareholders on or about August 7, 2001.
3
[SPRINGS LOGO]
SPRINGS INDUSTRIES, INC.
205 NORTH WHITE STREET
FORT MILL, SOUTH CAROLINA 29715
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON SEPTEMBER 5, 2001
Notice is hereby given that the annual meeting of shareholders of Springs
Industries, Inc., a South Carolina corporation, will be held on September 5,
2001, at 9:30 a.m., local time, at Baxter M. Hood Continuing Education Center,
York Technical College, 452 S. Anderson Road, Rock Hill, South Carolina, for the
following purposes:
- To consider and vote upon a proposal to approve the recapitalization
agreement, dated as of April 24, 2001, as amended on July 31, 2001,
between Springs and Heartland Springs Investment Company, pursuant to
which Heartland Springs will be merged with and into Springs. As a result,
each outstanding share of Springs common stock, other than shares held by
the Close family, by Heartland Industrial Partners, L.P. (and its
co-investors, if any), by key management employees who elect prior to the
effective time of the recapitalization to retain their Springs shares and
by dissenting shareholders, will be converted into the right to receive
$46.00 in cash.
- To consider and vote upon a proposal to amend Springs' articles of
incorporation to exempt Springs from the restrictions on business
combinations contained in the South Carolina Code.
- To consider and vote upon a proposal to elect a board of eleven directors,
each of whom will continue to serve as a director until the earlier of the
completion of the recapitalization, the next annual meeting or the
election of a successor.
- To consider and vote upon a resolution ratifying the appointment of
Deloitte & Touche LLP as independent public accountants for Springs and
its subsidiaries for fiscal year 2001.
- To consider and act upon such other matters as may properly come before
the annual meeting or any adjournment or postponement of the annual
meeting.
In order for the recapitalization to be accomplished, shareholders must
approve both the recapitalization agreement and the proposed amendment to the
articles of incorporation.
A list of shareholders will be available for inspection by shareholders of
record during business hours at Springs Industries, Inc., 205 North White
Street, Fort Mill, South Carolina, from the fifth business day following the
date of this proxy statement through and including the date of the annual
meeting and at the annual meeting.
Only those persons who were holders of record of Springs common stock at the
close of business on June 27, 2001 are entitled to notice of, and to vote at,
the annual meeting.
Approval of the recapitalization agreement requires the affirmative vote of
holders of two-thirds of the outstanding shares of Springs common stock and a
majority of votes cast by shareholders whose shares are being converted into
cash, in each case with each share of class A and class B common stock entitled
to one vote. Approval of the amendment to the articles of incorporation requires
the affirmative vote of holders of two-thirds of the outstanding shares of
Springs common stock, with each share of class A common stock entitled to one
vote and each share of class B common stock entitled to four votes. The members
of the Close family have agreed to vote their Springs shares in favor of the
recapitalization agreement and the amendment to the articles of incorporation
and have enough votes as a group to assure the approval of the amendment to the
articles of incorporation. In voting to approve the recapitalization agreement,
the Close family holds approximately 41% of the voting power.
Your board of directors and a special committee of the disinterested
directors of the board formed to consider the recapitalization have determined
that the terms of the recapitalization agreement and the related amendment to
the articles of incorporation are advisable, fair to and in the best interests
of Springs shareholders who are not affiliated with the Close family or
Heartland Industrial Partners. ACCORDINGLY, YOUR BOARD, AFTER RECEIVING THE
UNANIMOUS RECOMMENDATION OF THE SPECIAL COMMITTEE, HAS ADOPTED THE
RECAPITALIZATION AGREEMENT AND THE RELATED AMENDMENT TO THE ARTICLES OF
INCORPORATION, AND RECOMMENDS THAT SPRINGS SHAREHOLDERS VOTE "FOR" APPROVAL OF
THE RECAPITALIZATION AGREEMENT AND "FOR" APPROVAL OF THE AMENDMENT TO THE
ARTICLES OF INCORPORATION.
Under South Carolina law, dissenters' rights will be available to holders of
Springs class B common stock who do not vote in favor of the recapitalization
agreement. In order to exercise these dissenters' rights, holders of Springs
class B common stock must follow the procedures required by South Carolina law,
which are summarized in the section entitled "Dissenters' Rights" in the
accompanying proxy statement.
The recapitalization agreement and related amendment to the articles of
incorporation are described in the accompanying proxy statement, which also
contains additional information about the other items being voted upon at the
annual meeting. We urge you to read the proxy statement carefully. A copy of the
recapitalization agreement is attached as Appendix A and the form of amendment
to the articles of incorporation is attached as Appendix C to the proxy
statement.
By order of the Board of Directors,
/s/ C. Powers Dorsett
C. POWERS DORSETT,
Senior Vice President -- General
Counsel and Secretary
Fort Mill, South Carolina
August 7, 2001
4
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
SUMMARY TERM SHEET.................... 1
CAUTIONARY STATEMENT CONCERNING
FORWARD-LOOKING INFORMATION......... 8
WHO CAN HELP ANSWER YOUR QUESTIONS.... 8
THE ANNUAL MEETING.................... 9
Time and Place...................... 9
Purpose............................. 9
Record Date; Outstanding Voting
Securities....................... 9
Cumulative Voting for Directors..... 9
Vote Required....................... 9
Voting By Proxy..................... 10
Proxy Solicitation.................. 11
Other Business...................... 11
INFORMATION ABOUT THE RECAPITALIZATION
PARTICIPANTS........................ 12
Springs Industries, Inc. ........... 12
Heartland........................... 12
The Close Family.................... 13
SPECIAL FACTORS....................... 18
Structure of the Recapitalization... 18
Background of the
Recapitalization................. 18
Certain Financial Projections....... 28
Special Committee................... 30
Recommendation of the Special
Committee and the Springs Board;
Springs' Purpose and Reasons for
the Recapitalization............. 30
Springs' Position Regarding the
Fairness of the
Recapitalization................. 34
Opinion of UBS Warburg LLC.......... 35
The Close Family's Position
Regarding the Fairness of the
Recapitalization................. 42
The Close Family's Purpose and
Reasons for the
Recapitalization................. 43
Heartland's Position Regarding the
Fairness of the
Recapitalization................. 45
Heartland's Purpose and Reasons for
the Recapitalization............. 46
Accounting Treatment................ 46
Interests of Certain Persons in the
Recapitalization................. 47
Shareholders Agreement.............. 49
Certain Effects of the
Recapitalization................. 51
Plans for Springs after the
Recapitalization................. 52
</Table>
<Table>
<Caption>
PAGE
----
Shareholder Litigation Challenging
the Recapitalization............. 52
Conduct of the Business of Springs
if the Recapitalization is Not
Consummated...................... 52
FINANCING FOR THE RECAPITALIZATION.... 53
THE RECAPITALIZATION.................. 55
Structure and Effective Time........ 55
Recapitalization Consideration...... 55
Payment Procedures.................. 55
Treatment of Management Incentive
Plans............................ 55
Articles of Incorporation; Bylaws... 56
Directors and Officers.............. 56
Representations and Warranties...... 56
Conduct of the Business of Springs
Prior to the Recapitalization.... 57
Access to Information............... 58
Prohibition Against Solicitation of
Competing Transactions........... 58
State Takeover Laws; Reports........ 59
Director and Officer Liability...... 59
Financing Arrangements.............. 59
Employee Benefit Plans.............. 59
Reasonable Best Efforts to
Consummate the
Recapitalization................. 59
Shareholders Meetings; Proxy
Material......................... 59
Conditions to the
Recapitalization................. 60
Termination......................... 61
Expenses............................ 61
Amendment and Waiver................ 62
Estimated Fees and Expenses of the
Recapitalization................. 62
PROPOSED AMENDMENT TO SPRINGS'
ARTICLES OF INCORPORATION........... 63
DISSENTERS' RIGHTS.................... 64
REGULATORY APPROVALS.................. 66
U.S. FEDERAL INCOME TAX
CONSEQUENCES........................ 67
SELECTED HISTORICAL CONSOLIDATED
FINANCIAL DATA...................... 69
COMPARATIVE PER SHARE MARKET PRICE AND
DIVIDEND INFORMATION................ 72
DIRECTORS AND EXECUTIVE OFFICERS OF
SPRINGS............................. 73
</Table>
i
5
<Table>
<Caption>
PAGE
----
ELECTION OF DIRECTORS................. 76
Directors and Nominees.............. 76
Information Regarding the Board of
Directors........................ 79
DIRECTOR AND EXECUTIVE OFFICER
COMPENSATION........................ 80
Executive Officer Compensation and
Related Information.............. 80
Retirement Plans.................... 81
Change-of-Control Agreement......... 82
Management Compensation and
Organization Committee Report.... 82
Compensation Committee Interlocks
and Insider Participation........ 84
Performance Graph................... 85
Peer Group Companies................ 86
Companies in Last Year's Peer Group
That Are Not Included in the
Current Peer Group............... 86
Directors' Compensation............. 86
OTHER ANNUAL MEETING MATTERS.......... 88
Report of the Audit Committee....... 88
Ratification of Appointment of
Public Accountants............... 88
Security Ownership of Certain
Beneficial Owners and
Management....................... 89
Transactions Effected by the Springs
of Achievement Partnership
Plan............................. 91
Transactions with Certain Persons... 92
Other Transactions.................. 92
</Table>
<Table>
<Caption>
PAGE
----
Section 16(a) Beneficial Ownership
Reporting Compliance............. 92
Annual Report and Form 10-K......... 93
Map and Directions to Shareholders
Meeting.......................... 94
OTHER MATTERS......................... 95
Materials Prepared by Sheffield..... 95
Preliminary Draft Materials Prepared
by UBS Warburg................... 99
INDEPENDENT ACCOUNTANTS............... 109
FUTURE SHAREHOLDER PROPOSALS.......... 109
INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE........................... 109
WHERE YOU CAN FIND MORE INFORMATION... 110
APPENDICES
APPENDIX A -- RECAPITALIZATION
AGREEMENT (AS AMENDED).............. A-1
APPENDIX B -- OPINION OF UBS WARBURG
LLC................................. B-1
APPENDIX C -- FORM OF AMENDMENT TO
THE ARTICLES OF INCORPORATION....... C-1
APPENDIX D -- SECTIONS 33-13-101
THROUGH 33-13-310 OF THE SOUTH
CAROLINA BUSINESS CORPORATION ACT... D-1
APPENDIX E -- AUDIT COMMITTEE
CHARTER............................. E-1
</Table>
ii
6
SUMMARY TERM SHEET
The following summary term sheet briefly describes all of the material
terms of the proposed recapitalization. This summary term sheet is intended to
serve as an overview only. For a more complete understanding of the proposed
recapitalization and related transactions, please refer to the information
contained elsewhere in this document, the appendices to this document and the
documents referred to or incorporated by reference in this document.
RECAPITALIZATION PARTICIPANTS
Springs Industries, Inc.
- - Springs Industries, Inc. is engaged in the manufacturing, marketing and sale
of textile and nontextile home furnishings products. We refer to Springs
Industries, Inc. as "Springs" throughout this document. See "Information About
the Recapitalization Participants -- Springs Industries, Inc." on page 12.
Heartland Springs Investment Company
- - Heartland Springs Investment Company is the entity that will be merged with
and into Springs in the recapitalization. It was formed at the direction of
Heartland Industrial Partners, L.P., a private equity fund, for the purpose of
facilitating the recapitalization. We refer to Heartland Springs Investment
Company as "Heartland Springs" throughout this document. See "Information
About the Recapitalization Participants -- Heartland" on pages 12 to 13.
Heartland Industrial Partners, L.P.
- - Heartland Industrial Partners, L.P. is a private equity fund established to
"invest in, build and grow" industrial companies in sectors with attractive
consolidation opportunities. The firm has equity commitments of approximately
$1.2 billion. We refer to Heartland Industrial Partners, L.P. as "Heartland
Industrial Partners" throughout this document.
- - Heartland Industrial Partners currently owns all of the equity of Heartland
Springs. At the time of and following the recapitalization, Heartland
Industrial Partners may permit certain institutional investors and associated
funds under common management with Heartland Industrial Partners to purchase a
portion of the equity of Heartland Springs. We refer to Heartland Industrial
Partners, together with additional permitted co-investors, if any, as the
"Heartland Investors" throughout this document.
- - For a more detailed description of the various Heartland entities, see
"Information About the Recapitalization Participants -- Heartland" on pages 12
to 13.
The Close Family
- - The Close family will be treated differently in the recapitalization from all
other Springs shareholders. The members of the Close family consist of (1)
certain descendants of Leroy Springs, Springs' founder, including Crandall C.
Bowles, chairman and chief executive officer of Springs, and Leroy S. Close, a
director of Springs, (2) certain trusts for the benefit of these Close family
members and their children and (3) two privately owned companies controlled by
these individuals and trusts. We refer to these individuals and entities as
the "Close family" throughout this document.
- - The Close family owns an aggregate of 171,488 shares of Springs class A common
stock and 7,149,291 shares of Springs class B common stock. These holdings
represent approximately 1.6% of the shares of Springs class A common stock,
approximately 99.9% of the shares of Springs class B common stock and
approximately 41% of all Springs common stock, outstanding as of June 27,
2001. At one vote per share for Springs class A common stock and four votes
per share for Springs class B common stock, the Close family holds
approximately 73% of the normal voting power in Springs. In voting to approve
the recapitalization agreement, with each share of class A and class B common
stock entitled to only one vote, the Close family holds approximately 41% of
the voting power.
- - For a more detailed description of the Close family, see "Information About
the Recapitalization Participants -- The Close Family" on pages 13 to 17.
1
7
THE RECAPITALIZATION
- - The Close family and Heartland Industrial Partners propose to effect a
recapitalization of Springs by means of a merger of Heartland Springs with and
into Springs.
- - As a result of this recapitalization:
-- Each of your shares of Springs common stock will be converted into the
right to receive $46.00 in cash.
-- Each share of Heartland Springs common stock will be converted into one
share of Springs class A common stock.
-- The shares of Springs common stock held by the Close family, by the
Heartland Investors and by key management employees who elect prior to the
effective time of the recapitalization to retain their Springs shares, will
not be affected by the recapitalization and will remain outstanding.
- - Shares of Springs class A common stock will no longer be listed on the New
York Stock Exchange and price quotations with respect to sales of shares of
class A common stock in the public market will no longer be available. The
registration of Springs shares under the Securities Exchange Act of 1934 will
be terminated, and Springs will cease filing reports with the Securities and
Exchange Commission.
- - Springs shareholders whose shares are being converted into cash will no longer
have any financial interest in, and will not be shareholders of, Springs. As a
result, such shareholders will not have the opportunity to participate in the
future earnings, profits and growth of Springs.
- - All holders of options with an exercise price per share of Springs class A
common stock below $46.00 may choose, after the completion of the
recapitalization, (1) a cash-out election, pursuant to which each such option
will be converted to cash equal to the excess of $46.00 over the exercise
price or (2) a retention election, pursuant to which each such option will be
retained. By their terms, Springs stock options cannot be cashed out by
Springs without optionholder consent. In addition, certain key management
employees may elect a combination of a cash-out election and retention
election and, for those options they elect to retain, will receive, for no
additional consideration, accelerated vesting and an appreciation right. This
appreciation right allows the holder to receive cash or shares for each
exercised option without having to pay the exercise price in cash. All options
with an exercise price per share of class A common stock above $46.00 will be
retained automatically by such holders and will contain an appreciation right.
- - Prior to the recapitalization, the Close family intends to sell up to $50
million in value of its Springs shares, representing approximately 15% of its
holdings, to Heartland Industrial Partners at $46 per share. Immediately after
the recapitalization, the Heartland Investors will own approximately 44% of
the outstanding shares of Springs common stock and the Close family will own
approximately 56% of the outstanding common stock.
- - For a more detailed description of the recapitalization, see "Special
Factors -- Structure of the Recapitalization" on page 18.
REASONS FOR THE RECAPITALIZATION
- - The Close family and Heartland Industrial Partners believe that it is
desirable to return Springs to private ownership at this time to enable
Springs and its management to respond more effectively to the complex and
rapidly changing conditions in the home furnishings industry and to focus
management's attention on the long-term interests of Springs. The Close family
and Heartland Industrial Partners believe that the periodic reporting
requirements to which Springs is subject as a public company, and the
resulting focus on quarterly performance and short-term stock price movement,
impair Springs' ability to take actions which are believed necessary to
enhance its value over the long term, but which may produce unattractive
near-term results. See "Special Factors -- The Close Family's Purpose and
Reasons for the Recapitalization" on pages 43 to 45 and "Special
Factors -- Heartland's Purpose and Reasons for the Recapitalization" on page
46.
COMPLETION OF THE RECAPITALIZATION
- - Assuming that shareholders approve the recapitalization, we expect to complete
the recapitalization in September 2001, although we cannot assure you that the
actual date will not be later. If the recapitalization is completed, Springs
2
8
will send you detailed instructions regarding surrendering your Springs shares
and receiving your cash payment. PLEASE DO NOT SEND YOUR SHARE CERTIFICATES NOW.
ANNUAL MEETING
At the annual meeting, which will be held on September 5, 2001, at 9:30
a.m., local time, at Baxter M. Hood Continuing Education Center, York Technical
College, 452 S. Anderson Road, Rock Hill, South Carolina, you will be asked to
consider and vote upon the following four matters:
- - A proposal to approve the recapitalization agreement, which is the legal
document governing the recapitalization and the related transactions that we
describe in this document. See "The Recapitalization" on pages 55 to 62. A
copy of the recapitalization agreement is attached as Appendix A to this
document.
- - A proposal to amend Springs' articles of incorporation to exempt Springs from
the restrictions on business combinations contained in the South Carolina
Code. See "Proposed Amendment to Springs' Articles of Incorporation" on page
63. The form of amendment to the articles of incorporation is attached as
Appendix C to this document.
- - A proposal to elect a board of eleven directors, each of whom will continue to
serve as a director until the earlier of the completion of the
recapitalization, the next annual meeting or the election of a successor. See
"Election of Directors" on pages 76 to 79.
- - A resolution ratifying the appointment of Deloitte & Touche LLP as independent
public accountants for Springs and its subsidiaries for fiscal year 2001. See
"Other Annual Meeting Matters -- Ratification of Appointment of Public
Accountants" on pages 88 to 89.
RECOMMENDATION OF SPRINGS BOARD OF DIRECTORS
- - Because one member of the Close family is a director and an executive officer
of Springs and another member is a director of Springs, the Springs board of
directors established a special committee consisting of the nine disinterested
directors of the board to review and evaluate the proposed recapitalization.
None of the members of the special committee is a member of the Close family
or a Springs employee and none will have any ownership interest in Springs
following the recapitalization. The special committee believes that the terms
of the recapitalization agreement and the amendment to the articles of
incorporation are advisable, fair to and in the best interests of Springs
shareholders who are not affiliated with the Close family or Heartland
Industrial Partners. The special committee unanimously recommended that the
Springs board adopt the recapitalization agreement and the amendment to the
articles of incorporation, and that the Springs board recommend that Springs
shareholders vote "FOR" approval of the recapitalization agreement and "FOR"
approval of the amendment to the articles of incorporation.
- - The Springs board of directors believes that the terms of the recapitalization
agreement and the amendment to the articles of incorporation are advisable,
fair to and in the best interests of Springs shareholders who are not
affiliated with the Close family or Heartland Industrial Partners and
recommends that Springs shareholders vote "FOR" approval of the
recapitalization agreement and "FOR" approval of the amendment to the articles
of incorporation.
- - The Springs board of directors recommends that Springs shareholders vote "FOR"
the proposal to elect the board of eleven directors and "FOR" the resolution
ratifying the appointment of Deloitte & Touche as independent public
accountants for Springs and its subsidiaries for fiscal year 2001.
- - For a more detailed description of these recommendations, see "Special
Factors -- Recommendation of the Special Committee and the Springs Board;
Springs' Purpose and Reasons for the Recapitalization" on pages 30 to 34.
FAIRNESS OF THE RECAPITALIZATION
- - The price to be paid for Springs shares in the recapitalization was negotiated
by the special committee, on the one hand, and the Close family and Heartland
Industrial Partners, on the other. The Springs board of directors formed the
special committee to evaluate and negotiate the terms of the recapitalization
agreement and to ensure that the interests of Springs' public shareholders
were appropriately represented. The special committee independently selected
and retained legal and financial advisors to assist it in its negotiation. The
special committee received an opinion, dated
3
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April 24, 2001, from its financial advisor, UBS Warburg LLC, that as of the
date of the opinion and subject to the matters set forth in the opinion, the
$46.00 per share cash consideration to be received by Springs shareholders
whose shares are being converted into cash in the proposed recapitalization is
fair from a financial point of view to such shareholders. Both the special
committee and the Springs board considered this opinion, among other factors,
in arriving at their recommendations with respect to the recapitalization. See
"Special Factors -- Springs' Position Regarding the Fairness of the
Recapitalization" on pages 34 to 35.
- - The full text of UBS Warburg's written opinion is attached as Appendix B to
this document. We encourage you to read this opinion carefully in its entirety
for a description of the procedures followed, assumptions made, matters
considered and limitations on the review undertaken. UBS Warburg's opinion is
directed to the special committee, relates only to the fairness, from a
financial point of view, of the $46.00 per share cash consideration to be
received by Springs shareholders whose shares are being converted into cash in
the proposed recapitalization, and does not constitute a recommendation about
how to vote on the recapitalization agreement or on any other matter.
- - The members of the Close family believe that the recapitalization is
substantively and procedurally fair to Springs shareholders who are not
affiliated with the Close family or Heartland Industrial Partners. See
"Special Factors -- The Close Family's Position Regarding the Fairness of the
Recapitalization" on pages 42 to 43.
- - Heartland Industrial Partners and Heartland Springs believe that the
recapitalization is substantively and procedurally fair to Springs
shareholders who are not affiliated with the Close family or Heartland
Industrial Partners. See "Special Factors -- Heartland's Position Regarding
the Fairness of the Recapitalization" on pages 45 to 46.
VOTE REQUIRED
- - Only holders of shares of Springs common stock who were holders at the close
of business on the record date, June 27, 2001, are entitled to notice of and
to vote at the annual meeting. As of that date, there were 10,814,516 shares
of Springs class A common stock and 7,151,563 shares of Springs class B common
stock issued and outstanding. Each share of class A common stock is entitled
to one vote on any matter that may properly come before the annual meeting.
Each share of class B common stock is entitled to one vote on the proposal to
approve the recapitalization agreement and four votes on any other matter that
may properly come before the annual meeting.
- - The recapitalization agreement must be approved by holders of two-thirds of
the outstanding shares of Springs common stock and by a majority of votes cast
by shareholders whose shares are being converted into cash, in each case with
each share of class A and class B common stock entitled to one vote.
- - The amendment to the articles of incorporation must be approved by holders of
two-thirds of the outstanding shares of Springs common stock, with each share
of class A common stock entitled to one vote and each share of class B common
stock entitled to four votes.
- - In order for the recapitalization to be accomplished, shareholders must
approve both the recapitalization agreement and the proposed amendment to the
articles of incorporation.
- - The members of the Close family have agreed to vote their Springs shares in
favor of the recapitalization agreement and the amendment to the articles of
incorporation and have enough votes as a group to assure the approval of the
amendment to the articles of incorporation. In voting to approve the
recapitalization agreement, the Close family holds approximately 41% of the
voting power. Springs is not aware of how affiliates of Springs other than
members of the Close family intend to vote their shares with respect to the
recapitalization agreement and the amendment to the articles of incorporation.
- - You are being asked to vote on a proposal to elect directors to serve in the
event the recapitalization is not completed. The eleven nominees for directors
receiving the highest number of votes will be elected as directors.
Shareholders are entitled to cumulate their votes in electing directors.
- - For the appointment of Deloitte & Touche as independent public accountants to
be ratified, the
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votes cast in favor of ratification must exceed the votes cast opposing the
ratification.
- - If you fail to vote by proxy or in person, fail to instruct your broker how to
vote or abstain, it will have the same effect as a vote against the
recapitalization agreement and the amendment to the articles of incorporation.
- - You can change your vote at any time before we vote your proxy at the annual
meeting in any of three ways. First, you can send a written notice to the
Secretary of Springs at the address below stating that you would like to
revoke your proxy. Second, you can complete a new, later-dated proxy card and
send it to the Secretary of Springs, and the new proxy card will automatically
replace any earlier proxy card you returned. Third, you can attend the annual
meeting and vote in person. You should send any written notice or new proxy
card to the Secretary of Springs at the following address: Springs Industries,
Inc., 205 North White Street, Fort Mill, South Carolina 29715, Attention:
Corporate Secretary. If you have instructed a broker to vote your shares, you
must follow the instructions received from your broker to change your vote.
- - For a more detailed description of these voting requirements, see "The Annual
Meeting" on pages 9 to 11.
FINANCING FOR THE RECAPITALIZATION
- - It is estimated that approximately $1.24 billion will be required to effect
the recapitalization, to repay the portion of Springs' existing debt being
refinanced as a result of the completion of the recapitalization and to pay
all related fees and expenses. The completion of the recapitalization is
conditioned on Springs obtaining sufficient debt and receivables financing
from The Chase Manhattan Bank and a syndicate of other banks to finance the
recapitalization and related transactions. For a more detailed description of
the financing for the recapitalization and for a table summarizing the
estimated sources of and uses for funds in connection with the
recapitalization, see "Financing for the Recapitalization" on pages 53 to 54.
TERMS OF THE RECAPITALIZATION AGREEMENT
- - Conditions to the Recapitalization. The completion of the recapitalization
depends on a number of conditions being met. In addition to customary
conditions relating to our compliance with the recapitalization agreement,
these conditions include the following:
-- approval of the recapitalization agreement by the holders of two-thirds of
the outstanding shares of Springs common stock and by a majority of votes
cast by shareholders whose shares are being converted into cash, in each
case with each share of class A and class B common stock entitled to one
vote;
-- approval of the amendment to the articles of incorporation by holders of
two-thirds of the outstanding shares of Springs common stock, with each
share of class A common stock entitled to one vote and each share of class
B common stock entitled to four votes;
-- absence of any law or regulation or any judgment, injunction, order or
decree of any governmental authority prohibiting or restricting completion
of the recapitalization; and
-- financing as contemplated by the commitment letter provided by The Chase
Manhattan Bank and JP Morgan having been provided on substantially the
terms and conditions identified in such letter or on such other terms and
conditions, or involving such other financing sources, as are acceptable to
Heartland Springs and are not materially more onerous.
- - Termination of the Recapitalization Agreement. Springs and Heartland Springs
can mutually agree at any time prior to the effective time of the
recapitalization to terminate the recapitalization agreement without
completing the recapitalization, even if Springs shareholders have approved
it. Also, either Springs or Heartland Springs can terminate the
recapitalization agreement, without the consent of the other, in various
circumstances, including the following:
-- if the recapitalization has not been completed by October 24, 2001, unless
the party seeking to terminate has caused the failure of completion by
breaching any provision of the recapitalization agreement;
-- if there is any law or regulation that makes completion of the
recapitalization illegal or
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otherwise prohibited, or any judgment, injunction, order or decree of any
governmental authority having competent jurisdiction enjoining Springs or
Heartland Springs from completing the recapitalization is entered and such
judgment, injunction, order or decree has become final and nonappealable;
-- if the recapitalization agreement and the amendment to the articles of
incorporation have not been approved by Springs shareholders; and
-- if there has been a material breach of or failure to perform any
representation, warranty, covenant or agreement on the part of the other
party that would cause any condition to the recapitalization not to be
satisfied and such condition is incapable of being satisfied by October 24,
2001.
- - In addition, Heartland Springs may, without the consent of Springs, terminate
the recapitalization agreement if the special committee has withdrawn or
modified in a manner adverse to Heartland Springs its recommendation to the
Springs board of directors to adopt, or if the Springs board has withdrawn or
modified in a manner adverse to Heartland Springs its recommendation to
Springs shareholders to approve, the recapitalization agreement and the
amendment to the articles of incorporation.
- - Springs may, without the consent of Heartland Springs, terminate the
recapitalization agreement if it has received an acquisition proposal that the
Springs board of directors or the special committee determines is more
favorable to Springs shareholders (even if the consideration to be received
may have less value) and the Springs board or the special committee determines
in good faith, after consultation with outside legal counsel, that adopting or
recommending such offer is reasonably likely to be required in the exercise of
its respective fiduciary duties under applicable law.
- - For a more detailed description of the terms of the recapitalization
agreement, see "The Recapitalization" on pages 55 to 62. The recapitalization
agreement is the legal document that governs the recapitalization. We have
attached the recapitalization agreement as Appendix A to this document, and we
encourage you to read it carefully.
INTERESTS OF CERTAIN PERSONS IN THE RECAPITALIZATION
- - The members of the Close family and certain members of Springs' management
have interests in the recapitalization as employees or directors of Springs,
or as shareholders with a continuing equity interest in Springs, that are
different from, or in addition to, yours as a Springs shareholder.
Specifically:
-- the members of the Close family will not receive $46.00 per share in cash
for all of their Springs shares, and will instead remain significant
shareholders of Springs, with the ability to share in the future growth and
profits of Springs; and
-- certain key management employees of Springs are being given the opportunity
to retain their Springs shares in the recapitalization, and will receive
certain enhancements to the options that they choose to retain after the
recapitalization.
- - When making the determination to adopt and recommend approval of the
recapitalization agreement and the amendment to the articles of incorporation
to the Springs board of directors, in the case of the special committee, and
to Springs shareholders, in the case of the Springs board, both the special
committee and the Springs board were aware of and considered these interests
of the Close family and Springs' management.
- - For a more detailed description of the interests of certain persons, see
"Special Factors -- Interests of Certain Persons in the Recapitalization" on
pages 47 to 48.
SHAREHOLDERS AGREEMENT
- - The Close family and Heartland Industrial Partners have entered into a
shareholders agreement to govern certain of their rights, duties and
obligations relating to the recapitalization and their ownership of Springs
stock following the recapitalization. The shareholders agreement provides that
until October 24, 2001, the Close family will vote in favor of the
recapitalization and any other matter that would facilitate completion of the
recapitalization, and against any alternative transaction. See "Special
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Factors -- Shareholders Agreement" on pages 49 to 51.
ACCOUNTING TREATMENT
- - We expect that the merger will be treated as a "recapitalization" for
accounting purposes. See "Special Factors -- Accounting Treatment" on page 46.
DISSENTERS' RIGHTS
- - If you are a holder of Springs class B common stock, you have the right to
dissent from approval of the recapitalization agreement and, subject to
compliance with the requirements and procedures of South Carolina law, to
receive payment of the "fair value" of your shares of Springs class B common
stock. See "Dissenters' Rights" on pages 64 to 65. A copy of the relevant
articles of the South Carolina Business Corporation Act is attached as
Appendix D to this document.
- - Because Springs class A common stock is traded on the New York Stock Exchange,
under South Carolina law, holders of Springs class A common stock do not have
dissenters' rights in connection with the recapitalization.
REGULATORY APPROVALS
- - In order to complete the recapitalization, Springs and Heartland Springs are
required to make certain filings with and receive clearance from the U.S.
Federal Trade Commission and the Antitrust Division of the U.S. Department of
Justice under federal antitrust laws. On June 1, 2001, Springs was granted
early termination of the waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976. The applicable approvals under Canadian antitrust
law were obtained on June 4, 2001. Although not currently anticipated, there
may be other regulatory filings required in other foreign jurisdictions. See
"Regulatory Approvals" on page 66.
U.S. FEDERAL INCOME TAX CONSEQUENCES
- - Your receipt of cash in exchange for your Springs shares will be a taxable
transaction for U.S. federal income tax purposes and may also be a taxable
transaction under applicable state, local and other tax laws. See "U.S.
Federal Income Tax Consequences" on pages 67 to 68.
SHAREHOLDER LITIGATION CHALLENGING THE RECAPITALIZATION
- - Springs, Springs' directors and Heartland Industrial Partners are named as
defendants in several purported class actions alleging that the defendants
have breached their duties to Springs shareholders in connection with the
proposed recapitalization, and that the $44.00 per share price initially
proposed by the Close family and Heartland Industrial Partners was inadequate
and unfair. On April 24, 2001, the parties to the cases described above
entered into a memorandum of understanding in which the plaintiffs have agreed
to settle the lawsuits and dismiss the claims with prejudice, subject to court
approval and certain other contingencies. See "Special Factors -- Shareholder
Litigation Challenging the Recapitalization" on page 52.
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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION
This document includes and incorporates by reference statements that are
not historical facts. These forward-looking statements are based on our current
plans and expectations relating to analyses of value, expectations for
anticipated growth in the future and future success under various efforts, and,
as such, these forward-looking statements involve uncertainty and risk. You can
find many of these statements by looking for words such as "believes,"
"expects," "anticipates," "estimates," "plans," "intends," "projects,"
"predicts" or similar expressions in this document or in the documents
incorporated in this proxy statement by reference.
These forward-looking statements are subject to numerous assumptions, risks
and uncertainties. These forward-looking statements are not guarantees of future
performance, and actual results may differ materially from those contemplated by
such forward-looking statements. You are cautioned to consider these statements
in light of the following factors:
- the fact that these forward-looking statements are based on information
of a preliminary nature which may be subject to further and continuing
review and adjustment;
- the health of the retail economy in general;
- the risk of fluctuating demand for our home furnishings products;
- the risk of fluctuating prices of cotton and other raw materials;
- our ability to continue manufacturing high-quality products at
competitive costs and maintain or increase product pricing;
- our ability to compete with imports;
- our ability to maintain relationships with key customers;
- our market share in our most significant product line not being
substantially reduced as a result of competitors introducing new
products;
- financing being available on acceptable terms to fund the
recapitalization and future growth; and
- our ability to obtain necessary regulatory approvals.
In addition, actual results could differ materially from the
forward-looking statements contained in this document as a result of the timing
of the completion of the recapitalization or the impact of the recapitalization
on operating results, capital resources, profitability, cash requirements or
liquidity. Except to the extent required under the federal securities laws,
Springs does not intend to make publicly available any update or other revisions
to these forward-looking statements to reflect circumstances arising after the
date of the preparation of such statements.
WHO CAN HELP ANSWER YOUR QUESTIONS
If you have more questions about the recapitalization or would like
additional copies of this document, you should contact our solicitation agent:
Georgeson Shareholder Communications Inc.
17 State Street
New York, New York 10004
Telephone Number: (888) 386-9178
If you would like to request documents, please do so by August 28, 2001 to
receive them prior to the annual meeting.
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THE ANNUAL MEETING
TIME AND PLACE
The solicitation of the enclosed proxy is made by the board of directors of
Springs for use at the annual meeting of shareholders of Springs to be held on
September 5, 2001, at 9:30 a.m., local time, at Baxter M. Hood Continuing
Education Center, York Technical College, 452 S. Anderson Road, Rock Hill, South
Carolina, and at any adjournment thereof. You should read this document
carefully before voting your shares.
PURPOSE
At the annual meeting, shareholders of Springs will be asked to consider
and vote upon the following matters:
- A proposal to approve the recapitalization agreement, dated as of April
24, 2001, as amended on July 31, 2001, between Springs and Heartland
Springs, pursuant to which Heartland Springs will be merged with and into
Springs. As a result, each outstanding share of Springs common stock,
other than shares held by the Close family, by the Heartland Investors,
by key management employees who elect prior to the effective time of the
recapitalization to retain their Springs shares and by dissenting
shareholders, will be converted into the right to receive $46.00 in cash.
- A proposal to amend Springs' articles of incorporation to exempt Springs
from the restrictions on business combinations contained in the South
Carolina Code.
- A proposal to elect a board of eleven directors, each of whom will
continue to serve as a director until the earlier of the completion of
the recapitalization, the next annual meeting or the election of a
successor.
- A resolution ratifying the appointment of Deloitte & Touche LLP as
independent public accountants for Springs and its subsidiaries for
fiscal year 2001.
- Such other matters as may properly come before the annual meeting or any
adjournment or postponement of the annual meeting.
RECORD DATE; OUTSTANDING VOTING SECURITIES
The close of business on June 27, 2001 has been fixed as the record date
for determining the holders of Springs common stock entitled to vote at the 2001
annual meeting. On the record date, 10,814,516 shares of class A common stock
and 7,151,563 shares of class B common stock were outstanding. Each share of
class A common stock is entitled to one vote on any matter that may properly
come before the annual meeting. Each share of class B common stock is entitled
to one vote on the proposal to approve the recapitalization agreement and four
votes on any other matter that may properly come before the annual meeting.
CUMULATIVE VOTING FOR DIRECTORS
The election of Springs directors is conducted by cumulative voting whereby
each shareholder is entitled to cast the number of votes equal to (1) the number
of votes to which his shares are entitled multiplied by (2) the number of
directors to be elected. A shareholder may give one nominee all of such votes or
may distribute such votes among the nominees to be elected in such manner as he
may desire.
VOTE REQUIRED
Quorum. Under South Carolina law and Springs' bylaws, a quorum is required
to conduct business at the annual meeting. A quorum is the presence, in person
or by proxy, of a majority of the votes entitled to be cast at the meeting.
Abstentions, votes withheld from director nominees and broker non-votes are
counted as present for purposes of determining a quorum.
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Vote Required. The recapitalization agreement must be approved by holders
of two-thirds of the outstanding shares of Springs common stock and a majority
of votes cast by shareholders whose shares are being converted into cash, in
each case with each share of class A and class B common stock entitled to one
vote. The amendment to the articles of incorporation must be approved by holders
of two-thirds of the outstanding shares of Springs common stock, with each share
of class A common stock entitled to one vote and each share of class B common
stock entitled to four votes.
The members of the Close family have agreed to vote their Springs shares in
favor of the recapitalization agreement and the amendment to the articles of
incorporation and have enough votes as a group to assure the approval of the
amendment to the articles of incorporation. The Close family owns an aggregate
of 171,488 shares of Springs class A common stock and 7,149,291 shares of
Springs class B common stock. At one vote per share for Springs class A common
stock and four votes per share for Springs class B common stock, the Close
family holds approximately 73% of the normal voting power in Springs. In voting
to approve the recapitalization agreement, with each share of class A and class
B common stock entitled to only one vote, the Close family holds approximately
41% of the voting power. Springs is not aware of how affiliates of Springs,
other than members of the Close family, intend to vote their shares with respect
to the recapitalization agreement and the amendment to the articles of
incorporation.
The eleven nominees for directors receiving the highest number of votes
will be elected as directors. For the appointment of Deloitte & Touche as
independent public accountants to be ratified, the votes cast in favor of
ratification must exceed the votes cast opposing the ratification. IF YOU FAIL
TO VOTE BY PROXY OR IN PERSON, FAIL TO INSTRUCT YOUR BROKER HOW TO VOTE OR
ABSTAIN, IT WILL HAVE THE SAME EFFECT AS A VOTE AGAINST THE RECAPITALIZATION
AGREEMENT AND THE AMENDMENT TO THE ARTICLES OF INCORPORATION.
VOTING BY PROXY
Voting. To vote, just indicate on the enclosed proxy card how you want to
vote, and then date, sign and mail it in the enclosed envelope. Please vote as
soon as possible to ensure that your shares are represented at the annual
shareholders meeting. PLEASE DO NOT SEND ANY STOCK CERTIFICATES WITH YOUR PROXY
CARD.
If you direct that a proxy be voted in a specific manner or specify a
choice with respect to a voting matter, your shares will be voted accordingly.
If no such specifications are made, your shares represented by each proxy will
be voted FOR the recapitalization agreement, FOR the amendment to the articles
of incorporation, FOR the nominees for directors and FOR ratification of the
appointment of Deloitte & Touche. If any other matters or business should
properly come before the annual meeting (or any adjournment), the person or
persons acting under the proxy will vote in accordance with his or their
judgment. Springs will not use discretionary voting authority to vote in favor
of a postponement or adjournment of the annual meeting in order to solicit
additional proxies. In the event the annual meeting is properly postponed or
adjourned, Springs reserves the right to solicit additional proxies.
If you hold your Springs shares through a broker, your broker will vote
your shares with respect to the recapitalization agreement and the amendment to
the articles of incorporation only if you provide instructions to your broker on
how to vote. You should instruct your broker how to vote your shares, following
the directions your broker provides. IF YOU DO NOT PROVIDE INSTRUCTIONS TO YOUR
BROKER, YOUR SHARES WILL NOT BE VOTED, WHICH WILL HAVE THE SAME EFFECT AS A VOTE
AGAINST THE RECAPITALIZATION AGREEMENT AND THE AMENDMENT TO THE ARTICLES OF
INCORPORATION.
Revoking Your Proxy. You can change your vote at any time before we vote
your proxy at the annual meeting in any of three ways. First, you can send a
written notice to the Secretary of Springs at the address below stating that you
would like to revoke your proxy. Second, you can complete a new, later-dated
proxy card and send it to the Secretary of Springs, and the new proxy card will
automatically replace any earlier proxy card you returned. Third, you can attend
the annual meeting and vote in person. You should send any written notice or new
proxy card to the Secretary of Springs at the following address: Springs
Industries, Inc., 205 North White Street, Fort Mill, South Carolina 29715,
Attention: Corporate Secretary. If you have
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instructed a broker to vote your shares, you must follow the instructions
received from your broker to change your vote.
PROXY SOLICITATION
Solicitation of proxies other than by mail may be made by telephone,
telegraph or personal interview by officers and employees of Springs who will
not be additionally compensated. Springs has engaged Georgeson Shareholder
Communications Inc. to make arrangements with brokers, nominees, fiduciaries and
other custodians for distribution of proxy materials to their principals and to
solicit return of proxies from these institutions. Springs will reimburse these
institutions for their expenses in accordance with the rules of the New York
Stock Exchange and will pay Georgeson a fee of approximately $9,000, plus
reimbursement of reasonable expenses for its services. The cost of soliciting
proxies for the annual meeting will be borne by Springs.
OTHER BUSINESS
The Springs board of directors is not aware of any other matters or
business to be presented at the annual meeting of shareholders.
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INFORMATION ABOUT THE RECAPITALIZATION PARTICIPANTS
SPRINGS INDUSTRIES, INC.
205 North White Street
Fort Mill, South Carolina 29715
(803) 547-1500
Founded in 1887 with headquarters in Fort Mill, South Carolina, Springs
supplies leading retailers with a complete line of branded, high quality
coordinated home furnishings. Springs also produces and markets bed and bath
products for institutional and hospitality customers, home sewing fabrics, and
baby bedding and apparel products. Springs' bedding products include branded and
private label sheets and pillowcases, comforters and comforter accessories,
bedspreads, bed skirts, quilts, duvet covers, pillow shams, decorative and bed
pillows, and mattress pads. Bath products include towels, bath and accent rugs,
shower curtains, and ceramic and other bath accessories. Window products include
drapery hardware, vertical and horizontal blinds in a range of widths and
materials, motorized blinds, pleated and cellular shades, and soft window
treatments such as drapes, valances and balloon shades. Through licensing
agreements, Springs has licensed to third parties certain of its brand names for
use on kitchen and table linen items, decorative napkin rings, flannel and knit
sheets, toilet seat covers, blankets and throws, and fabric-covered lampshades.
Springs' major brands are Wamsutta(R), Springmaid(R), Performance(TM),
Regal(R), Graber(R), Bali(R), Nanik(R), Dundee(R), FashionPleat(R),
CrystalPleat(R), Maestro(TM), Wabasso(R) and Texmade(R). Some of Springs' major
licensed brands are Harry Potter(R), Villager(R), John Deere(R) and Pokemon(R).
Springs' home furnishings products are sold primarily through its own sales
force to retailers. Springs' retail customers include department stores,
specialty stores, national chains, mass merchandisers, home improvement stores
and catalog operations. Springs also sells bed and bath products through
distributors to institutional customers and directly to consumers through
approximately 60 company-owned outlet stores, and sells decorative window
products directly to large-scale contractors and to distributor/fabricators.
Springs operates facilities in 13 U.S. states and owns marketing and
distribution subsidiaries in Canada and Mexico.
During the last five years, Springs has not been convicted in a criminal
proceeding nor been a party to a civil proceeding (except for matters that were
dismissed without sanction or settlement) of a judicial or administrative body
of competent jurisdiction in which as a result of such proceeding, Springs was
or is subject to a judgment, decree or final order enjoining future violations
of, or prohibiting activities subject to, federal or state securities laws or a
finding of any violation with respect to such laws.
HEARTLAND
55 Railroad Avenue, 1st Floor
Greenwich, Connecticut 06830
(203) 861-2622
Heartland Springs is a South Carolina corporation organized at the
direction of Heartland Industrial Partners, its sole shareholder, for the
purpose of facilitating the recapitalization. Immediately prior to the effective
time of the recapitalization, Heartland Industrial Partners and its permitted
co-investors, if any, will invest in Heartland Springs for purposes of
completing the recapitalization. After this investment is made, Heartland
Industrial Partners will continue to control Heartland Springs.
Heartland Springs is a non-substantive transitory merger vehicle which will
be merged out of existence at the effective time of the recapitalization.
Heartland Springs was formed solely to facilitate the recapitalization and has
not engaged in any activities other than those relating to the recapitalization
agreement and the transactions contemplated by the recapitalization agreement.
Accordingly, it does not and will not have business activities, assets or
liabilities, other than those arising under the recapitalization agreement.
Each of David A. Stockman, Daniel P. Tredwell and W. Gerald McConnell is a
director and an executive officer of Heartland Springs. Set forth below is each
individual's present principal occupation and employment and a brief description
of his principal occupation and business experience.
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David A. Stockman. Mr. Stockman is a senior managing director and the
founder of Heartland Industrial Partners. Prior to founding Heartland Industrial
Partners, Mr. Stockman was a senior managing director of The Blackstone Group
L.P., a private investment bank, 345 Park Avenue, New York, New York 10154, and
had been with Blackstone since 1988. Mr. Stockman is a director of Collins &
Aikman Corporation and Metaldyne Corporation.
Daniel P. Tredwell. Mr. Tredwell is a senior managing director and one of
the founders of Heartland Industrial Partners. Mr. Tredwell has more than a
decade of leveraged financing experience. Mr. Tredwell served as a managing
director at Chase Securities Inc., an investment bank, 270 Park Avenue, New
York, New York 10017, and had been with Chase Securities since 1985. Mr.
Tredwell is a director of Collins & Aikman Corporation and Metaldyne
Corporation.
W. Gerald McConnell. Mr. McConnell is a senior managing director of
Heartland Industrial Partners. Prior to joining Heartland Industrial Partners in
2000, Mr. McConnell was a managing director at Deutsche Bank Alex. Brown
(formerly Bankers Trust Co.), an investment bank, 130 Liberty Street, New York,
New York 10006, from 1997 until 1999. From 1991 until 1999, Mr. McConnell
specialized in leveraged finance and financial sponsor coverage at Deutsche Bank
Alex. Brown.
Heartland Industrial Partners is a Delaware limited partnership established
in 1999. The general partner of Heartland Industrial Partners is Heartland
Industrial Associates L.L.C. The management, operation and policy of Heartland
Industrial Partners is vested exclusively in Heartland Industrial Associates
L.L.C., as general partner. Heartland Industrial Partners is a private equity
fund established to "invest in, build and grow" industrial companies in sectors
with attractive consolidation opportunities. The firm has equity commitments of
approximately $1.2 billion. It presently has controlling interests in Collins &
Aikman Corporation and Metaldyne Corporation.
Heartland Industrial Associates L.L.C. is a Delaware limited liability
company. Heartland Industrial Associates was formed in December 1999 to serve as
the general partner of Heartland Industrial Partners and to focus, through its
affiliates, on investments in industrial companies. Mr. Stockman is the managing
member of Heartland Industrial Associates.
None of Heartland Springs, Heartland Industrial Partners, Heartland
Industrial Associates or Messrs. Stockman, Tredwell or McConnell beneficially
owns any securities of Springs or has engaged in any transaction involving any
securities of Springs, other than as contemplated by the recapitalization
agreement and the related shareholders agreement. Prior to the recapitalization,
the Close family intends to sell up to $50 million in value of its Springs
shares, representing approximately 15% of its holdings, to Heartland Industrial
Partners at $46 per share. During the last five years, none of Heartland
Springs, Heartland Industrial Partners, Heartland Industrial Associates or
Messrs. Stockman, Tredwell or McConnell has been convicted in a criminal
proceeding (excluding traffic violations or similar misdemeanors) nor been a
party to a civil proceeding (except for matters that were dismissed without
sanction or settlement) of a judicial or administrative body of competent
jurisdiction in which as a result of such proceeding, such person was or is
subject to a judgment, decree or final order enjoining future violations of, or
prohibiting activities subject to, federal or state securities laws or a finding
of any violation with respect to such laws. Messrs. Stockman, Tredwell and
McConnell are citizens of the United States.
THE CLOSE FAMILY
The Close family is participating in the recapitalization and will be
treated differently from all other Springs shareholders. The members of the
Close family consist of (1) the following descendants of Leroy Springs, Springs'
founder: Crandall C. Bowles (chairman and chief executive officer of Springs),
Leroy S. Close (a director of Springs), Derick S. Close (president -- Creative
Products Group of Springs), Frances A. Close, Patricia Close, Elliott S. Close,
Hugh W. Close, Jr., Katherine A. Close and Anne S. Close, (2) certain trusts for
the benefit of these Close family members and their lineal descendants, and (3)
The Springs Company (a management services company) and Kanawha Insurance
Company (a life and health insurance company), two privately owned companies
controlled by these individuals and trusts. The directors of The Springs Company
are Crandall C. Bowles, James Bradley, Anne S. Close, Derick S. Close, Elliott
S. Close,
13
19
Frances A. Close, Leroy S. Close and William G. Taylor. The executive officers
of The Springs Company are William G. Taylor, Harry B. Emerson, Roy A. Hunt,
Randall P. Vaughn and D. Peyton Worley. The directors of Kanawha Insurance
Company are James Bradley, Elliott S. Close, Norman E. Hill, Stanley D. Johnson
and William G. Taylor. The executive officers of Kanawha Insurance Company are
Stanley D. Johnson, Norman E. Hill, Robert E. Matthews, R. Dale Vaughn and Larry
Higgins. Anne S. Close is the mother of Crandall C. Bowles, Leroy S. Close,
Derick S. Close, Frances A. Close, Patricia Close, Elliott S. Close, Hugh W.
Close, Jr. and Katherine A. Close.
During the last five years, no member of the Close family nor any director
or executive officer of The Springs Company or Kanawha Insurance Company has
been convicted in a criminal proceeding (excluding traffic violations or similar
misdemeanors) nor been a party to a civil proceeding (except for matters that
were dismissed without sanction or settlement) of a judicial or administrative
body of competent jurisdiction in which as a result of such proceeding, such
person was or is subject to a judgment, decree or final order enjoining future
violations of, or prohibiting activities subject to, federal or state securities
laws or a finding of any violation with respect to such laws. Each member of the
Close family is a citizen of the United States, or a trust or corporation
organized under the laws of South Carolina.
<Table>
<Caption>
NAME AND ADDRESS PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- ---------------- -------------------------------------------
CRANDALL C. BOWLES Mrs. Bowles has served as Springs' chief
c/o Springs Industries, Inc. executive officer since January 1998 and will
205 North White Street continue in this position with the surviving
Fort Mill, South Carolina 29715 corporation. She has served as chairman of
(803) 547-1500 the board of Springs since April 1998. From
January 1997 to January 1998, she served as
president and chief operating officer of
Springs. From April 1992 to January 1997, she
served as executive vice president of
Springs. Mrs. Bowles has been a director of
Springs since 1978 and will continue in this
position with the surviving corporation. She
is currently a director of The Springs
Company and Deere & Company.
LEROY S. CLOSE Mr. Leroy Close has served as a director of
c/o Sandlapper Fabrics, Inc. Springs since 1991 and will continue in this
60 Shelter Rock Road position with the surviving corporation. He
Danbury, Connecticut 06810 is currently a director of The Springs
(203) 798-6918 Company. He has served as the chairman of
Sandlapper Fabrics, Inc., a printer and
converter of textile fabrics, since January
2001, when the position of chairman was first
created, and served as president and chief
executive officer of Sandlapper Fabrics from
1986 until January 2001. He was a vice
president of Springs' former apparel fabrics
division from 1983 to 1986.
DERICK S. CLOSE Mr. Derick Close has served as president of
c/o Springs Industries, Inc. Creative Products, a division of Springs,
420 W. White Street since June 2000, and has been employed by
Rock Hill, South Carolina 29730 Springs since 1982. He is currently a
(803) 547-1500 director of The Springs Company.
</Table>
14
20
<Table>
<Caption>
NAME AND ADDRESS PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- ---------------- -------------------------------------------
FRANCES A. CLOSE Ms. Frances Close is a philanthropist and
c/o The Springs Company currently a director of The Springs Company.
P.O. Drawer 460 She previously served as director and
Lancaster, South Carolina 29721 chairperson of Energy Research Foundation,
(803) 286-3058 located in Columbia, South Carolina, a
not-for-profit organization founded in 1980.
PATRICIA CLOSE Ms. Patricia Close is a philanthropist. From
c/o The Springs Company September 1995 through June 1999, she was
P.O. Drawer 460 employed as an educator at the University of
Lancaster, South Carolina 29721 Washington.
(803) 286-3058
ELLIOTT S. CLOSE Mr. Elliott Close has served as president of
c/o The Lake Club Island Harbor Development, a South Carolina
P.O. Box 4200 real estate development company, since 1985.
Rock Hill, South Carolina 29732 He is currently a director of The Springs
(803) 329-9999 Company and Kanawha Insurance Company.
HUGH W. CLOSE, JR. Mr. Hugh Close is currently the president of
c/o The Springs Foundation, Inc. The Close Foundation, Inc. and The Springs
1826 Second Baxter Crossing Foundation, Inc., both of which are
Fort Mill, South Carolina 29715 charitable foundations, and has been employed
(803) 548-2002 by The Springs Foundation, Inc. since 1992.
KATHERINE A. CLOSE Dr. Katherine Close is a board-certified
c/o The Springs Company internist and a medical director of the Smith
P.O. Drawer 460 Medical Clinic in Pawleys Island, South
Lancaster, South Carolina 29721 Carolina. From 1991 through 1997, she was on
(803) 286-3058 staff at Carolinas Medical Center, located in
Charlotte, North Carolina.
ANNE S. CLOSE Ms. Anne Close is currently the chairman of
c/o The Springs Company Leroy Springs & Company and The Springs
P.O. Drawer 460 Foundation, Inc., and a director of The
Lancaster, South Carolina 29721 Springs Company. She has been associated with
(803) 286-3058 The Springs Company since its founding in
1967.
TRUST NOS. 3-M, T-3, 3-3, 11-A-3, 11-B-3,
11-C-3, 12-3, 4-M, T-4, 3-4, 11-A-4, 11-B-4,
11-C-4, 12-4, 5-M, T-5, 3-5, 11-A-5, 11-B-5,
11-C-5, 12-5, 6-M, T-6, 3-6, 11-A-6, 11-B-6,
11-C-6, 12-6, T-7, 3-7, 11-A-7, 11-B-7,
11-C-7, 12-7, 8-M, T-8, 3-8, 11-A-8, 11-B-8,
11-C-8, 12-8, 9-M, T-9, 3-9, 11-A-9, 11-B-9,
11-C-9, 12-9, 10-M, 10-A, 10-D, 10-E, 11-
A-10, 11-B-10, 11-C-10, 12-10
c/o The Springs Company
P.O. Drawer 460
Lancaster, South Carolina 29721
(803) 286-3058
</Table>
15
21
<Table>
<Caption>
NAME AND ADDRESS PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- ---------------- -------------------------------------------
THE SPRINGS COMPANY
104 East Springs Street
Lancaster, South Carolina 29720
(803) 286-3058
KANAWHA INSURANCE COMPANY
210 South White Street
Lancaster, South Carolina 29720
(803) 283-5300
JAMES BRADLEY Formerly president of The Springs Company,
c/o The Springs Company Mr. Bradley is currently a director of and
P.O. Drawer 460 consultant to The Springs Company and a
Lancaster, South Carolina 29721 director of Kanawha Insurance Company. He has
(803) 286-3058 been associated with The Springs Company
since its founding in 1967 and with Kanawha
Insurance Company since its founding in 1958.
HARRY B. EMERSON Mr. Emerson is currently senior vice
c/o The Springs Company president and secretary of The Springs
104 E. Springs Street Company, and has been employed by The Springs
Lancaster, South Carolina 29720 Company since 1981.
(803) 286-3058
LARRY HIGGINS Mr. Higgins has served as general counsel,
c/o Kanawha Insurance Company vice president and secretary of Kanawha
210 S. White Street Insurance Company since October 2000. From
Lancaster, South Carolina 29720 September 1998 until October 2000, he served
(803) 283-5300 as executive assistant to the director of the
South Carolina Department of Insurance,
located in Columbia, South Carolina. From
April 1994 until September 1998, he served as
associate counsel of Kanawha Insurance
Company.
NORMAN E. HILL Mr. Hill is currently executive vice
c/o Kanawha Insurance Company president, chief actuary and a director of
210 S. White Street Kanawha Insurance Company, and has been
Lancaster, South Carolina 29720 employed by Kanawha Insurance Company since
(803)283-5300 1991.
ROY A. HUNT Mr. Hunt is currently vice president of The
c/o The Springs Company Springs Company, and has been employed by The
104 E. Springs Street Springs Company since 1984.
Lancaster, South Carolina 29720
(803) 286-3058
STANLEY D. JOHNSON Mr. Johnson is currently the chairman,
c/o Kanawha Insurance Company president and chief executive officer of
210 S. White Street Kanawha Insurance Company, and has been
Lancaster, South Carolina 29720 employed by Kanawha Insurance Company since
(803) 283-5300 1985.
</Table>
16
22
<Table>
<Caption>
NAME AND ADDRESS PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- ---------------- -------------------------------------------
ROBERT E. MATTHEWS Mr. Matthews is currently senior vice
c/o Kanawha Insurance Company president, treasurer and controller of
210 S. White Street Kanawha Insurance Company, and has been
Lancaster, South Carolina 29720 employed by Kanawha Insurance Company since
(803) 283-5300 1981.
WILLIAM G. TAYLOR Mr. Taylor is currently the president and
c/o The Springs Company treasurer of The Springs Company and a
104 E. Springs Street director of The Springs Company and Kanawha
Lancaster, South Carolina 29720 Insurance Company. He has been employed by
(803) 286-3058 The Springs Company since October 1990.
R. DALE VAUGHN Mr. R. Dale Vaughn is currently senior vice
c/o Kanawha Insurance Company president of benefit services of Kanawha
210 S. White Street Insurance Company, and has been employed by
Lancaster, South Carolina 29720 Kanawha Insurance Company since 1990.
(803) 283-5300
RANDALL P. VAUGHN Mr. Randall P. Vaughn is currently vice
c/o The Springs Company president of The Springs Company, and has
104 E. Springs Street been employed by The Springs Company since
Lancaster, South Carolina 29720 1975.
(803) 286-3058
D. PEYTON WORLEY Mr. Worley has served as vice president of
c/o The Springs Company The Springs Company since April 1998. From
104 E. Springs Street June 1990 until April 1998, he served as tax
Lancaster, South Carolina 29720 manager with the Greensboro, North Carolina
(803) 286-3058 office of Arthur Andersen and Co.
</Table>
17
23
SPECIAL FACTORS
STRUCTURE OF THE RECAPITALIZATION
The recapitalization involves the merger of Heartland Springs with and into
Springs, with Springs surviving the merger and continuing its businesses. If the
recapitalization is completed, its material effects will be as follows:
- The current shareholders of Springs, other than the Close family, the
Heartland Investors, key management employees who elect prior to the
effective time of the recapitalization to retain their Springs shares and
dissenting shareholders, will receive $46.00 per share in cash for their
Springs shares and will no longer have any financial interest in, and
will not be shareholders of, Springs.
- Each share of Heartland Springs common stock will be converted into one
share of Springs class A common stock.
- The shares of Springs common stock held by the Close family, by the
Heartland Investors and by key management employees who elect prior to
the effective time of the recapitalization to retain their Springs
shares, will not be affected by the recapitalization and will remain
outstanding.
- All holders of options with an exercise price per share of Springs class
A common stock below $46.00 may choose, after the completion of the
recapitalization, (1) a cash-out election, pursuant to which each such
option will be converted to cash equal to the excess of $46.00 over the
exercise price or (2) a retention election, pursuant to which each such
option will be retained. By their terms, Springs stock options cannot be
cashed out by Springs without optionholder consent. In addition, certain
key management employees may elect a combination of a cash-out election
and retention election and, for those options they elect to retain, will
receive, for no additional consideration, accelerated vesting and an
appreciation right. This appreciation right allows the holder to receive
cash or shares for each exercised option without having to pay the
exercise price in cash. All options with an exercise price per share of
class A common stock above $46.00 will be retained automatically by the
holders and will contain an appreciation right.
- Prior to the recapitalization, the Close family intends to sell up to $50
million in value of its Springs shares, representing approximately 15% of
its holdings, to Heartland Industrial Partners at $46 per share.
Immediately after the recapitalization, approximately 44% of the
outstanding shares of Springs common stock will be owned by the Heartland
Investors and approximately 56% of the outstanding common stock will be
owned by the Close family.
- Shares of Springs class A common stock will no longer be listed on the
New York Stock Exchange and price quotations with respect to sales of
shares of Springs class A common stock in the public market will no
longer be available. The registration of Springs shares under the
Securities Exchange Act of 1934 will be terminated, and Springs will
cease filing reports with the Securities and Exchange Commission.
- After the recapitalization, it is expected that Springs will continue to
be managed by its existing management team.
- Springs will increase its indebtedness by approximately $391 million as a
result of the recapitalization, and the total number of outstanding
shares of common stock will decrease from approximately 18.0 million to
approximately 11.1 million.
See "Certain Effects of the Recapitalization" on pages 51 to 52.
BACKGROUND OF THE RECAPITALIZATION
Springs' board of directors and management review, on a continuing basis,
Springs' strategic focus in light of conditions in the home furnishings industry
and the long-term interests of Springs. The Springs board and management have
explored various strategic alternatives, including transactions with potential
partners, to
18
24
enhance growth and attain a more competitive position in the face of low-cost
imported products and the trend toward industry consolidation.
On July 13, 2000, the Springs board, at a regularly scheduled meeting, held
a general discussion regarding various strategic alternatives for Springs,
including remaining an independent company, effecting a business combination
with another company and pursuing other transactions. The Springs board directed
management to explore the strategic alternatives available to Springs. Soon
thereafter, Springs retained Robert P. Lee of Sheffield Merchant Banking Group,
a business group of CRT Capital Group LLC, to assist in reviewing a broad range
of strategic alternatives. Sheffield Merchant Banking Group is an investment
bank focused on providing financial advisory services to middle-market companies
such as Springs. Springs retained Mr. Lee because of his 24 years of investment
banking experience, including 16 years with Morgan Stanley Dean Witter, and the
fact that he had advised Springs prior to his founding Sheffield in May 2000.
From the date of his retention by Springs through January 2001, Mr. Lee assisted
Springs in reviewing strategic transactions, including acquisition and
divestiture opportunities in the home furnishings industry, and foreign sourcing
opportunities.
In June 2000, David Stockman, the founding partner of Heartland Industrial
Partners, contacted Crandall C. Bowles, the chairman and chief executive officer
of Springs, and indicated an interest in a potential transaction between
Heartland Industrial Partners and Springs that would result in Heartland
Industrial Partners acquiring an interest in Springs. Based in part on the
reputation of Mr. Stockman, Mrs. Bowles indicated an interest in pursuing
discussions with Heartland Industrial Partners. On August 9, 2000,
representatives of Heartland Industrial Partners, including Mr. Stockman, met
with members of Springs' management. At this meeting, representatives of
Heartland Industrial Partners discussed with members of Springs' management the
investment strategy and philosophy of Heartland Industrial Partners and the
types of transactions that it targets.
On August 17, 2000, Springs and Heartland Industrial Partners entered into
a confidentiality and standstill agreement to facilitate Springs' ability to
make available to Heartland Industrial Partners information regarding Springs
and to encourage further discussions regarding a possible transaction between
the parties.
On September 6, 2000, members of Springs' management and representatives of
Heartland Industrial Partners held further discussions at Springs' corporate
headquarters in South Carolina. At this meeting, Springs' management provided to
Heartland Industrial Partners a general overview of Springs, information
regarding Springs' products, capital expenditures and information technology
systems, and information regarding Springs' capabilities in areas such as sales
and marketing, manufacturing, sourcing and customer service.
On September 20, 2000, members of Springs' management and representatives
of Heartland Industrial Partners met at Heartland Industrial Partners' corporate
headquarters in Connecticut to hold further discussions regarding Springs and
the home furnishings industry in general. At this meeting, the parties discussed
Springs' new products and outlined a process for Heartland Industrial Partners
to conduct a due diligence review of Springs. Some of Heartland Industrial
Partners' associates toured Springs' showroom and manufacturing facilities.
On October 5-6, 2000, the Springs board met for a two-day retreat. At this
meeting, Mr. Lee gave an overview of the home furnishings industry and Springs'
strategic position, and reviewed with the board strategic alternatives for a
potential transaction involving Springs, including possible strategic
acquisitions within the home furnishings industry, an investment in foreign
sourcing and stock repurchases. In addition, Mr. Lee reviewed various other
scenarios, including the Close family obtaining 100% ownership of Springs or
sharing ownership with a financial partner in a leveraged recapitalization
transaction. Mr. Lee noted that a leveraged recapitalization, along with other
potential transactions he was reviewing with the board, could provide Springs
shareholders with an attractive premium for their shares that they would not
likely otherwise receive, given that the then current market price of Springs
common stock was at a five-year low and that general market concerns regarding
the home furnishings industry were not expected to be alleviated in the near
future. Mr. Lee discussed with the Springs board the financial parameters of a
leveraged recapitalization.
19
25
Mr. Lee then provided the board with an overview of Springs' access to capital
to fund a transaction, including additional borrowing and potential equity
sources. Mr. Lee reviewed with the Springs board a list of six potential
financial investors, including Heartland Industrial Partners. These potential
investors were selected by Mr. Lee based on his belief that only a financial
sponsor with significant consumer products experience or prior experience with
the type of complex competitive dynamics confronting the home furnishings
industry could enhance Springs' competitiveness. The Springs board authorized
management and Mr. Lee to contact these and similar potential investors
regarding the possibility of a transaction involving Springs. At this meeting,
Mr. Lee and the Springs board also reviewed the possibility of partnering with a
strategic investor. However, the Springs board concluded that each such
potential partner either had insufficient financial strength or lacked interest
in the home furnishings industry. As a result, no decision was made to pursue a
transaction with a strategic investor. At the conclusion of the two-day retreat,
the Springs board directed Springs' management and Sheffield to continue to
explore strategic alternatives for Springs, including a potential transaction
involving the Close family and a financial partner.
On October 23, 2000, members of Springs' management met again with
representatives of Heartland Industrial Partners at Heartland Industrial
Partners' headquarters. The parties held further discussions on the strategic
plan relating to Springs' various businesses and Heartland Industrial Partners'
due diligence on Springs.
Between November 6 and December 8, 2000, Springs' management conducted five
due diligence sessions for Heartland Industrial Partners.
Between November 1, 2000, and January 21, 2001, Springs' management and
representatives of Sheffield also held discussions with five potential partners
other than Heartland Industrial Partners. Two of these potential partners were
not on the list presented to the Springs board on October 5-6, while two of the
investors included on that list were not pursued upon further consideration of
their experience in the home furnishings industry. Springs entered into
confidentiality and standstill agreements with each of these five potential
partners. One other potential investor was contacted and responded by indicating
that it was willing to consider investing in Springs only if it were permitted
to acquire at least 80% of Springs' equity. This possibility was not pursued
because of indications from the Close family that it was unwilling to sell its
interest in Springs at this time. One other potential financial investor was
also contacted, but declined the opportunity to meet with Springs' management.
On November 3, 2000, representatives of Sheffield held an informational
meeting with two of these potential partners. On November 21, 2000, Springs'
management and representatives of Sheffield held further discussions with these
two parties regarding a possible transaction. These two parties ultimately
declined to pursue an investment in Springs based on their view that the home
furnishings industry did not offer an attractive investment opportunity.
On November 16, 2000, representatives of Sheffield held an informational
meeting with another one of the five other potential partners. This party did
not pursue the opportunity to invest in Springs, and no subsequent discussions
were held.
On December 12, 2000, representatives of Sheffield held an informational
meeting with another one of the five other potential partners. On December 21,
2000, Springs' management and representatives of Sheffield held subsequent
discussions with this party. This party declined to pursue an investment in
Springs based on its perception of the execution risk associated with Springs'
strategic plan.
Springs did not hold substantive negotiations or material discussions
regarding valuation, consideration, transaction structure or any other such
matters with any of the four potential partners described above.
On December 15, 2000, Springs' board met for its regularly scheduled
meeting. At this meeting, Mrs. Bowles and Mr. Lee updated the board as to the
status of discussions regarding strategic alternatives with various potential
partners, including Heartland Industrial Partners.
In January 2001, the Close family, represented by Mrs. Bowles, approached
Mr. Lee concerning the possibility of the Close family's involvement in a
potential transaction with Springs, including the possibility of
20
26
partnering with Heartland Industrial Partners. The idea of the Close family
partnering with Heartland Industrial Partners arose from discussions between
Mrs. Bowles and Mr. Stockman. Based on the reputation and expertise of Mr.
Stockman and Heartland Industrial Partners, the Close family was receptive to
the idea of partnering with Heartland Industrial Partners. As other potential
partners declined to participate in a transaction with Springs and as the Close
family and Heartland Industrial Partners discussed in greater detail the
possibility of a joint proposal, the likelihood of an offer by the Close family
and Heartland Industrial Partners to take Springs private increased and the
likelihood of Springs pursuing other strategic alternatives decreased. As a
result, the Close family asked Mr. Lee and Sheffield to represent it, with the
understanding that if a transaction transpired between the Close family and
Springs, the Springs board would have to obtain independent investment banking
advice. Sheffield agreed to represent the Close family and ended its
representation of Springs.
Up to this point, although there had been no definitive decision on
pricing, both the Close family and Heartland Industrial Partners estimated in
their discussions that a transaction would be achievable in the $40 to $42 per
share price range. This estimation was based on the then current and historical
trading prices of Springs common stock and the premia typically offered in a
transaction of this type, which premia is based on average trading prices over
various historical periods.
On January 9, 2001, Springs' management held discussions with another one
of the five other potential partners regarding a possible transaction
substantially similar in structure to that proposed by Heartland Industrial
Partners. Springs' management conducted further due diligence with this party
between January 9 and January 21, 2001. Springs did not hold substantive
negotiations with this party. Ultimately, discussions with this party were
terminated when it became clear that this party was not willing to complete a
transaction at the $40 to $42 per share range of values then being considered by
Heartland Industrial Partners and the Close family. The Close family determined
that a transaction with this party at this lower valuation was infeasible
because it did not offer an attractive price to Springs' public shareholders.
This party's expression of interest was also considered less attractive by the
Close family because it involved significantly greater financial leverage than
that favored by Heartland Industrial Partners and the Close family to enhance
expected investment returns.
On February 8, 2001, members of Springs' management met with
representatives of Heartland Industrial Partners at Heartland Industrial
Partners' headquarters to discuss further financial details regarding a
potential transaction.
On February 14, 2001, members of Springs' management met with
representatives of The Chase Manhattan Bank and JP Morgan and representatives of
Heartland Industrial Partners to discuss the debt financing of a potential
transaction. At this meeting, the parties discussed Springs' 2001 budget and
strategic plan.
On February 15, 2001, the Close family held a family meeting to discuss the
possibility of submitting a proposal with Heartland Industrial Partners to
acquire all of the outstanding shares of common stock of Springs not owned by
the Close family. At the meeting, Mr. Stockman made a presentation on behalf of
Heartland Industrial Partners, and Mr. Lee responded to questions posed by
members of the Close family. For a summary of the materials provided by
Sheffield to the Close family at this meeting, see "Other Matters -- Materials
Prepared by Sheffield -- February 15, 2001 Presentation" on pages 95 to 97. The
Close family was receptive to increasing the operating flexibility of Springs by
taking Springs private, and minimizing leverage by doing so with a partner. The
Close family was also receptive to the idea of sharing ownership of Springs with
Heartland Industrial Partners, which brought with it experience, management
skills and the ability to increase Springs' market profile and thereby attract
and retain key executives.
On February 19, 2001, the Close family authorized the joint proposal with
Heartland Industrial Partners at a price of $44.00 per share. Thereafter, the
Close family and Heartland Industrial Partners entered into a
21
27
participation agreement in connection with the submission of the joint proposal
to the Springs board. The price of $44.00 per share was selected jointly by the
Close family and Heartland Industrial Partners based on:
- their belief that $44.00 per share represented a significant premium to
recent trading prices for Springs shares and fairly compensated public
shareholders for their investment in Springs;
- the Close family's belief that a transaction at that price could be
accomplished without requiring Springs to incur an excessive amount of
debt; and
- Heartland Industrial Partners' belief that an investment in Springs based
on a $44.00 per share purchase price could yield attractive investment
returns.
For a summary of the materials provided by Sheffield to the Close family and
Heartland Industrial Partners on February 18, 2001 to assist them in the
selection of the initial offering price, see "Other Matters -- Materials
Prepared by Sheffield -- February 18, 2001 Materials" on pages 97 to 99.
On February 20, 2001, the Close family and Heartland Industrial Partners
submitted a written proposal to the Springs board to acquire all of the
outstanding shares of common stock of Springs not owned by the Close family for
$44.00 per share in cash. The proposal of the Close family and Heartland
Industrial Partners was contained in a letter to the Springs board, the text of
which is set forth below.
February 20, 2001
Board of Directors
Springs Industries, Inc.
205 North White Street
Fort Mill, South Carolina 29715
Ladies and Gentlemen:
Members of the Close family (the "Family Shareholders") who own
approximately 41% of the common stock of Springs Industries, Inc. (the
"Company") and Heartland Industrial Partners, L.P. ("Heartland") are pleased to
submit a proposal to acquire all the outstanding common stock of the Company not
owned by the Family Shareholders in a recapitalization for $44.00 per share in
cash (the "Transaction").
The total funds necessary to consummate the Transaction (including
refinancing the Company's existing credit facility) are expected to be
approximately $1,195 million. These funds would be provided by $225 million in
new equity from Heartland Industrial Partners and committed debt financing from
The Chase Manhattan Bank ("Chase"). Copies of the commitment letters received by
Heartland from Chase are attached hereto as Exhibit A and a copy of the equity
commitment letter of Heartland is attached hereto as Exhibit B.
We anticipate that the Transaction would close within 90 days of signing a
definitive recapitalization agreement. We will provide you and your legal and
financial advisors shortly a draft recapitalization agreement and are prepared
to expeditiously negotiate a definitive agreement. Obviously, neither the
Company on the one hand nor Heartland and the Family Shareholders on the other
will have any legal obligation relating to the Transaction until mutually
satisfactory definitive agreements have been executed by all parties.
The Family Shareholders have confirmed to and agreed with Heartland that
they are not sellers of their equity in the Company, other than approximately
one million shares which may be sold prior to the Transaction, and therefore
would not support any alternative transaction.
22
28
We welcome the opportunity to discuss with you all aspects of this proposal
and are prepared to commence negotiations with respect to the Transaction
immediately. If you have any questions regarding, or wish to discuss, this
proposal, please contact for the Family Shareholders Crandall C. Bowles at (803)
547-3795 and for Heartland David Stockman or Dan Tredwell at (203) 861-2622.
Sincerely,
/s/ CRANDALL BOWLES
--------------------------------------
Crandall C. Bowles
On behalf of the Family Shareholders
HEARTLAND INDUSTRIAL PARTNERS, L.P.
By: HEARTLAND INDUSTRIAL
ASSOCIATES, L.L.C.,
its General Partner
By: /s/ DAVID A. STOCKMAN
------------------------------------
Name: David A. Stockman
Title: Senior Managing Director
On February 20, 2001, Springs issued a press release confirming receipt of
this letter and announcing that the Springs board would consider the proposal at
its regularly scheduled meeting on February 22, 2001.
On February 22, 2001, the Springs board met for its regularly scheduled
meeting. After attending to the regular business of Springs, the Springs board
discussed the going-private proposal. The Springs board determined that in order
to ensure that the interests of the public shareholders of Springs were
appropriately represented, it would create a special committee of the
disinterested directors of the board to consider the proposal. The Springs board
decided that the special committee would consist of all nine members of the
Springs board who were independent of the Close family and Heartland Industrial
Partners, namely John F. Akers, John L. Clendenin, Charles W. Coker, William G.
Kelley, John H. McArthur, Aldo Papone, Robin Smith, Sherwood H. Smith, Jr., and
Stewart Turley. Because of their participation in the proposed recapitalization,
Mrs. Bowles and Mr. Close were not included on such committee. The Springs board
mandate to the special committee was to consider, evaluate and negotiate the
proposed recapitalization with the Close family and Heartland Industrial
Partners on behalf of the public shareholders, and to make a recommendation to
the Springs board as to whether to approve or reject the proposal as it might
ultimately be revised. The Springs board also authorized the special committee
to retain, at Springs' expense, independent financial and legal advisors.
Following the February 22, 2001 Springs board meeting, the special
committee held its initial meeting in which it selected Mr. Coker to be the
chairman of the special committee and retained Sullivan & Cromwell as its
independent legal counsel. Representatives of Sullivan & Cromwell reviewed the
responsibilities and legal duties of the special committee. The special
committee discussed the criteria that it would use to evaluate investment
banking firms to advise it with respect to the proposed recapitalization and
interviewed several investment banks before retaining a financial advisor. After
reviewing the relationship between Heartland Industrial Partners and a number of
prominent investment banking firms, the special committee concluded, with the
advice of Sullivan & Cromwell, that a number of those firms would have conflicts
of interest if they were to act as financial advisor to the special committee.
The special committee then met with two firms which were active in engagements
of this type and for which interviews had been arranged for later in the day.
Both interviews involved discussions with representatives of each investment
bank regarding that firm's experience in transactions of this type, its
expertise in the home furnishings and similar industries, the methodologies that
the firm would use, if it were retained, to determine the value of Springs and
the fee proposed to be charged. After reviewing written presentations and oral
proposals from the two investment
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banks, the special committee retained UBS Warburg LLC as its financial advisor
in connection with its consideration of the proposal from the Close family and
Heartland Industrial Partners. UBS Warburg was selected based upon its
experience in going private transactions, its proposed methodology and process
for analyzing the value of Springs, the UBS Warburg team's familiarity with and
experience in the home furnishings and similar industries, and the fee proposed.
In addition, the special committee retained South Carolina legal counsel.
On February 22, 2001, Springs issued a press release announcing that it had
formed the special committee and that the special committee had retained
financial and legal advisors.
Between February 23, 2001 and March 19, 2001, eight purported class action
lawsuits were filed against Springs and all of Springs' directors (including the
members of the special committee), three of which were filed in the United
States District Court for the District of South Carolina, four of which were
filed in state courts in South Carolina, and one of which was filed in state
court in New York. Heartland Industrial Partners was also named a defendant in
three of these lawsuits. Each lawsuit alleged that the initial $44.00 offer by
the Close family and Heartland Industrial Partners for Springs' publicly held
shares of common stock was unfair, and that the members of the Springs board
were not capable of negotiating a fair transaction with the Close family and
Heartland Industrial Partners without breaching their fiduciary duties to
Springs and the plaintiffs. For relief in the lawsuits the plaintiffs sought,
among other things, an injunction against completion of the proposed
recapitalization, or, in the alternative, rescission or damages.
On March 9, 2001, the special committee met by telephone conference with
representatives of Sullivan & Cromwell and UBS Warburg. The purpose of the
meeting was to discuss with the special committee's financial and legal advisors
a possible negotiation strategy and with its legal advisors its legal duties.
Representatives of Sullivan & Cromwell reviewed the status of the litigation and
the responsibilities and legal duties of the special committee. UBS Warburg
reported that it had begun its financial due diligence investigation of Springs
and the financing arrangements of the Close family and Heartland Industrial
Partners for the proposed recapitalization for the purpose of developing its
valuation analysis for the special committee. UBS Warburg reported that senior
management of Springs had made themselves readily available for discussions with
representatives of UBS Warburg regarding all aspects of Springs' business and
financial condition and that Springs was promptly satisfying UBS Warburg's
requests for business reports, plans and projections, accounting information and
other relevant documents of Springs. UBS Warburg discussed with the special
committee its schedule and plan for its continuing financial due diligence and
reported that it expected to provide its preliminary views on valuation to the
special committee at the special committee meeting scheduled for March 19, 2001.
The special committee agreed that it would not be in a position to form a view
as to the value of Springs until UBS Warburg made its presentation on March 19,
2001 and directed UBS Warburg to continue its research and analysis of Springs.
During the period of March 9 through March 19, 2001, representatives of UBS
Warburg continued their financial due diligence of Springs and had further
discussions with senior managers of Springs. UBS Warburg also reviewed the
financing commitments obtained by the Close family and Heartland Industrial
Partners and had discussions with several partners and other representatives of
Heartland Industrial Partners.
On March 19, 2001, the special committee met in person and by telephone
conference with representatives of Sullivan & Cromwell and UBS Warburg. The
purpose of the meeting was to review the preliminary views of UBS Warburg
regarding valuation and to discuss possible negotiation strategy with the
special committee's financial and legal advisors. Representatives of UBS Warburg
gave an overview of the proposed recapitalization, including the structure and
proposed debt and equity financing by the Close family and Heartland Industrial
Partners, a financial overview of Springs, and discussed UBS Warburg's
preliminary valuation analyses. For a summary of these preliminary valuation
analyses, see "Other Matters -- Preliminary Draft Materials Prepared by UBS
Warburg -- March 19, 2001 Presentation" on pages 99 to 105. UBS Warburg
explained that its preliminary valuation analyses were based upon projections
provided to UBS Warburg by the management of Springs. Springs' management had
provided UBS Warburg with two sets of projections -- Scenario 1 (Lower Risk) and
Scenario 2 (Higher Risk). See "Certain Financial Projections" on pages 28 to 29.
Scenario 2 had been presented to the Springs board on February 22, 2001, but
there had
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been insufficient time at that meeting for a full discussion of the assumptions
underlying those projections. Representatives of UBS Warburg reviewed both sets
of projections with the special committee and both the special committee and UBS
Warburg pointed out that the two sets of projections produced quite disparate
valuations of Springs. The special committee discussed the broad range of
valuations based upon the two sets of projections and determined that before it
could establish a view on valuation and a negotiating strategy, and authorize
UBS Warburg to open negotiations on its behalf with the Close family and
Heartland Industrial Partners and their representatives with respect to
valuation, it ought to meet with the management of Springs regarding its
business plan and projections for the next five years and the assumptions
underlying them.
At the March 19, 2001 meeting, representatives of Sullivan & Cromwell also
discussed the structure of the recapitalization as proposed by the Close family
and Heartland Industrial Partners in the draft recapitalization agreement
provided to the special committee, pursuant to which Heartland Springs would
merge with and into Springs and each public shareholder of Springs would receive
a yet undetermined amount in cash for each share of Springs held by such
shareholder. The special committee's legal counsel summarized the draft
recapitalization agreement for the special committee and highlighted what it
believed to be the primary outstanding issues. Sullivan & Cromwell noted that
the draft recapitalization agreement did not provide for any break-up fee to be
paid to the Close family or Heartland Industrial Partners in the event an
agreement was signed but the recapitalization was not consummated, which was a
positive element in their proposal from the point of view of the public
shareholders. The special committee discussed the issues raised by its legal
counsel and authorized its legal counsel to open negotiations, on behalf of the
special committee, with the Close family and Heartland Industrial Partners'
counsel with respect to the draft recapitalization agreement.
On March 23, 2001, two members of the special committee and representatives
of Sullivan & Cromwell and UBS Warburg met in person with members of the senior
management of Springs, including Mrs. Bowles and Jeffrey Atkins, who was at the
time the chief financial officer of Springs, to discuss management's business
plan and financial projections for the next five years. All of the other members
of the special committee participated by telephone conference. Mrs. Bowles and
Mr. Atkins discussed their expectations for the various areas of Springs'
business and what management believed was necessary to achieve the goals
provided for in its projections. Mr. Atkins highlighted the differences between
the two sets of projections that Springs provided to UBS Warburg. The special
committee engaged in a question and answer session with members of management
regarding the business plan and projections. Following such discussion and
outside the presence of the management of Springs, the special committee
discussed the projections and the preliminary valuation analyses presented by
UBS Warburg at the March 19, 2001 meeting of the special committee. Several
members of the special committee pointed out that based upon their meeting with
members of Springs' senior management that morning, in which the members of
senior management expressed their view that the projections set forth in
Scenario 2 were substantially less likely to be achieved that those in Scenario
1, and based upon the fact that Springs' historical financial results of
operations and general economic and industry trends were much more consistent
with the assumptions underlying Scenario 1 than Scenario 2, the projections
contained in Scenario 1 were more appropriate projections for analyzing the
value of Springs than the Scenario 2 projections. The special committee as a
whole agreed, and UBS Warburg concurred in this assessment.
The special committee then discussed the preliminary valuation analyses
prepared by UBS Warburg using the Scenario 1 projections. The special committee
believed that a potential recapitalization with the Close family and Heartland
Industrial Partners might potentially be in the best interests of the public
shareholders of Springs, however, at a price higher than $44.00 per share. The
special committee then concluded that a higher price per share should be sought
from the Close family and Heartland Industrial Partners and authorized UBS
Warburg to open negotiations, on behalf of the special committee, with the Close
family, Heartland Industrial Partners and their advisors. The special committee
instructed UBS Warburg to begin negotiations on behalf of the special committee
at a price of around $50.00 per share.
On March 29, 2001, representatives of UBS Warburg met with representatives
of Sheffield, the financial advisor to the Close family and Heartland Industrial
Partners, to report the special committee's position. UBS
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Warburg informed the representatives of Sheffield that a price of $44.00 per
share was not acceptable to the special committee, but a price around $50.00 per
share would be.
Representatives of UBS Warburg and Sheffield met again on April 2, 2001 to
continue negotiations on price. At such meeting, they reviewed several
preliminary valuation analyses and discussed the special committee's views on
the valuation of Springs. For a summary of these preliminary valuation analyses,
see "Other Matters -- Preliminary Draft Materials Prepared by UBS
Warburg -- April 2, 2001 Materials" on pages 106 to 109. On April 4, 2001,
representatives of Sheffield stated that the Close family and Heartland
Industrial Partners would be prepared to increase their offer to $45.00 per
share.
On April 2, 2001, Springs notified the New York Stock Exchange that it was
postponing its annual meeting of shareholders.
On April 5, 2001, the special committee met by telephone conference with
its financial and legal advisors to discuss the status of the ongoing
negotiations with the Close family and Heartland Industrial Partners.
Representatives of UBS Warburg informed the special committee that they had met
with representatives of Sheffield and that the Close family and Heartland
Industrial Partners had indicated their willingness to increase their offer to
$45.00 per share. UBS Warburg also reviewed the current trading markets for the
shares of Springs and its most comparable competitors. The members of the
special committee discussed further their respective views on the appropriate
per share price for a recapitalization involving Springs. The special committee
remained of the opinion that a price of $45.00 per share did not adequately
value Springs. The special committee directed UBS Warburg to continue to
negotiate for a higher price with the Close family and Heartland Industrial
Partners and their advisors.
On April 6, 2001, representatives of UBS Warburg held a telephonic meeting
with representatives of Sheffield to discuss the special committee's belief that
the Close family and Heartland Industrial Partners had yet to value Springs
adequately. After continued discussion of valuation methods and analyses, and
after additional consultation with the Close family and Heartland Industrial
Partners, representatives of Sheffield indicated that the Close family and
Heartland Industrial Partners would be prepared to raise their offer to $45.50
per share.
The special committee then met by telephone conference again with its
financial and legal advisors on April 9, 2001 to discuss the $45.50 per share
offer. Although the special committee was encouraged that the price offered by
the Close family and Heartland Industrial Partners was within the range of
preliminary valuations provided by UBS Warburg and therefore would be, in the
special committee's opinion when considered together with all other factors,
potentially fair to Springs' public shareholders, the special committee still
believed that it should seek a higher price. The special committee then
unanimously agreed to instruct UBS Warburg to engage in another round of
negotiations with the Close family and Heartland Industrial Partners regarding
price.
Later on April 9, 2001, representatives of UBS Warburg relayed the special
committee's position regarding the $45.50 per share offer to representatives of
Sheffield. Representatives of Sheffield then discussed the special committee's
position with the Close family and Heartland Industrial Partners, and UBS
Warburg and Sheffield discussed further the parties' respective views on the
appropriate per share price for the recapitalization. During these discussions,
representatives of UBS Warburg, on behalf of the special committee, negotiated a
higher offer of $46.00 per share which Sheffield stated would be the best and
final offer of the Close family and Heartland Industrial Partners.
On April 10, 2001, subsequent to these discussions, the special committee
met by telephone conference to discuss the offer of $46.00 per share. Two
members of the special committee were not present at this meeting.
Representatives of Sullivan & Cromwell reviewed the special committee's legal
duties, legal issues in connection with the draft recapitalization agreement and
the status of the shareholder litigation related to the proposal of the Close
family and Heartland Industrial Partners. Each member of the special committee
present expressed his belief that $46.00 per share would be fair to Springs
shareholders who are not affiliated
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with the Close family or Heartland Industrial Partners. The members of the
special committee present, constituting a quorum for the conduct of business,
unanimously:
- determined that the proposed recapitalization at $46.00 per share was
advisable, fair to and in the best interests of Springs shareholders who
are not affiliated with the Close family or Heartland Industrial
Partners; and
- recommended that the Springs board adopt a definitive recapitalization
agreement substantially in its current form reflecting the proposed
recapitalization at a price of $46.00 per share and recommend approval of
the recapitalization agreement by Springs shareholders, subject in each
case to the plaintiffs in the shareholder litigation agreeing to settle
that litigation based upon the $46.00 per share price.
Between April 10 and 24, 2001, the special committee, representatives of
Sullivan & Cromwell, the Close family, representatives of Wachtell, Lipton,
Rosen & Katz, special counsel to the Close family, Heartland Industrial
Partners, and representatives of Cahill Gordon & Reindel, special counsel to
Heartland Industrial Partners and Heartland Springs, negotiated the remaining
open terms of the draft recapitalization agreement and the related shareholder
agreement between the Close family and Heartland Industrial Partners, of which
Springs was made a third-party beneficiary with respect to certain provisions.
The remaining open terms of the recapitalization agreement included, among other
things, the treatment of the shares, options and other equity-based awards held
by Springs' management, the vote required of shareholders whose shares are being
converted into cash to approve the recapitalization agreement and the content of
the disclosure schedules. The remaining open terms of the shareholders agreement
included, among other things, the nature of the tie-breaking mechanism for the
Springs board following the recapitalization and the structure of the consulting
arrangement with Heartland Industrial Partners. During this period, each of the
Close family and Heartland Industrial Partners selected, pursuant to the
shareholders agreement, its initial directors to serve following the completion
of the proposed recapitalization. One of the directors selected by the Close
family was Mr. Lee.
On April 24, 2001, the parties to the shareholder litigation agreed in
principle on a settlement of the litigation, and executed a memorandum of
understanding to reflect the terms of the settlement. The settlement is based on
the increase of the offer price from $44.00 per share to $46.00 per share and
the agreement of the Close family and Heartland Industrial Partners to condition
the recapitalization on the recapitalization agreement being approved by a
majority of the votes cast at the annual meeting not held by the Close family,
certain key members of management and Heartland Industrial Partners and its
affiliates. The parties also agreed to enter into a formal settlement agreement,
cooperate in public disclosures related to the settlement, and use their
respective best efforts to gain approval of the settlement from the South
Carolina state court. Without any admission of fault by any defendant, the
memorandum of understanding provides for a dismissal of all claims with
prejudice and a release in favor of all defendants of any and all claims that
have been or could have been asserted by the plaintiffs or any members of the
purported class of public shareholders of Springs. The settlement is subject to,
among other things, completion of confirmatory discovery by the plaintiffs,
execution of a settlement agreement, final approval of the settlement by the
South Carolina court, and completion of the recapitalization.
On April 24, 2001 the entire Springs board (including the special
committee), except for one member, met by telephone conference with
representatives of UBS Warburg and Sullivan & Cromwell. Representatives of
Sullivan & Cromwell reviewed the special committee's legal duties in connection
with the recapitalization and informed the special committee that an agreement
to settle the shareholder litigation related to the proposal of the Close family
and Heartland Industrial Partners had been reached with plaintiffs' counsel.
Sullivan & Cromwell also reviewed the final changes in the terms of the
recapitalization agreement and representatives of UBS Warburg presented their
financial analyses of the Close family's and Heartland Industrial Partners'
$46.00 per share proposal.
Representatives of UBS Warburg then delivered an oral opinion to the
special committee (which was subsequently confirmed in a written opinion to the
special committee) that as of April 24, 2001 and, on the basis of and subject to
the matters discussed with the special committee, the $46.00 per share cash
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consideration to be received by Springs shareholders whose shares are being
converted into cash in the proposed recapitalization was fair from a financial
point of view to such shareholders.
The Springs board then considered the proposed recapitalization. Having
received the recommendation of the special committee, the Springs board
determined that the proposed recapitalization was advisable, fair to and in the
best interests of Springs shareholders who are not affiliated with the Close
family or Heartland Industrial Partners. The members of the Springs board
present, with Mrs. Bowles and Mr. Close abstaining, constituting a quorum for
the conduct of business, unanimously voted to adopt the recapitalization
agreement and the amendment to Springs' articles of incorporation to exempt
Springs from the restrictions on business combinations contained in the South
Carolina Code and recommend that Springs shareholders approve the
recapitalization agreement and the amendment to the articles of incorporation.
Later in the day on April 24, 2001, the recapitalization agreement was
signed. On April 25, 2001, Springs and the Close family and Heartland Industrial
Partners issued a joint press release announcing the execution of the
recapitalization agreement.
On July 31, 2001, Springs and Heartland Springs entered into an amendment
to the recapitalization agreement which, among other things, enables Springs to
establish the time when options will be cashed out or retained with possible
enhancements. With respect to all outstanding performance unit award agreements,
the amendment deems the performance cycle terminated 10 business days prior to
the annual meeting of shareholders, if the recapitalization is completed.
CERTAIN FINANCIAL PROJECTIONS
Springs does not as a matter of course make public projections as to its
future performance or earnings. However, in connection with the discussions
concerning the proposed recapitalization, Springs and its financial advisors
furnished to Heartland Industrial Partners certain information which was not
publicly available, including certain projected financial data for the fiscal
years 2001 through 2005. These projections ("Scenario 2") included, among other
things, the following forecasts of Springs' net sales, earnings before interests
and taxes (referred to in this document as "EBIT") and capital spending:
SCENARIO 2
(IN MILLIONS)
<Table>
<Caption>
2001 2002 2003 2004 2005
-------- -------- -------- -------- --------
NET SALES.............................. $2,322.7 $2,477.2 $2,637.7 $2,766.3 $2,902.4
EBIT................................... $ 151.5 $ 180.4 $ 223.9 $ 236.8 $ 250.1
CAPITAL SPENDING....................... $ 110.0 $ 123.0 $ 114.0 $ 125.0 $ 110.0
</Table>
In addition, Springs furnished to the special committee and UBS Warburg the
following forecasts of net income per share (in dollars) associated with these
Scenario 2 projections:
<Table>
NET INCOME PER SHARE................... $ 4.14 $ 5.00 $ 6.40 $ 6.80 $ 7.20
</Table>
Springs also furnished to Heartland Industrial Partners an alternative set
of projections indicating lower profitability based upon more conservative
assumptions. In particular, the Scenario 2 projections assume the successful
implementation of several initiatives within Springs to significantly improve
operating results through, among other things, more efficient manufacturing,
more rigorous quality controls, more effective purchasing and overhead
reductions. In addition, the Scenario 2 projections assume that Springs is able
to increase its share of sales of key products at the expense of competitors who
have been financially weakened by the combination of declining industry
conditions and high levels of indebtedness. The alternative projections assume
improvements in these areas that are more consistent with Springs' historical
results.
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These alternative projections ("Scenario 1") included, among other things, the
following forecasts of Springs' net sales, EBIT and capital spending:
SCENARIO 1
(IN MILLIONS)
<Table>
<Caption>
2001 2002 2003 2004 2005
-------- -------- -------- -------- --------
NET SALES.............................. $2,264.8 $2,320.7 $2,388.0 $2,446.6 $2,512.7
EBIT................................... $ 138.6 $ 145.3 $ 155.6 $ 158.8 $ 165.1
CAPITAL SPENDING....................... $ 110.0 $ 123.0 $ 114.0 $ 125.0 $ 110.0
</Table>
In addition, Springs furnished to the special committee and UBS Warburg the
following forecasts of net income per share (in dollars) associated with these
Scenario 1 projections:
<Table>
NET INCOME PER SHARE................... $ 3.95 $ 3.92 $ 4.31 $ 4.40 $ 4.48
</Table>
Heartland Industrial Partners and the Close family have informed Springs
that they believe that, with Heartland Industrial Partners' participation in the
governance of Springs following the recapitalization, the results described in
Scenario 2 should be adopted as the primary projections and the basis for
company budgets and management incentive compensation. Scenario 2 projections
were also provided to ratings agencies in connection with the seeking of a
rating on financing related to the recapitalization. Under the assumption that
the recapitalization does not occur and Springs continues as a public company in
essentially its current form, the special committee concluded, as described in
greater detail below, that the projections set forth in Scenario 1 were
substantially more likely to be achieved than those set forth in Scenario 2.
Important Information About the Projections. The projections referred to
above were not prepared with a view to public disclosure, and are included in
this document only because such information was made available to Heartland
Industrial Partners. The projections were not prepared with a view to compliance
with published guidelines of the Securities and Exchange Commission, the
guidelines established by the American Institute of Certified Public Accountants
regarding projections or forecasts, or generally accepted accounting principles.
Neither the independent auditors of Springs, nor any other independent
accountants, have compiled, examined or performed any procedures with respect to
the projections. The projections were not prepared with the approval of the
Springs board of directors or the special committee. The projections are
included in this document to give Springs' shareholders access to information
that was not publicly available and that Springs provided to Heartland
Industrial Partners.
The projections are forward-looking statements that are subject to certain
risks and uncertainties and should be read with caution. See "Cautionary
Statement Concerning Forward-Looking Information" on page 8. The projections are
subjective in many respects and thus susceptible to interpretation and periodic
revision based on actual experience and recent developments. While presented
with numeric specificity, the projections reflect numerous assumptions made by
Springs' management with respect to industry performance, general business,
economic, market and financial conditions and other matters, including assumed
interest rates and effective tax rates consistent with historical levels for
Springs, all of which are difficult to predict, many of which are beyond
Springs' control and none of which were subject to approval by Heartland
Industrial Partners. In addition, the projections do not take into account any
of the transactions contemplated by the recapitalization agreement. Accordingly,
there can be no assurance that the assumptions made in preparing the projections
will prove accurate, and actual results may be materially greater or less than
those contained in the projections. Except to the extent required under the
federal securities laws, Springs does not intend to make publicly available any
update or other revisions to the projections to reflect circumstances existing
after the date of the preparation of the projections or the occurrence of future
events even in the event that any or all of the assumptions are shown to be in
error.
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SPECIAL COMMITTEE
Because two of the directors of Springs are members of the Close family,
the Springs board of directors appointed a special committee of the nine
disinterested directors of the board to evaluate the proposed recapitalization.
The members of the special committee are: John F. Akers, John L. Clendenin,
Charles W. Coker, William G. Kelley, John H. McArthur, Aldo Papone, Robin B.
Smith, Sherwood H. Smith, Jr. and Stewart Turley.
No member of the special committee is a member of the Close family or an
employee of Springs, nor does any member of the special committee have interests
in the recapitalization inconsistent with the interests of Springs public
shareholders generally. The Springs shares held by the members of the special
committee will be cashed out in the same manner as those held by other Springs
shareholders whose shares are being converted into cash, and the deferred stock
credits held by members of the special committee will be deemed reinvested, as
of the effective date of the recapitalization, in other investment vehicles
under the Springs deferred compensation plan for outside directors at a rate of
$46.00 per share. The chairman of the special committee received $25,000 for his
services on the committee, and each other member of the special committee
received $15,000 for his or her services on the committee. In addition, each
member of the special committee is entitled to certain indemnification rights
and to directors' and officers' liability insurance that will be continued by
Springs following the recapitalization as described below under "Interests of
Certain Persons in the Recapitalization" for the current and former officers and
directors of Springs. The Springs board and the special committee believe that
the foregoing arrangements did not affect the special committee's independence
or impartiality.
RECOMMENDATION OF THE SPECIAL COMMITTEE AND THE SPRINGS BOARD; SPRINGS' PURPOSE
AND REASONS FOR THE RECAPITALIZATION
The special committee believes that the recapitalization agreement and the
amendment to the articles of incorporation are advisable, fair to and in the
best interests of Springs shareholders who are not affiliated with the Close
family or Heartland Industrial Partners. The special committee unanimously
recommended that the Springs board of directors adopt the recapitalization
agreement and the amendment to the articles of incorporation and that the
Springs board recommend that Springs shareholders approve the recapitalization
agreement and the amendment to the articles of incorporation. In reaching these
conclusions, the special committee considered the following positive factors:
- the belief that the $46.00 per share cash consideration is attractive in
light of Springs' historical and current financial performance, results
of operations, prospects, business strategy, and competitive position in
its industry, and in light of general economic, stock market, and
industry conditions;
- the special committee's belief, based on, among other things, the
detailed financial and valuation advice provided to the special committee
by UBS Warburg during the period from March 19 to April 24, 2001, that
the $46.00 per share cash consideration:
-- represented an attractive multiple of historical revenue, earnings
before interest, taxes, depreciation and amortization, free cash flow,
and earnings before interest and taxes, and of historical and
projected net income;
-- represented an attractive multiple of historical revenue, earnings
before interest, taxes, depreciation and amortization, free cash flow,
and earnings before interest and taxes, and of historical and
projected net income, as compared to implied multiples based on
financial and market statistics for a range of companies in the
textile and non-textile home furnishings business in the United
States;
-- represented an attractive multiple of historical revenue, earnings
before interest, taxes, depreciation and amortization, free cash flow,
earnings before interest and taxes, and net income, as compared to
implied multiples from recent acquisitions in the textile and
non-textile home furnishings business in the United States;
-- was within the range of implied valuations derived from a discounted
cash flow analysis based on the Scenario 1 projections provided to UBS
Warburg by Springs; and
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-- compared favorably to the implied equity value reference range for
Springs based on a present value of hypothetical future stock price
analysis using the Scenario 1 projections;
- the opinion of UBS Warburg, the financial advisor to the special
committee, described in detail under "-- Opinion of UBS Warburg LLC" on
pages 35 to 42, that, as of April 24, 2001 and on the basis of and
subject to the matters reviewed with the special committee, the $46.00
per share cash consideration to be received by Springs shareholders whose
shares are being converted into cash in the proposed recapitalization was
fair from a financial point of view to such shareholders;
- the historical market prices of Springs common stock and recent trading
activity, including the substantial equity premiums implied by the $46.00
per share cash consideration of 27.4% and 42.4%, respectively, over
Springs' stock prices one day and one month prior to the initial
announcement of the Close family's and Heartland Industrial Partners'
proposal on February 20, 2001;
- the fact that shares of Springs common stock closed at a range from a low
of $22.63 to a high of $48.81 during the 52 weeks prior to February 16,
2001, the historical market price of Springs common stock and the fact
that despite the general economic downturn in the U.S. financial markets,
which began in mid-2000, and a corresponding decline in the price of
Springs common stock, the $46.00 per share cash consideration offered a
premium of 36.5% over the 52-week average trading price of $33.70 for
Springs common stock;
- that the increase in the market price of Springs common stock following
the initial Close family and Heartland Industrial Partners proposal
probably largely reflected anticipation of a possible acquisition by the
Close family and Heartland Industrial Partners, rather than a higher
intrinsic value for Springs common stock;
- the belief that based on a comparison of the risks and benefits of the
recapitalization against the risks and benefits of the other strategic
alternatives available to Springs, including continuing as an independent
entity, that the recapitalization was more favorable to the public
shareholders because Springs would continue to experience significant
competitive and margin pressures within the textile and non-textile home
furnishings business and that Springs would better be able to realize
additional value and growth as a private company with greater operating
flexibility to focus on long-term goals without the constraint of the
public market's emphasis on near-term earnings;
- the special committee's negotiations with the Close family and Heartland
Industrial Partners, which resulted in an increase in the cash
consideration from $44.00 to $46.00 per share, and the judgment of the
special committee that, based upon the negotiations that had transpired,
a price higher than $46.00 per share in all likelihood could not be
obtained;
- given the Close family's ownership of approximately 73% of the voting
power of Springs in any transaction with a disinterested party and
ownership of approximately 41% of the voting power of Springs in the
proposed recapitalization, the fact that, as a practical matter, no
alternative transaction could be effected without the support of the
Close family, and the Close family's publicly stated intention that they
would oppose any such alternative transaction;
- the fact that in light of the public announcement of the Close family and
Heartland Industrial Partners proposal on February 20, 2001 and that
there was no break-up fee or other structural impediment included in the
recapitalization agreement that would preclude a proposal concerning an
alternative transaction prior to the Springs shareholder meeting, no
third parties contacted the Springs board, the special committee or the
special committee's financial or legal advisors concerning an alternative
transaction;
- the fact that there are no unusual requirements or conditions to the
recapitalization, that the consideration to be paid in the
recapitalization is all cash, and that the Close family and Heartland
Industrial Partners have arranged financing for the recapitalization such
that absent material changes in market conditions or in Springs'
condition (financial or otherwise), business or results of operation,
they have the financial resources to complete the recapitalization
expeditiously, thereby resulting in a
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high probability that the transaction will be consummated on the terms
contained in the recapitalization agreement;
- the requirement that in addition to the affirmative vote of the holders
of at least two-thirds of the outstanding shares of Springs common stock
as required by South Carolina law, it is a condition to the
recapitalization that the recapitalization agreement be approved by the
affirmative vote of the holders of a majority of the votes cast at the
annual meeting not held by the Close family, certain key members of
management and Heartland Industrial Partners and its affiliates (a
condition that will not be waived by either Springs or Heartland
Springs); and
- the composition of the membership of the special committee, consisting of
nine independent directors and sophisticated businesspeople each of whom
is quite familiar with Springs and its business and each of whom does not
have interests inconsistent with the interests of Springs public
shareholders generally, and its empowerment by Springs to retain
independent legal and financial advisors selected by it.
The special committee, as well as the board of directors, relied on Springs
management to provide UBS Warburg with accurate and complete financial
information, projections and assumptions, and did not independently verify the
accuracy or completeness of the information provided. The special committee and
the board of directors believed that UBS Warburg's reliance on the financial
information, projections, assumptions and other information provided to UBS
Warburg by Springs management was reasonable, and adopted the financial analyses
and conclusions of UBS Warburg.
The special committee did not consider it significant that Sheffield, which
had previously advised Springs with respect to strategic alternatives but had
terminated its engagement with Springs in January 2001 to become the Close
family's financial advisor, no longer represented Springs. The special committee
believed that it was well advised by UBS Warburg in its financial analysis of
the recapitalization and the negotiations with the Close family and Heartland
Industrial Partners. UBS Warburg was given unrestricted access to information
about Springs, including certain information concerning strategic alternatives
produced by Sheffield during its engagement by Springs. Accordingly, the special
committee did not believe that Sheffield's representation of the Close family
and Heartland Industrial Partners in any way put the special committee at a
disadvantage in acting on behalf of the Springs shareholders who are not
affiliated with the Close family or Heartland Industrial Partners.
The special committee also did not consider it significant in its
determination of fairness that the final price of $46.00 per share was less than
the price at which it instructed UBS Warburg to begin negotiations. The special
committee did not view its initial asking price as a minimum fair price, but
instead viewed its asking price as part of a negotiation strategy directed at
obtaining the highest possible price for the public shareholders.
The special committee considered the following adverse factors associated
with the recapitalization:
- that, although $46.00 per share was within the range of implied per share
values for Springs indicated by UBS Warburg's discounted cash flow
analysis, which was based on the Scenario 1 projections provided to UBS
Warburg by Springs' management, the upper end of this range exceeded
$46.00 per share;
- that because the Close family desired to retain its approximate 41%
economic equity interest and its approximate 73% voting interest in
Springs and had publicly stated its intention to oppose any alternative
transaction with a third party, public shareholders were not afforded an
opportunity to participate in any control premium that might have been
generated by the sale of the entire company to a third party;
- that the proposed recapitalization will be a taxable transaction for
Springs shareholders whose shares are being converted into cash; and
- that the public shareholders of Springs would have no ongoing equity
participation in the surviving corporation following the
recapitalization, meaning that the public shareholders would cease to
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participate in Springs' future earnings or growth, if any, or to benefit
from increases, if any, in the value of their common stock in Springs.
The special committee believed that the ranges of implied per share values
derived from the valuation analyses used by UBS Warburg based on management's
Scenario 1 projections were substantially more reflective of the fair value of
Springs than the ranges of preliminary implied per share values derived by UBS
Warburg using management's Scenario 2 projections because the Scenario 1
projections were substantially more consistent with Springs' historical
financial results of operations, management's historic ability to meet its
budgets, and growth expectations in light of the state of the United States
economy generally, and the textile and non-textile home furnishings industry
specifically. For this reason, the special committee did not attribute
importance to the preliminary valuation analyses based upon management's
Scenario 2 projections, such as UBS Warburg's preliminary analyses based on the
Scenario 2 projections that had produced implied per share values substantially
in excess of $46.00 per share.
The special committee also considered the advantages and disadvantages of
the only apparently available alternative to the acquisition of the public
shareholder interest in Springs by the Close family and Heartland Industrial
Partners, which was Springs continuing as a publicly held company with the Close
family maintaining its approximate 41% economic equity interest and its
approximate 73% voting interest in Springs.
In the view of the special committee, the principal advantage of Springs
continuing as a publicly traded company was that it would allow public
shareholders to continue to participate in any growth in the value of Springs
equity. The disadvantages of Springs continuing as a publicly traded company
that were considered by the special committee included the exposure to the risks
and uncertainties attendant to continuing as a publicly traded company in light
of the state of the United States economy generally and the competitive and
market pressures on the textile and non-textile home furnishings industry
specifically. The special committee concluded that under all of the relevant
circumstances and in light of the proposed $46.00 per share price in cash, the
disadvantages of Springs continuing as a publicly traded company significantly
outweighed the advantages, and accordingly that alternative was rejected.
In view of the large number of factors considered by the special committee
in connection with the evaluation of the recapitalization and the complexity of
these matters, the special committee did not consider it practicable to, nor did
it attempt to, quantify, rank or otherwise assign relative weights to the
specific factors it considered in reaching its decision, nor did it evaluate
whether these factors were of equal importance. In addition, each member of the
special committee may have given different weight to the various factors. The
special committee held extensive discussions with, and relied on the experience
and expertise of, UBS Warburg with respect to the quantitative and qualitative
analysis of the financial terms of the recapitalization. The special committee
conducted a discussion of, among other things, the factors described above,
including asking questions of Springs' management and the special committee's
financial and legal advisors, and reached the conclusion that the
recapitalization was advisable, fair to and in the best interests of Springs
shareholders who are not affiliated with the Close family or Heartland
Industrial Partners.
The special committee did not consider any factors, other than as stated
above, regarding the fairness of the recapitalization to Springs shareholders
who are not affiliated with the Close family or Heartland Industrial Partners,
as they believed the factors they considered provided a reasonable basis to form
their belief. Specifically, the special committee did not independently consider
with respect to such fairness:
- net book value, which the special committee did not believe had any
systematic connection with the economic value of Springs;
- liquidation value, which the special committee did not view as relevant
since it believed that substantial value was tied to Springs as a going
concern and that liquidation would destroy this value;
- purchase prices paid by Springs or by the Close family for past purchases
of Springs common stock, which, in recent years, involved too few shares
to be used as a reliable basis for valuation; or
- recent other firm offers for Springs, of which there had been none.
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The Springs board consists of eleven directors, nine of whom served on the
special committee. At the April 24, 2001 meeting of the Springs board, the
special committee, with its legal and financial advisors participating, reported
to the other members of the Springs board on its review of the recapitalization
agreement, the amendment to the articles of incorporation and the related
financing commitments and the factors taken into account by the special
committee in reaching its determination that the proposed recapitalization is
advisable, fair to and in the best interests of Springs shareholders who are not
affiliated with the Close family or Heartland Industrial Partners.
The Springs board, with Mrs. Bowles and Mr. Close abstaining and Mr. Akers
not present at such meeting, unanimously determined that the recapitalization
agreement and the amendment to the articles of incorporation are advisable, fair
to and in the best interests of Springs shareholders who are not affiliated with
the Close family or Heartland Industrial Partners and unanimously voted to adopt
the recapitalization agreement and the amendment to the articles of
incorporation and recommend that Springs shareholders approve the
recapitalization agreement and the amendment to the articles of incorporation.
The following factors were considered by the Springs directors in deciding to
recommend that shareholders vote "FOR" the approval of the recapitalization
agreement and the amendment to the articles of incorporation:
- the recommendation of the special committee;
- the factors referred to above as having been taken into account by the
special committee; and
- the fact that the recapitalization consideration and the terms of the
recapitalization agreement were the result of negotiations between the
special committee and the Close family and Heartland Industrial Partners
and their respective advisors.
In view of the variety of factors it considered, the Springs board did not
find it practicable to, and it did not, quantify or otherwise attempt to assign
specific or relative weights to the factors considered in making its
determination. In considering the factors described above, individual members of
the Springs board may have given different weight to different factors.
SPRINGS' POSITION REGARDING THE FAIRNESS OF THE RECAPITALIZATION
The Springs board of directors, including the members of the special
committee, adopted the special committee's analysis as to the fairness of the
recapitalization and UBS Warburg's analysis as to the fairness, from a financial
point of view, of the $46.00 per share cash consideration to be received by
Springs shareholders whose shares are being converted into cash in the
recapitalization. In addition, the Springs board of directors, including the
members of the special committee, believes that the recapitalization is
procedurally fair to Springs shareholders who are not affiliated with the Close
family or Heartland Industrial Partners because, among other things:
- The $46.00 per share cash consideration and the other terms and
conditions of the recapitalization agreement resulted from active
negotiations between the special committee and its representatives, on
the one hand, and the Close family and Heartland Industrial Partners and
their representatives, on the other hand.
- The special committee consisted of the nine non-employee, disinterested
directors of the board appointed by the Springs board to represent solely
the interests of Springs shareholders who are not affiliated with the
Close family or Heartland Industrial Partners.
- No member of the special committee is a member of the Close family. No
member of the special committee will have any ownership interest in
Springs after the recapitalization.
- The special committee retained and was advised by its own independent
financial advisor, UBS Warburg, to assist it in evaluating the
recapitalization and provide it with financial advice.
- The special committee retained and was advised by its own independent
legal counsel, Sullivan & Cromwell.
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- The special committee engaged in extensive negotiations and deliberations
in evaluating the recapitalization, the recapitalization consideration
and the recapitalization agreement.
- Crandall C. Bowles and Leroy S. Close, both of whom are members of the
Close family and Springs directors, abstained from the vote of the
Springs board regarding the adoption of the recapitalization agreement.
- Even though the special committee consisted of directors of Springs and
was therefore not completely unaffiliated with Springs, committees of
independent directors are a commonly used mechanism that is recognized
under applicable law as a procedural safeguard to help ensure fairness in
transactions of this type.
- In addition to the affirmative vote of the holders of at least two-thirds
of the outstanding shares of Springs common stock as required by South
Carolina law, it is a condition to the recapitalization that the
recapitalization agreement be approved by the affirmative vote of the
holders of a majority of the votes cast at the annual meeting not held by
the Close family and certain key members of management and Heartland
Industrial Partners and its affiliates. This condition will not be waived
by either Springs or Heartland Springs.
It follows from each of the foregoing factors that neither the members of
the special committee nor the special committee's advisors, who are the parties
that negotiated the terms and conditions of the recapitalization agreement with
Heartland Springs, had an ownership interest in the recapitalization that could
present them with actual or potential conflicts of interest. In view of the
foregoing, the Springs board believes that sufficient procedural safeguards
existed to ensure the fairness of the proposed recapitalization and to permit
the special committee to effectively represent the interests of Springs
shareholders who are not affiliated with the Close family or Heartland
Industrial Partners and therefore that additional unaffiliated representatives
to act on behalf of those shareholders were not necessary.
OPINION OF UBS WARBURG LLC
Under the terms of an engagement letter dated March 13, 2001, the special
committee retained UBS Warburg LLC to provide financial advisory services and a
financial fairness opinion to the special committee in connection with the
recapitalization. At the meeting of the special committee held on April 24,
2001, UBS Warburg delivered its oral opinion to the effect that, as of the date
of the opinion and based on and subject to the matters described in the opinion,
the $46.00 per share cash recapitalization consideration to be received by
Springs shareholders whose shares are being converted into cash in the proposed
recapitalization is fair from a financial point of view to such shareholders.
The opinion was confirmed by delivery of a written opinion dated April 24, 2001.
The following summary of the UBS Warburg opinion is qualified in its
entirety by reference to the full text of the opinion. The full text of the
opinion sets forth the assumptions made, procedures followed, matters considered
and limitations on the scope of the review undertaken, by UBS Warburg and is
attached as Appendix B to this document and incorporated in this document by
reference. We encourage you to read carefully the UBS Warburg opinion in its
entirety.
UBS Warburg's opinion:
- is directed to the special committee;
- relates only to the fairness from a financial point of view of the $46.00
per share cash recapitalization consideration to be received by Springs
shareholders whose shares are being converted into cash in the proposed
recapitalization;
- does not address Springs' underlying business decision to effect the
recapitalization;
- does not constitute a recommendation to any shareholder about how to vote
with respect to the recapitalization agreement or any other matter; and
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- is necessarily based upon economic, monetary, market and other conditions
as in effect on, and the information made available to UBS Warburg as of,
the date of the opinion.
In arriving at its opinion, UBS Warburg, among other things:
- reviewed selected publicly available business and historical financial
information relating to Springs;
- reviewed the reported prices and trading activity for the Class A common
stock;
- reviewed selected internal financial information and other data relating
to the business and financial prospects of Springs, including estimates
and financial forecasts prepared by the management of Springs, which were
provided to UBS Warburg by Springs and not publicly available;
- conducted discussions with members of the senior management of Springs;
- reviewed publicly available financial and stock market data with respect
to selected other companies in lines of business UBS Warburg believed to
be generally comparable to those of Springs;
- compared the financial terms of the recapitalization with the publicly
available financial terms of selected other transactions which UBS
Warburg believed to be generally relevant;
- reviewed drafts of the recapitalization agreement; and
- conducted such other financial studies, analyses and investigations and
considered such other information as UBS Warburg deemed necessary or
appropriate.
In connection with its review, with the special committee's consent, UBS
Warburg:
- assumed that the final executed form of the recapitalization agreement
did not differ in any material respect from the drafts that UBS Warburg
examined, and that Springs and Heartland Springs will comply with all
material terms of the recapitalization agreement;
- did not assume any responsibility for independent verification of any of
the information referred to above and relied on it as being complete and
accurate in all material respects;
- did not make any independent evaluation or appraisal of any of the assets
or liabilities (contingent or otherwise) of Springs, nor was UBS Warburg
furnished with any such evaluation or appraisal; and
- assumed that the five-year financial forecast entitled "Scenario 1 (Lower
Risk)" provided to UBS Warburg by Springs' management had been reasonably
prepared on a basis reflecting the best currently available estimates and
judgments of Springs' management as to the future performance of Springs.
UBS Warburg was not asked to, and did not, at the special committee's
direction, offer any opinion as to the material terms of the recapitalization
agreement or the form of the transactions contemplated by the recapitalization
agreement. In addition, in connection with its engagement by the special
committee, UBS Warburg was not authorized to and did not solicit indications of
interest from any third party with respect to a business combination with
Springs.
In connection with UBS Warburg's review, Springs' management provided UBS
Warburg with two sets of five-year financial forecasts for Springs, with one set
entitled "Scenario 2 (Higher Risk)" and the other set entitled "Scenario 1
(Lower Risk)". In preparing the financial and comparative analyses in connection
with the rendering of its opinion, UBS Warburg was instructed by the special
committee to disregard and not take into consideration the five-year financial
forecast for Springs entitled "Scenario 2 (Higher Risk)" because, based on
general economic and industry trends, Springs' past experience and the view
expressed to the special committee by Springs' management as to the likelihood
of achievement, the special committee did not believe, with UBS Warburg's
concurrence, that the financial forecast entitled "Scenario 2 (Higher Risk)" was
likely to be achieved.
The preparation of a fairness opinion is a complex analytical process
involving various determinations as to the most appropriate and relevant methods
of financial analysis and the application of those methods to the particular
circumstances and, therefore, is not susceptible to partial analysis or summary
descriptions. In
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arriving at its opinion, UBS Warburg made qualitative judgments as to the
significance and relevance of each analysis and factor considered by it.
Accordingly, UBS Warburg believes that its analyses must be considered as a
whole and that selecting portions of its analyses and the factors considered by
it, without considering all analyses and factors, could create an incomplete
view of the processes underlying the analyses set forth in its opinion.
In performing its analyses, UBS Warburg made numerous assumptions with
respect to industry performance, general business, financial, market and
economic conditions and other matters, many of which are beyond the control of
Springs. No company, transaction or business used in those analyses as a
comparison is identical to Springs or its businesses or the recapitalization,
nor is an evaluation of the results entirely mathematical. Rather, the analyses
involve complex considerations and judgments concerning financial and operating
characteristics and other factors that could affect the operating results,
public trading or other values of the companies or transactions being analyzed.
The estimates contained in the analyses performed by UBS Warburg and the
ranges of valuations resulting from any particular analysis are not necessarily
indicative of actual values or predictive of future results or values, which may
be significantly more or less favorable than suggested by these analyses. In
addition, analyses relating to the value of securities do not purport to be
appraisals or to reflect the prices at which a business might actually be sold
or the prices at which any securities may trade at the present time or at any
time in the future.
The following is a summary of the material financial analyses used by UBS
Warburg in connection with the rendering of its opinion. The financial analyses
summarized below include information presented in tabular format. In order to
understand the financial analyses fully, the tables must be read together with
the text of each summary. Considering the data set forth below without
considering the full narrative description of the financial analyses, including
the methodologies and assumptions underlying the analyses, could create a
misleading or incomplete view of the financial analyses.
Historical Stock Performance. UBS Warburg reviewed historical trading
prices for the Class A common stock. This stock price performance review
indicated that, for the latest twelve months ended February 16, 2001, the low
and high closing prices for the Class A common stock were $22.63 and $48.81,
respectively. UBS Warburg also reviewed the closing price of the Class A common
stock on February 16, 2001 and average closing prices and the low and high
closing prices over periods prior to February 16, 2001 as set forth in the
following table:
<Table>
<Caption>
SELECTED STATISTICS CLOSING PRICE
- ------------------- -------------
February 16, 2001........................................... $36.10
30 Day Average.............................................. $35.05
90 Day Average.............................................. $31.21
52 Week Average............................................. $33.70
52 Week High................................................ $48.81
52 Week Low................................................. $22.63
3 Year Average.............................................. $38.53
3 Year High................................................. $60.75
3 Year Low.................................................. $22.63
</Table>
Selected Comparable Public Company Analysis. UBS Warburg compared selected
financial information, ratios and public market multiples for Springs to the
corresponding data for the following six publicly-traded home furnishings
companies:
- Burlington Industries, Inc.
- Crown Crafts, Inc.
- Dan River, Inc.
- Galey & Lord, Inc.
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- Mohawk Industries, Inc.
- WestPoint Stevens, Inc.
UBS Warburg chose the selected companies because they were publicly traded
companies that, for purposes of the analysis, UBS Warburg considered reasonably
similar to Springs in that these companies operate in the home furnishings
industry. The selected public companies may significantly differ from Springs
based on, among other things, the size of the companies, the geographic coverage
of the companies' operations and the particular segments of the home furnishings
industry in which the companies focus.
UBS Warburg reviewed, among other information, the comparable companies'
multiples of total enterprise value, referred to as TEV, which consists of the
market value of the particular company's equity plus the market value (when
available) of the particular company's total debt (and certain unfunded
liabilities), minus cash, cash equivalents and marketable securities to:
- latest twelve months, referred to as LTM, revenue;
- LTM earnings before interest, taxes, depreciation and amortization,
referred to as EBITDA;
- LTM free cash flow, referred to as FCF, which equals LTM EBITDA minus LTM
capital expenditures; and
- LTM earnings before interest and taxes, referred to as EBIT.
UBS Warburg also reviewed, among other information, the comparable
companies' price/earnings multiples, referred to as P/E, for the calendar year
ending December 31, 2000 and projected P/E multiples, based on I/B/E/S
International Inc., referred to as IBES, consensus earnings estimates for the
calendar year ending December 31, 2001.
The Springs comparable companies analysis resulted in the following ranges
of multiples as of April 23, 2001:
<Table>
<Caption>
SPRINGS IMPLIED
MULTIPLE @
MULTIPLE ANALYSIS MULTIPLE RANGE $46.00/SHARE
- ----------------- -------------- ---------------
TEV/LTM Revenue........................................ 0.32x to 1.01x 0.57x
TEV/LTM EBITDA......................................... 4.3x to 7.9x 5.2x
TEV/LTM FCF............................................ 6.7x to 7.8x 7.9x
TEV/LTM EBIT........................................... 7.2x to 8.4x 9.4x
2000 P/E............................................... 4.2x to 10.1x 12.8x
2001E P/E -- IBES...................................... 2.3x to 16.9x 11.7x
</Table>
Actual LTM data for Springs and the selected companies were based on the
respective companies' Forms 10-K and 10-Q as well as certain internal financial
reports for Springs.
Premiums Paid Analysis. UBS Warburg reviewed selected purchase price per
share premiums paid both in cash acquisitions of publicly-traded domestic
companies in non-financial industries and in minority close-out transactions
announced, pending or completed, excluding withdrawn transactions and certain
transactions that in UBS Warburg's judgment were non-representative, from
January 1, 1999 through April 23, 2001, with deal sizes between $500.0 million
and $2.0 billion, except for minority close-out transactions for which no size
limitations were imposed. This analysis indicated mean and median and high
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and low premiums to the target's closing stock prices on dates prior to the
announcement as set forth in the following table.
<Table>
<Caption>
PREMIUM TO STOCK PRICE(%)
--------------------------------------------
ONE DAY ONE WEEK ONE MONTH
NUMBER OF PRIOR TO PRIOR TO PRIOR TO
DEALS ANNOUNCEMENT ANNOUNCEMENT ANNOUNCEMENT
--------- ------------ ------------ ------------
DEALS ANNOUNCED IN 2001
Control................................. 32
Mean/Median............................. 35.7/30.6 43.3/41.5 51.8/50.0
High/Low................................ 92.7/2.7 96.3/4.0 111.1/(0.3)
Minority Close-out...................... 13
Mean/Median............................. 39.0/42.5 48.8/44.3 37.4/41.1
High/Low................................ 85.5/3.9 108.2/3.9 75.4/5.3
DEALS ANNOUNCED IN 2000
Control................................. 39
Mean/Median............................. 34.7/30.2 43.5/40.7 53.0/50.6
High/Low................................ 116.8/(5.3) 121.0/4.0 130.3/(0.3)
Minority Close-out...................... 19
Mean/Median............................. 29.4/22.4 37.0/37.6 36.4/31.9
High/Low................................ 85.5/(4.5) 108.2/0.0 98.8/1.2
DEALS ANNOUNCED IN 1999
Control................................. 65
Mean/Median............................. 30.1/27.3 37.0/34.8 44.5/41.9
High/Low................................ 95.3/(7.9) 115.4/(11.4) 120.3/(2.1)
Minority Close-out...................... 18
Mean/Median............................. 34.7/30.5 35.9/43.4 48.6/48.6
High/Low................................ 83.6/5.5 63.3/(1.5) 107.4/7.3
Implied Premium of Proposed
Recapitalization of Springs @
$46.00/share.......................... 27.4 26.8 42.4
</Table>
Selected Comparable Transaction Analysis. UBS Warburg reviewed publicly
available financial information relating to the following selected transactions
in the home furnishings industry since February 1995:
<Table>
<Caption>
ACQUIROR TARGET
- -------- ------
Berkshire Hathaway, Inc. Shaw Industries, Inc.
Investor Group Conso International Corp.
CGW Southeast Partners IV, L.P. Johnston Industries, Inc.
Dan River, Inc. The Bibb Company
Pillowtex Corp. Fieldcrest Cannon, Inc.
Springs Industries, Inc. Dundee Mills, Inc.
</Table>
UBS Warburg chose the selected transactions because they were business
combinations that, for the purposes of the analysis, UBS Warburg considered to
be reasonably similar to the recapitalization in that these transactions
involved companies in the home furnishings industry. The selected transactions
may differ significantly from the recapitalization based on, among other things,
the size of the transactions, the structure of the transactions and the dates
that the transactions were announced and consummated.
UBS Warburg reviewed, among other things, the TEVs implied in the relevant
transactions as a multiple of LTM revenue, LTM EBITDA, LTM FCF and LTM EBIT and
the equity market value, referred to as EMV, implied in the relevant
transactions as a multiple of LTM net income.
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The analysis indicated the following implied multiples for the selected
transactions and for the recapitalization:
<Table>
<Caption>
SPRINGS IMPLIED
MULTIPLE @
MULTIPLE ANALYSIS MULTIPLE RANGE $46.00/SHARE
- ----------------- -------------- ---------------
TEV/LTM Revenue........................................ 0.53x to 1.10x 0.57x
TEV/LTM EBITDA......................................... 5.9x to 18.4x 5.2x
TEV/LTM FCF............................................ 7.2x to 47.3x 7.9x
TEV/LTM EBIT........................................... 7.9x to 40.7x 9.4x
EMV/LTM Net Income..................................... 11.5x to 23.9x 12.8x
</Table>
All multiples for the selected transactions were based on publicly
available information at the time of the announcement of the particular
transaction. Actual LTM data for Springs and the selected companies were based
on the respective companies' Forms 10-K and 10-Q as well as certain internal
financial reports for Springs.
Discounted Cash Flow Analysis. UBS Warburg performed a discounted cash
flow analysis, using the Scenario 1 financial forecast prepared by management of
Springs, in order to derive an implied equity value reference range for Springs.
The discounted cash flow analysis determined the discounted present value of the
unleveraged after-tax cash flows generated over the five-year period covered by
the Scenario 1 financial forecast and then added a terminal value based upon
ranges of EBITDA, FCF and EBIT multiples and a growth perpetuity based on
unleveraged after-tax free cash flow from 4.5x to 5.5x, 6.5x to 7.5x, 6.5x to
7.5x, and 0.5% to 2.5%, respectively. The unleveraged after-tax cash flows and
terminal values were discounted using a range of discount rates (8.75% to
11.75%) that UBS Warburg deemed appropriate, based on Springs' weighted average
cost of capital. The valuation ranges implied by this analysis are summarized in
the following table:
<Table>
<Caption>
TERMINAL VALUE TERMINAL VALUE IMPLIED PER SHARE
BASED UPON MULTIPLE RANGE VALUE RANGE($)
- -------------- -------------- -----------------
EBITDA................................................ 4.5x to 5.5x 38.61 to 56.12
EBIT.................................................. 6.5x to 7.5x 28.13 to 39.80
FCF................................................... 6.5x to 7.5x 34.39 to 47.58
Perpetuity Growth..................................... 0.5% to 2.5% 23.92 to 56.75
</Table>
Leveraged Recapitalization Analysis. UBS Warburg performed a leveraged
recapitalization analysis of Springs to show the internal rates of return,
referred to as IRR, to a typical financial buyer that might be produced assuming
the sale of Springs to such a financial buyer at various per share purchase
prices. A leveraged recapitalization involves the acquisition or
recapitalization of a company financed primarily by incurring indebtedness that
is serviced by the post-recapitalization operating cash flow of Springs. For
purposes of the leveraged recapitalization analysis UBS Warburg assumed, among
other things: (i) a purchase price per share range from $38.00 to $50.00; (ii)
recapitalization accounting (no push-down of goodwill); (iii) a closing date of
June 30, 2001; and (iv) that the hypothetical investor sells Springs in 4.5
years (i.e., at the end of 2005) at an EBITDA multiple of 5.0x. The results of
these analyses are summarized in the table below:
<Table>
<Caption>
PURCHASE PRICE PER SHARE
------------------------------------
$38.00 $42.00 $46.00 $50.00
------ ------ ------ ------
2000 Pro Forma(x):
Total Debt/EBITDA................................... 2.5 2.7 2.9 3.1
EBITDA/Interest Expense............................. 5.2 4.9 4.7 4.4
(EBITDA-CAPEX)/Interest Expense..................... 3.3 3.2 3.0 2.8
IRR(%).............................................. 20.5 17.5 14.6 11.8
---- ---- ---- ----
</Table>
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Present Value of Hypothetical Future Stock Price Analysis. UBS Warburg
performed a present value of hypothetical future stock price analysis using the
Scenario 1 financial forecast prepared by management of Springs, in order to
derive an implied equity value reference range for Springs. The future stock
price range was determined by applying a P/E multiple range of 7.0x-9.0x. The
P/E multiple range used in this analysis was selected by UBS Warburg after
considering the implied P/E multiple range derived from the comparable public
companies analysis and the implied P/E multiples for Springs for various periods
prior to the announcement of the proposed recapitalization. This hypothetical
future stock price and the forecasted constant per share dividend stream
generated over the five-year period (2001-2005) were then discounted at a
levered cost of equity of 11.75%. The valuation range indicated by this analysis
is summarized in the following table:
<Table>
<Caption>
($ PER SHARE) 2001P 2002P 2003P 2004P 2005P
- ------------- ----- ----- ----- ----- -----
Projected Springs EPS(1)................... 3.95 3.92 4.31 4.40 4.48
Hypothetical Future Stock Price
P/E Multiple
7.0x....................................... 27.65 27.44 30.17 30.80 31.36
8.0x....................................... 31.60 31.36 34.48 35.20 35.84
9.0x....................................... 35.55 35.28 38.79 39.60 40.32
Dividends per share(2)..................... 1.27 1.27 1.27 1.27 1.27
Present Value of Hypothetical Stock Price
P/E Multiple:
7.0x....................................... 26.76 24.91 25.50 24.38 23.30
8.0x....................................... 30.49 28.22 28.76 27.36 26.02
9.0x....................................... 34.23 31.54 32.03 30.35 28.73
</Table>
- ---------------
(1) Projected Springs earnings per share, referred to as EPS, based on Scenario
1 financial forecast prepared by management of Springs.
(2) Assumes constant blended per share dividend policy as per Springs'
management Scenario 1 financial forecasts.
Although UBS Warburg noted that several of the stock price premiums implied
from the proposed recapitalization of Springs at $46.00 per share were lower
than the corresponding mean and median average premiums derived from the
premiums paid analysis described above and that several of the implied multiples
from the proposed recapitalization at $46.00 per share were near or below the
low end of the range of the corresponding multiples derived from the selected
comparable transactions analysis described above, UBS Warburg arrived at its
financial fairness opinion based on the results of the analyses undertaken by it
and assessed as a whole and did not draw conclusions, in isolation, or with
regard to any one factor or method of analysis.
Fee Arrangement. Pursuant to the engagement letter dated March 13, 2001
among UBS Warburg, Springs and the special committee, UBS Warburg earned a fee
of $2,000,000 payable by Springs for rendering its financial fairness opinion,
independent of the result of the opinion. Springs also agreed to reimburse UBS
Warburg for its expenses incurred in performing its services. UBS Warburg will
not be entitled to any additional fees or compensation with respect to the
recapitalization. In addition, Springs has agreed to indemnify UBS Warburg and
its affiliates, their respective directors, officers, agents and employees and
each person, if any, controlling UBS Warburg or any of its affiliates against
certain liabilities and expenses related to or arising out of UBS Warburg's
engagement and any related transactions.
The special committee selected UBS Warburg based on its experience,
expertise and reputation. UBS Warburg is an internationally recognized
investment banking firm that regularly engages in the valuation of securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
bids, secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes. Prior to
this engagement, UBS Warburg had not provided investment banking and other
financial
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services to Springs, the Close family or Heartland Industrial Partners. In the
ordinary course of business, UBS Warburg, its successors and affiliates may
trade or have traded securities of Springs for their own accounts and,
accordingly, may at any time hold a long or short position in such securities.
THE CLOSE FAMILY'S POSITION REGARDING THE FAIRNESS OF THE RECAPITALIZATION
The rules of the Securities and Exchange Commission require the members of
the Close family to express their belief as to the fairness of the
recapitalization to Springs shareholders who are not affiliated with the Close
family or Heartland Industrial Partners. The views set forth in this section and
under the heading "The Close Family's Purpose and Reasons for the
Recapitalization" are held by each member of the Close family.
The members of the Close family believe that the recapitalization is
substantively and procedurally fair to Springs shareholders who are not
affiliated with the Close family or Heartland Industrial Partners, exclusively
on the basis of their observations that:
- Before deciding to propose the recapitalization in conjunction with
Heartland Industrial Partners, Springs held discussions with five other
potential investors in an effort to structure a transaction that would
provide an attractive price to the public and at the same time allow the
Close family to continue its ownership of Springs and maintain the
moderately leveraged capital structure that the Close family believes is
necessary to enable Springs to operate successfully in the future. Most
of the private equity funds that were contacted were unwilling to pursue
a significant investment in Springs. Aside from Heartland Industrial
Partners, only one other contacted investor was willing to participate in
a transaction involving Springs, but only if significantly higher
financial leverage were used to effect such transaction at a price
significantly below the $46.00 per share cash consideration being offered
in the recapitalization.
- Following the offer by the Close family and Heartland Industrial
Partners, Springs has not received any other proposals from potential
investors or acquirors.
- The $46.00 per share cash consideration being offered in the
recapitalization represents an approximately 47.4% premium over the
average per share closing price for the 90 days prior to February 16,
2001, the last full business day prior to the announcement of the
proposed recapitalization, an approximately 31.2% premium over the
average per share closing price for the 30 days prior to February 16,
2001, and an approximately 27.4% premium over the per share closing price
of $36.10 of Springs common stock on February 16, 2001.
- A special committee of independent directors was established. The special
committee retained its own financial and legal advisors and conducted a
vigorous process of evaluation and negotiation.
- The special committee unanimously recommended to the Springs board of
directors that the recapitalization agreement and proposed amendment to
the articles of incorporation be adopted by the Springs board and that
the Springs board recommend approval of the recapitalization agreement
and proposed amendment to the articles of incorporation by Springs
shareholders. Both the special committee and the Springs board determined
that the recapitalization agreement and the proposed amendment to the
articles of incorporation are advisable, fair to and in the best
interests of Springs shareholders who are not affiliated with the Close
family or Heartland Industrial Partners.
- UBS Warburg LLC, the financial advisor to the special committee,
delivered its opinion dated April 24, 2001 to the special committee as to
the fairness, from a financial point of view, of the $46.00 per share
cash recapitalization consideration to be received by Springs
shareholders whose shares are being converted into cash in the proposed
recapitalization. The Close family adopts UBS Warburg's analysis as to
the fairness, from a financial point of view, of the $46.00 per share
cash consideration.
- In addition to the affirmative vote of the holders of at least two-thirds
of the outstanding shares of Springs common stock as required by South
Carolina law, it is a condition to the recapitalization that the
recapitalization agreement be approved by the affirmative vote of the
holders of a majority of the
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votes cast at the annual meeting not held by the Close family and certain
key members of management and Heartland Industrial Partners and its
affiliates (a condition that will not be waived by either Springs or
Heartland Springs).
This belief, however, should not be construed as a recommendation to any
shareholder as to how you should vote on the recapitalization. The members of
the Close family have not considered any factors, other than as stated above,
regarding the fairness of the recapitalization to Springs shareholders who are
not affiliated with the Close family or Heartland Industrial Partners, as they
believe the factors they considered provided a reasonable basis to form their
belief. Specifically, the members of the Close family have not independently
considered with respect to such fairness:
- net book value, which the Close family does not believe has any
systematic connection with the economic value of Springs;
- liquidation value, which the Close family does not view as relevant since
it believes that substantial value is tied to Springs as a going concern
and that liquidation would destroy this value;
- purchase prices paid by Springs or by the Close family for past purchases
of Springs common stock, which, in recent years, involved too few shares
to be used as a reliable basis for valuation; or
- recent other firm offers for Springs, of which there has been none.
THE CLOSE FAMILY'S PURPOSE AND REASONS FOR THE RECAPITALIZATION
The Close family believes that it is desirable to return Springs to private
ownership at this time to enable Springs and its management to respond more
effectively to the complex and rapidly changing conditions in the home
furnishings industry and to focus management's attention on the long-term
interests of Springs. The Close family believes that Springs will be a stronger
and more competitive company in the years ahead as a result of the
recapitalization. The Close family has chosen to engage in the recapitalization
because it believes Springs is a leader in its industry, with strengths that the
Close family believes will provide a foundation to further enhance growth and
its industry position. Although the Close family recognizes that the
recapitalization will expose its investment in Springs to certain additional
risks as compared to Springs' continuation as a public company, it believes that
the recapitalization will ultimately enhance the value of its investment in
Springs.
Springs' declining stock price in mid-2000 prompted the Close family to
contemplate taking Springs private. The Close family believes that as a private
company, Springs will have greater operating flexibility to focus on enhancing
value by emphasizing growth (both internally and through acquisitions) and
operating cash flow without the constraint of the public market's emphasis on
near-term earnings. The Close family believes that the public markets tend to
focus on short-term results, and often do not react favorably to business
strategies that are perceived as dilutive to operating results for more than a
few fiscal quarters. In contrast, the owners of private companies are less
sensitive to quarter-to-quarter results and are able to focus more on long-term
strategies. The Close family believes that current industry conditions create an
opportunity for Springs to significantly enhance its position in the home
furnishings industry through infrastructure investment and acquisitions, but
that a strategy to capitalize on this opportunity will require a long-term
commitment and a willingness to tolerate negative effects on earnings in the
short term. The Close family believes that the new ownership structure will
support these strategies, as well as Springs' strategy of focusing on key
customers, product breadth, building Springs' brands, cost reductions through
purchasing and manufacturing efficiencies, and increased sourcing.
The Close family views Heartland Industrial Partners as an excellent
partner for the recapitalization. The Close family believes that partnering with
Heartland Industrial Partners will help enable Springs to reposition the Company
in anticipation of the expected consolidation of the home furnishing industry.
Heartland Industrial Partners has the financial and industry expertise to
provide Springs with advice in critical areas, including advice on general
developments in the textile and nontextile home furnishings industry, on market
developments concerning the purchase of other home furnishings manufacturers, on
designing financing structures, on relationships with lenders, bankers and
lessors, on structuring and timing public and private
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offerings of debt and equity securities, on asset dispositions, divestitures and
acquisitions, on operational improvements, on quality and supply chain
management, on information systems and on sourcing. The Close family believes
that Heartland Industrial Partners' support, interest and expertise in these
critical areas will be a valuable resource to Springs, its associates and
customers.
While the Close family believes that there will be significant
opportunities associated with the recapitalization of Springs, there are also
substantial risks that such opportunities may not be realized. Such risks
include risks associated with holding equity of privately held companies as
opposed to public companies (such as a lack of liquidity in the investment),
risks associated with the level of debt of Springs following the
recapitalization (which is being increased and will require that a significant
portion of the cash generated by Springs in the future be used to pay for
principal and interest, decreasing the cash available to operate its businesses)
and risks associated with the operations of these businesses (which operate in
very competitive environments).
Furthermore, while the other Springs shareholders will receive a
significant premium in cash over the pre-announcement market price of their
Springs shares, the value of the Close family's ongoing investment remains at
risk and may decrease, or be lost in the future, especially in light of the
risks discussed above. However, the Close family regards the recapitalization as
an attractive investment opportunity because they believe that the substantial
increase in the debt-to-equity ratio of Springs from approximately 40% to 114%
after the recapitalization, although importing greater investment risks, will
create the potential for increased investment returns. The increase in the
debt-to-equity ratio is presented based on the assumption that the
recapitalization was completed on June 30, 2001, using management's current
projected balance sheet as of that date, that no shares or options are retained,
except those of the Close family, and that the estimated changes in debt and
equity are as discussed under "Financing for the Recapitalization" on pages 53
to 54. Debt excludes the $165 million of receivables facility proceeds, which is
presented as a reduction in accounts receivable, and equity includes an
estimated $6.4 million of unrealized losses on derivative financial instruments
recorded in accumulated other comprehensive income. Springs' debt-to-equity
ratio is a measure of the extent to which its equity capital is leveraged. A
higher ratio indicates a greater degree of leverage, thus magnifying any
positive or negative returns to Springs' stockholders.
While the Close family considered alternatives to taking Springs private
with Heartland Industrial Partners, it rejected such alternatives. The Close
family contemplated taking Springs private, without a partner. However, the
Close family concluded that taking Springs private without a partner would
require Springs to incur too much debt. With Heartland Industrial Partners'
equity investment, the Close family could participate in a recapitalization of
Springs with lower leverage, giving Springs increased flexibility to make
acquisitions and capital expenditures and pay dividends. The Close family also
contemplated a growth strategy, with Springs remaining a public company, driven
by the acquisition of other home furnishings companies. However, the Close
family rejected this option because it believed that Springs could execute its
growth strategy better as a private company with a partner. Finally, the Close
family considered a share repurchase program, but rejected this alternative
since it lacked the qualitative benefits associated with having a partner like
Heartland Industrial Partners, which brought with it experience, management
skills and the ability to increase Springs' market profile and thereby attract
and retain key executives.
The recapitalization of Springs has been structured as a merger with
Springs continuing as the surviving corporation and the Close family retaining
an interest in Springs in order to (1) bind all shareholders, subject to
dissenters' rights, (2) preserve the corporate identity of Springs and its
existing contractual arrangements with third parties and (3) effect a
recapitalization of Springs for accounting purposes.
The Close family presently intends that the businesses of Springs will be
conducted substantially as they have been conducted historically. The Close
family is continuing to evaluate Springs' business, assets, practices,
operations, properties, corporate structure, capitalization and personnel and
will implement changes as they deem appropriate. The Close family has no present
intention to dispose of its equity investment in Springs, other than the up to
$50 million in value of its Springs shares, representing approximately 15% of
its holdings, that it intends to sell to Heartland Industrial Partners at $46
per share prior to the recapitalization, or
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to cause Springs to engage in a significant business combination. Springs
intends to pursue potential acquisitions it considers appropriate at any time
they become available.
HEARTLAND'S POSITION REGARDING THE FAIRNESS OF THE RECAPITALIZATION
The rules of the Securities and Exchange Commission require Heartland
Industrial Partners and Heartland Springs to express their belief as to the
fairness of the recapitalization to Springs shareholders who are not affiliated
with the Close family or Heartland Industrial Partners.
Heartland Industrial Partners and Heartland Springs believe that the
recapitalization is substantively and procedurally fair to Springs shareholders
who are not affiliated with the Close family or Heartland Industrial Partners
exclusively on the basis of their observations that:
- Following the offer by the Close family and Heartland Industrial
Partners, Springs has not received any other proposals from potential
investors or acquirors.
- The $46.00 per share cash consideration being offered in the
recapitalization represents an approximately 47.4% premium over the
average per share closing price for the 90 days prior to February 16,
2001, the last full business day prior to the announcement of the
proposed recapitalization, an approximately 31.2% premium over the
average per share closing price for the 30 days prior to February 16,
2001, and an approximately 27.4% premium over the per share closing price
of $36.10 of Springs common stock on February 16, 2001.
- A special committee of independent directors was established. The special
committee retained its own financial and legal advisors and conducted a
vigorous process of evaluation and negotiation.
- The special committee unanimously recommended to the Springs board of
directors that the recapitalization agreement and proposed amendment to
the articles of incorporation be adopted by the Springs board and that
the Springs board recommend approval of the recapitalization agreement
and proposed amendment to the articles of incorporation by Springs
shareholders. Both the special committee and the Springs board determined
that the recapitalization agreement and the proposed amendment to the
articles of incorporation are advisable, fair to and in the best
interests of Springs shareholders who are not affiliated with the Close
family or Heartland Industrial Partners.
- UBS Warburg LLC, the financial advisor to the special committee,
delivered its opinion dated April 24, 2001 to the special committee as to
the fairness, from a financial point of view, of the $46.00 per share
cash recapitalization consideration to be received by Springs
shareholders whose shares are being converted into cash in the proposed
recapitalization. Heartland Industrial Partners and Heartland Springs
adopt UBS Warburg's analysis as to the fairness, from a financial point
of view, of the $46.00 per share cash consideration.
- In addition to the affirmative vote of the holders of at least two-thirds
of the outstanding shares of Springs common stock as required by South
Carolina law, it is a condition to the recapitalization that the
recapitalization agreement be approved by the affirmative vote of the
holders of a majority of the votes cast at the annual meeting not held by
the Close family, certain key members of management and Heartland
Industrial Partners and its affiliates (a condition that will not be
waived by either Springs or Heartland Springs).
This belief, however, should not be construed as a recommendation to any
shareholder as to how you should vote on the recapitalization. Heartland
Industrial Partners and Heartland Springs have not considered any factors, other
than as stated above, regarding the fairness of the recapitalization to Springs
shareholders who are not affiliated with the Close family or Heartland
Industrial Partners, as they believe the factors they considered provided a
reasonable basis to form their belief. Specifically, Heartland Industrial
Partners and Heartland Springs have not independently considered with respect to
such fairness:
- net book value, which Heartland Industrial Partners and Heartland Springs
do not believe has any systematic connection with the economic value of
Springs;
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- liquidation value, which Heartland Industrial Partners and Heartland
Springs do not view as relevant since they believe that substantial value
is tied to Springs as a going concern and that liquidation would destroy
this value; or
- purchase prices paid by the Close family for past purchases of Springs
common stock, which, in recent years, involved too few shares to be used
as a reliable basis for valuation.
Because Heartland Industrial Partners and Heartland Springs did not have any
access to information concerning purchase prices paid by Springs for past
purchases of Springs common stock or firm offers that might have been made for
Springs, they have not considered these factors in evaluating the fairness of
the recapitalization to Springs shareholders who are not affiliated with the
Close family or Heartland Industrial Partners.
HEARTLAND'S PURPOSE AND REASONS FOR THE RECAPITALIZATION
Heartland Industrial Partners has targeted the home furnishings sector as
ideal for its buy, build and grow investment strategy in sectors that are
attractive for consolidation and long-term growth. Heartland Industrial Partners
believes that its proposed investment in Springs involving a partnership with
the Close family is in furtherance of its investment strategy. Heartland
Industrial Partners chose to approach Springs in June 2000 about a possible
transaction in part because Springs' declining stock price offered Heartland
Industrial Partners the opportunity to invest in Springs at an attractive
valuation.
Heartland Industrial Partners believes that as a private company, Springs
will have greater operating flexibility to focus on enhancing value by
emphasizing growth (both internally and through acquisitions) and operating cash
flow without the constraint of the public market's emphasis on near-term
earnings. Heartland Industrial Partners believes that the public markets tend to
focus on short-term results, and often do not react favorably to business
strategies that are perceived as dilutive to operating results for more than a
few fiscal quarters. In contrast, the owners of private companies are less
sensitive to quarter-to-quarter results and are able to focus more on long-term
strategies. Heartland Industrial Partners believes that current industry
conditions create an opportunity for Springs to significantly enhance its
position in the home furnishings industry through infrastructure investment and
acquisitions, but that a strategy to capitalize on this opportunity will require
a long-term commitment and a willingness to tolerate negative effects on
earnings in the short term. Heartland Industrial Partners believes that the new
ownership structure will support these strategies, as well as Springs' strategy
of focusing on key customers, product breadth, building Springs' brands, cost
reductions through purchasing and manufacturing efficiencies, and increased
sourcing.
While Heartland Industrial Partners believes that there will be significant
opportunities associated with the recapitalization of Springs, there are also
substantial risks that such opportunities may not be realized. Such risks
include risks associated with holding equity of privately held companies as
opposed to public companies (such as a lack of liquidity in the investment),
risks associated with the level of debt of Springs following the
recapitalization (which is being increased and will require that a significant
portion of the cash generated by Springs in the future be used to pay for
principal and interest, decreasing the cash available to operate its businesses)
and risks associated with the operations of these businesses (which operate in
very competitive environments). However, Heartland Industrial Partners regards
the recapitalization as an attractive investment opportunity because they
believe that the substantial increase in the debt-to-equity ratio of Springs
from approximately 40% to 114% after the recapitalization, although importing
greater investment risks, will create the potential for increased investment
returns.
Heartland Industrial Partners did not consider any alternatives to a
recapitalization transaction as a means of investing in Springs.
ACCOUNTING TREATMENT
We expect that the merger will be treated as a "recapitalization" under
generally accepted accounting principles. Accordingly, no adjustment of assets
or liabilities will occur.
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INTERESTS OF CERTAIN PERSONS IN THE RECAPITALIZATION
The Close Family
The members of the Close family have interests in the recapitalization as
employees or directors of Springs, or as shareholders with a continuing equity
interest in Springs, that are different from, or in addition to, yours as a
Springs shareholder. In particular, the members of the Close family will not
receive $46.00 per share in cash for all of their Springs shares, and will
instead remain significant shareholders of Springs, with the ability to share in
the future growth and profits of Springs. Prior to the recapitalization, the
Close family intends to sell up to $50 million in value of its Springs shares,
representing approximately 15% of its holdings, to Heartland Industrial Partners
at $46 per share. When making the determination to adopt and recommend approval
of the recapitalization agreement and the amendment to the articles of
incorporation to the Springs board of directors, in the case of the special
committee, and to Springs shareholders, in the case of the Springs board, both
the special committee and the Springs board were aware of the interests of the
Close family and considered these interests, effects and terms together with the
other factors described under "Special Factors -- Recommendation of the Special
Committee and the Springs Board; Springs' Purpose and Reasons for the
Recapitalization" and "Springs' Position Regarding the Fairness of the
Recapitalization" on pages 30 to 35.
Treatment of Continuing Shares and Options
The following members of Springs' management, along with Mrs. Bowles, will
be designated as key management employees, and have interests in the
recapitalization that are different from, or in addition to, yours as a Springs
shareholder: Blake Bell, Richard Canter Sr., Derick Close, Gracie Coleman,
Thomas Coughlin, John Cowart, John de la Roche, Miller Deaton, C. Powers
Dorsett, William Easley, Thomas Gaffney, Ray Greer, Samuel Ilardo, Charles
McJunkin Jr., Charles Metzler, Jeff Nigh, Thomas O'Connor, John Palmer, Daniel
Robertson, Torrence Shealy, Harvey Simon, Elizabeth Turner, Ben Watkins III,
Nancy Webster and Ron Zabel.
In connection with the recapitalization, all holders of options (whether or
not key management employees) with an exercise price per share of class A common
stock below $46.00 may choose, after the completion of the recapitalization, (1)
a cash-out election, pursuant to which each such option will be deemed to be
fully vested and will be converted to cash equal to the excess of $46.00 over
the exercise price or (2) a retention election, pursuant to which each such
option will be retained. By their terms, Springs stock options cannot be cashed
out by Springs without optionholder consent. Key management employees will be
guaranteed certain enhancements to options with respect to which they make a
retention election. Specifically, key management employees may elect a
combination of a cash-out election and retention election and, for those options
they elect to retain, will receive, for no additional consideration, accelerated
vesting and an appreciation right. This appreciation right allows the holder to
receive, for each exercised option, a cash payment or, if the key management
employee is still employed by Springs at the time of exercise, Springs shares,
equal in value to the difference between the fair market value of a Springs
share and the exercise price of the option. Holders of options other than key
management employees will neither benefit from any accelerated vesting of
retained options nor receive an appreciation right with respect to any retained
options with an exercise price of less than $46.00 per share.
All options (whether or not held by key management employees) with an
exercise price per share of class A common stock above $46.00 will be retained
automatically by employees and become fully vested, and holders will receive,
for no additional consideration, an appreciation right that allows the holder to
receive, for each exercised option, cash or, if so elected by a holder who is a
key management employee of Springs at the time of exercise, Springs shares. All
restrictions will lapse on outstanding restricted stock held by employees or
directors at the time of the recapitalization.
All currently outstanding performance units under the 1991 Incentive Stock
Plan and the 1999 Incentive Stock Plan were granted with respect to the
1999-2001 performance cycle, which was originally scheduled to end on December
29, 2001. If the recapitalization occurs, this cycle will instead end effective
as of 10 business days before shareholders vote to approve the recapitalization.
Under the performance unit agreements relating
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to these awards, half of each performance unit award that is actually earned is
to be distributed in cash as soon as practicable following the end of the cycle
and the other half is to be distributed two years after the conclusion of the
performance cycle in Springs shares. If the recapitalization occurs, it is
currently anticipated that key management employees will still receive the
second half of each performance unit in Springs shares at that time, but other
performance unit holders will instead receive cash for each Springs share that
they would have received. In addition, all deferred stock awards and deferred
unit stock awards held by any Springs employees, former employees or directors
that currently are required to be distributed in Springs shares or in cash
amounts tracking the value of Springs shares will be deemed reinvested, as of
the effective date of the recapitalization, in other investment vehicles under
the Springs deferred compensation plan and the Springs deferred compensation
plan for outside directors at a rate of $46.00 per share. In addition, with
respect to deferred stock awards, the post-termination covenants that are a
condition of distribution will be shortened from two years to one year, and all
other vesting conditions will be waived. Distribution will commence one year
after termination of employment.
In December 2000, Springs had planned to make grants of options to its
senior management, and had prepared a schedule indicating the size of each
employee's grant. However, because of the uncertainties surrounding its review
of strategic alternatives, Springs decided not to grant the options at that
time. Springs plans in connection with the recapitalization to grant stock
options or to pay cash to each employee who would have received an option in
December in lieu of the options that would have been granted at that time.
Individuals who are key management employees will receive stock options, while
other individuals will receive cash. Such cash payments granted in lieu of the
2000 options will vest and be distributed in two equal installments, the first
of which will occur at the end of 2001, and the second of which will occur at
the end of 2002. Stock options granted in lieu of the 2000 options will be
granted pursuant to, and subject to the terms of, the stock option plan that
Springs plans to adopt after the closing of the recapitalization.
Indemnification of Directors and Officers
Springs has agreed that, for a period of six years after the effective time
of the recapitalization, it will indemnify and hold harmless the present and
former officers and directors of Springs and each of its subsidiaries in respect
of acts or omissions occurring at or prior to the effective time to the fullest
extent permitted by applicable law or provided under the Springs' articles of
incorporation and bylaws. The surviving corporation has also agreed that, for a
period of six years after the effective time of the recapitalization, it will
provide officers' and directors' liability insurance in respect of acts or
omissions occurring at or prior to the effective time to each present and former
officer and director of Springs and each of its subsidiaries covered as of April
24, 2001 by Springs' officers' and directors' liability insurance policy with
terms, conditions and coverage amounts no less favorable than those of such
policy in effect on such date. However, the surviving corporation is not
obligated to make annual premium payments for such insurance to the extent such
annual premiums exceed 200% of the annual premiums paid as of such date by
Springs for such insurance. If premiums with respect to such insurance exceed
200% of the annual premiums paid as of such date by Springs for such insurance,
the surviving corporation will be obligated to obtain such insurance with the
maximum coverage as can be obtained at an annual premium equal to 200% of the
annual premiums paid by Springs as of such date.
Other Interests
Some of the members of Springs' board of directors and management have
other interests in the recapitalization different from, or in addition to, yours
as a Springs shareholder that are described below under "-- Shareholders
Agreement."
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SHAREHOLDERS AGREEMENT
After the recapitalization, the Close family and the Heartland Investors
will own almost all of the equity of Springs. Accordingly, the Close family and
Heartland Industrial Partners have entered into a shareholders agreement
creating various rights and obligations among them, including as follows:
Covenants of Family Shareholders
Under the shareholders agreement, the Close family has agreed that until
the effective time of the recapitalization, it would not offer or transfer any
shares of Springs common stock. However, the Close family is allowed to sell up
to 1,086,956 shares of common stock, and to transfer common stock by
intra-family gift, will or pursuant to the laws of descent and distribution, or
to the intra-family beneficiary of a trust. In addition, the Close family has
agreed that until October 24, 2001, it will vote in favor of the
recapitalization, and any other matter that would facilitate completion of the
recapitalization, and against any alternative transaction.
Covenants of Heartland
Under the shareholders agreement, the Heartland Investors have agreed to
purchase $225 million of Heartland Springs common stock, reduced by the amount
of Springs class A common stock that it purchases from the Close family. If, as
intended, the Heartland Investors purchase $50 million of Springs class A common
stock from the Close family, the Heartland Investors will purchase $175 million
of Heartland Springs stock and retain the $50 million of class A common stock
purchased from the Close family. Pursuant to the recapitalization agreement, the
Heartland Investors' Heartland Springs common stock will be converted into
Springs common stock. The amount contributed by the Heartland Investors to
Heartland Springs (and therefore to Springs) will be used to fund the
recapitalization, repay the portion of Springs' existing debt being refinanced
in the recapitalization and pay related fees and expenses. See "Financing for
the Recapitalization" on pages 53 to 54.
Board of Directors and Chief Executive Officer
The shareholders agreement provides for the composition of the Springs
board of directors following the effective time of the recapitalization. The
Springs board will initially consist of six directors, three nominated by the
Close family and three nominated by the Heartland Investors. Thereafter, the
number of directors that the Close family is entitled to nominate is subject to
reduction if the Close family disposes of shares of Springs common stock in
excess of certain limitations. Similarly, the number of directors that the
Heartland Investors are entitled to nominate is subject to reduction if the
Heartland Investors dispose of shares of Springs common stock in excess of
certain limitations.
Immediately following the effective time of the recapitalization, the chief
executive officer of Springs will be Crandall C. Bowles. If Mrs. Bowles ceases
to serve as chief executive officer of Springs, a new chief executive officer
will be appointed who is acceptable to both the Close family and the Heartland
Investors and the Springs board will be enlarged to include the new chief
executive officer as a seventh director.
All actions of the Springs board will require the affirmative vote of at
least a majority of the directors. However, certain specified significant
actions, such as the issuance of equity securities, significant purchases or
sales of assets and incurrence of debt above certain limits, require the
affirmative vote of at least two directors nominated by the Close family and two
directors nominated by the Heartland Investors. In the event that the six
directors are evenly divided with respect to a proposed action and so long as
Mrs. Bowles is the chief executive officer, the proposed action would be
presented to a special approval committee consisting of Mrs. Bowles, one other
director chosen by the Close family and one director chosen by the Heartland
Investors. The proposed action would be deemed approved by the Springs board if
it is approved by at least two of the directors serving on the special approval
committee.
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Charitable Contributions
In continuation of Springs' historical practice of supporting charitable
causes, Springs will establish a charitable contribution committee consisting of
all of the directors chosen by the Close family. This charitable contribution
committee has the authority to direct charitable contributions to be made by
Springs of up to $3 million per year.
Dividend Policy
The yearly cash dividend on Springs common stock will be $1.20 per share
and will continue to be paid on a quarterly basis, subject to such dividend
being in compliance with Springs' debt instruments and the existence of legally
available funds to pay such dividend.
Restrictions on Transfer
Under the shareholders agreement, neither the members of the Close family
nor the Heartland Investors may transfer their shares of Springs common stock
after the effective time of the recapitalization, except to certain permitted
transferees, through the exercise of their registration rights, through the
exercise of their rights to pursue a transaction that allows for the realization
of the value of their investment in Springs or through certain transfers under
Rule 144 of the Securities Act of 1933, as amended.
Registration Rights
At any time after the earlier of the third anniversary of the effective
time of the recapitalization and 180 days after an initial public offering of
Springs common stock, each of the Close family and the Heartland Investors will
be entitled to demand that Springs register their shares under the Securities
Act of 1933, as amended, on no more than three separate occasions. If Springs
proposes to register shares of Springs common stock for sale for cash, the Close
family and the Heartland Investors will be entitled to have their shares of
Springs common stock sold as part of the same registration process.
Realization Process
After the fifth anniversary of the effective time of the recapitalization
and assuming that certain other conditions are met, both the members Close
family and the Heartland Investors have the right to initiate a transaction that
allows for the realization of the value of their investment in Springs by means
of a purchase by the Close family or the Heartland Investors of the other's
equity in Springs, a recapitalization of Springs or the sale of Springs to a
third party. If either the Close family or the Heartland Investors arranges a
sale of all of the shares of Springs common stock held by the Close family and
Heartland Investors to a third party for cash, the other group will have the
right to purchase at the same price per share all (but not less than all) of the
shares of Springs common stock held by the group arranging the sale. If the
other group does not elect to exercise this right of first refusal, the group
arranging the sale will have the right to compel the other group to sell all
(but not less than all) of its shares of Springs common stock in the arranged
sale.
Preemptive Rights
So long as an initial public offering of Springs has not occurred following
the effective time of the recapitalization and so long as they have the right to
nominate Springs directors, the members of the Close family and the Heartland
Investors have preemptive rights with respect to Springs common stock and
securities convertible into Springs common stock. However, Heartland Industrial
Partners is entitled, to the exclusion of the Close family, to preemptive rights
on the first issuances of such common stock and securities for which Springs
receives aggregate gross proceeds of $108.6 million less an amount equal to the
value of any Springs common stock that the Close family transfers prior to the
effective time of the recapitalization.
Additional Heartland Investment
Until the third anniversary of the effective time of the recapitalization,
Heartland Industrial Partners is obligated, under certain conditions, to
purchase additional shares of Springs common stock to fund certain acquisitions
and capital expenditure programs.
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Fees and Other Payments
Immediately after the effective time of the recapitalization, Springs will
pay Heartland Industrial Associates L.L.C. a fee related to obtaining financing,
meeting with rating agencies and other recapitalization-related advisory
assistance equal to 1% of the total enterprise value of Springs calculated as of
the effective time. At or immediately following the effective time of the
recapitalization, Springs will reimburse the Close family and the Heartland
Investors for all out-of-pocket expenses incurred at or prior to the effective
time of the recapitalization by the Close family and the Heartland Investors,
respectively, with respect to the recapitalization and the related financing.
In addition, from the effective time of the recapitalization until this
arrangement is terminated by either party, Springs will pay a fee of $4 million
per year, plus reasonable out-of-pocket expenses, to Heartland Industrial Group
LLC, an entity related to Heartland Industrial Partners, for various advisory
and consulting services. These services include, among other things, advice
regarding general developments in the home furnishings industry, market
developments concerning the purchase and sale of other home furnishings
manufacturers and other potential entrants into the home furnishings industry,
Springs' financial and strategic plans, operational improvements and quality and
supply chain management, information systems and sourcing.
Termination
The shareholders agreement will terminate (1) upon either the Close family
or the Heartland Investors ceasing to own at least 3% of the shares of Springs
common stock outstanding, calculated on a fully diluted basis, following the
effective time of the recapitalization (with registration rights surviving), (2)
at any time by written agreement among the Close family, the Heartland Investors
and Springs and (3) upon the termination of the recapitalization agreement in
accordance with its terms. If the shareholders agreement terminates upon the
termination of the recapitalization agreement, the Close family's agreement to
vote in favor of the recapitalization, to refrain from soliciting alternative
proposals and to refrain from voting in favor of any alternative proposals will
continue in effect until October 24, 2001.
CERTAIN EFFECTS OF THE RECAPITALIZATION
Immediately after the recapitalization, approximately 44% of the
outstanding shares of Springs common stock will be owned by the Heartland
Investors and approximately 56% of the outstanding common stock will owned by
the Close family. Springs shareholders whose shares are being converted into
cash will no longer have any financial interest in, and will not be shareholders
of, Springs. As a result, such shareholders will not have the opportunity to
participate in the future earnings, profits and growth of Springs.
The shareholders agreement provides that the initial board of directors of
the surviving corporation will consist of six members: Crandall C. Bowles, Leroy
S. Close and Robert P. Lee, designated by the Close family, and David A.
Stockman, Cynthia L. Hess and Gerald McConnell, designated by the Heartland
Investors. The management of Springs immediately prior to the effective time of
the recapitalization will be the management of the surviving corporation
immediately after the recapitalization.
Following the recapitalization, Springs intends to delist the shares of
Springs class A common stock from the New York Stock Exchange, and the
registration of Springs shares under the Securities Exchange Act of 1934 will be
terminated. It is anticipated that there will be no active trading market for
Springs shares unless and until Springs determines at a future date to conduct
an initial public offering of its shares.
Upon completion of the recapitalization, the Close family and the Heartland
Investors will have the following percentage interests in Springs' net book
value (shareholders' equity), which was approximately
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$821 million as of March 31, 2001, and net income, which was approximately $13
million for the thirteen weeks ended March 31, 2001 and approximately $67
million for the fiscal year ended December 31, 2000:
<Table>
<Caption>
PRE-RECAPITALIZATION POST-RECAPITALIZATION
-------------------- ---------------------------------------------------------------
Assuming all shares and
options that may be retained
Assuming no shares or options are retained and that all such
are retained, except those of options are exercised for
the Close family shares
----------------------------- ------------------------------
The Close Family..... 41% 56% 48%
The Heartland
Investors.......... 0% 44% 37%
</Table>
PLANS FOR SPRINGS AFTER THE RECAPITALIZATION
The Close family and Heartland Industrial Partners are continuing to
evaluate Springs' business, assets, practices, operations, properties, corporate
structure, capitalization and personnel and implement changes as they deem
appropriate. However, neither the Close family nor Heartland Industrial Partners
has any present intention to dispose of its equity investment in Springs, other
than the Close family's intention to sell up to $50 million in value of its
Springs shares, representing approximately 15% of its holdings, to Heartland
Industrial Partners at $46 per share prior to the recapitalization, or to cause
Springs to engage in a significant business combination following the
recapitalization. Springs intends to pursue potential acquisitions it considers
appropriate at any time they become available.
SHAREHOLDER LITIGATION CHALLENGING THE RECAPITALIZATION
Springs and its directors are named as defendants in several purported
class actions brought on behalf of an alleged class consisting of shareholders
of Springs other than the defendants and their affiliates. Such purported class
actions have been filed in South Carolina state court, York County; South
Carolina state court, Beaufort County; federal court for the District of South
Carolina; and New York state court, New York County. The complaints in the state
court actions, which are substantially similar, allege that the defendants have
breached their duties to the public shareholders of Springs in connection with
the proposed recapitalization, and that the $44.00 per share price initially
proposed by the Close family and Heartland Industrial Partners was inadequate
and unfair. In particular, the complaints allege that the proposed
recapitalization involves a conflict of interest in that the Close family
shareholders allegedly control the Springs board of directors. As relief, the
complaints seek, among other things, an injunction blocking completion of the
recapitalization, or if it is consummated, rescinding the recapitalization;
damages for an unspecified amount; an accounting; and attorneys' fees in an
unspecified amount. Defendants believe the allegations of the complaints are
without merit.
On April 24, 2001, the parties to the cases described above entered into a
memorandum of understanding. Under the terms of the memorandum of understanding,
the plaintiffs have agreed to settle the lawsuits and dismiss the claims with
prejudice on the basis of an acknowledgement by the defendants that the pendency
of the litigation was a material factor that led to (1) increasing the
consideration offered from $44.00 to $46.00 per share and (2) conditioning the
completion of the recapitalization on the vote of the majority of shareholders
whose shares are being converted into cash. The settlement is subject to
confirmatory discovery by the plaintiffs, the drafting and execution of
settlement documents, the dismissal of the lawsuits, final court approval of the
settlement and the completion of the recapitalization. In addition, the
defendants have agreed not to oppose the plaintiffs' application to the court
for an award of attorneys' fees.
Other than allowing the plaintiffs to conduct confirmatory discovery on
Springs, which may include document discovery and depositions, Springs has not
made any provision to grant unaffiliated shareholders access to Springs'
corporate files or to obtain counsel or appraisal services at Springs' expense.
CONDUCT OF THE BUSINESS OF SPRINGS IF THE RECAPITALIZATION IS NOT CONSUMMATED
If the recapitalization is not consummated, the Springs board of directors
expects to operate Springs' business under current management in a manner
substantially similar to that in which it is presently operated.
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FINANCING FOR THE RECAPITALIZATION
It is estimated that approximately $1.24 billion will be required to effect
the recapitalization, to repay the portion of Springs' existing debt being
refinanced as a result of the completion of the recapitalization and to pay all
related fees and expenses. The completion of the recapitalization is conditioned
on Springs obtaining sufficient debt and receivables financing from The Chase
Manhattan Bank and a syndicate of other banks to finance the recapitalization
and related transactions. J.P. Morgan Securities Inc. will act as sole advisor,
lead arranger and sole book runner, and will manage the syndication of the
credit facilities. Heartland Springs has committed in the recapitalization
agreement to use its reasonable best efforts to have The Chase Manhattan Bank
and J.P. Morgan Securities Inc. provide the committed debt and receivables
financing to Springs and have Heartland Industrial Partners provide the
committed equity financing to Heartland Springs. However, if the debt financing
cannot be secured for any reason and alternative sources of financing are not
available, the recapitalization will not be consummated. The following table
summarizes the estimated sources of and uses for funds in connection with the
recapitalization:
<Table>
<Caption>
SOURCES USES
------- ----
($ in millions)
Revolving Facility Loans....... $ 34.1 Merger Consideration........... $ 563.7
Term Loans..................... 500.0 Equity Retention............... 286.8
Receivables Facility
Proceeds..................... 165.0 Repaid Indebtedness............ 308.4
Industrial Revenue Bonds and Industrial Revenue Bonds and
Other Debt................... 27.4 Other Debt................... 27.4
Equity Retention............... 286.8 Transaction Costs.............. 52.0
Cash Equity Contribution....... 225.0
-------- --------
TOTAL.......................... $1,238.3 TOTAL.......................... $1,238.3
======== ========
</Table>
- Prior to the recapitalization, the Close family intends to sell up to $50
million in value of its Springs shares, representing approximately 15% of
its holdings, to Heartland Industrial Partners at $46 per share. Some or
all of these shares may be sold by members of the Close family to the
Heartland Investors prior to the effective time of the recapitalization
in lieu of a cash equity contribution from the Heartland Investors for
such amount. In such event, the Springs shares held by the Heartland
Investors will not be cashed out in the recapitalization but will instead
be treated as additional equity retention and the cash equity
contribution will be reduced by an amount equal to such direct share
purchase.
- Revolving facility loans and receivables balances amounts may vary
depending on working capital and receivables levels at the closing date.
Term loans may be reduced by $50.0 million with a corresponding increase
in revolving facility loans depending on market conditions.
- The industrial revenue bonds are in seven series, with outstanding
principal amounts of between $1.4 million and $5.85 million and an
aggregate principal amount of $26.3 million. Final maturity dates of the
series range from 2009 to 2019, with a weighted average remaining term of
approximately 11 years. Four of the series bear fixed interest rates
ranging from 6.85% to 8.25% and three series bear floating interest
rates. As of June 3, 2001, the weighted average interest rate of the
industrial revenue bonds was 5.3%. Springs may use borrowings under the
credit facilities to repay all or a portion of the industrial revenue
bonds.
- Transaction costs are itemized under "The Recapitalization -- Estimated
Fees and Expenses of the Recapitalization" on page 62.
Equity Commitment. Heartland Industrial Partners has delivered a
commitment letter for an equity investment in Heartland Springs of $225.0
million. Heartland Industrial Partners' commitment is subject only to the
satisfaction of the conditions for Heartland Springs' benefit in the
recapitalization agreement.
Senior Debt and Receivables Financing. On April 24, 2001, Heartland
Springs received an executed commitment letter from The Chase Manhattan Bank and
JP Morgan, in which The Chase Manhattan Bank agreed to provide credit facilities
to Springs sufficient to consummate the recapitalization. This commitment
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letter was extended as of July 30, 2001 to September 14, 2001 pursuant to an
amendment letter filed as exhibit (b)(2) to the Rule 13e-3 Transaction Statement
on Schedule 13E-3, which is incorporated by reference in this document. The
credit facilities consist of a $200.0 million tranche A senior secured term loan
facility, a $300.0 million tranche B senior secured term loan facility, a $250.0
million senior secured revolving credit facility and a $200.0 million
receivables purchase facility. These funds (other than revolving credit amounts
in excess of approximately $40.0 million), subject to increase to the extent the
term loans are reduced will be available to finance the recapitalization,
including to repay the portion of Springs' existing debt required to be repaid
in the recapitalization and to pay related fees and expenses. The full amount of
the term loan facilities must be drawn in a single drawing on the closing date.
- The tranche A loan and the revolving facility will each mature five and a
half years after the closing of the recapitalization. The tranche B loan
will mature seven years after the closing of the recapitalization. The
receivables purchase facility will mature 364 days after the
recapitalization and may be extended for additional 364-day periods by
mutual agreement.
- Loans under the tranche A, tranche B and revolving facilities will bear
interest at the alternate base rate or at adjusted LIBOR plus, in each
case, an applicable margin. Based on current negotiations and market
conditions, the applicable margins for borrowings to be made on the
closing date of the recapitalization under the tranche A, tranche B and
revolving facilities are expected to be 1.75%, 2.50% and 1.75%,
respectively, for alternate base rate loans and 2.75%, 3.50% and 2.75%,
respectively, for adjusted LIBOR loans. Amounts outstanding under the
receivables facility will bear interest at the base rate or at adjusted
LIBOR plus, in each case, an applicable margin, or at the commercial
paper rate. Based on current negotiations and market conditions, the
applicable margins for borrowings to be made on the closing date of the
recapitalization under the receivables facility is expected to be 0.60%
for the commercial paper rate. In each case, these margins remain subject
to further negotiations and market conditions and the margins in effect
on the closing date are subject to adjustment based upon financial
performance.
- Loans under the senior credit facilities will be guaranteed by each U.S.
subsidiary of Springs and secured by all assets (other than real property
and certain assets to be identified) of Springs and its U.S.
subsidiaries.
The commitments are subject to customary conditions, including the
negotiation, execution and delivery of definitive documentation. Springs expects
that the final terms of these facilities will be materially consistent with the
terms set forth in the commitment letter filed as exhibit (b)(1) to the Rule
13e-3 Transaction Statement on Schedule 13E-3, which is incorporated by
reference in this document. Springs does not have any plans or arrangements to
refinance or repay the credit facilities to be entered into in connection with
the recapitalization, other than to make payments to the lenders at maturity and
otherwise, in accordance with the credit facilities' terms.
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THE RECAPITALIZATION
The following is a brief summary of the material provisions of the
recapitalization agreement and the estimated fees and expenses of the
recapitalization. This summary may not contain all of the information that you
would consider to be important, and is qualified in its entirety by reference to
the recapitalization agreement, a copy of which is attached as Appendix A to
this document.
STRUCTURE AND EFFECTIVE TIME
The recapitalization agreement provides for the merger of Heartland Springs
with and into Springs, with Springs continuing as the surviving corporation
following the recapitalization. The closing of the recapitalization will occur
no later than the second business day immediately following the date upon which
all conditions to the recapitalization (other than the filing of the articles of
amendment giving effect to the amendment to the articles of incorporation) have
been satisfied or waived, or at such other time as the parties to the
recapitalization agreement agree. The parties will file the articles of
amendment giving effect to the amendment to the articles of incorporation
promptly after the satisfaction or waiver of all conditions in the
recapitalization agreement and, immediately thereafter, file the articles of
merger. The recapitalization will become effective at the time the articles of
merger are duly filed with the South Carolina Secretary of State or at such
later time as the parties to the recapitalization agreement agree. We cannot
assure you when, or if, all the conditions of the recapitalization will be
satisfied or waived. See "-- Conditions to the Recapitalization" on pages 60 to
61. We expect, however, to complete the recapitalization in September 2001.
RECAPITALIZATION CONSIDERATION
The recapitalization agreement provides that each share of Springs common
stock outstanding immediately prior to the completion of the recapitalization,
other than shares held by the Close family, by the Heartland Investors, by key
management employees who elect prior to the effective time of the
recapitalization to retain their Springs shares and by dissenting shareholders,
will be converted upon the completion of the recapitalization into the right to
receive $46.00 in cash from Springs, without interest. Each such converted share
will no longer be outstanding and will automatically be canceled and retired. In
addition, each share of Heartland Springs common stock will be converted into
one share of Springs class A common stock. The Springs shares held by the Close
family, by the Heartland Investors and by key management employees who elect
prior to the effective time of the recapitalization to retain their Springs
shares, will not be affected by the recapitalization and will remain
outstanding. No payment will be made for Springs shares owned by Springs or any
of Springs' subsidiaries.
PAYMENT PROCEDURES
Heartland Springs will appoint an exchange agent that will pay the
recapitalization cash consideration in exchange for certificates representing
Springs shares. The surviving corporation will serve in the capacity of exchange
agent with respect to the Heartland Springs shares to be converted into shares
of Springs class A common stock. At or prior to the effective time of the
recapitalization, Heartland Springs will deposit sufficient cash with the
exchange agent in order to permit the payment of the recapitalization cash
consideration and any dividends or distributions payable with respect to shares
of Springs common stock. Promptly following the effective time of the
recapitalization agreement, the exchange agent will send Springs shareholders
whose shares are being converted into cash a letter of transmittal and
instructions for effecting the surrender of stock certificates to the exchange
agent. Upon the due surrender of stock certificates, the exchange agent will pay
the holder of the certificates the appropriate recapitalization cash
consideration, minus any withholding taxes required by law.
TREATMENT OF MANAGEMENT INCENTIVE PLANS
Some key management employees have been given the option to retain their
Springs shares in the recapitalization. Furthermore, all holders of options with
an exercise price per share of Springs class A common stock below $46.00 may
choose, after the completion of the recapitalization, (1) a cash-out election,
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pursuant to which each such option will be converted to cash equal to the excess
of $46.00 over the exercise price or (2) a retention election, pursuant to which
each such option will be retained. By their terms, Springs stock options cannot
be cashed out by Springs without optionholder consent. In addition, certain key
management employees may elect a combination of a cash-out election and
retention election and, for those options they elect to retain, will receive,
for no additional consideration, accelerated vesting and an appreciation right.
This appreciation right allows the holder to receive cash or shares for each
exercised option without having to pay the exercise price in cash. All options
with an exercise price per share of class A common stock above $46.00 will be
retained automatically by employees and will contain an appreciation right.
Immediately prior to the effective time of the recapitalization, the
restrictions on each share of class A common stock not held by a member of the
Close family that is subject to a restricted stock award as to which the
restrictions have not lapsed will lapse and be treated as unrestricted shares of
class A common stock as of the effective time. With respect to all outstanding
performance award agreements, the performance cycle shall be deemed to have
terminated 10 business days prior to the annual meeting of shareholders, if the
recapitalization is completed, and any cash amounts payable at the conclusion of
the cycle will be paid as soon as practicable after the completion of the
recapitalization.
Springs will take all steps reasonably necessary or appropriate so that, as
of the effective time of the recapitalization, all other outstanding
equity-based awards held by current and former employees and directors,
including all deferred stock awards, stock credits and other stock equivalents,
are converted into cash-based awards and paid on a deferred basis.
ARTICLES OF INCORPORATION; BYLAWS
Springs' articles of incorporation as in effect immediately after giving
effect to the amendment to the articles of incorporation will be the articles of
incorporation of the surviving corporation. The Springs bylaws in effect
immediately prior to the effective time of the recapitalization will be the
bylaws of the surviving corporation.
DIRECTORS AND OFFICERS
The recapitalization agreement provides that the directors of Heartland
Springs immediately prior to the effective time of the recapitalization will be
the initial directors of the surviving corporation. See "Special
Factors -- Certain Effects of the Recapitalization" on pages 51 to 52. The
officers of Springs immediately prior to the effective time of the
recapitalization will continue as the initial officers of the surviving
corporation.
REPRESENTATIONS AND WARRANTIES
The recapitalization agreement contains representations and warranties made
by Springs to Heartland Springs, including representations and warranties
relating to:
- due organization, good standing and corporate power, and other corporate
matters;
- authorization, execution, delivery, performance and enforceability of the
recapitalization agreement;
- the adoption of the recapitalization agreement and the amendment to the
articles of incorporation by the Springs board of directors;
- receipt of a fairness opinion from the financial advisor to the special
committee;
- non-applicability of takeover laws;
- authorization of governmental entities;
- finders' fees with respect to the recapitalization;
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- non-contravention of the recapitalization agreement with Springs'
articles of incorporation and bylaws and applicable law;
- required consents, licenses, permits and approvals;
- capital structure;
- subsidiaries and equity investments;
- proper filing of all required Securities and Exchange Commission reports
and financial statements and the accuracy of information used in their
preparation;
- conduct of business since December 30, 2000;
- absence of undisclosed liabilities;
- compliance with applicable law;
- litigation;
- tax matters;
- employee benefit matters; and
- environmental matters;
The recapitalization agreement also contains representations and warranties
made by Heartland Springs to Springs, including representations and warranties
relating to:
- due organization, good standing and corporate power, and other corporate
matters;
- authorization, execution, delivery, performance and enforceability of the
recapitalization agreement;
- authorization of governmental entities;
- non-contravention of the recapitalization agreement with Heartland
Springs' articles of incorporation and bylaws and applicable law;
- required consents, licenses, permits and approvals;
- capital structure;
- finders' fees with respect to the recapitalization;
- availability of financing to effect the recapitalization;
- solvency of the surviving corporation; and
- litigation
CONDUCT OF THE BUSINESS OF SPRINGS PRIOR TO THE RECAPITALIZATION
Until the effective time of the recapitalization, Springs and its
subsidiaries are subject to certain restrictions on their conduct and
operations. Springs has agreed, and has agreed to cause its subsidiaries, to
conduct their business in the ordinary course of business, consistent with past
practice. In addition, Springs has agreed that, except as provided under the
recapitalization agreement or with the prior written consent of Heartland
Springs, Springs will not and will cause its subsidiaries not to:
- amend their respective articles of incorporation, bylaws or equivalent
organizational documents;
- split, combine or reclassify any of its capital stock or issue or
authorize the issuance of any other securities in respect of shares of
its capital stock; and
- except for issuances upon exercise of presently outstanding benefit plan
awards or in the ordinary course of business consistent with past
practice, authorize, issue, deliver, sell, pledge or otherwise encumber
any shares of its capital stock or the capital stock of its subsidiaries.
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ACCESS TO INFORMATION
Until the effective time of the recapitalization, Springs will, and will
cause its subsidiaries and each of their authorized representatives to, provide
Heartland Springs and its authorized representatives and representatives of its
financing sources with reasonable access to the offices and other facilities and
to the books and records of Springs and its subsidiaries. In addition, Springs
will cause its authorized representatives and subsidiaries to furnish Heartland
Springs and its authorized representatives and representatives of its financing
sources with such financial and operating data and such other information with
respect to the business and operations of Springs and its subsidiaries as
Heartland Springs and representatives of its financing sources may from time to
time reasonably request.
PROHIBITION AGAINST SOLICITATION OF COMPETING TRANSACTIONS
The recapitalization agreement provides that Springs will not, directly or
indirectly through any officer, subsidiary, affiliate, director, employee,
shareholder, representative, agent or other person:
- seek, initiate, solicit or encourage any person to make an acquisition
proposal;
- engage in discussions or negotiations concerning an acquisition proposal
with any person;
- disclose any non-public information relating to Springs or give access to
the properties, employees, books or records of Springs or any of its
subsidiaries to any person in connection with any acquisition proposal;
or
- adopt or recommend or agree to adopt or recommend any acquisition
proposal.
However, none of the above will prevent the Springs board of directors from
- furnishing information to any person that has made an unsolicited
acquisition proposal, or
- entering into or participating in discussions or negotiations concerning
an unsolicited acquisition proposal,
so long as the Springs board or the special committee has concluded in good
faith, after receiving and considering the advice of outside counsel, that
failing to furnish such information or participate in such discussions or
negotiations would be reasonably likely to cause the Springs board or the
special committee to be in breach of its respective fiduciary responsibilities
to Springs shareholders under applicable law. Prior to furnishing any such
information or participating in such discussions or negotiations, Springs and
the party making the offer must agree to a confidentiality agreement on terms
that are, in the aggregate, no less favorable to Springs that those of the
confidentiality agreement between Springs and Heartland Springs (other than with
respect to the standstill provision). In addition, Heartland Springs must be
given concurrent or advance written notice of the furnishing of any such
information or such discussions or negotiations, unless the Springs board or the
special committee has concluded in good faith, after receiving and considering
the advice of outside counsel, that doing so would be reasonably likely to cause
it to be in breach of its respective fiduciary responsibilities to Springs
shareholders under applicable law.
The Springs board of directors or the special committee may fail to make,
withdraw or modify in a manner adverse to Heartland Springs its recommendation
to Springs shareholders to approve the recapitalization agreement and the
amendment to the articles of incorporation if it determines in good faith, after
consultation with outside legal counsel, that such action is reasonably likely
to be required in the exercise of its respective fiduciary duties under
applicable law. The Springs board or the special committee may also take and
disclose to Springs shareholders a position contemplated by Rule 14e-2 under the
Securities Exchange Act of 1934.
Springs will notify Heartland Springs in writing no later than the end of
the next business day after receipt of the receipt of any acquisition proposal,
the terms and conditions of such acquisition proposal and the identity of the
person making it, and any change to or modification of such acquisition
proposal.
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STATE TAKEOVER LAWS; REPORTS
Springs will, upon the request of Heartland Springs, use its reasonable
best efforts to assist in any challenge by Heartland Springs to the validity or
applicability to the recapitalization of any state takeover law. In addition,
until the effective time of the recapitalization, Springs will provide Heartland
Springs with monthly financial statements, broken out by operating unit.
DIRECTOR AND OFFICER LIABILITY
The surviving corporation has agreed that, for a period of six years after
the effective time of the recapitalization, it will indemnify and hold harmless
the present and former officers and directors of Springs and each of its
subsidiaries in respect of acts or omissions occurring at or prior to the
effective time to the fullest extent permitted by applicable law or provided
under Springs' existing articles of incorporation and bylaws. The surviving
corporation has also agreed that, for a period of six years after the effective
time of the recapitalization, it will provide officers' and directors' liability
insurance in respect of acts or omissions occurring at or prior to the effective
time to each present and former officer and director of Springs and each of its
subsidiaries covered as of April 24, 2001 by Springs' officers' and directors'
liability insurance policy with terms, conditions and coverage amounts no less
favorable than those of such policy in effect on such date. However, the
surviving corporation is not obligated to make annual premium payments for such
insurance to the extent such annual premium exceed 200% of the annual premiums
paid as of such date by Springs for such insurance. If premiums with respect to
such insurance exceed 200% of the annual premiums paid as of such date by
Springs for such insurance, the surviving corporation will be obligated to
obtain such insurance with the maximum coverage as can be obtained at an annual
premium equal to 200% of the annual premiums paid by Springs as of such date.
FINANCING ARRANGEMENTS
Heartland Springs has agreed to use its reasonable best efforts to have The
Chase Manhattan Bank and JP Morgan (a division of Chase Securities, Inc.)
provide the financing to Springs in accordance with the terms of the commitment
letter, dated as of April 24, 2001, to provide financing to Springs or a
subsidiary of Springs. Heartland Springs has also agreed to use its reasonable
best efforts to have Heartland Industrial Partners provide funds to Heartland
Springs in accordance with the terms of the equity commitment letter, dated as
of April 24, 2001, pursuant to which Heartland Industrial Partners has committed
to make available to Heartland Springs funds for the purpose of completing the
recapitalization.
EMPLOYEE BENEFIT PLANS
During the period from the effective time of the recapitalization through
the first anniversary of the effective time, employees of Springs and its
subsidiaries will participate in employee benefit plans which are substantially
comparable, in the aggregate, to those provided to these employees immediately
prior to the effective time.
REASONABLE BEST EFFORTS TO CONSUMMATE THE RECAPITALIZATION
In connection with the recapitalization agreement, Springs and Heartland
Springs have agreed to use reasonable best efforts to take and do all things
necessary, proper or advisable under applicable laws and regulations, including
antitrust laws, to consummate the recapitalization and to cooperate with The
Chase Manhattan Bank and JP Morgan and other lenders in order for Heartland
Springs to obtain its contemplated debt financing.
SHAREHOLDERS MEETINGS; PROXY MATERIAL
Springs agreed to call a meeting of its shareholders for the purpose of
voting on the approval of the recapitalization agreement and the amendment to
the articles of incorporation. Subject to their fiduciary duties, the special
committee agreed to recommend that the Springs board of directors recommend
approval of the recapitalization agreement and the amendment to the articles of
incorporation by Springs shareholders,
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and the Springs board agreed to recommend approval of the recapitalization
agreement and the amendment to the articles of incorporation by Springs
shareholders. In connection with the shareholders meeting, Springs also agreed
to prepare and file with the Securities and Exchange Commission and mail to
Springs shareholders a proxy statement in connection with the recapitalization
agreement and the amendment to the articles of incorporation, and to prepare and
file a statement on Schedule 13E-3.
CONDITIONS TO THE RECAPITALIZATION
The obligations of Springs and Heartland Springs to complete the
recapitalization are subject to the satisfaction or waiver of the following
conditions at or prior to the effective time of the recapitalization:
(1) the approval of the recapitalization agreement by holders of
two-thirds of the outstanding shares of Springs common stock and a majority
of votes cast by shareholders whose shares are being converted into cash,
in each case with each share of class A and class B common stock entitled
to one vote;
(2) the approval of the amendment to the articles of incorporation by
holders of two-thirds of the outstanding shares of Springs common stock,
with each share of class A common stock entitled to one vote and each share
of class B common stock entitled to four votes;
(3) the absence of any law or regulation that makes completion of the
recapitalization illegal or otherwise prohibited and the absence of any
judgment, injunction, order or decree of any governmental authority
enjoining Springs or Heartland Springs from completing the
recapitalization; and
(4) the expiration or earlier termination of the applicable antitrust
waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (which termination occurred on June 1, 2001), the
satisfaction of the requirements of the Canadian Competition Act and the
making or obtaining of all necessary notices, reports, consents,
registrations, approvals, permits and authorizations with or from
governmental authorities.
Springs and Heartland Springs will not waive the condition that the
recapitalization agreement be approved by a majority of votes cast by
shareholders whose shares are being converted into cash. In addition, the
obligations of Heartland Springs to complete the recapitalization are subject to
the satisfaction or waiver of the following further conditions:
(1) Springs having performed all of its obligations under the
recapitalization agreement in all material respects;
(2) the representations and warranties of Springs contained in the
recapitalization agreement being true and correct in all material respects
as of the effective date of the recapitalization (except to the extent that
such representations and warranties speak as of an earlier date);
(3) no arbitrator or governmental authority having issued any
judgment, injunction, order or decree, and there being no law or
regulation, restraining or prohibiting the effective operation of any
material portion of the business of the surviving corporation and its
subsidiaries after the effective time of the recapitalization agreement;
(4) the financing contemplated by the commitment letter, dated as of
April 24, 2001, provided by The Chase Manhattan Bank and JP Morgan having
been provided on substantially the terms and conditions identified in such
letter or on such other terms and conditions, or involving such other
financing sources, as are acceptable to Heartland Springs and are not
materially more onerous;
(5) each member of the Close family having performed in all material
respects all of its obligations required to be performed by it under the
shareholders agreement at or prior to the effective time of the
recapitalization, and the representations and warranties of each member of
the Close family contained in the shareholders agreement being true and
correct in all material respects as if made at the effective time of the
recapitalization; and
(6) Springs having executed and delivered a services agreement to be
entered into with The Heartland Industrial Group LLC, governing an
arrangement in which following the effective time of the
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recapitalization, Springs will pay an annual fee of $4 million per year,
plus reasonable out-of-pocket expenses, to The Heartland Industrial Group
LLC for various consulting services provided by Heartland Industrial
Partners.
In addition, the obligation of Springs to complete the recapitalization is
subject to the satisfaction or waiver of the following additional conditions:
(1) Heartland Springs having performed all of its obligations under
the recapitalization agreement in all material respects; and
(2) the representations and warranties of Heartland Springs contained
in the recapitalization agreement being true and correct in all material
respects as of the effective date of the recapitalization (except to the
extent that such representations and warranties speak as of an earlier
date).
If any conditions to the recapitalization are waived, Springs will
re-solicit proxies only if such waiver would have been material to shareholders
in voting on the proposal to approve the recapitalization agreement.
TERMINATION
The recapitalization agreement may be terminated and the recapitalization
may be abandoned at any time prior to the effective time of the recapitalization
(regardless of any approval of the recapitalization agreement by Springs
shareholders):
(1) by mutual written consent of Springs and Heartland Springs;
(2) by either Springs or Heartland Springs, if the recapitalization
has not been completed by October 24, 2001, unless the party seeking to
terminate has caused the failure of completion by breaching of any
provision of the recapitalization agreement;
(3) by either Springs or Heartland Springs, if there is any law or
regulation that makes completion of the recapitalization illegal or
otherwise prohibited or any judgment, injunction, order or decree of any
governmental authority having competent jurisdiction enjoining Springs or
Heartland Springs from completing the recapitalization is entered and such
judgment, injunction, order or decree has become final and nonappealable;
(4) by either Springs or Heartland Springs, if the recapitalization
agreement and the amendment to the articles of incorporation have not been
approved by Springs shareholders;
(5) by either Springs or Heartland Springs, if there has been a
material breach of or failure to perform any representation, warranty,
covenant or agreement on the part of the other party that would cause any
condition to the recapitalization not to be satisfied and such condition is
incapable of being satisfied by October 24, 2001;
(6) by Heartland Springs, if the special committee has withdrawn or
modified in a manner adverse to Heartland Springs its recommendation to the
Springs board of directors or if the Springs board has withdrawn or
modified in a manner adverse to Heartland Springs its recommendation to
Springs shareholders to approve the recapitalization agreement and the
amendment to the articles of incorporation; and
(7) by Springs, if Springs has received an acquisition proposal that
the Springs board of directors or the special committee determines is more
favorable to Springs shareholders (even if the consideration to be received
may have less value) and the Springs board or the special committee
determines in good faith, after consultation with outside legal counsel,
that adopting or recommending such offer is reasonably likely to be
required in the exercise of its respective fiduciary duties under
applicable law.
EXPENSES
The recapitalization agreement provides that in general, all costs and
expenses incurred in connection with the recapitalization agreement will be paid
by the party incurring such cost or expense. Springs will
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promptly upon request reimburse Heartland Springs, Heartland Industrial Partners
and the Close family for their reasonable and documented out-of-pocket expenses,
including for legal counsel and investment advisors and for the reasonable and
documented out-of-pocket expenses incurred by The Chase Manhattan Bank and JP
Morgan (including for legal counsel), if:
(1) this recapitalization agreement is terminated by Heartland Springs
due to Springs' breach or failure to perform a representation, warranty,
covenant or agreement of the recapitalization agreement, or the special
committee has withdrawn or modified in a manner adverse to Heartland
Springs its recommendation to the Springs board of directors, or the
Springs board has withdrawn or modified in a manner adverse to Heartland
Springs its recommendation to Springs shareholders to approve the
recapitalization agreement and the amendment to the articles of
incorporation;
(2) this recapitalization agreement is terminated by Springs after
Springs has received an acquisition proposal that the Springs board of
directors or the special committee determines is more favorable to Springs
shareholders (even if the consideration to be received may have less value)
and the Springs board or the special committee determines in good faith,
after consultation with outside legal counsel, that adopting or
recommending such offer is reasonably likely to be required in the exercise
of its respective fiduciary duties under applicable law; or
(3) a third party has made, proposed, communicated or disclosed an
acquisition proposal in a manner which is or otherwise becomes public prior
to the termination of the recapitalization agreement and the
recapitalization agreement is terminated by either Springs or Heartland
Springs as a result of (a) the recapitalization having not been completed
on or before October 24, 2001 (other than as a result of a breach by the
terminating party) or (b) the recapitalization agreement and the amendment
to the articles of incorporation having not been approved by Springs
shareholders at the annual meeting of shareholders.
AMENDMENT AND WAIVER
Any provision of the recapitalization agreement may be amended or waived
prior to the effective time of the recapitalization if such amendment or waiver
is in writing and is signed, in the case of an amendment, by each party to the
recapitalization agreement or, in the case of a waiver, by each party against
whom the waiver is to be effective. However, after the approval of the
recapitalization agreement by Springs shareholders and without their further
approval, no amendment or waiver may reduce the amount or change the kind of
consideration to be received in exchange for shares held by Springs shareholders
whose share are to be converted into cash.
ESTIMATED FEES AND EXPENSES OF THE RECAPITALIZATION
Estimated fees and expenses incurred or to be incurred by Springs in
connection with the recapitalization, including expenses of Heartland Industrial
Partners and the Close family that Springs will reimburse upon completion of the
recapitalization, are approximately as follows:
<Table>
<Caption>
Financial advisory and arrangement fees..................... $19.8 million
Financing fees and expenses................................. 26.3 million
Legal, accounting and printing fees and expenses............ 5.1 million
Securities and Exchange Commission filing fee............... 0.1 million
Miscellaneous and other expenses............................ 0.7 million
-------------
Total............................................. $52.0 million
=============
</Table>
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PROPOSED AMENDMENT TO SPRINGS' ARTICLES OF INCORPORATION
Under South Carolina law, any business combination of a South Carolina
corporation with an interested shareholder of the South Carolina corporation or
with an entity affiliated or associated with an interested shareholder of the
South Carolina corporation is subject to certain restrictions. One of these
restrictions is that such a business combination is not permitted for a period
of two years following the interested shareholder's share acquisition date,
unless the business combination is approved by a majority of disinterested
members of the board of directors of the South Carolina corporation before the
interested shareholders' share acquisition date.
On February 19, 2001, the Close family and Heartland Industrial Partners
entered into a participation agreement pursuant to which the Close family agreed
to vote in favor of the recapitalization. If this participation agreement is
viewed under South Carolina law as providing Heartland Springs with beneficial
ownership over the shares of the Close family, then Heartland Industrial
Partners might be deemed an interested shareholder of Springs under South
Carolina law as of a share acquisition date of February 19, 2001. Since
Heartland Industrial Partners controls Heartland Springs, Heartland Industrial
Partners is both an affiliate and an associate of Heartland Springs.
Accordingly, a business combination of Springs with Heartland Springs may be
subject to South Carolina's restrictions on business combinations.
Since the Heartland Industrial Partners' share acquisition date may have
already occurred, the business combination could not be pre-approved by a
majority of disinterested Springs directors. As a result, if South Carolina's
restrictions on business combinations is applicable to the recapitalization, the
business combination would not be permitted until February 19, 2003.
However, South Carolina law allows a corporation to amend its articles of
incorporation to provide that South Carolina's restrictions on business
combinations do not apply to the corporation. Therefore, we propose amending
Springs' articles of incorporation to exempt Springs from South Carolina's
restrictions on business combinations.
The Springs board of directors and the special committee believe that the
amendment to the articles of incorporation is advisable, fair to and in the best
interests of Springs shareholders who are not affiliated with the Close family
or Heartland Industrial Partners, and the Springs board recommends that Springs
shareholders vote "FOR" approval of the amendment to the articles of
incorporation. The recapitalization will not occur unless shareholders approve
the proposed amendment to the articles of incorporation.
The amendment to the articles of incorporation must be approved by holders
of two-thirds of the outstanding shares of Springs common stock, with each share
of class A common stock entitled to one vote and each share of class B common
stock entitled to four votes. The members of the Close family have agreed to
vote their Springs shares in favor of the amendment to the articles of
incorporation. The Close family owns an aggregate of 171,488 shares of Springs
class A common stock and 7,149,291 shares of Springs class B common stock. At
one vote per share for Springs class A common stock and four votes per share for
Springs class B common stock, the Close family holds approximately 73% of the
normal voting power in Springs and has enough votes as a group to assure
approval of the amendment to the articles of incorporation.
We have attached the form of amendment to the articles of incorporation as
Appendix C to this document, and we encourage you to read it carefully.
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DISSENTERS' RIGHTS
In the event that the recapitalization agreement is approved, holders of
Springs class B common stock on June 27, 2001, who did not vote in favor of the
recapitalization agreement, will have the right to dissent from the
recapitalization and to demand "fair value" for their Springs class B shares in
accordance with Sections 33-13-101 through 33-13-310 of the South Carolina
Business Corporation Act, the text of which is reproduced in full as Appendix D
to this document. The brief summary below regarding these dissenters' rights is
qualified in its entirety by reference to these sections of the South Carolina
Business Corporation Act.
Springs is a South Carolina corporation, and is organized under and
governed by the South Carolina Business Corporation Act of 1988, as amended. The
South Carolina Business Corporation Act governs the rights of dissent of the
stockholders of Springs. Pursuant to Sections 33-13-101 through 33-13-310 of the
South Carolina Business Corporation Act, each holder of Springs class B common
stock is entitled to dissent from, and obtain payment of the fair value of, his
shares in the event a merger transaction upon which he is entitled to vote
occurs. The holders of Springs class B shares have dissenters' rights with
respect to the proposed recapitalization. A Springs shareholder who wishes to
assert his dissenters' rights: (1) must give Springs, before the vote on the
recapitalization is taken, written notice of his intent to demand payment for
his shares if the proposed recapitalization is effectuated and (2) must not vote
his shares in favor of the proposed recapitalization. A vote in favor of the
proposed recapitalization cast by the holder of a proxy solicited by Springs
does not disqualify a stockholder from demanding payment for his shares under
the South Carolina Business Corporation Act.
A vote against the proposed recapitalization will not, by itself, be deemed
to satisfy the notice requirements under South Carolina law with respect to
dissenters' rights. Springs shareholders must give written notice regarding
their intent to assert their dissenters' rights to Secretary, Springs
Industries, Inc., 205 North White Street, Fort Mill, South Carolina 29715.
If the recapitalization agreement is approved at the annual meeting,
Springs will deliver a written dissenters' notice to all Springs shareholders
who satisfied the above-described notification requirements. The dissenters'
notice must be sent no later than ten (10) days after the annual meeting and
must, in addition to other items, provide the following:
(1) State where the payment demand must be sent and where certificates
for shares must be deposited.
(2) Inform holders of uncertificated shares of the extent to which
transfer of such shares will be restricted after the payment demand is
received.
(3) Supply a form for demanding payment that includes certain specific
information.
(4) Set a date by which Springs must receive the payment demand, which
date may not be fewer than thirty (30) days, nor more than sixty (60) days,
after the date the dissenters' notice is delivered, and set a date by which
certificates must be deposited, which may not be earlier than twenty (20)
days after the demand date.
(5) Be accompanied by a copy of Sections 33-13-101 through 33-13-310
of the South Carolina Business Corporation Act.
Following the receipt of the dissenters' notice, the dissenter must timely
demand payment and timely deposit his shares as set forth in the dissenters'
notice.
A SPRINGS SHAREHOLDER WHO DOES NOT SATISFY THE ABOVE REQUIREMENTS IS NOT
ENTITLED TO PAYMENT FOR HIS SHARES PURSUANT TO HIS DISSENTERS' RIGHTS.
A Springs shareholder who demands payment and otherwise complies with the
terms of the dissenters' notice will retain all other rights as a Springs
shareholder, until such rights are cancelled or modified by the completion of
the recapitalization. A Springs shareholder who does not comply with the
requirement that he demand payment and deposit his share certificates where
required, each by the date set forth on the dissenters' notice, is not entitled
to payment for his shares as a dissenter.
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Except as otherwise provided by law, as soon as the proposed
recapitalization is completed, or upon receipt of a payment demand, Springs
shall pay each dissenting Springs shareholder who complied with the law, the
amount Springs estimates to be the fair value of his shares, plus accrued
interest. The payment must be accompanied by certain information, including
certain financial information, a statement of Spring's estimate of the fair
value of his shares and method of calculation, and a statement informing the
dissenter of his right to demand additional payment. Springs may withhold
immediate payment from a dissenting shareholder, if such dissenting shareholder
was not the beneficial owner of the shares on the date set forth in the
dissenters' notice.
A dissenter may reject Spring's offer of fair value and demand in writing
payment of his estimated fair value and interest due, if within thirty (30) days
after Springs makes payment: (1) the dissenter believes the amount paid is less
than the fair value of his shares or that interest due is incorrectly calculated
or (2) Springs fails to make payment within sixty (60) days after the date for
demanding payment. If a demand for payment remains unsettled after a demand for
additional payment, within sixty (60) days of the dissenter's payment demand,
Springs shall commence a proceeding and petition the court to determine the fair
value of the dissenter's shares and accrued interest. If Springs does not
commence the proceedings within the sixty (60) day period, it shall pay each
dissenter whose demand remains unsettled the amount demanded.
In an appraisal proceeding, the court shall determine all costs of the
proceeding. The costs shall be assessed against Springs, unless the court finds
that the dissenter acted arbitrarily, vexatiously or not in good faith in
demanding payment. The court also may assess fees and expenses of counsel and
experts for the respective parties.
THE FOREGOING SUMMARIZES THE MATERIAL PROVISIONS OF SOUTH CAROLINA LAW
RELATING TO DISSENTERS' RIGHTS. THE SUMMARY IS SUBJECT IN ITS ENTIRETY TO THE
TEXT OF THE STATUTE AND DOES NOT EXPAND SHAREHOLDERS' RIGHTS BEYOND THOSE
GRANTED BY STATUTE. ANY SPRINGS SHAREHOLDER WHO INTENDS TO EXERCISE RIGHTS TO
DISSENT SHOULD CAREFULLY READ SECTIONS 33-13-101 THROUGH 33-13-310 OF THE SOUTH
CAROLINA BUSINESS CORPORATION ACT OF 1988, AS AMENDED, ATTACHED TO THIS DOCUMENT
AS APPENDIX D AND INCORPORATED INTO THIS DOCUMENT BY REFERENCE. FAILURE TO
COMPLY CAREFULLY WITH THE STATUTORY PROCEDURES IN THE SOUTH CAROLINA BUSINESS
CORPORATION ACT MAY RESULT IN THE FORFEITURE OF DISSENTERS' RIGHTS.
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REGULATORY APPROVALS
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, and the
premerger notification rules issued by the Federal Trade Commission, Springs and
Heartland Springs were required to file notifications with the U.S. Federal
Trade Commission and the Antitrust Division of the U.S. Department of Justice in
connection with the recapitalization, and the proposed recapitalization could
not be completed until after the applicable waiting period expired or was
earlier terminated by the U.S. federal antitrust regulatory authorities. Springs
and Heartland Springs filed their Premerger Notification and Report Forms
pursuant to the Hart-Scott-Rodino Antitrust Improvements Act with the Federal
Trade Commission and the Antitrust Division on May 21, 2001. On June 1, 2001,
Springs was granted early termination of the waiting period under the Hart-
Scott-Rodino Antitrust Improvements Act. Even though the waiting period has been
terminated, the Federal Trade Commission or the Antitrust Division can take such
action under the antitrust laws as it deems necessary or desirable in the public
interest, including seeking to enjoin the recapitalization or compel a
divestiture of the shares.
The proposed recapitalization may be a "notifiable transaction" for the
purposes of Part IX of the Competition Act (Canada). As such, the proposed
recapitalization may not be completed before the expiration or earlier
termination of the applicable waiting period after notice of the proposed
recapitalization, together with certain prescribed information, has been
provided to the Commissioner of Competition. The waiting period is either 14 or
42 days from the time complete notification is provided to the Commissioner,
depending on whether a short form or long form filing has been made.
Alternatively, a party to a proposed merger may apply to the Commissioner for an
Advanced Ruling Certificate, which may be issued by the Commissioner if he is
satisfied that there are not sufficient grounds on which to apply in respect of
the transaction to the competition Tribunal for an order under the merger
provisions of the Act. The merger provisions of the Competition Act (Canada)
permit the Commissioner to apply to the Competition Tribunal to seek relief in
respect of a merger transaction which prevents or lessens, or would be likely to
prevent or lessen, competition substantially. On May 18, 2001, Heartland Springs
applied to the Commissioner for an Advanced Ruling Certificate, which was issued
on June 4, 2001.
Although not currently anticipated, Springs and Heartland Springs may need
to obtain the approval or clearance of certain other foreign antitrust
authorities. The parties anticipate, but cannot guarantee, that they would be
able to obtain any requisite approvals and clearances.
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U.S. FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material U.S. federal income tax
considerations of the recapitalization to holders of Springs common stock,
including members of the Close family. This discussion is based on current
provisions of the Internal Revenue Code of 1986, as amended, Treasury
Regulations promulgated thereunder, published positions of the Internal Revenue
Service, and all other applicable authorities, all of which are subject to
change, possibly with retroactive effect. Any such change could alter the tax
consequences discussed below. This discussion is not tax advice and does not
address all aspects of U.S. federal income taxation that may be relevant to a
holder of Springs common stock in light of such holder's particular
circumstances or who is subject to special provisions of such law, including
financial institutions, broker-dealers, persons who are not citizens or
residents of the United States or who are foreign corporations, foreign
partnerships, or foreign estates or trusts as to the United States, persons,
other than members of the Close family, who will own, actually or
constructively, stock of Springs after the recapitalization, and holders who
acquired their stock through the exercise of an employee stock option or
otherwise as compensation. In addition, the discussion does not address any
aspect of U.S. state, local or foreign taxes. Accordingly, we urge you to
consult with your own tax advisor to determine the particular tax consequences
of the recapitalization to you, including the application and effect of U.S.
federal, state, local, and other tax laws and the possible effect of changes in
such tax laws.
U.S. FEDERAL INCOME TAX CONSEQUENCES TO HOLDERS OF SPRINGS COMMON STOCK, OTHER
THAN THE CLOSE FAMILY
Your receipt of the recapitalization cash consideration will be a taxable
transaction for U.S. federal income tax purposes and may also be a taxable
transaction under applicable U.S. state, local or foreign income or other tax
laws. Your gain or loss for U.S. federal income tax purposes will be equal to
the difference between the amount of cash received in the recapitalization and
the aggregate tax basis in your shares of Springs common stock converted into
cash in the recapitalization. Gain or loss will be calculated separately for
each block of Springs common stock converted into cash in the recapitalization.
If shares of Springs common stock are held by you as capital assets, gain
or loss recognized with respect to such shares will be capital gain or loss, and
will be long-term capital gain or loss if your holding period for the shares
exceeds one year. In addition, the deductibility of capital losses is subject to
limitations for both individuals and corporations.
You may be subject to backup withholding at the rate of 31% with respect to
the recapitalization cash consideration received by you, unless you (1) are a
corporation or come within certain other exempt categories and, when required,
demonstrate this fact or (2) provide a correct taxpayer identification number,
certify as to no loss of exemption from backup withholding and otherwise comply
with applicable requirements of the backup withholding rules. To prevent the
possibility of backup withholding on payments made pursuant to the
recapitalization, you must provide the exchange agent with your correct taxpayer
identification number by completing a Form W-9 or substitute Form W-9. If you do
not provide Springs with your correct taxpayer identification number, you may be
subject to penalties imposed by the Internal Revenue Service as well as backup
withholding. Any amount withheld under these rules is not additional tax and may
be refunded or credited against your U.S. federal income tax liability, provided
that the required information is furnished to the Internal Revenue Service in a
timely manner.
U.S. FEDERAL INCOME TAX CONSEQUENCES TO THE CLOSE FAMILY
The shares of Springs common stock held by the Close family will not be
converted in the recapitalization and will remain outstanding. No gain or loss
will be recognized for U.S. federal income tax purposes by members of the Close
Family (which include certain individuals, certain trusts for the benefit of
such individuals, and two privately owned companies controlled by these
individuals and trusts, see "Information about the Recapitalization
Participants -- The Close Family") who continue to hold their shares of Springs
common stock.
Springs common stock held by the Close family not exceeding $50 million in
value may be sold by members of the Close family to Heartland Industrial
Partners prior to the effective time of the
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recapitalization. Such sales of Springs common stock will be taxable
transactions for U.S. federal income tax purposes and may also be taxable
transactions under applicable U.S. state, local or foreign income or other tax
laws. Gain or loss for U.S. federal income tax purposes should generally be
equal to the difference between the amount of cash received and the aggregate
tax basis in the shares of Springs common stock sold by each member of the Close
family. If shares of Springs common stock sold are held as capital assets, gain
or loss recognized with respect to such shares should be capital gain or loss,
and will be long-term capital gain or loss if the holding period for the shares
exceeds one year.
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SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
Our selected historical consolidated financial information for the five
fiscal years 2000, 1999, 1998, 1997 and 1996 set forth below has been derived
from our audited consolidated financial statements, and for the 13-week periods
ended March 31, 2001 and April 1, 2000 has been derived from our unaudited
consolidated financial statements. The financial data should be read in
conjunction with the financial statements and related notes that have been filed
with the Securities and Exchange Commission. See "Incorporation of Certain
Documents by Reference" on page 109.
On July 17, 2001, Springs reported sales and earnings results for the
second quarter. Net sales for the second quarter of 2001 were $546.9 million,
4.6 percent below the prior year. Net income for the second quarter of 2001 was
$17.0 million, or $0.93 per diluted share, compared to $19.4 million, or $1.06
per diluted share in the second quarter of 2000. Second quarter 2001 net income
included a pre-tax charge of $1.2 million for costs associated with the proposed
recapitalization transaction. Excluding the effect of this unusual item, second
quarter 2001 net income would have been $17.7 million, or $0.97 per diluted
share. Additionally, second-quarter net income included $0.5 million of pre-tax
income in 2001 and $2.9 million of pre-tax expense in 2000, related to
previously announced plans to restructure manufacturing operations at certain
facilities.
During the first six months of 2001 net sales were $1.117 billion, down 4.2
percent from a year ago. Year-to-date net income was $30.1 million, or $1.65 per
diluted share, compared with last year's $39.6 million, or $2.16 per diluted
share. Net income for the first six months of 2001 included pre-tax charges of
$3.5 million for costs associated with the proposed recapitalization
transaction. Excluding the effect of this unusual item, net income for the first
six months of 2001 would have been $32.2 million, or $1.76 per diluted share.
Additionally, net income for the first six months of 2001 and 2000 included the
second quarter restructuring items mentioned above.
In view of the proposed recapitalization, Springs is not providing earnings
guidance, and has withdrawn its earlier guidance, with respect to its operating
results for the remainder of fiscal 2001.
<Table>
<Caption>
THIRTEEN WEEKS ENDED
--------------------
MARCH 31, APRIL 1,
2001 2000 2000 1999 1998 1997(C) 1996
--------- -------- -------- -------- -------- -------- --------
SUMMARY OF OPERATIONS: (in millions)
Net sales............................ $ 570.4 $ 593.2 $2,275.1 $2,220.4 $2,180.5 $2,226.1 $2,221.0
Income from continuing operations.... 13.1 20.1 67.1 69.0 37.3 69.0 88.4(d)
Net income........................... 13.1(a) 20.1 67.1 69.0 37.3(b) 69.0 84.9(e)
Class A cash dividends declared...... 3.6 3.6 14.2 14.1 14.9 16.9 16.7
Class B cash dividends declared...... 2.1 2.1 8.6 8.6 8.7 8.8 9.0
-------- -------- -------- -------- -------- -------- --------
PER SHARE OF COMMON STOCK:
Income from continuing operations --
diluted............................ $ 0.72 $ 1.10 $ 3.70 $ 3.80 $ 1.97 $ 3.34 $ 4.29(d)
Net income -- diluted................ 0.72(a) 1.10 3.70 3.80 1.97(b) 3.34 4.12(e)
Class A cash dividends declared...... 0.33 0.33 1.32 1.32 1.32 1.32 1.32
Class B cash dividends declared...... 0.30 0.30 1.20 1.20 1.20 1.20 1.20
Book value........................... 45.74 44.08 45.72 43.28 40.62 40.69 38.75
Class A stock price range:
High............................... 45.20 39.94 48.81 43.63 61.00 54.75 50.50
Low................................ 30.63 34.00 22.63 27.06 31.75 41.00 38.38
-------- -------- -------- -------- -------- -------- --------
</Table>
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<Table>
<Caption>
THIRTEEN WEEKS ENDED
--------------------
MARCH 31, APRIL 1,
2001 2000 2000 1999 1998 1997(C) 1996
--------- -------- -------- -------- -------- -------- --------
STATISTICAL DATA:(f)
Net income to net sales.............. 2.3%(a) 3.4% 3.0% 3.1% 1.7%(b) 3.1% 3.8%(e)
Net income to average shareholders'
equity(g).......................... 6.4% 10.2% 8.4% 9.2% 5.0%(b) 8.6% 11.1%(e)
Operating return on assets
employed(h)........................ 7.0% 9.8% 8.6% 9.1% 5.8% 8.6% 8.8%
Inventory turnover(i)................ 3.7 3.9 3.7 4.2 4.1 4.6 4.8
Accounts receivable turnover(j)...... 7.2 6.9 7.1 6.9 6.6 6.4 6.4
Net sales divided by average
assets(k).......................... 1.4 1.5 1.4 1.5 1.5 1.6 1.5
Current ratio........................ 3.0 3.1 3.1 2.7 3.5 3.3 3.1
Capital expenditures (in millions)... $ 18.1 $ 26.7 $ 93.3 $ 166.8 $ 115.0 $ 99.3 $ 75.1
Depreciation (in millions)........... $ 25.4 $ 23.7 $ 98.0 $ 90.5 $ 81.9 $ 78.8 $ 80.8
Approximate number of shareholders... 2,412 2,524 2,459 2,548 2,636 2,856 3,000
Average number of associates......... 17,800 18,300 18,200 18,300 18,000 20,100 21,700
-------- -------- -------- -------- -------- -------- --------
SELECTED BALANCE SHEET DATA:
(in millions)
Net working capital.................. $ 582.7 $ 606.3 $ 565.4 $ 523.0 $ 555.8 $ 546.4 $ 537.4
Net property......................... 620.7 628.4 617.9 625.6 549.7 541.2 534.6
Total assets......................... 1,630.9 1,646.8 1,584.1 1,575.0 1,425.5 1,409.3 1,398.5
Long-term debt....................... 305.1 360.4 283.3 283.5 268.0 164.3 177.6
Shareholders' equity................. 820.7 789.5 819.8 774.9 724.1 804.6 780.8
-------- -------- -------- -------- -------- -------- --------
</Table>
If the recapitalization is completed, each share of Springs common stock,
other than shares held by the Close family, by Heartland Industrial Partners
(and its co-investors, if any), by key management employees who elect prior to
the effective time of the recapitalization to retain their Springs shares and by
dissenting shareholders, will be converted into the right to receive $46.00 in
cash.
See Notes to Selected Historical Consolidated Financial Data on page 71.
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NOTES:
(a) First quarter 2001 net income included a pre-tax charge of $2.3 million for
financial advisory and legal services associated with the evaluation by the
Special Committee of the Board of Directors of the proposal from the Close
family and Heartland Industrial Partners, L.P. to take Springs private in a
recapitalization transaction. Without this unusual item, net income would
have been $14.5 million, or $0.80 per diluted share, and net income to net
sales would have been 2.5 percent.
(b) Net income included after-tax gains of $8.6 million on Springs' sale of its
UltraSuede business and its Rock Hill, South Carolina facility, losses of
$1.7 million on Springs' sale of its Industrial Products and Springfield
businesses, and an impairment charge of $3.0 million recorded in connection
with Springs' decision to close a terry manufacturing facility. Without
these unusual items, net income would have been $33.4 million, or $1.76 per
diluted share, net income to net sales would have been 1.5 percent, and the
return on average shareholders' equity would have been 4.5 percent.
(c) Fiscal year 1997 includes 53 weeks, whereas all other years include 52
weeks.
(d) Differs from net income by an extraordinary loss of $3.6 million due to an
early extinguishment of debt, net of an income tax benefit of $2.2 million,
or $0.17 per diluted share.
(e) Net income included an after-tax gain of $50.1 million on the sale of
Clark-Schwebel, Inc. and an extraordinary loss, net of an income tax benefit
of $2.2 million, of $3.6 million. Without these unusual items, net income
would have been $38.3 million, or $1.86 per diluted share, net income to net
sales would have been 1.7 percent, and the return on average shareholders'
equity would have been 5.3 percent.
(f) The quarterly statistical data has been annualized by multiplying the
appropriate quarterly income statement component by four.
(g) Annualized net income divided by average of month-end total shareholders'
equity. For first quarter 2001, net income included expenses related to the
recapitalization proposal. Excluding the impact of these expenses, net
income to average shareholders' equity would have been 7.1 percent.
(h) Annualized pretax income before interest expense divided by average of
month-end total assets used in operations. For first quarter 2001, pretax
income included expenses related to the recapitalization proposal. Excluding
the impact of these expenses, operating return on assets employed would have
been 7.6 percent. For 1998, pretax income was net of gains on Springs' sales
of its UltraSuede business and its Rock Hill, South Carolina facility,
losses on Springs' sales of its Industrial Products and Springfield
businesses, and an impairment charge in connection with Springs' decision to
close a terry manufacturing facility. Without these unusual items, operating
return on assets employed would have been 5.3 percent. For 1996, pretax
income was net of a gain on the sale of Clark-Schwebel, Inc. Without this
unusual item, operating return on assets employed would have been 3.2
percent.
(i) Annualized cost of goods sold divided by average of month-end inventories.
(j) Annualized net sales divided by average month-end receivables.
(k) Annualized net sales divided by average month-end assets.
NOTE: Selected Historical Consolidated Financial Data includes the following
since their respective dates of acquisition: American Fiber Industries, LLC,
January 1999; and Regal Rugs, Inc., January 1999; and Maybank Textile Corp.,
January 2001. Selected Financial Data also includes the following until their
respective dates of disposition: Clark-Schwebel, Inc., April 1996; Springs'
UltraSuede business, August 1998; Springs' Industrial Products business,
December 1998; Springs' Springfield business, December 1998; and Springs'
UltraFabrics business, March 1999.
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COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION
Springs class A common stock is traded on the New York Stock Exchange under
the symbol "SMI." The following table sets forth the high and low closing sale
prices on the New York Stock Exchange and dividend information for shares of
Springs class A common stock for the periods indicated:
<Table>
<Caption>
CASH DIVIDENDS
HIGH LOW PER SHARE
------ ------ --------------
1999
First Quarter..................................... $42.50 $27.06 $0.33
Second Quarter.................................... 43.63 27.81 0.33
Third Quarter..................................... 43.31 33.69 0.33
Fourth Quarter.................................... 43.44 32.94 0.33
2000
First Quarter..................................... $39.94 $34.00 $0.33
Second Quarter.................................... 48.81 32.00 0.33
Third Quarter..................................... 34.06 27.13 0.33
Fourth Quarter.................................... 32.44 22.63 0.33
2001
First Quarter..................................... $45.20 $30.63 $0.33
Second Quarter.................................... 45.34 42.23 0.33
Third Quarter (through August 6, 2001)............ 45.41 43.73 --
</Table>
There is no established public trading market for Springs class B common
stock. The following table sets forth dividend information for shares of Springs
class B common stock for the periods indicated:
<Table>
<Caption>
CASH DIVIDENDS
PER SHARE
--------------
1999
First Quarter............................................. $0.30
Second Quarter............................................ 0.30
Third Quarter............................................. 0.30
Fourth Quarter............................................ 0.30
2000
First Quarter............................................. $0.30
Second Quarter............................................ 0.30
Third Quarter............................................. 0.30
Fourth Quarter............................................ 0.30
2001
First Quarter............................................. $0.30
Second Quarter............................................ 0.30
</Table>
The following table sets forth the high and low sale prices and the closing
price on the New York Stock Exchange for shares of Springs class A common stock
on April 24, 2001, the last full trading day before the public announcement of
the execution of the recapitalization agreement, and on August 6, 2001, the most
recent date for which quotations were available prior to the printing of this
document. Shareholders are urged to obtain a current market quotation for the
shares.
<Table>
<Caption>
DATE HIGH LOW CLOSE
---- ------ ------ ------
April 24, 2001 $43.84 $43.52 $43.69
August 6, 2001 $45.41 $45.25 $45.30
</Table>
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DIRECTORS AND EXECUTIVE OFFICERS OF SPRINGS
The following persons are the directors and executive officers of Springs
as of the date of this document. During the last five years, none of these
persons nor Springs has been convicted in a criminal proceeding (excluding
traffic violations or similar misdemeanors) nor been a party to a civil
proceeding (except for matters that were dismissed without sanction or
settlement) of a judicial or administrative body of competent jurisdiction in
which as a result of such proceeding, such person was or is subject to a
judgment, decree or final order enjoining future violations of, or prohibiting
activities subject to, federal or state securities laws or a finding of any
violation with respect to such laws. Unless otherwise specified, each of the
directors and executive officers of Springs is a citizen of the United States
and has his or her principal business address and telephone at 205 North White
Street, Fort Mill, South Carolina 29715, (803) 547-1500.
<Table>
<Caption>
NAME AND ADDRESS PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- ---------------- -------------------------------------------
JOHN F. AKERS See "Election of Directors -- Directors and Nominees"
290 Harbor Drive
Stamford, Connecticut
06902-7441
CRANDALL C. BOWLES See "Election of Directors -- Directors and Nominees"
JOHN L. CLENDENIN See "Election of Directors -- Directors and Nominees"
P.O. Box 210818
West Palm Beach, Florida 33411
LEROY S. CLOSE See "Election of Directors -- Directors and Nominees"
Sandlapper Fabrics
60 Shelter Rock Road
Danbury, Connecticut 06810
CHARLES W. COKER See "Election of Directors -- Directors and Nominees"
Sonoco Products Company
One North 2nd Street
Hartsville, South Carolina 29550
GRACIE P. COLEMAN Senior Vice President -- Human Resources (February 1999 to
present). Vice President -- Marketing and Corporate Support
for Government Solutions, Lucent Technologies, a
communications systems manufacturer, 600 Mountain Avenue,
Murray Hill, New Jersey 07974 (1997 to February 1999). Human
Resources Vice President, Lucent Technologies (1996 to
1997). Human Resources Vice President -- Strategic Partners
Network Systems, AT&T, a telecommunications company, 32
Avenue of the Americas, New York, New York 10013-2412 (1995
to 1996).
JOHN R. COWART Senior Vice President & Chief Purchasing Officer (August
1999 to present). Director of Sourcing -- Europe, General
Electric, an industrial corporation, 3135 Easton Turnpike,
Fairfield, Connecticut 06431-0001 (October 1997 to August
1999). Director of Sourcing -- Asia, General Electric (May
1996 to October 1997). General Manager -- Sourced Products,
General Electric (September 1994 to May 1996).
C. POWERS DORSETT Senior Vice President -- General Counsel and Secretary
(February 1996 to present). Vice President -- General
Counsel and Secretary (February 1990 to January 1996).
</Table>
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79
<Table>
<Caption>
NAME AND ADDRESS PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- ---------------- -------------------------------------------
WILLIAM K. EASLEY Senior Vice President (February 1996 to present).
President -- Textile Manufacturing (May 1995 to present).
RAY E. GREER Senior Vice President and Chief Information Officer (October
1999 to present). Vice President -- Information Technology,
Philips Electronics China Group, Koninklijke Philips
Electronics N.V., an electronics company, Rembrandt Tower,
Amstelplein 1, 1096 Ha Amsterdam, The Netherlands (1998 to
October 1999). General Manager -- Information Technology,
Philips Electronics China Group (1996-1998). Principal, IBM
Corporation, an information technology company, Armonk, New
York 10504 (1992-1996).
SAMUEL J. ILARDO Vice President and Treasurer (April 1998 to present).
Treasurer (May 1995 to April 1998).
STEPHEN P. KELBLEY Executive Vice President (September 1991 to present).
President -- Home Furnishings Operating Group (February 1998
to present). President -- Diversified Home Products Group
(January 1997 to February 1998). President -- Diversified
Products Group (May 1995 to January 1997).
WILLIAM G. KELLEY See "Election of Directors -- Directors and Nominees"
P.O. Box 10548
Naples, Florida 34101-0548
JOHN H. MCARTHUR See "Election of Directors -- Directors and Nominees"
Graduate School of Business
Administration
Harvard University
Fowler 31, Soldiers Field
Boston, Massachusetts 02163
CHARLES M. METZLER Vice President -- Controller (February 1996 to present).
Controller -- Springs Canada, Inc. (September 1992 to
January 1996).
THOMAS P. O'CONNOR Executive Vice President (August 1992 to present).
President -- Sales and Marketing Group (February 1998 to
present). President -- Bed Fashions Group (May 1995 to
February 1998).
ALDO PAPONE See "Election of Directors -- Directors and Nominees"
American Express
American Express Tower, World
Financial Center
200 Vessey Street, 50th Floor
New York, New York
10285-5007A
ROBIN B. SMITH See "Election of Directors -- Directors and Nominees"
Publishers Clearing House
382 Channel Drive
Port Washington, New York 11050
</Table>
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<Table>
<Caption>
NAME AND ADDRESS PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- ---------------- -------------------------------------------
SHERWOOD H. SMITH, JR. See "Election of Directors -- Directors and Nominees"
Carolina Power & Light Company
P.O. Box 1551
410 South Wilmington Street
Raleigh, North Carolina 27602
STEWART TURLEY See "Election of Directors -- Directors and Nominees"
Eckerd Corporation
Suite 201
1465 South Fort Harrison Avenue
Clearwater, Florida 33756
ELIZABETH M. TURNER Vice President -- Public Affairs (March 1999 to present).
Director of Public Relations (September 1997 to February
1999); Director -- Corporate Affairs for Coca-Cola Bottling
Company Consolidated, a beverage distributor, 4100 Coca-Cola
Plaza, Charlotte, North Carolina 28211 (September 1996 to
August 1997). Manager -- Corporate Affairs for Coca-Cola
Bottling Company Consolidated (October 1990 to August 1996).
</Table>
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81
ELECTION OF DIRECTORS
DIRECTORS AND NOMINEES
Pursuant to Springs' bylaws, the Springs board of directors has established
the number of directors of Springs to be eleven as of the date of the annual
meeting. Each of the nominees named below was elected as a director of Springs
at last year's annual meeting, and has consented to being named in this document
and to serve if elected. Each person has been nominated for election as a
director to hold office until the earlier of the completion of the
recapitalization, the next annual meeting of shareholders or the election of a
successor.
Shares represented by the enclosed proxy will be voted FOR the election of
the nominees unless authority is withheld for all or any of the nominees.
Although the Springs board does not contemplate that any of the eleven nominees
named will be unavailable for election, if a vacancy should occur, the proxy
will be voted for such substitute nominee or nominees as the Springs board may
recommend, or the Springs board may reduce the size of the board.
The election of Springs directors is conducted by cumulative voting whereby
each shareholder is entitled to cast the number of votes equal to (1) the number
of votes to which his shares are entitled multiplied by (2) the number of
directors to be elected. A shareholder may give one nominee all of such votes or
may distribute such votes among the nominees to be elected in such manner as he
may desire. In addition, Springs is soliciting discretionary authority to
cumulate votes.
The following information is submitted respecting the nominees for
election:
[PHOTO]
JOHN F. AKERS, AGE 66, RETIRED CHAIRMAN AND CHIEF EXECUTIVE OFFICER OF
INTERNATIONAL BUSINESS MACHINES CORPORATION. Mr. Akers served as chairman and
chief executive officer of IBM from 1986 until his retirement in May 1993. A
director of Springs since December 1993, Mr. Akers is also a director of
Hallmark Cards, Inc., Lehman Brothers Holdings, Inc. (New York), The New York
Times Company, PepsiCo., Inc., and W. R. Grace & Co.
[PHOTO]
CRANDALL CLOSE BOWLES, AGE 53, CHAIRMAN, PRESIDENT, AND CHIEF EXECUTIVE OFFICER
OF SPRINGS. Mrs. Bowles served as executive vice president of Springs from April
1992 until January 1997, when she became president and chief operating officer.
She served in these positions until January 1, 1998, when she became chief
executive officer. She was elected to the additional position of chairman of the
board in April 1998. A director of Springs since 1978, Mrs. Bowles is also a
director of Deere & Company.
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82
[PHOTO]
JOHN L. CLENDENIN, AGE 67, CHAIRMAN EMERITUS OF BELLSOUTH CORPORATION. Mr.
Clendenin served as chairman and chief executive officer of BellSouth, a
communications services company, 1155 Peachtree Street, N.E., Room 15G03,
Atlanta, Georgia 30309-3610, from 1984 until December 1996 and as chairman
through December 1997. A director of Springs since 1990, Mr. Clendenin is also a
director of Coca-Cola Enterprises Inc., Equifax Inc., Home Depot Inc., The
Kroger Company, National Service Industries, Inc. and Powerwave Technologies
Inc.
[PHOTO]
LEROY S. CLOSE, AGE 51, CHAIRMAN OF SANDLAPPER FABRICS, INC., A PRINTER AND
CONVERTER OF TEXTILE FABRICS, SINCE JANUARY 2001, WHEN THE POSITION OF CHAIRMAN
WAS FIRST CREATED. Mr. Close served as president and chief executive officer of
Sandlapper Fabrics from 1986 until January 2001. A director of Springs since
1991, Mr. Close was a vice president of Springs' former Apparel Fabrics Division
from 1983 to 1986. Mr. Close is a brother of Mrs. Bowles.
[PHOTO]
CHARLES W. COKER, AGE 68, CHAIRMAN OF SONOCO PRODUCTS COMPANY SINCE 1990. A
director of Springs since 1977, Mr. Coker served as chief executive officer of
Sonoco, a packaging company, from 1976 to 1998. Mr. Coker is also a director of
Bank of America Corporation, Carolina Power & Light Company and Sara Lee
Corporation.
[PHOTO]
WILLIAM G. KELLEY, AGE 55, FORMER CHAIRMAN, CHIEF EXECUTIVE OFFICER AND
PRESIDENT OF CONSOLIDATED STORES CORPORATION, A SPECIALTY RETAIL COMPANY, FROM
1990 UNTIL 2000. Mr. Kelley is a consumer products/retailing consultant and
became a director of Springs in February 2000. The address of Consolidated
Stores Corporation is 300 Phillipi Road, P.O. Box 28512, Columbus, Ohio 43228.
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83
[PHOTO]
JOHN H. MCARTHUR, AGE 67, DEAN OF THE FACULTY, HARVARD UNIVERSITY GRADUATE
SCHOOL OF BUSINESS ADMINISTRATION, FROM 1980 UNTIL HIS RETIREMENT IN 1995. Mr.
McArthur presently serves as senior advisor to the president of the World Bank,
a provider of development assistance, 1818 H Street, N.W., Washington, D.C.
20433. A director of Springs since 1989, Mr. McArthur is also a director of AES
Corporation, Ardais Corporation, BCE Inc., BCE Emergis, Inc., Cabot Corporation,
GlaxoSmithKline plc, HCA, Inc., KOC Holdings, A.S., Reuters Founders Share
Company Limited, Rohm and Haas Company, and Telsat Canada.
[PHOTO]
ALDO PAPONE, AGE 68, SENIOR ADVISOR, AMERICAN EXPRESS COMPANY, 1991 TO
PRESENT. A director of Springs since April 1993, Mr. Papone served as chairman
and chief executive officer from 1989 to 1990, and as president and chief
operating officer from 1985 to 1989, of American Express Travel Related Services
Company, Inc. Mr. Papone served as a director of American Express Company from
1990 to 1998. Mr. Papone is also a director of Hyperion Solutions Corporation.
[PHOTO]
ROBIN B. SMITH, AGE 61, CHAIRMAN AND CHIEF EXECUTIVE OFFICER OF PUBLISHERS
CLEARING HOUSE. Ms. Smith served as president of Publishers Clearing House, a
subscription agency, from 1981 to August 1996, when she was elected chairman,
and has served as its chief executive officer since 1988. Ms. Smith has served
as a director of Springs since 1993 and is also a director of BellSouth
Corporation, Kmart Corporation, Texaco, Inc., and two clusters of mutual funds
administered by Prudential Investments Mutual Fund Management LLC.
[PHOTO]
SHERWOOD H. SMITH, JR., AGE 66, CHAIRMAN EMERITUS OF CP & L. Mr. Smith served
as chief executive officer of Carolina Power & Light, a predecessor of Progress
Energy Company, a public utility holding company, from September 1979 until
October 1996, as chairman from 1980 to 1999, and as president from 1976 to 1992.
A director of Springs since 1991, Mr. Smith is also a director of Nortel
Networks Corp., and a trustee of Northwestern Mutual Life Insurance Company.
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84
[PHOTO]
STEWART TURLEY, AGE 66, RETIRED CHAIRMAN OF ECKERD CORPORATION. Mr. Turley
served as chief executive officer of Eckerd Corporation, a drugstore chain, from
1974 to February 1996, as its chairman from 1975 until February 1997, and as its
president from 1974 to 1993. A director of Springs since 1984, Mr. Turley is
also a director of MarineMax, Inc., Sprint Corp., and Watermark Communities,
Inc.
INFORMATION REGARDING THE BOARD OF DIRECTORS
During 2000, the Springs' board of directors held five meetings. Springs'
ten non-employee directors serve as the committee members of all committees with
the exception of the audit committee which is composed of Messrs. Akers,
Clendenin, and Smith and Ms. Smith. All directors attended at least 75% of the
total number of meetings of the Springs board and committees of the board on
which they serve during 2000. Except for the audit committee, the committees do
not meet on a regular basis but only as circumstances require. The audit
committee, which is responsible for review of the integrity of Springs'
financial reporting, review of its internal controls and recommendation of
independent auditors, met three times during 2000. The management compensation
and organization committee met five times. This committee approves the annual
compensation of the chief executive officer and has responsibility for approval
of compensation arrangements for key executives, approval of executive
compensation plans, evaluation of the chief executive officer's performance, and
ensuring management continuity and succession, including recommending a
successor to the chief executive officer in the event of a vacancy. The
committee on directors and corporate governance, which is responsible for making
recommendations to the Springs board with respect to the governance of Springs
and the board, directors' compensation, nomination of candidates for director
and evaluation of the board's performance, met one time. This committee will
consider any recommendations made in writing by shareholders regarding possible
candidates for the Springs board. Such recommendations should be directed to the
Secretary of Springs. The finance committee, which is responsible for review of
Springs' financial policies and planning, review of methods of financing and
recommendations with respect to acquisitions and divestitures, and which has
certain fiduciary responsibilities under benefit plans, did not meet in 2000.
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DIRECTOR AND EXECUTIVE OFFICER COMPENSATION
EXECUTIVE OFFICER COMPENSATION AND RELATED INFORMATION
Summary Compensation Table
The following table sets forth a summary of compensation for the chief
executive officer and each of the four other most highly compensated executive
officers of Springs.
SUMMARY COMPENSATION TABLE
<Table>
<Caption>
Annual Compensation(1) Long-Term Compensation
----------------------------- -------------------------------------
Awards
Other ------------------------- Long-Term
Principal Annual Restricted Incentive All Other
Name Position Year Salary Bonus Comp Stock Options/SARs Payouts Comp(2)
- ---- -------------- ---- -------- -------- ------- ---------- ------------ --------- ---------
Bowles, C.C. ........ Chairman and 2000 $637,504 $ 0 0 0 0 0 $79,482
Chief 1999 569,170 418,340 0 0 0 0 52,289
Executive 1998 540,000 137,700 0 0 0 0 53,572
Officer
Atkins, J.A.(3)...... Executive Vice 2000 $333,136 $ 20,988 $ 0 0 0 0 $30,585
President and 1999 128,429 67,426 36,158(4) 0 35,000 0 3,356
CFO 1998 0 0 0 0 0 0 0
Dorsett, C.P. ....... Senior Vice 2000 $269,720 $ 15,293 0 0 0 0 $28,962
President-- 1999 256,936 121,402 0 0 10,000 0 51,919
General 1998 244,728 45,000 0 0 9,000 0 21,525
Counsel &
Secretary
Kelbley, S.P. ....... Executive Vice 2000 $366,672 $ 23,101 0 0 0 0 $40,619
President 1999 338,672 177,803 0 0 15,000 0 79,174
1998 328,008 73,500 0 0 20,000 0 32,355
O'Connor, T.P. ...... Executive Vice 2000 $366,672 $ 30,000 0 0 0 0 $40,617
President 1999 325,136 177,803 0 0 15,000 0 78,909
1998 296,679 70,000 0 0 20,000 0 28,672
</Table>
- ---------------
(1) Includes amounts earned in fiscal year, regardless of whether deferred.
(2) Includes the following:
(a) Springs' contributions to the Springs of Achievement Partnership Plan,
which is a tax qualified profit sharing and savings plan in which a
majority of Springs' associates participate. Amounts credited for 2000
are as follows:
<Table>
<Caption>
PROFIT SHARING
SAVINGS FUND RETIREMENT FUND
------------ ---------------
Mrs. Bowles...................................... $3,400 $8,758
Mr. Atkins....................................... 3,400 8,758
Mr. Dorsett...................................... 3,400 8,758
Mr. Kelbley...................................... 3,400 8,758
Mr. O'Connor..................................... 3,400 8,758
</Table>
(b) For 1999, credits to a contingent compensation plan. In this plan,
amounts credited to the participant's account are contingent upon
continued employment with Springs and through 2000 vested at a rate of
10 percent per year until termination of employment. A participant's
entire account, however, is fully vested upon retirement on or after
age 65, death, or total disability. Beginning in January 2001, the
unvested portion of each participant's account will vest in full over
three years. The account balance through 2000 has been adjusted each
year by an adjustment factor which is equivalent to an interest rate
selected by the Springs board's management compensation and
organization committee. Beginning in January 2001, the accounts were
transferred to the
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participants' accounts within Springs' Deferred Compensation Plan and
will be adjusted by the choices available under that plan as well as
the interest rate previously approved by the committee with respect to
the Contingent Compensation Plan. No amounts were credited during 1998
or 2000 under this plan.
(c) Credits to an excess benefit plan and a deferred compensation plan,
which provide for credits equivalent to contributions under the Springs
of Achievement Partnership Plan for deferred compensation and
compensation in excess of limitations provided under the Internal
Revenue Code. Amounts credited for 2000 are as follows:
<Table>
Mrs. Bowles................................................. $67,324
Mr. Atkins.................................................. 18,427
Mr. Dorsett................................................. 16,804
Mr. Kelbley................................................. 28,461
Mr. O'Connor................................................ 28,459
</Table>
(3) Mr. Atkins joined Springs on August 9, 1999.
(4) Payments pursuant to Springs' moving allowance and home sale program.
Option Tables
No options were granted to executive officers in 2000. The following table
provides information about options held by the named executive officers.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL-YEAR-END OPTION/SAR VALUES
<Table>
<Caption>
Value of Unexercised,
Number of Unexercised In-The-Money
Options/SARs at Options/SARs
Shares Fiscal Year End at Fiscal Year End(1)
Acquired Value --------------------------- ---------------------------
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- -------- ----------- ------------- ----------- -------------
Bowles, C.C. .................. 0 0 68,500 0 $ 0 $0
Atkins, J.A. .................. 0 0 0 35,000 0 0
Dorsett, C.P. ................. 0 0 66,000 19,000 85,938 0
Kelbley, S.P. ................. 0 0 83,500 35,000 103,125 0
O'Connor, T.P. ................ 0 0 83,500 35,000 103,125 0
</Table>
- ---------------
(1) Value is based on the difference between the closing market price of the
underlying class A common stock at December 29, 2000 ($32.4375), and the
exercise or base price.
Long-Term Incentive Plans -- Awards in Last Fiscal Year
No long-term incentive awards were granted in 2000.
RETIREMENT PLANS
In 1996, the Springs board of directors adopted a Supplemental Executive
Retirement Income Plan for certain executives who are designated as participants
by the management compensation and organization committee. Target benefit
amounts payable under this plan are reduced by one half of social security
benefits and by the equivalent value of (1) profit-sharing and Springs matching
benefits payable under the Springs of Achievement Partnership Plan and Deferred
Compensation Plan, (2) benefits under Springs' Excess Benefit Plan and
Contingent Compensation Plan, and (3) certain deferred compensation attributable
to a defined benefit plan previously maintained by Springs. The years of
credited service as of January 1, 2001, for the named executive officers who
participate in this plan are as follows: Mrs. Bowles, nine years; Mr. Atkins,
one
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year; Mr. Dorsett, ten years; Mr. Kelbley, nine years; and Mr. O'Connor, 32
years. The following table sets forth target benefit amounts payable (before the
reductions described above) in the form of a straight-life annuity beginning at
age 62 for various levels of final average compensation and years of service:
PENSION PLAN TABLE
<Table>
<Caption>
YEARS OF SERVICE
FINAL AVERAGE -----------------------------------------
COMPENSATION(1) 10 15 20 25
- --------------- -------- -------- -------- --------
$ 300,000 $ 72,000 $108,000 $144,000 $180,000
500,000 120,000 180,000 240,000 300,000
700,000 168,000 252,000 336,000 420,000
900,000 216,000 324,000 432,000 540,000
1,100,000 264,000 396,000 528,000 660,000
</Table>
- ---------------
(1) Final average compensation means the average of salary and bonus (which are
shown in the summary compensation table) paid or earned for the five years
of the last ten years of employment that provide the highest average.
CHANGE-OF-CONTROL AGREEMENT
On August 9, 1999, Springs entered into a change of control and severance
agreement with its chief financial officer, Jeffrey A. Atkins. Pursuant to the
agreement, Mr. Atkins is entitled to receive lump-sum severance of one year's
base salary and target bonus (computed based on his highest rate of compensation
during the 24-month period ending on his termination date), as well as a
prorated bonus for the year of termination, upon any termination of his
employment by Springs without cause, or upon a termination by Mr. Atkins for
"good reason" (as defined in the agreement) during certain periods preceding the
date of a "change of control" (as defined in the agreement) of Springs or the
date of the signing of an agreement pursuant to which Springs would undergo a
change of control and during the 36 months following a change of control. Mr.
Atkins has resigned from Springs, effective July 14, 2001. Although he is not
technically entitled to the severance benefits described above, Springs has
agreed to continue Mr. Atkins' base salary and certain fringe benefits for one
year after termination, and to pay him $291,600 in severance shortly after his
termination. He will also receive a prorated bonus for 2001, which will be
determined after Springs' financial results for 2001 are available. In return,
Mr. Atkins will waive any claims against Springs or rights to other severance,
and will agree, through June 30, 2002, neither to compete with Springs nor to
solicit Springs employees with whom he worked during the two years preceding his
termination.
MANAGEMENT COMPENSATION AND ORGANIZATION COMMITTEE REPORT
This report describes the compensation policies of the management
compensation and organization committee (the compensation committee) applicable
to the executive officers of Springs named in the summary compensation table,
including the specific relationship of corporate performance to compensation of
executive officers for 2000. The report also discusses the 2000 compensation of
Mrs. Bowles, Springs' chief executive officer.
Compensation Philosophy
Springs' executive compensation program is linked to corporate performance
and return to shareholders. To this end, Springs has developed an overall
compensation strategy and specific compensation plans that tie a significant
portion of executive compensation to Springs' success in meeting specified
performance goals and to appreciation in Springs' stock price. To allow
monitoring of the strategy, a benchmark of median compensation levels for median
performance is used. The overall objectives of this strategy are to attract and
retain the best possible executive talent, to motivate these executives to
achieve the goals inherent in Springs' business strategy, to link executive and
shareholder interests through equity-based plans and to provide a compensation
program that recognizes individual contributions as well as overall business
results.
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Management Compensation and Organization Committee
The compensation committee is composed of Springs' ten non-employee
directors and is responsible for approval of compensation arrangements for key
executives and executive compensation plans. The compensation committee reviews
compensation recommendations from the chief executive officer for executive
officers who report to the chief executive officer, including those officers
named in the summary compensation table. The compensation committee also
approves Mrs. Bowles' salary following the committee's review of her
performance.
The compensation committee periodically conducts reviews of Springs'
executive compensation program. In 2000, the compensation committee received
reports from management regarding assessments conducted by independent
compensation consultants of the effectiveness of Springs' compensation program
and its comparison to peer groups of public corporations recommended by the
consultants. In making comparisons, the primary consideration is the
competitiveness of Springs' annual and long term components of compensation. The
compensation reviews permit an ongoing evaluation of the link between Springs'
performance and its executive compensation as compared to the compensation
programs of other similarly positioned companies.
Compensation Program
Springs' compensation program reflects a weighting of annual base salary
and bonuses (the annual component) and equity-based incentives (the long-term
component). For 2000, the annual bonus opportunity for the chief executive
officer was based solely on the achievement of a specific corporate financial
target. For Springs' other executive officers 75% of the executive's bonus
opportunity was based on achievement of a specific corporate financial target
and 25% was based on individual performance.
(1) Annual Component: Base Salary and Annual Bonus
BASE SALARY. Base salaries for executive officers are determined with
reference to a salary grade level for each job. These levels are determined by
evaluating the responsibilities of each position and comparing it with other
comparable executive officer positions in the marketplace. Salary adjustments
for executive officers are currently made in twelve-month intervals under
Springs' compensation policy. The amount of adjustment is determined by the
compensation committee for all executive officers who report to the chief
executive officer within specified limits adopted for all of Springs'
associates. The committee bases its determination upon the chief executive
officer's evaluation of each executive officer's personal performance. The base
salaries of the named executive officers generally are at or less than the
midpoint of comparable positions at those companies within the compensation peer
group. Increases in base salary for the named executive officers in 2000 were
based on subjective evaluations of individual performance as well as the need to
maintain salaries at competitive levels.
ANNUAL BONUS. Executive bonuses in 2000 were earned pursuant to Springs'
Achievement Incentive Plan. Under the Achievement Incentive Plan for 2000, the
chief executive officer's bonus opportunity was based solely on performance of
Springs as measured by specific corporate financial targets. For other executive
officers, the Achievement Incentive Plan for 2000 links compensation to the
performance of Springs as measured by specific corporate financial targets and
to individual personal performance. The maximum potential bonuses range from 80%
to 140% of annual base salary depending on the executives' salary grades.
(2) Long-Term Component
To align shareholders' and executive officers' interests, Springs'
compensation program includes long-term compensation in the form of performance
unit awards and stock options. The value of these awards is related to the value
of Springs' common shares. These awards are made under Springs' Incentive Stock
Plan.
In 2000, no performance unit awards or stock options were granted to
executive officers. Springs did, however, initiate a review in 2000 of the
long-term component of executive compensation.
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Chief Executive Officer Compensation
Under the compensation committee's policy regarding chief executive officer
compensation, over one-half of Mrs. Bowles' compensation opportunity is at risk
based on Springs' performance. Mrs. Bowles' salary rate was increased in March
2000 as a result of the committee's evaluation of her performance and because of
her low base compensation relative to the median of her peer group. The
committee also considered her performance in prior years.
Mrs. Bowles did not receive any bonus under the Achievement Incentive Plan
for 2000 because Springs did not achieve its corporate financial target.
The compensation committee has concluded that Mrs. Bowles' performance
warrants the compensation for 2000 as reflected in the summary compensation
table.
The compensation committee has considered the limitations on deductibility
of certain compensation under Section 162(m) of the Internal Revenue Code. The
compensation committee's current policy is to assure that all compensation is
deductible under Section 162(m) when paid.
Management Compensation and Organization Committee
C.W. Coker, Chairman
J.F. Akers
J.L. Clendenin
L.S. Close
W.G. Kelley
J.H. McArthur
A. Papone
R.B. Smith
S.H. Smith, Jr.
S. Turley
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Leroy S. Close, a member of the compensation committee, is chairman of
Sandlapper Fabrics, Inc., which received payments from Springs in 2000 totaling
$1,356,068 for printed fabric and printing services. Additionally, Mr. Close was
a divisional officer of Springs from 1983 to 1986 and is affiliated with Kanawha
Insurance Company, which received $4.18 million in 2000 for administrative
services provided to Springs' self-funded medical plan and for group life
insurance premiums, and with The Springs Company and affiliated or related
entities, which received $18,159 from Springs for rent, reimbursement of
property taxes on the Founder's House, railroad track maintenance, and
miscellaneous goods and services, and which paid Springs $33,989 in 2000 for
administrative, maintenance, and courier services. These transactions are also
described under "Other Annual Meeting Matters -- Transactions with Certain
Persons" on page 92.
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PERFORMANCE GRAPH
COMPARATIVE FIVE-YEAR TOTAL RETURNS*
SPRINGS INDUSTRIES, INC., S&P 500, PEER GROUP
TOTAL SHAREHOLDER RETURNS
[LINE GRAPH]
<Table>
<Caption>
YEARS ENDING SPRING INDUSTRIES - S&P SMALLCAP 600
- ------------ CLA INDEX PEER GROUP #2
------------------- ---------------- -------------
Dec95 $ 100 $ 100 $ 100
Dec96 106.96 121.32 110.2
Dec97 132.77 152.36 130.01
Dec98 109.08 150.37 110.27
Dec99 109.15 169.02 89.15
Dec00 92.34 188.96 112.18
</Table>
- ---------------
* Cumulative total return assumes reinvestment of dividends.
Assumes $100 invested at the close of trading on the last trading day
preceding the first day of the fifth preceding fiscal year in Springs' class A
common stock, S&P 500, and peer group.
The peer group is composed of those fifty S&P 500 companies with market
capitalizations closest to Springs' as of the beginning of Springs' 2000 fiscal
year, which the compensation committee believes is the most representative group
for purposes of comparing Springs' shareholders' return. The compensation
committee believes a representative group of reporting companies cannot be
identified in the same industry or lines of business as Springs and that
published industry indexes are not representative of Springs and its lines of
business.
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PEER GROUP COMPANIES
Alberto-Culver Company -- CLB
Allegheny Technologies
Incorporated
Allied Waste Industries, Inc.
American Greetings Corporation
Andrew Corporation
Autodesk, Inc.
Ball Corporation
Bemis Company, Inc.
Briggs & Stratton Corporation
The Brunswick Corporation
Centex Corporation
Consolidated Stores Corp.
Cooper Tire & Rubber Company
Adolph Coors Company
Crane Co.
Cummins Engine
Deluxe Corp.
Dillard's Inc.
EOG Resources Inc.
FMC Corporation
Great Lakes Chemical
Corporation
HEALTHSOUTH Corporation
Homestake Mining
Humana Inc.
KB Home
Longs Drug Stores Corporation
Louisiana-Pacific Corporation
Manor Care Inc.
McDermott International, Inc.
Meredith Corporation
Millipore Corp.
National Service Industries, Inc.
NICOR, Inc.
ONEOK, Inc.
Pactiv Corporation
Peoples Energy Corporation
Perkinelmer, Inc.
Potlatch Corporation
Power-One, Inc.
Pulte Corporation
Reebok International Ltd.
Rowan Companies, Inc.
Ryder System, Inc.
Snap-on, Incorporated
Sunoco, Inc.
Tektronix, Inc.
Thomas & Betts Corp.
Timken Company
Tupperware Corporation
Worthington Industries, Inc.
COMPANIES IN LAST YEAR'S PEER GROUP THAT ARE NOT INCLUDED IN THE CURRENT PEER
GROUP
Aeroquip-Vickers, Inc.
Asarco Incorporated
Battle Mountain Gold Company
Bethlehem Steel Corp.
Cabletron Systems
Case Corporation
Cyprus Amax Minerals Co.
Data General Corporation
Eastern Enterprises
Fleetwood Enterprises, Inc.
Foster Wheeler Corporation
Fruit of the Loom, Ltd.
W R Grace & Co.
The Great Atlantic & Pacific Tea
Company, Inc.
Harnischfeger Industries, Inc.
Harrahs Entertainment Inc.
Helmerich & Payne, Inc.
Ikon Office Solutions, Inc.
Jostens, Inc.
Milacron, Inc.
Moore Corp., Ltd.
Nacco Industries Inc.
Oryx Energy Co
Pep Boys Manny Moe & Jack
Polaroid Corporation
Russell Corporation
Shared Medical Systems
Corporation
Venator Group, Inc.
DIRECTORS' COMPENSATION
Directors who are not employees of Springs (outside directors) receive an
annual cash retainer of $24,000 and, as described below, restricted shares of
Spring's class A common stock under Springs' Restricted Stock Plan for Outside
Directors equal in value to the cash retainer received during the preceding
year. In addition, each outside director receives a fee of $2,500 for attendance
at each special meeting of the Springs board and $1,000 for each special meeting
conducted by telephone. Chairmen of board committees each receive an additional
annual fee of $3,000.
Under the terms of the Restricted Stock Plan for Outside Directors, each
outside director receives an annual grant of shares of class A common stock
(restricted shares) as of the day before each annual meeting of shareholders
having a market value equal to the annual cash retainer fee earned by the
director for the preceding year. The shares are subject to forfeiture and
restrictions on transfer and become vested upon the termination of the outside
director's service on the Springs board on account of (1) retirement in
compliance with the board's mandatory retirement policy; (2) failure to be
reelected; or (3) death or disability. In addition, the restriction period may
end with the approval of the board on a case-by-case basis if an outside
director terminates his or her service as a member of the board (1) for reasons
of personal or financial hardship; (2) to serve in any governmental, diplomatic
or any other public service position or capacity; (3) to avoid or protect
against a conflict of interest; (4) on the advice of legal counsel; or (5) as a
result of any other extraordinary circumstances that the board determines to be
comparable to the foregoing.
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Upon the completion of the restriction period, all restricted shares
granted to an outside director and any distributions thereon retained by Springs
during the restriction period become vested. If an outside director leaves the
Springs board for any reason other than as set forth above, then all restricted
shares issued to such outside director would be forfeited to Springs.
An outside director may elect deferral of compensation, including the
restricted shares, under Springs' Deferred Compensation Plan for Outside
Directors. Under this plan, amounts deferred are (1) held as units equivalent to
Springs' class A common stock and credited with additional units equal to the
number of shares which could be purchased with dividends paid on an equivalent
number of shares of class A common stock, or (2) credited to an interest account
which is credited quarterly with interest equal to the Lehman Brothers Corporate
Long-Term Baa Index.
Three directors have a deferral account under an Outside Directors COLI
Deferred Compensation Plan related to fees earned during the four-year period
ending April 1990. Those accounts are credited with interest at an annualized
rate equal to Moody's Seasoned Corporate Bond Yield Index, plus 2% to age 55 and
plus 4% thereafter and are paid out when board service ends.
Credits under the COLI Plan and the Deferred Compensation Plan are only
contractual obligations of Springs and create no rights superior to other
unsecured, general creditors.
During 2000, Mr. Papone provided consulting services to Springs for which
he was paid $58,000. These services included meetings and consultations with
Springs' Market Strategy Group regarding consumer advertising and contacts with
Springs' primary advertising agency. In addition, Mr. Papone reviewed certain of
Springs' advertising programs and consumer packaging. Mr. Papone will provide
similar services in 2001 and has been paid a retainer of $50,000. The retainer
may be adjusted depending on the extent of consulting services provided in 2001.
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OTHER ANNUAL MEETING MATTERS
REPORT OF THE AUDIT COMMITTEE
The audit committee of the Springs board of directors oversees Springs'
financial reporting process on behalf of the Springs board pursuant to an audit
committee charter adopted by the Springs board, which is attached as Appendix E.
The Springs board has determined that members of the audit committee are
independent as defined in the rules of the New York Stock Exchange.
Springs' management has primary responsibility for Springs' financial
reporting process and internal controls. Springs' independent auditors are
responsible for performing an independent audit of Springs' consolidated
financial statements in accordance with accounting standards generally accepted
in the United States and have provided their opinion that Springs' financial
statements fairly present financial position, results of operations and cash
flows for fiscal year 2000 in accordance with generally accepted accounting
principles. The audit committee's responsibility is to provide oversight on
behalf of the Springs board regarding the financial reporting processes and
internal controls and to recommend to the Springs board the engagement of
Springs' independent auditors.
In performing its responsibilities, the audit committee met three times
during fiscal year 2000. During the year, the audit committee discussed with
Springs' independent auditors the overall scope and plans for their audit. These
discussions included those matters required to be discussed by the Statement on
Auditing Standards No. 61 relating to conduct of the audit. In addition, the
audit committee met with the independent auditors, with and without management
being present, to discuss the results of their examinations, their evaluations
of Springs' internal controls and the overall quality of Springs' financial
reporting. The audit committee also reviewed the non-audit services and the fees
billed for these services by the independent auditors. These services and fees
are set forth in the following schedule:
<Table>
<Caption>
FINANCIAL INFORMATION SYSTEMS
AUDIT FEES DESIGN AND IMPLEMENTATION FEES ALL OTHER FEES
- ---------- ------------------------------ --------------
$591,000 0 $494,000
</Table>
Springs' independent auditors have provided to the audit committee the
written disclosures required by Independence Standards Board Standard No. 1
(Independence Discussion with Audit Committees) and the audit committee
discussed with the independent auditors that firm's independence. Based on these
disclosures and discussions, the audit committee has determined that the
provision of the non-audit services described in the above table is compatible
with maintaining the independent auditors' independence.
In reliance on the reviews and discussions with management and the
independent auditors, the audit committee recommended to the Springs board that
the audited financial statements be included in Springs' annual report on Form
10-K for the fiscal year ended December 30, 2000, and that the Springs board
engage, subject to shareholder approval, Deloitte & Touche as Springs'
independent auditors for fiscal year 2001.
Audit Committee
John L. Clendenin, Chairman
John F. Akers
Robin B. Smith
Sherwood H. Smith, Jr.
RATIFICATION OF APPOINTMENT OF PUBLIC ACCOUNTANTS
Upon the recommendation of the audit committee of the Springs board of
directors, the Springs board has appointed Deloitte & Touche LLP as independent
certified public accountants for Springs to audit the consolidated financial
statements of Springs and its subsidiaries for the 2001 fiscal year.
Deloitte & Touche has acted for Springs in this capacity since 1940. Its
representatives will attend the annual meeting, will be given the opportunity to
make a statement if they desire and will respond to questions directed to them
relating to their audit or to Springs' financial statements.
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Springs' board of directors recommends ratification of the appointment of
Deloitte & Touche as independent certified public accountants for Springs to
audit the consolidated financial statements of Springs and its subsidiaries for
the 2001 fiscal year. If a majority of the votes cast at the annual meeting, in
person or by proxy, should not approve such appointment, the audit committee and
the Springs board will reconsider the appointment of independent certified
public accountants.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (AS OF MAY 25,
2001):
<Table>
<Caption>
CLASS A
COMMON PERCENT OF CLASS B PERCENT OF
NAME STOCK(1),(2) CLASS A COMMON STOCK CLASS B
- ---- ------------ ---------- ------------ ----------
DIRECTORS & NOMINEES
J. F. Akers......................... 4,034 0.04% -- --
C. C. Bowles........................ 84,998(3) 0.79% 135,600(4) 1.90%
J. L. Clendenin..................... 3,927 0.04% -- --
L. S. Close......................... 7,727 0.07% 73,305(4) 1.03%
C. W. Coker......................... 5,227 0.05% -- --
W. G. Kelley........................ -- -- -- --
J. H. McArthur...................... 3,727 0.03% -- --
A. Papone........................... 4,384 0.04% -- --
R. B. Smith......................... 3,041 0.03% -- --
S. H. Smith, Jr..................... 3,911 0.04% -- --
S. Turley........................... 5,270 0.05% -- --
EXECUTIVE OFFICERS
J. A. Atkins........................ 3,000 0.03% -- --
G. P. Coleman....................... -- -- -- --
J. R. Cowart........................ 2,534 0.02% -- --
C. P. Dorsett....................... 67,729(3) 0.63% -- --
W.K. Easley......................... 68,302(3) 0.63% -- --
R. Greer............................ 2,453 0.02% -- --
S. J. Ilardo........................ 328 0.00% -- --
S. P. Kelbley....................... 85,093(3) 0.79% -- --
C. M. Metzler....................... 25,500(3) 0.24% -- --
T. P. O'Connor...................... 87,947(3) 0.81% -- --
E. M. Turner........................ 100 0.00% -- --
ALL DIRECTORS, NOMINEES AND
EXECUTIVE OFFICERS AS A GROUP..... 469,232(3) 4.34% 208,905 2.92%
</Table>
- ---------------
(1) Includes shares held under the Outside Directors' Restricted Stock Plan as
follows: Mr. Akers, 3,034; Mrs. Bowles, 487; Messrs. Clendenin, Close,
Coker, and McArthur, 3,727 each; Mr. Papone, 3,384; Ms. Smith, 2,841; Mr.
Smith, 3,411; and Mr. Turley, 4,270. The directors have sole voting power as
to these shares but do not have investment power until lapse of restrictions
on the restricted shares.
(2) Includes shares held in the Springs of Achievement Partnership Plan as
follows: Mrs. Bowles, 318; Mr. Dorsett, 816; Mr. Ilardo, 228; Mr. Kelbley,
906; and Mr. O'Connor, 863. These persons have sole voting and investment
power as to these shares.
(3) Includes beneficial ownership of class A common stock that may be acquired
within 60 days pursuant to stock options awarded under the Incentive Stock
Plan as follows: for Mrs. Bowles, 68,500; Mr. Dorsett, 66,000; Mr. Easley,
66,000; Mr. Kelbley, 83,500; Mr. Metzler, 25,000; and Mr. O'Connor, 83,500.
(4) See text under "-- Close Family Ownership" for additional information about
ownership of class B common stock.
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Close Family Ownership
Mrs. Bowles and Mr. Close are members of the Close family which, together
with the Close Foundation, beneficially owned, as of May 25, 2001, a total of
174,880 shares (1.62%) of Springs class A common stock and 7,149,291 shares
(99.97%) of Springs class B common stock. As of May 25, 2001, the Close family
trusts, The Springs Company, Kanawha Insurance Company and the Close Foundation
held Springs class A and class B common stock as follows:
<Table>
<Caption>
CLASS A CLASS B
COMMON PERCENTAGE OF COMMON PERCENTAGE OF
NAME STOCK CLASS A STOCK CLASS B
- ---- ------- ------------- --------- -------------
Close family trusts.................. -- -- 5,020,158(1) 70.20%
The Springs Company.................. -- -- 1,401,930(2) 19.60%
Kanawha Insurance Company............ -- -- 175,000(3) 2.45%
Close Foundation(4).................. 3,392 0.03% -- --
</Table>
- ---------------
(1) These shares are held in different trusts by Mrs. Anne Springs Close, and by
certain children of Mrs. Close, as trustees for the children of Mrs. Close.
While Mrs. Close, Mrs. Bowles and Mr. Close each disclaim beneficial
ownership of these shares, they have shared voting and dispositive power
with respect to 4,115,156; 2,655,610; and 1,849,743 of these shares,
respectively.
(2) All outstanding shares of The Springs Company are owned by trusts for the
benefit of certain members of the Close family. Mrs. Close and Mr. Close are
directors of The Springs Company.
(3) All outstanding shares of Kanawha Insurance Company are owned by trusts for
the benefit of certain members of the Close family.
(4) The Close Foundation is a nonprofit foundation established by the Close
family. Mrs. Close, Mr. Close, and Mrs. Bowles have shared voting and
dispositive power with respect to these shares.
As of May 25, 2001, the members of the Close family, as well as the
directors and executive officers of The Springs Company and Kanawha Insurance
Company, beneficially owned Springs class A and class B common stock as follows:
<Table>
<Caption>
CLASS B SHARES CLASS A SHARES
NAME (% OF CLASS B) (% OF CLASS A)
- ---- ---------------- --------------
Crandall C. Bowles......... 135,600 (1.90%)(1) 84,998 (0.79%)(2)
Frances A. Close........... 132,619 (1.85%)(1) --
Leroy S. Close............. 73,305 (1.03%)(1) 7,727 (0.07%)
Patricia Close............. -- 78,154 (0.72%)(1)
Elliott S. Close........... -- --
Hugh W. Close, Jr.......... 82,364 (1.15%)(1) --
Derick S. Close............ 63,855 (0.89%)(1) 609 (0.01%)(1)
Katherine A. Close......... 64,460 (0.90%)(1) --
Anne S. Close.............. -- --
The Springs Company........ 1,953,929 (27.32%)(1) 78,763 (0.73%)(1)
Kanawha Insurance
Company................... 175,000 (2.45%) --
James Bradley.............. -- 100 (0.00%)
Trust No. 3-M.............. 135,600 (1.90%) --
Trust No. T-3.............. 35,827 (0.50%) --
Trust No. 3-3.............. 263,696 (3.69%) --
Trust No. T-6.............. 37,201 (0.52%) --
Trust No. 3-6.............. 263,692 (3.69%) --
Trust No. 11-A-6........... 95,288 (1.33%) --
Trust No. 11-B-6........... 121,756 (1.70%) --
Trust No. 11-C-6........... 92,642 (1.30%) --
Trust No. 12-6............. 7,250 (0.10%) --
Trust No. T-7.............. 24,591 (0.34%) --
Trust No. 3-7.............. 263,692 (3.69%) --
Trust No. 11-A-7........... 95,288 (1.33%) --
Trust No. 11-B-7........... 121,756 (1.70%) --
</Table>
<Table>
<Caption>
CLASS B SHARES CLASS A SHARES
NAME (% OF CLASS B) (% OF CLASS A)
- ---- ---------------- --------------
Trust No. 11-C-7........... 92,642 (1.30%) --
Trust No. 12-7............. 7,250 (0.10%) --
Trust No. 8-M.............. 82,364 (1.15%) --
Trust No. T-8.............. 61,604 (0.86%) --
Trust No. 3-8.............. 263,694 (3.69%) --
Trust No. 11-A-3........... 95,288 (1.33%) --
Trust No. 11-B-3........... 121,758 (1.70%) --
Trust No. 11-C-3........... 92,640 (1.30%) --
Trust No. 12-3............. 7,250 (0.10%) --
Trust No. 4-M.............. 132,619 (1.85%) --
Trust No. T-4.............. 35,829 (0.50%) --
Trust No. 3-4.............. 263,694 (3.69%) --
Trust No. 11-A-4........... 95,288 (1.33%) --
Trust No. 11-B-4........... 121,758 (1.70%) --
Trust No. 11-C-4........... 92,640 (1.30%) --
Trust No. 12-4............. 7,250 (0.10%) --
Trust No. 5-M.............. 73,101 (1.02%) --
Trust No. T-5.............. 36,586 (0.51%) --
Trust No. 3-5.............. 263,692 (3.69%) --
Trust No. 11-A-5........... 95,288 (1.33%) --
Trust No. 11-B-5........... 121,758 (1.70%) --
Trust No. 11-C-5........... 92,640 (1.30%) --
Trust No. 12-5............. 7,250 (0.10%) --
Trust No. 6-M.............. -- 78,154 (0.72%)
Trust No. 11-A-8........... 95,288 (1.33%) --
</Table>
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<Table>
<Caption>
CLASS B SHARES CLASS A SHARES
NAME (% OF CLASS B) (% OF CLASS A)
- ---- ---------------- --------------
Trust No. 11-B-8........... 121,756 (1.70%) --
Trust No. 11-C-8........... 92,642 (1.30%) --
Trust No. 12-8............. 7,250 (0.10%) --
Trust No. 9-M.............. 63,855 (0.89%) 609 (0.01%)
Trust No. T-9.............. 72,527 (1.01%) --
Trust No. 3-9.............. 263,696 (3.69%) --
Trust No. 11-A-9........... 95,288 (1.33%) --
Trust No. 11-B-9........... 121,756 (1.70%) --
Trust No. 11-C-9........... 92,642 (1.30%) --
</Table>
<Table>
<Caption>
CLASS B SHARES CLASS A SHARES
NAME (% OF CLASS B) (% OF CLASS A)
- ---- ---------------- --------------
Trust No. 12-9............. 7,250 (0.10%) --
Trust No. 10-M............. 64,460 (0.90%) --
Trust No. 10-A............. 53,471 (0.75%) --
Trust No. 10-D............. 175,306 (2.45%) --
Trust No. 10-E............. 105,874 (1.48%) --
Trust No. 11-A-10.......... 95,288 (1.33%) --
Trust No. 11-B-10.......... 121,756 (1.70%) --
Trust No. 11-C-10.......... 92,640 (1.30%) --
Trust No. 12-10............ 7,250 (0.10%) --
</Table>
- ---------------
(1) Includes shares held under revocable, grantor management trust accounts.
(2) Of these shares, 16,498 are held and the remainder are beneficially owned as
a result of options to purchase shares that are currently exercisable.
Other Principal Holders of Common Stock
<Table>
<Caption>
PERCENTAGE
CLASS NAME & ADDRESS AMOUNT OF CLASS
- ----- -------------- ------- ----------
Class A Common Stock............ Dimensional Fund Advisors, Inc. 626,900(1) 5.8%
1299 Ocean Avenue
Santa Monica, CA 90401
</Table>
- ---------------
(1) Based on its Schedule 13G filed February 2, 2001, Dimensional Fund Advisors,
Inc., has sole voting and dispositive power with respect to all of these
shares.
TRANSACTIONS EFFECTED BY THE SPRINGS OF ACHIEVEMENT PARTNERSHIP PLAN
During the 60 days preceding the date of this document, the Springs of
Achievement Partnership Plan effected the following transactions in Springs
class A common stock through its trustee's broker:
<Table>
<Caption>
TRANSACTION DATE PRICE PER SHARE
----------- ------- ---------------
367 shares sold............................................. 5/30/01 $45.12
967 shares purchased........................................ 6/04/01 $45.21
297 shares sold............................................. 6/06/01 $45.23
28 shares sold.............................................. 6/07/01 $45.22
132 shares purchased........................................ 6/08/01 $45.27
310 shares sold............................................. 6/13/01 $45.34
165 shares purchased........................................ 6/18/01 $45.15
22 shares purchased......................................... 6/19/01 $45.00
205 shares sold............................................. 6/21/01 $45.07
157 shares purchased........................................ 6/25/01 $44.43
24 shares purchased......................................... 6/26/01 $44.44
191 shares sold............................................. 6/27/01 $44.17
1,003 shares purchased...................................... 7/02/01 $44.21
1,445 shares purchased...................................... 7/02/01 $44.28
354 shares sold............................................. 7/03/01 $44.06
249 shares sold............................................. 7/05/01 $44.18
159 shares purchased........................................ 7/09/01 $43.93
589 shares sold............................................. 7/11/01 $43.87
68 shares purchased......................................... 7/16/01 $43.98
588 shares sold............................................. 7/30/01 $45.10
</Table>
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TRANSACTIONS WITH CERTAIN PERSONS
For many years, Springs has transacted business with certain companies that
are controlled by members of the Close family. Mrs. Bowles and Mr. Close are
affiliated with these companies. The amounts paid or received by Springs for
these transactions are set forth below.
Springs paid The Springs Company and certain of its affiliates $18,159 for
rent, reimbursement of property taxes on the Founder's House, railroad track
maintenance and miscellaneous goods and services in 2000.
Kanawha Insurance Company writes certain group insurance policies for
Springs and provides administrative services under certain of Springs'
self-funded medical benefit programs. Premiums paid to Kanawha for the group
policies totaled approximately $2.45 million in 2000. Springs also paid Kanawha
approximately $1.73 million in 2000 for administrative services under certain of
Springs' medical benefit programs.
Payments by Springs to Sandlapper Fabrics, Inc. for printed fabric and
printing services totaled approximately $1.36 million in 2000. Mr. Close is
chairman of Sandlapper Fabrics.
Springs believes that the services, property, and facilities described in
the foregoing paragraphs, which have been reviewed by the audit committee, have
been obtained by it on terms as favorable as those available from unaffiliated
parties.
Charges by Springs for services in 2000 to The Springs Company and its
affiliates were approximately $33,989. These services consisted primarily of
administrative, maintenance, and courier services.
Springs, as a service to its employees and pursuant to individual
authorization, provides at no charge a payroll deduction program for payment of
premiums on individual insurance policies purchased directly from Kanawha
Insurance Company.
In 1987, Springs entered into a 50-year agreement with Springland, Inc., a
wholly-owned subsidiary of The Springs Company, to lease the Founder's House in
Fort Mill, South Carolina, which is listed in the National Register of Historic
Structures. Springs uses the Founder's House to provide quarters for visiting
directors, associates, and guests of Springs. The Founder's House is also used
for meetings by Springs.
Springs is obligated to pay rent of $1.00 per year under the lease and to
pay for all utilities, insurance, maintenance and taxes on the Founder's House.
Springland has the right to terminate the lease upon six months' notice after
the year 2019. If Springland elects to terminate the lease, it must pay Springs
the unamortized book value of improvements made by Springs computed on a
straight line amortization basis over a forty-year useful life.
OTHER TRANSACTIONS
In addition to the transactions described in the preceding section, Springs
and its subsidiaries purchase products and services from and/or sell products to
companies of which certain other of the Springs directors are executive officers
or directors or otherwise affiliated. Springs does not consider the amounts
involved in such transactions material. Such purchases from and sales to each
company were conducted on an arm's-length basis and were in the ordinary course
of business. Some of such transactions are continuing, and it is anticipated
that similar transactions may continue in the future.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires Springs'
directors and executive officers and any beneficial owner of more than ten
percent of any class of Springs' shares to file reports relating to their
ownership and changes in ownership of Springs common stock with the Securities
and Exchange Commission and the New York Stock Exchange. Based on information
provided to Springs and a review of such reports submitted to Springs, Springs
believes that all required reports were filed on a timely basis during 2000.
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ANNUAL REPORT AND FORM 10-K
The annual report to shareholders for the year ended December 30, 2000,
including consolidated financial statements, has been mailed to all shareholders
of record. The annual report is not part of this document.
A copy of Springs' annual report to shareholders and the annual report on
Form 10-K filed with the Securities and Exchange Commission may be obtained by
shareholders without charge by writing: Springs Industries, Inc., P.O. Box 70,
Fort Mill, South Carolina 29716, Attention: Secretary.
* * * * *
Springs' management is not aware of any other matters to be presented at
the annual meeting. If other matters should arise, however, it is intended that
the shares represented by the proxies will be voted, in the absence of contrary
instructions, in the discretion of the persons named in the proxy.
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MAP AND DIRECTIONS
TO SHAREHOLDERS MEETING:
[MAP]
Baxter M. Hood Continuing Education Center
York Technical College
452 S. Anderson Road
Rock Hill, SC 29730
803/325-2888
I-77 NORTH FROM COLUMBIA:
Follow I-77 North to exit 79 in Rock Hill, SC. Turn left onto Dave Lyle Blvd.
Turn left at light onto Hood Center Drive. At stop sign, go straight into Baxter
Hood Center parking area.
I-77 SOUTH FROM CHARLOTTE:
Follow I-77 South to exit 79 in Rock Hill, SC. Blend into Dave Lyle Blvd.
heading west. Turn left at light onto Hood Center Drive. At stop sign, go
straight into Baxter Hood Center parking area.
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OTHER MATTERS
MATERIALS PREPARED BY SHEFFIELD
February 15, 2001 Presentation
As financial advisor to the Close family in connection with the
recapitalization, Sheffield was not requested to, and did not, render any
appraisal or opinion in connection with the recapitalization. However, Sheffield
did prepare materials that were presented to the Close family on February 15,
2001. This presentation was made in order to assist the Close family in its
formulation of a proposal with Heartland Industrial Partners, and Sheffield did
not make any findings, recommendations or conclusions in this presentation. At
the time this presentation was made, the Close family was considering the
preliminary proposal made by Heartland Industrial Partners. This presentation
discussed Heartland Industrial Partners' rationale for the proposed transaction
and provided various methodologies the Close family could use to analyze
Heartland Industrial Partners' preliminary proposal. These analyses, which are
described below, do not purport to be the most appropriate and relevant methods
of analysis for these particular circumstances. Any estimates contained in these
analyses were not necessarily indicative of actual values or predictive of
future results of values, which may be significantly more or less favorable than
as set forth in the analyses. Estimates of values of companies do not purport to
be appraisals or necessarily to reflect the prices at which companies may
actually be sold. Because these estimates are inherently subject to uncertainty,
none of Springs, Heartland Industrial Partners, the Springs special committee,
Springs' board of directors, Sheffield or any other person assumes
responsibility if future results or actual values differ materially from the
estimates.
Sheffield's advisory services were provided for the assistance of the Close
family in connection with its formulation of a proposal with Heartland
Industrial Partners. This presentation is not intended to be and does not
constitute a recommendation to any stockholder of Springs as to how such
stockholder should vote with respect to the recapitalization. This presentation
should not be deemed to constitute an opinion that the $44 per share proposal
offered or the $46 per share cash consideration to be received by Springs
stockholders (other than Springs and its affiliates) is fair, from a financial
point of view or otherwise, to such stockholders, Springs, or any other person.
In preparing its presentation materials, Sheffield reviewed and analyzed,
among other things:
(1) publicly available information concerning Springs (stock symbol:
SMI) and various companies that constituted Springs' peer group (which
included Dan River (stock symbol: DRF), Mohawk (stock symbol: MHK) and
WestPoint Stevens (stock symbol: WXS), collectively the "Peer Group") that
Sheffield believed to be relevant to its analysis, including, without
limitation, each of the periodic reports and proxy statements filed by
Springs and the Peer Group since January 1, 1998, including the audited and
unaudited financial statements included in such reports and statements;
(2) financial and operating information with respect to the corporate
structure, businesses, operations and prospects of Springs as furnished to
Sheffield by Springs, including financial projections based on Springs'
business plan as described under "Certain Financial Projections" on pages
28 to 29; and
(3) a trading history of the stocks of Springs and the Peer Group from
January 1, 1999 to February 9, 2001.
In preparing its presentations, Sheffield assumed and relied upon the
accuracy and completeness of the financial and other information used by
Sheffield without assuming any responsibility for independent verification of
such information. With respect to the financial projections of Springs,
Sheffield assumed that such projections had been reasonably prepared on a basis
reflecting the best currently available estimates and judgments of the
management of Springs as to the future financial performance of Springs and that
Springs would perform in accordance with such projections. In preparing its
presentations, Sheffield did not conduct a
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physical inspection of the properties or facilities of Springs and did not make
or obtain any evaluations or appraisals of the assets or liabilities of Springs.
The presentation delivered to the Close family by Sheffield on February 15,
2001 has been included as Exhibit (c)(3) to the Schedule 13E-3 filed by Springs
in connection with the recapitalization, and the following summary is qualified
by reference to that exhibit. The full text of Sheffield's presentation is also
available for inspection and copying at the corporate offices of Springs during
regular business hours.
In the materials prepared by Sheffield and presented to the Close family on
February 15, 2001, the following methodologies were included: premium analysis,
comparable company analysis, alternative transaction analysis and discounted
cash flow analysis, as described below. These materials described the rationale
for undertaking the proposed transaction at this time, including the fact that
with Heartland Industrial Partners' equity investment, Springs would have
flexibility to make acquisitions, capital expenditures and pay dividends, and
that Heartland Industrial Partners was committed to the home furnishings
industry.
Premium Analysis. Using publicly available information, Sheffield reviewed
the historical closing price of Springs stock as of February 9, 2001, January
12, 2001 (1 month prior), November 19, 2001 (3 months prior), August 25, 2000 (6
months prior) and February 9, 2000 (52 weeks prior). Sheffield compared the $44
per share price of the preliminary proposal to the prices prevailing on the
dates above. The table below sets forth the percentage premiums that the $44 per
share price of the preliminary proposal represents to the price as of the
respective dates above:
<Table>
<Caption>
PRICE PREMIUM
------ -------
February 9, 2001.......................................... $36.28 21%
One-month Average......................................... $33.31 32%
Three-month Average....................................... $29.57 49%
Six-month Average......................................... $28.97 52%
One Year Average.......................................... $34.06 29%
</Table>
Comparable Company Analysis. Using publicly available information,
Sheffield compared the public stock market trading multiples for Springs with
those of the Peer Group. Sheffield captured certain data, including closing
stock price as of February 9, 2001, market capitalization, earnings reported for
the last twelve months (referred to as "LTM") and consensus analyst earnings
estimates for 2001. Sheffield then calculated the market price as a multiple of
1999, LTM, 2000 and 2001 revenues, earnings before interest, taxes, depreciation
and amortization (referred to as "EBITDA"), earnings before interest and taxes
(referred to as "EBIT") and net income. Sheffield also determined the multiples
for Springs, using the $44 per share price of the preliminary proposal. The
following table shows the results of such analyses as of February 9, 2001:
<Table>
<Caption>
PRICE AS A MULTIPLE OF EARNINGS PER SHARE
-------------------------------------------
SMI @ $44 SMI WXS DRF MHK
---------- ---- ---- ---- -----
2000 Net Income............................ 11.3x 9.3x 6.5x 5.9x 9.7x
2001P Net Income........................... 11.4x 9.3x 5.9x 5.8x 11.1x
</Table>
<Table>
<Caption>
AGGREGATE VALUE AS A MULTIPLE OF EBIT
--------------------------------------
SMI @ $44 SMI WXS DRF MHK
--------- --- --- --- ----
2000 EBIT.................................. 7.8x 9.0x 6.5x 8.6x 7.0x
2001P EBIT................................. 7.5x 8.3x 5.9x 8.3x 8.0x
</Table>
<Table>
<Caption>
AGGREGATE VALUE AS A MULTIPLE OF EBITDA
-------------------------------------------
SMI @ $44 SMI WXS DRF MHK
---------- ---- ---- ---- -----
2000 EBITDA................................ 4.5x 3.9x 6.6x 4.8x 5.5x
2001P EBITDA............................... 4.3x 3.8x 6.3x 4.7x 5.8x
</Table>
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<Table>
<Caption>
AGGREGATE VALUE AS A MULTIPLE OF REVENUE
-------------------------------------------
SMI @ $44 SMI WXS DRF MHK
---------- ---- ---- ---- -----
2000 Revenue............................... -- 0.4x 1.1x 0.7x 0.7x
2001P Revenue.............................. -- 0.4x 1.1x 0.7x 0.7x
</Table>
Alternative Transaction Analysis. Sheffield also compared the results of a
range of transaction alternatives in its presentation for the Close family,
based on both Scenario 1 and Scenario 2 financial forecasts:
Status Quo -- No transaction
$75MM Buyback -- Repurchase of $75MM shares at $38 per share
$150MM Buyback -- Repurchase of $150MM shares at $40 per share
HIP Recap at $46 -- Heartland Industrial Partners proposed leveraged
recapitalization
HIP Recap at $46 with Growth -- Heartland Industrial Partners transaction
with additional growth from future acquisitions
Family LBO at $46 -- Going private transaction involving the Close family
but without Heartland Industrial Partners' equity investment
Sheffield's analysis concentrated primarily on leverage, as measured by
debt-to-EBITDA ratios, and internal rates of return (referred to as "IRRs")
(assuming an exit multiple of 4.0x to 5.0x EBITDA) for each of these alternative
transactions, assuming a $36 initial investment value, that might be produced
assuming the sale of Springs after five years at various share prices. The $36
initial investment value was used to calculate IRRs because, as the approximate,
pre-announcement value per share of Springs class A common stock, it represented
the Close family's actual per share investment in each alternative transaction.
The results of these analyses are summarized in the table below:
<Table>
<Caption>
$75MM $150MM HIP RECAP
STATUS QUO BUYBACK BUYBACK HIP RECAP (W/GROWTH) FAMILY LBO
---------- ------- ------- --------- ---------- ----------
Debt to 2000 EBITDA................ 1.3x 1.6x 2.0x 2.7x 2.7x 3.4x
IRR % (Scenario 2)................. 23-28 25-30 26-32 28-34 35-43 33-40
IRR % (Scenario 1)................. 17-22 18-23 18-24 18-25 28-36 21-28
</Table>
Discounted Cash Flow Analysis. Sheffield performed a discounted cash flow
analysis, using projections based on the Scenario 1 and Scenario 2 financial
forecasts prepared by management of Springs, in order to derive an implied
equity value reference range for Springs. The discounted cash flow analysis
determined the discounted present value of the unleveraged after-tax cash flows
generated over the five-year period covered by these projections and then added
a terminal value based upon a range of EBITDA multiples of 3.5x to 4.5x. The
unleveraged after-tax cash flows and terminal values were discounted using a
range of discount rates (9.0% to 10.5%) that Sheffield deemed appropriate, based
on Springs' weighted average cost of capital. The valuation ranges implied by
this analysis are summarized in the following table:
<Table>
<Caption>
TERMINAL VALUE IMPLIED PER SHARE
MULTIPLE RANGE VALUE RANGE($)
--------------- -----------------
Projections based on Scenario 2............... 3.5x to 4.5x 53.31 to 71.72
Projections based on Scenario 1............... 3.5x to 4.5x 40.45 to 55.00
</Table>
The preceding is a summary of each of the material financial analyses
prepared by Sheffield and presented to the members of the Close family in
connection with their consideration of the preliminary proposal. This summary
does not purport to be a complete description of the analyses performed by
Sheffield. Sheffield made no attempt to assign specific weights to particular
analyses or factors considered.
February 18, 2001 Materials
The materials provided by Sheffield to the Close family and Heartland
Industrial Partners on February 18, 2001 to assist them in the selection of the
initial offering price has been included as Exhibit (c)(4) to the Schedule 13E-3
filed by Springs in connection with the recapitalization, and the
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following summary is qualified by reference to that exhibit. The full text of
Sheffield's presentation is also available for inspection and copying at the
corporate offices of Springs during regular business hours.
Selected Comparable Public Company Analysis. Sheffield compared selected
financial information, ratios and public market multiples for Springs to the
corresponding data for the following three publicly-traded home furnishings
companies:
- Dan River, Inc.
- Mohawk Industries, Inc.
- WestPoint Stevens, Inc.
This comparable company analysis resulted in the following ranges of multiples
as of February 16, 2001:
<Table>
<Caption>
SPRINGS MULTIPLE @
$36.10 TO $48.00
MULTIPLE ANALYSIS MULTIPLE RANGE PER SHARE
- ----------------- -------------- ------------------
Aggregate Value/2000 Revenue........................ 0.68x to 1.12x 0.45x to 0.55x
Aggregate Value/2000 EBITDA......................... 4.8x to 6.6x 4.0x to 4.9x
Aggregate Value/2001 EBITDA......................... 4.7x to 6.2x 3.9x to 4.8x
Aggregate Value/2000 EBIT........................... 7.2x to 8.9x 7.0x to 8.6x
Aggregate Value/2001 EBIT........................... 7.4x to 8.3x 6.7x to 8.4x
Equity Value/2000 Pro Forma NI...................... 5.9x to 10.2x 9.6x to 13.0x
Equity Value/2001 Pro Forma NI...................... 5.7x to 10.5x 12.5x to 20.9x
</Table>
Premium Analysis. Sheffield reviewed historical trading prices for the
class A common stock for the latest twelve months ended February 16, 2001 as
compared to proposed recapitalization prices ranging from $36.10 to $48.00.
Sheffield also reviewed the average closing prices for the class A common stock
prior to February 16, 2001 as compared to proposed recapitalization prices
ranging from $36.10 to $48.00 as set forth in the following table:
<Table>
<Caption>
SPRINGS IMPLIED
PREMIUM @
SPRINGS $36.10 TO $48.00
PREMIUM ANALYSIS STOCK PRICE PER SHARE
- ---------------- ----------- ----------------
February 16, 2001........................................ $36.10 0.0% to 33.0%
30-day Average........................................... $35.05 3.0% to 37.0%
60-day Average........................................... $33.21 8.7% to 44.6%
90-day Average........................................... $31.21 15.7% to 53.8%
6-month Average.......................................... $29.29 23.3% to 63.9%
1-year Average........................................... $33.70 7.1% to 42.4%
2-year Average........................................... $35.65 1.3% to 34.6%
</Table>
Trading Volume Analysis. Sheffield reviewed historical trading volume for
the class A common stock for the three-month, six-month, one-year and two-year
periods ended February 16, 2001. For the three-month and six-month periods,
Springs stock traded below $38.00 per share with the majority of share volume in
the $26.00 to $29.00 per share range. For the one-year and two-year periods,
Springs stock traded between $22.00 and $49.00 per share with the vast majority
of trades occurring at prices materially below $44.00 per share.
Historical Stock Price Analysis. Sheffield reviewed graphically the
historical trading prices for the class A common stock for the three-month,
six-month, one-year and two-year periods ended February 16, 2001.
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Valuation Analysis. Sheffield reviewed graphically several public market
trading parameters and several discounted cash flow metrics in order to
determine a range of values for the class A common stock based on those
parameters. The results are set forth in the following table.
<Table>
<Caption>
SPRINGS IMPLIED
STOCK PRICE
VALUATION ANALYSIS MULTIPLE/DISCOUNT PER SHARE
- ------------------ -------------------------- ----------------
Public Market Trading Parameters
Revenues............................... 0.4x to 0.5x $32.33 to $44.50
EBIT................................... 6.5x to 7.5x $33.89 to $41.62
P/E.................................... 9.0x to 10.0x $35.24 to $39.00
Discounted Cash Flow Metrics(1)
Projections based on Scenario 2........ 3.5x to 4.5x/10.5% to 9.0% $51.35 to $69.85
Projections based on Scenario 1........ 3.5x to 4.5x/10.5% to 9.0% $38.43 to $53.05
</Table>
- ---------------
(1)Terminal Value EBITDA Multiples
Comparative Leverage Analysis. Sheffield also compared the results of a
range of transaction alternatives and competitors in its presentation similar to
that set forth in the Close family presentation dated February 15, 2001, based
on both base case and downside case returns:
Dan River, Inc.
WestPoint Stevens, Inc.
Status Quo -- No transaction
$75MM Buyback -- Repurchase of $75MM shares at $38 per share
$150MM Buyback -- Repurchase of $150MM shares at $40 per share
HIP Recap at $46 -- Heartland proposed leveraged recapitalization
HIP Recap at $46 with Growth -- Heartland transaction with additional
growth
Family LBO at $46 -- Going private transaction w/o Heartland's equity
investment
Sheffield's analysis concentrated primarily on leverage, as measured by
debt-to-EBITDA ratios, for each of these alternative transactions. The results
of these analyses are summarized in the table below:
Debt to 2000 EBITDA
<Table>
<Caption>
WESTPOINT $ 75MM $150MM HIP RECAP
DAN RIVER STEVENS STATUS QUO BUYBACK BUYBACK HIP RECAP (W/GROWTH) FAMILY LBO
- --------- --------- ---------- ------- ------- ---------- ---------- ----------
4.0x 5.3x 1.5x 1.8x 2.1x 2.9x 2.9x 3.6x
</Table>
The debt-to-EBITDA ratios provided by Sheffield in its February 18
materials were slightly higher than those presented to the Close family on
February 15 due to the inclusion of approximately $39 million of deferred
compensation related debt.
PRELIMINARY DRAFT MATERIALS PREPARED BY UBS WARBURG
March 19, 2001 Presentation
At the March 19, 2001 special committee meeting, UBS Warburg made a
presentation to the special committee. The presentation given by UBS Warburg was
a preliminary draft valuation analysis of Springs and the $44.00 per share
proposal from the Close Family and Heartland Industrial Partners. The
preliminary draft presentation was not intended to address the fairness, from a
financial point of view, to the public shareholders of Springs of the $44.00 per
share proposal. In connection with the rendering of UBS Warburg's financial
fairness opinion, UBS Warburg's final valuation analysis in respect of the Close
family's and Heartland Industrial Partners' $46.00 per share final proposal was
presented to the special committee on April 24, 2001.
The March 19 presentation materials were distributed to the special
committee in preliminary draft form and were based on incomplete information.
These preliminary draft materials were not prepared with a view
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toward public disclosure, and are included in this document only because such
information was made available to the special committee. In addition, the
methodologies, assumptions and other factors considered by UBS Warburg in the
preparation of these preliminary draft materials may not be the same as the
methodologies, assumptions and other factors considered by UBS Warburg in
connection with the other materials prepared by UBS Warburg that are described
in this document.
In connection with UBS Warburg's review, Springs' management provided UBS
Warburg with two sets of five-year financial forecasts for Springs, with one set
entitled "Scenario 2 (Higher Risk)," which were also called "Management Base
Case" and the other set entitled "Scenario 1 (Lower Risk)," which were also
called "Management Downside Case." As described in the March 19 presentation
materials, UBS Warburg's preliminary draft valuation analysis was based on both
sets of projections, although at the time of the presentation Springs'
management had not finalized such projections and Springs' management
subsequently modified such projections. However, in preparing the financial and
comparative analyses in connection with the rendering of its financial fairness
opinion, UBS Warburg was instructed by the special committee to disregard and
not take into consideration the five-year financial forecast for Springs
entitled "Scenario 2 (Higher Risk)" because, based on general economic and
industry trends, Springs' past experience and the view of Springs' management as
to the likelihood of achievement, the special committee did not believe, with
UBS Warburg's concurrence, that the financial forecast entitled "Scenario 2
(Higher Risk)" was likely to be achieved.
In connection with its review, with the special committee's consent, UBS
Warburg did not assume any responsibility for independent verification of any of
the financial and other information, including without limitation the
projections referred to above, utilized in its preliminary draft presentation,
relied on it as being complete and accurate in all material respects, and
assumed that the "Scenario 1 (Lower Risk)" projections provided to UBS Warburg
by Springs' management had been reasonably prepared on a basis reflecting the
best currently available estimates and judgments of Springs' management as to
the future performance of Springs. In addition, with the special committee's
consent, UBS Warburg did not make any independent evaluation or appraisal of any
of the assets or liabilities (contingent or otherwise) of Springs, nor was UBS
Warburg furnished with any such evaluation or appraisal.
In performing its preliminary draft analysis, UBS Warburg made numerous
assumptions with respect to industry performance, general business, financial,
market and economic conditions and other matters, many of which are beyond the
control of Springs. No company, transaction or business used in the preliminary
draft analysis as a comparison is identical to Springs or its businesses or the
recapitalization, nor is an evaluation of the results entirely mathematical.
Rather, the analyses involve complex considerations and judgments concerning
financial and operating characteristics and other factors that could affect the
operating results, public trading or other values of the companies or
transactions being analyzed.
The estimates contained in the preliminary draft analyses prepared by UBS
Warburg and the ranges of valuations resulting from any particular analysis are
not necessarily indicative of actual values or predictive of future results or
values, which may be significantly more or less favorable than suggested by
these analyses. In addition, analyses relating to the value of securities do not
purport to be appraisals or to reflect the prices at which a business might
actually be sold or the prices at which any securities may trade at the present
time or at any time in the future.
The following is a summary of the material preliminary draft financial
analyses prepared by UBS Warburg and presented to the special committee on March
19, 2001. These preliminary draft valuation analyses have been included as
Exhibit (c)(5) to the Schedule 13E-3 filed by Springs in connection with the
recapitalization, and the following summary is qualified by reference to that
exhibit. The full text of UBS Warburg's preliminary draft presentation is also
available for inspection and copying at the corporate offices of Springs during
regular business hours.
The preliminary draft financial analyses summarized below include
information presented in tabular format. In order to understand the preliminary
draft analyses fully, the tables must be read together with the text of each
summary. Considering the data set forth below without considering the full
narrative description
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of the preliminary draft analyses, including the methodologies and assumptions
underlying the preliminary draft analyses, could create a misleading or
incomplete view of the preliminary draft analyses.
Historical Stock Performance. UBS Warburg reviewed historical trading
prices for the Class A common stock. This stock price performance review
indicated that, for the latest twelve months ended February 16, 2001, the low
and high closing prices for the Class A common stock were $22.63 and $48.81,
respectively. UBS Warburg also reviewed the closing price of the Class A common
stock on February 16, 2001 and average closing prices and the low and high
closing prices over periods prior to February 16, 2001 as set forth in the
following table:
<Table>
<Caption>
SELECTED STATISTICS CLOSING PRICE
- ------------------- -------------
February 16, 2001....................................... $36.10
30 Day Average.......................................... $35.05
90 Day Average.......................................... $31.21
52 Week Average......................................... $33.70
52 Week High............................................ $48.81
52 Week Low............................................. $22.63
3 Year Average.......................................... $38.53
3 Year High............................................. $60.75
3 Year Low.............................................. $22.63
</Table>
Selected Comparable Public Company Analysis. UBS Warburg compared selected
financial information, ratios and public market multiples for Springs to the
corresponding data for the following six publicly-traded home furnishings
companies:
- Burlington Industries, Inc.
- Crown Crafts, Inc.
- Dan River, Inc.
- Galey & Lord, Inc.
- Mohawk Industries, Inc.
- WestPoint Stevens, Inc.
UBS Warburg chose the selected companies because they were publicly-traded
companies that, for purposes of the analysis, UBS Warburg considered reasonably
similar to Springs in that these companies operate in the home furnishings
industry. The selected public companies may significantly differ from Springs
based on, among other things, the size of the companies, the geographic coverage
of the companies' operations and the particular segments of the home furnishings
industry in which the companies focus.
UBS Warburg reviewed, among other information, the comparable companies'
multiples of TEV to:
- LTM revenue;
- LTM EBITDA;
- LTM FCF; and
- LTM EBIT.
UBS Warburg also reviewed, among other information, the comparable
companies' P/E multiples for the calendar year ending December 31, 2000 and
projected P/E multiples, based on IBES consensus earnings estimates for the
calendar year ending December 31, 2001.
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The Springs comparable companies analysis resulted in the following ranges
of multiples as of March 16, 2001:
<Table>
<Caption>
SPRINGS IMPLIED
MULTIPLE @
MULTIPLE ANALYSIS MULTIPLE RANGE $44.00/SHARE
- ----------------- -------------- ---------------
TEV / LTM Revenue...................................... 0.33x to 1.07x 0.53x
TEV / LTM EBITDA....................................... 4.5x to 6.3x 4.7x
TEV / LTM FCF.......................................... 5.6x to 8.3x 7.3x
TEV / LTM EBIT......................................... 5.9x to 9.0x 8.1x
2000 P/E............................................... 4.8x to 9.6x 11.1x
2001E P/E -- IBES...................................... 5.1x to 13.9x 11.2x
</Table>
Actual LTM data for Springs and the selected companies were based on the
respective companies' Forms 10-K and 10-Q as well as certain internal financial
reports for Springs.
Premiums Paid Analysis. UBS Warburg reviewed selected purchase price per
share premiums paid in acquisitions of publicly-traded domestic companies in
non-financial industries announced, excluding certain transactions that in UBS
Warburg's judgment were non-representative, from January 1, 1999 through March
14, 2001, with deal sizes between $200.0 million and $2.0 billion. This analysis
indicated arithmetic average premiums to the target's closing stock prices on
dates prior to the announcement as set forth in the following table.
<Table>
<Caption>
PREMIUM TO STOCK PRICE (%)
--------------------------------------------
ONE DAY ONE WEEK ONE MONTH
PRIOR TO PRIOR TO PRIOR TO
NUMBER OF DEALS ANNOUNCEMENT ANNOUNCEMENT ANNOUNCEMENT
--------------- ------------ ------------ ------------
DEALS ANNOUNCED IN 2001
Cash Deals........................ 33 36.7 41.2 53.8
Other Deals....................... 52 29.4 41.4 38.0
All Deals......................... 85 29.7 41.2 47.0
DEALS ANNOUNCED IN 2000
Cash Deals........................ 287 23.6 32.7 38.1
Other Deals....................... 381 27.8 34.5 42.4
All Deals......................... 668 27.0 34.0 41.4
DEALS ANNOUNCED IN 1999
Cash Deals........................ 303 22.7 28.9 34.7
Other Deals....................... 344 24.4 30.1 38.6
All Deals......................... 647 24.2 29.8 37.2
COMBINED AVERAGES
Cash Deals........................ 623 27.7 34.3 42.2
Other Deals....................... 777 27.2 35.3 39.7
All Deals......................... 1400 27.0 35.0 41.9
==== ==== ==== =====
Implied Premium of Proposed
Recapitalization of Springs @
$44.00/share...................... 21.9 21.3 36.2
==== ==== =====
Implied Premium of Proposed
Recapitalization of Springs @
$46.00/share...................... 27.4 26.8 42.4
==== ==== =====
Implied Premium of Proposed
Recapitalization of Springs @
$48.00/share...................... 33.0 33.0 48.6
==== ==== =====
</Table>
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<Table>
<Caption>
PREMIUM TO STOCK PRICE (%)
--------------------------------------------
ONE DAY ONE WEEK ONE MONTH
PRIOR TO PRIOR TO PRIOR TO
NUMBER OF DEALS ANNOUNCEMENT ANNOUNCEMENT ANNOUNCEMENT
--------------- ------------ ------------ ------------
Implied Premium of Proposed
Recapitalization of Springs @
$50.00/share...................... 38.5 38.5 54.8
==== ==== =====
Implied Premium of Proposed
Recapitalization of Springs @
$52.00/share...................... 44.0 44.0 60.9
==== ==== =====
</Table>
UBS Warburg reviewed selected purchase price per share premiums paid both
in cash acquisitions and in minority close-out transactions of publicly-traded
domestic companies announced, excluding certain transactions that in UBS
Warburg's judgment were non-representative, from January 1990 through February
2001. This analysis indicated arithmetic average premiums to the target's
closing stock prices on dates prior to the announcement as set forth in the
following table.
<Table>
<Caption>
PREMIUM TO STOCK PRICE (%)
--------------------------------------------
ONE DAY ONE WEEK ONE MONTH
AVERAGE ANNUAL PRIOR TO PRIOR TO PRIOR TO
NUMBER OF DEALS ANNOUNCEMENT ANNOUNCEMENT ANNOUNCEMENT
--------------- ------------ ------------ ------------
CONTROL TRANSACTIONS
Cash Deals........................ 383 33.7 37.4 40.9
Stock Deals....................... 79 25.8 29.2 30.6
Both.............................. 64 29.1 35.4 41.3
All Deals......................... 526 31.9 35.9 39.4
MINORITY CLOSE-OUT TRANSACTIONS
Cash Deals........................ 101 27.8 29.1 30.2
Stock Deals....................... 31 17.7 19.4 22.7
Both.............................. 6 29.6 29.4 26.9
All Deals......................... 138 25.6 26.9 28.4
=== ==== ==== ====
Implied Premium of Proposed
Recapitalization of Springs @
$44.00/share...................... 21.9 21.3 36.2
==== ==== ====
</Table>
Selected Comparable Transaction Analysis. UBS Warburg reviewed publicly
available financial information relating to the following selected transactions
in the home furnishings industry since February 1995:
<Table>
<Caption>
ACQUIROR TARGET
- -------- ------
Berkshire Hathaway, Inc. Shaw Industries, Inc.
Investor Group Conso International Corp.
CGW Southeast Partners IV, L.P. Johnston Industries, Inc.
Dan River, Inc. The Bibb Company
Pillowtex Corp. Fieldcrest Cannon, Inc.
Springs Industries, Inc. Dundee Mills, Inc.
</Table>
UBS Warburg chose the selected transactions because they were business
combinations that, for the purposes of the analysis, UBS Warburg considered to
be reasonably similar to the recapitalization in that these transactions
involved companies in the home furnishings industry. The selected transactions
may differ significantly from the recapitalization based on, among other things,
the size of the transactions, the structure of the transactions and the dates
that the transactions were announced and consummated.
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UBS Warburg reviewed, among other things, the TEVs implied in the relevant
transactions as a multiple of LTM revenue, LTM EBITDA, LTM FCF and LTM EBIT and
the EMV implied in the relevant transactions as a multiple of LTM net income.
The analysis indicated the following implied multiples for the selected
transactions and for the recapitalization:
<Table>
<Caption>
SPRINGS IMPLIED
MULTIPLE @
MULTIPLE ANALYSIS MULTIPLE RANGE $44.00/SHARE
- ----------------- -------------- ---------------
TEV/LTM Revenue........................................ 0.53x to 1.10x 0.53x
TEV/LTM EBITDA......................................... 5.9x to 18.4x 4.7x
TEV/LTM FCF............................................ 7.2x to 47.3x 7.4x
TEV/LTM EBIT........................................... 7.9x to 40.7x 8.2x
EMV/LTM Net Income..................................... 11.5x to 23.9x 11.1x
</Table>
All multiples for the selected transactions were based on publicly
available information at the time of the announcement of the particular
transaction. Actual LTM data for Springs and the selected companies were based
on the respective companies' Forms 10-K and 10-Q as well as certain internal
financial reports for Springs.
Discounted Cash Flow Analysis. UBS Warburg performed a discounted cash
flow analysis, using the Scenario 1 and Scenario 2 financial forecasts prepared
by management of Springs, in order to derive an implied equity value reference
range for Springs. The discounted cash flow analysis determined the discounted
present value of the unleveraged after-tax cash flows generated over the
five-year period covered by the Scenario 1 and Scenario 2 financial forecasts
and then added a terminal value based upon ranges of EBITDA, FCF and EBIT
multiples and a growth perpetuity based on unleveraged after-tax free cash flow
from 4.0x to 6.0x, 6.0x to 8.0x, 6.0x to 8.0x, and 0.0% to 2.0%, respectively.
The unleveraged after-tax cash flows and terminal values were discounted using a
range of discount rates (8.75% to 12.75%) that UBS Warburg deemed appropriate,
based on Springs' weighted average cost of capital. The valuation ranges implied
by this analysis are summarized in the following table:
<Table>
<Caption>
TERMINAL VALUE IMPLIED PER SHARE
TERMINAL VALUE BASED UPON MULTIPLE RANGE VALUE RANGE($)
------------------------- --------------- -----------------
SCENARIO 2 FINANCIAL FORECASTS
EBITDA................................................ 4.0x to 6.0x 49.80 to 89.58
EBIT.................................................. 6.0x to 8.0x 52.54 to 69.46
FCF................................................... 6.0x to 8.0x 53.03 to 85.05
Perpetuity Growth..................................... 0.0% to 2.5% 41.40 to 95.11
SCENARIO 1 FINANCIAL FORECASTS
EBITDA................................................ 4.0x to 6.0x 36.48 to 67.47
EBIT.................................................. 6.0x to 8.0x 32.16 to 43.17
FCF................................................... 6.0x to 8.0x 34.23 to 56.50
Perpetuity Growth..................................... 0.0% to 2.5% 30.00 to 71.85
</Table>
Leveraged Recapitalization Analysis. UBS Warburg performed a leveraged
recapitalization analysis of Springs to show the IRRs to a typical financial
buyer that might be produced assuming the sale of Springs to such a financial
buyer at various per share purchase prices. A leveraged recapitalization
involves the acquisition or recapitalization of a company financed primarily by
incurring indebtedness that is serviced by the post-recapitalization operating
cash flow of Springs. For purposes of the leveraged recapitalization analysis,
UBS Warburg assumed, among other things: (i) a purchase price per share range
from $44.00 to $50.00; (ii) recapitalization accounting (no push-down of
goodwill); (iii) a closing date of June 30, 2001; and
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(iv) that the hypothetical investor sells Springs in 4.5 years (i.e., at the end
of 2005) at an EBITDA multiple of 5.0x. The results of these analyses are
summarized in the table below:
<Table>
<Caption>
PURCHASE PRICE PER SHARE
------------------------------------
$44.00 $46.00 $48.00 $50.00
------ ------ ------ ------
IRR(%) -- Scenario 2 Financial Forecasts............ 27.6 26.2 24.8 23.5
IRR(%) -- Scenario 1 Financial Forecasts............ 15.7 14.2 12.7 11.2
LEVERAGE AND COVERAGE STATISTICS -- SCENARIO 2
FINANCIAL FORECASTS
2000 Pro Forma(x):
Total Debt/EBITDA............................ 2.7 2.8 2.9 3.0
EBITDA/Interest Expense...................... 4.3 4.1 4.0 3.9
</Table>
Present Value of Hypothetical Future Stock Price Analysis. UBS Warburg
performed a present value of hypothetical future stock price analysis using the
Scenario 1 and Scenario 2 financial forecasts prepared by management of Springs,
in order to derive an implied equity value reference range for Springs. The
future stock price range was determined by applying a P/E multiple range of
8.0x-10.0x. The P/E multiple range used in this analysis was selected by UBS
Warburg after considering the implied P/E multiple range derived from the
comparable public companies analysis and the implied P/E multiples for Springs
for various periods prior to the announcement of the proposed recapitalization.
This hypothetical future stock price and the forecasted constant per share
dividend stream generated over the five-year period (2001-2005) were then
discounted at a levered cost of equity of 12.50%. The valuation range indicated
by this analysis is summarized in the following table:
<Table>
<Caption>
($ PER SHARE) 2001P 2002P 2003P 2004P 2005P
- ------------- ----- ----- ----- ----- -----
SCENARIO 1 FINANCIAL FORECAST
Projected Springs EPS...................... 3.87 4.14 4.61 4.75 4.91
Hypothetical Future Stock Price
P/E Multiple
8.0x....................................... 30.96 33.12 36.88 38.00 39.28
9.0x....................................... 34.83 37.26 41.49 42.75 44.19
10.0x...................................... 38.70 41.40 46.10 47.50 49.10
Dividends per share........................ 1.27 1.27 1.27 1.27 1.27
Present Value of Hypothetical Stock Price
P/E Multiple:
8.0x....................................... 29.79 29.42 30.08 28.61 27.32
9.0x....................................... 33.44 32.89 33.52 31.76 30.21
10.0x...................................... 37.09 36.36 36.95 34.90 33.10
SCENARIO 2 FINANCIAL FORECAST
Projected Springs EPS...................... 4.31 5.31 6.93 7.47 7.92
Hypothetical Future Stock Price
P/E Multiple
8.0x....................................... 34.48 42.48 55.44 59.76 63.36
9.0x....................................... 38.79 47.79 62.37 67.23 71.28
10.0x...................................... 43.10 53.10 69.30 74.70 79.20
Dividends per share........................ 1.27 1.27 1.27 1.27 1.27
Present Value of Hypothetical Stock Price
P/E Multiple:
8.0x....................................... 33.11 37.26 43.91 43.02 41.49
9.0x....................................... 37.17 41.71 49.07 47.97 46.15
10.0x...................................... 41.23 46.16 54.23 52.91 50.81
</Table>
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April 2, 2001 Materials
At a meeting held on April 2, 2001, representatives of UBS Warburg and
Sheffield reviewed a preliminary draft valuation analysis of Springs prepared by
UBS Warburg. The preliminary draft analysis was not intended to address the
fairness, from a financial point of view, to the public shareholders of Springs
of the $44.00 per share proposal from the Close family and Heartland Industrial
Partners. In connection with the rendering of UBS Warburg's financial fairness
opinion, UBS Warburg's final valuation analysis in respect of the Close family's
and Heartland Industrial Partners' $46.00 per share final proposal was presented
to the special committee on April 24, 2001.
The April 2 materials were given to Sheffield in preliminary draft form and
were based on incomplete information. These preliminary draft materials were not
prepared with a view toward public disclosure, and are included in this document
only because such information was made available to Sheffield. In addition, the
methodologies, assumptions and other factors considered by UBS Warburg in the
preparation of these preliminary draft materials may not be the same as the
methodologies, assumptions and other factors considered by UBS Warburg in
connection with the other materials prepared by UBS Warburg that are described
in this document.
In connection with UBS Warburg's review, Springs' management provided UBS
Warburg with two sets of five-year financial forecasts for Springs, with one set
entitled "Scenario 2 (Higher Risk)," which were also called "Management Base
Case" and the other set entitled "Scenario 1 (Lower Risk)," which were also
called "Management Downside Case." The preliminary discounted cash flow analysis
included in the UBS Warburg preliminary draft valuation analyses reviewed at the
April 2 meeting was based on the Scenario 1 financial forecast, although at the
time of the meeting Springs' management had not finalized such forecast and
Springs' management subsequently modified such forecast. In preparing the
financial and comparative analyses in connection with the rendering of its
financial fairness opinion, UBS Warburg was instructed by the special committee
to disregard and not take into consideration the five-year financial forecast
for Springs entitled "Scenario 2 (Higher Risk)" because, based on general
economic and industry trends, Springs' past experience and the view of Springs'
management as to the likelihood of achievement, the special committee did not
believe, with UBS Warburg's concurrence, that the financial forecast entitled
"Scenario 2 (Higher Risk)" was likely to be achieved.
In connection with its review, with the special committee's consent, UBS
Warburg did not assume any responsibility for independent verification of any of
the financial and other information, including without limitation the
projections referred to above, utilized in its preliminary draft presentation,
relied on it as being complete and accurate in all material respects, and
assumed that the "Scenario 1 (Lower Risk)" projections provided to UBS Warburg
by Springs' management had been reasonably prepared on a basis reflecting the
best currently available estimates and judgments of Springs' management as to
the future performance of Springs. In addition, with the special committee's
consent, UBS Warburg did not make any independent evaluation or appraisal of any
of the assets or liabilities (contingent or otherwise) of Springs, nor was UBS
Warburg furnished with any such evaluation or appraisal.
In performing its preliminary draft analysis, UBS Warburg made numerous
assumptions with respect to industry performance, general business, financial,
market and economic conditions and other matters, many of which are beyond the
control of Springs. No company, transaction or business used in the preliminary
draft analysis as a comparison is identical to Springs or its businesses or the
recapitalization, nor is an evaluation of the results entirely mathematical.
Rather, the analyses involve complex considerations and judgments concerning
financial and operating characteristics and other factors that could affect the
operating results, public trading or other values of the companies or
transactions being analyzed.
The estimates contained in the preliminary draft analyses prepared by UBS
Warburg and the ranges of valuations resulting from any particular analysis are
not necessarily indicative of actual values or predictive of future results or
values, which may be significantly more or less favorable than suggested by
these analyses. In addition, analyses relating to the value of securities do not
purport to be appraisals or to reflect the prices at which a business might
actually be sold or the prices at which any securities may trade at the present
time or at any time in the future.
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The following is a summary of the preliminary draft financial analyses
prepared by UBS Warburg and reviewed at the April 2, 2001 meeting. These
preliminary draft valuation analyses have been included as Exhibit (c)(6) to the
Schedule 13E-3 filed by Springs in connection with the recapitalization, and the
following summary is qualified by reference to that exhibit. The full text of
UBS Warburg's preliminary draft analyses are also available for inspection and
copying at the corporate offices of Springs during regular business hours.
The preliminary draft financial analyses summarized below include
information presented in tabular format. In order to understand the preliminary
draft analyses fully, the tables must be read together with the text of each
summary. Considering the data set forth below without considering the full
narrative description of the preliminary draft analyses, including the
methodologies and assumptions underlying the preliminary draft analyses, could
create a misleading or incomplete view of the preliminary draft analyses.
Selected Comparable Public Company Analysis. UBS Warburg compared selected
financial information, ratios and public market multiples for Springs to the
corresponding data for the following six publicly-traded home furnishings
companies:
- Burlington Industries, Inc.
- Crown Crafts, Inc.
- Dan River, Inc.
- Galey & Lord, Inc.
- Mohawk Industries, Inc.
- WestPoint Stevens, Inc.
UBS Warburg chose the selected companies because they were publicly-traded
companies that, for purposes of the analysis, UBS Warburg considered reasonably
similar to Springs in that these companies operate in the home furnishings
industry. The selected public companies may significantly differ from Springs
based on, among other things, the size of the companies, the geographic coverage
of the companies' operations and the particular segments of the home furnishings
industry in which the companies focus.
UBS Warburg reviewed, among other information, the comparable companies'
multiples of TEV to:
- LTM revenue;
- LTM EBITDA;
- LTM FCF; and
- LTM EBIT.
UBS Warburg also reviewed, among other information, the comparable
companies' P/E multiples for the calendar year ending December 31, 2000 and
projected P/E multiples, based on IBES consensus earnings estimates for the
calendar year ending December 31, 2001.
The Springs comparable companies analysis resulted in the following ranges
of multiples as of March 30, 2001:
<Table>
<Caption>
SPRINGS IMPLIED
MULTIPLE @
MULTIPLE ANALYSIS MULTIPLE RANGE $44.00/SHARE
- ----------------- -------------- ---------------
TEV / LTM Revenue...................................... 0.33x to 1.03x 0.53x
TEV / LTM EBITDA....................................... 4.25x to 8.2x 4.7x
TEV / LTM FCF.......................................... 6.1x to 8.0x 7.4x
TEV / LTM EBIT......................................... 6.5x to 8.3x 8.2x
2000 P/E............................................... 3.9x to 8.8x 11.1x
2001E P/E -- IBES...................................... 2.7x to 22.6x 11.2x
</Table>
Actual LTM data for Springs and the selected companies were based on the
respective companies' Forms 10-K and 10-Q as well as certain internal financial
reports for Springs.
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Selected Comparable Transaction Analysis. UBS Warburg reviewed publicly
available financial information relating to the following selected transactions
in the home furnishings industry since February 1995:
<Table>
<Caption>
ACQUIROR TARGET
- -------- ------
Berkshire Hathaway, Inc. Shaw Industries, Inc.
Investor Group Conso International Corp.
CGW Southeast Partners IV, L.P. Johnston Industries, Inc.
Dan River, Inc. The Bibb Company
Pillowtex Corp. Fieldcrest Cannon, Inc.
Springs Industries, Inc. Dundee Mills, Inc.
</Table>
UBS Warburg chose the selected transactions because they were business
combinations that, for the purposes of the analysis, UBS Warburg considered to
be reasonably similar to the recapitalization in that these transactions
involved companies in the home furnishings industry. The selected transactions
may differ significantly from the recapitalization based on, among other things,
the size of the transactions, the structure of the transactions and the dates
that the transactions were announced and consummated.
UBS Warburg reviewed, among other things, the TEVs implied in the relevant
transactions as a multiple of LTM revenue, LTM EBITDA, LTM FCF and LTM EBIT and
the EMV implied in the relevant transactions as a multiple of LTM net income.
The analysis indicated the following implied multiples for the selected
transactions and for the recapitalization:
<Table>
<Caption>
SPRINGS IMPLIED
MULTIPLE @
MULTIPLE ANALYSIS MULTIPLE RANGE $46.00/SHARE
- ----------------- -------------- ---------------
TEV / LTM Revenue...................................... 0.53x to 1.10x 0.53x
TEV / LTM EBITDA....................................... 5.9x to 18.4x 4.7x
TEV / LTM FCF.......................................... 7.2x to 47.3x 7.4x
TEV / LTM EBIT......................................... 7.9x to 40.7x 8.2x
EMV / LTM Net Income................................... 11.5x to 23.9x 11.1x
</Table>
All multiples for the selected transactions were based on publicly
available information at the time of the announcement of the particular
transaction. Actual LTM data for Springs and the selected companies were based
on the respective companies' Forms 10-K and 10-Q as well as certain internal
financial reports for Springs.
Discounted Cash Flow Analysis. UBS Warburg performed a discounted cash
flow analysis, using the Scenario 1 financial forecast prepared by management of
Springs, in order to derive an implied equity value reference range for Springs.
The discounted cash flow analysis determined the discounted present value of the
unleveraged after-tax cash flows generated over the five-year period covered by
the Scenario 1 financial forecast and then added a terminal value based upon a
range of EBITDA multiples based on unleveraged after-tax free cash flow from
4.0x to 6.0x. The unleveraged after-tax cash flows and terminal values were
discounted using a range of discount rates (8.75% to 12.75%) that UBS Warburg
deemed appropriate, based
108
114
on Springs' weighted average cost of capital. The valuation ranges implied by
this analysis are summarized in the following table:
<Table>
<Caption>
EXIT MULTIPLES (EBITDA)
-----------------------------------------
DISCOUNT RATE (%) 4.0X 4.50X 5.0X 5.5X 6.0X
- ----------------- ----- ----- ----- ----- -----
8.75....................................... 41.01 46.66 52.31 57.96 63.60
9.75....................................... 38.77 44.18 49.60 55.02 60.44
10.75...................................... 36.62 41.83 47.03 52.23 57.43
11.75...................................... 34.58 39.58 44.57 49.57 54.57
12.75...................................... 32.63 37.43 42.23 47.03 51.83
</Table>
INDEPENDENT ACCOUNTANTS
The consolidated financial statements of Springs are incorporated in this
document by reference to Springs' annual report on Form 10-K for the fiscal year
ended December 30, 2000 and have been audited by Deloitte & Touche LLP,
independent accountants, as indicated in their report incorporated by reference
in this document. A representative of Deloitte & Touche will be at the annual
meeting to answer questions from shareholders and will have the opportunity to
make a statement.
FUTURE SHAREHOLDER PROPOSALS
Shareholders are reminded that they may, if qualified, present resolutions
which, if proper for inclusion in next year's proxy statement, may be considered
at the 2002 annual meeting. Any shareholder proposals so submitted must be
received by Springs by April 9, 2002. Springs will have the right to exercise
discretionary voting authority on any matter presented at the 2002 annual
meeting that has not been presented to Springs by June 23, 2002.
If the recapitalization is completed, Springs will no longer be a public
company and, accordingly, there will be no 2002 annual meeting.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Springs hereby incorporates the following documents previously filed with
the Securities and Exchange Commission (SEC File No. 001-05315) into this
document:
(1) Springs' annual report on Form 10-K and Form 10-K/A for the fiscal
year ended December 30, 2000.
(2) Springs' current report on Form 8-K filed February 23, 2001.
(3) Springs' current report on Form 8-K filed April 30, 2001.
(4) Springs' quarterly report on Form 10-Q and Form 10-Q/A for the
quarter ended March 31, 2001.
Springs incorporates by reference in this document additional documents
that it may file with the Securities and Exchange Commission between the date of
this document and the date of the annual meeting. These documents include
periodic reports, such as annual reports on Form 10-K, quarterly reports on Form
10-Q and current reports on Form 8-K, as well as its proxy statements. Any
statements contained in a document incorporated by reference in this proxy
statement will be deemed to be modified or superseded for purposes of this
document to the extent that a statement contained in this document (or in any
other subsequently filed document which also is incorporated by reference in
this document) modifies or supersedes such statement. Any statement so modified
or superseded shall not be deemed to be a part of this document except as so
modified or superseded.
109
115
WHERE YOU CAN FIND MORE INFORMATION
Springs files annual, quarterly, and current reports, proxy statements, and
other information with the Securities and Exchange Commission. You may read and
copy any reports, statements, or other information that Springs files at the
Securities and Exchange Commission's public reference rooms in Washington, D.C.,
New York, New York, and Chicago, Illinois. Please call the Securities and
Exchange Commission at 1-800-SEC-0330 for further information on the public
reference rooms. Springs public filings are also available to the public from
commercial document retrieval services and at the Internet website maintained by
the Securities and Exchange Commission at http://www.sec.gov. Reports, proxy
statements, and other information concerning Springs also may be inspected at
the offices of the New York Stock Exchange at 20 Broad Street, New York, NY
10005.
The Securities and Exchange Commission allows Springs to "incorporate by
reference" information into this document, which means that Springs can disclose
important information to you by referring you to another document filed
separately with the Securities and Exchange Commission. The information
incorporated by reference is deemed to be a part of this document, except for
any information superseded by information contained directly in this document.
This document incorporates by reference certain documents that Springs has
previously filed with the Securities and Exchange Commission. These documents
contain important business information about Springs and its financial
condition.
Springs may have sent to you some of the documents incorporated by
reference, but you can obtain any of them through Springs or the Securities and
Exchange Commission or the Securities and Exchange Commission's Internet website
described above. Documents incorporated by reference are available from Springs
without charge, excluding all exhibits unless specifically incorporated by
reference as an exhibit to this document. Shareholders may obtain documents
incorporated by reference in this document upon written or oral request to the
following address or telephone number:
SPRINGS INDUSTRIES, INC.
205 North White Street
Fort Mill, South Carolina 29715
(803) 547-3760
Attention: C. Powers Dorsett
If you would like to request documents from us, please do so by August 28,
2001 to receive them before the annual meeting. Springs will send any document
so requested to the requesting shareholder by first class mail or other equally
prompt means within one business day of receiving such request.
Springs has filed a Schedule 13E-3 with the Securities and Exchange
Commission with respect to the recapitalization. As permitted by the Securities
and Exchange Commission, this document omits certain information contained in
the Schedule 13E-3. The Schedule 13E-3, including any amendments and exhibits
filed or incorporated by reference as a part thereof, is available for
inspection or copying, by any interested shareholder or representative who has
been so designated in writing, during regular business hours at the address set
forth above. Statements contained in this document or in any document
incorporated herein by reference as to the contents of any contract or other
document referred to herein or therein are not necessarily complete and in each
instance reference is made to such contract or other document filed as an
exhibit to the Schedule 13E-3 or such other document, and each such statement
shall be deemed qualified in its entirety by such reference.
IF YOU WOULD LIKE TO REQUEST DOCUMENTS FROM SPRINGS, PLEASE DO SO AT LEAST
FIVE BUSINESS DAYS BEFORE THE DATE OF THE ANNUAL MEETING IN ORDER TO RECEIVE
TIMELY DELIVERY OF SUCH DOCUMENTS PRIOR TO THE ANNUAL MEETING.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS DOCUMENT TO VOTE YOUR SPRINGS SHARES AT THE ANNUAL MEETING.
SPRINGS HAS NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS
DIFFERENT FROM WHAT IS CONTAINED IN THIS DOCUMENT.
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116
THIS DOCUMENT IS DATED AUGUST 7, 2001. YOU SHOULD NOT ASSUME THAT THE
INFORMATION CONTAINED IN THIS DOCUMENT IS ACCURATE AS OF ANY DATE OTHER THAN
THAT DATE, AND THE MAILING OF THIS DOCUMENT TO SHAREHOLDERS DOES NOT CREATE ANY
IMPLICATION TO THE CONTRARY.
111
117
APPENDIX A
RECAPITALIZATION AGREEMENT
dated as of
April 24, 2001
between
SPRINGS INDUSTRIES, INC.
and
HEARTLAND SPRINGS INVESTMENT COMPANY
as amended as of
July 31, 2001
118
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
ARTICLE 1
DEFINITIONS
SECTION 1.01. Definitions................................................. A-2
ARTICLE 2
THE MERGER
SECTION 2.01. The Amendment; The Merger................................... A-6
SECTION 2.02. The Closing; Effective Time................................. A-6
SECTION 2.03. Effect of the Merger........................................ A-7
SECTION 2.04. Effect of the Merger on Capital Stock....................... A-7
SECTION 2.05. Treatment of Management Incentive Plans..................... A-7
SECTION 2.06. Surrender of Shares......................................... A-9
SECTION 2.07. Lost, Stolen or Destroyed Certificates...................... A-10
SECTION 2.08. Distributions............................................... A-10
SECTION 2.09. Adjustments to Prevent Dilution............................. A-10
SECTION 2.10. Dissenters' Rights.......................................... A-10
SECTION 2.11. Further Action.............................................. A-11
ARTICLE 3
THE SURVIVING CORPORATION
SECTION 3.01. Articles of Incorporation; By-Laws.......................... A-11
SECTION 3.02. Directors and Officers...................................... A-11
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
SECTION 4.01. Corporate Existence and Power............................... A-11
SECTION 4.02. Corporate Authorization..................................... A-12
SECTION 4.03. Opinion of Financial Advisor................................ A-12
SECTION 4.04. Antitakeover Statutes....................................... A-12
SECTION 4.05. Governmental Authorization.................................. A-12
SECTION 4.06. Finders' Fees............................................... A-13
SECTION 4.07. Non-contravention........................................... A-13
SECTION 4.08. Capitalization.............................................. A-13
SECTION 4.09. Subsidiaries; Equity Investments............................ A-14
SECTION 4.10. SEC Filings................................................. A-14
SECTION 4.11. Financial Statements........................................ A-14
SECTION 4.12. Absence of Certain Changes.................................. A-15
SECTION 4.13. No Undisclosed Material Liabilities......................... A-15
SECTION 4.14. Compliance with Laws and Court Orders....................... A-16
SECTION 4.15. Litigation.................................................. A-16
SECTION 4.16. Taxes....................................................... A-16
</Table>
i
119
<Table>
<Caption>
PAGE
----
SECTION 4.17. Employee Benefit Plans...................................... A-16
SECTION 4.18. Environmental Matters....................................... A-18
SECTION 4.19. Disclaimer of Other Representations and Warranties.......... A-18
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF MERGER SUBSIDIARY
SECTION 5.01. Corporate Existence and Power............................... A-18
SECTION 5.02. Corporate Authorization..................................... A-19
SECTION 5.03. Governmental Authorization.................................. A-19
SECTION 5.04. Non-contravention........................................... A-19
SECTION 5.05. Capitalization.............................................. A-19
SECTION 5.06. Finders' Fees............................................... A-19
SECTION 5.07. Financing................................................... A-20
SECTION 5.08. Litigation.................................................. A-20
ARTICLE 6
COVENANTS OF THE COMPANY
SECTION 6.01. Conduct of the Company...................................... A-20
SECTION 6.02. Access to Information....................................... A-21
SECTION 6.03. No Solicitation............................................. A-21
SECTION 6.04. State Takeover Laws......................................... A-22
SECTION 6.05. Reports..................................................... A-22
SECTION 6.06. Confidentiality Agreement................................... A-22
ARTICLE 7
COVENANTS OF MERGER SUBSIDIARY
SECTION 7.01. Director and Officer Liability.............................. A-22
SECTION 7.02. Financing Arrangements...................................... A-23
SECTION 7.03. Employee Benefit Plans...................................... A-23
ARTICLE 8
COVENANTS OF MERGER SUBSIDIARY AND THE COMPANY
SECTION 8.01. Reasonable Best Efforts..................................... A-23
SECTION 8.02. Disclosure Documents; Certain Filings....................... A-24
SECTION 8.03. Public Announcements........................................ A-25
SECTION 8.04. Notices of Certain Events................................... A-25
SECTION 8.05. Confidentiality............................................. A-25
SECTION 8.06. Solvency Letter............................................. A-25
</Table>
ii
120
<Table>
<Caption>
PAGE
----
ARTICLE 9
CONDITIONS TO THE MERGER
SECTION 9.01. Conditions to the Obligations of Each Party................. A-25
SECTION 9.02. Conditions to the Obligations of Merger Subsidiary.......... A-26
SECTION 9.03. Conditions to the Obligations of the Company................ A-27
ARTICLE 10
TERMINATION
SECTION 10.01. Termination................................................. A-27
SECTION 10.02. Effect of Termination....................................... A-28
ARTICLE 11
MISCELLANEOUS
SECTION 11.01. Notices..................................................... A-28
SECTION 11.02. Survival of Representations and Warranties.................. A-30
SECTION 11.03. Amendments; No Waivers...................................... A-30
SECTION 11.04. Expenses.................................................... A-30
SECTION 11.05. Successors and Assigns...................................... A-30
SECTION 11.06. Governing Law............................................... A-30
SECTION 11.07. Jurisdiction................................................ A-30
SECTION 11.08. WAIVER OF JURY TRIAL........................................ A-31
SECTION 11.09. Counterparts; Effectiveness................................. A-31
SECTION 11.10. Entire Agreement............................................ A-31
SECTION 11.11. Captions.................................................... A-31
SECTION 11.12. Severability................................................ A-31
SECTION 11.13. Specific Performance........................................ A-31
</Table>
<Table>
<Caption>
EXHIBITS
- --------
Exhibit A -- Shareholders Agreement
Exhibit B -- Form of Articles of Amendment
Exhibit C -- Form of Articles of Merger
</Table>
<Table>
<Caption>
SCHEDULES
- ---------
Schedule A -- Knowledge of the Company
</Table>
iii
121
RECAPITALIZATION AGREEMENT
RECAPITALIZATION AGREEMENT (the "AGREEMENT") dated as of April 24, 2001
between Springs Industries, Inc., a South Carolina corporation (the "COMPANY"),
and Heartland Springs Investment Company, a South Carolina corporation ("MERGER
SUBSIDIARY").
WITNESSETH:
WHEREAS, the shareholders of Merger Subsidiary seek to acquire an interest
in the Company through a transaction to be accounted for as a recapitalization
under generally accepted accounting principles ("GAAP"); and
WHEREAS, the Company wishes to amend its Articles of Incorporation (as
defined herein) in order to render the Company not subject to the restrictions
on "business combinations" contained in Sections 35-2-201 through 35-2-226 of
the South Carolina Code (the "SCC"); and
WHEREAS, the Special Committee (as defined herein) of the board of
directors of the Company (the "BOARD OF DIRECTORS") has (i) determined that the
Amendment (as defined herein) and this Agreement are advisable, fair to and in
the best interests of the holders (the "COMPANY SHAREHOLDERS") of the Company's
capital stock (other than the Continuing Shareholders (as defined herein)), (ii)
recommended that the Board of Directors adopt the Amendment and this Agreement,
and (iii) recommended that the Board of Directors recommend approval by the
Company Shareholders of the Amendment and this Agreement; and
WHEREAS, the Board of Directors (including a majority of the Continuing
Directors (as defined herein) for the purpose of rendering the provisions of
Article 7(a) of the Articles of Incorporation not applicable to the Merger (as
defined herein)), subsequent to the recommendation of the Special Committee, has
(i) determined that the Amendment and this Agreement are advisable, fair to and
in the best interests of the Company Shareholders (other than the Continuing
Shareholders), (ii) adopted the Amendment and this Agreement, and (iii) resolved
to recommend that the Company Shareholders approve the Amendment and this
Agreement; and
WHEREAS, as an inducement to the parties to enter into this Agreement, the
Family Shareholders (as defined herein) have entered into a Shareholders
Agreement with Merger Subsidiary in substantially the form attached hereto as
Exhibit A (the "SHAREHOLDERS AGREEMENT"), in which, among other things, (i) the
Family Shareholders have agreed to vote their Shares in favor of approval of the
Amendment and this Agreement and (ii) the Company is named a beneficiary of,
with the right to enforce, Sections 3.1, 3.2(c), 3.3, 10.1, 10.4, 10.5(b) and
10.6 of the Shareholders Agreement; and
WHEREAS, the recapitalization will involve a merger (the "MERGER") in which
Merger Subsidiary will merge with and into the Company, with the shares of
capital stock of the Company (other than the Continuing Shareholder Shares (as
defined herein)) being converted into the right to receive the Cash Merger
Consideration (as defined herein), subject to certain exceptions described in
this Agreement, and the Continuing Shareholder Shares not being converted and
remaining outstanding; and
WHEREAS, the board of directors of Merger Subsidiary has (i) determined
that this Agreement is advisable, fair to and in the best interests of the
shareholders of Merger Subsidiary, (ii) adopted this Agreement, and (iii)
recommended that the shareholders of Merger Subsidiary approve this Agreement;
and
WHEREAS, the shareholders of Merger Subsidiary have approved this
Agreement;
A-1
122
NOW, THEREFORE, in consideration of the foregoing and the mutual promises
herein made, and in consideration of the representations, warranties and
covenants herein contained, the parties hereto hereby agree as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.01. Definitions. (a) The following terms, as used herein, have
the following meanings:
"ACQUISITION PROPOSAL" means any offer or proposal for, or any indication
of interest in, (i) any acquisition or purchase of more than 50% of the
consolidated assets of the Company and its Subsidiaries, (ii) any acquisition or
purchase of an equity interest in the Company representing in excess of 50% of
the Class A Shares or any tender offer or exchange offer for the Class A Shares
as a result of which the offeror would hold such an equity interest in the
Company or (iii) any merger, consolidation, business combination, sale of
substantially all assets, recapitalization, liquidation, dissolution or similar
transaction involving the Company or any of its Subsidiaries whose assets,
individually or in the aggregate, constitute more than 50% of the consolidated
assets of the Company and its Subsidiaries, in each case other than the
transactions contemplated by this Agreement.
"AFFILIATE" means, with respect to any Person, any other Person that
directly or indirectly controls, is controlled by, or is under common control
with such Person. As used in this definition, "control" (including, with
correlative meanings, "controlled by" and "under common control with") shall
mean possession, directly or indirectly, of power to direct or cause the
direction of management or policies (whether through ownership of securities or
partnership or other ownership interests, by contract or otherwise).
"AMENDMENT" means an amendment to the Articles of Incorporation rendering
the Company not subject to Sections 35-2-201 through 35-2-226 of the SCC,
substantially in the form attached hereto as Exhibit B.
"ANTITRUST LAWS" means the Sherman Act, as amended, the Clayton Act, as
amended, the HSR Act, the Federal Trade Commission Act, as amended, and all
other federal, state and foreign statutes, rules, regulations, orders, decrees,
administrative and judicial doctrines and other laws that are designed or
intended to prohibit, restrict or regulate actions having the purpose or effect
of monopolization or restraint of trade or lessening of competition through
merger or acquisition.
"ARTICLES OF INCORPORATION" means the Company's amended and restated
articles of incorporation, restated as of April 18, 1994.
"BENEFIT PLAN" means any Plan, other than a Multiemployer Plan or a Foreign
Plan, maintained or contributed to by the Company or any Subsidiary thereof, or
any predecessor of the Company or any Subsidiary thereof, or with respect to
which the Company or any Subsidiary is a party, under which any employee, former
employee, director or former director of the Company or any Subsidiary thereof,
or any beneficiary thereof, is covered, is eligible for coverage or has benefit
rights in respect of service to the Company or any Subsidiary thereof and any
other Plan with respect to which the Company or any Subsidiary currently has or
could incur liability.
"BUSINESS DAY" means a day other than Saturday, Sunday or any other day on
which commercial banks in New York, New York are authorized or required by law
to close.
"CLASS A SHARE" means a share of Class A common stock, par value $.25 per
share, of the Company.
"CLASS B SHARE" means a share of Class B common stock, par value $.25 per
share, of the Company.
"CODE" means the Internal Revenue Code of 1986, as amended.
"CO-INVESTORS" has the meaning given in the Shareholders Agreement.
"COMPANY BALANCE SHEET" means the consolidated balance sheet of the Company
as of December 30, 2000 and the footnotes thereto set forth in the Company 10-K.
A-2
123
"COMPANY BALANCE SHEET DATE" means December 30, 2000.
"COMPANY RESTRICTED STOCK PLAN" means each Incentive Stock Plan under which
restricted stock has been issued or granted to any employee or director of the
Company or any of its Subsidiaries.
"CONTINUING DIRECTORS" means the Continuing Directors as defined in Article
7 of the Company's Articles of Incorporation.
"CONTINUING SHAREHOLDERS" means, collectively, (i) the Family Shareholders,
(ii) each Management Shareholder who elects prior to the Effective Time not to
have Shares converted into the right to receive the Cash Merger Consideration,
(iii) Heartland, (iv) the Heartland Entities and (v) any Co-Investor.
"CREDIT AGREEMENTS" means the $225,000,000 Credit Agreement dated as of
December 17, 1997, as amended, the $125,000,000 Credit Agreement dated as of
August 12, 1996, as amended, and the $100,000,000 Credit Agreement dated as of
March 31, 1995, as amended, each among the Company, the Banks listed therein and
Wachovia Bank, N.A., as Agent.
"ENVIRONMENTAL LAWS" means the common law and any federal, state, local or
foreign law, treaty, judicial decision, regulation, rule, judgment, order,
decree, injunction, permit or governmental restriction or requirement, in each
case as currently in effect, relating to pollution or protection of the
environment (including, without limitation, ambient air, indoor air, surface
water, groundwater, land surface, subsurface strata, and natural resources).
"ENVIRONMENTAL PERMITS" means all permits, licenses, franchises,
certificates, approvals and other similar authorizations of governmental
authorities relating to or required by Environmental Laws and affecting, or
relating to, the business of the Company or any Subsidiary as currently
conducted.
"ERISA" means the Employee Retirement Income Security Act of 1974.
"ERISA AFFILIATE" of any entity means any other Person that, together with
such Person, would be treated as a single employer under Section 414 of the
Code.
"FACILITIES" means the "Facilities" as defined in the Commitment Letter or
any replacement, refinancing, extension, amendment or restatement of the
Facilities.
"FAMILY SHAREHOLDERS" has the meaning given in the Shareholders Agreement.
"GOVERNMENTAL AUTHORITY" means any federal, state or local government or
any court, administrative agency or commission or other governmental or
regulatory agency, authority or official, whether domestic, foreign or
supranational.
"HEARTLAND" means Heartland Industrial Partners, L.P., a Delaware limited
partnership.
"HEARTLAND ENTITIES" has the meaning given in the Shareholders Agreement.
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, and the rules and regulations promulgated thereunder.
"INCENTIVE STOCK PLANS" means the Restricted Stock Plan, the 1999 Incentive
Stock Plan, the 1991 Incentive Stock Plan, as amended, the 1991 Restricted Stock
Plan for Outside Directors and the Deferred Unit Stock Plan, as amended
effective November 11, 1996.
"KNOWLEDGE" of (A) the Company means the actual knowledge of any of the
senior officers of the Company listed on Schedule A attached hereto and (B)
Merger Subsidiary means the actual knowledge of any of the directors and
officers of Merger Subsidiary.
"LIEN" means, with respect to any property or asset, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in respect of such
property or asset.
"MANAGEMENT SHAREHOLDERS" means the persons listed on a schedule to be
delivered to the Company by Merger Subsidiary in accordance with the provisions
of Section 2.05(a), as such schedule may be amended from time to time by Merger
Subsidiary prior to the Effective Time.
A-3
124
"MATERIAL ADVERSE EFFECT" means, with respect to an entity, a material
adverse effect on the condition (financial or otherwise), business or results of
operations of the entity and its Subsidiaries, taken as a whole; provided that
any such effect resulting from (x) changes in circumstances or conditions
affecting textile and nontextile home furnishing product manufacturing companies
in general, and not specifically relating to such entity and its Subsidiaries,
(y) changes in United States or global economy or financial market conditions,
or (z) changes in GAAP, shall not be considered a Material Adverse Effect.
"MULTIEMPLOYER PLAN" means a multiemployer plan within the meaning of
Section 4001(a)(3) of ERISA with respect to which the Company has an obligation
to contribute or has or could have withdrawal liability under Section 4201 of
ERISA.
"1934 ACT" means the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder.
"1933 ACT" means the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.
"PBGC" means the Pension Benefit Guaranty Corporation established pursuant
to Section 4002 of ERISA, or any successor thereto.
"PERSON" means an individual, corporation, partnership, limited liability
company, association, trust or other entity or organization, including a
Governmental Authority.
"PLAN" means any bonus, incentive compensation, deferred compensation,
pension, profit sharing, retirement, stock purchase, stock option, stock
ownership, stock appreciation rights, phantom stock, leave of absence, layoff,
vacation, day or dependent care, legal services, cafeteria, life, health,
accident, disability, material severance, material separation, other employee
benefit, employment, material consulting or change of control agreement, plan,
practice, policy or arrangement of any kind, whether written or oral, or whether
for the benefit of a single individual or more than one individual, including,
without limitation, any "employee benefit plan" within the meaning of Section
3(3) of ERISA (whether or not subject thereto).
"SCBCA" means the South Carolina Business Corporation Act of 1988.
"SEC" means the Securities and Exchange Commission.
"SHARES" means the outstanding Class A Shares and the Class B Shares of the
Company.
"SIGNIFICANT SUBSIDIARY" means, with respect to any Person, a Subsidiary
that would constitute a "significant subsidiary" of such Person within the
meaning of Rule 1-02(w) of Regulation S-X under the 1934 Act.
"SPECIAL COMMITTEE" means the Special Committee of the Board of Directors
formed by the Board of Directors on February 22, 2001, among other things, to
evaluate the Transactions.
"SUBSIDIARY" means, with respect to any Person, any corporation,
partnership, association, limited liability company or other organization,
whether incorporated or unincorporated, of which the stock or other ownership
interests having ordinary voting power to elect a majority of the board of
directors or other persons performing similar functions with respect to such
corporation, partnership, association, limited liability company or other
organization are at any time directly or indirectly owned or controlled by such
Person or by any one or more of its Subsidiaries, or by such Person and one or
more of its Subsidiaries.
"THIRD PARTY" means any Person as defined in Section 13(d) of the 1934 Act,
other than Merger Subsidiary, Heartland, any of Heartland's Affiliates or any
Continuing Shareholder.
"TRANSACTIONS" means the Amendment, this Agreement and the consummation of
the Merger and other transactions contemplated by this Agreement.
Any reference in this Agreement to a statute shall be to such statute, as
amended from time to time, and to the rules and regulations promulgated
thereunder.
A-4
125
(b) Each of the following terms is defined in the Section set forth
opposite such term:
<Table>
<Caption>
TERM SECTION
- ---- --------
Agreement................................................... Recitals
Amendment Effective Time.................................... 2.01
Appraiser................................................... 8.06
Appreciation Right.......................................... 2.05
Articles of Merger.......................................... 2.02
Bank........................................................ 5.07
Board of Directors.......................................... Recitals
Cash Merger Consideration................................... 2.04
Cash-Out Election........................................... 2.05
Cash-Out Payment............................................ 2.05
Certificate................................................. 2.06
Closing..................................................... 2.02
Closing Date................................................ 2.02
Commitment Letter........................................... 5.07
Company..................................................... Recitals
Company Proxy Statement..................................... 8.02
Company Representatives..................................... 6.02
Company SEC Documents....................................... 4.10
Company Securities.......................................... 4.08
Company Shareholders........................................ Recitals
Company Shareholders Meeting................................ 8.02
Company Subsidiary Securities............................... 4.09
Company 10-K................................................ 4.10
Confidentiality Agreement................................... 6.02
Continuing Shareholder Share................................ 2.04
Conversion Time............................................. 2.05
Converted Share............................................. 2.04
Dissenting Shareholders..................................... 2.04
DOJ......................................................... 8.01
Effective Time.............................................. 2.02
Employees................................................... 7.03
End Date.................................................... 10.01
Equity Commitment Letter.................................... 5.07
Exchange Agent.............................................. 2.06
Exchange Fund............................................... 2.06
Financing Agreements........................................ 7.02
Foreign Plan................................................ 4.17
FTC......................................................... 8.01
GAAP........................................................ Recitals
Indemnified Person.......................................... 7.01
In-the-Money Options........................................ 2.05
IRS......................................................... 4.16
Liabilities................................................. 4.13
Management Equity Schedule.................................. 2.05
Merger...................................................... Recitals
Merger Subsidiary........................................... Recitals
</Table>
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<Table>
<Caption>
TERM SECTION
- ---- --------
Merger Subsidiary Common Shares............................. 2.04
Merger Subsidiary Representatives........................... 6.02
Option...................................................... 2.05
Other Equity Awards......................................... 2.05
Out-of-the-Money Options.................................... 2.05
Preferred Stock............................................. 4.08
Required Amount............................................. 5.07
Rollover Election........................................... 2.05
SCC......................................................... Recitals
Schedule 13E-3.............................................. 8.02
Shareholders Agreement...................................... Recitals
Solvency Letter............................................. 8.06
Surviving Corporation....................................... 2.01
Tax Return.................................................. 4.16
Taxes....................................................... 4.16
Taxing Authority............................................ 4.16
</Table>
ARTICLE 2
THE MERGER
SECTION 2.01. The Amendment; The Merger. Prior to the Effective Time (as
defined below), and subject to and upon the terms and conditions of this
Agreement and the SCBCA, the Company shall duly file with the Secretary of State
of the State of South Carolina the articles of amendment giving effect to the
Amendment (the time of such filing, the "AMENDMENT EFFECTIVE TIME"). Promptly
following the Amendment Effective Time and at the Effective Time, and subject to
and upon the terms and conditions of this Agreement and the SCBCA, Merger
Subsidiary shall be merged with and into the Company, the separate existence of
Merger Subsidiary shall cease, and the Company shall continue as the surviving
corporation under the name "Springs Industries, Inc." (hereinafter sometimes
referred to as the "SURVIVING CORPORATION").
SECTION 2.02. The Closing; Effective Time. (a) Unless this Agreement
shall have been terminated and the transactions herein contemplated shall have
been abandoned pursuant to Section 10.01, the closing of the Merger (the
"CLOSING") shall take place at (i) 10:00 a.m., New York City time, at the
offices of Cahill Gordon & Reindel, 80 Pine Street, New York, New York 10005, as
promptly as practicable (but no later than the second Business Day) following
the date on which the last to be satisfied or waived of the conditions set forth
in Article 9 hereof (other than those conditions relating to the filing and
effectiveness of the articles of amendment giving effect to the Amendment and
other than those other conditions that by their nature cannot be satisfied until
the Closing Date, but subject to the satisfaction or, where permitted, waiver of
all such conditions) shall be satisfied or waived in accordance with this
Agreement or (ii) such other place, time and/or date as the Company and Merger
Subsidiary shall agree (the date of the Closing, the "CLOSING DATE").
(b) Immediately following the Closing, the parties hereto shall file
articles of merger (the "ARTICLES OF MERGER"), substantially in the form of
Exhibit C attached hereto, together with any required related certificates, with
the Secretary of State of the State of South Carolina, in such form as is
required by, and executed in accordance with the relevant provisions of, the
SCBCA and make all other filings or recordings required by the SCBCA. The Merger
shall become effective at the time the Articles of Merger are duly filed with
the Secretary of State of the State of South Carolina or at such later time as
the parties shall agree and as shall be specified in the Articles of Merger (the
date and time the Merger becomes effective being the "EFFECTIVE TIME").
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SECTION 2.03. Effect of the Merger. At the Effective Time, the effect of
the Merger shall be as provided in this Agreement, the Articles of Merger and
the applicable provisions of the SCBCA, including Section 33-11-106 thereof.
SECTION 2.04. Effect of the Merger on Capital Stock. At the Effective
Time, by virtue of the Merger and without any action on the part of the Company,
Merger Subsidiary or their respective shareholders:
(a) Treatment of Shares. Each Share issued and outstanding
immediately prior to the Effective Time (other than (i) Class B Shares that
are owned by shareholders ("DISSENTING SHAREHOLDERS") who have the right to
and who exercise dissenters' rights pursuant to Sections 33-13-102 and
33-13-210(a) of the SCBCA with respect to such Class B Shares, and (ii)
Continuing Shareholder Shares) (a "CONVERTED SHARE") shall, by virtue of
the Merger, be converted into the right to receive from the Surviving
Corporation cash in an amount equal to $46.00 (the "CASH MERGER
CONSIDERATION"). Each such Converted Share shall no longer be outstanding,
shall automatically be canceled and retired, and each registered or
beneficial owner of a Converted Share shall cease to have any rights with
respect thereto, except the right to receive the Cash Merger Consideration
applicable thereto and any distribution or dividend pursuant to Section
2.08, upon surrender of a certificate representing such Shares in
accordance with Section 2.06 hereof or an affidavit in accordance with
Section 2.07 hereof. Each Share held by (A) a Family Shareholder
immediately prior to the Effective Time, (B) a Management Shareholder
immediately prior to the Effective Time with respect to which such
Management Shareholder elects prior to the Effective Time not to have
converted into the right to receive the Cash Merger Consideration, (C)
Heartland immediately prior to the Effective Time, (D) any Heartland Entity
immediately prior to the Effective Time and (E) any Co-Investor immediately
prior to the Effective Time (each of (A) through (E), a "CONTINUING
SHAREHOLDER SHARE") shall not be converted and shall not be otherwise
affected by the Merger and shall remain outstanding as one Class A Share or
Class B Share, as the case may be.
(b) Treatment of Capital Stock of Merger Subsidiary. Each share of
common stock, no par value per share, of Merger Subsidiary ("MERGER
SUBSIDIARY COMMON SHARES") issued and outstanding immediately prior to the
Effective Time shall by virtue of the Merger, be converted into one duly
authorized, validly issued, fully paid and non-assessable Class A Share.
(c) Shares Owned by the Company. At the Effective Time, no cash or
other consideration shall be delivered or deliverable in exchange for any
Share that is owned by the Company or any direct or indirect Subsidiary of
the Company and not held on behalf of any other Person.
SECTION 2.05. Treatment of Management Incentive Plans.
(a) Delivery of Management Equity Schedule and Elections. To provide
certain Employees with the opportunity to elect whether or not to have a
continuing equity interest in the Surviving Corporation, Merger Subsidiary will
use its reasonable best efforts to deliver a schedule (the "MANAGEMENT EQUITY
SCHEDULE") on or prior to the 30th day following the date of this Agreement, but
in any event no later than the mailing date for the Company Proxy Statement,
which will include the following information: (1) the name of each employee of
the Company and its Subsidiaries to be given an option to have such employee's
Shares not be converted and remain outstanding following the Merger, each such
employee to be treated as a Management Shareholder for purposes of this
Agreement; and (2) all material terms applicable to the options, restricted
shares and other equity-based incentive awards that employees and former
employees will be entitled to elect to receive in substitution for options,
restricted shares, performance units and other equity-based awards held by an
employee or former employee prior to the Effective Time, as more fully provided
below. Merger Subsidiary will be deemed to represent, by virtue of delivering
the Management Equity Schedule to the Company, that such Management Equity
Schedule has been agreed to by the Chief Executive Officer of the Company and
Merger Subsidiary. Merger Subsidiary has received the commitment of the Chief
Executive Officer of the Company that she will use her reasonable best efforts
to cooperate with and assist Merger Subsidiary in delivering the Management
Equity Schedule pursuant to this Section 2.05(a). Upon delivery of the
Management Equity Schedule to the Company pursuant to this Section 2.05(a), the
Management Equity
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Schedule will form a part of this Agreement as if such Management Equity
Schedule had been a schedule to this Agreement as of the date hereof.
(b) Stock Options.
(i) Elections with respect to Options. All holders of options (each,
an "OPTION") with an exercise price per Class A Share below the Cash Merger
Consideration ("IN-THE-MONEY OPTIONS") will be given an option to make a
cash-out election as described in subclause (ii) of this Section 2.05(b) (a
"CASH-OUT ELECTION") or a rollover election as described in subclause (iii)
of this Section 2.05(b) (a "ROLLOVER ELECTION"). In the event that a holder
of an In-the-Money Option fails to make such an election on or before the
deadline established by the Company for the election, such holder shall be
deemed to have made (A) a Rollover Election, if the holder is a Management
Shareholder, and (B) a Cash-Out Election, if the holder is not a Management
Shareholder.
(ii) Cash-Out of Options. Any In-the-Money Option with respect to
which a Cash-Out Election is made or deemed made shall be converted at the
time established by the Company (the "CONVERSION TIME") into the right to
receive from the Surviving Corporation (subject to any applicable
withholding taxes) an amount equal to the product of (A) the excess of the
Cash Merger Consideration over the exercise price per Class A Share of such
In-the-Money Option times (B) the number of Class A Shares subject to such
In-the-Money Option (the "CASH-OUT PAYMENT"), and such In-the-Money Option
shall be canceled at the Conversion Time. The Cash-Out Payment shall be due
and paid at (or as soon as practicable following) the Conversion Time.
(iii) Rollover of Options. Any In-the-Money Option with respect to
which a Rollover Election is made or deemed made and each option with an
exercise price per Class A Share that exceeds the Cash Merger Consideration
(an "OUT-OF-THE-MONEY OPTION") shall be retained after the Conversion Time
on such terms and conditions as are specified in the Management Equity
Schedule or otherwise determined pursuant to the terms of the Rollover
Election. Any such retained option held by a Management Shareholder shall
vest and be fully exercisable immediately following the Conversion Time.
Such option shall also include an Appreciation Right after the Conversion
Time, unless it was converted from an In-the-Money Option held by a person
who is not a Management Shareholder. An "APPRECIATION RIGHT" means the
right to receive upon exercise of such option, in lieu of Class A Shares, a
cash payment from the Surviving Corporation (subject to any applicable
withholding taxes) equal to the product of (I) the excess of the fair
market value (to be determined based on a reasonable methodology to be
developed by the Company, with the consent of Merger Subsidiary) of a Class
A Share at the time of exercise over the exercise price per Class A Share
of such option times (II) the number of Class A Shares as to which such
option is exercised, subject to such other terms and conditions as may be
provided in the Management Equity Schedule.
(c) Restricted Stock. Immediately prior to the Effective Time, the
restrictions on each Class A Share not held by a Family Shareholder which is
subject to a restricted stock award pursuant to any of the Company Restricted
Stock Plans as to which the restrictions have not lapsed shall lapse and such
Class A Shares shall be treated as provided in Section 2.04(a) of this
Agreement.
(d) Performance Units. With respect to all outstanding performance unit
award agreements, the performance cycle (as defined in such agreements) shall be
deemed to have terminated 10 Business Days prior to the Company Shareholders
Meeting; provided that the Merger is consummated. The determination of the
Company's performance for the applicable performance cycle shall be made by the
Management Compensation and Organization Committee of the Company's Board of
Directors prior to the Effective Time and, if the Merger is consummated, any
cash amounts payable with respect to such performance unit awards shall be paid
as soon as practicable thereafter. Class A Shares payable following the
Effective Time with respect to any such performance unit awards shall be paid in
accordance with the terms and conditions set forth in the Management Equity
Schedule.
(e) Other Equity-Based Awards. The Company shall take all steps reasonably
necessary or appropriate so that, as of the Effective Time, all other
outstanding equity-based awards held by current and former
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employees and directors, including all deferred stock awards, stock credits and
other stock equivalents (collectively, "OTHER EQUITY AWARDS"), are converted
into cash-based awards and paid on a deferred basis in accordance with the terms
of such Other Equity Awards. The Company may also, after consultation with
Merger Subsidiary, allow each of the holders of Other Equity Awards to elect
whether and on what basis to modify the distribution schedule for his or her
payments.
(f) Notwithstanding any provision of this Agreement, if Merger Subsidiary
and the Chief Executive Officer of the Company determine that it would be
desirable to provide for an extension of the deadline for delivering the
Management Equity Schedule, then they may agree to extend any such deadline.
SECTION 2.06. Surrender of Shares. (a) Prior to the Effective Time,
Merger Subsidiary shall appoint a bank or trust company which is reasonably
satisfactory to the Company to act as the exchange agent (the "EXCHANGE AGENT")
for the benefit of the holders of Converted Shares for the payment of the Cash
Merger Consideration. All of the fees and expenses of the Exchange Agent shall
be borne by the Surviving Corporation. The Surviving Corporation will serve in
the capacity of exchange agent with respect to the Merger Subsidiary Common
Shares and will, at the Effective Time, upon receipt of the stock certificates
for the Merger Subsidiary Common Shares duly endorsed and in form for transfer
with accompanying stock powers duly executed in blank, exchange such stock
certificates for new stock certificates representing Class A Shares in
accordance with Section 2.04(b).
(b) At or prior to the Effective Time, Merger Subsidiary will deposit or
will cause to be deposited with the Exchange Agent cash in an amount equal to
the aggregate Cash Merger Consideration (in an amount equal to the number of
Converted Shares multiplied by the Cash Merger Consideration), together with the
aggregate amount of dividends or other distributions payable with respect
thereto pursuant to Section 2.08 hereof, in immediately available funds (the
"EXCHANGE FUND"). The Exchange Agent shall invest the funds as directed by the
Surviving Corporation on a daily basis; provided that substantially all such
investments shall be in obligations of or guaranteed by the United States of
America, in commercial paper obligations receiving the highest rating from
either Moody's Investors Services, Inc. or Standard & Poor's Corporation, or in
certificates of deposit, bank repurchase agreements or banker's acceptances of
commercial banks with capital exceeding $1,000,000,000. Any interest and other
income resulting from such investments shall be paid to the Surviving
Corporation.
(c) Promptly following the Effective Time, the Surviving Corporation shall
instruct the Exchange Agent to mail, no later than three Business Days after the
Effective Time, to each holder of record at the Effective Time of Converted
Shares at such holder's address of record (i) a letter of transmittal (which
shall specify that delivery shall be effected, and risk of loss and title to the
certificates formerly representing Converted Shares ("CERTIFICATES") shall pass,
only upon delivery of Certificates (or affidavits pursuant to Section 2.07
hereof) to the Exchange Agent and shall be in such form and have such other
provisions as the Company and Merger Subsidiary may reasonably agree) and (ii)
instructions for effecting the delivery for surrender of the Certificates (or
delivery of such affidavits) in exchange for the Cash Merger Consideration and
any unpaid dividends and other distributions. The Exchange Agent shall accept
Certificates (or such affidavits) upon compliance with such reasonable terms and
conditions as the Exchange Agent may impose to effect an orderly exchange
thereof in accordance with normal exchange practices. Each holder of a
Certificate may thereafter deliver such Certificate to the Exchange Agent, as
agent for such holder, to effect the surrender of such Certificate on such
holder's behalf for a period ending six months after the Effective Time. Upon
the due surrender of such Certificate, the Surviving Corporation shall cause the
Exchange Agent to pay, within three Business Days after the Exchange Agent is in
receipt of such Certificate, to the holder of such Certificate in exchange
therefor the Cash Merger Consideration multiplied by the number of Converted
Shares represented by such Certificate that has been so surrendered and any
unpaid dividends and other distributions in accordance with Section 2.08.
Following the Effective Time and until so surrendered, any Certificate or other
evidence of beneficial ownership of Shares shall represent solely the right to
receive the Cash Merger Consideration and any unpaid dividends and other
distributions in accordance with Section 2.08.
(d) If any payment in respect of Converted Shares under this Section 2.06
is to be made to a Person other than the Person in whose name such Shares are
registered, it shall be a condition to such payment that
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any surrendered Certificate relating thereto shall be properly endorsed or shall
be otherwise in proper form for transfer and that the Person requesting such
payment shall have paid any transfer and other taxes required by reason of such
payment in a name other than that of the registered holder of the Certificate or
instrument surrendered or shall have established to the satisfaction of the
Exchange Agent, or after the date specified in paragraph (g) below, the
Surviving Corporation, that such tax either has been paid or is not payable.
(e) In the event that, after the Effective Time, Certificates or affidavits
pursuant to Section 2.07 hereof or other evidence of transfer is presented to
the Surviving Corporation for the transfer of Shares, they shall be canceled and
exchanged in the manner contemplated by Section 2.04 and as provided in this
Section 2.06.
(f) The Cash Merger Consideration paid in the Merger shall be paid in full
to the holder of Converted Shares without interest thereon, and shall be subject
to reduction only for any applicable United States federal or other withholding
or stock transfer taxes payable by such holder.
(g) Promptly following the date which is six months after the Effective
Time, the Exchange Agent shall pay to the Surviving Corporation any portion of
the Exchange Fund (including the proceeds of any investment thereof) that
remains unclaimed and shall deliver to the Surviving Corporation all documents
in its possession relating to the Merger, and the Exchange Agent's powers and
duties hereunder shall terminate upon the date of such payments. Thereafter,
each holder of a Certificate may surrender such Certificate (or affidavits
pursuant to 2.07 hereof) only to the Surviving Corporation and (subject to any
applicable abandoned property, escheat or similar law) receive in consideration
therefor the consideration due to such holder pursuant to Sections 2.04 and 2.08
of this Agreement, without any interest thereon.
(h) None of Merger Subsidiary, the Surviving Corporation or the Exchange
Agent shall be liable to any holder of Converted Shares for any cash delivered
to a public official pursuant to any abandoned property, escheat or similar law,
rule, regulation, statute, order, judgment or decree.
SECTION 2.07. Lost, Stolen or Destroyed Certificates. In the event any
Certificate shall have been lost, stolen or destroyed, the Surviving Corporation
or the Exchange Agent, as applicable, shall deliver the Cash Merger
Consideration pursuant to Section 2.06 hereof, in exchange for such lost, stolen
or destroyed Certificate upon the making of an affidavit of that fact by the
holder thereof; provided, however, that the Surviving Corporation may, in its
discretion and as a condition precedent to the issuance thereof, require the
person making such affidavit to deliver an indemnity against any claim that may
be made against the Surviving Corporation or the Exchange Agent with respect to
the Certificate alleged to have been lost, stolen or destroyed.
SECTION 2.08. Distributions. Following surrender of any Converted Share,
there shall be paid to the holder of such Converted Share, without interest, at
the time of payment of the Cash Merger Consideration, any dividends or other
distributions with a record date prior to the Effective Time theretofore payable
with respect to such Converted Share and not yet paid.
SECTION 2.09. Adjustments to Prevent Dilution. In the event that
following the date hereof the Company changes the number of Class A Shares or
Class B Shares or securities convertible or exchangeable into or exercisable for
Class A Shares or Class B Shares, as the case may be, issued and outstanding
prior to the Effective Time as a result of a reclassification, stock split
(including a reverse split), stock dividend or distribution, recapitalization,
subdivision, or other similar transaction, the Cash Merger Consideration shall
be equitably adjusted.
SECTION 2.10. Dissenters' Rights. (a) Notwithstanding any provision of
this Agreement to the contrary, any Class B Shares issued and outstanding
immediately prior to the Effective Time and held by a Dissenting Shareholder
shall not be converted into or represent a right to receive the Cash Merger
Consideration with respect to such Class B Shares, but the Dissenting
Shareholder shall be entitled to only such rights as are granted by the SCBCA.
(b) Notwithstanding the provisions of Section 2.10(a), if any Dissenting
Shareholder shall lose dissenters' rights, then as of the Effective Time or the
occurrence of such event, whichever occurs later, such
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Dissenting Shareholder's Class B Shares shall thereafter represent only the
right to receive the Cash Merger Consideration, without interest thereon, upon
surrender of the Certificates representing such Class B Shares.
(c) The Company shall give Merger Subsidiary, prior to the Effective Time,
(i) prompt notice of any dissenters' notices and/or payment demands and any
other instruments served pursuant to the SCBCA received by the Company after the
date hereof and (ii) the opportunity to direct all negotiations and proceedings
with respect to any such notices and payment demands made pursuant to Chapter 13
of the SCBCA. The Company shall not voluntarily make any payment with respect to
any payment demands and shall not, except with the prior written consent of
Merger Subsidiary, settle or offer to settle any such demands.
SECTION 2.11. Further Action. If, at any time after the Effective Time,
any further action is necessary or desirable to carry out the purposes of this
Agreement and to put the Surviving Corporation in possession of all assets and
property of every description and every interest, wherever located, and the
rights, privileges, immunities, powers, franchises and authority, of a public as
well as of a private nature, of the Company and Merger Subsidiary, the officers
and directors of the Surviving Corporation, the Company and Merger Subsidiary
are fully authorized in the name of their respective corporations immediately
prior to the Effective Time or otherwise to take, and will take, all such lawful
and necessary action.
ARTICLE 3
THE SURVIVING CORPORATION
SECTION 3.01. Articles of Incorporation; By-Laws. (a) Articles of
Incorporation. The articles of incorporation of the Company, as in effect
immediately after the Amendment Effective Time and immediately prior to the
Effective Time, shall from and after the Effective Time be the articles of
incorporation of the Surviving Corporation until thereafter amended in
accordance with the SCBCA and such articles of incorporation.
(b) By-laws. The by-laws of the Company, as in effect immediately prior to
the Effective Time, shall be the by-laws of the Surviving Corporation until
thereafter amended in accordance with the SCBCA, the articles of incorporation
of the Surviving Corporation and such by-laws.
SECTION 3.02. Directors and Officers. (a) The directors of Merger
Subsidiary immediately prior to the Effective Time shall be the initial
directors of the Surviving Corporation, each to hold office in accordance with
the articles of incorporation and by-laws of the Surviving Corporation.
(b) The officers of the Company immediately prior to the Effective Time
shall be the initial officers of the Surviving Corporation, in each case until
their respective successors are duly appointed or until their earlier
resignation, removal from office or death.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Merger Subsidiary that, except as
set forth in the corresponding section or subsection of the disclosure schedule
delivered by the Company to Merger Subsidiary immediately prior to execution of
this Agreement:
SECTION 4.01. Corporate Existence and Power. The Company is a corporation
duly incorporated, validly existing and in good standing under the laws of the
State of South Carolina and has all corporate powers and all governmental
licenses, authorizations, permits, consents and approvals required to carry on
its business as now conducted, except for those licenses, authorizations,
permits, consents and approvals the absence of which would not be reasonably
expected to have, individually or in the aggregate, a Material Adverse Effect on
the Company. The Company is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction where such
qualification is necessary, except for those jurisdictions where failure to be
so qualified would not be reasonably expected to have, individually or in the
aggregate, a Material
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Adverse Effect on the Company. The Company has heretofore delivered to Merger
Subsidiary true and complete copies of the Articles of Incorporation and by-laws
of the Company as currently in effect.
SECTION 4.02. Corporate Authorization. (a) The adoption by the Company of
the Amendment and the approval by the Company of the execution, delivery and
performance by the Company of this Agreement and the consummation by the Company
of the Transactions are within the Company's corporate powers and, except for
the required approval by the Company Shareholders of the Amendment and this
Agreement, have been duly authorized by all necessary corporate action on the
part of the Company. The affirmative vote of the holders of two-thirds of the
votes of the Company's outstanding capital stock entitled to vote for directors,
with the Class A Shares and the Class B Shares voting together as a single class
(and with the holders of Class B Shares entitled to four votes per share), is
the only vote of the Company's capital stock necessary for adoption of the
Amendment. The affirmative vote of the holders of two-thirds of the votes of the
Company's outstanding capital stock entitled to vote for directors, with the
Class A Shares and the Class B Shares voting together as a single class (and
with the holders of Class B Shares entitled to one vote per share), is the only
vote of the Company's capital stock necessary in connection with the approval by
the Company Shareholders of this Agreement and the plan of merger included
herein. Assuming the due authorization, execution and delivery of this Agreement
by Merger Subsidiary, this Agreement constitutes a valid and binding agreement
of the Company.
(b) At a meeting duly called and held, the Special Committee has (i)
determined that the Amendment and this Agreement are advisable, fair to and in
the best interests of the Company Shareholders (other than the Continuing
Shareholders), (ii) recommended that the Board of Directors adopt the Amendment
and this Agreement, and (iii) recommended that the Board of Directors recommend
approval by the Company Shareholders of the Amendment and this Agreement.
(c) At a meeting duly called and held, the Board of Directors (including a
majority of the Continuing Directors for the purpose of rendering the provisions
of Article 7(a) of the Articles of Incorporation not applicable to the Merger),
subsequent to the unanimous recommendation of the Special Committee, has (i)
determined that the Amendment and this Agreement are advisable, fair to and in
the best interests of the Company Shareholders (other than the Continuing
Shareholders), (ii) adopted the Amendment and this Agreement, and (iii) resolved
to recommend that the Company Shareholders approve the Amendment and this
Agreement.
SECTION 4.03. Opinion of Financial Advisor. The Special Committee has
received the opinion of UBS Warburg LLC, the financial advisor to the Special
Committee, to the effect that, as of the date of this Agreement, the Cash Merger
Consideration is fair, from a financial point of view, to the holders of
Converted Shares.
SECTION 4.04. Antitakeover Statutes. (a) The Company has taken all action
necessary to exempt this Agreement, the Shareholders Agreement and the Merger
from the restrictions on "control share acquisitions" contained in Sections
35-2-101 through 35-2-111 of the SCC and at the Amendment Effective Time, from
the restrictions on "business combinations" contained in Sections 35-2-201
through 35-2-226 of the SCC, and, accordingly, neither the restrictions of such
Sections nor any other antitakeover or similar statute or regulation applies or
purports to apply to the Amendment, this Agreement, the Shareholders Agreement
or the Merger.
(b) The Amendment will be effective upon (i) the affirmative vote of the
holders of two-thirds of the votes of the Company's outstanding capital stock
entitled to vote for directors, with the Class A Shares and the Class B Shares
voting together as a single class (and with the holders of Class B Shares
entitled to four votes per share), and (ii) the filing of the articles of
amendment giving effect to the Amendment with the Secretary of State of the
State of South Carolina.
SECTION 4.05. Governmental Authorization. The adoption of the Amendment
and the execution, delivery and performance by the Company of this Agreement
require no action by or in respect of, or filing with, or notification or
reporting to, any Governmental Authority, other than (i) the filing of the
articles of amendment giving effect to the Amendment with the Secretary of State
of the State of South Carolina,
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(ii) the filing of articles of merger with respect to the Merger with the
Secretary of State of the State of South Carolina and appropriate documents with
the relevant authorities of other states in which the Company is qualified to do
business, (iii) compliance with any applicable requirements of the HSR Act and
of the Antitrust Laws of the foreign jurisdictions set forth on Section 4.05 of
the Company's disclosure schedule, (iv) compliance with any applicable
requirements of the 1933 Act and the 1934 Act and (v) any actions or filings the
absence of which would not be reasonably expected to have, individually or in
the aggregate, a Material Adverse Effect on the Company or prevent the Company
from performing its obligations under this Agreement prior to the End Date.
SECTION 4.06. Finders' Fees. Except for UBS Warburg LLC, there is no
investment banker, broker, finder or other intermediary that has been retained
by or is authorized to act on behalf of the Company or any of its Subsidiaries
who might be entitled to any fee or commission from the Company or any of its
Affiliates in connection with the Transactions.
SECTION 4.07. Non-contravention. The execution, delivery and performance
by the Company of this Agreement and the consummation of the Transactions do not
and will not (i) contravene, conflict with, or result in any violation or breach
of any provision of the Articles of Incorporation or by-laws of the Company,
(ii) assuming that the actions, filings, notifications or reports referred to in
Section 4.05 hereof are made and any approvals required in connection therewith
are received, contravene, conflict with or result in a violation or breach of
any provision of any applicable law, statute, ordinance, rule, regulation,
judgment, injunction, order or decree, (iii) require any consent or other action
by any Person under, constitute a default under, or cause or permit the
termination, cancellation, acceleration or other change of any right or
obligation or the loss of any benefit to which the Company or any of its
Subsidiaries is entitled under any provision of any agreement or other
instrument binding upon the Company or any of its Subsidiaries or any license,
franchise, permit, certificate, approval or other similar authorization
affecting, or relating in any way to, the assets or business of the Company and
its Subsidiaries or (iv) result in the creation or imposition of any Lien on any
asset of the Company or any of its Subsidiaries, except for such contraventions,
conflicts, violations and breaches referred to in clause (ii) and for such
failures to obtain any such consent or other action, default, termination,
cancellation, acceleration, change, loss or Lien referred to in clauses (iii)
and (iv) that would not be reasonably expected to have, individually or in the
aggregate, a Material Adverse Effect on the Company or prevent the Company from
performing its obligations under this Agreement prior to the End Date.
SECTION 4.08. Capitalization. (a) The authorized capital stock of the
Company consists of 40,000,000 Class A Shares, 20,000,000 Class B Shares, and
1,000,000 shares of preferred stock, par value $1.00 per share (the "PREFERRED
STOCK"). As of the close of business on March 30, 2001, (i) 10,790,474 Class A
Shares were issued and outstanding, (ii) 7,151,563 Class B Shares were issued
and outstanding, and (iii) no shares of Preferred Stock were issued or
outstanding. All outstanding Shares have been duly authorized and validly issued
and are fully paid and non-assessable.
(b) As of the close of business on March 30, 2001:
(i) 1,971,873 Shares were reserved for issuance pursuant to options
granted under the Incentive Stock Plans, which options are outstanding on
the date hereof, and, of such options, 1,018,608 are vested and exercisable
as of the date hereof,
(ii) 48,728 Shares were the subject of awards under the Company
Restricted Stock Plans and will remain subject to restrictions until the
End Date (as defined in Section 10.01 hereof) (disregarding matters
contemplated by Section 2.05 hereof and the effect of the Transactions)
under the Company Restricted Stock Plans or an award agreement governing
them, and
(iii) 228,467.8 shares of deferred stock were the subject of awards
under the Company's Incentive Stock Plans, which awards are outstanding on
the date hereof.
(c) Except as set forth in this Section 4.08, there are no outstanding (i)
shares of capital stock or voting securities of the Company, (ii) securities of
the Company convertible into or exchangeable for shares of capital stock or
voting securities of the Company, (iii) options or other rights to acquire from
the Company, or other obligation of the Company to issue, any capital stock,
voting securities or securities convertible into or
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exchangeable for capital stock or voting securities of the Company or (iv) stock
appreciation, phantom stock or similar rights with respect to the Company (the
items in clauses (i), (ii), (iii) and (iv) being referred to collectively as the
"COMPANY SECURITIES"). Since March 30, 2001, except for issuances (x) upon
exercise of presently outstanding awards under any Plan or (y) in the ordinary
course of business consistent with past practice, the Company has not authorized
for issuance, issued, delivered, sold or agreed or committed to issue, sell or
deliver any Company Securities. There are no outstanding obligations of the
Company or any of its Subsidiaries to repurchase, redeem or otherwise acquire
any of the Company Securities.
SECTION 4.09. Subsidiaries; Equity Investments. (a) Each Subsidiary of
the Company is an entity duly organized, validly existing and in good standing
under the laws of its jurisdiction of formation and has all requisite powers and
all governmental licenses, authorizations, permits, consents and approvals
required to carry on its business as now conducted, except where the failure to
be so organized or in good standing or to have such power or have such licenses,
authorizations, permits, consents or approvals would not be reasonably expected
to have, individually or in the aggregate, a Material Adverse Effect on the
Company. Each such Subsidiary is duly qualified to do business as a foreign
entity and is in good standing in each jurisdiction where such qualification is
necessary, except for those jurisdictions where the failure to be so qualified
or in good standing would not be reasonably expected to have, individually or in
the aggregate, a Material Adverse Effect on the Company.
(b) All of the outstanding capital stock of, or other voting securities or
ownership interests in, each Subsidiary of the Company that is owned by the
Company, directly or indirectly, is owned free and clear of any Lien and free of
any other limitation or restriction (including any restriction on the right to
vote, sell or otherwise dispose of such capital stock or other voting securities
or ownership interests). All of the outstanding shares of capital stock of each
Subsidiary of the Company have been validly issued and are fully paid and non-
assessable. There are no outstanding (i) securities of the Company or any of its
Subsidiaries convertible into or exchangeable for shares of capital stock or
other voting securities or ownership interests in any Subsidiary of the Company
or (ii) options or other rights to acquire from the Company or any of its
Subsidiaries, or other obligation of the Company or any of its Subsidiaries to
issue, any capital stock or other voting securities or ownership interests in,
or any securities convertible into or exchangeable for any capital stock or
other voting securities or ownership interests in, any Subsidiary of the Company
(the items in clauses (i) and (ii) being referred to collectively as the
"COMPANY SUBSIDIARY SECURITIES"). There are no outstanding obligations of the
Company or any of its Subsidiaries to repurchase, redeem or otherwise acquire
any of the Company Subsidiary Securities.
(c) Section 4.09(c) of the Company's disclosure schedule lists any equity
interest in any corporation, partnership, joint venture or other business
association or entity (other than a Subsidiary) owned directly or indirectly by
the Company and having a fair market value or book value in excess of $1.0
million.
SECTION 4.10. SEC Filings. (a) Each of (i) the Company's annual report on
Form 10-K for its fiscal year ended December 30, 2000 (the "COMPANY 10-K"), (ii)
its proxy statements relating to meetings of the Company Shareholders held since
December 31, 1999 and (iii) all of its other reports, statements, schedules and
registration statements filed with the SEC since December 30, 2000 (the
documents referred to in this Section 4.10(a), collectively, the "COMPANY SEC
DOCUMENTS") as of its filing date complied as to form in all material respects
with the applicable requirements of the 1934 Act and the 1933 Act, as
applicable.
(b) As of their respective dates (or, if amended prior to the date hereof,
as of the date of such amendment), each Company SEC Document did not contain any
untrue statement of a material fact or omit to state any material fact necessary
in order to make the statements made therein, in the light of the circumstances
under which they were made, not misleading.
SECTION 4.11. Financial Statements. The audited consolidated financial
statements of the Company included in the Company SEC Documents fairly present,
in conformity with GAAP applied on a consistent basis (except as may be
indicated in such financial statements or the notes thereto), the consolidated
financial position of the Company and its consolidated Subsidiaries as of the
dates thereof and their consolidated results of operations and cash flows for
the periods then ended.
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SECTION 4.12. Absence of Certain Changes. Except as disclosed in the
Company SEC Documents filed prior to the date hereof, since the Company Balance
Sheet Date, the business of the Company and its Subsidiaries has been conducted
in the ordinary course consistent with past practices and there has not been:
(a) any event, occurrence, development or state of circumstances or
facts that has had or would be reasonably expected to have, individually or
in the aggregate, a Material Adverse Effect on the Company;
(b) any declaration, setting aside or payment of any dividend or other
distribution with respect to any shares of capital stock of the Company
(other than quarterly cash dividends on the Class A Shares and the Class B
Shares not in excess of $.33 and $.30 per share, respectively), or any
repurchase, redemption or other acquisition by the Company or any of its
Subsidiaries of any outstanding shares of capital stock or other securities
of, or other ownership interests in, the Company or any of its Subsidiaries
(other than ordinary course open market purchases made in connection with
the Company's Incentive Stock Plans);
(c) any amendment of any material term of any outstanding security of
the Company or any of its Significant Subsidiaries;
(d) any incurrence, assumption or guarantee by the Company or any of
its Subsidiaries of any indebtedness for money borrowed in excess of $1.0
million, individually or in the aggregate, other than (i) under the Credit
Agreements in the ordinary course of business to fund general corporate
purposes, (ii) between the Company and its Subsidiaries or between two or
more of the Company's Subsidiaries or (iii) trade payables in the ordinary
course of business;
(e) any making of any material loan, advance or capital contribution
to or investment in any Person, other than loans, advances or capital
contributions to or investments in its Subsidiaries or by its Subsidiaries
to or in the Company or other Subsidiaries of the Company;
(f) any change in any method of accounting, method of tax accounting
or accounting principles or practice by the Company or any of its
Subsidiaries, except for any such change required by reason of a concurrent
change in GAAP, Regulation S-X under the 1934 Act, the Code or the rules
promulgated thereunder, or other applicable law or regulation; or
(g) except as required by law, any adoption or amendment in any
respect of any bonus, profit sharing, compensation, severance, termination,
stock option, stock appreciation right, pension, retirement, employment or
other employee benefit agreement, trust, plan or other arrangement for the
benefit or welfare of any director or elected officer of the Company or
increase in any manner of the compensation or fringe benefits of any
director or elected officer of the Company or payment of any benefit not
required by any existing agreement or placement of any assets in any trust
for the benefit of any director or elected officer of the Company not
required by any existing agreement, other than any adoption, amendment,
increase, payment or placement made in the ordinary course of business
consistent with past practice.
SECTION 4.13. No Undisclosed Material Liabilities. There are no
liabilities or obligations of the Company or any of its Subsidiaries of any kind
whatsoever, whether accrued, contingent, absolute, determined, determinable or
otherwise ("LIABILITIES"), other than:
(a) Liabilities disclosed or provided for in the Company Balance Sheet
or in the notes thereto or in the Company SEC Documents;
(b) Liabilities incurred in the ordinary course of business since the
Company Balance Sheet Date;
(c) Liabilities under this Agreement; and
(d) Liabilities that would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on the Company.
SECTION 4.14. Compliance with Laws and Court Orders. The Company and each
of its Subsidiaries are and, since the Company Balance Sheet Date, have been, in
compliance with any applicable law, statute, ordinance, rule, regulation,
judgment, injunction, order or decree, except for failures to comply or
violations
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that do not have and would not be reasonably expected to have, individually or
in the aggregate, a Material Adverse Effect on the Company.
SECTION 4.15. Litigation. There are no actions, suits, investigations or
proceedings pending against, or, to the knowledge of the Company, threatened
against, the Company or any of its Subsidiaries or any of their respective
properties before any court or arbitrator, or before or by any Governmental
Authority, that would reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on the Company.
SECTION 4.16. Taxes. (a) The Company and each of its Subsidiaries has
timely filed (or has had timely filed on its behalf), taking into account any
extension of time within which to file, all Tax Returns required to be filed by
it on or before the Closing Date and all such Tax Returns are true and complete
in all material respects, except for failures to file or failures to be true and
complete that do not have and would not be reasonably expected to have,
individually or in the aggregate, a Material Adverse Effect on the Company.
(b) The Company and each of its Subsidiaries have paid (or have had paid on
their behalf), or, where payment is not yet due, have established (or have had
established on their behalf) or will establish or cause to be established in
accordance with GAAP on or before the Effective Time an adequate accrual for the
payment of, all taxes shown to be due on such Tax Returns.
(c) There are no material Liens or encumbrances for Taxes on any of the
assets of the Company or any of its Subsidiaries.
(d) No material federal, state, local or foreign audits or administrative
proceedings are pending or, to the knowledge of the Company, threatened, with
regard to any Taxes or any Tax Return of the Company or its Subsidiaries that,
if determined adversely to the Company (or any of its Subsidiaries) would
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on the Company.
"TAXES" shall mean any and all taxes, charges, fees, levies or other
assessments, including income, gross receipts, excise, real or personal
property, sales, withholding, social security, retirement, unemployment,
occupation, use, goods and services, service use, license, value added, capital,
net worth, payroll, profits, withholding, franchise, transfer and recording
taxes, fees and charges, and any other taxes, assessments or similar charges
imposed by the Internal Revenue Service ("IRS") or any taxing authority (whether
domestic or foreign including any state, county, local or foreign government or
any subdivision or taxing agency thereof (including a United States possession))
(a "TAXING AUTHORITY"), whether computed on a separate, consolidated, unitary,
combined or any other basis; and such term shall include any interest whether
paid or received, fines, penalties or additional amounts attributable to, or
imposed upon, or with respect to, any such taxes, charges, fees, levies or other
assessments. "TAX RETURN" shall mean any report, return, document, declaration
or other information or filing required to be supplied to any taxing authority
or jurisdiction (foreign or domestic) with respect to Taxes, including
information returns, any documents with respect to or accompanying payments of
estimated Taxes, or with respect to or accompanying requests for the extension
of time in which to file any such report, return, document, declaration or other
information.
SECTION 4.17. Employee Benefit Plans. (a) Section 4.17 of the Company's
disclosure schedule lists all Benefit Plans and Multiemployer Plans. With
respect to all Benefit Plans, copies of all plan documents, amendments, summary
plan descriptions and trust agreements, and the most recent actuarial valuation
reports and annual return and IRS determination letters have been made available
to Merger Subsidiary.
(b) Except as would not be reasonably expected to have, individually or in
the aggregate, a Material Adverse Effect on the Company:
(i) each Benefit Plan has at all times been maintained and
administered in substantial compliance with its terms and with the
requirements of all applicable law, including ERISA and the Code. Each
Benefit Plan intended to qualify under Section 401(a) of the Code has
received a favorable determination letter from the IRS, and to the
knowledge of the Company there is no fact or circumstance giving rise to a
material likelihood that the plan would not be treated as so qualified by
the IRS;
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(ii) all required contributions to any Benefit Plans and Multiemployer
Plans that are "defined benefit pension plans" required to be made by the
Company or any Subsidiary or an ERISA Affiliate in accordance Section 302
of ERISA or Section 412 of the Code, have been timely made; there has been
no application for or waiver of the minimum funding standards imposed by
Section 412 of the Code with respect to any Benefit Plan; and no Benefit
Plan has incurred any "accumulated funding deficiency" within the meaning
of Section 302 of ERISA or Section 412 of the Code;
(iii) all contributions to, and, to the knowledge of the Company,
payments from, the Benefit Plans that are required to have been made in
accordance with the Benefit Plans have been timely made;
(iv) no "reportable event" (within the meaning of Section 4043 of
ERISA) has occurred within the six-year period ending on the date hereof
with respect to any Benefit Plan or any Plan maintained by an ERISA
Affiliate with respect to which the 30-day notice requirement has not been
waived;
(v) no liability has been incurred that has not been satisfied, and no
liability is expected to be incurred, by the Company or any Subsidiary
thereof under Title IV of ERISA with respect to any Benefit Plan or
Multiemployer Plan, or with respect to any other Plan presently or
heretofore maintained or contributed to during the five-year period prior
to the Effective Time by any ERISA Affiliate;
(vi) with respect to any Benefit Plan subject to Title IV of ERISA,
there is not any amount of "unfunded benefit liabilities" (as defined in
Section 4001(a)(18) of ERISA) under such plan (as determined on the basis
of the actuarial assumptions contained in such plan's most recent actuarial
valuation report), and the Company is not aware of any facts or
circumstances that would materially change the funded status of any such
plan;
(vii) with respect to each Multiemployer Plan, (A) no withdrawal
liability (within the meaning of Section 4201(b) of ERISA) has been
incurred by the Company or any ERISA Affiliate that has not been satisfied,
and the Company has no reason to believe that any such withdrawal liability
will be incurred, (B) to the knowledge of the Company, no such
Multiemployer Plan is in "reorganization" (within the meaning of Section
4241 of ERISA), (C) no notice has been received that increased
contributions may be required to avoid a reduction in plan benefits or the
imposition of an excise tax, or that such Multiemployer Plan is or may
become "insolvent" (within the meaning of Section 4241 of ERISA), (D) to
the knowledge of the Company or any Subsidiary thereof, no proceedings have
been instituted by the PBGC against such Multiemployer Plan, (E) to the
knowledge of the Company, neither the Company nor any Subsidiary thereof
has sold assets in a transaction intended to satisfy the requirements of
Section 4204 of ERISA, and (F) to the knowledge of the Company, if the
Company or any ERISA Affiliate were to have a complete or partial
withdrawal under Section 4203 of ERISA as of the Effective Time, no
withdrawal liability would exist on the part of the Company or any ERISA
Affiliate;
(viii) neither the Company nor any ERISA Affiliate has incurred any
liability that has not been fully satisfied for any tax imposed under
Sections 4971 through 4980E of the Code or civil liability under Section
502(i) or (l) of ERISA;
(ix) no Tax has been incurred under Section 511 of the Code with
respect to any Benefit Plan (or trust or other funding vehicle pursuant
thereto);
(x) the Company, its Subsidiaries, and any ERISA Affiliates which
maintain a "group health plan" within the meaning of Section 5000(b)(1) of
the Code have complied in all material respects with the "COBRA" notice and
continuation requirements;
(xi) no action which is still pending (excluding claims for benefits
incurred in the ordinary course of Plan activities) has been brought or, to
the knowledge of the Company, threatened against or with respect to any
Benefit Plan and there are no facts or circumstances known to the Company
or any Subsidiary thereof that could reasonably be expected to give rise to
any such action;
(xii) except as set forth in Section 2.05 hereof, the consummation of
the Transactions will not result in an increase in the amount of
compensation or benefits or accelerate the vesting or timing of payment of
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any benefits or compensation payable to or in respect of any employee of
the Company or any of its Subsidiaries; and
(xiii) the consummation of the Transactions will not result in or
satisfy a condition to the payment of compensation that would, in
combination with any other payment, result in an "excess parachute payment"
within the meaning of Section 280G(b) of the Code.
(c) Except as would not, individually or in the aggregate, be reasonably
expected to have a Material Adverse Effect on the Company, during the six-year
period ending on the date hereof (i) all contributions required to be made by
the Company or any Subsidiary with respect to a Foreign Plan have been timely
made, (ii) each Foreign Plan has been maintained in substantial compliance with
its terms and with the requirements of any and all applicable laws and has been
maintained, where required, in good standing with the applicable Governmental
Authority, and (iii) neither the Company nor any Subsidiary has incurred any
obligation in connection with the termination or withdrawal from any Foreign
Plan. To the knowledge of the Company, each of the Foreign Plans that is a
defined benefit plan that is required to be funded has plan assets with
aggregate fair market value that is greater than such plan's liabilities, as
determined in accordance with applicable laws using reasonable actuarial
assumptions. For purposes hereof, the term "FOREIGN PLAN" shall mean any plan,
program, policy, arrangement or agreement maintained or contributed to by, or
entered into with, the Company or any Subsidiary with respect to employees (or
former employees) employed outside the United States who are not otherwise
covered under the Benefit Plans.
SECTION 4.18. Environmental Matters. Except as disclosed in the Company
SEC Documents filed prior to the date hereof, except as to which the Company, in
its reasonable judgment, has adequate reserves and except as would not be
reasonably expected to have, individually or in the aggregate, a Material
Adverse Effect on the Company:
(i) no notice, notification, demand, request for information,
citation, summons or order has been received, no complaint has been filed,
no penalty has been assessed, and no investigation, action, claim, suit,
proceeding or review is pending or, to the knowledge of the Company, is
threatened by any governmental entity or other Person, nor is the Company
subject to any judgment, decree, or agreement, relating to or arising out
of any Environmental Law; and
(ii) the Company is in compliance with all, and has incurred no
Liabilities under any, Environmental Laws and all Environmental Permits.
SECTION 4.19. Disclaimer of Other Representations and Warranties. The
Company does not make, and has not made, any representations or warranties in
connection with this Agreement or the Transactions other than those expressly
set forth herein. It is understood that any data, any financial information or
any memoranda or offering materials or presentations are not and shall not be
deemed to be or to include representations or warranties of the Company. Except
as expressly set forth herein, no Person has been authorized by the Company to
make any representation or warranty relating to the Company or any Subsidiary
thereof or their respective businesses, or otherwise in connection with this
Agreement or the Transactions and, if made, such representation or warranty may
not be relied upon as having been authorized by the Company.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF MERGER SUBSIDIARY
Merger Subsidiary represents and warrants to the Company that except as set
forth in the corresponding section or subsection of the disclosure schedule
delivered by Merger Subsidiary to the Company immediately prior to the execution
of this Agreement:
SECTION 5.01. Corporate Existence and Power. Merger Subsidiary is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of South Carolina and has all corporate powers and all
governmental licenses, authorizations, permits, consents and approvals required
to carry on its business as now conducted. Merger Subsidiary was incorporated
solely for the purpose of entering
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into this Agreement and engaging in the Transactions. Since the date of its
formation, Merger Subsidiary has not engaged in any activities other than in
connection with or as contemplated by this Agreement. Merger Subsidiary has no
Subsidiaries.
SECTION 5.02. Corporate Authorization. The execution, delivery and
performance by Merger Subsidiary of this Agreement and the consummation by
Merger Subsidiary of the Transactions are within the corporate powers of Merger
Subsidiary and have been duly authorized by all necessary corporate action on
the part of Merger Subsidiary and its shareholders. Assuming the due
authorization, execution and delivery of this Agreement by the Company, this
Agreement constitutes a valid and binding agreement of Merger Subsidiary
enforceable against Merger Subsidiary in accordance with its terms. The Board of
Directors of Merger Subsidiary has (i) determined that this Agreement is
advisable, fair to and in the best interests of Merger Subsidiary and its
shareholders, (ii) adopted this Agreement, and (iii) recommended that the
shareholders of Merger Subsidiary approve this Agreement. The shareholders of
Merger Subsidiary have approved this Agreement and the plan of merger included
herein.
SECTION 5.03. Governmental Authorization. The execution, delivery and
performance by Merger Subsidiary of this Agreement requires no action by or in
respect of, or filing with, or notification or reporting to, any Governmental
Authority other than (i) compliance with any applicable requirements of the HSR
Act and of the Antitrust Laws of the foreign jurisdictions set forth on Schedule
5.03 of Merger Subsidiary's disclosure schedule, (ii) compliance with any
applicable requirements of the 1933 Act and the 1934 Act, (iii) compliance with
the applicable requirements of the SCBCA and (iv) any actions or filings the
absence of which would not be reasonably expected to have a Material Adverse
Effect on Merger Subsidiary or prevent Merger Subsidiary from performing its
obligations under this Agreement prior to the End Date.
SECTION 5.04. Non-contravention. The execution, delivery and performance
by Merger Subsidiary of this Agreement and the consummation by Merger Subsidiary
of the Transactions do not and will not (i) contravene, conflict with, or result
in any violation or breach of any provision of the articles of incorporation or
by-laws of Merger Subsidiary, (ii) assuming that the actions, filings,
notifications or reports referred to in Section 5.03 hereof are made and any
approvals required in connection therewith are received, contravene, conflict
with or result in a violation or breach of any provision of any applicable law,
statute, ordinance, rule, regulation, judgment, injunction, order or decree,
(iii) require any consent or other action by any Person under, constitute a
default under, or cause or permit the termination, cancellation, acceleration or
other change of any right or obligation or the loss of any benefit to which
Merger Subsidiary is entitled under any provision of any agreement or other
instrument binding upon Merger Subsidiary or any license, franchise, permit,
certificate, approval or other similar authorization affecting, or relating in
any way to, the assets or business of Merger Subsidiary or (iv) result in the
creation or imposition of any Lien on any asset of Merger Subsidiary, except for
such contraventions, conflicts, violations and breaches referred to in clause
(ii) and for such failures to obtain any such consent or other action, default,
termination, cancellation, acceleration, change, loss or Lien referred to in
clauses (iii) and (iv) that would not be reasonably expected to have a Material
Adverse Effect on Merger Subsidiary or prevent Merger Subsidiary from performing
its obligations under this Agreement prior to the End Date.
SECTION 5.05. Capitalization. The authorized capital stock of Merger
Subsidiary consists of 10,000,000 shares of common stock, no par value per
share. As of the close of business on the date hereof, 100 shares of common
stock of Merger Subsidiary were issued and outstanding and, subject to Section
3.2(a) of the Shareholders Agreement, immediately prior to the Effective Time
there will be 4,891,305 shares of common stock of Merger Subsidiary issued and
outstanding. All outstanding shares of common stock of Merger Subsidiary have
been and immediately prior to the Effective Time will have been duly authorized
and validly issued and are and will be fully paid and non-assessable. Heartland
owns, and immediately prior to the Effective Time, Heartland, the Heartland
Entities and the Co-Investors will own, all of the outstanding shares of common
stock of Merger Subsidiary. Merger Subsidiary does not beneficially own any
Shares and as of the date of this Agreement, Heartland does not beneficially own
any Shares.
SECTION 5.06. Finders' Fees. Except for (i) Credit Research & Trading
which is the investment advisor for Heartland and the Family Shareholders and
(ii) JP Morgan Chase & Co. which is the investment
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advisor for Merger Subsidiary, there is no investment banker, broker, finder or
other intermediary that has been retained by or is authorized to act on behalf
of Heartland, the Continuing Shareholders or Merger Subsidiary who might be
entitled to any fee or commission from the Company or any of its Affiliates in
connection with the Transactions.
SECTION 5.07. Financing. (a) Merger Subsidiary has received and furnished
copies to the Company of (i) a commitment letter dated as of April 24, 2001, to
provide financing to the Company or a Subsidiary of the Company (including the
Summary of Terms and Conditions annexed thereto, the "COMMITMENT LETTER") with
The Chase Manhattan Bank and JP Morgan, a Division of Chase Securities, Inc.
(the "BANK"), (ii) the equity commitment letter (the "EQUITY COMMITMENT LETTER")
dated as of April 24, 2001 addressed to Merger Subsidiary from Heartland
pursuant to which Heartland has committed to make available to Merger Subsidiary
certain funds for the purpose of consummating the Transactions, and (iii) the
Shareholders Agreement. The funds which the Bank has agreed, subject to the
terms and conditions of the Commitment Letter, to provide and which Heartland
has agreed, subject to the terms and conditions of the Equity Commitment Letter,
to provide will be sufficient, when taken together with other funds otherwise
available and assuming compliance by the Family Shareholders with the
Shareholders Agreement, to enable it (A) to provide to the Exchange Agent cash
in an amount equal to the Exchange Fund, (B) to refinance substantially all of
the existing debt of the Company and its Subsidiaries to the extent contemplated
by the Transactions as contemplated by the Commitment Letter, and (C) to pay all
related fees and expenses (collectively, the "REQUIRED AMOUNT").
(b) As of the date hereof, (i) the Commitment Letter has not been withdrawn
and is in full force and effect and Merger Subsidiary has no reason to believe
that any of the conditions set forth in the Commitment Letter will not be
satisfied, (ii) the Equity Commitment Letter has not been withdrawn and is in
full force and effect and Merger Subsidiary has no reason to believe that any of
the conditions set forth in the Equity Commitment Letter will not be satisfied
and (iii) the Shareholders Agreement has not been terminated and is in full
force and effect.
(c) Immediately after the consummation of the Transactions, the Surviving
Corporation (i) will not be insolvent, (ii) will not be left with unreasonably
small capital and (iii) will not have debts beyond its ability to pay such debts
as they mature.
SECTION 5.08. Litigation. There are no actions, suits, investigations or
proceedings pending against, or, to the knowledge of Merger Subsidiary,
threatened against, Merger Subsidiary or Heartland or any of their respective
properties before any court or arbitrator, or before or by any Governmental
Authority, that would reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on Merger Subsidiary or prevent Merger
Subsidiary from performing its obligations under this Agreement prior to the End
Date.
ARTICLE 6
COVENANTS OF THE COMPANY
The Company agrees that, except as set forth in the corresponding section
or subsection of the disclosure schedule delivered by the Company to Merger
Subsidiary immediately prior to the execution of this Agreement:
SECTION 6.01. Conduct of the Company. (a) Except as contemplated by this
Agreement or as expressly agreed to in writing by Merger Subsidiary, during the
period from the date of this Agreement to the Effective Time, the Company shall,
and shall cause each of its Subsidiaries to, expend funds for capital
expenditures, acquire or sell assets, purchase inventory and supplies, settle or
compromise any material litigation and otherwise conduct its operations
according to its ordinary and usual course of business and consistent with past
practice and use reasonable best efforts to preserve intact their current
business organizations, keep available the services of their current officers
and employees and preserve their relationships with customers, suppliers,
licensors, licensees, advertisers, distributors and others having business
dealings with them and to preserve goodwill.
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(b) Prior to the Effective Time, the Company shall not, and shall cause its
Subsidiaries not to, without the consent of Merger Subsidiary:
(i) amend the Articles of Incorporation (other than the Amendment),
by-laws or equivalent organizational documents or alter through merger,
liquidation, reorganization, restructuring or in any other fashion the
corporate structure or ownership of any Significant Subsidiary of the
Company; or split, combine or reclassify any of its capital stock or issue
or authorize the issuance of any other securities in respect of, in lieu of
or in substitution for shares of its capital stock; or
(ii) except for issuances (x) upon exercise of presently outstanding
awards under any Plan or (y) in the ordinary course of business consistent
with past practice, authorize for issuance, issue, deliver, sell or agree
or commit to issue, sell or deliver (whether through the issuance or
granting of options, warrants, commitments, subscriptions, rights to
purchase or otherwise), pledge or otherwise encumber any shares of its
capital stock or the capital stock of any of its Subsidiaries, any other
voting securities or any securities convertible into, or any rights,
warrants or options to acquire, any such shares, voting securities or
convertible securities or any other securities or equity equivalents
(including without limitation stock appreciation rights).
SECTION 6.02. Access to Information. From the date of this Agreement
until the Effective Time, the Company shall, and shall cause its Subsidiaries,
and each of their respective officers, directors, employees, counsel, advisors
and representatives (collectively, the "COMPANY REPRESENTATIVES") to, give
Merger Subsidiary and its officers, directors, employees, counsel, advisors and
representatives (collectively, the "MERGER SUBSIDIARY REPRESENTATIVES") and
representatives of financing sources identified by Merger Subsidiary reasonable
access, upon reasonable notice and during normal business hours, to the offices
and other facilities and to the books and records of the Company and its
Subsidiaries and will cause the Company Representatives and the Company's
Subsidiaries to furnish Merger Subsidiary and the Merger Subsidiary
Representatives and representatives of financing sources identified by Merger
Subsidiary with such financial and operating data and such other information
with respect to the business and operations of the Company and its Subsidiaries
as Merger Subsidiary and representatives of financing sources identified by
Merger Subsidiary may from time to time reasonably request. Merger Subsidiary
agrees that any information furnished pursuant to this Section 6.02 shall be
subject to the provisions of the letter agreement dated August 17, 2000 between
Heartland and the Company (the "CONFIDENTIALITY AGREEMENT").
SECTION 6.03. No Solicitation. (a) The Company agrees that it will not
(except with respect to the Continuing Shareholders and their counsel, advisors,
and representatives), directly or indirectly through any officer, Subsidiary,
Affiliate, director, employee, shareholder, representative, agent or other
Person, (i) seek, initiate, solicit or encourage any Person to make an
Acquisition Proposal, (ii) engage in discussions or negotiations concerning an
Acquisition Proposal with any Person, (iii) disclose any non-public information
relating to the Company or give access to the properties, employees, books or
records of the Company or any of its Subsidiaries to any Person in connection
with any Acquisition Proposal or (iv) adopt or recommend or agree to adopt or
recommend any Acquisition Proposal; provided that nothing herein shall prevent
the Board of Directors from (a) furnishing information to any person that has
made an Acquisition Proposal not solicited in violation of this paragraph or (b)
entering into or participating in discussions or negotiations concerning an
Acquisition Proposal not solicited in violation of this paragraph so long as, in
the case of each of clause (a) and (b), (x) the Board of Directors or the
Special Committee shall have concluded in good faith (after receiving and
considering the advice of its outside legal counsel) that failing to furnish
such information or participate in such discussions or negotiations would be
reasonably likely to cause the Board of Directors or the Special Committee to be
in breach of its respective fiduciary responsibilities to the Company
Shareholders under applicable law, and (y) prior to furnishing any such
information or participating in such discussions or negotiations, the Company
and the party making such offer agree to a confidentiality agreement on terms
that are, in the aggregate, no less favorable to the Company than those of the
Confidentiality Agreement (other than the standstill provisions thereof) and
Merger Subsidiary is given concurrent or advance written notice thereof unless
the Board of Directors or the Special Committee shall have concluded in good
faith (after receiving and considering the advice of its outside counsel) that
doing so would be reasonably likely to cause it to be in breach of its
respective fiduciary responsibilities to the Company Shareholders under
applicable law.
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The Board of Directors or the Special Committee may (x) fail to make, withdraw
or modify in a manner adverse to Merger Subsidiary its recommendation referred
to in Section 8.02 hereof and/or (y) take and disclose to the Company
Shareholders a position contemplated by Rule 14e-2 under the 1934 Act, but only,
in the case of clause (x), if the Board of Directors or the Special Committee
determines in good faith (after consultation with outside legal counsel to the
Company) that such action is reasonably likely to be required in the exercise of
its respective fiduciary duties under applicable law.
(b) The Company shall notify Merger Subsidiary in writing no later than the
end of the next Business Day after receipt thereof of the receipt of any
Acquisition Proposal (including a copy thereof if in writing), the terms and
conditions of such Acquisition Proposal and the identity of the Person making
it. The Company also shall promptly notify Merger Subsidiary no later than the
end of the next Business Day after receipt thereof of any change to or
modification of such Acquisition Proposal.
(c) The Company shall, and shall cause its Subsidiaries and the advisors,
employees and other agents of the Company and any of its Subsidiaries to, cease
immediately and cause to be terminated any and all existing activities,
discussions or negotiations, if any, with any Third Party conducted prior to the
date hereof with respect to any Acquisition Proposal and shall use reasonable
best efforts to cause any such Third Party (or its agents or advisors) in
possession of confidential information about the Company that was furnished by
or on behalf of the Company to return or destroy all such information.
SECTION 6.04. State Takeover Laws. The Company shall, upon the request of
Merger Subsidiary, use its reasonable best efforts to assist in any challenge by
Merger Subsidiary to the validity or applicability to the Transactions,
including the Merger, of any state takeover law.
SECTION 6.05. Reports. During the period from the date of this Agreement
to the Effective Time, the Company shall provide Merger Subsidiary with monthly
financial statements in the existing reporting format (balance sheet, cash flow
statement, income statement and, if available and consistent with past practice,
notes thereto), broken out by operating unit (except as to the cash flow
statement, which shall be a consolidated statement), no later than the fifteenth
Business Day following the end of each fiscal month following the date of this
Agreement; provided that for fiscal months that are also the end of a fiscal
quarter, the Company may provide such financial information to Merger Subsidiary
on the same date such information is publicly released in accordance with the
past practice of the Company.
SECTION 6.06. Confidentiality Agreement. The Company agrees to waive the
application of the standstill provisions of the Confidentiality Agreement to
this Agreement, the Transactions and the Shareholders Agreement.
ARTICLE 7
COVENANTS OF MERGER SUBSIDIARY
Merger Subsidiary agrees that:
SECTION 7.01. Director and Officer Liability. The Surviving Corporation
hereby agrees to do the following:
(a) For six years after the Effective Time, the Surviving Corporation
shall indemnify and hold harmless the present and former officers and
directors of the Company and each of its Subsidiaries (each, an
"INDEMNIFIED PERSON") in respect of acts or omissions occurring at or prior
to the Effective Time to the fullest extent permitted by the SCBCA or any
other applicable laws or provided under the Articles of Incorporation and
by-laws in effect on the date hereof; provided that such indemnification
shall be subject to any limitation imposed from time to time under
applicable law.
(b) For six years after the Effective Time, the Surviving Corporation
shall provide officers' and directors' liability insurance in respect of
acts or omissions occurring at or prior to the Effective Time covering each
Indemnified Person covered as of the date hereof by the Company's officers'
and directors' liability insurance policy with terms and conditions and
coverage amounts no less favorable than those of
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such policy in effect on the date hereof; provided that the Surviving
Corporation shall not be obligated to make annual premium payments for such
insurance to the extent such annual premiums exceed 200% of the annual
premiums paid as of the date hereof by the Company for such insurance; and
provided, further, that if the premiums with respect to such insurance
exceed 200% of the annual premiums paid as of the date hereof by the
Company for such insurance, the Surviving Corporation shall be obligated to
obtain such insurance with the maximum coverage as can be obtained at an
annual premium equal to 200% of the annual premiums paid by the Company as
of the date hereof.
(c) If the Surviving Corporation or any of its successors or assigns
(i) consolidates with or merges into any other Person and shall not be the
continuing or surviving corporation or entity of such consolidation or
merger, or (ii) transfers or conveys all or substantially all of its
properties and assets to any Person, then, and in each such case, proper
provision shall be made so that the successors and assigns of Merger
Subsidiary or the Surviving Corporation, as the case may be, shall assume
all of the obligations set forth in this Section 7.01.
(d) The rights of each Indemnified Person under this Section 7.01
shall be in addition to any rights such Person may have under the Articles
of Incorporation or by-laws of the Company or any of its Subsidiaries, or
under the SCBCA or any other applicable laws or under any agreement of any
Indemnified Person with the Company or any of its Subsidiaries. These
rights shall survive consummation of the Merger and are intended to be for
the benefit of, and shall be enforceable by, each Indemnified Person, their
heirs and their representatives.
SECTION 7.02. Financing Arrangements. Merger Subsidiary shall use its
reasonable best efforts to (a) have the Bank provide the financing to the
Company in accordance with the terms of the Commitment Letter and (b) have
Heartland provide the funds to Merger Subsidiary in accordance with the terms of
the Equity Commitment Letter. The Commitment Letter and the Equity Commitment
Letter and the definitive agreements for the Facilities (along with any other
document pursuant to which Merger Subsidiary intends to obtain financing or
funding of all or a portion of the Required Amount) are referred to herein
collectively as the "FINANCING AGREEMENTS." Merger Subsidiary will promptly
notify the Company if at any time there is a reasonable likelihood that the
financing or funding to be provided under the Commitment Letter or the Equity
Commitment Letter, as the case may be, will not be available.
SECTION 7.03. Employee Benefit Plans. During the period from the
Effective Time through the first anniversary of the Effective Time, employees of
the Company and its Subsidiaries (the "EMPLOYEES") shall participate in employee
benefit plans which are substantially comparable, in the aggregate, to those
provided to the Employees immediately prior to the Effective Time.
ARTICLE 8
COVENANTS OF MERGER SUBSIDIARY AND THE COMPANY
The parties hereto agree that:
SECTION 8.01. Reasonable Best Efforts. (a) Subject to the terms and
conditions of this Agreement and to the fiduciary duties of the Board of
Directors and the Special Committee under applicable law (as determined by such
directors in good faith), the Company and Merger Subsidiary will use reasonable
best efforts to take, or cause to be taken, all actions and to do, or cause to
be done, all things necessary, proper or advisable under applicable laws and
regulations to consummate the Transactions, including, in the case of the
Company, to assist Merger Subsidiary and cooperate with Merger Subsidiary and
the Bank and any other lenders in order for Merger Subsidiary to obtain its
contemplated debt financing, through the Facilities or otherwise.
(b) In connection with the efforts referenced in Section 8.01(a) to obtain
all requisite approvals and authorizations for the Transactions each of Merger
Subsidiary and the Company shall, in connection with any Antitrust Law, use
reasonable best efforts to (i) cooperate in all respects with each other in
connection with any filing or submission and in connection with any
investigation or other inquiry, including any proceeding
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initiated by a private party, (ii) keep the other party informed in all respects
of any material communication received by such party from, or given by such
party to, the Federal Trade Commission (the "FTC"), the Antitrust Division of
the Department of Justice (the "DOJ") or any other Governmental Authority and of
any material communication received or given in connection with any proceeding
by a private party, in each case regarding any of the Transactions and (iii)
permit the other party to review any material communication made by it to, and
consult with each other in advance of any meeting or conference with, the FTC,
the DOJ or any such other Governmental Authority or, in connection with any
proceeding by a private party, with any other Person.
SECTION 8.02. Disclosure Documents; Certain Filings. (a) The Company
shall cause a meeting of the Company Shareholders (the "COMPANY SHAREHOLDERS
MEETING") for the purpose of voting on the approval of the Amendment and this
Agreement to be duly called and held as soon as reasonably practicable following
the execution of this Agreement. Subject to their fiduciary duties generally,
Section 6.03 hereof and this Section 8.02, (I) the Special Committee shall
recommend that the Board of Directors recommend approval by the Company
Shareholders of the Amendment and this Agreement and (II) the Board of Directors
shall submit to the Company Shareholders and recommend approval of the Amendment
and this Agreement by the Company Shareholders. In connection with the Company
Shareholders Meeting, (i) (A) the Company and Merger Subsidiary will cooperate
and promptly prepare, (B) the Company will file with the SEC, (C) the Company
and Merger Subsidiary will use their respective reasonable best efforts to have
cleared by the SEC, and (D) the Company will thereafter mail to the Company
Shareholders as promptly as practicable, a proxy statement of the Company in
connection with the Amendment and this Agreement (the "COMPANY PROXY STATEMENT")
and all other proxy materials for such meeting, (ii) the Company will, subject
to Section 6.03, use its reasonable best efforts to have the Company
Shareholders approve the Amendment and this Agreement and (iii) the Company will
otherwise comply with all legal requirements applicable to the Company
Shareholders Meeting. The Company and Merger Subsidiary will cooperate and
promptly prepare and the Company will file concurrently with the filing of the
Company Proxy Statement a statement on Schedule 13E-3 (the "SCHEDULE 13E-3").
(b) The Company and Merger Subsidiary (with respect to the information
supplied by it, its Affiliates and Heartland) will cause each of (i) the Company
Proxy Statement and any amendment or supplement thereto and (ii) the Schedule
13E-3 and any amendment or supplement thereto, when filed, to comply as to form
in all material respects with the applicable requirements of the 1934 Act. The
Company and Merger Subsidiary (with respect to itself, its Affiliates and
Heartland) each agree that none of the information supplied or to be supplied by
it for inclusion in the Company Proxy Statement or any amendment or supplement
thereto or in the Schedule 13E-3 or any amendment or supplement thereto will, at
the time the Company Proxy Statement or any amendment or supplement thereto is
first mailed to Company Shareholders and at the time of the Company Shareholders
Meeting, contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements made therein, in the
light of the circumstances under which they were made, not misleading; it being
understood that any information regarding the Continuing Shareholders included
in such Company Proxy Statement or any amendment or supplement thereto or the
Schedule 13E-3 or any amendment or supplement thereto shall be deemed to not
have been supplied by the Company for inclusion therein. If at any time prior to
the date of the Company Shareholders Meeting any information relating to the
Company or Merger Subsidiary (including its Affiliates and Heartland) or their
respective officers or directors should be discovered by the Company or Merger
Subsidiary which should be set forth in an amendment or supplement to the
Company Proxy Statement or the Schedule 13E-3, as the case may be, so that such
document would not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements made therein,
in the light of the circumstances under which they were made, not misleading,
the party which discovers such information will promptly notify the other party
and, to the extent required by applicable law, an appropriate amendment or
supplement describing such information shall be filed promptly with the SEC and,
to the extent required by law, disseminated to the Company Shareholders.
(c) The Company and Merger Subsidiary shall cooperate with one another (i)
in determining as promptly as practicable whether any action by or in respect
of, or filing with, any Governmental Authority is
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required, or any actions, consents, approvals or waivers are required to be
obtained from parties to any material contracts, in connection with the
consummation of the Transactions and (ii) in taking such actions or making any
such filings, furnishing information required in connection therewith and
seeking timely to obtain any such actions, consents, approvals or waivers.
SECTION 8.03. Public Announcements. The Company and Merger Subsidiary
will consult with each other before issuing any press release or making any
public statement with respect to this Agreement or the Transactions and, except
as may be required by applicable law or any listing agreement with any national
securities exchange, will not issue any such press release or make any such
public statement prior to such consultation.
SECTION 8.04. Notices of Certain Events. Each of the Company and Merger
Subsidiary shall promptly notify the other of:
(a) any notice or other communication from any Person alleging that
the consent of such Person is or may be required in connection with the
Transactions;
(b) any notice or other communication from any Governmental Authority
in connection with the Transactions;
(c) any actions, suits, claims, investigations or proceedings
commenced or, to its knowledge, threatened against, relating to or
involving or otherwise affecting the Company or any of its Subsidiaries
that, if pending on the date of this Agreement, would have been required to
have been disclosed pursuant to Section 4.14 or 4.15 hereof, or that relate
to the consummation of the Transactions; and
(d) the occurrence or non-occurrence of any fact or event which would
be reasonably likely:
(i) to cause any representation or warranty contained in this
Agreement to be untrue or inaccurate in any material respect at any time
from the date hereof to the Effective Time, or
(ii) to cause any covenant, condition or agreement under this
Agreement not to be complied with or satisfied; provided, however, that
no such notification shall affect the representations or warranties of
any party or the conditions to the obligations of any party hereunder.
SECTION 8.05. Confidentiality. Prior to the Effective Time and after any
termination of this Agreement, each of Merger Subsidiary and the Company will
comply with the terms of the Confidentiality Agreement.
SECTION 8.06. Solvency Letter. If Merger Subsidiary is required pursuant
to the Financing Agreements to engage an appraisal firm (the "APPRAISER") to
deliver to the Bank a solvency letter or certificate (the "SOLVENCY LETTER"),
Merger Subsidiary shall, at its sole cost and expense, cause the Appraiser to
deliver the Solvency Letter (in form and substance identical to that required to
be delivered to the Bank) to the Company at the Closing, with the Special
Committee as an additional addressee. If a Solvency Letter is to be delivered,
the parties agree to cooperate with the Appraiser in connection with the
preparation of the Solvency Letter, including providing the Appraiser with any
information reasonably available to them and reasonably requested by the
Appraiser in connection with the preparation of such letter.
ARTICLE 9
CONDITIONS TO THE MERGER
SECTION 9.01. Conditions to the Obligations of Each Party. The
obligations of the Company and Merger Subsidiary to consummate the Merger are
subject to the satisfaction or waiver at or prior to the Effective Time of the
following conditions:
(a)(i) the Amendment shall have been approved by the affirmative vote
of holders of two-thirds of the votes of the Company's outstanding capital
stock entitled to vote for directors, with the Class A Shares and the Class
B Shares voting together as a single class (and with the holders of Class B
Shares entitled to four votes per share), and the articles of amendment of
the Company giving effect to the Amendment shall have been filed with the
Secretary of State of the State of South Carolina and become effective and
(ii) this Agreement shall have been approved by the affirmative vote of (x)
holders of two-
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thirds of the votes of the Company's outstanding capital stock entitled to
vote for directors, with the Class A Shares and the Class B Shares voting
together as a single class (and with the holders of Class B Shares entitled
to one vote per share), and (y) a majority of the votes cast at the Company
Shareholders Meeting (with the Class A Shares and the Class B Shares voting
together as a single class with each having one vote per share) but
excluding any votes cast by the Continuing Shareholders;
(b) there shall not be any law or regulation that makes consummation
of the Merger illegal or otherwise prohibited and no judgment, injunction,
order or decree of any Governmental Authority having competent jurisdiction
enjoining the Company or Merger Subsidiary from consummating the Merger
shall have been entered; and
(c) the waiting period applicable to the consummation of the Merger
under the HSR Act shall have expired or been terminated, the requirements
of the Canadian Competition Act shall have been satisfied and, other than
the filings provided for in Sections 2.01 and 2.02, all notices, reports
and other filings required to be made prior to the Effective Time by the
Company or any of its Subsidiaries or Merger Subsidiary with, and all
consents, registrations, approvals, permits and authorizations required to
be obtained prior to the Effective Time by the Company or any of its
Subsidiaries or Merger Subsidiary from, any Governmental Authority in
connection with the execution and delivery of this Agreement and
consummation of the Merger and the Transactions by the Company and Merger
Subsidiary shall have been made or obtained (as the case may be), except
those that the failure to make or obtain would not, individually or in the
aggregate, be reasonably expected to have a Material Adverse Effect on the
Company or Merger Subsidiary.
SECTION 9.02. Conditions to the Obligations of Merger Subsidiary. The
obligations of Merger Subsidiary to consummate the Merger are subject to the
satisfaction or waiver at or prior to the Effective Time of the following
further conditions:
(a)(i) the Company shall have performed in all material respects all
of its obligations hereunder required to be performed by it at or prior to
the Effective Time, (ii) the representations and warranties of the Company
contained in this Agreement (without regard to any qualification with
respect to materiality or to having a Material Adverse Effect) shall be
true and correct as of the date of this Agreement and as of the Effective
Time (except to the extent any such representation or warranty expressly
speaks as of an earlier date); provided, however, that notwithstanding
anything herein to the contrary, this Section 9.02(a)(ii) shall be deemed
to have been satisfied even if such representations or warranties are not
so true and correct unless the failure of such representations or
warranties to be so true and correct, individually or in the aggregate, has
had or would be reasonably likely to have a Material Adverse effect on the
Company, and (iii) Merger Subsidiary shall have received a certificate
signed by a duly authorized officer of the Company to the foregoing effect;
(b) no arbitrator or Governmental Authority shall have issued any
judgment, injunction, order or decree and there shall not be any law or
regulation, restraining or prohibiting the effective operation of any
material portion of the business of the Surviving Corporation and its
Subsidiaries after the Effective Time;
(c) the financing contemplated by the Commitment Letter to be provided
by the Bank shall have been provided on substantially the terms and
conditions identified in such Commitment Letter or on such other terms and
conditions or involving such other financing sources, as are acceptable to
Merger Subsidiary and are not materially more onerous; provided, however,
that this condition shall be deemed satisfied if the failure of this
condition is due to an intentional breach by Merger Subsidiary of any
covenant or intentional failure to perform any agreement or an intentional
breach by Merger Subsidiary of any representation or warranty contained in
any of the Financing Agreements with the Bank;
(d) each of the Family Shareholders shall have performed in all
material respects all of its obligations required to be performed by it
under the Shareholders Agreement at or prior to the Effective
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Time and the representations and warranties of each of the Family
Shareholders contained in the Shareholders Agreement shall be true and
correct in all material respects as if made at the Effective Time; and
(e) the Company shall have executed and delivered the services
agreement in the form set forth in Section 9.02(e) of the disclosure
schedule delivered by Merger Subsidiary to the Company.
SECTION 9.03. Conditions to the Obligations of the Company. The
obligations of the Company to consummate the Merger are subject to the
satisfaction or waiver at or prior to the Effective Time of the following
further conditions:
(a) Merger Subsidiary shall have performed in all material respects
all of its obligations hereunder required to be performed by it at or prior
to the Effective Time;
(b) the representations and warranties of Merger Subsidiary contained
in this Agreement (without regard to any qualification with respect to
materiality or to having a Material Adverse Effect) shall be true and
correct, as of the date of this Agreement and as of the Effective Time
(except to the extent any such representation or warranty expressly speaks
as of any earlier date); provided, however, that notwithstanding anything
herein to the contrary, this Section 9.03(b) shall be deemed to have been
satisfied even if such representations or warranties are not so true and
correct unless the failure of such representations or warranties to be so
true and correct, individually or in the aggregate, has had or would be
reasonably likely to have a Material Adverse Effect on Merger Subsidiary;
and
(c) the Company shall have received a certificate signed by a duly
authorized officer of Merger Subsidiary to the foregoing effect.
ARTICLE 10
TERMINATION
SECTION 10.01. Termination. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time (notwithstanding
any approval of this Agreement by the Company Shareholders):
(a) by mutual written agreement of the Company and Merger Subsidiary;
(b) by either the Company or Merger Subsidiary, if:
(i) the Merger has not been consummated on or before October 24,
2001 (the "END DATE"); provided that the right to terminate this
Agreement pursuant to this Section 10.01(b)(i) shall not be available to
any party whose breach of any provision of this Agreement results in the
failure of the Merger to be consummated by such time;
(ii) there shall be any law or regulation that makes consummation
of the Merger illegal or otherwise prohibited or any judgment,
injunction, order or decree of any Governmental Authority having
competent jurisdiction enjoining the Company or Merger Subsidiary from
consummating the Merger is entered and such judgment, injunction, order
or decree shall have become final and nonappealable; or
(iii) the Amendment and this Agreement shall not have been approved
in accordance with this Agreement and the SCBCA by the Company
Shareholders at the Company Shareholders Meeting (or any adjournment
thereof);
(c) by Merger Subsidiary, if:
(i) a breach of or failure to perform any representation, warranty,
covenant or agreement on the part of the Company set forth in this
Agreement shall have occurred that would cause any condition set forth
in Section 9.02(a) hereof not to be satisfied, and such condition is
incapable of being satisfied by the Company by the End Date; or
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(ii) the Board of Directors or the Special Committee shall have
failed to make, withdrawn or modified in a manner adverse to Merger
Subsidiary its recommendation referred to in Section 8.02 hereof;
(d) by the Company, if:
(i) a breach of or failure to perform any representation, warranty,
covenant or agreement on the part of Merger Subsidiary set forth in this
Agreement shall have occurred that would cause any condition set forth
in Section 9.03 hereof not to be satisfied, and such condition is
incapable of being satisfied by Merger Subsidiary by the End Date; or
(ii) the Company shall have received from any Third Party an
Acquisition Proposal which the Board of Directors or the Special
Committee determines is more favorable to the Company Shareholders (even
if the consideration to be received by the Company Shareholders for each
Share may have less value than the Cash Merger Consideration) and the
Board of Directors or the Special Committee determines in good faith
(after consultation with outside legal counsel to the Company) that
adopting or recommending such offer is reasonably likely to be required
in the exercise of its respective fiduciary duties under applicable law.
The party desiring to terminate this Agreement pursuant to this Section
10.01 (other than pursuant to Section 10.01(a)) shall give notice of such
termination to the other party.
SECTION 10.02. Effect of Termination. If this Agreement is terminated
pursuant to Section 10.01 hereof, this Agreement shall become void and of no
effect without liability of any party (or any stockholder, member, manager,
director, officer, employee, agent, consultant or representative of such party)
to the other party hereto. The provisions of Sections 8.05, this Section 10.02
and Article 11 shall survive any termination hereof pursuant to Section 10.01.
ARTICLE 11
MISCELLANEOUS
SECTION 11.01. Notices. All notices, requests and other communications to
any party hereunder shall be in writing (including facsimile transmission) and
shall be given,
if to Merger Subsidiary, to:
Heartland Springs Investment Company
c/o Heartland Industrial Partners, L.P.
55 Railroad Avenue
Greenwich, Connecticut 06830
Fax: (203) 861-2722
Attn: David A. Stockman
and
Crandall C. Bowles
Springs Industries, Inc.
205 North White Street
Fort Mill, South Carolina 29715
Fax: (803) 547-1636
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with a copy to:
Cahill Gordon & Reindel
80 Pine Street
New York, New York 10005
Fax: (212) 269-5420
Attn: W. Leslie Duffy, Esq.
Jonathan A. Schaffzin, Esq.
and
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Fax: (212) 403-2228
Attn: Elliott V. Stein, Esq.
if to the Company, to:
Springs Industries, Inc.
205 North White Street
Fort Mill, South Carolina 29715
Fax: (803) 547-1636
Attn: Chairman of Board
with a copy to:
Springs Industries, Inc.
205 North White Street
Fort Mill, South Carolina 29715
Fax: (803) 547-3766
Attn: C. Powers Dorsett, Esq.
and to:
The Special Committee of the Company
c/o Charles W. Coker, Chairman
Sonoco Products Company
1 North 2nd Street
Hartsville, South Carolina 29550
Fax: (843) 339-6409
Attn: Charles W. Coker
with a copy to:
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
Fax: (212) 558-3588
Attn: Benjamin F. Stapleton, Esq.
or such other address or facsimile number as such party may hereafter specify
for the purpose by notice to the other parties hereto. All such notices,
requests and other communications shall be deemed received on the date of
receipt by the recipient thereof if received prior to 5:00 p.m., and such day is
a Business Day, in the
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place of receipt. Otherwise, any such notice, request or communication shall be
deemed not to have been received until the next succeeding Business Day in the
place of receipt.
SECTION 11.02. Survival of Representations and Warranties. The
representations and warranties and agreements contained herein and in any
certificate or other writing delivered pursuant hereto shall not survive the
Effective Time, except for the agreements set forth in Sections 2.03, 2.04,
2.05, 2.06, 2.07, 2.08, 2.10, 2.11, 7.01, 8.05 and Article 11.
SECTION 11.03. Amendments; No Waivers. (a) Any provision of this
Agreement may be amended or waived prior to the Effective Time if, but only if,
such amendment or waiver is in writing and is signed, in the case of an
amendment, by each party to this Agreement or, in the case of a waiver, by each
party against whom the waiver is to be effective; provided that, after the
approval of this Agreement by the Company Shareholders and without their further
approval, no such amendment or waiver shall reduce the amount or change the kind
of consideration to be received in exchange for any Converted Shares.
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
SECTION 11.04. Expenses. (a) Except as otherwise provided in this Section
11.04, all costs and expenses incurred in connection with this Agreement shall
be paid by the party incurring such cost or expense.
(b) If (i) this Agreement is terminated by Merger Subsidiary pursuant to
Section 10.01(c), (ii) this Agreement is terminated by the Company pursuant to
Section 10.01(d)(ii), or (iii) any Third Party shall have made, proposed,
communicated or disclosed an Acquisition Proposal in a manner which is or
otherwise becomes public prior to the termination of this Agreement and this
Agreement is terminated pursuant to Section 10.01(b)(i) or Section
10.01(b)(iii), the Company shall promptly upon request reimburse Merger
Subsidiary, Heartland and the Family Shareholders for their reasonable and
documented out-of-pocket expenses, including for legal counsel and investment
advisors and for the reasonable and documented out-of-pocket expenses incurred
by the Bank (including for its legal counsel) in connection with the
Transactions and the other matters contemplated by this Agreement, and the
financing thereof.
SECTION 11.05. Successors and Assigns. The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns; provided that no party may assign, delegate
or otherwise transfer any of its rights or obligations under this Agreement
without the consent of the other party hereto, except that Merger Subsidiary may
transfer or assign, in whole or from time to time in part, to one or more of its
Affiliates, the right to enter into the Transactions, but any such transfer or
assignment will not relieve Merger Subsidiary of its obligations hereunder.
Except as provided in Sections 7.01 and 11.04, no provision of this Agreement is
intended to confer any rights, benefits, remedies, obligations or liabilities
hereunder upon any Person other than the parties hereto and their respective
successors and assigns.
SECTION 11.06. Governing Law. The validity, construction and effect of
this Agreement shall be governed by and construed and enforced in accordance
with the laws of the State of South Carolina, without giving effect to the
principles of conflicts of law of such state.
SECTION 11.07. Jurisdiction. Any suit, action or proceeding seeking to
enforce any provision of, or based on any matter arising out of or in connection
with, this Agreement or the Transactions shall be brought in any federal court
located in the State of South Carolina or any South Carolina state court, and
each of the parties hereby consents to the jurisdiction of such courts (and of
the appropriate appellate courts therefrom) in any such suit, action or
proceeding and irrevocably waives, to the fullest extent permitted by law, any
objection that it may now or hereafter have to the laying of the venue of any
such suit, action or proceeding in any such court or that any such suit, action
or proceeding brought in any such court has been brought in an inconvenient
forum. Process in any such suit, action or proceeding may be served on any party
anywhere in the world, whether within or without the jurisdiction of any such
court. Without limiting the foregoing, each party agrees that service of process
on such party as provided in Section 11.01 hereof shall be deemed effective
service of process on such party.
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SECTION 11.08. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS.
SECTION 11.09. Counterparts; Effectiveness. This Agreement may be signed
in any number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement shall become effective when each party hereto shall have received
counterparts hereof signed by the other party hereto.
SECTION 11.10. Entire Agreement. This Agreement and the Confidentiality
Agreement constitute the entire agreement between the parties with respect to
the subject matter of this Agreement and supersede agreements and
understandings, both oral and written, between the parties with respect to the
subject matter of this Agreement. Exhibits and Schedules referred to herein are
incorporated by reference herein and shall constitute a part of this Agreement.
SECTION 11.11. Captions. The captions herein are included for convenience
of reference only and shall be ignored in the construction or interpretation
hereof.
SECTION 11.12. Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void, unenforceable or against its regulatory
policy, the remainder of the terms, provisions, covenants and restrictions of
this Agreement shall remain in full force and effect and shall in no way be
affected, impaired or invalidated so long as the economic and legal substance of
the transactions contemplated hereby, taken as a whole, is not affected in a
manner materially adverse to either party hereto.
SECTION 11.13. Specific Performance. The parties hereto agree that
irreparable damage would occur if any provision of this Agreement were not
performed in accordance with the terms hereof and that the parties shall be
entitled to an injunction or injunctions to prevent breaches of this Agreement
or to enforce specifically the performance of the terms and provisions hereof in
any federal court located in the State of South Carolina or any South Carolina
state court, in addition to any other remedy to which they are entitled at law
or in equity.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
SPRINGS INDUSTRIES, INC.
By: /s/ CRANDALL C. BOWLES
------------------------------------
Name: Crandall C. Bowles
Title: Chairman and CEO
HEARTLAND SPRINGS INVESTMENT
COMPANY
By: /s/ DAVID A. STOCKMAN
------------------------------------
Name: David A. Stockman
Title: President
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APPENDIX B
[UBS WARBURG LOGO]
April 24, 2001
Special Committee of the Board of Directors
Springs Industries, Inc.
205 North White Street
Fort Mill, South Carolina 29715
Members of the Special Committee:
We understand that Springs Industries, Inc., a South Carolina corporation
(the "Company"), is considering a transaction (the "Transaction") whereby,
through a merger (the "Merger") of Heartland Springs Investment Company, a South
Carolina corporation ("Merger Subsidiary"), with the Company, Heartland
Industrial Partners, L.P. will acquire a significant interest in the Company and
the Company's shareholders (other than Continuing Shareholders (as defined in
the Recapitalization Agreement (as defined below)) and Dissenting Shareholders
(as defined in the Recapitalization Agreement)) will receive cash for their
Shares (as defined below). Pursuant to the terms of the Recapitalization
Agreement, dated as of April 24, 2001 (the "Recapitalization Agreement"),
between the Company and Merger Subsidiary, in connection with the Merger, among
other things, each issued and outstanding share of Class A common stock, par
value $.25 per share (the "Class A Shares"), and Class B common stock, par value
$.25 per share (the "Class B Shares" and, together with the Class A Shares, the
"Shares"), of the Company (other than Class B Shares that are owned by
Dissenting Shareholders and Continuing Shareholder Shares (as defined in the
Recapitalization Agreement)) will be converted into the right to receive an
amount equal to $46.00 in cash (the "Merger Consideration"). The Continuing
Shareholder Shares will not be converted and will not be otherwise affected by
the Merger and will remain outstanding as Class A Shares or Class B Shares, as
the case may be. The terms and conditions of the Transaction are more fully set
forth in the Recapitalization Agreement.
You have requested our opinion as to the fairness from a financial point of
view to the holders of Shares (other than holders of Continuing Shareholder
Shares and Dissenting Shareholders) of the Merger Consideration to be received
by such holders in the Merger.
UBS Warburg LLC ("UBSW") has acted as financial advisor to the Special
Committee of the Board of Directors of the Company in connection with the
Transaction. UBSW will receive a fee from the Company in connection with the
rendering of this opinion. In the ordinary course of business, UBSW, its
successors and affiliates may trade or have traded securities of the Company for
their own accounts and, accordingly, may at any time hold a long or short
position in such securities.
Our opinion does not address the Company's underlying business decision to
effect the Transaction or the Merger or constitute a recommendation to any
shareholder of the Company as to how such shareholder should vote with respect
to the Recapitalization Agreement or any other matter. We have not been asked
to, nor do we, at your direction, offer any opinion as to the material terms of
the Recapitalization Agreement or the form of the transactions contemplated
thereby. In rendering this opinion, we have assumed, with your consent, that the
final executed form of the Recapitalization Agreement does not differ in any
material respect from the drafts that we have examined, and that the Company and
Merger Subsidiary will comply with all the material terms of the
Recapitalization Agreement. We have not been authorized to and have not
solicited indications of interest from any party with respect to a business
combination with the Company.
In arriving at our opinion, we have, among other things: (i) reviewed
certain publicly available business and historical financial information
relating to the Company, (ii) reviewed the reported prices and trading activity
for the Class A Shares, (iii) reviewed certain internal financial information
and other data relating to the business and financial prospects of the Company,
including estimates and financial forecasts prepared by
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management of the Company, that were provided to us by the Company and not
publicly available, (iv) conducted discussions with members of the senior
management of the Company, (v) reviewed publicly available financial and stock
market data with respect to certain other companies in lines of business we
believe to be generally comparable to those of the Company, (vi) compared the
financial terms of the Transaction with the publicly available financial terms
of certain other transactions which we believe to be generally relevant, (vii)
reviewed drafts of the Recapitalization Agreement, and (viii) conducted such
other financial studies, analyses, and investigations, and considered such other
information as we deemed necessary or appropriate.
In connection with our review, the Company's management provided us with
two sets of five-year financial forecasts for the Company, with one set entitled
"Scenario 1 (Lower Risk)" and the other set entitled "Scenario 2 (Higher Risk)."
In preparing the financial and comparative analyses in connection with the
rendering of this opinion, we were instructed by the Special Committee to
disregard and not take into consideration Scenario 2 (Higher Risk) because,
based on general economic and industry trends, the Company's past experience,
and the view of the Company's management as to the likelihood of achievement,
the Special Committee did not believe, with our concurrence, that Scenario 2
(Higher Risk) was likely to be achieved.
In addition, in connection with our review, with your consent, we have not
assumed any responsibility for independent verification of any of the
information reviewed by us for the purpose of this opinion and have, with your
consent, relied on its being complete and accurate in all material respects. In
addition, with your consent, we have not made any independent evaluation or
appraisal of any of the assets or liabilities (contingent or otherwise) of the
Company, nor have we been furnished with any such evaluation or appraisal. With
respect to Scenario 1 (Lower Risk) financial forecasts referred to above, we
have assumed, with your consent, that they have been reasonably prepared on a
basis reflecting the best currently available estimates and judgements of the
management of the Company as to the future performance of the Company. Our
opinion is necessarily based on economic, monetary, market and other conditions
as in effect on, and the information made available to us as of, the date
hereof.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Merger Consideration to be received by the holders of Shares
(other than holders of Continuing Shareholder Shares and Dissenting
Shareholders) in the Merger is fair from a financial point of view to such
holders.
Very truly yours,
/s/ UBS WARBURG LLC
--------------------------------------
UBS WARBURG LLC
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APPENDIX C
FORM OF AMENDMENT TO THE ARTICLES OF INCORPORATION
STATE OF SOUTH CAROLINA
SECRETARY OF STATE
ARTICLES OF AMENDMENT
Pursuant to Section 33-10-106 of the South Carolina Business Corporation
Act of 1988, the undersigned corporation adopts the following Articles of
Amendment ("Amendment") to its Restated Articles of Incorporation:
1. The name of the corporation is Springs Industries, Inc.
2. On [ ], 2001, the corporation adopted the following Amendment to
its Restated Articles of Incorporation pursuant to which the following
new Article 10 is added at the end thereof:
"10. INAPPLICABILITY OF BUSINESS COMBINATIONS ACT.
Article 2 entitled "Business Combinations" of Chapter 2 entitled "Take-Over
Bid Disclosure Act" of Title 35 entitled "Securities" of Code Laws of South
Carolina, 1976 shall not apply to the corporation."
3. At the date of approval of this Amendment by the shareholders of the
corporation, the number of outstanding shares of each voting group
entitled to vote separately on the Amendment and the vote of such
shares were:
<Table>
<Caption>
TOTAL NUMBER
NUMBER OF NUMBER OF VOTES NUMBER OF VOTES OF VOTES CAST
OUTSTANDING ENTITLED REPRESENTED AT ---------------
DESIGNATION SHARES TO BE CAST THE MEETING FOR AGAINST
- ----------- ----------- --------------- --------------- ---- -------
</Table>
4. The effective date and time of these Articles of Amendment shall be the
date and time of acceptance for filing by the Secretary of State.
SPRINGS INDUSTRIES, INC.
By:
--------------------------------------
Name:
Title:
Date: [ ], 2001
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APPENDIX D
CHAPTER 13. DISSENTERS' RIGHTS
ARTICLE 1. RIGHTS TO DISSENT AND OBTAIN PAYMENT FOR SHARES
33-13-101 DEFINITIONS. -- IN THIS CHAPTER:
(1) "Corporation" means the issuer of the shares held by a dissenter before
the corporate action, or the surviving or acquiring corporation by merger or
share exchange of that issuer.
(2) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under Section 33-13-102 and who exercises that right when and
in the manner required by Sections 33-13-200 through 33-13-280.
(3) "Fair value", with respect to a dissenter's shares, means the value of
the shares immediately before the effectuation of the corporate action to which
the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action to which the dissenter objects, excluding
any appreciation or depreciation in anticipation of the corporate action unless
exclusion would be inequitable. The value of the shares is to be determined by
techniques that are accepted generally in the financial community.
(4) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at a rate that is fair and
equitable under all the circumstances.
(5) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares to
the extent of the rights granted by a nominee certificate on file with a
corporation.
(6) "Beneficial shareholder" means the person who is a beneficial owner of
shares held by a nominee as the record shareholder.
(7) "Shareholder" means the record shareholder or the beneficial
shareholder.
33-13-102 RIGHT TO DISSENT. -- (A) A shareholder is entitled to dissent
from, and obtain payment of the fair value of, his shares in the event of any of
the following corporate actions:
(1) consummation of a plan of merger to which the corporation is a party
(i) if shareholder approval is required for the merger by Section 33-11-103 or
the articles of incorporation and the shareholder is entitled to vote on the
merger or (ii) if the corporation is a subsidiary that is merged with its parent
under Section 33-11-104 or 33-11-108 or if the corporation is a parent that is
merged with its subsidiary under Section 33-11-108;
(2) consummation of a plan of share exchange to which the corporation is a
party as the corporation whose shares are to be acquired, if the shareholder is
entitled to vote on the plan;
(3) consummation of a sale or exchange of all, or substantially all, of the
property of the corporation other than in the usual and regular course of
business, if the shareholder is entitled to vote on the sale or exchange,
including a sale in dissolution, but not including a sale pursuant to court
order or a sale for cash pursuant to a plan by which all or substantially all of
the net proceeds of the sale must be distributed to the shareholders within one
year after the date of sale;
(4) an amendment of the articles of incorporation that materially and
adversely affects rights in respect of a dissenter's shares because it:
(i) alters or abolishes a preferential right of the shares;
(ii) creates, alters, or abolishes a right in respect of redemption,
including a provision respecting a sinking fund for the redemption or
repurchase, of the shares;
(iii) alters or abolishes a preemptive right of the holder of the shares to
acquire shares or other securities;
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(iv) excludes or limits the right of the shares to vote on any matter, or
to cumulate votes, other than a limitation by dilution through issuance of
shares or other securities with similar voting rights; or
(v) reduces the number of shares owned by the shareholder to a fraction of
a share if the fractional share so created is to be acquired for cash under
Section 33-6-104; or
(5) in the case of corporations which are not public corporations, the
approval of a control share acquisition under Article 1 of Chapter 2 of Title
35;
(6) any corporate action to the extent the articles of incorporation,
bylaws, or a resolution of the board of directors provides that voting or
nonvoting shareholders are entitled to dissent and obtain payment for their
shares.
(B) Notwithstanding subsection (A), no dissenters' rights under this
section are available for shares of any class or series of shares which, at the
record date fixed to determine shareholders entitled to receive notice of a vote
at the meeting of shareholders to act upon the agreement of merger or exchange,
were either listed on a national securities exchange or designated as a national
market system security on an interdealer quotation system by the National
Association of Securities Dealers, Inc.
33-13-103 DISSENT BY NOMINEES AND BENEFICIAL OWNERS. -- (a) A record
shareholder may assert dissenters' rights as to fewer than all the shares
registered in his name only if he dissents with respect to all shares
beneficially owned by any one person and notifies the corporation in writing of
the name and address of each person on whose behalf he asserts dissenters'
rights. The rights of a partial dissenter under this subsection are determined
as if the shares to which he dissents and his other shares were registered in
the names of different shareholders.
(b) A beneficial shareholder may asserts dissenters' rights as to shares
held on his behalf only if he dissents with respect to all shares of which he is
the beneficial shareholder or over which he has power to direct the vote. A
beneficial shareholder asserting dissenters' rights to shares held on his behalf
shall notify the corporation in writing of the name and address of the record
shareholder of the shares, if known to him.
ARTICLE 2. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS
33-13-200 NOTICE OF DISSENTERS' RIGHTS. -- (a) If proposed corporate action
creating dissenters' rights under Section 33-13-102 is submitted to a vote at a
shareholders' meeting, the meeting notice must state that shareholders are or
may be entitled to assert dissenters' rights under this chapter and be
accompanied by a copy of this chapter.
(b) If corporate action creating dissenters' rights under Section 33-13-102
is taken without a vote of shareholders, the corporation shall notify in writing
all shareholders entitled to assert dissenters' rights that the action was taken
and send them the dissenters' notice described in Section 33-13-220.
33-13-210 NOTICE OF INTENT TO DEMAND PAYMENT. -- (a) If proposed corporate
action creating dissenters' rights under Section 33-13-102 is submitted to a
vote at a shareholders' meeting, a shareholder who wishes to assert dissenters'
rights (1) must give to the corporation before the vote is taken written notice
of his intent to demand payment for his shares if the proposed action is
effectuated and (2) must not vote his shares in favor of the proposed action. A
vote in favor of the proposed action cast by the holder of a proxy solicited by
the corporation shall not disqualify a shareholder from demanding payment for
his shares under this chapter.
(b) A shareholder who does not satisfy the requirements of subsection (a)
is not entitled to payment for his shares under this chapter.
33-13-220 DISSENTERS' NOTICE. -- (a) If proposed corporate action creating
dissenters' rights under Section 33-13-102 is authorized at a shareholders'
meeting, the corporation shall deliver a written dissenters' notice to all
shareholders who satisfied the requirements of Section 33-13-210(a).
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(b) The dissenters' notice must be delivered no later than ten days after
the corporate action was taken and must:
(1) state where the payment demand must be sent and where certificates for
certificated shares must be deposited;
(2) inform holders of uncertificated shares to what extent transfer of the
shares is to be restricted after the payment demand is received;
(3) supply a form for demanding payment that includes the date of the first
announcement to news media or to shareholders of the terms of the proposed
corporate action and requires that the person asserting dissenters' rights
certify whether or not he or, if he is a nominee asserting dissenters' rights on
behalf of a beneficial shareholder, the beneficial shareholder acquired
beneficial ownership of the shares before that date;
(4) set a date by which the corporation must receive the payment demand,
which may not be fewer than thirty nor more than sixty days after the date the
subsection (a) notice is delivered and set a date by which certificates for
certificated shares must be deposited, which may not be earlier than twenty days
after the demand date; and
(5) be accompanied by a copy of this chapter.
33-13-230 SHAREHOLDER'S PAYMENT DEMAND. -- (a) A shareholder sent a
dissenters' notice described in Section 33-13-220 must demand payment, certify
whether he (or the beneficial shareholder on whose behalf he is asserting
dissenters' rights) acquired beneficial ownership of the shares before the date
set forth in the dissenters' notice pursuant to Section 33-13-220(b)(3), and
deposit his certificates in accordance with the terms of the notice.
(b) The shareholder who demands payment and deposits his share certificates
under subsection (a) retains all other rights of a shareholder until these
rights are canceled or modified by the taking of the proposed corporate action.
(c) A shareholder who does not comply substantially with the requirements
that he demand payment and deposit his share certificates where required, each
by the date set in the dissenters' notice, is not entitled to payment for his
shares under this chapter.
33-13-240 SHARE RESTRICTIONS. -- (a) The corporation may restrict the
transfer of uncertificated shares from the date the demand for payment for them
is received until the proposed corporate action is taken or the restrictions are
released under Section 33-13-260.
(b) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until these
rights are canceled or modified by the taking of the proposed corporate action.
33-13-250 PAYMENT. -- (a) Except as provided in Section 33-13-270, as soon
as the proposed corporate action is taken, or upon receipt of a payment demand,
the corporation shall pay each dissenter who substantially complied with Section
33-13-230 the amount the corporation estimates to be the fair value of his
shares, plus accrued interest.
(b) The payment must be accompanied by:
(1) the corporation's balance sheet as of the end of a fiscal year ending
not more than sixteen months before the date of payment, an income statement for
that year, a statement of changes in shareholders' equity for that year, and the
latest available interim financial statements, if any;
(2) a statement of the corporation's estimate of the fair value of the
shares and an explanation of how the fair value was calculated;
(3) an explanation of how the interest was calculated;
(4) a statement of the dissenter's right to demand additional payment under
section 33-13-280; and
(5) a copy of this chapter.
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33-13-260 FAILURE TO TAKE ACTION. -- (a) If the corporation does not take
the proposed action within sixty days after the date set for demanding payment
and depositing share certificates, the corporation, within the same sixty-day
period, shall return the deposited certificates and release the transfer
restrictions imposed on uncertificated shares.
(b) If, after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must send a new
dissenters' notice under Section 33-13-220 and repeat the payment demand
procedure.
33-13-270 AFTER-ACQUIRED SHARES. -- (a) A corporation may elect to withhold
payment required by Section 33-13-250 from a dissenter as to any shares of which
he (or the beneficial owner on whose behalf he is asserting dissenters' rights)
was not the beneficial owner on the date set forth in the dissenters' notice as
the date of the first announcement to news media or to shareholders of the terms
of the proposed corporate action, unless the beneficial ownership of the shares
devolved upon him by operation of law from a person who was the beneficial owner
on the date of the first announcement.
(b) To the extent the corporation elects to withhold payment under
subsection (a), after taking the proposed corporate action, it shall estimate
the fair value of the shares, plus accrued interest, and shall pay this amount
of each dissenter who agrees to accept it in full satisfaction of his demand.
The corporation shall send with its offer a statement of its estimate of the
fair value of the shares, an explanation of how the fair value and interest were
calculated, and a statement of the dissenter's right to demand additional
payment under Section 33-13-280.
33-13-280 PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER. --
(a) A dissenter may notify the corporation in writing of his own estimate of the
fair value of his shares and amount of interest due and demand payment of his
estimate (less any payment under Section 33-13-250) or reject the corporation's
offer under Section 33-13-270 and demand payment of the fair value of his shares
and interest due, if the:
(1) dissenter believes that the amount paid under Section 33-13-250 or
offered under Section 33-13-270 is less than the fair value of his shares or
that the interest due is calculated incorrectly;
(2) corporation fails to make payment under Section 33-13-250 or to offer
payment under Section 33-13-270 within sixty days after the date set for
demanding payment; or
(3) corporation, having failed to take the proposed action, does not return
the deposited certificates or release the transfer restrictions imposed on
uncertificated shares within sixty days after the date set for demanding
payment.
(4) A dissenter waives his right to demand additional payment under this
section unless he notifies the corporation of his demand in writing under
subsection (a) within thirty days after the corporation made or offered payment
for his shares.
ARTICLE 3. JUDICIAL APPRAISAL OF SHARES
33-13-300 COURT ACTION. -- (a) If a demand for additional payment under
Section 33-13-280 remains unsettled, the corporation shall commence a proceeding
within sixty days after receiving the demand for additional payment and petition
the court to determine the fair value of the shares and accrued interest. If the
corporation does not commence the proceeding within the sixty-day period, it
shall pay each dissenter whose demand remains unsettled the amount demanded.
(b) The corporation shall commence the proceeding in the circuit court of
the county where the corporation's principal office (or, if none in this State,
its registered office) is located. If the corporation is a foreign corporation
without a registered office in this State, it shall commence the proceeding in
the county in this State where the principal office (or, if none in this State,
the registered office) of the domestic corporation merged with or whose shares
were acquired by the foreign corporation was located.
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(c) The corporation shall make all dissenters (whether or not residents of
this State) whose demands remain unsettled parties to the proceedings as in an
action against their shares and all parties must be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication, as provided by law.
(d) The jurisdiction of the court in which the proceeding is commenced
under subsection (b) is plenary and exclusive. The court may appoint persons as
appraisers to receive evidence and recommend decisions on the question of fair
value. The appraisers have the powers described in the order appointing them or
in any amendment to it. The dissenters are entitled to the same discovery rights
as parties in other civil proceedings.
(e) Each dissenter made a party to the proceeding is entitled to judgment
for the amount, if any, by which the court finds the fair value of his shares,
plus interest, exceeds the amount paid by the corporation.
33-13-310 COURT COSTS AND COUNSEL FEES. -- (a) The court in an appraisal
proceeding commenced under Section 33-13-300 shall determine all costs of the
proceeding, including the reasonable compensation and expenses of appraisers
appointed by the court. The court shall assess the costs against the
corporation, except that the court may assess costs against all or some of the
dissenters, in amounts the court finds equitable, to the extent the court finds
the dissenters acted arbitrarily, vexatiously, or not in good faith in demanding
payment under Section 33-13-280.
(b) the court also may assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable:
(1) against the corporation and in favor of any or all dissenters if the
court finds the corporation did not comply substantially with the requirements
of Sections 33-13-200 through 33-13-280;
(2) against either the corporation or a dissenter, in favor of any other
party, if the court finds that the party against whom the fees and expenses are
assessed acted arbitrarily, vexatiously, or not in good faith with respect to
the rights provided by this chapter.
(c) If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the corporation, the court may
award to these counsel reasonable fees to be paid out of the amounts awarded the
dissenters who were benefited.
(d) In a proceeding commenced by dissenters to enforce the liability under
Section 33-13-300(a) of a corporation that has failed to commence an appraisal
proceeding with the sixty-day period, the court shall assess the costs of the
proceeding and the fees and expenses of dissenters' counsel against the
corporation and in favor of the dissenters.
D-5
160
APPENDIX E
AUDIT COMMITTEE CHARTER
This charter shall be approved by the board of directors, and it shall be
reviewed and its adequacy reassessed annually by the audit committee.
Role and Independence
The audit committee of the board of directors assists the board in
fulfilling its responsibility for oversight of the quality and integrity of the
accounting, auditing, and reporting practices of the corporation and other such
duties as directed by the board. The membership of the committee shall consist
of at least three directors who, in the opinion of the board of directors, are
generally knowledgeable in financial and auditing matters. Each member shall be
free of any relationship that, in the opinion of the board, would interfere with
his or her individual exercise of independent judgment, and shall meet the audit
committee independence and expertise requirements for serving on audit
committees as set forth in the corporate governance standards of the New York
Stock Exchange.
Responsibilities
The audit committee's primary responsibilities include:
1. Annually recommend to the board the independent auditor to be
selected or retained to audit the financial statements of the corporation.
In so doing, the committee will request from the auditor a written
affirmation that the auditor is in fact independent, discuss with the
auditor any relationships that may impact the auditor's independence,
consider whether the provision of non-audit services, if any, is compatible
with maintaining the auditor's independence, and, if so determined by the
committee, recommend to the board any actions necessary to oversee the
auditor's independence. The independent auditor is ultimately accountable
to the board of directors and the audit committee. The audit committee and
the board of directors have the ultimate authority to select, evaluate and,
when appropriate, replace the auditor.
2. Approve in advance any non-audit service to be provided by the
independent auditor which is expected to exceed a cost greater than
$100,000.
3. Oversee the independent auditor relationship by discussing with
the auditor the nature and rigor of the audit process, receive and review
audit reports, audit and non-audit fees, and provide the auditor full
access to the committee (and the board) to report on any and all
appropriate matters.
4. Provide guidance and oversight to the internal audit activities of
the corporation including reviews of the organization, plans and results of
such activity.
5. Review the audited financial statements and discuss them with
management and the independent auditor. Based on the review, the committee
shall make its recommendation to the board as to the inclusion of the
company's audited financial statements in the company's annual report on
Form 10-K.
6. Review with management and the independent auditor the quarterly
financial information prior to the company's filing of Form 10-Q. This
review may be performed by the committee or its chairperson.
7. Discuss with management, the internal auditors, and the external
auditors the quality and adequacy of the company's internal controls.
8. Discuss with management the status of pending litigation, taxation
matters, and other areas of compliance with applicable laws and regulations
and with the company's code of conduct.
9. Report audit committee activities to the full board and issue
annually a report to be included in the proxy statement (including
appropriate oversight conclusions) for submission to the shareholders.
E-1
161
10. Review with independent auditor any problems or difficulties the
auditor may have encountered, as well as any significant reports prepared
by internal auditor or independent auditor, together with management
response.
11. While the Audit Committee has the responsibilities and powers set
forth in this Charter, it is not the duty of the Audit Committee to plan or
conduct audits or to determine that the Company's financial statements are
complete and accurate and are in accordance with generally accepted
accounting principles This is the responsibility of management and the
independent auditor. Nor is it the duty of the Audit Committee to conduct
investigations, to resolve disagreements, if any, between management and
the independent auditor, or to assure compliance with laws and regulations
and the Company's Code of Conduct.
E-2
162
SPRINGS INDUSTRIES, INC.
CLASS A COMMON STOCK
The Springs board of directors recommends a vote "FOR" the proposed
recapitalization agreement, a vote "FOR" the proposed amendment to the articles
of incorporation, a vote "FOR" all nominees and a vote "FOR" the ratification of
independent auditors.
<Table>
1. AMENDMENT TO THE ARTICLES OF INCORPORATION
FOR [ ] AGAINST [ ] ABSTAIN [ ]
2. RECAPITALIZATION AGREEMENT
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. ELECTION OF DIRECTORS
John F. Akers, Crandall C. Bowles, John L. Clendenin, Leroy S. Close, Charles W.
Coker, William G. Kelley, John H. McArthur, Aldo Papone, Robin B. Smith, Sherwood H.
Smith, Jr., and Stewart Turley
NOTE: If you do not wish your shares voted "FOR" a particular nominee, mark the
"FOR ALL EXCEPT" box and strike a line through that nominee's name. Your shares will
be voted for the remaining nominees.
FOR [ ] WITHHOLD [ ] FOR ALL EXCEPT [ ]
4. RATIFICATION OF THE APPOINTMENT OF DELOITTE & TOUCHE LLP
AS INDEPENDENT AUDITORS
FOR [ ] AGAINST [ ] ABSTAIN [ ]
5. DO YOU PLAN ON ATTENDING THE ANNUAL MEETING OF
SHAREHOLDERS?
YES [ ] NO [ ]
</Table>
<Table>
Mark box at right if comments or address change has been [ ]
noted on the reverse side of this card.
</Table>
Please be sure to sign and date this
Proxy.
Date:
---------------------------------------
---------------------------------------
Shareholder sign here
---------------------------------------
Co-owner sign here
Sign exactly as your name or names
appear. When signing in a
representative capacity, give title
such as Trustee, Executor or President.
- --------------------------------------------------------------------------------
DETACH CARD
SPRINGS INDUSTRIES, INC.
Dear Shareholder:
Please take note of the important information enclosed with this Proxy Ballot
regarding our Annual Meeting of Shareholders. Your vote counts, and you are
encouraged to exercise your right to vote your shares. Please mark the boxes on
the proxy card to indicate how your shares are to be voted. Then sign the card,
detach it and return your proxy vote in the enclosed postage paid envelope.
Your vote must be received prior to the Annual Meeting of Shareholders,
September 5, 2001.
Thank you in advance for your prompt consideration of these matters.
Sincerely yours,
/s/ Crandall C. Bowles
Chairman and Chief Executive Officer
163
CLASS A COMMON CLASS A COMMON
SPRINGS INDUSTRIES, INC.
205 NORTH WHITE STREET
FORT MILL, SC 29715
SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF SHAREHOLDERS ON SEPTEMBER 5, 2001
The undersigned hereby appoints as Proxies Crandall C. Bowles and Charles W.
Coker, with the power of substitution to each, and hereby authorizes each to
represent and to vote all shares of Class A common stock of Springs Industries,
Inc. held of record by the undersigned as of the close of business on June 27,
2001, at the Annual Meeting of Shareholders to be held on September 5, 2001, and
any adjournments thereof, subject to any directions indicated on the reverse
side of this card. IF NO DIRECTIONS ARE GIVEN, THE PROXIES WILL VOTE FOR THE
PROPOSALS LISTED ON THE REVERSE SIDE AND AT THEIR DISCRETION WITH RESPECT TO ANY
OTHER MATTER THAT MAY COME BEFORE THE MEETING.
PLEASE MARK, DATE, SIGN, AND RETURN THIS PROXY CARD PROMPTLY, USING THE ENCLOSED
ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES OF AMERICA.
HAS YOUR ADDRESS CHANGED?
- ---------------------------------------------------------
- ---------------------------------------------------------
- ---------------------------------------------------------
DO YOU HAVE ANY COMMENTS?
- ---------------------------------------------------------
- ---------------------------------------------------------
- ---------------------------------------------------------
164
SPRINGS INDUSTRIES, INC.
SPRINGS OF ACHIEVEMENT PARTNERSHIP PLAN
CLASS A COMMON STOCK
The Springs board of directors recommends a vote "FOR" the proposed
recapitalization agreement, a vote "FOR" the proposed amendment to the articles
of incorporation, a vote "FOR" all nominees and a vote "FOR" the ratification of
independent auditors.
<Table>
1. AMENDMENT TO THE ARTICLES OF INCORPORATION
FOR [ ] AGAINST [ ] ABSTAIN [ ]
2. RECAPITALIZATION AGREEMENT
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. ELECTION OF DIRECTORS
John F. Akers, Crandall C. Bowles, John L. Clendenin, Leroy S. Close, Charles W. Coker,
William G. Kelley, John H. McArthur, Aldo Papone, Robin B. Smith, Sherwood H. Smith, Jr., and
Stewart Turley
NOTE: If you do not wish your shares voted "FOR" a particular nominee, mark the "FOR ALL
EXCEPT" box and strike a line through that nominee's name. Your shares will be voted for the
remaining nominees.
FOR [ ] WITHHOLD [ ] FOR ALL EXCEPT [ ]
4. RATIFICATION OF THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS INDEPENDENT AUDITORS
FOR [ ] AGAINST [ ] ABSTAIN [ ]
5. DO YOU PLAN ON ATTENDING THE ANNUAL MEETING OF SHAREHOLDERS?
YES [ ] NO [ ]
</Table>
<Table>
Mark box at right if comments or address change [ ]
has been noted on the reverse side of this card.
</Table>
Please be sure to sign and date
this Proxy.
Date:
-----------------------------------
<Table>
-----------------------------------------------------
Shareholder sign here
</Table>
- --------------------------------------------------------------------------------
DETACH CARD
SPRINGS INDUSTRIES, INC.
Dear Shareholder:
Please take note of the important information enclosed with this Proxy Ballot
regarding our Annual Meeting of Shareholders. Your vote counts, and you are
encouraged to exercise your right to vote your shares. Please mark the boxes on
the proxy card to indicate how your shares are to be voted. Then sign the card,
detach it and return your proxy vote in the enclosed postage paid envelope.
Your vote must be received prior to the Annual Meeting of Shareholders,
September 5, 2001.
Thank you in advance for your prompt consideration of these matters.
Sincerely yours,
/s/ Crandall C. Bowles
Chairman and Chief Executive Officer
165
SPRINGS OF ACHIEVEMENT SPRINGS OF ACHIEVEMENT
PARTNERSHIP PLAN PARTNERSHIP PLAN
CLASS A COMMON CLASS A COMMON
SPRINGS INDUSTRIES, INC.
205 NORTH WHITE STREET
FORT MILL, SC 29715
SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF SHAREHOLDERS ON SEPTEMBER 5, 2001
The undersigned hereby directs Bankers Trust Company, or its proxy, to vote
shares of Springs Class A common stock allocated to his or her account under the
Springs of Achievement Partnership Plan as of the close of business on June 27,
2001, at the Annual Meeting of Shareholders to be held on September 5, 2001, and
any adjournments thereof, subject to any directions indicated on the reverse
side of this card. IF NO DIRECTIONS ARE GIVEN, THE PROXY WILL VOTE FOR THE
PROPOSALS LISTED ON THE REVERSE SIDE AND AT ITS DISCRETION WITH RESPECT TO ANY
OTHER MATTER THAT MAY COME BEFORE THE MEETING.
PLEASE MARK, DATE, SIGN, AND RETURN THIS PROXY CARD PROMPTLY, USING THE ENCLOSED
ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES OF AMERICA.
HAS YOUR ADDRESS CHANGED?
- ---------------------------------------------------------
- ---------------------------------------------------------
- ---------------------------------------------------------
DO YOU HAVE ANY COMMENTS?
- ---------------------------------------------------------
- ---------------------------------------------------------
- ---------------------------------------------------------
166
SPRINGS INDUSTRIES, INC.
CLASS B COMMON STOCK
The Springs board of directors recommends a vote "FOR" the proposed
recapitalization agreement, a vote "FOR" the proposed amendment to the articles
of incorporation, a vote "FOR" all nominees and a vote "FOR" the ratification of
independent auditors.
<Table>
1. AMENDMENT TO THE ARTICLES OF INCORPORATION
FOR [ ] AGAINST [ ] ABSTAIN [ ]
2. RECAPITALIZATION AGREEMENT
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. ELECTION OF DIRECTORS
John F. Akers, Crandall C. Bowles, John L. Clendenin, Leroy S.
Close, Charles W. Coker, William G. Kelley, John H. McArthur, Aldo
Papone, Robin B. Smith, Sherwood H. Smith, Jr., and Stewart Turley
NOTE: If you do not wish your shares voted "FOR" a particular
nominee, mark the "FOR ALL EXCEPT" box and strike a line through
that nominee's name. Your shares will be voted for the remaining
nominees.
FOR [ ] WITHHOLD [ ] FOR ALL EXCEPT [ ]
4. RATIFICATION OF THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS
INDEPENDENT AUDITORS
FOR [ ] AGAINST [ ] ABSTAIN [ ]
</Table>
<Table>
Mark box at right if comments or address change has been [ ]
noted on the reverse side of this card.
</Table>
Please be sure to sign and date this
Proxy.
Date:
---------------------------------------
---------------------------------------
Shareholder sign here
---------------------------------------
Co-owner sign here
Sign exactly as your name or names
appear. When signing in a
representative capacity, give title
such as Trustee, Executor or President.
- --------------------------------------------------------------------------------
DETACH CARD
SPRINGS INDUSTRIES, INC.
Dear Shareholder:
Please take note of the important information enclosed with this Proxy Ballot
regarding our Annual Meeting of Shareholders. Your vote counts, and you are
encouraged to exercise your right to vote your shares. Please mark the boxes on
the proxy card to indicate how your shares are to be voted. Then sign the card,
detach it and return your proxy vote in the enclosed postage paid envelope.
Your vote must be received prior to the Annual Meeting of Shareholders,
September 5, 2001.
Thank you in advance for your prompt consideration of these matters.
Sincerely yours,
/s/ Crandall Bowles
Chairman and Chief Executive Officer
167
CLASS B COMMON CLASS B COMMON
SPRINGS INDUSTRIES, INC.
205 NORTH WHITE STREET
FORT MILL, SC 29715
SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF SHAREHOLDERS ON SEPTEMBER 5, 2001
The undersigned hereby appoints as Proxies Crandall C. Bowles and Charles W.
Coker, with the power of substitution to each, and hereby authorizes each to
represent and to vote all shares of Class B common stock of Springs Industries,
Inc. held of record by the undersigned as of the close of business on June 27,
2001, at the Annual Meeting of Shareholders to be held on September 5, 2001, and
any adjournments thereof, subject to any directions indicated on the reverse
side of this card. IF NO DIRECTIONS ARE GIVEN, THE PROXIES WILL VOTE FOR THE
PROPOSALS LISTED ON THE REVERSE SIDE AND AT THEIR DISCRETION WITH RESPECT TO ANY
OTHER MATTER THAT MAY COME BEFORE THE MEETING.
PLEASE MARK, DATE, SIGN, AND RETURN THIS PROXY CARD PROMPTLY, USING THE ENCLOSED
ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES OF AMERICA.
HAS YOUR ADDRESS CHANGED?
- ---------------------------------------------------------
- ---------------------------------------------------------
- ---------------------------------------------------------
DO YOU HAVE ANY COMMENTS?
- ---------------------------------------------------------
- ---------------------------------------------------------
- ---------------------------------------------------------